As the ecommerce industry grows, the logistics of getting orders to customers has become more complicated — especially with the novel coronavirus impacting entire supply chains.
One thing that remains constant in these uncertain times: Consumers don’t like to wait.
We see this firsthand amid the COVID-19 pandemic. Even Amazon is prioritizing the fulfillment of essential-only products, causing delays of up to a month for other products.
Now more than ever — at a time when people are choosing online over in-store to adhere to social distancing practices — the communicated speed at which consumers will receive their orders can play a deciding role in whether they choose to buy from your online store or a competitor’s.
But the ecommerce logistics infrastructure needed to meet consumers’ demands is not easy to achieve by yourself.
How do you put your brand in a spot to offer expedited shipping without putting in the time, resources, and investment of several warehouses?
In this post, we’ll go into the details of how ecommerce logistics works, how it differs from brick and mortar retail, how to offer better shipping options, and why outsourcing fulfillment logistics has become commonplace for ecommerce businesses.
What is ecommerce logistics?
Ecommerce logistics refers to the processes involved in storing and shipping inventory for an online store or marketplace, including inventory management and the picking, packing, and shipping of online orders.
With so many millions of packages shipped across the country on any given day, it’s vital that systems are in place to keep them on track and make sure they’re delivered to the right place on time.
Ecommerce logistics starts with moving inventory from the manufacturer and lasts until it ends up at the end customer’s destination. Fulfillment is one of the most critical pieces of ecommerce logistics, which includes:
- Inventory management
- Warehousing and storage
- Order fulfillment, or the picking, packing, and shipping orders
Each of these components is a world of complexity unto itself, and keeping them all running smoothly together is no small task.
Businesses must ensure that they have adequate stock levels in a distribution center close to that customer’s location. If they outsource fulfillment, their 3PL must be reliable and capable of fulfilling orders at pace, even during peak and holiday periods.
Any lapse in communication or execution within your supply chain can ultimately have a negative impact on the customer experience.
The modern logistics chain: 5 factors from cart to customer
Looking back 30-40 years ago, there was a relatively straight line between suppliers and retailers. As ecommerce has grown and become a worldwide channel, it’s become much more complex. There are now more moving parts and middlemen who help ensure products reach customers.
Suppliers or manufacturers are those who have inventory ready to ship to a business destination. They manufacture the products and ship them to fulfillment or distribution centers once a purchase order has been placed.
2. Fulfillment centers
Fulfillment centers are the large warehouses that hold inventory close to the end consumer, so each order is picked, packed, and shipped as soon as it’s placed to ensure a speedy delivery. Fulfillment centers can be owned or leased by an ecommerce business, or by a third-party logistics (3PL) company who is a professional fulfillment company that performs services for many brands.
3. Distribution hubs
Large ecommerce retailers have their products in multiple locations throughout the US or the world for both direct-to-consumer (DTC) and B2B orders. Rather than keeping all your inventory in one location, which can lead to longer delivery times and more expensive shipping costs, splitting inventory allows for quicker shipping of DTC orders.
You may choose to use a separate facility for B2B orders, which require different fulfillment processes from DTC orders. The differences include packaging requirements, warehousing needs, and ultimate shipping destinations and customer types.
4. Sorting facilities
Facilities that sort items are usually for large-scale ecommerce shops that are moving bulk quantities of many SKUs.
Shipping carriers handle the transportation of products to their destination. Common US carriers include FedEx, UPS, USPS, and DHL and typically transport packages via truck and plane.
Finding the right middleman for faster shipping
Faster shipping options result in more sales for ecommerce businesses, but not every brand has the logistics network to do this themselves. This is why many find a partner to handle ecommerce logistics like a 3PL. But with so many middlemen involved, orders can be delayed if one link in the supply chain is broken.
With the right 3PL partner, you get:
- The ability to store inventory in several of the 3PL’s fulfillment centers so you don’t have to manage your own warehouse(s)
- Robust technology that tracks your inventory and orders and offers advanced analytics
- The ecommerce logistics expertise needed to improve your supply chain
- Bulk discounts and ability to reduce your delivery times and shipping costs
- The ability to offer quicker shipping options like 2-day shipping
With ShipBob, your supplier can send items directly to our fulfillment centers. We then ship each order from the fulfillment center that’s closest to the shipping destination as soon as it’s placed by your customer.
“ShipBob has been with us since day one. We havedirect contacts that know our account, real-time follow through, and a better customer delivery experience. They are a fulfillment partner that is truly an extension of our brand.”
Manuel de la Cruz, CEO at Boie
How ecommerce logistics differs from brick and mortar logistics
Ecommerce logistics and brick and mortar store operations vary in a few ways. While ecommerce logistics is focused on getting products to the customer’s house, brick and mortar logistics focuses on getting products in stores.
Number of end destinations
Ecommerce shops can ship their packages to billions of consumer addresses across the world, whereas brick and mortar businesses are more focused on distribution to and from stores or wholesalers.
Size of shipments and order volume
Shipments to brick and mortar stores may contain hundreds of items that are sent to one destination on pallets via freight. Many ecommerce stores ship orders containing anywhere from one to several items mostly via parcel to many different customers.
In-store pickup vs. home delivery
More established brick and mortar businesses such as Target are moving towards using their stores as fulfillment centers. Similarly, retail locations may offer more flexibility to customers in the form of in-store or curbside pickup. Of course, ecommerce logistics provide the greatest convenience by delivering directly to the consumer.
What is needed to excel at ecommerce logistics?
To excel at ecommerce logistics, your logistics network needs to be efficient. This incorporates a mix of technology, resources, and best practices designed to help you scale as your business grows.
Keeping all of your inventory in one location might save you money in the short-term, but it can be more expensive in the long-run and as you grow due to how shipping zones work.
“ShipBob has fulfillment centers in major cities all over the US, so we can spread out our inventory across the country to reduce the shipping costs and zones associated with shipping orders to destinations that are far away.”
Founder of My Calm Blanket
For example, if your inventory is in Florida and an order is placed in California, the cost of shipping the order to a high zone on the other side of the country is going to be very expensive. It would be much cheaper to ship the order to a customer in California from a warehouse in California.
Using multiple strategically located fulfillment centers is key to doing this.
“Expanding into a second ShipBob fulfillment center brings a 13% cost savings to our bottom line. We are also able to increase our 2-day shipping ground coverage by 103%.”
Pablo Gabatto, Business Operations Manager at Ample Foods
Managing your inventory — especially when it’s done outside your four walls — requires tight reporting and real-time insight into quantities across SKUs and locations.
Here are a few helpful features your 3PL’s technology should offer:
- Tracking real-time inventory counts
- Setting reorder points so you know when it’s time to send more inventory
- Easily managing SKUs and product variants
- Integrations with your tech stack
- Insights into how many days of inventory you have on hand
“With ShipBob, we have access to live inventory management, knowing exactly how many units we have in Texas vs. Chicago vs. Pennsylvania. It not only helps with our overall process in managing and making sure our inventory levels are balanced but also for tax purposes at the end of the year.”
Matt Dryfhout, Founder & CEO of BAKblade
If you run your own warehouse and manage all components of ecommerce logistics, you’ll also need a warehouse management system (WMS). These systems are used to track warehouse performance and provide valuable insights for improving your warehouse processes.
A good 3PL will have their own WMS that feeds insights and data directly to you.
Are your orders delivered on time? What’s your cost per order? What would your shipping costs be if you went from one fulfillment center to two (or two to three, and so on)?
With the right reporting technology, you can automatically get valuable insights into your ecommerce logistics to see how you can further optimize your supply chain and save costs where needed.
“ShipBob’s analytics tool is really cool. It helps us a lot with planning inventory reorders, seeing when SKUs are going to run out, and we can even set up email notifications so that we’re alerted when a SKU has less than a certain quantity left.”
Oded Harth, CEO & Co-Founder of MDacne
Modern ecommerce logistics provides big benefits
Partnering with the right 3PL can be key to your business’s success. The goal is to find an ecommerce logistics partner that can help maximize your profits as an ecommerce brand by optimizing your supply chain. The right partner can provide the following:
1. 2-day shipping capabilities
Many ecommerce businesses are now focused on having the logistics network needed to offer 2-day shipping for their customers. Part of this includes distributed inventory. With their inventory distributed throughout the country (or countries), they can ship orders from warehouses closest to customers to get orders delivered faster.
3PLs like ShipBob also provide 2-day express shipping options to ecommerce businesses who aren’t able to set up the expensive infrastructure required for fast delivery.
“We place considerable expectations and pressure on shipping so we can get close to what Amazon does. With ShipBob, 100% of our orders are going out via 2-day shipping. We see that people are far more likely to order and keep ordering from us when 2-Day Express shipping is an option.”
Andrew Hardy, COO of Nature’s Ultra
2. Valuable insights
Ecommerce technology continues to offer enterprise-level insights at a cost that’s affordable for ecommerce businesses. Modern reporting allows you to see what is working and what isn’t in your supply chain.
“ShipBob is really committed to their customers and keeping themselves accountable. We strive to be very data-driven, and ShipBob’s analytics tool has been great. We can see inventory reconciliations and easily view SKU velocity, transit times, and inventory distribution recommendations”
Pablo Gabatto, Business Operations Manager at Ample Foods
3. Better return processing
Getting ecommerce returns back into inventory can be costly and time-consuming. With modern ecommerce logistics, it’s easier than ever before. 3PLs can process returns to make it simple and cost-effective.
With all of the above benefits, ecommerce businesses can scale far faster, while having the logistics network needed to keep their customers happy.
“Before ShipBob, we used a fulfillment center that frankly couldn’t scale with us. Since moving to ShipBob we’ve grown 30% year over year, which is a testament to their scalability, service, and technology.”
Carl Protsch, Co-Founder of FLEO
The top 3 ecommerce logistics trends of 2020
Rapidly evolving, logistics is the backbone of ecommerce businesses: It helps you differentiate your customer experience from that of your competitors — or leads to breakdowns that leave you in the dust. Here are three logistics trends to be mindful in 2020 and beyond:
1. Consumers want faster delivery
We can thank the persistence and high expectations of urban millennials for the rise in same-day delivery options. In fact, 64% of millennials are more likely to make an online purchase if same-day delivery is offered, and 61% of shoppers would willingly pay more for same-day delivery.
In addition to having the right technological capabilities in place, fast delivery requires that ecommerce businesses expand their geographic footprint. Otherwise, you can’t physically ship something from one side of the country to the other without paying a lot of money for it.
2. Last-mile delivery is key
An increase in online order volume plus a rise in customer expectations places additional pressure on the final leg of the logistics process, often referred to as last-mile delivery.
Last-mile delivery is the transportation of a package from a distribution hub (often through a shipping carrier) to the package’s final destination with the goal of delivering the package as quickly and cost-effectively as possible. And last mile is big business: Same-day and last-mile logistics are estimated to be valued at $1.35 billion this year.
Where logistics often fall short in consumers’ eyes is precisely here: within that last mile. There are many factors that can trip a delivery at the final hurdle; most often, the recipient isn’t home or there’s a problem with the local courier.
Major shipping carriers such as FedEx and UPS often hand their deliveries off to USPS for the last mile to help speed up local delivery and reduce the chance of failed delivery attempts.
3PLs like ShipBob are going even further to make last-mile logistics better for ecommerce business owners, and their customers. For example, ShipBob:
- Obtains quotes from all major shipping carriers before to get the best prices for business owners — that means both businesses and customers benefit from fast, affordable delivery.
- Analyzes customer data to optimize shipping. With distributed inventory, inventory is split across strategic fulfillment centers and then sent from the warehouse that is located closest to the customer. When your orders travel to lower shipping zones as opposed to higher, farther away zones, you save both money and time in transit.
- Provides real-time ecommerce order tracking. When it comes to last-mile delivery, communication is vital. You can access shipment tracking information in real-time, then automatically send these details along to your customers.
People who pay for expedited delivery expect to receive their packages when and where they ask for them. A failure during the last mile can have unfortunate and negative effects on a business.
3. Brands need to get creative and spread risk
2020 has already proven to be an unprecedented year as the world deals with the effects of the COVID-19 pandemic. Things have changed over night. People are stockpiling essentials.
With many consumers being quarantined and unwilling to leave their homes, more shoppers are ordering from ecommerce businesses than brick and mortar stores.
Some ecommerce businesses are seeing more orders than ever before. But others are seeing their sales decline. Those that will survive are the ones who think outside the box.
Here are some tips on how to deal with the COVID-19 (coronavirus) pandemic:
- Provide “hoarding” opportunities (e.g., subscription discounts, bundles, or large supplies at a discount) for people to purchase.
- Go out of your way to message about COVID-19 — people are looking for that right now. Don’t assume your existing language on shipping will suffice. Add a banner to your website.
- Test different discounting strategies. Pivot fast if something doesn’t work, and try something new.
- Diversify both manufacturing and fulfillment locations, when possible. On the manufacturing side, that might take awhile, especially with the demand and uncertainty today. On the fulfillment side, that can be done much faster. The importance of proper supply chain management is showing right now.
- If you have your own fulfillment production teams that are still operating, make sure you’re taking appropriate measures, such as increasing how often you clean and disinfect the entire facilities, require protective gear to all people internally and visitors like carriers, extend sick time, and possibly find ways to give extra financially to those who need help with childcare or health issues.
Businesses can’t always be fully prepared for something like this, but you must respond quick and react to the environment.
Amazon sellers whose products are deemed non-essential are seeing their sales dramatically drop due to delays from new FBA priorities. With the pandemic expected to last well into the summer, more ecommerce businesses will focus on sustaining their brand and driving visitors to their own website.
Note: ShipBob is hosting free weekly COVID-19 Q&A webinars featuring different brands each week. These virtual open forums allow you to ask questions and connect with brands that are experiencing the same issues as you. Join our next call at the link below.
How ecommerce companies can offer 2-day shipping
2-day shipping has quickly become the standard shipping option that consumers want. With studies showing that 25% of customers will abandon their carts if shipping options are too slow, ecommerce businesses need to offer 2-day shipping if they want to keep growing.
Setting up the logistics infrastructure for 2-day shipping takes time and requires significant investment. You have to lease more warehouses, hire labor, negotiate shipping discounts with carriers, implement software, order inventory, and so much more. For most ecommerce businesses, this isn’t feasible or profitable. That’s why they partner with 3PLs.
Many growing ecommerce businesses partner with ShipBob to offer 2-day shipping and gain benefits like infrastructure, expertise, and technology as a result. With 2-day shipping proven to increase conversion rates, it helps ecommerce businesses grow from new and returning customers alike.
Consumers are demanding more from all the places they purchase online. Having a strong ecommerce logistics partner can maximize efficiency, reduce shipping costs, and provide a great customer experience.
Partnering with the right 3PL can give your business the freedom and flexibility to grow without having to manage ecommerce logistics in-house. Interested in ShipBob’s fulfillment services? Request a pricing quote here.
To learn more about choosing a 3PL, download our free e-guide, “How to Choose a 3PL for Your Ecommerce Business” below.