How to Write About Sourcing and Fulfillment in Your Business Plan

sourcing and fulfillment in your business plan

Whether you’re developing a traditional business plan or just a Lean Business Plan, remember that direct costs matter.

Sourcing and fulfillment (which are direct costs) are the other side of the “what do you sell” question: How do you build that product? How do you fulfill that service? What does it cost you? Where do you buy the components? They’re critical factors for any business. 

In a Lean Plan, sourcing and fulfillment costs might be merely implied in the direct costs section of the forecast, or in a few bullet points in tactics, or operations. In a full formal plan, it might be included in the section on the operations. If you’re using LivePlan, you’d add sourcing and fulfillment as a topic within the operations section in the Execution chapter of your plan. Keep in mind, not every business will need a sourcing and fulfillment section in their plan, so only include it if you need it. 

What are sourcing and fulfillment?

Sourcing or fulfillment are descriptions of where you get the products you sell (sourcing); how you fulfill the services you sell (fulfillment); or how you package, assemble, and ship products you sell online (fulfillment).

For products, sourcing commonly covers how you purchase from distributors, vendors of raw materials, suppliers, and so forth. For services, fulfillment commonly includes how you work with subcontractors, drivers, analysts, research sources, and so on. Fulfillment also applies to assembly, packaging, and shipping for online product businesses.

However, whether or not you include a section on sourcing and fulfillment in your business plan depends of course on the exact nature of your business.

Sourcing is important for most product businesses, but maybe not for the craftsperson selling handmade goods or hand-painted greeting cards at a local flea market. Fulfillment is important for most service businesses, but maybe not for the self-employed management consultant who does the work alone. It’s important for some product businesses—those that take orders and ship, or those that assemble products, might have both sourcing and fulfillment.

Use your common sense as you decide what works for your plan. If you are developing a more traditional plan, then the title of that section is normally “Sourcing” for products, “Fulfillment” for services, and “Sourcing and Fulfillment” if you sell products and services, or if the products you sell need to be assembled and shipped, or if you need to deal with packaging and shipping for online orders.

None of this is an exact science or strictly required. Use your common sense to decide whether or not this section applies to your business and your business plan.
New Call-to-action

Manufacturing businesses

Sourcing is likely to be important to a manufacturing company. Your vendors determine your standard costs and hold the keys to continued operation. Analyze your standard costs and the materials or services you purchase as part of your manufacturing operation. Include spreadsheet lists, bills of materials, and standard cost breakdowns. Include unit economics.

You may have additional documentation you can copy and attach as appendices, perhaps even contracts with important suppliers, standard cost breakdowns, bills of materials, and other information.

Where materials are particularly vital to your manufacturing, you might discuss whether second sources or alternative sources are available, and whether or not you use them or maintain relationships with them. This is also a good time to look at your sourcing strategy, and whether or not you can improve your business by improving your product sourcing.

Product sales, retail, distribution, resale

The bookstore needs to buy books. The restaurant needs to buy raw foods. The hardware store needs to buy everything it sells to have the goods on the shelves. So, resellers should explain how they work with distributors if they do.

They can also call out the most important distributors, and explain the discounts and margins involved.

Fulfillment for products includes assembly, packing, and shipping

Some product businesses include a fulfillment function related to assembly, packing, and shipping.

For example, one of the early strategic decisions we took at Palo Alto Software was not to assemble physical products and pack and ship from our offices. Instead, we used an outside vendor, called a fulfillment house, that stored components (disks, boxes, packing materials) and did assembly and shipping on-demand, for a fee. That allowed us to focus on the software without having to manage those fulfillment functions.

The per-unit costs were higher, but we didn’t have to worry about capital costs for shrink wrapping equipment or fixed costs of employees and managers.

Services have sourcing and fulfillment too

Sourcing is not just for product-based companies. For example, a professional service company, such as an accounting practice, medical practice, law practice, management consulting firm, or graphic design firm, is normally going to provide the service by employing professionals. In this case, the cost is mainly the salaries of those professionals.

Other service businesses are quite different. The travel agency provides a service through a combination of knowledge, rights, and infrastructure, including computer systems and databases. A restaurant is a service business whose costs are a combination of salaries (for kitchen and table waiting) and food costs.

How to include sourcing and fulfillment in your plan

For a traditional business plan, “Sourcing,” “Fulfillment,” or “Sourcing and Fulfillment” will be a section in the product description. Include details, such as bill or materials, or distributor or vendor relationships, as needed to serve your business plan purpose.

For a Lean Business Plan, you might have sourcing and fulfillment metrics and milestones included in your metrics and milestones lists. Important decisions and tradeoffs related to sourcing and fulfillment might be included as bullet points in the list of tactics, or even in some cases in which your decisions in this area might be included in milestones and metrics or tactics.

Editor’s note: This article was originally published in 2016. It was updated in 2019. 

Was this article helpful?

Source link

How to Survive “The Amazon Effect” as a Small Ecommerce Business Owner

the amazon effect

You’ve just bought something that looked perfect online and you can’t wait to get it in your hands. Take a moment to pause and think about that last bit: How long would you actually be willing to wait to get your item?

For the vast majority of products—whatever your target marketpeople are willing to wait about two days. This desire to have what you want at that speed is what the industry has coined “The Amazon Effect.”

It’s turned a vast majority of the ecommerce world into a race to the doorstep, and plenty of things are falling by the wayside in the rush.

For small ecommerce businesses to survive and grow, you’re going to have to come to grips with this new reality and react to it in a way that your customers want, whether they know it or not.

Beware “The Amazon Effect”: Price, speed, and limited results

Amazon has more than 100 million Prime accounts and that mix of people and businesses is driving the American economy. We often hear about them being empowered to impact change and set offline expectations due to what they experience on the site, and this is somewhat true.

What’s likely more important for most small ecommerce businesses and owners like you is that people are narrowing their choices even further based on search while increasing their demands. They’re looking at price and speed, with a secondary glance at quality.

They’re also facing too many options to even consider. Specifically, on Amazon’s platform, they can’t even see all their options.

If you search “red baseball cap” Amazon tells you that there are “over 100,000 results” but limits you to just seven pages of results. They’re not even seeing seven full pages, as the last one cuts off roughly 30 items earlier than the rest. So, you can browse 306 different options, or 0.3 percent.

avoiding the amazon effect small business

Checking the “Prime” box drills that down all the way to just “over 9,000” results and choosing 4-star and higher rated products drills down to “over 3,000.” However, you’ll never be able to see past the 306th option on any search.

So, people who are using Amazon each day to determine the products they want are almost always drilling down further based on customer reviews and shipping speeds. They’re likely also being clued into this shipping speed as a hallmark of quality because, in that same search, every single item on the first page was a Prime item. The “Amazon’s Choice” designation also was limited to only Prime items and specifically notes that they’re “available to ship immediately.”

Your customer’s demands and understanding of value are being shaped specifically by the largest online marketplace, and it is directly linking value to something that’s difficult for small ecommerce stores to do on their own: offer free two-day shipping.

View our Business Management Guide today!

Your business’s operations have changed

Competing with Amazon can feel overwhelming, and fewer are trying. Many are incorporating Amazon as just a single channel in their ecommerce business plans, hoping customers will shop there and like the brand enough to consider looking at Instagram, search engine results, or their own website for more information and options.

Part of getting your ecommerce business “right” is determining how (and if) you want to compete, or if you want to treat Amazon as part of your overall strategy. There are many successful brands and companies taking each path.

Incorporate Amazon sales into a subscription box business model

Media darling Dollar Shave Club built a major business through smart advertising and getting in on the subscription box craze ahead of the game. It could have continued a long successful run without ever stepping foot onto an Amazon page. However, they adapted part of their business model and the partners they use in order to seize the new channel.

dollar shave club amazon effect

Either Dollar Shave Club or some of its partners saw value in Amazon, much the same way consumers do. That’s what you will need to target.

Ecommerce businesses of all sizes must find a way to demonstrate and provide value to the shopping audience. Amazon has resources and scale that will be hard to compete with, so you’ve got to find a way to generate your own value. 

Subscription box businesses actually do this by eliminating the need to sift through and choose from hundreds of thousands of products; instead, the choice is made for the customer. They get a curated selection for an affordable price. It’s why on Amazon all you’ll get is a gift card to spend toward those chosen-for-you boxes.

Look for opportunities to create customer experiences, offer unique products, personalize your offers, or provide easy education on a product. If a customer is visiting your website to achieve a purpose like this, it’s more likely that they’ll turn to your site for the purchase too.

Instead of providing products, no matter if you’re B2B or B2C ecommerce, you’ve got to provide a value.

Be mobile-friendly

Developing a strategy that addresses The Amazon Effect depends on how well you know your audience, and how willing you are to keep the expertise so that you can respond correctly.

For instance, is your ecommerce site mobile-friendly? Your audience is on their phone more than ever, so your site needs to be ready. Cyber Monday 2018 was the largest online sales day in U.S. history and mobile devices accounted for more than a third, $2.8 billion, of those sales. That’s a 56 percent increase for smartphone-based sales.

That same review of 2018 holiday season sales looking specifically at your market shows that mobile accounted for 41.7 percent of the total e-commerce sales over the 5-day period from Thanksgiving to Cyber Monday.

Use personalization for different demographic segments

Mobile is just one way to highlight the need for a customer-centric approach to your business. Your audience might be more receptive to emails that greet them by name, marketing campaigns that rely on Instagram influencers, collaborations with other companies, or product combinations that make it easier to know what the “right” choice is for them.

small business personalization amazon effect

Personalization comes in a wide range of flavors, and people respond well to almost all of them—just don’t get too creepy. So, if you’re struggling with an opening move, start small and simply showcase additional and related products below the featured item on any given sales page. That’s also a very basic introduction to AI, where you highlight related items based on past site visitors.

As you grow and learn more, you can use more sophisticated AI and personalization tools to create more compelling offers. At its heart, though, your response has to be guided specifically by your audience.

Deliver quickly: Get the last mile right

The must-have is speedy, accurate fulfillment. It will push your business to be as efficient with deliveries as possible. That sends a lot of small ecommerce businesses our way—check out this list of the best ecommerce fulfillment providers that we share with owners just like you—for conversations around what it all means and how to respond.

You can outsource warehouse and fulfillment to someone like us who specializes in it, or you can run the operation from your site. There’s a lot of technology that makes either option possible, and there are different points in the life of a business where one option will make more sense than the other.

Don’t trust any company, whether a fulfillment provider or someone trying to sell you warehouse software, who says that there’s always one smart choice or that anything in ecommerce is one-size-fits-all. Just like when you talk to a lawyer, every quality answer is going to start with “it depends.”

The important part for your business is determining what you can afford and then promising that to your customers. If you or your partner can reach every home in the continental U.S. in two days, then say that. If you can’t, don’t promise it. 

customer service and the amazon effect

If you need to charge more for delivery, do your homework to see if your specific audience is more accepting of paying directly for shipping or if you need to bake that into your product costs. Again, it depends.

Do more than survive

For traditional ecommerce, your customers are going to judge you on the full process, from discovering your products through order, payment, and delivery. If they’re unhappy along the way, you get the blame. If you go the Amazon route, you get to skate on ordering and fulfillment. Unfortunately, the focus on Amazon there also means you’re building less of a relationship with your customers.

Surviving and thriving in the age of The Amazon Effect comes down to understanding how you want to run your ecommerce business, where you want to differentiate, and how you’ll build the long-lasting relationships with customers to keep your business going.

Is it right to compete on price, personalization, relying on your channels, or joining the big product lists and trying to be the best at Amazon SEO? It depends.

The good news for everyone reading this right now is that there are answers and options available no matter your business size or product categories. Treat your business and your customers right, and you’ll be able to do more than just survive The Amazon Effect.

Was this article helpful?

Jake Rheude

Jake Rheude is the director of marketing for Red Stag Fulfillment, an ecommerce fulfillment warehouse that was born out of ecommerce. He has years of experience in ecommerce and business development. In his free time, Jake enjoys reading about business and sharing his own experience with others.

Source link