New Tricks for Ecommerce Operations
One mark of an ecommerce company growing quickly is how fast it can get to a hundred million in sales. A lot of ecommerce companies leverage venture capital to fuel this growth, and sadly flame out when sales decline or VC money runs dry. To prevent such a demise, ecommerce businesses need to focus on operational efficiency and make sure every dollar spent offers a return that makes the effort worthwhile. Operational technology can drive that value, and how it’s used is changing in today’s more advanced ecommerce models.
Here are some areas to consider for optimizing how your backend ecommerce engine runs. Warning: none of these are the super sexy, high flying aspects of ecommerce, but they could save your organization from needing to raise more money, maintain a massive inventory, or hire an army to meet your growth aspirations.
Rethinking Fulfillment
Fulfillment may be the least breathtaking department that ecommerce businesses contend with, but it’s probably the most important. That’s because it scales linearly based on your growth. The industry standard says it typically costs about three to five dollars to get an order out the door. This includes the packaging, the human capital involved, the rent, the supervisors, etcetera. As the ecommerce industry matures, there are interesting ways that the business model has evolved, but there are few disruptors in fulfillment operations.
Technologies that aid in fulfillment (e.g. applying shipping labels, packing labels, sorting our packages) can automate numerous processes. They can even encourage reimagining what type of sales models are possible (e.g. subscription, drop ship, flash sales, pick and pack), and optimize their costs accordingly. Of course, that requires a nimble staff that can master all the varied conditions and a system that can flexibly handle varied supplier relationships.
Regardless of sales model, there are great resource and financial benefits from the capability to have products that enter the warehouse go out that same day.
Consider Inhouse or Outsourced Development
Build-versus-buy is a common fork in the road of all ecommerce companies. Of course, it all depends on where you are as an organization and what your goals are. Creating the entire technical operation is significant work up front, but if your goals are clear and you want to streamline as much as possible, it may be necessary to maintain information cohesion between a customer placing an order to paying a supplier for their product. In addition, if automation is going to be key, no “off the shelf” system can fulfill every requirement.
When a company gets bigger, you have to add more and more people to get things done. More people adds more communication, more layers of management, more inefficiency. Technology can help with efficiency improvements. When everything is done in house, the business has a lot of control and visibility into seeing how operations are running. You can see the different problems where processes are becoming repetitive, and where deficiencies lie.
That said, there are also elements that fall outside the core IT operations that, if you can procure and integrate them in a seamless way, they will enable you to get things done quicker than an inhouse solution. In particular, the easiest areas to integrate are at the tips of the operation (advertising, credit card processing, supplier payments, etc.).
Planning for Scale
Not all money spent is equal. Money spent on advertising, for example, can fluctuate based on seasonality and the imperatives to growth. But operational costs often hold steady. The machinery is there whether you use them or not.
Choosing technology to help run a business is a commitment. Once processes go into feeding that technology, it’s not easy to change. Concerns like scalability and performance need to be addressed to have any long-term view.
It may seem cold, but planning for scalability is also an opportunity to determine how many people you really need. For maximum scalability, minimize headcount as much as possible. If you have a single person doing a single task, that may be acceptable. But as the workload grows, you’re often required to add another person to do that same task. Many ecommerce businesses continue down that road and after a few years a lot of people are doing something very repetitive, very simple.
Don’t Forget Accounts Payable
Beyond the numbers, ecommerce relies heavily on supplier relations. The whole premise should be for suppliers to have an easy time working with you. These are the partners that provide you product that distinguishes your site, as well as give provide you means to a profit.
By solving the area suppliers care most about (getting paid), you can alleviate much of the hassle. For example, if your CFO or controller is spending his or her time keying in invoices and processing wire transfers to vendors around the world, that’s a recipe for mistakes and wasted time. However if you can automate steps in the process, preferably in a holistic manner, and reduce the “human factor,” efficiencies will jump almost overnight.
AP automation, including an integrated supplier payments capability, ensures that vendors get paid promptly, they’re motivated to actually submit their invoices, and take responsibility for providing their payment information. In exchange they gain full visibility into their payment status, which is often their top concern and point of inquiry.
