How to Think About Operations for Subscription eCommerce
by Paul Vinuelas
April 13, 2017
You're here because you've either started or thought about starting a subscription-based business. It's a great idea given current consumer behaviors. Today's young consumer values convenience and curated experiences through online channels, which is why your subscription-based business is a perfect fit. Subscriptions are naturally curated products, chosen for the consumer, and delivered at regular intervals that are easy to plan around. It's how brands like Dollar Shave Club and Birchbox have grown so vastly in the last few years, subscriptions are just a great way to do business in today's eCommerce landscape.
So you have your products and your branding set up, but how do you approach the operations? There are key benefits to leverage and important challenges to address when approaching subscriptions from an operational perspective. Subscription-based businesses have natural advantages in inventory purchasing, fulfillment labor costs, and shipping options, but on the flip side, they also have much smaller margins of error when it comes to customer service and fulfillment. These benefits and challenges must be kept in mind as you build out your business operations for your subscription-based business.
Operational Benefits to Subscriptions
Since subscriptions are pre-set orders that have to be fulfilled by certain delivery dates, it makes pre-planning the entire fulfillment process much easier.
First, it's much easier to forecast purchasing decisions. When you already know how many orders you need to fulfill, you can purchase exactly what you need - and nothing more. That drastically lowers inventory holding costs, and allows you to make the right purchasing decisions when restocking your inventory.
Second, subscriptions are easier to fulfill with efficiency. Because the orders are pre-set, you can package your orders all at once, allowing you to contract part-time labor for periodic work as opposed to maintaining a full-time staff that waits around for orders to pick and pack. This way, you're not wasting money on labor during idle periods, which translates to a lower wage bill and more profits.
Third, subscriptions are easier to ship affordably. Since the orders have a predetermined delivery date, all of the orders can be delivered using affordable ground shipping. There's no need to express ship a subscription package to ensure timely delivery. If you have the order pre-packed a week in advance, then you can exclusively use cheap ground shipping to satisfy the customer.
In general, introducing hard schedules to your fulfillment processes provides a foundation to build more efficient processes on. Since this is much more difficult with traditional eCommerce - orders come and must be processed ASAP - having a subscription-based business naturally lends itself to leaner, more streamlined operations.
Operational Challenges to Subscriptions
By having pre-set delivery dates, you're afforded a lot of natural advantages. However, these advantages come with higher expectations from your customer, which means you have less room for error when it comes to delivering orders. If you miss the pre-set date for delivery, the customer will be less liable to forgive the lapse in service. Because of this, there are a few common challenges that you'll run into from an operational perspective.
First, supply chain planning has to be well thought out with multiple contingencies in place. Let's say you deliver a box of curated snacks from other countries. If one of these countries goes through a labor issue that prevents your imported snacks from getting to your warehouse on time, there needs to be a viable replacement or contingency available to keep the order moving. Since snags in the supply chain are inevitable, it's best to have a plan B in place if your order gets held up.
Second, cancellation policies must account for the longer processing and delivery cycle of a shipment. Most subscription-based companies require customers to cancel their shipments a week or two in advance, which allows them to save on labor and shipment costs if the customer decides to cancel a shipment or their entire subscription. Since all these packages are prepared in advance, and use the longest shipping options possible, getting a cancellation during that time represents waste and a potential point of contention for customers.
Third, quality assurance policies need to be more robust to account for the higher number of items in subscription shipments. It's already tough enough to screen one or two-item shipments for QA, but that process becomes much more complicated for shipments that have five, six, or even twelve items! And as we mentioned before, expectations are heightened for subscription orders. If a customer realizes that they received only five of their six promised items, that's another trail of angry support tickets and a potential cancellation that you'll have to deal with.
What To Do If You Outsource Your Fulfillment
Of course, if you outsource fulfillment for your subscription orders, then the operational benefits and challenges are no longer your concern. At that point, you just have to figure out the cost of outsourcing those orders and gauge the fulfillment performance of your 3PL. However, to ensure that you get a fair price and good performance, ask your 3PL these three questions:
- 1. How flexible is their supply chain management? Ask if they have any contingencies in place if there's a supply chain failure that could hold up orders.
- 2. How good is their QA process? Remember, your business will probably be shipping a lot of items in one order, so there has to be assurances that every expected item will be shipped to the customer.
- 3. Are there any discounts on pick-pack and shipping fees for subscription-based businesses? You know that there are cost savings to be had in subscription-based fulfillment, so see if your 3PL will pass those savings to you.
We know that building a subscription-based business can be tough work, but there are definite benefits that can help propel growth and provide early returns. Operationally speaking, subscriptions are a great model to use because of the inherent benefits of tying a hard schedule to your fulfillment cycle. Remember the key benefits and major challenges to building logistics around your subscriptions. And one last piece of advice: make sure that there are plenty of checks and failsafes to ensure the customer gets the best experience possible with your business.