Order Fulfillment Cost Can Be A Huge Margin Eater

Graph_1Order management has long been considered one of the core competencies for Omnichannel success. In today’s competitive retail environment, maintaining a core competency in distributed order management of online, catalog, call center and in-store orders is more important and tougher than ever. Due to pressures associated with rising digital and in-store velocity and variety of orders, the ability to manage costs, visibility and agility of orders enterprise-wide is a daunting task for retailers.

Data from EKN’s recent Omnichannel Order Management survey indicates that for every dollar that a customer spends on an order, retailers are spending an extraordinary 18 cents in total order lifecycle cost. 8 in 10 retailers reported an increase in the order management and fulfillment costs compared to last year, with an average year-on-year increase of 5.07%. This number is substantial and a drain on margins that are already slim in the case of many retailers.

Order costs are made up of varied direct and indirect labor, equipment, systems, handling and shipping costs. When calculating cost of goods sold, free shipping is usually a big cost burden, and in fact consumers’ expectation of free shipping is the leading or
der management-related business challenge for 4 in 10 retailers. Retailers across the board are in agreement that managing order management systems and fulfillment processes has become more multifaceted and complex.

On the business side, the need to improve order cycle time (45%), lack of visibility across order functions and processes (44%) and lack of alignment between inventory, order and supply chain operations (41%) are amongst major order management process-related issues retailers are struggling with today. These challenges can be partly attributed to the lack of defined/streamlined workflow for each order type, and partly to disparate order capture and fulfillment systems retailers operate. Not defining the workflow for each order type leads to inconsistencies in order processing and management across the entire order value chain.

Customer expectations are growing very fast driven by their experience across various digital and social shopping platforms. The What-I-Want-When-I-Want customer wants their orders now and they want choices as to how they’re fulfilled. This requires retailers to transform their order management and fulfillment processes from being channel-specific to an integrated /standardized business process. An integrated order management and fulfillment process not only reduces errors, it will also help retailers gain end-to-end order visibility that reduces order cycle time, provides timely inventory updates, improves sell through or available inventory to sell.

Download EKN’s recent Point of View to learn how increased cost per order is more than just a margin leak for retailers and understand what can be done to address the deficiencies in the current Omnichannel order management processes to increase order accuracy, margin per order and perfect orders.

Please do drop us a comment on this blog and other blogs. We value your comments and suggestions. In our forthcoming blogs on this topic, we will present some more solutions that can solve these problems. Follow us on Twitter @EKNResearch or @sahiranand.

1EKN Order Management Survey, 2014