Challenges for Ecommerce Brands and Third-Party Logistics
As we head into 2023, more and more analysts predict the potential for a recession, which could create challenges for ecommerce brands and third-party logistics (3PL) providers alike.
Where you focus as business changes during different points in an economic cycle, which means brands and 3PLs need to prepare for a potential downturn.
With a possible downturn on the horizon, here are three predictions on where the most successful companies will focus to get the most impact for their business and thrive in this changing market: shift focus to maximizing cash flow, build out flexible fulfillment networks, and double down on customer loyalty and retention.
Maximize Working Capital
According to a study by US Bank, 82% of businesses fail because of cash flow, so especially in a downturn, maximizing cash flow and working capital becomes even more important. With the most recent interest rate hike pushing the cost of debt capital to its highest rate in 15 years, most businesses seeking loans will pay 10%+ interest, an amount very hard to support many businesses.
Compound cost of financing with higher salaries, increased inflation, and potentially less consumer spending, brands, and 3PLs could be in for a tough year if they don’t manage cash flow tightly and have the plan to maximize working capital as soon as possible. To ensure the continued operation and success of the company, carefully manage working capital during this time.
- For brands. Ecommerce and omnichannel brands should review and optimize inventory. Excess inventory can tie up working capital, so keeping an eye on inventory levels and finding ways to reduce inventory levels or increase turns will help optimize working capital. Negotiate with your suppliers on both cost and payment terms to reduce any unnecessary costs. Watch cash flow closely to ensure you have enough working capital to meet your needs.
- For 3PLs. Take the time to review and optimize your operations, as carefully analyzing and optimizing programs can help improve working capital. Automate where possible and leverage your warehouse management system (WMS) to drive efficiency and reduce operational costs. Consider your customer billing practices and ensure you capture all billable charges and invoice correctly.
Flexible Fulfillment Networks
When starting an ecommerce business, experts recommend to budget 15 - 20% of net sales for shipping and logistics for your products. And with major residential carriers like UPS and FedEx increasing rates by 6.9% for 2023, that puts even more pressure on brands to consider their fulfillment strategy and the impact on both profitability and cash flow.
Getting as geographically close to the consumer as possible can provide lower shipping costs and a better experience. We predict that in 2023, top brands and 3PLs will focus on building the right fulfillment networks to optimize distance and time for shipping products to consumers.
- For brands. Analyze your current consumer geographic distribution, average shipping costs, and time to delivery. Overlay that information with your current in-house or 3PL partner warehouse locations. Then identify any regions where you can optimize shipping costs or time to delivery and find a 3PL partner who can help you stand up a more cost-effective location.
- For 3PLs. Your customers look to you to help them optimize shipping costs and consumer delivery experience. The best 3PLs will proactively look for opportunities for their customers to reduce shipping costs and improve delivery speed by making recommendations about optimal warehouse locations for geographic order distribution. What if you don’t have multiple locations? Leverage tools like Extensiv Network Manager to partner with other 3PLs to extend your reach and your profit. What if your customer doesn’t need another location? Consider becoming a part of a network to fill up any open space and capacity you might have in your warehouse today.
Keeping customers is easier than attracting new ones. In a tough competitive environment, it becomes even more important to drive loyalty and repeat purchases from your existing customer base. While 3PLs often have the benefit of annual or even multi-year contracts, ecommerce brands must work for every order from their repeat and return customers. In 2023, customer loyalty will determine the winning brands and 3PLs.
- For brands. Beyond offering excellent customer service and quality products, ecommerce brands should review their incentive and loyalty program strategies. Start from the consumer’s first order, where you can follow up, ask for feedback, and offer assistance to build trust. Look to incentives for repeat purchases like loyalty programs, discounts, or special offers to encourage customers to return. Consider how you can personalize the experience with tailored recommendations and also foster a community through social media.
- For 3PLs. The key to increasing customer retention is to focus on creating a positive customer experience and building strong relationships with customers. By continually striving to meet their needs and exceed their expectations, 3PLs can create loyal customers who are more likely to continue using their services. To build that positive customer experience, 3PLs should consider how to better automate their operations and how to use technology to make things more convenient for their customers. Focus on continuous improvement with processes, communications, and fulfillment strategies
Winning in 2023
In 2023, anything can happen, but we predict that 3PLs and brands that focus on maximizing working capital, building flexible fulfillment networks, and driving customer retention will emerge as the winners in their space.
To learn more about these strategies, contact Extensiv for a consultation.
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