Inventory Management : Planning

Inventory Management Optimizations

Inventory Management : Shipping

Inventory Management : Picking

Storing Inventory

Tracking Inventory

Tracking Inventory : SKU Identifier

To track inventory

Tracking Inventory : Addressing Locations

Warehouses are big, identifying and tracking items would be very difficult if you do not have any addressing strategy, think about delivering post to Mr. Bean in a city of New York. You obviously will not go searching street by street, asking people if they are bean, right ? But given that you know the post is addressed to

Mr. Bean,
401, Building Reva,
Hamilton Street, 32nd Avenue,
New York

Is it not easy this time.

Similarly to find items in warehouses, warehouse locations should be appropriately marked and items  should have identifiers. All the locations are marked with stickers near those locations.

As you can see aisles are clearly marked in the above diagram.

Usually warehouses are marked with some sort of division similar to how areas and streets are marked in the cities, which let you figure out the bin (or lowest level of location).

Take an example, Warehouse of a company XXX is divided into different areas lets call them A, B, C, D, E etc. Each area has multiple floors. Each floor has multiple aisles as shows in the above picture -- they are number as 1, 2, 3, etc. Each aisle has cross-aisle (slot) location as well numbered as 1,2 etc. Each such location has multiple shelves identified as A,B,C,D etc.

Take a look at one such aisle layout

Shelf organization in one such slot

With this organization, you can easily come up with an addressing mechanism. For the example organization, you can represent a location in Dth area, 3rd floor, 101st aisle, 54th slot, A shelf, 4th bin as

D-3-101-54-A-04

Another example :

We will discuss more about how SKU's are identified in our next article.

Inventory Management : Receiving Inventory

Receiving is one of the basics and first point of touch for the inventory you are procuring. You did all the planning and analysis placed purchase orders with your vendor to procure the inventory. It is the time now for your to receive that inventory, store them in your warehouse and make it available for your customers.

Vendors send you the items to your warehouse in multiple ways i.e., pallets or eaches. If you order

huge quantity they send it on wooden structure called as pallets. On the left side you can see inventory placed on pallets. Sometimes, a pallet generally means inventory on a pallet structure. These pallets are usually handled (or lifted) by deckboads (or fork lifts) in warehouses. These pallet structures have standardized sizes (come in 2-3 sizes depending on counties). You can read more about standardized pallet dimensions at Wiki

If you order small quantities, your vendors might not send them on pallets but as descrete items as well. Pallets and eaches need to be handled separately for obvious reasons.

You need to have the receive area nearer to the entrance of your warehouse, so that the trucks from vendors can easily come and drop your orders. If you generally get lot of incoming inventory it is a good idea to create inbound dock areas where trucks can be easily parked and processed.

Vendors can be asked to deliver in particular delivery times as opposed to randomly, so that you can plan your labor for processing in receive area. Most of the vendors will tell you when you can expect the delivery of your items. Depending on how much trusted your vendor is, you can promise your customers about the items (i.e., you will get order on Monday, or you can say this item is available even though it is not, because you are expecting a shipment with high probability soon).

Handling Inventory at the time Receive

Cross check inventory received
From the invoice of the inventory received, you should be able to cross check if you got the items you original ordered or not and if you have received the accurate quantity or now. Any discrepancy should be immediately acknowledged to the Vendor. Your software should be able to pull out the purchase order you made and should be able to assist the associate to match it.

At this same time, your associates should check the quality of the items received as well, any damaged products should be immediately discarded.

Affix labels
When you receive the inventory, you need to keep track of it in your warehouse. Once the receive process is complete, the inventory should be available for customer orders as soon as possible. To accurately track inventory all the locations in the warehouse needs to be appropriately tracked e.g., buffer zones, receive area lanes, carts, trays etc.

When you receive you should affix stickers to the inventory to keep track of it. You need to affix a bar code for the pallet identification and another bar code for the item identification (SKU). We will talk about these identifications in coming articles. This way, you know that particular item is on a particular pallet. Your Warehouse Management Software (or ERP solution) should have workflows to be able to achieve this.

Acknowledge to your Vendor
Once you receive the inventory, acknowledge your vendor about the delivery and let them know of any dependency or damages. Your software should be capable to automatically do this for you.

Do I need to Cross Dock ?
If you have any customer orders pending for the items received, there should be a way to immediately send some of the items to packaging station from here. This way it is cost effective, and you do not have to store the items in warehouse, pick them and process them.

Store in Warehouse
Once the recive process is done, you should store the inventory in trackable locations in your warehouse.

More articles to follow on how and where to store this inventory in your warehouse.

E-commerce Inventory Management : Basics

When you initially start you can maintain all of your inventory in your basement, search for it when an order comes up and package yourself and send it over. If you have a drop ship model, you need to inform your vendor about how much inventory you need, procure from them and send it your customer. But, as your business grows you cannot do this manually. You need to maintain a warehouse to store your inventory and service your customers from there. Amazon has more than 100 warehouses, they call it as distribution centers, world wide.

The following section is relevant when you have a warehouse (or multiple warehouses) where you have to store your inventory, process them and fulfill your customer orders.

What is Inventory Management ?
You have great e-commerce business, thousands (if not hundreds) of customers and they order thousands of items from you. You need to fulfill those customer orders and need to give them good customer experience. If you send them your order after a week or so, there are more chances that they do not come back to you.

At the same time, you want to increase your profits and reduce the cost of maintaining the inventory, reduce and remove the inventory that no body wants, efficiently manage the inventory in the given space you have, efficiently process the orders you get. All of this needs understanding, planning of how things work in e-commerce warehouses. The science (or best practices) behind efficiently maintaining your inventory is nothing but what we call as inventory management.

What is inventory here ?
When we say inventory, it is the product items that are available for your customers to order on your website. It could be a book, or Harry Potter DVD, or a bicycle. Inventory here does not include the tools (such as fork lifts, blades, scissors) the associates working in warehouse use.

Why we have to do it ?
As we were talking about it earlier, we need to manage inventory to effectively satisfy our customers in a cost-effective manner. It reduces the operating cost of maintaining the inventory as well.

Inventory costs
When we procure inventory it has cost associates with for processing (not the inherent cost of inventory but the cost of managing it). Here are some of the inventory costs we have to keep track of.

• Cost of procuring the inventory.
• Cost of storing the inventory (space)
• Cost of processing the inventory (stow, pick, pack, ship)
• Cost due to damages, deterioration, depreciation
• Cost of obsolete items
• Cost of the safely keeping them

Types of Inventory
 Depending on what you are selling, you will have different types of inventory you need to deal with. Here are some of the examples.

• Groceries
• Groceries are perishable, easily damageable and require high cost for maintenance because your warehouse or transportation vehicles need to have mechanism to reduce the waste due to perishing of the products. Example, they need to maintain enough refrigeration, ventilation or sun light. If you own a business like Amazon Fresh, you need to make sure you specially handle such inventory.

• Hazardous Materials
• If you deal with hazardous materials you need to follow government regulations in that area, and have processes to safely handle them. You need to worry about how can we reduce the damage as much as much possible, in a worst case scenario. You also need to worry about people who deal with such inventory and have them protected. 
• Usually if you maintain hazardous and non-hazardous materials, you should keep them separated in storage as well as processing.

• High Value items
• If you are selling precious metals, stones or any other high value items -- you need to be careful in making your products safe from theft. You may have to implement a secure gate way for people touching , transporting those items. Even one item lost is worth hundreds of dollars.

• Liquid items
• They need to specially packaged to avoid any leakages.

•  Special handling items
• Some items need some sort of preperation for storing, shipping the items. Examples TBD.

In the up coming articles you will learn about how to plan, process and optimize the inventory handling.

Shipping: The workflow - steps involved

In this post we explain the basic steps involved in the shipping workflow

Know when to ship

Either you can ship once the customer places the order if you the item(product) in the inventory. If you don't have it in inventory, then procure it. Once you receive the item your software should tell it is ready to be shipped.

Know what to ship

One customer order may contains ten books - items. But there are only four books available in the inventory. Then will you allow partial orders on some terms then software should signal the order( or partial order) is ready to ship. 

Know from where to pick

Your inventory software should create a pick list, with list of items to pick and from which shelf to pick up in your inventory. It should give you clear shelf numbers. Then you walk to the shelf to take out the products to packing station. Update in the inventory software that you have emptied the shelf.  

 

Print documents

Print invoice, address label, COD payment collections document (if COD), for electronic items the service center contact details.
 

Packing

Pack the items in most frugal and efficient, safe manner and hand it over to the courier company - third party logistics. Read our previous post on the same:  Packaging and labeling of shipments in a lean way

Tie up with courier companies

We assume, you have already have tie ups with courier companies. You have to select the courier partner for each shipment. Read our previous post on the same:  Ecommerce Business partners: Shipping integration
 

Link the ids - system changes

Link the order id, with shipment id, and courier company tracking id. It will help in tracking the order.
 

Customer notifications

Send customer notifications about the shipments notifications. Read our previous post on the same: After-sale care : Tracking Customer Orders & Notifications

Closing the order

Once the package is delivered, mark the shipment as closed. Collect the money if it is COD. Finally story completes, close the order.
 

Product returns - another cycle begins

Worse case, if customer wants to return the item, arrange the reverse pick up and handle the product returns.  Read our previous post on the same: Product returns: The work flow - steps involved

Functional or Axiomatic alarms

The Functional or Axiomatic alarms checks in the system or workflow for any discrepancies,  monitor whether components are in  complaisance with the axioms you have defined, notify otherwise. Axioms are like gravity, they should always holds true. The Axioms generally looks very simple, easy to understand, in fact looks silly as well. But one multiple complex workflows are operating on common database, and multiple components interaction and dependencies, think may go wrong. You can make the system strong, but, some loopholes can be captured  externally. We list few of the beautiful Axiomatic alarms here.

Payment Alarms

Axiom: The sum of order values should be equal to money collected from all payment methods. The alarms can be per hour, per day, or weekly basis. Example: In a particular hour 10 orders of each value 200$ placed, then money collected should be equal to 2000$.  If this  alarm raised means, it is very high priority and critical.

 

Pricing  Alarms

Axiom: The price of the product  on webpage should always be less than price of product procured.  If the price of the product is more than what you have procured, then you are selling it for loss. This is to avoid potential flaws of pricing service. If the product price is lowered for marketing, promotion, clearing the dead wood inventory purpose, then it should be clearly marked as exception. So Before alerting with this alarm the program should check for exceptions.

 

Procurement Alarms

Axiom:  The  procured(inventory miss) product should not be  available in the inventory.  If you are procuring the product because it is not available in the inventory with high priority, then it should not be in the inventory.

Axiom: Number of products being procured should be equal to the number of products in the vendor purchase order.

 

Customer return Alarms

Axiom: The amount to be returned for a customer return item should be less than or equal to the order value - the price to which the customer purchased.

 

Order Shipment Alarms

Axiom: If all the items are shipped for a customer order, then the orders status should be closed.

Aftership for shipping notifications

If you provide an timely update to your customers about the order delivery, it increases the quality of customer experience as well as it reduces the number of emails or customer service calls you would get. Please do read more on this on our previous post: After-sale care : Tracking Customer Orders & Notifications

Many third party courier companies do not notify the customer about the progress, hardly they give a web link to customers to go to the website and enter the tracking id to know the status and many customer may not know how to do that, and people may confuse that - "I have ordered from XYZ webstore, why I have to go UPS to track my order delivery".  The problem with such system is to building it. Suppose you have courier tie ups with 20 companies, then you have to write 20 API to track the shipments progress from 20 companies, and update the status to customer. In the early days of start up, you would like to focus more on the other critical components rather than the customer notification. In this case you left with one option, taking help of B2B products.  One of the such products is AfterShip. 

AfterShip allows online stores to track all shipments automatically, and send out delivery notifications through email or SMS when package is in transit, out for delivery, delivered or any exceptions. You can watch the below video for better understanding. You can integrate it with Ebay, Shopify, Magneto, Amazon, Opencart, and Spree easily. One reason to particularly mention Aftership is, as of now as per our knowledge we are not aware of similar product which offer similar service. Read Techcrunch coverage on the same: link1 and  link2.

Building your own Notification system

After few years, when you are sufficiently expanded you can think of building your own notification system. The first step towards is to find out from which vendors you are shipping highest orders. Slowly write API's to those courier companies and expand.  Say 90% of your customer orders are shipped through only 3 couriers (out of 20 couriers) - say DTC, FedEx, UPS. Then write API's for these three couriers and send customer notifications.  For the rest of 17 courier companies you can use After Ship.

Notifying new releases

Notify your customers about new releases in your store. It could be a new book from Harry Potter series, or a new iPhone. You can reach out to your customers via Email, SMS, or your company's app. Include information about release date, how they can pre-order the product and any discounts they can avail of on that product. Use that opportunity to drive traffic back to your website.

Do not notify the customers about each and every product addition to your site though. It might just irritate them. In your website, define configurations about how customer would want you to reach out to them and on what sort of events. Contact the customers only if they have given consent to get notifications about those new releases.

Allocate some space on home page of your site (a tab on your mobile app) displaying the new releases. You can implement notify me feature on the product page and let the customers interested in the product know when the product is available for order.  Please do read our previous post on the same: What is Ecommerce Notify Me service

18 best practices to improve your e-commerce website

http://www.designer-daily.com/18-best-practices-to-improve-your-e-commerce-website-11099

Procurement: When it is required to hold the procurement of a product

After-sale Care: Customer Service Desk

After-sale Care: Different ways of reaching out to customers

As mentioned in my previous article, following up with customer after the sale is done is very important to build the relationship with the customer and convert them into repeated customers. In this article, we discuss the different modes in which you can reach out to your customers.

Through Your Website
Your website should give the customers information about all the orders they have placed, their details. Also, the link for canceling or amending the order, returns page should be easily accessible to them. You may want your customers to login using their user id to check the details, but it is good idea to let them check the status of the order using order id (less preferable because it is hard to remember this; we need to expect them copy from the order confirmation email or SMS they got) or Email id or phone number. This way they do not have remember the order id of the order they have placed.

Through Email
It is one of the oldest methods of reaching customers. Send your customer timely notifications regarding order confirmation, dispatch, delivery etc. Subject of the email has be clear and crisp, so that they do not really have to open the email unless they really want to check more details about it. Make sure you tag the emails as "Quick Update" if it is a small status notification. Make sure you include all the information regarding the customer order.

Put a link in the Email to let your customers unsubscribe to Email notifications. Remember one golden rule : Never spam your customers. It descreses the brand value of your company. Lot of countries have rules regarding reaching out to customers through Emails. Make sure you follow all of them.

Because Email content has no limit, put more focus on the customer and use this opportunity to drive the customers back to you. Work with your content writers to make the Email crisp, clear, clutter free, easily understandable. Use right sort of graphics to make it good looking.

Through SMS
These days everyone is turning up to their mobile phones about timely and pertinent information. Consumers may not have access to their email all the time, but they will have access to SMS all the time -- though because of advanced technology everyone has access to Email on their phone now. Compile your SMS to be crisp and clear and include only the relevant information. SMS can hold up to only 160 characters, so use that space effectively. Make sure you put the most important stuff, and if you still have some characters left give your contact number or website link regarding how to contact you if needed.

Through Mobile App (Push Based Notifications)
If you have resources, we strongly recommend you to invest in developing the App. These days everyone has a Smart Phone and more and more people browse the internet using the cell phones. Create an app (Android or IPhone) that can display your products and let your customers order from the comfort of their phone. You can use these apps to push notification to the users profiles directly.

Through Social Profiles
You can also notify your customers on their social profiles. Of course those messages have to be completely private. Let your customers ability post their purchases on social websites (e.g., facebook), this way your company & product gets free advertisement opportunity. But this feature has to be completely optional and help the customers who want to share this information with their friends (some customers feel pride about the kind of things they are buying).

Through Telephonic Call
This is only the most discouraged method to reach your customers to notify them. Use it only if you do not have any other way to reach your customers. Many contries have regulations about reaching customers through phone, make sure you follow those regulations.

Overall conclusion is that, reach your customers as many ways as possible, and let them reach out to you in as many ways as possible. More ways you have for your customers to reach to you, the lesser the number of times they call customer care with the complaints.

Read here to know more about what sort of information you need to provide in your notifications.

After-sale care : Tracking Customer Orders & Notifications

Customer has placed an order on your site.  You have clinched a deal with them. You do not just want to make money with this customer order, but you want them to come to your site again and again and purchase more from you. If you want them to overall happy with their purchase experience and convert them into repeated customers, after sale care of customer is very important.

If you provide an timely update to your customers, it increases the quality of customer experience as well as it reduces the number of emails or customer service calls you would get. According to a survey, it is one the most wanted features of an e-commerce store. It is also an opportunity to build relationship with your customers.

Here are some of the best practices you can follow to let you your customer track their order and provide best customer experience they are looking for. 

1. Ability to track an order using Website
   One of the essential features you need to provide on the website is to track orders. You can have a separate page or tab to show the orders customer recently ordered and it should display all the essential information. This page should also display any changes in processing times or estimated delivery date. To access this feature, customer does not really have to login into your website. If the customer is logged in already, sure you can access the details on your account page.
   
   
   But if the customer is not logged in, you can provide an input box where users can enter a telephone number or account number or email id, which can display the order details for them. This way they do not have to remember the order id.
   
   
   The more ways you have for the customer to track the orders, less number of calls or emails you would get from the customers.  It does not just help reduce the cost to help the customers, but it builds up your relationship with the customer because of awesome customer experience.
   
   
   
   
   
   
   
   
   
2. Send order confirmation notification
   As soon as you received the order,  notify your customer about the order. You can do that via Email, SMS or push based messages.  Do not just send out a nuts & bolts confirmation, add a conversational style and put focus on the customers.  Subject of the Email should be clear and they do have to really look at the Email to understand it. Make sure you have the order id, shipment tracking id, shipment address, expected shipment date as part of the Email.  Also, add details about how you can help them.
   
   Here are things you should include in your notification email. 
1. Order ID : It is the unique order identification by which your company can distinguish between multiple orders. Provide a direct link to the order id, so that customers can easily click and go to the order details page on your website. Using this they can verify if the order has been shipped or under processing, or stuck because of some reason.
2. Billing address as well as shipment address.
3. Expected ship date and delivery date. 
4. Product details they have ordered : The mail should clearly mention which items customer has ordered and individual and total cost. It is very difficult to include all the details of the product, but make it concise to put all necessary and important information, such as Size, Color or the product. 
5. Invoicing information
6. Methods to cancel or amend the order. 
7. Methods for returning the items : Include a return policy. If you want to know why customer returns the product please do read our previous posts
   
   Customer returns: Why it happens and lean ways to reduce them - Part-1 
   Customer returns: Why it happens and lean ways to reduce them - Part-2
   
   

   Here is what you do with the returned items and compensate the customer link.
8. Advertising opportunity :  The notification mail is an opportunity to reach out to customers, build relation with this. Do not miss an opportunity to drive your customers back to the site. You can probably include best deals on your site at the bottom of the Email. 
   Here is an example email Amazon sent to me when I placed an order. 
   
   
3. Package dispatch notification
   When you dispatch customer's order, do send him a notification (or Email) with the required details. Include the name and tracking id of the courier, as well an any revised estimated delivery date. Provide a easy link where the customers can track the package on courier's site if needed. But generally, your order details page should also display the package shipment status.
   
4. Order due delivery notification
   Send notification to the customer, few hours before the delivery or on the morning of the delivery mentioning the estimated hour of the delivery. This will help ensure some one would be ready at the delivery address to receive the package.Though this is not a mandatory service, proving this type of information makes your customers happy and will drive traffic back to your site for other orders.If you are sending SMS or push based messages, only send the necessary information and provide a link to the customer where they can login and check for more details.Provide as many ways to the customers as possible.
5. Send other notifications to your customers regarding each step of your processing
   Send information to the customer about each of the other processing of their orders. Obviously this has be configurable in your website regarding what level of granular tracking customer wanted.You need to inform the customers when the package left the warehouse, reached their city, time due for delivery and for any failed attempts for delivery.

          Your store big or small, you can easily integrate with tracking services like AfterShip and send out notifications via their APIs.

Read about different modes of notifying the users in our upcoming articles.

Common customer issues in shipping

We briefly discuss common customer issues related with shipping. The first question is how you know the common issues - the answer is no, you cannot.  Because one size does not fit all. The common issues to you are may not be the common issue to others. One issue is reoccurring and common means there is  some problem or inefficiency in the system or workflow. The best way to capture this is from CRM portal. Each and every issue you receive from customer care service, you save them by marking a label as shipping and packing. In the next step,  group the similar issue, solve one by one by giving the input to technology team. We are listing here few common issues.

• Damaged in transit
   It is because of bad packing. These issues should go as input to packing team. Please do read our previous post on the same  Packaging and labeling of shipments in a lean way   
  

• Shipment delay
  
  • Failure to meet the delivery SLA (decrease the rating for courier company - read more here)
  • Able to deliver, but did not notify the shipment progress. (It may be that tracking details are incorrect)  So finally customer  called your call centre. It is cost to you and causes customer dissatisfaction. Setup the proper notification system. You can think of choosing third party system for notification like Aftership.
   
• Incorrect zip code mapping
• Handling the shipment to a courier company, which do not work in customer service area, causing courier returns. (correct your zip code database)
   
• Courier preferences
  
  • Request for specific courier service
  • Delivery at specific time/day. 
  • Failure  to deliver as per customer courier preferences directly results in customer dissatisfaction. So you need to change in the courier selection logic to honor the customer request.

Courier selection logic: How to decide the right courier company for your shipment - part-2

Please do read out previous post on the same Courier selection logic: How to decide the right courier company for your shipment - part-1. In this post we will discuss the missing piece - the logic and the architecture as well. The crux of the logic is trade off on  Cost- the cost of shipment, time - SLA on the number of days to deliver, Ratings - the quality of service.

Preliminaries

• Tie ups: At this point you have tie ups with multiple courier companies. Each company data, their terms and conditions are entered in the database. These details are used in calculating the shipment cost and SLA.
• The shipment cost: Getting the cost of shipment
• The Rating:  For each courier company you will assign some rating. In the beginning you assign same rating to all and gradually you change the rating depending on the quality of delivery. It is measure of quality of shipment. 
• The DNA of  your company - the polices on which the trade off decision to be taken.

The Shipment cost

 
A software/code/function which takes the courier company name, and shipment details like size, weight, destination zip code, etc.. as input and returns the estimated cost of shipment.  This cost is function of shipment details, and the courier company terms and conditions (which pulls from the database which you have entered during setup).

The DNA of your company

In the process of assigning correct courier company, the trade of decision on cost, time, rating should be taken. This will be based on your DNA of your company,  and defines it as well. It should be aligned with your company goals, mission.

Analytical logic (not the DNA)

• If the company XYZ and ABC are having the same time SLA and rating, but XYZ cost for shipment is low, then it is natural to choose XYZ for shipment due to less cost

• If the company XYZ and ABC are having the same cost and time SLA, but XYZ  rating is good, then it is natural to choose XYZ for shipment as good rating means good quality

•  If the company XYZ and ABC are having the same cost and rating, but XYZ  time SLA is very low, is natural to choose XYZ for shipment as it delivers fast.

 The decisions which defines your DNA

• What if company XYZ costs less to ship but having bad SLA - takes more time to deliver compared to company ABC (assuming rating is same)?  If you choose XYZ then your are saving a lot, but the longer delay frustrates the customer. If you choose ABC then your trying to be more customer centric even it costs more to you. 
• The same case when the cost is low but rating is bad.
• Assuming the cost is constant, what you choose between SLA or rating is difficult decision. You will eventually learn by your experience.

 

The Ratings

Lets say the courier company XYZ and ABC delivered 1000 shipments each. There are 300 customer complaints on 1000 deliveries of company XYZ, whereas there are only 50 customer complaints on 1000 delivery of company ABC. Now you say who is better - the simple answer is  ABC, because of their quality of service compared to XYZ. You can have inbuilt system of ratings which act as punishment and reward. The next time for a shipment say XYZ and ABC have same cost, time SLA then you will choose ABC because of their good rating. It is internal ratings that you give which helps in selection of  courier company. This should not be public or exposed out side. Do read and understand ebay merchant rating system as it will give you good insight into this field. salehoo blog, hubpages blog, ebay blog.

 

The Logic - Algorithm

1. Get list of all your  courier companies.
2. Get the filtered list of companies which are willing to ship your package. Please read our previous post on the same. Examples: The companies which do not deliver at the customer service area, or which do not deliver electronic items (where as customer ordered some electronic items)
3. For each company in the final filtered list get the time SLA, and price, ratings.
4. Take decision based on analytical reasoning or based on your DNA mentioned above.

             

How to begin for startup

These simple steps for  courier selection step by step are below. First you start with 2-3 courier companies and slowly over the period of time you expand. The numbers mentioned below  are for your understanding, in reality they may change.

1. You have less than 50 orders per day: handles manually
2. You have around 100 orders per day:  manage by Excel sheet
3. You have around 500 orders per day: You first build a system which takes shipment details and give you the filtered list of courier companies which are willing to deliver your package. You make manuall selection
4. You have around  1000 orders per day: Now the system display feature list, and price as well. you make manual decision based on Analytical logic and DNA
5. You have more than 1000 orders per day: Every thing is automatic.

Courier selection logic: How to decide the right courier company for your shipment - part-1

In the shipping process being frugal, prompt, secure and correctness( on delivery)  directly correlates to your good service and  success. We briefly discuss how to choose right courier partners for the shipments. You can consider choosing courier company which is specialized in e-commerce company products.

 

One for all does not fit

One courier company does not matches all your requirements, so tie up with as many as  courier companies as possible. Courier company  which  provides you cheaper pricing may not deliver at all destinations. Similarly the company which will deliver the  product at required locations may not deliver within the given time. For every shipment, you may have to decide on beautiful tradeoff - price, quality, SLA. You can leverage on each companies pros and  creates a eco system to be frugal and efficient. As a start up you cannot tie up with  many courier companies, but start with few and keep expanding. Your software should be flexible to add and delete the company and should consider the optimal choice for shipment automatically.

Agree on terms and Conditions

Each courier company have their terms and conditions to accept the shipments. If you comply with those rules then only they accept your shipment for delivery.  Each and every company have different set of terms and conditions. For example, DHL may not accept few of your shipments but FedEx may accept and vice versa. We will  briefly list sample terms and conditions.

Suppose you had tie ups with 20 courier companies, then depending on your shipment only 8 companies can ship the package. So the first step is to filter the companies which cannot ship the package based on their terms and conditions. These are the preliminary steps in deciding the right courier companie.

1. Filtering the courier companies based on terms and conditions

• Maximum weight of the shipment to accept
• Maximum volume of the shipment to accept
• Maximum Number of shipments to accept in a day
• Serviceable area
•  List of zip codes or pin codes where they deliver the items. If you do not have proper data then the courier company returns your shipment and you have to send it through another courier company causing falling out of customer delivery SLA and extra cost.

• SLA number of days
• Number of days to deliver the item depending on the geographical location
• Pricing   
• Pricing determining factors - weight, distance, international
• COD pricing
• Pricing for bulky shipments depending on the volume
• Transit insurance is covered or not? 

• Type of products
•     What kind of products they accepts. Few do not accept electronic, and few domestic liquids

• International shipping is allowed or not?
•     If you are shipping to international customers it matters a lot.

• Will they accept cash on delivery(COD), if so
• What is the the pricing (2% of collected amount) 
• When they will return the cash (daily, weekly, monthly)

From above basic terms and conditions,  from total set of  courier companies, per shipment you will have list of filtered set of companies which can deliver your package. The next part is to select the company from this filtered  list - aka courier selection logic. We briefly mention these optional parameters.

 

2. The optional parameters for selection

• Are there any conditions on How to pack?
• Delivery times
• What are the delivery timings. Do they accept the special request to deliver at the stipulated time that customer asked

• Number of retries before returning the item
• SLA for returning the item in case of not able to deliver
• Pick up facility
• Do they pick up from your warehouse

• Track Shipment facility
• Do they have web portal to track the shipment by entering the tracking id
• Will they provide API to you so that you can track the shipment progress

• Priority shipment
• Do they accept priority shipment (delivery in one day)

• Notification
• Will the notify the customer about the status or progress of the delivery, so that customer need not call you for the shipment status, thus decreasing the volume of the customer calls. We will discuss more about in the CRM posts.

• What if the package is lost
• What is the compensation?
• Do they provide transit insurance?

In the next post we will discuss the logic to decide on shipment.

Ecommerce Business partners: Shipping integration

You have listed the products on the website, and collecting the money through payment gateways. Now the next part is to ship the product to the customer. Your service quality depends on this critical component and it  costs a lot to you, as well. So being frugal, prompt, secure and correct delivery directly correlates to your good service and  success. We briefly discuss possible shipment choices.

1. FBA: Fulfillment by Amazon
2. Outsourcing to third party logistics
3. Building your own logistics company

FBA: Fulfillment by Amazon

When a customer order arrives you need to find the items they have ordered from your storage area, pack them and ship the order to the customers. Even after doing this hard work, you get customer queries regarding the order (may be regarding the customer not getting the order, or may be the product is not the expected one of the customer), and you need to answer those questions patiently. And if the customer is not satisfied with the product you have to ask them return the product and ship the new product to them. All of these operational work (picking, packing, labeling, invoice, shipping, managing returns, taking customer queries) take lot of time and causes frustration to the sellers. And you, instead of concentrating on increasing the customer orders, you spend more time doing these types of activities. So by choosing FBA you can scale fast, you can provide good customer service, but at the same time it costs a lot also. Please do read out post on this: How to start in a lean way : Fulfillment by Amazon. Comparing FBA and other third party courier companies is like comparing mangoes and oranges because the value proposition of two methods is different.   FBA caters bundle of things like (picking, packing, labeling, invoice, shipping, notification, managing returns, taking customer queries) whereas courier companies only shipping.

Outsourcing to third party logistics

In this option, yourself prepare the shipment (pick, pack, label, generate invoice) and handle over to the courier company. You should comply with the courier company terms and conditions, and pricing. As you are preparing the shipment it saves a lot, but you have to manage all these operations. The biggest challenge here is to choosing the right courier for the shipment. Few courier companies have some conditions with type of packaging, and product types, and few are not available in some geographical location. Out of feasible courier companies there are some nice tradeoffs - Delivery SLA (number of days), quality of service, pricing. This critical step of deciding the right courier company for each shipment should be done by your software. Please do read our post on the same Courier selection logic: How to decide the right courier company for your shipment - part-1 and Courier selection logic: How to decide the right courier company for your shipment - part-2

Building your own logistics company

This doesn't make sense till few years, till you have significant volume of orders and have huge capital. After that it make sense to have your own logistics company.  By having your own company you can increase brand value, better service and it will be cost effective on the long run. If it is not possible, then at least you ca have transhipment for intercity movement of goods, we will cover more on this in our future posts.

Sales data Analytics

At first glance you think that total analytics you can get from third party vendors by just including the Java script, then why to have sales data analytics.  The reason is there is lot more data  which is not visible/present on the website, so they cannot simply have analytics of the data which they cannot see. Example: Customer returns data, category data, shipment data, customer demographics data. Capturing all these analytics  from web analytics may not be possible depending on your customization and granularity and data availability on the website. We will see some example analytics.

• Customer demographic data
• At what time men are ordering the items (lunch time?)
• At what time women are ordering the items?
• Metros and big cities women are interested in which items? and when they are purchasing?

•  Order data
•  How many items are getting returned per month, per category
• What is the average order size.
• At what time you are getting highest number of orders ( It is your peek time, monitor everything)
• From which geographical location, you are getting highest orders ( helpful for marketing)
• Which category items being returned most (may be some thing wrong with listing or packing)
• To which area highest number of shipments are happening (so that you can setup your next warehouse there)

•  Inventory data
• Which category is moving fast
• Which products are procured most even when customer is waiting for that.
• What are best selling products (so that to see on website)
•  For which items customer asked to Notify highest number of times.

When to have such system?

You can get very good analytics for some time by Google Analytics or any other tool. But when you are expanding after certain time, after few months or years, you can plan to have in house analytics on sales data. 

How to pull the data?

Definitely you cannot run on the production database, it will hamper the production system. Best thing would be to work on secondary database which is in sync with primary database. 

1. Set up a secondary database which is in sync with the primary
2. Copy the complete data from secondary database data on your local/ temporary database - call it as dump
3. Run queries on the dump and extract the results you want.
4. On the long run you cannot manage all of this, so you have to eventually have to take help of the too good third party tools like Pentaho or Informatica. This involves writing ETL's

Web Analytics

What exactly does Analytics tell you? 
If you think it is basic common sense. It shows you with proofs, what you are doing right and what you are not doing right, what is working and not working, when and where it is working and not working. It is different science altogether. The accurate analytics helps you in improving the system,  pivot the model,  dropping the dead features. There are two types of analytics.

•  Web analytics
•  Back end data analytics

You may  be puzzled by second component and it's significance.  When you bootstrap your firm you probably start with Google analytics and you won't have any back end data analytics,  till you grow big    (probably after few years). We simply explain each of these types.

Web analytics

It simply tells the customer behavior on your website and effectiveness of marketing.
"Web analytics is the measurement, collection, analysis and reporting of internet data for purposes of understanding and optimizing web usage. Web analytics is not just a tool for measuring web traffic but can be used as a tool for business and market research, and to assess and improve the effectiveness of a web site. Web analytics applications can also help companies measure the results of traditional print or broadcast advertising campaigns. It helps one to estimate how traffic to a website changes after the launch of a new advertising campaign." - from Wikipedia

 

Choosing the Web Analytics soul mate

As a start up when you are building MVP (minimum viable product)  choosing Google Analytics is very good choice. You can get basic information very easily by including simple java script in the webpage. Once you are expanding, you can think of choosing Analytics soul mate. There are many options, few well known vendors are Google, Yahoo, Omniture, Webtrends, Affinium NetInsight, Lyris HQ. Kiss metrics.
The decision is based on usability, functionality, technical easiness, response, total cost of ownership. Please do read the important post on the same here

The Basic information

• Bounce rates: What needs to be improved, how early they are leaving
• Exit pages: Where users are leaving the website.
• Page views: How many are commming to your website
• Repeated visits: How many are coming back
• Conversion rate and revenue: How many are buying finally
• Social media information
• Device used: Specific browsers, mobiles
• Revenue per keyword: ROI on Google adsense keyword    
• Revenue per landing page
• Promotions and campaigns effectiveness
• Geo location of visitors
• Number of drops after filling in shopping cart.

Apart from that competative analysis is also importent accept,  it will help you to know where your competatrots are doing better than you.

Resources

Please do refer below book and links which gives great insight into Analytics world.
Web Analytics 2.0: The Art of Online Accountability and Science of Customer Centricity
Occam's Razor Blog
Wikipedia article on Web analytics

We will cover the sales data analytics in our next post.

Ecommerce Business partners: Payment Gateways

 "A payment gateway is an e-commerce application service provider service that authorizes credit card payments for e-businesses, online retailers, bricks and clicks, or traditional brick and mortar." - from Wikipedia.
Payment gateway is prerequisite component or business partner for launching your website. It is the way to collect the money from the customer. Once you have made tie ups with suppliers and listed the products on your website payment integration needs to be done to complete a transaction.

Choosing the Best fit

Initially choose the payment gateway which suits you. Evaluates all the possibilities and finalize good start up pack. Generally start up pack have less  sign up fees but more transaction fees. You can choose that and once you have sufficient sales you can slowly migrate to higher pack by paying higher sign up fees and and lower transaction charges payment gateway. The decision factors are:  sign up fees, transaction charges, customer support, currencies supported and method of getting paid. Some of well knows payment gateways are PayPal,  Amazon Payments,  Google Checkout,  Dwolla,  Authorize.Net,  Stripe,  2Checkout. We will cover more on this in our next post.

 

Building your own payment gateway - the migration

This steps make sense after few years, when you are well funded and have good number of transactions. The first question come to your mind is why to have a payment gateway of your own? The answer is simple - to save money. The E-commerce business runs on very small margin and you cannot sustain on long run if your margins are eating up by payment gateway charges. So the question is how to migrate? The best strategy is to pick up the  highest number of transaction bank, and build API for that and slowly add more banks.

Example: Your 30% of transactions are on American Express credit card then first write code of American express credit card API. Then slowly direct all the transactions of American Express locally and rest to the payment gateway. After it is stabilized the look for the next migration of credit card.  Suppose Citi  bank card has 20% of your total transactions then it make sense to have API for that card locally. In other words, 90% of revenue is generated from only three banks credit card, then by having your own API's of those three banks, you can save 2-5% transaction fees on 90% of revenue.

After few months you will have your own payment gateway for all credit cards. At the end, after few years  you have all the code and infrastructure to leverage on your existing framework and be a payment gateway and monetize on that.


Reference:
Wikipedia payment gateways
how-do-payment-gateways-work-and-integrate-with-your-ecommerce-site
Tutsplus article

Amazon announces their Big Idea : Delivery by Drones in 30 Minutes

Amazon last week announced Prime Air which is trying to deliver the packages in 30 minutes or less using unmanned aerial vehicles they call as 'octocoptors'. Though this technology might be still in nascent stages, Jeff Bezos (Amazon's CEO) is optimistic that they can it pull this off as early as in coming 5 years. It all depends on approval from Federal Aviation Administration (FAA).

The reason why we thought is important enough to put it on our blog is because we believe Thinking Big is one of the essentials skills you should have to create success, that Amazon has showed us time and again. All the best Amazon.

Here is the first look of such flying drone.

Check out this footage from their recent test flight.

Here is the video from 60 Minutes, where Amazon's CEO Jeff Bezos announced this news.

BlogThis!

How to start in a lean way : Fulfillment by Amazon

Setting a E-commerce website is not a difficult task, but handling the operations is one of the most difficult task. When a customer order arrives you need to find the items they have ordered from your storage area, pack them and ship the order to the customers. Even after doing this hard work, you get customer queries regarding the order (may be regarding the customer not getting the order, or may be the product is not the expected one of the customer), and you need to answer those questions patiently. And if the customer is not satisfied with the product you have to ask them return the product and ship the new product to them. All of these operational work take lot of time and causes frustration to the sellers. And you, instead of concentrating on increasing the customer orders, you spend more time doing these types of activities.

Instead of this, if someone takes care of all these operations -- how great that would be ? Then you can concentrate on the most important thing -- that is increasing your customer base, providing more selection to the users. Fulfillment by Amazon exactly offers what you are looking for. Amazon is the most advanced fulfillment networks in the world and your business can benefit from their expertise in this area.

This is how it works

1. You send your inventory to Amazon's nearest fulfillment center. Cost is borne by you.
2. Your items can then appear on amazon.com and you get access to millions of Amazon customers.
3. When customer orders your items, Amazon picks the items, packs them, ships them to the customers.

4. They will handle all customer related queries and they will even handle the customer returns for you as well.

Advantages

1. You do not have to worry about any of operations side and can think about how to increase your sales and selections.
2. Your products get eligible for Two-Day Prime Free shipping, Free shipping Amazon offers and you do not have to pay money for that.
3. Amazon handles customer queries, customer returns.
4. You can scale your inventory and product selection with ease.
5. You can have your company’s name on the invoice and you can also ask Amazon to not to put their own logo. I am not sure, if they can put your logo on the boxes.
6. Compared to the cost you need to spend maintaining the inventory, packing and shipping, Amazon is cost effective.
7. The charges for small, high value items > 300$ is much cheaper on FBA.
8. You do not have to sell items from Amazon. With Amazon's multi-channel fulfillment, you can have your own website, or Amazon Webstore and loop your orders through Amazon.
9. Once you have setup the business working, you can scale your business and reach more business. But, we think, once you really have good enough customers FBA will not be cost effective.

Pricing

Amazon or any other fulfillment management systems, charges the sellers for the following.

1. Referral money : It is around 6-25% depending on the product category you want to sell. If you pay for subscription, you can get away with this.
2. Storage cost : If your product does not sell, the product lies there in Amazon's fulfillment center and that cost money for Amazon. So, they charge cost of storage on monthly basis.
3. Picking, Packing, Handling charges.

Initially, you will feel like the Amazon's price is high, but thats ok when you are starting your business. When you concentrate more on developing your business, you will get more customers and then you can think about moving away from FBA and have your own fulfillment system.

You can get more details about pricing from Amazon here. They have a nice revenue calculator also.

So, when you are starting as E-commerce we suggest you to explore this type of option and when you are selling enough volume, you can then think about how to scale your business and implement your own website and warehouse management of yourself.

Monitoring and alarams: The essential tools

Monitoring and alarms are must have tools on each and every component, including software components, services, hardware. There is very minor difference between monitoring and alarms.  You can not afford any delay in service in ecommerce business, the down time causes direct financial  loss at that time and effects your brand name.
You can follow best practices and have best infrastructure, but still you cannot be 100% be sure of nothing bad can happen. The bad code and peek traffic can create havoc. Bad code consumes infinite memory if the proper cleanup code is not written, or sudden 10x traffic increase crashes your website. So the monitoring gives a way to track the usage and the workflow and take necessary actions before it happen. It is pre-crash notifying system.

• Monitoring usally present on a portal, or written some where on system files, you go and see whenever it is  required. It is pull based model - see it when required. 
• Alarms is push based model, where if some thing is going to be wrong, you get the notification. It is push based model and  preemptive alert system. The notification purpose is to take some preemptive action. Well, to issue a alarm you need to have monitoring configured, in some way alarms are notification wrapper on Monitoring. 
• If you are choosing AWS for hosting, then you can do monitoring from Amazon cloud watch, the in built facility to monitor.

We are listing  different types of alarms and monitoring and its use cases below. 

Host Monitoring

• It checks host health like free memory and used memory, CPU usage, swap space, number of process running and threads, disk latency.  During the peak time, or on a weekend if the load increases you can see spikes in the hardware usage graphs.
• You can take prompt action accordingly. The actions including - safe host  restart, host switching, adding a host, taking out the bad host, killing high resource consuming process.
• In the beginning you can setup a free open source set up. One of the standard tool is Nagios. From Wikipedia: Nagios  is an open source computer system monitoring, network monitoring and infrastructure monitoring software application. Nagios offers monitoring and alerting services for servers, switches, applications, and services. It alerts the users when things go wrong and alerts them a second time when the problem has been resolved. Read more at Wikipedia.
• You can opt for paid tools on this as well.

 

Database Monitoring

Similar to the host,  you can  monitor database as well. Read more on this at Wikipedia

 

Amazon CloudWatch for AWS

Amazon CloudWatch can also monitor metrics that are generated by the applications you run on AWS resources. Using a simple Put API call, you can immediately send and store any metrics that are important to your business performance or your application’s operational performance. You can submit as much or as little custom metric data as you need. All the same Amazon CloudWatch functionality will be available at up to one-minute frequency for your own custom metric data, including statistics, graphs, and alarms. 

Apart from host, databases each and every hardware component you use, you have to monitor it. In the future posts, we will discuss about  functional or axiomatic alarms. 

Product returns: The workflow - steps involved

Product returns are one of the main pain points to all e-commerce sites. If you would  to know why the product returns happends,  do read our previous posts.

Customer returns: Why it happens and lean ways to reduce them - Part-1 

Customer returns: Why it happens and lean ways to reduce them - Part-2

In this post we will discuss the basic workflow.

Steps involved in the product returns

• Customer raise the request by calling your customer care  or through your website
• Either customer ship the product to your warehouse location or your representative goes to customer address and pickups the item
• The product is received at the warehouse. Route the product to temporary buffer area and mark the product status as cannot be shipped.
• Assess the quality of the item. This step is done manually.
• If the product is in good condition, then mark it as Good condition/ready to ship, by calling inventory service. Place the item in some shelf using inventory service.
• If the vendor takes back the product (depending on the terms and conditions) return the product to the vendor..
• If the item is damaged, either liquidate it or sell to used items purchase vendor.
• In short, regarding what to do with the product there are multiple options like resell, return to vendor, sell as used items, or liquidate. Please do read our elaborated  post on Product returns: What you can do with returned items
• Compensate the customer either by giving money, or store credit, or shipping the new product. Please do read our post on store credit: Product returns: Store credit concept - from merchants point of view