The Fulfillment Threat: What Is Your Long-Term Strategy?

The Fulfillment Threat: What Is Your Long-Term Strategy?

Threat

When we think of managing logistics and fulfilment in mid-market manufacturing, we think about the challenges of coordinating shipping, managing the communication process (order status, customer follow up, etc.), maintaining dealer and distribution networks, and keeping the customer service process top notch.

We often measure the performance of the process through metrics including “on-time shipments”, “number of returns” and “orders processed per day”. The bigger challenge is that the business of fulfilment has changed, and this impacts manufacturing more than many companies realise.

Fulfilment is a big business — just take a look at Amazon.com. They don’t make products. They don’t own any products. They simply do fulfilment, and they do it amazingly well. They have miles of warehouse space and have shipping processes down to a science. Orders can be fulfilled and delivered often within 48 hours. This level of responsiveness and performance is the new standard. It provides businesses with a way to differentiate from others that fulfil their orders in 2-6 weeks or more.

The business of fulfilment is about responsiveness and consistency — who can get a product to the customer when they need it. Fast fulfilment lands more sales. Fast fulfilment commands a higher price point. Fast fulfilment builds brand loyalty. Yet most manufacturers aren’t in the business of fulfilment — it’s simply a “part of doing business”.

The big question: How will the advancement of the fulfilment business impact manufacturers, distributors and dealers?
The Fulfillment Threat will ultimately disrupt how manufacturers engage with customers today, both from an ordering perspective and a sales channel perspective.

There are 5 primary impacts of the Fulfillment Threat:

1) Customer service & tech support will be the new differentiator. Mid-market manufacturers won’t be able to provide a standard 2-week delivery timeframe on products that competitors can deliver within a day through a fulfilment services company. Companies that spend more of their resources on trying to maintain their “98% on-time shipping” will find customers seeking alternative fulfilment sources that can turnaround an order in minutes versus hours, and coming back to the company for real-time technical and warranty support. If you don’t have stellar customer service and support, coupled with old-school fulfilment processes, you’ll soon be out of business.

2) Online visibility and usability of fulfillment channels like Amazon.com will impact the value and viability of individual companies eCommerce sites. Users continually are seeking a simpler, easier, and smarter online experience – most manufactures will not have the capacity or ability to develop and maintain an online platform to compete with sites like Amazon, where many manufactured products are already sold. In addition, companies like Amazon have immense SEO, App presence and interconnectivity across multiple sites and channels. Manufacturers without a strong market presence and persistent awareness building efforts will struggle to gain visibility and users for their online platforms.

3) Dealer and distribution channels will have to examine more value-added services, including in-field support in remote locations to remain viable. Simply having the product on the shelf won’t be a key differentiator, if customers can order a product online and have it delivered in a day to their doorstep from a massive distribution center. Dealers and distributors are also competing with online sales channels, and being so far downstream in the pricing hierarchy, margins will become tighter and tighter, making profitability a struggle. Traditional dealer and distribution channels will need to focus on shifting their purpose from accessibility to service and technical acumen to survive as a viable business model.

4) Shipping costs are continually a challenge to control, and more customers are expecting shipping costs to be free or included in the price of the product. Full Truckloads and LTL withstanding, mid-market manufacturers can spend an inordinate amount of time trying to manage and coordinate small, individual shipments. Companies like Amazon have immense quantity leverage on pricing with UPS, FedEx, and USPS. Manufacturers, even with negotiation, will have a hard time competing on shipping rates in the long term. If these companies choose to absorb shipping costs, they will have a hard time being price competitive and potentially lose money in the long run.

5) Distribution centers and warehouses strategically located are costly to establish and maintain for those companies seeking to have products more readily available across key regions of the country – saying nothing for international sales. Professional fulfillment organizations already have these infrastructures in place, and have the capacity to scale quickly. Leveraging distribution centers like Amazon.com are fast becoming more cost effective across the board, leaving traditional satellite warehouse locations an expensive endeavor, lacking value-added services and revenue streams.

To compete effectively in a fulfillment-driven world, manufacturers will need to examine how they look at fulfilment from a strategic perspective. Is it a way to differentiate and create new value for customers? Or is it an expense that can be reduced through outsourcing? Is there a new way to approach fulfilment that maximises the best assets of your organisation and eliminating non-profitable activities?

What is your long-term fulfilment strategy?
If you haven’t examined this part of your business recently, you may be missing out on new revenue streams, and spending more than necessary on your fulfilment processes.

Andrea Olson’s 19-year, field-tested background provides unique, applicable approaches to creating leaner, more effective, technology-driven, customer-facing operations. A 4-time ADDY award-winner, she began her career at a tech start-up and led the strategic marketing efforts at two global industrial manufacturers. She currently is the CEO of Prag’madik — an operational strategy consultancy, specialising in the industrial and manufacturing markets.

 

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