How Order Simulation Plugs Net Income Leaks

Order simulation is a new tool to boost ecommerce margins by cutting fulfillment opportunity costs

Woulda. Shoulda. Coulda.

It’s the refrain of lost opportunities – paths we would have chosen if we only knew then what we know today.

In business, we take a slightly more real-time approach called “opportunity cost”. When we make a decision, we sometimes lose the potential benefits from choosing another path. The financial impact of deciding to take  one direction over another possibility is the opportunity cost.

What does this have to do with ecommerce fulfillment?

Decisions are made – often by rote – in fulfilling every ecommerce order.  Too often, orders are fulfilled from wherever inventory is available. Orders are packaged for shipment with whatever carton is in stock or close at hand. The order is shipped with whatever carrier option is convenient, which may not be the lowest cost option.

These decisions, made order after order, add up. Soon, with a high volume, multi-fulfillment location business they can result in thousands of dollars of lost net income. That’s an opportunity cost: we make decisions to fill orders based on the usual way…not the ideal way that meets customer expectations and doesn’t leave net income on the table.

Why? Because until now, there hasn’t been a way to collect, automate and analyze the opportunity cost of how ecommerce orders are fulfilled versus how ecommerce orders should be fulfilled.

Only Ideal Order Insights works with your existing order management systems to uncover hidden profits through simulation

The answer to understanding ecommerce fulfillment opportunity cost lies in simulation. By “simulation”, we’re not talking some futuristic meta universe virtual reality. We’re talking simple math: understand what it actually cost to ship an order and then understand what it should have cost to ship the order if all factors like inventory availability had been ideal.  The difference may be zero – your fulfillment operations were firing on all cylinders for that order. Or, as our customers have seen, the difference may be pennies up though tens of dollars per order – adding up to thousands of dollars per month of lost net income.

Here's an example. Let’s imagine a customer living in Florida orders a product from a seller who has fulfillment locations in Atlanta (400 miles from Florida) and Salt Lake City (2300 miles from Florida). The seller happens to only have inventory for that order in Salt Lake City and not Atlanta, and as a result the seller fulfills the order from Salt Lake City, then ends up having pay more to ship the order the additional 1900 miles. And, if the customer ordered for two-day delivery, the seller may have to pay for air transport to expedite the order.

The extra shipping cost is the fulfillment opportunity cost of not having inventory in the right place. What’s worse, most inventory forecasting and replenishment systems are based on where orders actually shipped from – not where they should have shipped from if inventory had been available. So our seller will blithely continue to stock inventory in the wrong location and pay additional shipping to cover future demand.

It doesn’t have to be this way.

Ideal Order Insights (IOI) is an ecommerce analytical tool that automates understanding fulfillment opportunity cost.  IOI measures every ecommerce order against nine fulfillment metrics to produce an Ideal Order score. But then IOI also runs a simulation to determine what would have happened if every factor had been ideal and the cost difference for each factor. Adding up the results and analyzing by SKU, location, functional area, carrier and other factors reveal exactly where lost fulfillment opportunity cost is causing net income to leak from your ecommerce operations.

Only Ideal Order Insights works with your existing IMS, OMS, WMS and other systems to uncover hidden profits through simulation.

That means you’ll be able to pinpoint the optimal inventory location and stocking quantity by SKU to meet demand. Plus IOI examines other costs like carton usage and carrier costs so you can spot additional areas for improving net income. Your lost opportunity costs – your woulda, shoulda,  couldas – are a thing of the past.

Learn more about Ideal Order Insights here.

Additional resources


The Ultimate Ecommerce Fulfillment Metric? Finally, one KPI to rule them all

Five Steps Proven to Boost Ecommerce Net Income: How to stop net income “leaks” from your fulfillment operations

Perfect Order vs Ideal Order: Why "Perfect Order" falls short as a fulfillment KPI

Introducing Ideal Order Insights: New Shopify tool manages inventory to maximize profit on current and future orders


Ideal Order Insights Solutions Overview

The Ultimate Guide to Order Management


Ideal Order [Infographic]: The new standard for order and inventory management

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