Many companies are considering investments in automated fulfillment systems today because of the strategic benefits and competitive edge automation can bring — especially to ecommerce retailers. But when it comes to actually investing in automation, some companies shy away from the level of change that will net them the advantages they seek.
Why?
The blame often lies in the payback analysis needed to justify the capital investment. Too often companies focus their analysis only on the cost savings associated with the automation — reduced labor requirements, lower shipping costs, increased processing efficiencies — and not on the revenue generation that will come with increased customer loyalty.
This lack of insight into the bigger picture benefits that come with automation can mean the difference between automation that simply enhances internal operational efficiencies and automation that actually nets a company a competitive market advantage.
The Missing Metric of Customer Loyalty…
The reality that many miss is the fact that the companies with the competitive edge are the ones that retain customers. (If there’s any doubt, do a little research on the customer loyalty statistics for Amazon and Amazon Prime.) And, not surprisingly, it’s also the companies with the competitive edge that recognize the revenue generation benefits of customer loyalty and factor that into their payback analysis when it comes to cost justifying investments in automation.
Customer loyalty has long been recognized by authors like Frederick Reichheld and W. Earl Sasser Jr. to have many economic benefits that lead to greater profits and increased revenue. This can be attributable to the fact that loyal customers have been shown to spend more than new customers over time, purchase higher margin goods, and act as commission-free referrals to the businesses they support. ¹ They also cost less to serve. And they cut down on the need for costly new customer acquisition.
So How Does Automation Lead to Greater Customer Loyalty?
Simply put, an enhanced ability to fulfill orders in a timely fashion leads to a higher level of customer service across all retail channels. Higher levels of service not only net satisfied customers who will return for future purchases, but also translate to fewer lost customers who would otherwise take their business to the competition for their next purchase.
One of the ways companies measure their success in the areas of customer service is through their adherence to the delivery date promised to the customer when ecommerce goods are purchased. The greater the level of adherence to the promise date, the greater the level of customer satisfaction and retention.
Given that, smart ecommerce companies are keenly focused on the keeping their promises as a means of measuring fulfillment success.
Customer Loyalty Through Automation Technology
Innovations in fulfillment solutions are enabling companies to implement automated fulfillment systems that not only ensure customer promises are kept, but also reduce the cost of goods sold in the process. Technologies such as ASRS shuttles, automated robotic put walls, and AMR supported goods-to-person picking stations in combination with algorithmic-rich warehouse execution software and waveless processing methodologies enable automated fulfillment efficiencies with which manual or even partially automated systems can’t compete.
So if your company is considering automating its fulfillment operation, don’t overlook or underestimate the potential revenue generation that will come from increased customer loyalty in your payback analysis. The equation for your payback analysis should be:
cost savings/yr + revenue generated/yr = financial justification
It could mean the difference between automation that simply enhances operational efficiencies and automation that actually nets you the competitive advantage you seek.
1 As excerpted from the white paper: The Economics Behind Customer Loyalty
Walter High is VP Marketing at MSI Automate, where he has worked since 2012.