As your retail business grows, so do your operational complexities.
Additional SKUs, increased demand for your products and higher customer expectations all mean your operations are not as straight forward as they used to be. Naturally, these factors lead to increased pressure on your internal resources.
Every growing business experiences a period where it struggles to keep up with demand while increasing its growth rate.
Picture your business as a cup. Filling it with a kettle is the sensible course of action when it’s at that size. But what about when that cup grows into a paddling pool? Would you keep on trying to fill it with a kettle because you invested in that kettle two years ago? That’s what juggling additional products, new customers and increasing sales with the operations and resources of a startup feels like.
When your operations start being inefficient, you’re undergoing the most critical stage of your expansion. At this point, most businesses are faced with three options:
- Invest in internal expansion
- Outsource operations to a third-party logistics provider
- Keep at it with the kettle
Each has its pros and cos. Continuing with your existing infrastructure requires no further investment, but it comes at a huge cost. Poor operations eventually lead to unhappy, non-returning customers, which eventually lead to closing down. With keeping operations in-house, you can retain complete control over your distribution process. However, a fulfilment partner will have access to logistics systems that can add value to your operations and customer service. A 3PL provider’s technology will give you live information and stock-movement insights that would otherwise be too expensive to obtain. Whichever option you end up choosing, you need to ensure you have a strategy in place to carry it out successfully in the long term.
Avoid the ASOS conundrum
Ecommerce giant, ASOS, recently announced its second profit warning in a row, after sales dropped by 20%. The culprit? “Operational challenges.” ASOS CEO, Nick Beighton said in a recent statement:
Whilst we are making good progress in improving customer engagement, our recent performance in the EU and US was held back by operational issues associated with our […] warehouse programmes. Embedding the change from the major overhaul infrastructure and technology in our US and European warehouses has taken longer than anticipated, impacting our stock availability, sales and cost base in these regions.
In actual fact, the increased number of orders (and returns and incoming stock) made ASOS’s in-house warehouse management system malfunction. These glitches in the automated storage system are estimated to have shaved between $25-$31 million off the retailer’s bottom line.
ASOS’s warehouse management system has been too slow to keep up with the volumes and frequency of incoming stock. The system can’t sort inventory fast enough, resulting in products piling up in an unsorted backlog. Another glitch caused items to be removed from orders despite still being in stock.
This is a great example of what not to do when you’re expanding. Even with the funds and resources of a retail giant, ASOS failed to secure operations and technology that can keep up with their growth.
In a recent study carried out by Dimensions, 87% of our ecommerce clients found our technology gave them clearer insights into their operations than when they were carrying out their fulfilment in-house. In the same study, 92% of start-ups agreed that Dimensions freed up valuable time and headspace, helping them concentrate more on growing the business.
Is your product and team a fit for in-house?
Start by considering your product specifications – namely the package. Does your product require minimal packaging and protection or does it demand a more complex and bespoke packing procedure?
You should also factor in your employees’ skill levels (including accuracy and speed). Do they have the specialised knowledge necessary to develop more efficient processes? Is your COO ready to manage a lean initiative?
If so, you may be able to launch a warehouse expansion without neglecting your day-to-day tasks. If you have a smaller team or your executive team lacks the necessary experience, a third party logistics (3PL) provider, like Dimensions, will be a better option for you.
Do you have the right technology in place?
Your warehouse management software plays a key role in keeping fulfilment in house, successfully. This is particularly the case as demand for your product grows.
Manual record-keeping for picking, packing and shipping may be sustainable for young businesses. However, the complexities of high-volume shipping require most online companies to either adopt advanced warehouse management technology or outsource to a 3PL.
Do the benefits outweigh the costs?
If you’ve been carrying out your operations in-house for a while, it’s easy to think that in-house is cheaper than outsourcing. And you are, indeed, better off in-house if you’ve invested a lot in labour, equipment and consulting for setting up your internal operations. But in-house operations are not touch and go. Organic growth, erratic consumer expectations and evolving technology mean you need continuous investment to keep your in-house operations running efficiently.
Your growth rate also plays a key role in determining you operational costs and budget. If you’re a startup, growth will require additional equipment, labour, more storage and fulfilment space and higher utility bills. This is why most businesses focused on growing choose to outsource their operations to a fulfilment partner that has the facilities, technology, resources and experience required to get their logistics right the first time, and every time after that.
The Bottom Line
Don’t fall into the trap of ignoring your logistics over growing your brand awareness and customer base. One should always keep up with the other. You might get away with poorly structured operations when you have a low volume of orders, but when your marketing effort start paying off, you will struggle. And operational difficulties will reach your end customers and eventually affect your bottom line. Not having the right infrastructure for your warehousing operations from the very start is recipe for trouble. So, whether you choose to upgrade your internal fulfilment capacity or outsource to a specialist, make sure your operations strategy is robust and budget for continuous improvement.