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Whether an e-commerce business is just starting out or trying to grow, there can be an overwhelming number of factors to consider. Product development, marketing, social media, customer service, and many others require thought and attention for a business to be successful. With so much to consider, it’s easy to overlook one of the most important components: logistics. E-commerce logistics are critical to success — if a business can’t get a product to its customers when they need it, the customers will find someone else who can. In a world dominated by e-commerce, the consumer always has another option.
E-commerce logistics have become more challenging in recent years with the rise of Amazon’s two-day free shipping standard. In the past, 10-day shipping at an added cost was the norm, but Amazon revolutionized the field with Amazon Prime. These days, consumers have come to expect delivery in two days flat and free of charge. Moreover, consumers today will accept no less than quality and accuracy in their deliveries. Sellers need a reliable supply chain to meet that demand, and many companies simply do not have the bandwidth or resources to deal with many of the logistics issues that are related to e-commerce.
Here are some of the main e-commerce logistics issues that retailers need to consider to make sure they have all of their bases covered.
One of the first questions e-commerce business owners should consider is whether or not to outsource their e-commerce logistics to a third-party logistics provider (3PL). Many sellers are hesitant to outsource, primarily due to a fear of losing control or concern that 3PLs may be more expensive than handling logistics in-house. However, there are enormous advantages to outsourcing. Outsourcers have an abundance of capabilities that individual sellers do not, such as technology, manpower, geographic spread, and expertise. In addition, they have economies of scale that often allow them to give a better price per unit than insourcing options. Even more importantly, they allow retailers and sellers to focus on their core competencies — making and selling their products — and offer scalability as a business grows.
Third-party logistics providers can be an optimal solution for smaller retailers that simply cannot manage nationwide or, in some cases, global e-commerce logistics. Most small businesses choose to outsource fulfillment to fulfillment centers that can manage inbound shipments of product, stock, and track inventory and handle all aspects of fulfillment. By using a 3PL to manage e-commerce logistics, businesses of any size can achieve a global reach.
Whether or not a business decides to build its e-commerce logistics capacity internally or to outsource, it is critical to make sure that either the business or its 3PL have the following capabilities:
In the 10-day shipping era, retailers fulfilled orders from a small number of regional warehouses. Today’s shorter shipping cycle has driven sellers to distribute their inventory and keep their products in smaller warehouses closer to population centers in order to reduce delivery times. It also lets them use regional and municipal carriers and other options that are not possible when shipping over long distances. Local distribution options are often cheaper and help keep costs low.
Big data, enhanced by smart analytics, can be a game-changer in e-commerce logistics. For example, big data can help identify demand patterns and trends that were previously invisible. Predictive software, based on big data, can tie inventory planning with browsing trends and online product interest. Big data also plays a vital role in optimizing product transit by making real-time data analytics possible. Systems collect and analyze data from a wide variety of sources, including the internet of things, satellite trackers, weather forecasting, and more, to predict the optimal route from point A to point B.
Automation is key to meeting the demand for two-day delivery. Automated systems notify customers when delays occur along the supply chain. Robotic warehouses can place orders automatically when inventory drops, preventing lost sales. Automated delivery trucks and drones are expected to become commonplace in the near future.
Although automation requires a major upfront investment, it increases efficiency, ensuring long-term ROI for companies with large volume.
When managing multiple warehouses and deliveries across regions and even in different countries, synchronization and integration are critical. Siloing doesn’t work in e-commerce logistics — to meet customer demand and expectations, each element of the supply chain has to communicate with the others. For example, inventory tracking mechanisms in warehouses must be connected to an online store because customers want to know if an item is in stock before they go through the checkout process. They also want to be able to track their shipping order along the supply chain.
As a business grows, owners often add logistics capacity in an ad-hoc, patchwork style. To optimize e-commerce logistics and continue to grow, businesses need to invest in synchronization and connection between their various platforms.
Sometimes customers are unhappy with a purchase and want to return or exchange them, a process also known as reverse logistics. Returns and exchanges can account for more than 25% of sales in e-commerce, where customers can only see, feel, or try on the product once it is delivered. The costs and mechanisms for handling reverse logistics with as much care as the initial purchase needs to be figured into the budget and the e-commerce logistics plans.
One of the most complicated and difficult components of e-commerce logistics is the so-called “last mile.” This is the stage in the delivery process when the package travels the last part of the journey to the customer’s door. The last mile is generally implemented by a postal or shipping carrier, or local postal services. Industry experts estimate that the last mile costs can be anywhere between 28% to 53% of the total shipping cost.
The last mile is challenging due to the granularity of getting a package to an individual house in time. For example, in rural areas, the distance between residences slows down delivery. In urban areas, the benefits of proximity are often canceled out by traffic. Moreover, the last mile is the final interaction between the brand and consumer in the e-commerce logistics chain, and it is a key opportunity to make a good impression. It’s important that it be done right.
E-commerce is not just about developing a great product. In order to be successful in today’s competitive arena, retailers must have the capacity to meet the existing standards of precise, two-day, free shipping. Whether they do so through a third-party logistics provider, or by developing internal capacity, strong e-commerce logistics are key to growing a successful e-commerce business.
Originally published on February 12th, 2020, last updated on June 16th, 2022.