Reducing eCommerce Costs By Optimizing Your Supply Chain

Posted by Pixafy Team

Your supply chain is critical to the success of your business, online or offline. For eCommerce, optimizing your supply chain can be one of the most significant ways to streamline operations and cut costs in six specific areas:

Controlling inventory costs

Your total inventory cost (TIC) has three components: ordering costs, shortage costs, and carrying costs.

Ordering costs are usually fixed costs, primarily landed costs — which include the original price of your inventory — the fees for transporting it to your store, warehouse, or distribution center, taxes and insurance, and any other fees such as customs and import duties. You can cut landed costs by switching from an overseas to a local supplier, or from one across the country to one in your own state.

Shortage costs can skyrocket due to ineffective inventory management, necessitating frequent rush orders and the accompanying fees and shipping costs. These costs can be reduced with inventory forecasting to determine economic order quantities and ideal reorder points.

Carrying costs include capital costs, non-capital costs and inventory risk costs. Dead stock can take up valuable warehouse space, until the cost of holding it meets or exceeds the profit it could have given you. You can reduce these costs by changing your inventory management techniques, finding a lower cost storage solution, clearing dead stock through product bundling, or donating dead stock to a qualified charity and writing it off.

Choosing the right inventory valuation method

Inventory valuation assigns a value to all the items in your inventory, and can be completed using one of two inventory tracking methods: perpetual or periodic.

Periodic valuation tracks sales in real time, but doesn’t officially recount inventory until the next scheduled periodic stock-take. Perpetual valuation updates inventory in real time, so your stock counts always reflect actuality, and is typically better for eCommerce.

Your inventory valuation should be discussed with your company accountant to determine which will present your company in a better financial light. Improving your company’s position on paper lets you leverage buying better options and further optimize your supply chain.

Implementing quality control

Are you finding damaged products when it comes time for fulfillment, or worse, are your customers receiving previously damaged products? Quality issues can cause significant shipping delays, dissatisfied customers, and loss of revenues. Choosing the right supplier and doing internal QC checks on a regular basis can help prevent the added costs of returning defective products to the seller.

Expanding sales channels

If you are a physical shop or chain of shops, moving into the eCommerce space can significantly widen your consumer base. So can explore wholesale options if you started as a direct to consumer company, or expanding into B2C from a strong B2B position. Scaling your operations can help you leverage lower costs across the board, from order size to logistics.

Improving warehousing

As mentioned, inventory storage costs can quickly spiral if you aren’t moving stock fast enough. With a lot of moving parts, you might be better off renting space in a larger facility where you can scale your space needs up and down depending on your sales volume. This can be particularly helpful for companies with seasonal spikes.

Enhancing fulfillment logistics

Your pick, pack and ship methods can also significantly affect operational costs, particularly from a labor perspective. Optimizing fulfillment center layout and automating certain processes can help reduce these costs and provide a better work environment for your employees. You might even consider using a third party logistics (3PL) company and step back from fulfillment altogether.

Finally, your front- and back-end need to be in perfect harmony across all areas of your business to be able to fully optimize your supply chain. Pixafy’s eCommerce solutions can help you integrate inventory, customer information, payment options, and shipment tracking for full visibility into the product journey from acquisition to final delivery. Contact us for more information today.