eCommerce businesses must have strategies for overcoming supply chain challenges to maintain efficient operations and fulfill orders on time. Given the fundamental and overarching role of fulfillment centers in the supply chain, having a plan for managing fulfillment center shortages is a critical skill every eCommerce manager must have.
Fulfillment centers provide eCommerce stores with the logistical support for running operations such as inventory management and order fulfillment. Reliable fulfillment providers such as Quickbox offer businesses end-to-end fulfillment solutions. This includes ordering and receiving goods from suppliers to making door-to-door deliveries. Thus, if there’s a fulfillment center shortage, such as understocking, it drastically impedes operations and triggers a ripple effect throughout the supply chain.
However, fulfillment center shortages shouldn’t prevent you from pursuing and achieving fulfillment efficiency. If you know how to react to shortage at a fulfillment center, you can avoid protracted delays and subsequent supply chain challenges. This article discusses proven strategies for managing and overcoming these shortages.
Understanding the Impact of Shortages in Fulfillment Centers
Many shortages affect fulfillment centers, each triggered by different factors. Some shortages are caused by external factors like shipping delays beyond a fulfillment center’s control. Other shortages are triggered by internal factors like operational inefficiencies, which are within a center’s control.
Here are common shortages fulfillment centers experience:
- Inventory shortages: This happens when a fulfillment center runs out of inventory either because suppliers fail to deliver enough or when customers’ orders exceed the inventory amount.
- Warehouse space shortages: The rapid demand hike in industrial space has caused a scarcity of logistics space that fulfillment centers need in plenty. The Bureau of Economic Analysis (BEA) says warehouse space leasing activity has risen by 80% since pre-pandemic.
- Labor shortages: Because fulfillment centers’ operations are physically demanding, fewer people are willing to work these logistics jobs. In fact, 76% of respondents in a survey "How Bad is the Supply Chain and Logistics Workforce Challenge?" said they’re experiencing severe labor challenges.
- Shipping and receiving errors: Errors made by any party involved in the supply chain and logistics process can lead to inventory challenges — such as mislabeling and mispackaging — which lead to shortages.
- Equipment shortages: Container shortages caused by port congestions and other shipping delays derail operations at fulfillment centers.
The Ripple Effect of Fulfillment Shortages on the Supply Chain
Due to the high interconnectedness of the supply chain, a shortage or challenge in any part disrupts the entire supply chain. Some immediate effects of these shortages are:
- Order delays: Shortages prevent fulfillment centers from honoring their delivery promises on time.
- Inventory inaccuracies: Shortages such as understock or labor shortages trigger inventory counting, storage, sorting, and packaging errors.
- Customer dissatisfaction: Ultimately, any shortage undermines the overall customer experience, leading to more negative reviews from unhappy customers.
Long-term Consequences of Fulfillment Center Shortages
Prolonged fulfillment center shortages lead to long-term effects that can, at worst, cause the closure of an eCommerce enterprise if not solved on time. These extended consequences include:
- Customer loss of trust: Trust is the currency of online shopping. When customers lose trust in your eCommerce store, they’ll abandon your business and shop at competitors. Thus, extended or frequent delivery delays will erode your customers’ trust in your fulfillment capacity.
- Strained supplier relationships: Fulfillment center shortages lead to payment delays and canceled orders, which affect a supplier’s operational and financial plans. If such insufficiencies persist, a supplier may not find it viable to continue working with the fulfillment centers.
- Reputation damage: An eCommerce business that frequently fails to fulfill its fulfillment promises or fails to pay suppliers will build a bad reputation in the industry. This will cause customers and suppliers to avoid buying or supplying merchandise to the eCommerce store.
The Role of Fulfillment Centers in the Supply Chain
Fulfillment centers play the following pivotal roles in the supply chain.
Inventory Management
Fulfillment centers receive inventory from suppliers on behalf of an eCommerce business. They then sort and store the inventory, waiting for the store to send customers’ order details for processing. Some resourceful fulfillment centers also outsource goods from suppliers for an eCommerce store.
Order Processing
Online store managers share their order details with the fulfillment center for processing. This involves picking and sorting products from shelves and racks of the fulfillment warehouse. Top fulfillment providers have advanced order processing technology that allows them to integrate with a store’s customer relationship management system. This allows them to see and receive customers’ orders in real time.
Packaging
After receiving order details and picking the right products, fulfillment staff package them properly to prepare them for shipping. Packaging involves selecting the right-sized boxes for each product and using appropriate cushion-wrap packaging materials such as styrofoam sheets or bubble wrap.
Shipping
Fulfillment centers send the packages to a customer’s preferred pick-up location, which is usually their doorstep. They use the most convenient mode of transport, be it by road, air, rail, or maritime.
Returns Handling
Fulfillment centers manage order returns in case of shipping errors, such as sending customers the wrong or damaged products. This involves delivering the right products at a customer’s preferred delivery location and picking up the incorrect or damaged products.
How Fulfillment Centers Influence Customer Experience and Business Scalability
Timely and accurate order deliveries are significant factors shaping eCommerce customer experience. In fact, about 40% of online customers say in a survey that they will stop buying from an eCommerce brand after one negative shipping experience. Additionally, 58% of customers in the same survey say they left a negative online review or complained to others after experiencing shipping delays.
Because fulfillment centers are central to order fulfillment, they directly shape customers’ overall shipping experience. That’s why working with a top fulfillment provider like Quickbox directly contributes to the success and growth of an eCommerce business.
Potential Causes of Shortages in Fulfillment Centers
We can classify fulfillment center shortages into two main categories — internal and external causes. External causes are beyond a fulfillment center’s direct control. They include:
- Supply chain disruptions: The usual ebb and flow of the global supply chain can be disrupted by different factors, such as global pandemics like the most recent COVID-19 pandemic. Other problems include transportation issues like port congestions, political instability, and natural disasters like earthquakes and flooding.
- Unexpected demand fluctuations: A rapid spike in demand for certain products causes a supply-demand imbalance, which affects inventory management in fulfillment centers. Such demand fluctuations are often caused by seasonal spikes. Examples include the holiday season, viral trends, and marketing campaigns that leverage push marketing strategies.
Internal causes are within a fulfillment center’s control and are mainly caused by a failure on their part. For example:
- Inventory mismanagement: Inefficient inventory management by a fulfillment center — such as inaccurate tracking, poor demand forecasting, and late or insufficient stock replenishments — causes shortages.
- Operational efficiencies: These include factors such as using outdated warehouse technology, inadequate fulfillment staff, and inefficient fulfillment processes like protracted order processing.
Proactive Measures to Prevent Shortages
Here are some dynamic solutions for avoiding fulfillment center shortages and their ripple effects.
Enhance Inventory Management
Ditch conventional inventory management systems involving manual stock-taking and demand prediction for the new sophisticated forecasting and data analytics tools. These tools leverage artificial intelligence (AI) and machine learning technologies to optimize past inventory data and industry demand forecasts for accurate inventory level predictions.
Implement just-in-time (JIT) inventory systems to optimize and match inventory levels with existing customer demand. This ensures you only stock enough inventory to fulfill current demand. Also conduct regular inventory audits and cycle counting to know the accurate timeframes for replenishing inventory levels.
Strengthen Supplier Relationships
Diversify your supplier base so you don’t rely on one supplier. This way, even if one supplier experiences challenges, the others will meet your needs and help you avoid supply chain constraints.
Also, sign a service-level agreement (SLA) with your suppliers to establish clear contract terms. Doing so protects you from slack suppliers that may not do their best to fulfill contract terms. Maintaining regular communication with suppliers is also key, as it gives them many chances to notify you of impending supply chain challenges they’re experiencing or expecting.
Implement Technology Solutions
Fortunately, tech advancements have supported the growth of innovative warehouse solutions such as integrated inventory management systems and warehouse robotics and automation. Investing in these tech solutions fosters the operational efficiency of fulfillment centers, which prevents shortages such as inventory errors.
Develop Flexible Operational Strategies
Maintaining flexible fulfillment operations helps managers deal with different supply chain challenges more rapidly and effectively. Some strategies for keeping operations flexible are:
- Cross-training staff for multiple roles: It facilitates operational continuity as a staff member can stand in for an absent member.
- Implementing a scalable workforce model: It ensures you progressively upsize and upskill your staff to match your operational needs.
- Using flexible storage solutions: It helps you right-size your warehouse storage space to match your fluctuating inventory needs.
Immediate Response Strategies to Handle Shortages
These are the first-response measures you can take to mitigate fulfillment center shortages, even though they may be temporary:
- Prioritize orders: Although every order is essential to your eCommerce business, in desperate times of shortages, you can choose to fulfill high-priority and critical orders first. These may be your corporate orders that can severely hurt your bottom line if you fail to deliver.
- Offer expedited shipping options: Some customers who need their orders delivered urgently may be willing to pay extra for expedited delivery. However, you should only offer this option when you’re confident it will work, or you’ll disappoint your customers.
- Transparent communication: Be frank with your customers about your supply chain challenges and offer realistic timelines for possible solutions. Update them frequently on their order progress until they receive their packages.
- Form internal teams and align response protocols: Dedicating more personnel to solving fulfillment center shortages can accelerate solution delivery.
Long-Term Strategies for Building Resilience
While proactive measures and immediate response strategies deliver quick solutions, long-term strategies truly fortify your eCommerce business for future challenges. These strategies include:
Optimize Use of Advanced Forecasting and Analytics Tools
Invest in premium-quality demand forecasting tools that leverage historical data and predictive analytics to forecast demand accurately. Such tools use advanced algorithms to study and understand ordering patterns and generate accurate demand forecasts.
Using these tools empowers you to prepare for both expected and unpredictable supply chain disruptions.
Embrace Continuous Process Improvement Culture
Continuous process improvement is constantly iterating and optimizing your fulfillment and supply chain processes by applying feedback and knowledge acquired from existing and past operations. It entails applying process improvement methodologies such as Six Sigma, Kaizen, root cause analysis, and lean.
By making small and incremental modifications to your supply chain management, you’ll have a robust fulfillment process that keeps improving. This way, you’ll improve at overcoming supply chain challenges until you eventually perfect the strategies that work best for your business.
Apply Buffer Stock Maintenance
Buffer stock, also called contingency stock or safety stock, is the extra inventory you keep to navigate supply chain disruptions caused by shortages, unexpected demand spikes, and other challenges.
A suitable buffer stock maintenance strategy should leverage inventory data to direct you to the ideal buffer stock amount you should retain throughout a season.
The Role of Quickbox in Managing Fulfillment Shortages
Globally acclaimed fulfillment providers like Quickbox help shield eCommerce stores who partner with them from the consequences of fulfillment shortages by applying dynamic solutions, including:
- Advanced inventory management: We leverage real-time visibility and accurate forecasting to predict and plan for inventory shortages. This way, you won’t be caught off-guard by supply chain challenges.
- Flexible fulfillment options: Quickbox relies on our scalable workforce solutions to offer same-day delivery services. Our scalable fulfillment solutions are flexible enough to grow with your company.
- Robust supplier networks: We work with numerous suppliers globally that prioritize Quickbox as their big-box client. It empowers us to spread risk and enjoy a variety of options when facing supply chain challenges.
- Technology integration: Quickbox has invested in modern technology, such as automation and AI-driven analytics, to optimize and expedite our order fulfillment processes.
Contact us today, and let us be your champion fulfillment provider who shields you from fulfillment center shortages and supply chain disruptions.
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