Ecommerce Logistics: How to Diversify and Future-Proof Your Supply Chain ~ Elise Dopson

As your company enters a high-growth phase, it’s vital to focus on what you’re delivering to your customers—both metaphorically and literally. Unless you have the bandwidth to focus on logistics, this essential but complicated element can be a painful drain on your team’s resources.

Ecommerce business owners don’t always have the luxury of housing stock in brick-and-mortar locations. That means you’ll need to figure out the logistics behind how an online order gets picked, packed, and shipped to the person buying it—regardless of where they (and your products) are. 

For modern-day shoppers, this experience needs to be as fast and seamless as possible. A third of US consumers will think about switching companies after just one poor experience. 

So, how do you deliver the same top-quality experience when you’re scaling? This guide shares how to fine-tune your ecommerce logistics process and prepare your business for an influx of online orders.  

What is ecommerce logistics?

Ecommerce logistics is the process of manufacturing, labelling, storing, and eventually delivering a product to a customer’s doorstep once purchased. It’s a seamless—and often automated—process that helps ecommerce companies get their products to online customers (and back again, if returned).

The average online retailer spends 11% of their turnover on logistics. The industry grew by 27% last year, and is forecasted to reach almost $650 billion by 2025. However, more than half (53%) of retailers say delivery and fulfillment logistics pose a “significant” challenge. 

Having a well-thought-out logistics process isn’t just a nice-to-have. Ecommerce companies are seeing fast and efficient logistics as a competitive advantage. Some even report huge risk to their business if their logistics process doesn’t meet customer expectations. 

One of those retailers is Coupang, South Korea’s largest online marketplace. It claims to have built the largest B2C footprint in the nation, with 100 fulfilment centers spanning 25 million square feet. A statement in its filing report says: “We believe that our end-to-end delivery infrastructure, including the ability to control our last-mile delivery logistics, is a key competitive advantage."

If we do not have sufficient fulfillment and delivery capacity, or we experience problems fulfilling and delivering orders in a timely manner, our customers may experience delays in receiving their purchases, which could harm our reputation and our relationship with our customers.”

A typical ecommerce logistics process in 2021

In-house logistics

Companies with brick-and-mortar stores or warehouses can opt to do their own logistics in-house. 

In this case, you have a dedicated team that welcomes incoming goods, stores them, and picks them out when an online order is made. You’ll need to partner with a shipping carrier—like FedEx, USPS, or DHL—who collects the orders and delivers them to a customer.     

Treating brick-and-mortar stores as owned distribution centers is a popular logistics method used by almost half of retailers. But it comes at a cost. Knight Frank estimates that for every billion in online sales, retailers need 1.36 million square footage of warehouse space. 

Dropshipping

The logistical process for retailers using a dropshipping business model is much less complex. They don’t touch the items they’re selling through their online stores. As soon as an online order comes through, it’s sent to a third-party provider who picks, packs, and ships it. 

Logistically speaking, dropshipping has the lowest barrier to entry. But because retailers don’t physically touch the products at any point in their supply chain, issues can arise. You’re not in control of the warehouse, the product, or when it’s shipped. 

Third-party logistics providers

Third-party logistics (3PL) providers act as the intermediary between a completely hands-on and hands-off approach. In this case, you’re still in control over the products you’re selling through your ecommerce site. The only difference is that your products are stored, labelled, and packed in a third-party distribution hub and fulfilment centre.

One of those is Shopify’s Fulfillment Network. These centers are dotted all over the country and act as the home for your unsold stock. 

When it’s purchased by a customer online, staff (and their robotic support) in the fulfilment centres pick, pack, and ship your products to your customers. It's a time- and cost-saving way to take the logistical nightmare out of selling online. 

11 best practices for ecommerce logistics 

1. Find an ecommerce logistics partner early
2. Balance value-add logistics with profit
3. Prioritize free (and fast) shipping
4. Automate what you can
5. Ensure quality and order accuracy 
6. Consider sustainable options
7. Synchronize your inventory
8. Connect your warehouses
9. Regionalize inventory to reduce cost
10. Diversify your supply chain
11. Plan reverse logistics 

1. Find an ecommerce logistics partner early

What is it that truly makes your business tick? Is logistics your core competency? Is it fundamental to your business model? If not, outsourcing can make a lot of sense.

There are issues to deal with in warehouses, dedicating store space toward housing your inventory, and the complexities in selling to new countries. Keeping on top of this as a retailer can be extremely difficult. You need an honest dialogue about when logistics is really interfering with the success of the business.

The more complex your business grows, the more of an effort you must make to continue doing the things that got you your core customers—and will continue to win new ones over.

There are definitely advantages to insourcing your logistics and doing everything yourself—hence why the D2C outsourcing market may hit $156B by 2023. 

The most obvious advantage is access to capabilities you don't have. Whether that’s technology, resources, expertise, or new geographies, outsourcing gives you the power to buy-in specialists who do it 24/7.

There are also advantages from a cost perspective. Typically, 3PLs have economies of scale to give you a better cost per unit than what you’re able to achieve yourself. You’ll also have access to infrastructure that you would not be able to deploy by yourself.

Making the call on a third-party logistics (3PL) company can be hard, but the right 3PL partner can save you time and stress.

Before signing a contract with a larger logistics company, talk with any 3PLs that you could work with to see if they give you a better rate on deliveries. Contracting with two companies can help if one is better at local deliveries and the other is better with long distance.”

—Chelsea Cohen, co-founder of SoStocked

Research shows that out of every $100 in ecommerce sales, logistic companies collect $12 to $20. That’s a big difference between the $3 to $5 average logistical spend a brick-and-mortar retailer budgets for.

However, the economies of scale and access to expert capabilities offered by 3PLs create a competitive advantage that you might not be able to provide on your own at the scope and speed you need.

2. Balance value-add logistics with profit

Making sure your products are perfectly packaged can increase customer satisfaction, but it’s important to know when these value-added services cause more trouble than they’re worth.

It’s always a good idea to ask about what value-added service capabilities a 3PL has. For example:

• What kind of experience and capabilities do they have with kitting?
• Are they able to handle custom packaging?
• Can they do gift bags?
• Can they do custom messages?
• Can they work with fancy tissue paper?
• Can they work with samples?
• Can they personalize the package?

These points are all becoming increasingly important for consumers and retailers. A 3PL provider that can manage these; ask the questions above when you’re questioning potential vendors. 

But as a reminder, value-add logistics can also go too far. Some of these extra services add tremendous operational complexity to the order fulfillment process. As a result, they drive costs upward. 

Retailers need to make sure they have the appropriate return on that investment. You always need to balance the operational implications with the marketing wow factor. If the fulfillment process is too expensive or takes too long, it won’t matter how pretty the package is.

3. Prioritize free (and fast) shipping

Offering a no-cost delivery can encourage people to move forward with their shopping. Free delivery is the top reason people shop online. When customers were asked why they didn’t make an online purchase, 35% said because the delivery time was too long.

There are ways to manage the cost of free shipping, such as having a minimum order size to qualify for it or offering it only with promotions or select items. Yet with any free shipping option, retailers need an ecommerce logistic solution that is affordable.

These days, free shipping isn’t enough. Gone is the “10-business-day delivery.” Customers expect timely delivery of their orders and are upset when it’s not an option. Just 15% of US consumers have their delivery speed expectations met. 

The ultimate paradox is that customers want their orders increasingly fast, but they don’t want to pay for it. Research shows that 65% of US consumers expect to receive products they’ve ordered online within two to three days. On the flipside, 30% of retailers are working toward meeting those timelines by 2022. 

Ask your potential 3PL vendors about last mile delivery—an item’s final journey to the customer. Last mile logistics can claim 53% of a product’s total shipping cost, but it’s important to find a logistics company that will keep up with shipping high quantities in short periods of time, enabling you to retain customers. 

After all, you’ve got the hard task of preventing customers from being incentivized to use Amazon’s same-day shipping. 

4. Automate what you can

Most 3PLs can offer different rates for different shipments, leading to significant savings. But it requires the technology, information, and skills to be able to make the best shipping decisions.

In order to capitalize on these multiple carriers, you need certain capabilities. The most important one is rate service shopping; the technology either in your WMS or transportation management system to make the best possible shipping decision.

What’s the origin ZIP? Where is it going? How much does the parcel weigh? What are its dimensions? Rate shopping across those carriers to try and do that in the most affordable fashion.

While you’re investigating the technology a 3PL has to offer, consider whether you can automate any part of the logistics process. 

One way to do that is to find an ecommerce fulfillment center that uses robots. According to McKinsey, some companies’ automated pallet-handling systems can halve average shipment-processing times. 

It’s estimated that by 2030, many logistics operations performed by third-party service providers can be automated. Examples include product inventory management for stock forecasting and replenishment, picking robots, and multishuttle systems.

Alibaba, the largest ecommerce company in China, announced its own logistics technology last year. Its delivery robot can deliver 500 packages per day, covering 100 km on a single charge. 

Logistics automation doesn’t have to be that complex, though. Fashion retailer GoudronBlanc uses a logistics partner that integrates with its Shopify store. All online orders are synced with the logistics software, but their team manually confirms which orders should be picked, packed, and shipped.

My tip would be to find a way to amend orders, so customers have room to change their mind or correct a mistake they may have made. Though it sounds like an unnecessary step in the world of automation, this allows us to control the flow of orders and change any order based on last-minute requests from a customer.”

—Guerric de Ternay, founder of GoudronBlanc

5. Ensure quality and order accuracy

Quality, order accuracy, and getting orders out of a fulfillment center in a timely fashion are the most important capabilities you need to look at when you’re talking to potential vendors.

Nothing disappoints the consumer more than screwing up the basics. No amount of wow factor, and no amount of marketing buzz will ever overcome logistical nightmares in an ecommerce supply chain. Customers want confidence in the fact their order will arrive as and when intended. 

For this reason, order quality and accuracy should be the most important discussion point with any 3PL vendor. What’s their average order accuracy rate? How do they deal with (and rectify) inaccurate orders?

Similarly, make sure your ecommerce site is well-equipped to capture the data your 3PL partner needs. Just 60% of 3PLs said more than three-quarters of their customers share all of the data needed to meet their fulfillment expectations. 

Make sure the buying journey on your ecommerce website sets up your 3PL provider for success. That could mean:

• Correct bar coding and SKUs for products you’re selling online
• Autofilling addresses from a ZIP code to prevent typos in shipping details
• Explaining to customers how to use form fields, such as “Write a gift message”

The bottom line is: consumers are conditioned to expect a high level of accuracy and quality. Anything less is disappointing—and risks a future profitable relationship with them. 

6. Consider sustainable options

Ecommerce logistics need to be fast, efficient, and as cheap as possible. Often, that criteria gets prioritized over sustainability. 

For consumers, sustainability is almost as important as cost. An IBM report found that sustainability is important for almost eight in 10 consumers. Nearly 60% said they’re willing to change their shopping habits to reduce the environmental impact of their online orders. Plus, over 70% of consumers are willing to pay a premium for products from sustainable retailers.

The lines between cheap, fast, and sustainable are blurred. Quiz any third-party logistics providers to see how sustainable their processes are. Choose carriers that align with your brand mission.

It might be tempting to use the cheapest materials or the quickest fulfillment solution. However, it might turn out that the more expensive, eco-friendly materials or the slower but greener delivery service might actually increase sales due to alignment with customer wants!”

—Jarett Elser, co-founder of Herdwear Apparel

7. Synchronize your inventory

Accurately assessing and measuring your inventory is incredibly difficult. Paying attention to restocking items and not having too much excess is a challenge that requires careful management.

Inventory management is exceptionally important and also, frankly, a science. How much buffer to have and how much of a given product to have in stock varies based on the retailer’s situation, what they sell, and where they find themselves financially.

Excess inventory is bad, right? It ties up cash you could use more productively in other areas of your business. But on the flip side, we’ve all been in situations where we've been shopping online and find the thing we want to buy but, unfortunately, there are no units on hand.

That’s a bad customer experience and possibly the result of not having appropriate control on your inventory. As we said before, the goal is the right inventory, in the right time, at the right place, in the right amount. Doing that effectively is a lot harder than it sounds.

There’s a lot of information online about how to evaluate how much inventory to hold, how to calculate and analyze your inventory turn rates and turnover days, and so forth. But it boils down to a few variables:

• How much does your inventory cost?
• How much do you typically have on hand at any one time?
• How predictable is your demand?
• How do you replenish your inventory?

This looks very different if inventory is coming from China, as you can imagine. You have a one or two month lead time, versus a vendor that sits up the road.

The simpler those variables are, the more feasible it is for you to manage your inventory. The more complicated they are, the more difficult it will be—which means it might make sense to consult with experts.

8. Connect your warehouses

Depending on where you store different parts of your inventory, keeping track of what products are where is vital to ensuring timely delivery.

It’s very difficult and expensive to service customers across the United States from a single site, while at the same time meeting their expectations in terms of what a consumer today wants in terms of the delivery time.

It’s even more difficult to service international customers from a single site, or manage international warehouses, and delight them at the same time.

Retailers have to cover multiple warehouses, dropshippers, and brick-and-mortar stores, and are doing so across multiple countries in an attempt to find the most efficient fulfillment location. Managing that fragmentation is difficult.

The hardest part is demand planning: knowing how many nodes you’ll need and defining how much inventory to hold where in that network, when, and in what amount. It’s a capability that a lot of retailers lack but can be eased with inventory forecasting tools like Inventoro and StockTrim. 

9. Regionalize inventory to reduce cost

Big shipping companies that span the country offer one-size-fits-all solutions to delivery, but they aren’t always the easiest…and are rarely the cheapest.

Distance equals time and money, and cutting distance down can save a lot of dollars while maintaining or even improving service levels. If you’re shipping large volumes to San Francisco, for example, it makes sense to have a warehouse or 3PL partner who can store items in that area. Customers can get free (or same-day) shipping if the product they’re buying is already closeby. 

Localization reduces your dependency on national 3PLs, too. You can start to work with regional carriers and metro couriers that can bring tremendous savings to the table, versus their national counterparts.

There’s a domino effect of regionalized inventory on logistics costs, too. Data shows that distributing inventory can reduce shipping costs by 25%, leading to 13% cost savings overall. 

We used decentralized warehouses to disperse stock into high-density areas. This reduces our response time and allows us to react faster to customer demands without having to double our workforce to keep up with demand.”

—Chris Campbell, partner of The Charming Bench Company

10. Diversify your supply chain

While many 3PL vendors have backup plans in place, some issues in an ecommerce supply chain are unavoidable.

Try to diversify your supply chain wherever possible. Employee strikes at a logistics provider, or issues with their own supply chain, can wreak havoc on how fast (and accurate) your online orders are processed. 

Parker Russell, owner and CEO of Black Ink Coffee, has experienced issues with its supply chain due to the nature of the business: “Since coffee beans are a traded commodity with their own harvesting seasons, we have found that you need to have many avenues open when it comes to your logistics.”

The best practice I would tell anyone starting out is to have fluidity within your business model. Whether a natural disaster hits, pandemic 2.0, or a cargo ship turns sideways in the Suez Canal, you need to have the ability to keep going (whatever it takes). 

“That’s why you need a backup plan for your backup plan, practice proper risk management, and always keep your employees and staff trained so that they can handle diversities.” —Parker Russell, owner and CEO of Black Ink Coffee

11. Plan reverse logistics

Ecommerce logistics is more than getting your product to an end consumer. You’ll need a process in place to handle movement of products in the opposite direction, known as reverse logistics. 

Returns plague ecommerce retailers—often through no fault of their own. Customers are honest with the fact they buy variations of a product with the intent of returning them.

A popular reverse logistics strategy is allowing customers to return things they bought online, in-store. 

It’s a far better consumer experience, because it doesn’t involve printing labels, cardboard boxes, and, most importantly for shoppers, it doesn’t involve waiting to get your money back.”

—David Sobie, CEO and co-founder of Happy Returns

Floyd, a direct-to-consumer company selling online furniture, redesigned its reverse logistics program to follow this format. It now offers at-home pickup for returns, which are then sent to warehouses to be inspected and graded. Returned items get relisted on Full Cycle with a 15% to 50% discount.

If you don’t want to accept returns for online orders in-store, ask whether your 3PL vendor (or warehouse) has the capacity to deal with them. Most partners can welcome returned stock, investigate it, and put it back on the shelf ready to be picked when ordered again.