The holiday season is here – and that means peak season in the world of fulfillment. That’s why Ryder E-commerce by Whiplash is bringing you our in-depth holiday fulfillment guide to ensure that brands stay on track during this busy and stressful time of year. This will cover:
Holiday fulfillment is being able to plan and execute a streamlined order fulfillment process during the holiday season, the time of the year with the biggest revenue potential for e-commerce brands. In the 2021 holiday season, retail sales grew 14.1 percent over 2020 to $886.7 billion, topping previous records.
As order volumes rise, businesses need to be able to manage this increase in orders while keeping costs under control and ensuring a positive customer experience. This is where partnering with a 3PL is one of the best solutions to ensure a profitable holiday season – and most importantly, happy customers that return to shop with you in the New Year and beyond.
So, what do brands need to think about to have the best holiday fulfillment season possible?
Holiday fulfillment involves not only a major scale-up in operations, but also an e-commerce brand’s running costs. As the holiday rush begins, this results in an increased volume of sales occurring within a very condensed timeframe. When paired with ongoing customer expectations for fast (and preferably free) shipping, this is a perfect recipe for a significant hike in fulfillment costs.
So, what do ecommerce brands need to think about to keep their holiday fulfillment costs under control?
Peak Season Surcharges refer to a temporary increase in shipping costs that parcel carriers apply to periods of higher operating costs. This can occur during any period of high demand but is most common during the fourth quarter, when events such as Black Friday and Cyber Monday create spikes in online sales and customer demand for home delivery.
Parcel carriers apply peak season surcharges because it’s necessary to take on higher running costs during the holiday season to keep pace with predicted order volume. This includes seasonal labor, automation, or additional facility space. In sum, seasonal surcharges allow carriers to maintain shipping time and meet customer expectations for fast delivery.
But for ecommerce sellers, peak season surcharges can add a lot of strain to holiday fulfillment operations. This escalation in shipping costs either has to be absorbed by merchants or passed onto online shoppers, which can impact customer loyalty.
Fortunately, there are some things you can do to offset the impact of peak season surcharges, including:
Check our blog for a complete list of 2022 peak season surcharges from UPS, FedEx, USPS, and Amazon.
If you’re partnering with an outsourced fulfillment provider, be aware that you could see a hike in fulfillment fees during peak season. For example, Amazon FBA has introduced a peak fulfillment surcharge for the first time in its history to cover higher seasonal operational costs, which is going to hit small ecommerce sellers the hardest. Make sure to keep an eye on your provider’s schedule to make sure your holiday fulfillment strategy can handle an increase in costs.
It’s very common for packaging costs to increase during the holiday season, thanks to more demand for gift-wrapping services or specialist packaging for gifts. Seasonal packaging services can be a value-added drawcard for consumers during the pandemic, due to the convenience of not having to gift-wrap products themselves and being able to ship them directly to the recipient.
However, it’s important to consider that more complex packaging may require a longer packing process, which could affect how long it takes for orders to be dispatched for shipping. If you’re planning to offer gift-wrapping services, make sure that your 3PL or in-house fulfillment operation can handle this extra step in the order fulfillment process.
Although we don’t always think about missed opportunities as a financial cost, they can add up over time to have a serious impact on your business. This time of the year can make or break your reputation as a trustworthy retailer, so your holiday fulfillment strategy must be able to handle the rigors of higher costs without this impacting the quality of the fulfillment process.
For example, slower shipping speeds for online holiday orders may save your business money, but there’s a higher risk of a late delivery time occurring. If this happens, there’s a high probability that customers won’t shop with your brand again. In fact, 54% of consumers say they would stop using a brand after just one negative experience. Offering free shipping helps to drive holiday shopping activity but could come at the cost of reducing your profit margins.
Finding the optimum mix between fulfillment costs and customer experience is a tricky balancing act during the holiday season, but it’s essential to achieve happy customers and compete effectively with retail giants.
Shipping ranks as one of the biggest costs for e-commerce brands during the holidays, as peak season surcharges and the desire for fast shipping push businesses into more expensive service levels. So, what can brands do to keep their holiday shipping costs under control?
All major carriers use shipping deadlines during the holiday season as a way to manage customer expectations and minimize the number of late deliveries that take place. Cut-off dates for holiday shipments will vary depending on the service level and final destination of packages, with economy shipping methods typically seeing the earliest cut-off dates for home delivery during the busy season.
It’s the responsibility of online sellers to ensure they let customers know about holiday shipping deadlines, so that don’t miss out on receiving parcels before Christmas. Moreover, ecommerce stores can use shipping cut-off dates to their advantage by incentivizing online shoppers to place orders earlier in exchange for free shipping or generous discounts. By doing this, you can avoid the worst of peak season surcharges that take effect in late November – early December.
Using multiple fulfillment centers as part of your holiday fulfillment strategy is one of the most effective ways to reduce shipping costs during the holiday shopping season. By allocating new orders to the fulfillment center closest to your end customer, you can shorten last-mile delivery and avoid costly, cross-country shipping that also takes longer to reach its final destination.
To make multi-node fulfillment as effective as possible, your inventory management needs to be on point. Pay close attention to which SKUs are most popular in each of your fulfillment center locations so you can avoid having to split shipments or send orders to facilities further away from your customer.
If you’re already using a free shipping threshold at your online store, you may want to re-calculate this for the holiday rush. Thanks to higher shipping and fulfillment rates, the threshold you currently have in place may no longer be enough to offset these higher seasonal costs. On the other hand, a higher volume of sales may allow you to maintain or even lower your shipping threshold for online orders to attract more holiday shoppers. It’s important to crunch the numbers and review sales data in the lead-up to the holiday season to determine what is the best course of action for your brand.
Dimensional weight is crucial to keeping shipping costs down at any time of the year, but especially during the busiest season. Because oversized packages tend not to fit within automated sortation systems, many parcel carriers levy steep additional handling fees on high DIM weight packages during the holiday season. To avoid this, brands will need to practice strict cartonization and may need to look at splitting up multi-item orders to keep packages as small as possible.
While sticking with just one parcel carrier for online sales can feel like the most straightforward approach, it means you will miss out on a lot of cost savings during the holiday season. Different carriers will charge different rates, depending on where they operate and the service levels they offer, so combining multiple carriers within your holiday shipping strategy gives you much more flexibility. Regional carriers in particular can be a great option for brands whose customer base is located within a more localized area, rather than nationwide.
Home delivery is the most expensive delivery option because it’s the least efficient process for parcel carriers to execute. This is worsened during the busy holiday season, when small parcel volumes surge and peak season surcharges kick in to cover higher costs.
This puts many retailers in a tricky position. Covering the cost of shipping means less revenue to reinvest in your business. Fortunately, O2O retail offerings such as Buy Online, Pick-Up In-Store and curbside pick-up offer customers the best of both worlds. Orders for store-based pick-up can be fulfilled and ready for customers in a much shorter timeframe than same-day delivery – and without the expensive shipping costs that need to be shouldered by either the brand or the shopper.
With growing numbers of consumers shopping online, increasing volumes of online orders are a boon to ecommerce brands. Yet managing higher demand with an in-house fulfillment operation is rarely cost-effective. Rising costs, combined with a lack of economy of scale, result in delays to order fulfillment and even lost sales thanks to slow delivery time or a lack of automation technology in your fulfillment center.
By opting for an external fulfillment partner to manage your fulfillment operations during the holiday season, you get access to wholesale rates by leveraging their vast shipping volumes for better deals with major and regional carriers. By keeping your shipping costs low, you can reinvest more into your operation and supply chain to achieve more streamlined holiday fulfillment – and year-round.
Managing returns during the holidays requires a very different approach to the rest of the year, with return rates skyrocketing as customers return unwanted gifts. 17.8% or $158 billion worth of merchandise sold during the 2021 holiday season ended up being returned, highlighting the clear financial drain that brands can experience without a solid holiday returns management strategy.
Holiday shopping behavior differs from the rest of the year in one key way; rather than buying something online to try at home, consumers are gifting these products to family or friends. This means that in most cases, shoppers are holding onto merchandise for a lot longer before it gets returned or exchanged.
This is going to be intensified this year with the number of shoppers choosing to shop early to avoid more inflationary price hikes. According to 4Over’s recent survey, 31% say they plan to start their holiday shopping in early November, while 23% plan to buy gifts as soon as possible.
So, if you don’t adjust return windows to accommodate holiday returns, you could be faced with a lot of angry customers who simply haven’t had the chance to return their gifts. If this is their first holiday season shopping with your brand, they’re unlikely to purchase from you in the future!
To avoid this, be sure to lengthen the standard 30-day return window for at least another month to give consumers time to receive the gift and decide what they want to do next.
The question of whether or not to pay for shipping as part of the returns process is tough at any time of the year, but especially during the holiday season. With many consumers forced to buy products untried or untested, they will expect brands to assist them by paying for all return costs.
But return rates are much higher during peak season. If they’re also paying for the outbound shipping, this will quickly erode the profits of small ecommerce sellers.
Instead, you can look at finding a middle ground. For example, if a product needs to be returned due to damage or human error i.e. picking the wrong size, then paying for return shipping is a nice gesture to show that their experience was not up to standard. Likewise, offering return shipping for exchanges only gives your customers pause to think about the wisdom of making a return, or whether to opt for a replacement item.
Traditionally, brands have wanted to keep an eagle eye over the entire returns process to identify fraud and even discourage customers from wanting to make returns. But micromanaging every aspect of a return has serious disadvantages for an online store, especially during the holiday season.
When return volumes increase, you’ll have to seriously scale up your customer service efforts to avoid processing delays that could affect your brand’s reputation. Moreover, having the returns workflow being directed by a tedious back-and-forth with representatives can result in missed opportunities to retain revenue.
A self-service returns workflow puts the journey in the hands of the customer by enabling them to direct the workflow themselves. Whether that means returning in-store or online, allowing shoppers to kick-start the process takes a lot of pressure off your customer service team.
By offering a straightforward returns process, customers are much more likely to shop with your brand after the holiday season: 96% of consumers would return to a retailer that offers an “easy” or “very easy” return policy!
Every time a human has to approve or make a decision to keep a return request moving is a missed opportunity to have this handled by the right software solution.
Returns automation enables brands to enforce their holiday returns policy, approve returns, and even suggest alternative items that customers can exchange for – all without needing the involvement of a live agent. Instead of needing prior authorization, shoppers can simply enter their order number in the online returns portal and select which items they would like to return, exchange, or ask for store credit.
Return software such as Loop, Returnly, and Happy Returns by PayPal all offer great automation solutions during the busiest season, allowing your customer service representatives to focus on more complex service requests.
With a sharp increase in orders and inventory flying in and out of your fulfillment centers, it can be a major challenge to keep track of your SKUs during the holidays. If you don’t know how much inventory you have, this can cause major issues, including stockouts, insufficient inventory to fulfill orders, and excess inventory. Maintain control of your inventory by keeping the following tips in mind:
With many consumers snapping up holiday gifts as soon as they see something suitable, Black Friday and Cyber Monday no longer mark the beginning of peak season the way they once did. This means you need to have your holiday inventory ready to go across sales channels to align with shopper preferences.
Plus, ordering seasonal inventory earlier gives you the advantage of locking in a favorable price, which you can then pass on to customers in the form of low prices and generous promotions. Talk to your suppliers about trends they are seeing in the marketplace, and where they are seeing the most engagement from consumers.
Forecasting for the holiday season is essential to know what your inventory levels should be to meet demand while avoiding excess inventory. By using detailed inventory forecasting, retailers can build a picture of what consumers are looking to buy this holiday season – and how much inventory they require.
In 2022, brands have never had a larger array of signals to rely on to assist with inventory forecasting. Sales data, product availability, supplier information, promotions data, social media, consumer trends, and even weather predictions can be used to accurately predict demand patterns in real-time.
When you have one source of inventory for multiple sales channels, it’s essential you can share information on inventory levels in real-time, rather than relying on manual data transfers that quickly become out of date. Otherwise, your fulfillment centers will be struggling to keep pace with sales activity across channels.
To achieve this, you need the right set of inventory management tools. Look for an OMS (Order Management Platform) and inventory management system that can integrate directly with your e-commerce platform to adjust inventory levels in real time in response to sales or returns.
With so many SKUs flying back and forth in the form of sales, returns, and exchanges during the holidays, it can be a major challenge for even the best inventory management software to keep track of.
If your inventory levels get out of whack, this could cause some SKUs to wrongly show up as out of stock when they aren’t, or items as available for sale online when there’s no stock left. This can cause of a lot of issues for your business and make it near impossible to understand how your sales are tracking. This is why brands should be doing more frequent manual inventory counts at this time of year to make sure that their systems are staying up to date.
Running out of a popular product is any retailer’s worst nightmare during the holidays – especially when a congested supply chain could make it very difficult to order more. The most important thing is to make sure that you have enough inventory to fulfill outstanding orders, or you may have to disappoint some customers by offering them a refund.
This is where real-time inventory management is vital during the busy holiday season to prevent your online store from selling inventory that isn’t available. If you can reorder a product from the supplier, you could consider allowing customers to place backorders. It’s also a good idea to set your reorder point higher than normal to give replenishment stock enough time to arrive.
While stockouts and missed sales opportunities are what many brands worry about the most, you shouldn’t forget about the possibility of excess inventory piling up. After all, not every SKU that you order for the holidays will end up being a winner. Even with the best inventory forecasting, some products simply don’t take off the way you expect. When this happens, you need to have a plan for how to prevent it from costing you valuable storage space in your fulfillment centers.
Strategies such as post-holiday flash sales, bundling, and even gift with purchase promotions are all great ways to repurpose excess inventory and prevent it from becoming dead stock.
While your 3PL might be entirely competent at coordinating order fulfillment during quieter parts of the year, managing peak season is another challenge altogether. As the holiday season draws closer, it’s important to sit down with your fulfillment partner and determine their readiness for managing your holiday fulfillment. Here are some questions to raise with your 3PL before the holidays begin:
Retail is a cyclical business where ecommerce sales spike in the lead-up to the holiday season. This means that any fulfillment partner needs to have the capacity to manage a sharp increase in order volumes at their fulfillment centers.
Your 3PL should be able to review sales data and holiday inventory statistics from previous years to determine how much labor is required to keep your orders moving. It’s a good idea to ask your team for a surge holiday fulfillment plan to see how they plan on managing big events such as Black Friday and Cyber Monday; these are top-end revenue days, so you can’t afford to see order processing or shipping go awry.
Most fulfillment providers will have preferred carrier partnerships that they use during the year, but it’s always if they expand their carrier selection during the holiday season, when peak season surcharges and handling costs push up shipping rates.
It’s important to be aware that the more shipping options your 3PL has available, the more flexibility you have during the busiest season. This is important because holiday shoppers could be a lot more dispersed across the country, or even internationally compared with your regular customers. If you can’t easily shop around for more competitive rates, you could end up with sky-high shipping costs during the holidays.
Space in fulfillment centers is a common issue for brands during the holiday season. With more inventory required to meet seasonal demand, ecommerce sellers need to begin accumulating stock well in advance of holiday events like Black Friday.
However, you need to ensure that your 3PL has the necessary space available to store holiday inventory ahead of the shopping season. Because space is at a premium at this time of year, your fulfillment partner may charge more for storage during this peak season – or struggle to offer you any additional space at all. This means you may require a change of storage strategy to optimize space or adjust your inventory planning to accommodate your provider’s storage availability.
Your regular inventory may not have any need for specialist packaging or kitting, but this could be very different during the holiday shopping season. Gift kits, subscription boxes, and bundles see a lot of demand during the holidays, so you may want to consider adding these to your holiday inventory selection.
However, you first need to make sure that your 3PL provider can manage order fulfillment for these SKUs. Kitting and custom packaging are considered value-added services because they aren’t normally included in standard fulfillment pricing, so this will likely come at an additional cost.
Service Level Agreements (SLAs) are signed with your 3PL partner at the beginning of the relationship to outline what your expectations are for the fulfillment services you’re paying for. This includes shrinkage allowance, time to ship, Perfect Order Rate, inventory accuracy shipping timeframes, and more. If your 3PL doesn’t meet these KPIs, they could be liable for financial penalties.
Sometimes, 3PLs have different service requirements in effect during peak season due to higher order volumes and pressure on parcel networks. Be sure to consult your SLA carefully to see what holiday fulfillment KPIs you can hold your partner to – and what is out of their control.
Hybrid fulfillment strategies have become increasingly common in e-commerce as brands aim to build market share and expand their sales channels. Amazon FBA has emerged as a straightforward option for e-commerce sellers who want to outsource fulfillment while still maintaining control over their selling inventory planning strategies. However, there are a few things that merchants need to consider if they plan on using FBA during the holiday season:
Like many 3PLs and parcel carriers, Amazon FBA is relying on seasonal surcharges for its services during the holiday season to cover higher operational costs. In effect from October 15th to January 14th, this equates to an average additional cost of $0.35 per item fulfilled using FBA. While this doesn’t sound like a lot, this additional cost will quickly add up. To prevent it from cutting into your profit margins, make sure that you factor this into what you’re charging customers for shipping.
Space is at a premium in Amazon fulfillment centers during the holiday period, so make sure that any SKUs that you’re paying to be stored there are going to perform strongly. Excess inventory will be extremely costly during Q4, so now is the time to begin culling SKUs that aren’t living up to their potential and replace them with more successful products that can be restocked easily.
Depending on your sales volumes, it may not be possible for your brand to obtain additional space, as Amazon will want to reserve this for sellers with the highest rates of inventory turnover.
As any seller knows, Amazon is a cut-throat platform where prices are concerned. There’s always another brand ready and willing to undercut its competitors, especially during the holidays. Amazon does offer an automated pricing tool that adjusts your pricing based on what your competitors are asking for to increase the odds of your product being featured. While this is useful to save time, make sure that you set the appropriate limits to avoid making a loss on sales.
Amazon adjusts its return policy during the holidays to accommodate longer return windows. In preparation for shoppers starting their gift-buying early in 2022, products purchased between October 7, 2022, and December 31, 2022, are returnable through to January 31, 2023.
Naturally, a generous holiday returns policy results in more returns for sellers to process. Since there is no ‘opt out’ when selling on the platform, brands using FBA need to make sure they have all their ducks in a row to manage returns effectively.
Amazon FBA has extremely precise requirements for packaging and labelling on products that it stores in its facilities, and this can be difficult for brands to keep up with in-house. Having inventory rejected for not meeting these requirements can be very costly during the holiday season, and result in unnecessary stockouts and missed sales. Having your 3PL partner manage your Amazon inventory is a good way to ensure that you stay on top of changing requirements.
When the holiday season concludes, it’s important to do a post-mortem to understand how successful your holiday fulfillment operation was and whether any recurring issues impacted productivity or accuracy. Over time, even minor problems can build up and result in thousands of dollars in lost profits. The following metrics will help you to measure how well your 3PL performed over the holidays:
Lead time refers to how long the end-to-end fulfillment process takes, from the time a customer places an order to when they receive the package. This metric enables brands to measure their 3PL’s overall supply chain process and how well they are managing operational pressure during the holiday season. The higher your lead time, the more likely it is that you aren’t meeting customers’ expectations.
The total cost of holiday fulfillment per order is important to help you understand where your 3PL may have missed out on cost savings during the holidays. When calculating fulfillment cost per order (CPO) you need to consider:
Fulfillment cost per order can be calculated like this:
Cost Per Order = total fulfillment cost/ total number of orders
Shrinkage occurs when inventory levels in your fulfillment center drop due to preventable reasons, such as breakage, human error when counting stock, or even theft. When units are lost or damaged, this means lost sales opportunities and investments in capital that cannot be recouped by the business. It’s not uncommon for shrinkage rates to increase during the holiday season, where less experienced seasonal staff and the rush to save time on dispatching orders can result in errors being made that lead to breakage.
An allowed rate of shrinkage should be covered within your SLA, so it’s important to review this after the holidays to make sure that your 3PL partner hasn’t exceeded this limit.
Calculate your shrinkage rate with the formula below:
Inventory Shrinkage Rate = (recorded inventory – actual inventory) / recorded inventory
The holidays present a great opportunity to bring in seasonal inventory that you cannot sell during the rest of the year (think holiday-themed gift kits, foodstuffs, and more). While these sorts of SKUs are incredibly popular in the lead-up to Christmas, sales will drop off sharply in the New Year. If you’ve overestimated demand and ordered too many units, this very quickly turns to dead stock with a limited chance of selling.
You can determine how much dead stock is in your possession by comparing the lifecycle of a product with the average amount of time they spend on hand. If dead stock proves to be a big issue for you, it’s important to review this with your 3PL and decide whether to embark on SKU rationalization.
Measuring the accuracy and speed of holiday fulfillment is important to understand whether your order fulfillment workflows are hitting the mark. One of the best ways to do this is by calculating your Perfect Order Rate (POR). This measures how your operation is performing on several key benchmarks:
Every time one of the above benchmarks isn’t met, this impacts your Perfect Order Rate. While it isn’t realistic to expect your 3PL to achieve a POR of 100% all of the time, keeping an eye on this metric allows you to pick up on where errors are taking place and how they can be remedied. For example, if orders are regularly getting damaged in transit, this is costing your brand a lot of revenue in replacement items and needs to be addressed.
You can calculate your POR by taking the total number of orders during the holiday period. If you received 2000 orders during the holiday season and 300 of these involved some kind of error, such as late delivery or damaged products:
300 / 2000 x 100 = 15% error rate
Time on Dock tracks how long it takes for inventory to reach its intended picking location, ready to ship to the end customer. This often suffers during the holiday season, when higher levels of inventory being received can result in more pallets sitting on the loading stock waiting to be processed. Any delay in inventory arriving on the warehouse shelves can result in backlogs to order fulfillment, especially for popular products that sell out almost as soon as they are restocked.
Not all returns are alike, so brands need to dive into this metric to determine what proportion of returns occurred during the holidays for preventable reasons, such as damaged products or being sent the wrong size or color. Errors like this by your 3PL are bad for your reputation and must be avoided at all costs. Likewise, you should also dive into what proportion of exchanges versus refunds. Exchanges mean retained revenue, while refunds equal revenue lost. Crunching base numbers allow you to get an accurate picture of how much returns have cost you during the holiday season.
With peak season now underway, this guide will be a helpful resource as order volumes rise and your fulfillment center goes into overdrive to keep pace with consumer demand. No matter whether it’s shipping, inventory management, cost analysis, or returns management, Ryder E-commerce by Whiplash has the expertise and resources to help you succeed this holiday season – and beyond.
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