Logistics are inalienable in the eCommerce industry. The entire online selling sector is largely dependent on the logistics industry for its smooth operations. Today, technology has allowed online stores to exist in the digital space, without any physical presence.
However, such stores need the services of certain players to reach customers in the physical world, on time. The industry that allows eCommerce companies or websites in India to reach their customers physically is logistics. It’s responsible for managing several processes that are necessary for conducting business for eCommerce companies.
In this article, we discuss why logistics are important for the eCommerce industry and how they work for online sellers. The best possible answer to ‘how logistics work in the industry’ is also well explained in this article.
The Importance of Logistics for Ecommerce Companies
Logistics is a supply chain process used by businesses to conveniently bring products to the doorstep of consumers and vice-versa, if needed.
Since the lack of physical stores prevents businesses from making physical sales, online interactions need to be fulfilled through partnerships with logistics platforms.
Online stores also need logistics partners for a variety of different services including storage of items, management of stock levels, and shipping. Since all of these practices are made possible in the physical world, the use of a logistics partner is inevitable.
Logistics are critical to the success of an eCommerce business and are responsible for handling products from the origin to the destination. Most importantly, logistics allow eCommerce brands to maintain high customer satisfaction rates and expand their supply chain to fulfill every order on time.
Logistics Solutions Used by Ecommerce Companies
The eCommerce industry uses several logistics solutions to make the online shopping experience successful. Although all of these solutions are a part of the logistics industry, they are very distinct from each other. Here are some of the logistics solutions that eCommerce companies use.
1. Warehousing and inventory management
The logistics industry offers businesses the opportunity to store their items in a safe space. This space is used to sort through items and store them in places that make them easy to identify, pack, and dispatch as and when an order is placed.
Warehousing also helps businesses store their products closer to their target audience to deliver items faster and more efficiently. These can also be done inside fulfillment centers where products are sent for last-mile delivery instantly.
Many logistics companies will also provide you with a WMS (Warehouse Management Software) to help you keep tabs on all inventory. This tool provides greater visibility for stored goods. Once you have an accurate idea of how much inventory you have, you can create forecasts to avoid stockouts or excessive stock.
2. Shipping
Shipping is one of the primary features of any logistics service provider. Online sellers use the service to reach their customers domestically and internationally. The service also allows online businesses to connect with suppliers to receive the products or materials that they need to sell on their platform.
Shipping services include sourcing of materials and stock and movement of the stock to desired locations for storage. Once stored, goods are shipped again when an order is placed online. This is essentially when customers buy a product. Upon confirmation, goods are shipped in batches to reach multiple customers in one trip.
Some logistics partners may even use route optimization to lower overall vehicle maintenance and fuel costs. This is also when the fulfillment process begins. When a product leaves your fulfillment center, it becomes part of the last-mile delivery and is sent directly to the end destination.
3. Reverse logistics
When selling online, returns are bound to occur at some point in your brand’s lifecycle. Logistics companies may also offer reverse logistics solutions to online sellers to help them get their products back to their origin.
There are multiple options you can explore such as having a product picked from the customer’s doorstep or sending it to one of your logistics partner’s courier offices. From here, the product is sent back to your warehouse. However, not every returned item contains manufacturing defects.
Sometimes customers return due to incorrect sizes or colors. Hence, all returned products go through quality checks. If they pass, they’re put back on the shelf. Other returned products may be sent back to the manufacturer for refurbishment or discardment.
4. Outsourcing
If you sign up with a 3PL (third-party logistics) partner, you can outsource all your warehousing and shipping needs. These companies handle all your warehouse, shipping, and fulfillment needs under one roof.
3PL can also store your goods and pack all products on your behalf. Once ordered, they print shipping labels with either their in-house carrier partners or compare prices from a variety of options.
There are 3PL platforms that even handle return orders on your behalf. In such cases, they store your product in their warehouse and either restock or dispose of it depending on its quality and the situation.
5. Freight
This may not apply to every online store but certain logistics companies do offer freight services. This includes all large shipments that you wish to send by air, ocean, or rail/road.
Freight shipping allows you to import and export goods from across the world. This means you can work with manufacturers from various regions or deliver bulk products to another country.
In any case, freights are mainly divided into two types which are full truckloads (FTL) or less-than-truckload (LTL) cargo. The former stores only your pallets in an entire truck while the latter is used when you need a small amount of space. LTL freights allow multiple businesses to ship their pallets and hence, is a more cost-effective option than FTL.
About eCommerce Logistics Cost
Ecommerce logistics cost comprises the various different costs associated with storing and shipping products to customers. Apart from the cost of the actual product line, ecommerce logistics costs make up most of the other expenses for an ecommerce business. Out of the total logistics costs, 90% is made up of shipping orders to customers as well as procuring them from the manufacturers.
We recommend everyone look into the nitty gritty of logistics costs before starting an online business. This is because they do take up a lot of time and money and you will be better prepared to plan if you know about the different types of logistics costs and how they affect you.
In the below section, we will break down the different aspects of logistics costs to you and suggest ways of reducing them. Keep reading!
Different types of Logistics Cost
Below we’ll discuss the many parts that make up eCommerce logistics costs. By understanding these elements businesses can fine-tune their operations to spend less and make more profits.
1. Shipping
As we said before, shipping makes up the lion’s share of total ecommerce logistics costs. Shipping costs come in 2 forms – outbound and inbound. For online retailers, outbound costs mean the money spent on shipping purchased products to customers. Inbound costs, on the other hand, come from transporting merchandise from distributors or manufacturers to the seller’s warehouse or storage unit.
The amount of money a brand spends on shipping depends on things like types of carriers, speed of delivery, type of delivery vehicles, delivery location, fuel charges, handling fees, etc. Some carriers shipping to remote or hard to reach zip codes may also charge more than others.
2. Storage
Once you’re past the initial days of shipping less than 500 orders a month, you will need a place to store your products. A section of your ecommerce logistics cost will go into renting a warehouse or a storage facility. Warehousing is essential for the smooth functioning of a business.
They have designated shelves, bins, and racks where your merchandise can be systematically sorted and stored so that picking and packaging at the time of order processing becomes faster. As your business scales, you may also find yourself needing a warehouse management system (WMS) that automatically sorts your orders, keeps track of inventory levels, and updates SKUs after returns or exchanges.
3. Order Allocation
Most ecommerce companies, at least the mid-sized to enterprise-grade ones, choose to opt for a shipping software for order allocation. This is because efficient order allocation depends on making smart decisions about how to assign carriers to shipments, which orders to send out first and from which warehouses, and the type of delivery vehicles to use. It also involves determining how to ship in batch, whether to use FTL (Full Truckload) or LTL (Less-than-truckload) shipping.
Even manual order allocation requires a large workforce for streamlined order processing. Therefore, order allocation costs will stay irrespective of the way you choose to do it, that is, manually or automatically. Although we suggest automatic order allocation for error-free order fulfillment and simplifying the overall shipping process.
4. Post-purchase Experience
Online commerce businesses spend significant resources to improve the consumer experience. Since customers cannot experience a physical store and get a sense of the product or the seller, merchants use methods like post-purchase experience to improve retention rates. Post-purchase experience includes customer interactions, tracking capabilities, post-sales marketing, and after-sales service.
5. Reverse logistics
Another critical component of eCommerce logistics cost is reverse logistics. The expenses incurred while managing the returns for a product are essentially a loss and form a big part of the overall cost of the logistical operations of a company. Other than the cost of reverse shipping, businesses also spend on enabling customers to track the status of their returns and refunds in real time.
How to budget for eCommerce Logistics Cost?
Logistics costs for an eCommerce company are generally the single largest expense after sourcing and marketing, and perhaps even more in some cases. The reason is simply that online sellers need to fulfill orders placed in the digital space since customers cannot walk into a store to purchase what they want. In order to manage expenses, online merchants must account for their logistics costs and understand how they can narrow them down without hindering smooth functioning.
Here are some ways businesses can reduce their logistics costs:
1. Improved Sourcing
Sourcing is the first instance where logistics expenses are incurred. When businesses find a source closer to their operations, it reduces the amount of resources spent on getting the products to warehouses or places of business. Finding a closer source also helps businesses avoid duties and cross-border taxes, if any.
2. Distribution of Inventory
An eCommerce business can research its market and target consumers, and distribute its products across multiple locations. It is important that businesses understand their audience and keep their products strategically placed to avoid long hauls. This helps companies reach their customers faster and at lower costs.
Many hyperlocal delivery companies choose to not use a warehouse but instead supply products to their customers directly from local stores. This helps them save up on storage costs and allows them to fulfill orders much faster than if it were stored in a storage facility.
3. Partner Assessment
One of the most important factors when considering the cost of logistics is the partner firm. While assessing the cost of operations, businesses must understand how different logistics companies affect them. Choosing the right partner can make logistics efficient and cost-effective, reducing the overall expenditure and driving more revenue. Partners could mean shipping carriers or any other business a brand integrates with like ERPs, WMS, accounting apps, payment gateways, marketing channels, etc.
Conclusion
The eCommerce industry is rapidly growing as global technology adoption and internet penetration rates increase. This creates a huge demand for the logistics industry to facilitate the delivery of products to customers.
The solutions that the logistics companies provide are responsible for creating a successful online shopping experience and without them, the eCommerce industry would not be able to function smoothly.
