Now that we operate across multiple channels, we find it difficult to make profit projections accurate. How can we change that?
Profit projections are difficult in a multichannel environment because costs of procurement, handling and fulfilment are variable.
If all orders are picked up in store, profit margins are predictably high, while costs are less predictable if orders are mailed or drop-shipped to the customer the next day.
According to Craig Sears-Black, UK managing director of supply chain management software provider Manhattan Associates, the key to predictability and profitability is to be able to analyse the total cost of a sale, including all direct and indirect costs.
Direct costs include those for the inbound movement of goods, the distribution centre and getting the goods to a store or customer’s home. Indirect costs cover all other operational costs assigned to a product group or item. Also, with return rates varying substantially by product type, this cost needs to be factored into the profitability equation.
Real-time cost information on the customer order fulfilment process and live margin visibility throughout the supply chain lets retailers make cost-based decisions for sourcing, routing and order fulfilment, adds Sears-Black.
The right technology behind the order management system makes this possible, providing strong, useful business intelligence.
This analysis informs decisions about fulfilment, for example, to implement flexible pricing models or customer incentives towards lower-cost fulfilment.