Order Fulfillment: Keep It Simple And Beware of All of the Costs

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I used to deal with the fulfillment operations of a midsize online retail business. We embraced the"Why" method to fix and remove satisfaction errors and complexities. That is, every time a new fulfillment glitch arose, we asked ourselves,"Why?"

The "Why" method in practice

Here is the way we implemented the"Why" method:

  1. Write down why customers call you. Categorize motives and make a page-size chart.

  2. Request Why-Why-Why to identify underlying issues. By way of instance, if the product didn't arrive in time, ask"Why?" Perhaps, by way of instance, it was because the warehouse was supposed to ship FedEx Overnight but sent FedEx Ground. In that case, ask"Why?" Perhaps the warehouse sent everything by default using FedEx Ground and needs you to call for a change of service. Why? There's absolutely no API between your system and their system and you fax all of the orders.

  3. List inherent issues and assign cost to repair each of them.

  4. Eliminate unnecessary policies and services which make your life a misery and don't drive your profits.

My team and I've been through this cycle numbers of times. Most frequent things we removed were expedited shipping techniques, complex returns situations and free products with the purchase. Every one of these things can help increase customer conversion but cost you a fortune in satisfaction.

Simplicity means gains

Let us take expedited shipments for instance. If your internet business drop ships its products, the majority of the manufacturers won't expedite if you don't ask them in a very specific way and then carefully follow up on every order. Dealing with, say, 200 vendors, you will want to implement and maintain 200 solutions. This isn't simple. It's tough to scale and could be quite time consuming to perform.

Return policies can be another nightmare. It's all nice and easy once you work with five vendors and 100 products. In case you've got 100 vendors and 5,000 products, following up with all those vendors on restocking fees and return bills becomes very burdensome. Here are three suggestions I'd love to share to maintain your yields easy and trouble-free.

  1. Keep your policies easy. A sample policy:"No returns for custom-built products, for the rest of the goods 20% restocking fee plus 2-way actual shipping costs to be subtracted from your refund."

  2. Train your customer support to compute refund sums on the fly. Pre-calculate your situations and train your customer support people (or outsourced team) on when to offer you a discount, when to imply that a client throws the item away and when to arrange a return shipping.

    Let us have a $129 end table for instance. Say the wholesale price for the item is $50 and your shipping costs are $35 each way. Let's say, also, that the item is dropped-shipped and the producer has a 20% restocking fee. Should you accept a return for this table, the consumer refund can be calculated as:

    • Retail price $129
    • Shipping, both ways -$35 x 2 = -$70
    • Restocking fee -$50 x 20% = -$10
    • Client refund ($129 -- $70 -- $10) = $49

    The majority of the clients do not understand that their refund might be less then the price they paid. Often, just doing this calculation using a client is sufficient to save an arrangement. You could always add a sweetener and provide a $10 discount making your customer feel appreciated (and maintaining a hefty margin).

  3. Know your own costs to create the very best decisions. In this scenario, assume the $129 table has been damaged in transit. You may file a claim (together with your shipping company) for the bill amount and, depending on how good your claims process is, recover 20-40 percent of the retail price or $25 -- $50. Keeping in mind that you pay the vendor his $50 wholesale cost, you're at a loss. Here are your costs for this situation:

    • Wholesale price -$50
    • Shipping to the client -$35
    • Damage claim recovery $50
    • Complete -$35

    So, your best policy ought to be offering a discount to maintain the purchase. A simple way to calculate the maximum discount is:

    • Retail $129
    • Wholesale price --$50
    • Shipping to the consumer -$35
    • Refund amount ($129 -- $50 -- $35) = $44

    If you can't convince the client to maintain the table, ask that he send you the images showing damage and request him to scrap the item. This way you will nevertheless be entitled to recovering money from the carrier and save on return transport and storage.

    To help you make choice of return or garbage, think about this logic:

    • Liquidation value (10 percent of retail) $12.90
    • Return shipping cost -$35
    • Warehouse inspection cost -$10
    • Expected value ($12.90 -- $35 -- $10) = -$32.10

Conclusion

To achieve an effective order fulfillment process, ask yourself why errors happen. Then, apply simple rules to help lower your return costs and keep more clients happy.

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