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Retailers, it’s 2022 and time to level up your ecommerce operations with distributed warehousing. Whether you believe that having distributed warehouses is not possible for your business or managing multiple suppliers for the same product is too time consuming, we are prepared to show you how strategic warehouse distribution is not only accessible, but the key to optimizing your processes.
Many general purpose software is built under the assumption that one product has one vendor. With Duoplane and other sophisticated solutions, you are able to fulfill orders for the same product to the lowest cost geographically distributed supplier.
Interested in learning how distributed warehouses can make your operations more efficient? Let’s dive in.
There are numerous reasons why growing online retailers choose to use redundant fulfillment partners. The most common reason is that distributed warehousing lowers shipping costs. Instead of sending someone in Maine a product all the way from Arizona, you can call upon your warehouse in New Hampshire to distribute the exact same product for a fraction of the cost and time. In turn, shorter shipping time enhances customer satisfaction.
Similarly, distributed warehouses allow you to take advantage of price competition among suppliers. Ensure you are factoring in both wholesale costs and shipping costs into your overall cost evaluation.
Cost aside, the distributed warehousing model provides a more reliable supply. Should something go wrong with one warehouse, you have others to fall back on. This applies to both dropship suppliers and 3PLs.
There are several variables that determine how an order should be routed. Let’s dive into the most common factors to consider:
The most important factor to consider when choosing a warehouse is availability. Which vendors actually have the products in stock? If your lowest cost provider has no stock, it is pertinent that you choose a higher cost warehouse to ensure your customer gets their product in a reasonable time frame.
Once you identify which redundant fulfillment partners have the item in stock, it is time to see who is the cheapest supplier.
Most of the time, retailers will want to minimize the number of purchase orders created by an order. This minimizes the number of shipments and, in turn, shipping costs.
Geographic distance is a very important factor to consider as it affects shipping costs. After all, why would you send someone in California a shipment all the way from New York if your warehouse in Arizona could fulfill the order? Typically businesses calculate the distance using the equation: cost / Km / Kg.
Another geographic factor is considered is whether a supplier services the area of the end consumer. For instance, a US-based warehouse may not ship outside the US. Alternatively, if a customer orders restricted goods, like alcohol or fireworks, there may be rules about crossing state lines.
This factor is particularly important for businesses that follow a local delivery model. For example, if you are a florist, you will want to route the order to the shop closest to your customer.
Supplier preference is a personal favoritism toward one supplier over another. This typically occurs because one supplier is more reliable or efficient than the other or you. Alternatively, you may prefer one supplier as an attempt to strengthen the relationship.
When choosing a vendor to fulfill your order, make sure to consider how long it takes them to ship an item. You can calculate their average shipping time based on historical performance. Even if the more efficient vendor is not the cheapest, you may benefit from choosing them, as faster ship times improve overall customer satisfaction.
Like any other fees, it is important to factor dropship fees into your overall cost. When retailers exclusively look at the item cost, they overlook many other accompanying fees.
While distributed warehouses are not very complicated to set up with the right system, there are some important rules of thumb to be aware of before getting started.
Importantly, there should only be one system making routing decisions. This is to prevent a double shipment or no shipment at all. For example, if Shopify is making routing decisions on top of your outside system, they may choose different vendors to fulfill the orders, causing a double shipment.
Additionally, it is crucial to keep processes as simple as possible. While there is always the temptation to make very specific rules and hyper-automize, automated rules can be hard to debug if they become too complicated.
Regarding vendor relationships, it is good to understand that by using redundant fulfillment partners, you risk the possibility of diluting your existing vendor relationships.
If you are currently managing inventory syncing manually, there is an added time cost in order to undertake distributed warehousing well. In order to find the best supplier to route your orders to, you will need real-time information about inventory and costs.
That being said, we believe that the most important thing to have when beginning a distributed warehouse strategy is the right system. Your system should be able to accurately reflect inventory and costs for each supplier.
Additionally, your system should be able to store vendor-specific product information, like unit costs and SKUs, as not all vendors have the same SKU numbers.
Most importantly, your chosen system needs to be able to add additional vendors to each product. Systems that charge a lot to integrate a new vendor should largely be avoided, as multiple vendor functionality is available on most sophisticated systems. Duoplane, for instance, allows users to add a secondary source for every product without the financial burden.
Overall, your system needs to be able to make intelligent routing decisions. This includes complex use-cases. For example, some retailers like to route orders to different warehouses depending on the day of the week to keep all vendor relationships consistent. Other retailers will make their decision strictly based on financial costs. Because there is no “one-size-fits-all” solution, your system needs to be able to handle a variety of scenarios and preferences.
If you’re interested in learning how to set up distributed warehouses in Duoplane, check out our support article here.
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