24 Sep Operational Strategies to Remain Competitive
As you conduct strategic planning for fulfillment, what are the operational strategies you should consider to remain competitive and be efficient in the future? To consider this topic, we looked at trends that are shaping the operations in multichannel companies. Here is our list:
Continual Development of New Product/Service Offerings
Trend: The single most important thing every company must do to remain competitive is to develop new products and services. We believe it applies just as much to IT, inventory control and operations as it does to merchandising. Here is an example. Multichannel companies selling their products in a new channel such as wholesale to big-box retailers know that meeting their vendor compliance standards is extremely difficult.
Strategic Direction: Recognize that other channels and customers may have order profiles and requirements that are radically different from your primary channel. We cannot just sell product through different channels without flexibility in systems and operations. These internal processes may radically change our internal procedures and systems.
Optimize the Supply Chain
Trend: Over the past 20+ years, product sourcing has relied heavily on overseas resources for manufacturing. Rather than viewing operations as just as warehousing, look at improving the inbound and outbound supply chain to gain advantages, cost savings, etc.
- Push value-added services (e.g. ticketing, packaging, etc.) and quality inspection up the supply chain. This should reduce costs and minimize rework and delays in getting products to customers.
- Establishing and enforcing vendor compliance policies.
- Gain visibility into inbound shipments through EDI or ASN.
- Establishing vendor portals to exchange information about purchase orders, deliveries, invoices, etc.
- Over the last 10 years, outbound shipping costs have exceeded the total of all other costs (including management, labor, occupancy and packing). This will require continual renegotiation with carriers and strategic changes in how to position inventory closer to customers.
- Address how time-to-customer and shipping costs can be decreased by multi-DC strategies; zone skipping; last mile delivery options and potentially third-party fulfillment to get packages to customers faster.
Increased Labor Cost, Decreased Availability
Trend: Labor represents 50% to 70% of the cost of a processed order excluding outbound shipping and employee benefits. During the recession, qualified labor was available in most areas. Since the economy has improved, labor quality and availability in many areas has diminished. For example, in our home town of Richmond VA, the unemployment rate is 3.75%, and just 4% for the state. Wage rates are also on the rise. The federal minimum wage may become $15 an hour. In some companies and regions, it’s already approaching that with a 15% to 25% benefit rate.
- To increase productivity, develop reporting by person and department. Increase feedback to employees so they can understand your goals.
- Develop career path planning with employees to reduce turnover and costs of hiring new employees.
- Consider implementing an incentive system to increase output.
Bridging the Manager Talent Gap
Trend: Over the past 15 years or more, as we assist clients in recruiting new managers, we continually find there are a limited number of experienced multichannel managers for operations, inventory, IT, etc.
Strategic direction: Develop your current managers and retain them. Work out what each one needs to become effective and find local and online educational resources. Develop internal company-based topics in areas like inventory, accounting, productivity, and employee management.
Trend: Historically inventory has been the largest balance sheet asset in most companies. Shipping from multiple warehouses and stores requires significant increases in inventory levels to service multichannel customers while reducing backorders and overstocks.
Strategic direction: For omnichannel retailers to make money, they must be able to fulfill ecommerce and store orders efficiently just as direct businesses do. This means more efficient use of labor, customer-facing inventory systems and cost-effective outbound shipping.
Cloud and Subscription Software Models
Trend: Companies have been slow to replace OMS, ERP and WMS systems because of the investment required. Cloud and subscription-based systems provide the opportunity to change without the investment in on-premise software.
Strategic direction: Consider how cloud-based systems can increase your flexibility and fit into your overall plans to improve productivity, track DC inventory and manage labor more effectively. They also allow you to eliminate IT operations responsibilities and monthly costs are based on usage. This gives companies far more opportunities to replace systems.
Finally, Adopt Continuous Process Improvement
Trend: For more than 10 years, getting more productivity and cost savings has been the mantra of the multichannel industry. Many companies are running so lean they cannot adopt good ideas they are presented with. Like butterflies we flit from one good idea or concept to another.
Strategic direction: Most companies know the importance of continuous improvement objectives and teams. Continually review and set objectives for system improvement, capacity increases, application of material handling, improved work flow and cost reduction.
In summary, we feel that if you concentrate on these 7 strategies your operations will remain competitive and be efficient now and in the future.