3 Ways Retailers Can Avoid Warehouse Scalability Problems
Although growing quickly may seem like the ideal scenario, it can cause operational issues for retailers who are ill equipped to scale effectively. A rapid uptick in demand carries several added expenses that tax resources, cash flow and working capital. It requires financing to pay for more inventory, new staff, shipping and packaging costs, and any additional supplies or capital necessary to fulfill orders.
Without proper planning to ensure you can scale your online business, you can face cash flow and fulfillment problems that can be detrimental to your business. Even if you have enough financing or capital to meet a surge in demand, you can still face logistical and capacity issues.
In such a competitive online retail market, companies that fail to meet customer expectations and demand will fail. There's a delicate balance retailers must strike to achieve positive, sustainable growth and prepare their warehouse to scale to changing demand without compromising customer demand.
At Dotcom Distribution, we support clients with year-over-year growth rates of 50 percent or more. We've helped Birchbox scale from 40,000 sample boxes to 600,000 sample boxes per month, and Fab.com from 500 orders a day to 10,000 orders a day. We've found there are three surefire ways you can prepare to scale your business:
1. Define scalability needs ahead of time. Companies must define scalability requirements for their particular business. Retailers with consistent volume throughout the year that experience huge spikes during the holidays need to understand the options available to cope with short-term demand. Expanding shifts and outsourcing may be better alternatives than capital investment in equipment that's idle most of the year. Return on investment may never be achieved in the latter scenario.
For nonseasonal retailers that are coping with a fast-growing operation, there are a number of options in terms of material handling equipment, sortation solutions and automated packing equipment that may return the best ROI and provide the ability to scale for years to come. The key is to understand your company's need to scale, striking the right balance between maximizing your capital investments and cash flow while meeting customer demand.
2. Forecast accurately. Accurate forecasting is critical in a retail environment. It would be detrimental to come into a third-party logistic (3PL) or warehouse environment planning to do 1,000 orders a day when in reality you need to do 10,000. That's a very costly mistake.
The key to scaling effectively is near-accurate forecasting. Calculate your anticipated orders by day, week and month. Make sure to factor in the number of units per order, when goods will arrive at the warehouse and type of product (e.g., apparel, cosmetics, etc.). Once you have this information, you can then determine the equipment, automation, technology and systemic support needed to meet demand.
3. Stay ahead of the curve. Even with accurate forecasting, you need the capital, resources and technology to meet long-term demand and scalability requirements. Be proactive, not reactive, by making investments in advance to keep your business agile. It's much more expensive down the road to make last-minute investments in big-ticket items.
An outsourcing and 3PL partner will have the infrastructure and resources in place to handle high levels of growth, especially if it comes unexpectedly. However, if you're managing your logistics and warehouse internally, you need the capacity, materials and equipment to handle more order volume than you're currently managing.
With proper planning, accurate forecasting and strategic investments to keep your business ahead of the curve, you'll be prepared to meet customer demand while maximizing profitability. By focusing on these three issues, you can ensure long-term scalability success.
Maria Haggerty is CEO and one of the original founders of Dotcom Distribution, a premier provider of B2C and B2B fulfillment and distribution services. She received her Bachelor of Business Administration from University of Houston, C.T. Bauer College of Business with a concentration in Accounting. Maria plays an integral role in developing and defining all aspects of the business, including sales and marketing, operations, finance and IT. As CEO, she is responsible for providing strategic leadership, establishing long range goals, and developing strategies for the senior leadership team. Maria has developed the systemic and procedural infrastructure necessary to provide timely and accurate analysis of budgets, financial reports and financial trends in order to assist the Board, senior executives and clients in performing their responsibilities while achieving favorable results. She works closely with the leadership team to enhance, develop, and enforce procedures that will improve the overall operation and effectiveness of the corporation. During her tenure at the Dotcom, Maria has developed an environment of continual improvement by supporting the Senior Leadership Team and their department managers on continuous process, space labor, automation, and financial best practices. Prior to founding Dotcom, Maria was a CPA at Arthur Andersen and was later the CFO of GoodTimes Home Video where she helped grow the company’s distribution business. When Maria is not in the office, she enjoys traveling around the world and practicing her photography skills.