If a global pandemic wasn’t already enough to deal with – looks like it’s time for another worldwide disruption. Inflation has been on a steady rise over the last year, impacting people and businesses everywhere. The Bank of England predicts that inflation will be up to 11% within months, the highest rate for 40 years in the UK. Globally, prices are rising for everything from food to everyday products and energy costs.
Economic frugality requires making challenging decisions about where to axe costs – but it also means re-evaluating operations in general. Though seemingly negative, financial strain and deciding your operations moving forward can bring innovation and a surprising surplus of cash. In these challenging times, businesses tend to wait until the last minute to focus on the liabilities of their business. Conversely, some businesses simply prefer to hunker down and wait it out – keeping them treading water and remaining stagnant.
Now is the time to audit your accounts department and scrutinise your incomings and outgoings. The rising costs of inflation on eCommerce sellers in particular are a huge burden. If you’re overspending on internal operations with your online retail business, then it may be time to make the switch to a 3PL – to cut your costs, remain profitable and help safeguard your operations against inflationary pressure and rising costs.
How inflation affects the eCommerce business
One aspect of inflationary factors affecting eCommerce businesses everywhere is when there is an unhealthy balance of supply and demand. Currently, much of the inflation is due to a turbulent supply chain infrastructure, driving the price up for commodities like raw materials, goods, and production costs – a trend largely observed during Covid when online retail skyrocketed. Suddenly, businesses had to compensate for the new demand, but supply operations were still in limbo – plus, many factories were shut down or only operated on a limited capacity. So, as inflation increases, companies need to find ways to cut their costs, increase productivity and meet demand.
Some of the biggest issues for eCommerce businesses currently include the rising costs of goods, utility bills, employees and transportation. A thorough understanding of internal and external supply chain operations and the short and long-term effects of inflation on them is particularly important for companies looking to capitalise on opportunities and avoid potential problems. Smart organisations can leverage this knowledge to develop effective supply chain strategies, which can help minimise costs and maximise customer satisfaction.
The rising costs of energy on internal operations
Warehouse costs
As energy costs rise for businesses, the cost of operating warehouses continues to increase. Rising energy costs for businesses with warehouses can affect more than just the bottom line. Electrical equipment, such as central air conditioning and refrigeration equipment may require special maintenance to ensure sustained function. Energy costs also determine the rental rates of warehouse space, which can skyrocket.
Employee costs
Sellers must protect themselves against escalating employee costs that come with inflation. Employee compensation is one of the main cost drivers for retailers, as it can account for between 40 to 80% of gross revenue. In a high-inflation environment, sellers can safeguard their profits by exercising control over employee costs. Inflation creates uncertainty for sellers because the price their customers pay does not keep pace with the cost of living. When you’re developing a budget and trying to stay within your financial means, digging deep into the details of your strategy may give you some unexpected savings.
The rising costs of goods
From soaring prices of materials and labour to rent, utilities, and more, covering the rising costs of inflation can be difficult if you’re not hitting sales goals. Fortunately, there are ways to mitigate these risks and keep your business moving forward. You need to be thinking about contingency plans for running out of key inventory items, negotiating supplier contracts, monitoring key data points like inventory price rolls and shipping rates – as well as important new trends in customer value creation such as promotions and discounting.
To remain competitive in business, many sellers feel tempted to raise prices or reduce wages to prevent losses in profits and cover these increases out of their own pockets. There may be a better idea, though. Ecommerce sellers should protect themselves from inflation and rising costs by measuring ROI and considering automation with third-party logistics. From saving money on warehouse space to utilities and employee costs, it’s an instant win. This way, while your competitors are price-gouging customers, you will be at the front of the line for the preferred price point – increasing sales. Furthermore, internal audits of wasteful spending can embolden your business, allowing easier scalability.
How 3PLs save your eCommerce business money
Third-party logistics (3PL) are an increasingly popular solution for companies with complex supply chains, which has increased significantly in the last decade. 3PLs can help save you money by taking over supply chain operations, freeing up time and money associated with running your own logistics, as they have their own warehouses, employees, and efficient systems around inventory management.
3PL warehouse costs
Suffice to say that not all warehouses cost the same – however, with 3PLs, there are no warehouse costs. With a 3PL, you are provided with the facility and a facility management team, freeing up valuable resources for you to serve your customers better. For medium to large enterprise-level brands, this could mean tens of thousands in savings to hundreds of thousands or more a year. If you’re a large company, then these costs could be astronomical.
Energy costs for using your own warehouse or facility can range from thousands to tens of thousands a year. On top of that, you also have water bills for your facilities, insurance coverage etc. One of the advantages of using third-party logistics is that you will immediately pocket these costs. Your energy costs with a 3PL are also basically none. What could a few extra thousand or even tens of thousands do for your business? Could you bring on some more help, spend more on marketing, and invest in more products? 3PL services allow you instant savings on your energy bills and more.
In line with worldwide inflation, couriers also naturally have to raise prices. When oil and gas prices increase, that cost is passed along to clients along the supply chain. Because couriers have strong ties with 3PLs and rely on them, they negotiate rates on your behalf. The network of the right 3PL partner will work with multiple carriers both domestically and internationally, to help mitigate associated costs.
Safeguard your eCommerce business to beat inflation & rising costs
While inflation will affect many aspects of business, the impact it has on supply chains can have a significant impact on sales and consumer decisions. If a business wants to grow, it will need to consider how inflation will affect its revenue and operations. Rate increases can happen for many reasons, such as warehouse leases, shipping supply, payroll, couriers, etc. This is why it’s important to know what causes inflation, how it affects businesses and consumers, and why it is so important to be aware of its effects on your operations. You should be paying close attention to the frequency of increases so that you are getting a fair deal agreed upon by all parties.
When working with 3PLs to streamline these challenges, it’s important to solidify a pricing structure that benefits your business – especially in lean times. As a business owner, you have to pay particularly close attention to what you’re signing. It may feel like a daunting task, but it’s vital to ensure a deal that is fair for both you and your customers.
