The Challenge of Profitable Shipping in an OmniChannel World

The need to provide online customers with transparency to shipping costs is well known. According to KISSmetrics, unexpected shipping costs account for nearly one-third of all abandoned shopping carts. And the importance of providing online shoppers a variety of service levels is also understood –  the 2015 Pitney Bowes Annual Shipping Survey found, 93% of consumers indicated shipping options to be an important factor in their overall shopping experience – a 23% increase over 2014.

Speed, efficiency, and transparency are the new normal. Retailers know that what was an acceptable three or four-day delivery window a few years ago has now been reduced to two days or less.  And same day and time-definite offerings are becoming the expected options. However, what retailers don’t know is whether or not this is profitable business.

ARC Advisory Group research on omnichannel fulfillment shows that retailers’ focus is shifting from simply obtaining the sale to actually improving margins.   Many retailers are realizing that improving shipping operations and obtaining transparency to the costs are a critical part of their omnichannel strategy. To do this, retailers need a better strategy on how to get an order into their customer’s hands better, faster and more efficiently – and to know the cost of doing so. Here are some critical elements to meeting this challenge:

Visibility and Transparency:
Start with accurate visibility of all inventory regardless of where it is, even in transit. In short, all systems including ecommerce platforms, point of sale, order management, warehouse management, inventory management, transportation management and customer relationship management systems need to be aligned around the consumer – not just the network.

Retailers must become more transparent with how shipping costs are allocated for specific services. This includes all accessorial fees, dimensional weight and specialty handling charges.  While analysts will say free shipping drives sales, retailers cannot surprise customers when shipping is the final decision point in a purchase.

Carrier Enablement:
The days of retailers negotiating rates with a single carrier is over. The promise of omnichannel fulfillment is about meeting delivery commitment based on consumer preference.  This means retailers need to embrace a wide-array of new carriers and services including national, regional, local and specialty carriers.

Leveraging new carriers is just the first part of the equation. To manage costs and lower transportation spend, carrier rate and service selection must be tightly integrated into all appropriate systems, including point of sale, order management and transportation management solutions. Further retailers must adopt best practices including incorporating business intelligence into systems to automatically select the level of service based on explicit business rules, competitive shopping for the best rate amongst multiple carriers – international, national, regional and even local couriers, as well as intelligent sourcing to select the best point of origin.

Shipping Locations:
As ship-from-store and buy online and pickup in store gain more prominence, it’s important for retailers to embrace it as tactic in an overall omnichannel strategy and not a panacea for omnichannel itself. While these tactics can reduce transportation costs, it is only effective if the retailer has full visibility to inventory and can effectively meet demand.

It’s important to point out that in a ship-from-store model, all stores have to participate. A hub and spoke methodology can be used to optimize best location/service/cost to ship a package.  Conversely, pure-play ecommerce retailers who rely entirely on warehouse or distribution centers must employ many of the same principles around visibility, transparency and carrier enablement to meet their connected consumers’ expectations domestically and globally.

Technology:
In many ways, omnichannel is a paradox for retail. From the consumer’s viewpoint, retailers have to reduce complexity over different channels.  To do this, retailers are required to embrace more complex business and operational processes.  Omnichannel success cannot rely on old technology to bring the consumer experience into the 21^st Century.  Technology around omnichannel fulfillment is not one pervasive solution, but potentially a number of different technologies, each conducting discreet operations along the buyer’s journey – such as managing sales, inventories, orders, warehouses or carriers.  New deployment and economic models around SaaS and cloud computing are reshaping the industry.  Regardless, technology needs to be tightly integrated to provide proper visibility and control – which is the cornerstone of a seamless experience and omnichannel success.

In many ways, the rules of omnichannel are still being written so many retailers are still struggling with a strategy. The last few years have been about the consumer and understanding their changing desires and how they want to interact across any number of channels.  Going forward, retailers are going to look at infrastructure and technology needed to move shipments as effectively as possible.  In today’s world, shipping is an extension of a company’s brand.  The true goal for omnichannel success is to decrease costs for the retailer, while continuing to over deliver on promises to the customer.

John Kruzan is Sr. Director, Shipping Solutions, with Pitney Bowes Global Ecommerce.  Prior to joining Pitney Bowes in 2011, Mr. Kruzan held management positions with Airborne Express, DHL Express and several logistics technology companies, specializing in business development, marketing and strategy.