3 Warning signs that your operations backend can’t handle a sales increase

This is a guest post from Jon Gettinger. Jon is the Chief Marketing Officer at Pipe17. Pipe17 replaces the pain from disconnected systems in eCommerce operations with smart pipes that connect your selling channels, marketplaces, 3PLs and fulfillment services for automated management of orders, inventory, and products.

Sales and marketing may bring customers through the digital front door, but it’s your eCommerce operations team that really makes the magic happen. Ops are the ones behind order management, shipping, packaging, scheduling, and delivery. They make sure you’ve got the right inventory, in the right place, at the right time, going to the right person.

This isn’t an easy job. The ops team has to be extremely organized. To pull this off, they have to be plugged into all the sales channels. While staying in touch with your warehouse partners. And staying on top of all tech systems. And keep up with marketing, PR, and sales initiatives. And… The list goes on.

And here’s the thing: small trouble-areas in your operations backend become huge, business-breaking challenges when you grow. That’s why it’s absolutely vital to catch the danger signs early and fix them. In this post, I’ll walk you through three of the top ops danger signs and show you what to do when you spot them.

1. You don’t have a streamlined fraud-detection process in place

When sales go up, fraud usually goes up too. According to the 2020 LexisNexis True Cost of Fraud report, eCommerce fraud didn’t just increase in 2020. It also became more sophisticated and harder to fight. They estimate that every dollar directly lost to fraud, costs companies $3.36. The negative ROI is clear: the more you grow, the more you risk losing.

The main culprit for eCommerce fraud is card-not-present (CNP) transactions. According to Nilson Reports, CNP purchases accounted for just 15.4% of purchases worldwide yet made up 65% of losses to fraud. And according to a report by Juniper Research, global retailers stand to lose up to $130 billion over the next 3 years to CNP fraud.

So let’s decrease the chance your business becomes a statistic. Here are three of the most common fraud types in eCommerce and what to do about them.

Credit card theft fraud

When a customer uses an illegally obtained credit card to buy from you, it usually counts as credit card fraud. On the operations backend, credit card fraud usually follows one of these patterns:

  • a customer buys a very small purchase — something that doesn’t really make sense for your store — followed by a very large purchase OR
  • a customer tries using multiple credit cards to buy small or large items, before getting one that works OR
  • a customer changes the shipping address and the email confirmation address for a large order (this keeps the real credit card owner from seeing the confirmation email) OR
  • a customer ships a very large order to an unusual — sometimes international — address

These actions don’t always lead to fraud, but they are a good early warning system. That’s why merchants need to use them. The easiest way is to set system notifications that alert ops when your systems detect one of these orders. Your system should then pause the order until someone on the ops team can double-check the transaction. By pausing order fulfillment, you’re preventing fraudulent orders from leaving the warehouse and costing you money. If you can’t set notifications up in-house — or it just doesn’t make sense — you can use a fraud management tool.

“Friendly” fraud

Friendly fraud is anything but friendly. Here’s how it works: a customer orders something from your eCommerce store. After receiving the order, they initiate a chargeback with their credit card company. This can be because a family member used the card without permission or — in more insidious cases — because they simply changed their mind. One survey found that 80% of credit card holders have started a chargeback because they didn’t have time to follow the merchant’s returns process.

So what can you do? Too many chargebacks can lead to getting kicked off marketplaces and they can ruin your reputation. That’s why the best approach is twofold: you need to decrease the incentive for chargebacks and create an iron-clad dispute process.

Start by having clear use and return policies on your website. Then, make sure your customer service team has everything they need to keep customers happy. And when preparing for a chargeback fight, create a clear paper trail of everything. Capture transactions and show your policies so that you can present a compelling case to the bank.

Returns fraud

Getting returns is a part of the eCommerce life. But returns can lead to fraud. Here’s how: sometimes customers send other items in your returns package. So when you process the return, they get the item and the money back and you get stuck with a different product.

That’s why — as you grow — you need to introduce a returns process that checks the items before processing the return.

2. Your ops team is growing in numbers… but not in efficiency

Too often, when there is an eCommerce operations problem, the go-to solution is to hire more ops people. On the one hand, that makes intuitive sense. If there are more problems to be solved and more work to be done, adding more people to do seems smart.

But on the other hand, adding more people just systematizes inefficiencies. And the bigger the team grows, the harder it is to get to the core of the issue. So, instead of getting better, processes just get bulkier. There’s also the uncomfortable elephant in the room: adding more people means there’s more room for error. In something as systematic as operations, the more people “touch” a process, the higher the chance something would break.

So what do you do? Before hiring more ops team members, it’s time to go back to your operations systems and ask some key questions. Because when you set up the processes right up front — so they flow automatically— it saves a lot of stress and hair-pulling down the line. Here are some processes you should have in place:

  • An updatable list of countries with shipping embargos. If you’re shipping internationally, you need a living list of countries you can’t ship to. This keeps you from wasting time chasing open orders or losing orders at the border. 
  • A clear process for unusual addresses. Some WMS systems can’t automatically process orders to Hong Kong because of the lack of zip codes. Or they can’t read addresses in Chinese or Arabic. Or some countries require addresses in two different alphabets. These kinds of orders tend to get stuck in the system. To prevent that, create a systematic operations process that shows everyone on the team how to handle them. 
  • Streamlining the packaging system. Some warehouses use their own boxes, but for a lot, you have to send your own. Depending on your brand, this may mean designing your own on-brand box and making sure your warehouses have what they need, in the size they need it, when they need it. The last thing you want is insufficient boxes when you have a spike in orders. 

3. Your operations team’s tools are insufficient

How well do your current tools speak to each other? Does your ERP talk to your 3PL or warehouse partner? And how well do your sales channels talk to your warehouse? Do you get notified when there are breaks in your system, like if Shopify or Amazon go down? And how much of this is manually done by the operations team through a series of complex-looking spreadsheets?

Even though operations are the backbone of any eCommerce business, most of the time their technology lags behind that of sales, marketing, and finance. That’s because most of the ops processes we rely on today were built on legacy processes set up before APIs became mainstream. (And in a lot of these cases, these processes existed before we built APIs…)

Does that mean you should replace all your current operations systems and disturb your team’s work? No. It’s about connecting the systems and processes your team already uses. Pipe 17 takes all your systems — from your product spreadsheet and ERP, to your wholesale and inventory spreadsheets and gets them to talk to each other.

And when systems talk to each other, beautiful things start happening. Instead of stumbling in the dark, your operations team can see everything thanks to automated data flows between tools. This level of visibility helps businesses make smarter decisions about shipping, fulfillment, and order management.

In short, visibility helps you speed things up and sell products faster. It helps you catch problems before they impact your customers and break the business.

Don’t get caught with your processes down

In eCommerce operations, processes are everything. They are the difference between losing out on orders and ruining your store’s reputation and keeping customers and partners happy. And that’s why the more you sell, the more you need processes and technology that support you. That shows you everything you need to see to run the business more efficiently.

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