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Offsetting Inflation

Offset Inflation with an eCommerce BPO

By focusing on operational efficiencies and cost-savings strategies that help protect margins and maintain high standards of quality and service, eCommerce BPOs (business process outsourcers) can help brands cope with rising prices. According to the Bureau of Labor Statistics, inflation rose 8.5 percent over the last 12 months, with fuel, shelter and food driving most price increases. Energy costs alone rose 32 percent in the previous 12 months. Despite this reality, brands won’t have to sacrifice customer satisfaction with a proven eCommerce BPO in place

Impacts of Inflation on eCommerce

In March, Adobe’s Digital Economy Index reported that consumers spent $1.7 trillion online in the last two years of the coronavirus pandemic. But inflation was responsible for $32 billion worth of that spending rather than more purchases.

The trend continues. Consumers spent $138 billion online in the first two months of 2022 alone and are expected to spend a record $1 trillion online this year. However, Adobe predicts that inflation will lead consumers to spend as much as $27 billion more in 2022 on the same amount of online purchases.

What is driving inflation in eCommerce?

You cannot talk about inflation and not discuss COVID. It was the catalyst that started this inflationary path, especially when talking about the impacts on brands. It is the direct reason for some of the supply chain backlog we see now, and it’s driving up costs on the transport side.

The war in Ukraine has also had a significant impact on inflation by driving up the cost of fuel. This comes on the heels of supply chain and supplier shortages. Add it all together, and you get a situation where shipping costs worldwide have gone up seven-fold since March 2020. And when freight costs go up, everyone feels it. The International Monetary Fund reports that “when freight rates double, inflation picks up by about 0.7 percentage point. Most importantly, the effects are quite persistent, peaking after a year and lasting up to 18 months. This implies that the increase in shipping costs observed in 2021 could increase inflation by about 1.5 percentage points in 2022.”

Finally, wage acceleration has added another cost factor. As eCommerce spiked, distribution centers located in the nation’s fulfillment hub of Memphis and surrounding areas had to ramp up operations by hiring more people. That drove up the cost of labor in these regions, which helped put inflationary pressure all up and down the eCommerce chain from brand to consumer.

How an eCommerce BPO can help

But not all is lost. eCommerce BPOs such as PFS are helping brands and retailers offset the cost increases that make consumers think twice about buying anything besides the most necessary items. This has been done by diversifying suppliers, warehouses, and labor pools geographically.

In the US, the majority of eCommerce fulfillment activity has traditionally been concentrated in the major distribution hub of Memphis, TN and surrounding areas which can easily reach most of the country’s population via ground shipping in two days. Brands could easily keep inventory in one warehouse, making it a much simpler operation to manage. These days are now gone.

Where we are today is more like the Amazon model. Amazon has warehouses all around the country and created a sophisticated algorithm that determines how to get inventory into the right warehouse based on predictions of regional shoppers’ spending habits. But not every online retailer has Amazon’s reach and capital to invest in multiple warehouses.

This is where eCommerce BPOs can help. By storing inventory in multiple warehouses around the country, a qualified BPO can get products closer to shoppers without the high cost of building and operating their own distribution network. Through deployment of distributed order management (DOM) technology from a BPO, brick-and-mortar stores—now less frequented by customers but still full of stock—can function as mini-warehouses and distribution centers to get products closer to consumers and enable faster fulfillment. This localized approach to inventory management, fulfillment and shipping is helping to offset the rising cost of fuel and resulting freight increases.

Keep customers happy

There’s no silver bullet to combat inflation. But technological efficiencies in logistics and operations, a multi-node distribution center approach, and less expensive shipping methods (or no shipping at all, think BOPIS) can be powerful tools when dealing with inflation and keeping customers happy.

Get in touch with PFS today to learn more about how we can help you combat the unprecedented challenges in today’s market.

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As Vice President of Business Operations, Jamie is responsible for PFS' global portfolio of 70 brands. Throughout her 10+ years at PFS she has served in various roles across the organization, giving her a wealth of industry knowledge across verticals. Jamie applies her expertise to guide our clients to successful eCommerce operations.

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