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As much as $22 trillion in tradeable goods have been subject to delays or shortages. The COVID-19 pandemic caused rapid changes to the global economy which included simultaneous increases in demand for imported products (as much as 20%) with extensive lockdowns in countries across the globe.
Unfortunately, supply chain disruptions are here to stay. Ports are still backed up. Some common items are still in short supply. On top of that, there is also an energy crunch going on as well.
All these factors combined can be very intimidating for businesses. Customers still expect good quality service and timely delivery of items. According to Shopify, 75% of customers expect free shipping and another 60% expect same-day or next-day shipping.
To fail to provide a good customer experience can lead to reduced customer retention, and ultimately, revenue. After all, a 5% increase in customer retention can lead to a 25 to 95% increase in profit. Similarly, a modest decrease to customer retention can be highly damaging.
Even amid sourcing issues and delays, businesses must continue to provide good service. Below is a list of best practices that businesses can follow to do this.
Communicate often and set reasonable expectations
High-level statistics about customer shipping expectations can hide more nuanced findings. Referring once more to Shopify, while customers often expect free and fast shipping, their underlying concerns are these four questions:
- How much will shipping cost?
- How long will it take to get my order?
- Do I have to pay to make a return?
- Will you update me if my order is delayed?
Each of these questions provides businesses with an opportunity. Businesses that provide free shipping and returns gain the advantage. For items that are affected by delays, companies should be upfront and direct about how long items will take to ship. Being transparent may increase customer acquisition but will ultimately preserve a quality customer experience. The same principle applies if there is a delay after the item is shipped. Sending an email or text message to the recipient to notify them of the delay can reduce the likelihood of the customer becoming frustrated.
According to Mitto, 76% of Americans say a bad customer experience is worse than shipment delays. Another 93% are willing to have patience if they already associate the brand with good customer service.
Carry more safety stock
Though setting reasonable expectations and being communicative can mitigate customer service issues, it is still better to avoid them entirely. One easy way to prevent the risk of stockouts or delays caused by sourcing issues is to carry more safety stock.
Calculating safety stock can be an involved process, as it must account for fluctuations in demand and supply uncertainty or lead time. However, since many businesses are experiencing greater supply uncertainty, it makes sense to adjust the reorder point accordingly. For example, if a company typically places a reorder when there are only 1,000 units of the best-selling item in stock, increasing the reorder point to 1,500 could come in handy if a resupply is delayed.
Optimize demand planning
Increasing safety stock can decrease the risk of a stockout, but there are limits to how much stock a business can carry. Storing too much inventory can be expensive, and even non-perishable items can degrade if left in a warehouse for too long. For that reason, it’s also a good time to optimize demand planning.
Good demand planning makes it easier for companies to keep the right amount of inventory in stock. This keeps the risk of stocking out low and helps decrease the risk of overpaying for inventory storage.
Every company will need to consider different inputs when planning for demand. Common data to consider include past sales, marketing budget, publicly available market data, and market studies.
Have back-up suppliers to prevent sourcing issues
Having an additional supplier for popular items – including everything from raw materials to finished goods can give businesses options when it is time to reorder. If one factory is backed up, companies can sometimes order from another. Because of the ongoing supply chain issues, it is a good time to build relationships with as many suppliers as possible.
Consider selling returned items for a reduced price
When shopping online, customers return as many as 30% of the products they buy. Those products are often sent back to fulfillment centers where businesses can choose to handle the returns in a few different ways. Returns can be tossed out entirely, refurbished and sold at a lower price, or even put back into inventory. The appropriate course of action depends on the business.
However, one thing is universally true: coming up with a cost-effective way to handle returns can help with inventory management issues. For example, many companies could easily sell refurbished products for a reduced price. This allows the company to still make a profit and to reduce the risk of stocking out while also giving price-sensitive customers more options.
Even amid supply chain disruptions, consumers have high expectations
Consumer expectations for fast delivery and easily accessible items have continued to rise despite the ongoing supply chain disruptions. Companies that are able to meet customer expectations despite the recent difficulties have a better chance of standing out among peers and retaining customers. It may be a long time before the supply chain returns to its pre-pandemic state, so companies need to prioritize a smooth shipping experience in order to remain profitable.
Brandon Rollins is Director of Marketing at Fulfillrite, an order fulfillment company with over 10 years of experience in eCommerce and crowdfunding order fulfillment.
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