E-commerce fulfillment is hail as a new wave because of its ability to offer an infinite variety of products at lower prices conveniently and efficiently to the customers. In which acknowledged as superior to the brick-and-mortar business model. With giants like Amazon embracing it (e.g., fulfillment by Amazon: FBA), it has been gaining momentum to the extent that some believe that it would make the traditional business models extinct. Nonetheless, fulfillment in E-commerce is not without challenges, and one of them relates to wastes. This article deals with it and proposes ways and means to reduce the wastes.
Efficiency is the watchword when to come to managing any operations. It is necessary to maintain a good flow of the products within easy reach for which robust systems are in need. What are such systems?
For a vast majority of Ecommerce operations, the cost of inventory happens to be the single most significant component, leading to financial hardships and woes. It is so because there are additional components of value, which can eat away your profits. Here are some of them which can miss your attention:
- Inventory finance
- opportunity costs
- Insurance and taxes, (mostly indirect)
- Warehouse overheads
- Inventory damages, obsolesces
Inventory always carries a price, in terms of interest, notional, if you are funding from internal resources or the actual you pay on the credit you avail. If the product you manufacture does not find a market, this can assume substantial negative proposition that may at times eliminate not just your profits but capital as well.
It is not a cost shown in the balance sheet for which reason it may miss your attention. It is the tradeoff which you should consider when you are putting your money into something. You need to ask yourself how, what else, and wherein the funds could be deployed and evaluate the pros and cons before actually using it into the activity, which you consider is the best.
Insurance and taxes are the variable costs, and when the unsold inventory is lying in your warehouse, these costs have a bearing on your working capital. For instance, any customs duties you have paid is an indirect tax. It adds to the value of your product. When the premium for the insurance has settled, you have to consider the landed cost (cost of goods + the duties it has suffered), which will increase the insurance premium component, which you have to avoid.
Warehouse overheads are in the form of rent, utilities, and staff. You should be aware of many fulfillment companies, for instance, Amazon, hike their charges when the inventory stored in their warehouses for a more extended period.
Capturing the damage and obsolescence costs could be challenging, but they can found if you take them into account in the fiscal year, they had occurred. It would be all the better if you did so in the month when it incurred.
Some of the other wastes that could be eliminated and reduce are:
- The waiting period in manufacturing
It is something that focuses on efficiencies. It can do through evaluating the time you and your team need to wait before completing the next activity. For instance, it is necessary to streamline the time a picker is waiting for the orders to print or to pull off a location. The waiting period to use the equipment on which some other employees are working.
- Processing wastes
It refers to the unnecessary steps that are not needed. Instance, if a warehouse gets only a single stock-keeping unit (SKU) inventory in cartons, there is no need for it to sort or separate multiple SKUs. Here reducing the steps would help in not only help in reducing wastes but also would improve efficiency through accuracy.
- Deployment of Human Resources
People are the critical resources in an Ecommerce fulfillment trajectory. They need to be appropriately deployed to create a robust system. It means we need to examine whether the way they implemented is causing inefficiency due to the lowering of productivity. For instance, if the packer in your warehouse is engaged in multitasking, it is bound to cause inefficiency and wastage of time, energy, and resources. Bouncing around deferent tasks would exhaust their abilities to complete any one of them entirely. It would cause physical strain and wastage of your scarce resources, which you have invested in the human resources.
It is imperative to detach the roles, which is roughly equivalent to the older system of ‘scientific management’ that talks of the division of labor. Thus, the picker should concentrate on picking, the packer packs, and those who process the paperwork would have to do that only. While your staff can fit between the roles, but that should not result in deviating from the principle of scientific management as the characters are ‘ring-fenced.’
The key takeaways of this article are:
The lean concepts are focusing on the ‘Muda.’ Though not directly apply here, yet conceptually relevant in reducing the wastes in E-commerce fulfillment. Ecommerce is here to stay. And the businesses must adjust to this new reality if they have to survive and sustain. Designing and implementing appropriate inventory management processes. Enhancement of supply chain reliability, form part of creating a robust system that would go towards reducing wastes and improving E-commerce fulfillment. When the overall efficiency of your E-commerce fulfillment improves, it would add value to your businesses and increase revenues and profitability.
Keywords: COST, INVENTORY, FULFILLMENT, WAREHOUSE, REDUCE, RESOURCE, reduce waste, INSURANCE, ROBUST, E-commerce fulfillment