May 19, 2020

How Logistics Works in E-Commerce

Amazon is one of the global online retail giants setting the bar for e-commerce logistics. Under normal circumstances, the company can make deliveries to customers within 24 to 48 hours through its Prime Delivery label.

As the COVID-19 coronavirus outbreak unfolds, non-essential shipments could be delayed by a month or more.

Now more than ever, retail businesses have to invest in distribution centers and warehouses to cope with the swelling demand from the modern e-commerce channels. Such an investment will also help speed up the design, development, and implementation of logistics and supply chain processes. 

Recent technologies including advanced robotics, augmented reality, and drones are helping companies stay competitive, satisfy customers' needs, and reduce operational costs. Read along to find out how logistics works in the modern e-commerce landscape. 

What is logistics?

Generally speaking, logistics involves the management of products or resources that are in storage and/or transit. When applied to e-commerce, the process enables businesses to ship orders to customers. 

If you're running an e-commerce site, you'll come across the term logistics management. As a retailer, your role in logistics management is to pinpoint potential shipping and distribution companies and evaluate their effectiveness

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Most businesses prefer outsourcing logistics to third-party companies that are equipped to handle the storage and transport of goods. 

How logistics and modern e-commerce intersect

One prerequisite to running an e-commerce business is to master the basics of logistics. Modern businesses, regardless of their sizes, increasingly rely on back-end supply chain management to keep their operations afloat. 

If your business doesn't have a brick-and-mortar facility for housing inventory, the best thing to do is to outsource the help from third-party logistics providers. The outsourced help will ensure that your business activities run smoothly without having to worry about storing and shipping products. 

What's the logistical process for a typical business?

Small-scale businesses follow a simple logistical process when they have goods that need transportation or storage. 

The process usually starts with a customer ordering a product on your online store and proceeds with an inventory software triggering the transaction. It's increasingly important to have an integrated inventory management software installed on your e-commerce site for the logistical process to be smooth. 

In online businesses, logistics typically encompasses the following processes:

1. Inventory management

Management of inventory involves using proper methods to keep track of stored goods. With this procedure, it's easier for your digital store to monitor stocks. You also get to predict the items that have a higher selling power than the others. 

The reasoning behind inventory management is that businesses get to ensure that they don't unexpectedly run out of products. Customers' buying trends can help you predict how your products will sell in the near future. 

2. Storage/warehousing

Warehousing is a logistics procedure that covers the physical stores that businesses use to store, manage, and track products that are yet to be shipped to customers. 

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Over the years, there have been tremendous developments in the field of warehousing. Most of these advances make it easier for e-commerce players to use warehousing management systems in tracking inventory. 

Traditional warehousing management techniques take time and are costly to execute. 

3. Order fulfilment

As the most crucial aspect of both logistics and e-commerce, this procedure ensures customers receive their orders promptly and in good condition. 

Your business can outsource this service from a third-party provider or invest in an in-house order fulfillment service. The customers' location, size of business, and order quantity will determine which route to take. 

Is it possible to track stored or transported goods on the back end?

As logistics is becoming more complex and dependent on digital technology, businesses now enjoy diverse options for monitoring inventory in the supply chain. 

When installed in your e-commerce site, inventory management software can update you on the number of items remaining on your online shelves. With this information, it's easier to stay productive as an online retailer and attend to customers' orders conveniently. 

If you've partnered with services like the USPS, FedEx, or UPS, it's possible to track goods by using the fulfillment numbers provided by the respective shipping company. 

It's a good idea to monitor orders to ensure they reach the shoppers. Giving your customers the same tracking information in their confirmation emails can help dispel uncertainties with regards to order fulfillment. 

Challenges facing e-commerce logistics 

While logistics proves to be incredibly beneficial to e-commerce players, it suffers various challenges. Your customers will still expect the product storing and shipping processes to be smooth whether your business is facing e-commerce logistics problems. 

It's a good idea to protect your trusted customers and stay relevant in your niche of business as these challenges arise. The problems your online store may face with regards to e-commerce logistics include:

1. Resources for same-day delivery

As e-commerce giants such as Amazon are facilitating same-day deliveries, other e-commerce sites (both small and large-scale) want to follow suit. Same-day deliveries are convenient for online retailers if they have the resources to facilitate faster logistics and fulfillment. 

Your business may want to stay competitive by shipping goods to customers on the same day they're ordered. It may get frustrating if you don't have the resources to make the service a reality

2. Identity theft

Consumers are increasingly relying on online shopping sites to provide them with a wide range of services and products because of the convenience they enjoy. Identity theft, as one of the e-commerce challenges, is making it difficult for consumers to enjoy the convenience that online shopping brings. 

It may be saddening to your business if your customers' credit card information is stolen when they're trying to purchase an item from your site. The customer will be forced to leave the cart unattended because they can no longer transact with your business. 

Cases of identity theft on e-commerce sites also hurt the logistical process in the long run since consumers experience difficulties purchasing an order and fail to enjoy order fulfillment. 

3. Free shipping costs

Online retailers are increasingly offering consumers free shipping service as a way to encourage them to shop more items. 

What most people don't know is that it actually costs a retailer to facilitate such a service. If your business is working with a third-party logistics provider, you'll have to shoulder the costs yourself as you offer free shipping. 

Some businesses incur losses after implementing the free shipping incentive since they didn't factor in the shipping costs in the product prices. 

4. Unreliable logistics providers

While third-party logistics providers are expected to be diligent in their line of work, there are some who make it difficult for online retailers to effectively ship products to customers or have inventories stored. 

Your customers will get impatient with you when a product takes longer than the estimated shipping time. They wouldn't want to know that the logistics provider has caused the delay. 

In the end, working with an unreliable logistics provider may translate to product delivery delays, which will make your customers lose trust in your business. 

5. Technical errors caused by inventory management or shipment tracking software

Advances in e-commerce logistics are making it easier for online retailers to keep tabs on stored inventory or goods that are shipped to customers. Not all solutions designed to make logistics convenient are effective. 

The software you're using to track goods may crush or experience technical errors. Before getting it fixed, you'll have temporarily lost information regarding the status of products being shipped to your customers. If it takes longer for this issue to be solved, your business will definitely have some damage control to do. 

How to address e-commerce logistics problems

Growing an e-commerce business to the point of having a large customer base and constant flow of revenue is a big deal. Your goal is to now ensure that all operations are afloat and that the online store doesn't incur losses. 

E-commerce logistics may take a toll on your company's financial resources if not done properly. If you're planning to take the logistical aspect of your e-commerce business to a higher level, here are some of the things to consider:

1. Visibility

It's important to maintain the vision as the logistical demands of your online store grow. Most e-commerce platforms that experience a sudden growth consider expanding their logistical capacity to cope with the increase in new products or orders. 

If your business grows, expand your operations to use several drop shippers and warehouses. 

As you expand to cope up with the growth, ensure that items are still visible when shoppers proceed to the checkout state. Have enough stock at hand to keep up with these demands. 

It's advisable to partner with third-party logistics providers and ask them to help you develop the operational discipline and systems required for inventory management. 

2. Demand planning

Successful online retailers make inventory predictions based on historical data. With this data and a few techniques, it's easy for them to determine the amount of inventory needed by their stores. 

Some of the ways to implement demand planning include social sharing and site traffic monitoring. Monitor seasonal trends such as holiday and weather-driven purchases to determine the types of products consumers are likely to buy. 

It also a good idea to invest in free shipping and offer discounts codes and use them to measure the demands for your products.

3. Last mile delivery

According to a study by the University of Delaware, last mile services form up to 28 percent of the aggregate shipping costs. Last mile typically revolves around the final delivery step to a consumer. 

Your online store may facilitate last mile via services such as FedEx or UPS. If you're running a B2B store, you can use an LTL carrier to facilitate the service. 

The delivery experience helps consumers rate your company. Ensure that your last-mile strategy is sustainable enough to satisfy the expectations of your customers and balance the resource and cost requirements. 

4. Free shipping incentives

Online shoppers have a higher preference for unconditional free shipping when it comes to making purchasing decisions. Amazon's over 100 million Prime subscribers are loyal to the company because of the free shipping incentive. 

Integrating free shipping into your services may prove profitable in the long run. Negotiate with your shipper on how you can facilitate free shipping to drive more revenue to your business. 

You can even employ marketing tactics that allow shoppers to enjoy free shipping on selected products or orders with minimum sizes. 

5. Decentralized warehousing

With this strategy, you'll be moving products close to your customers to reduce shipping costs and delivery times. Use it to minimize last mile and ensure that customers derive satisfaction from your order fulfillment services. 

You may turn retail stores into shipping centers to facilitate this service. 

6. Managing returns

While it's quite challenging to manage the returns of your business, it's advisable to separate them from the forward moving supply chain of products you're expecting. When handled properly, returns may take the form of reverse purchases. 

Online retailers can achieve returns of 24 to 36 percent, according to Transport Tropics. You need to set up various mechanisms to achieve these numbers. 

You may delegate the management of returns to your staff or set up mini-warehouse locations to offer low-cost spaces for the job. 

7. Managing 3PL relationships

Third-party logistics relationships come handy to e-commerce shippers looking to outsource all or part of their logistical functions to other businesses. Working with a 3PL helps you handle all fulfillment aspects, store/track inventory, and manage inbound shipments. 

Photo by Rodrigo Abreu on Unsplash

Using a 3PL helps your online business focus on other critical operations while ensuring that your shipping and order fulfillment services are effectively handled. 

Understanding how logistics works is crucial for every e-commerce business

The e-commerce logistics business continued to grow with the rise in the popularity of delivery companies and e-shops. It also continues to face more challenges, which requires online retailers to speed up their logistics performance. 

Where does your business stand in all of this?

Understanding the challenges facing the e-commerce logistics sector and how to solve them is crucial if you want to succeed in the e-commerce world. It’d also help if you incorporate some of the strategies discussed here into ensuring that the logistical processes of your online business run smoothly.

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