It’s one thing to put the occasional item into the postal or courier network and despatch it to customers overseas, but is this an effective method once your business in that market reaches critical mass? Emma Herrod investigates.
AT THE simplest level, international orders can be met by an existing UK fulfilment centre via multiple carriers, and returns sent back by the overseas customer to the UK for processing. But what happens when you’re past the test stage and a country or region has proven itself as a great market for your products, especially when logistics is the biggest expense with international orders? Is there an advantage to holding stock closer to the customer, rather than fulfilling orders from the UK?
The cost and speed of getting product to customers is not that much more expensive than holding the stock locally, believes Richard Longhurst, Co-founder of sex toy retailer Lovehoney . He cites Australia and the US as two examples of this. Lovehoney fulfils all of its UK and international orders from its warehouse in Bath.
There are ways of reducing costs whether that’s per kilo or per package deliveries, explains Longhurst. There are also many delivery options when sending customer orders as individual packages via companies such as DHL, UPS or Parcelforce and its local partners.
A carrier management system (CMS) will deal with any documentation required by customs; in some cases this can now be done electronically rather than the warehouse having to handle paper documents. “The carriers are getting quite innovative,” says David Stocker, Head of Business Development, DAI Supply Chain. Alternatively, use someone else’s expertise such as Amazon.
However, delivery cannot be seen in isolation since it affects customer satisfaction. Lovehoney, for example, looks at delivery costs at the same time as customer satisfaction, by monitoring factors such as the number of customers querying where their order is and repeat sales by territory.
An important service to offer, both from the customer and the business point of view, is tracked delivery since it helps overcome issues of language, culture and customer expectations, explains Longhurst. “It makes it easier for customer services, since when a customer phones up to ask where their order is, we know.”
Lovehoney offers a 365-day returns policy with customers able to send a product back for any reason, because, Longhurst says: “We want customers to have 100% faith that we stand behind our products.” The company uses a mixture of returns processes depending on customer location. Customers in mainland Europe return items directly to the UK, while those in the US and Australia send them to a local office, which then returns them to the UK. “We have an office in Australia with two customer services staff who process returns,” explains Longhurst.
Of course, the volume of returns differs by market and product category: clothing is more likely to be returned but this is relatively cheap in terms of postage or carrier costs. Sending back large items, however, is another story.
The returns infrastructure is not simply a case of running the initial fulfilment network in reverse. For example, it may be feasible for some retailers to supply US orders direct from the UK. But it might not make sense for them in terms of time or money to bring returns all the way back to a UK distribution centre if they can be resold back in the US. On the other hand, if the returned item is just as likely to be resold in Germany, it may make perfect sense.
In terms of carriage alone, it’s an expensive process to return items to the UK, so a regional hub that can process them in a way that will maximise their value is an option for UK retailers to consider.
Pram and nursery retailer Mamas and Papas has built up its international business through offline distribution and franchise models in 50 countries. The majority of its online business in Europe, Russia, China and the US is controlled from its UK headquarters. “We manage the platform, we control content and also fulfil for each of those different platforms,” says the firm’s Ecommerce Director, Rob Jennings.
“The biggest barrier we’ve found to replicating our UK proposition online is the logistics and reverse logistic and after-sales,” he adds. He says its difficulty is sending a pushchair overseas in a way that protects margin. It’s also very expensive to return it from overseas. So Mamas and Papas operates a distribution centre in the US in which large, bulky items are warehoused. Since its website also offers products such as clothing and bedding sets that are simpler and cheaper to fulfil from the UK, customer orders can be split, with items despatched for one order from both countries.
This also means that it doesn’t have to invest in significant amounts of stock in the US and the business there can dip into a very broad assortment of the range held in the UK without having to move and predict soft item stock levels.
“Subject to it being low cost to ship, not attracting too much duty, perishable or damageable through the post, we’ve been able to offer a very broad assortment without holding too much stock in the US. That’s been a bit of a win for us,” says Jennings.
Fashion retailer Boden took a similar approach to multi-line fulfilment in 2008 when it reached the point at which 30% of its orders came from international markets with returns running at 22% of sales. The cost of fulfilling orders from the UK was under control but the cost of returns was becoming an issue. The company decided to set up a fulfilment centre in the US to which customers return goods. The returns were then kept in the US rather than being shipped back, making them available for the fulfilment of future orders from US customers. The US DC starts each season with a predicted amounted of stock necessary for that season’s offering with 80% of US orders fulfilled from the US. As the season continues the amount of orders fulfilled from the US decreases down to around 50% towards the end of the season. “This is so we don’t have redundant stock in the US,” says Kevin Shooter, Director of Operations at Boden, “since it’s easier to clear redundant stock from the UK.”
Orders are still fulfilled from the UK if the stock is not available in the US. This means that some orders are split and customers receive two deliveries depending on whether their order is coming from the US stock and returns or from the UK.
Visibility for fulfilment determination that works out the best place from which to fulfil the order is therefore crucial, explains DAI Supply Chain’s Stocker. “Once it goes multiline it gets more complex,” he says. But once rules have been set, software works out the best option for fulfilment and shows the customer their delivery options and prices on the retailer’s website as they check out. Adding click and collect or fulfilment from store, multiple DCs and countries, along with supplier deliveries to overseas warehouses, adds further complexity, all of which there’s a technology solution for once the business has decided on how it wants to operate.
Another option for retailers to consider when an order needs to be fulfilled from two countries is to consolidate the items. For example, the US stock can be packaged when the UK-fulfilled part of the order arrives at the US warehouse and the items can then be despatched together. But this does slow things down and, as Shooter explains, synchronising when your customers get the different parts of their order is an issue. Being able to offer different delivery methods such as Amazon-like free delivery if you are prepared to wait or next-day delivery if you pay is quite appealing. “We’re now looking at how we tackle that as an issue,” he says.
Ultimately though, delivery from different locations is about managing customers’ expectations and fulfilling to those expectations. “You don’t want to confuse the customer,” he says. One B2B retailer of hardware to the construction industry with 300 UK stores and a full omnichannel offering will be expanding into Germany in 2014 with a fully localised site and a trial of four stores. A third-party logistics provider has been chosen “to take away some of the pain,” according to Stocker, but the stores will use the same back-end systems as the UK operation. Going forward, a real-time view of inventory will be critical since stock could be collected from store, fulfilled from Germany or replenished from the UK, along with deliveries direct from suppliers. To take supplier deliveries into a country DC, the business in that country needs to reach a critical mass, explains Stocker, and a full view of the supply chain is needed to know what can be replenished from where, when stock is due into the different locations and even how the workload will impact on different DCs and transport.
For smaller companies in particular though they may not have enough stock to fill several warehouses, and the cost of having good stock in France when it’s selling in Germany is a pain that makes the (sometimes) higher cost of UK despatch more palatable. “I think what we’ll see more businesses do is try to minimise the perceived barriers to a customer having to buy something cross border. I suppose that comes down to things such as making sure duty is not paid by the customer, that the delivery proposition is as quick as possible, that the delivery cost is as low as possible, so there’s no downside to shipping from another country,” says Mamas and Papas’ Jennings.
“The challenge for the retailer is the proposition of selling a pushchair, for example; shipping it across to Australia is going to cost a lot of money. If I want to offer a free-of-charge proposition I want to make sure I’m recovering that somewhere else, maybe by a protracted delivery lead time, or managing the expectations of the customer in doing that. Or just make it up in the price of the product. But therein lies another challenge, in terms of managing the visibility of prices for the same product in multiple regions.”
Upscaling international operations, from UK fulfilment and returns via multiple carriers handled by a CMS, to distribution centres in multiple countries is complex. That’s even before factoring in a physical store network or customs, duties and pricing. So, whether you match fast delivery via courier from the UK, set up your own DC overseas, or use the services of a third party, the customer will be happy as long as the service matches or exceeds the promise.