How to Overcome the Challenges of Ecommerce Logistics at Scale

How to Overcome the Challenges of Ecommerce Logistics at Scale

As your company enters a high-growth phase, it’s vital to focus on what it is you’re delivering to your customers … 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.

In a recent live event with Maia Benson — Shopify’s Global Commercial Head of Shipping & Fulfillment — DHL eCommerce Vice President Strategy and Product Management Craig Morris shared his insights and experience on logistics, operations, and strategy.

You can still watch the full webinar, but just in case you’d like a distilled recap of Morris’ big ideas …

Here are nine lessons, along with a hand-chosen resource for each, on overcoming the challenges of ecommerce logistics:
  1. Find an Ecommerce Logistics Partner Early
  2. Focus on Your Core Competencies
  3. Ensure Quality and Order Accuracy
  4. Synchronize Your Inventory
  5. Connect Your Warehouses
  6. Balance Value Added Logistics, Costs, and Focus
  7. Free Shipping, Fast Shipping
  8. Regionalize Inventory to Reduce Cost
  9. Leverage Technology for Logistics Rates

1. Find an Ecommerce Logistics Partner Early

Making the call on a third-party logistics (3PL) company can be hard, but the right 3PL partner can save you time and stress. By all means, listen to your gut, but you don’t want to have to make the call when you’re flooded with backorders:

“There are definitely advantages to insourcing your logistics and doing everything yourself. The most obvious advantage is control, but there's a whole ton of advantages to outsourcing.

“The most obvious ones are access to capabilities that you don't have. So whether that's technology, whether it's resources, expertise, new geographies, by outsourcing you can basically buy that from a specialist who does it 24/7, which is a huge advantage.

“There are also advantages from a cost perspective. Typically, 3PLs have economies of scale to give you a better cost per unit on what you're able to achieve yourself.

“Other things are like scalability, the ability to grow your business and access infrastructure that you would not be able to deploy by yourself because maybe you don't have the capital or the ability to deploy that by yourself.”

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

Resource:

How To Overcome The Challenges Of Ecommerce Logistics At Scale

3PL (Third Party Logistics): Everything You Need to Know

2. Focus on Your Core Competencies

If your company’s focus is not on logistics, then why spend time and dedicate team members to that aspect, where those resources could be better allocated within your company?

Do what you do best, and let someone else be the expert at getting your products to your customers:

I would probably say that one of the most important advantages to outsourcing your logistics is the ability to focus on your core competencies.

“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.

“Recently logistics, particularity e-commerce logistics, has gotten much, much more complicated. So more fulfillment locations, more carriers to manage, changing technology, and so on.

“New geographies, new countries. And keeping on top of this as a retailer can be extremely difficult. So retailers have to have an honest dialogue about when logistics is really interfering with the success of their business.

“If you’re worrying more about issues in a warehouse, than how you could be potentially delighting your customer or selling more product, it might be the time to outsource.”

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

Resource:

How To Overcome The Challenges Of Ecommerce Logistics At Scale

“The main thing is to keep the main thing the main thing” by Stephen Covey

3. Ensure Quality and Order Accuracy

Walk before you run, and don’t make simple, avoidable, errors. Start off strong, delivering the right orders on time. It’s the best thing you can do for your business:

“My words of advice would be to start with the basics. Quality and order accuracy and getting orders out of a fulfillment center in a timely fashion is the single most important capability that 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, no amount of marketing buzz will ever overcome this and it should be the most important discussion point with the vendor.”

People are conditioned now to expect a high level of accuracy and quality. Anything less is disappointing.

Resource:

How To Overcome The Challenges Of Ecommerce Logistics At Scale

Ecommerce Order Processing Software: Tools and Tips

4. Synchronize Your Inventory

It’s simple, but that doesn’t mean it’s easy — 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 attention:

“Inventory management is exceptionally important and it's also, frankly, a science. How much buffer to have, and how much you want to have in stock, really varies based on the retailer situation, what they sell and where they find themselves financially.

“Excess inventory is bad, right? It ties up cash that 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, you find the thing that you wanna buy, but unfortunately, there are no units on hand.

“That’s a bad customer experience that’s a result of maybe not having the appropriate controls 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. And doing that effectively is a lot harder than it sounds.

“If you go online, there’s a lot of information about how to evaluate how much inventory to hold, to calculate and analyze your inventory turn rates, your 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 month 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.

      Resource:

      How To Overcome The Challenges Of Ecommerce Logistics At Scale

      Inventory Management Systems: Finding a Solution

      5. 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:

      “The need for affordable speed is driving this regionalization trend in fulfillment. 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 and delight them at the same time.

      “Retailers have to cover multiple warehouses, drop-shippers, potentially stores, and doing so across potentially across multiple countries in an attempt to find a most efficient fulfillment location. Managing that fragmentation is difficult.

      “The hardest part is really knowing how many nodes do I need and defining how much inventory to hold where in that network, when and in what amount. That's what we typically call demand planning.

      “That’s a capability that a lot of retailers lack, or don’t really have the tools to be able to analyze effectively.

      “Also, if you are in multiple nodes, you need tools to be able to see that inventory, light it up, so to speak, and execute orders across that inventory. That’s called order sourcing, or distributed order management. Those are areas DHL's invested in significantly to try and overcome these challenges.”

      Resource:

      How To Overcome The Challenges Of Ecommerce Logistics At Scale

      “Out of Stock”: How Savvy Ecommerce Directors Create Rock-Solid Merchandise Plans

      6. Balance Value Added Logistics, Costs, and Focus

      Making sure that 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 does that fulfillment provider have:

      • What kind of experience and capabilities to 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 and so forth?

      “These are all becoming increasingly important and having a provider that can manage these and understanding how much it costs to manage these are very, very important questions to ask. But as a reminder, it can also go too far.

      “Some of these value-added services add tremendous operational complexity to the fulfillment process and, as a result, they drive cost into the fulfillment process and retailers really need to make sure that 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.

      Resource:

      How To Overcome The Challenges Of Ecommerce Logistics At Scale

      Ecommerce Partnerships: 8 Lessons from 1,103 Stores and $500+ Million in Sales

      7. Free Shipping, Fast Shipping

      Offering a no-cost delivery can encourage people move forward with their shopping. Whether there’s a limited promotional offer or a minimum order size, these techniques will help get orders through the checkout:

      “Free shipping is absolutely very important. Plenty of evidence tells us that not offering some sort of free shipping is one of the leading reasons why shopping carts get abandoned. And there are ways to manage the cost of free shipping, such as having a minimum order size to qualify for it, offering it only with promotions, or with select items, and so forth.

      With the free shipping option, make sure you have an ecommerce logistic solution that is affordable.

      “I think work share in the United States is a wonderful solution for that and that means partners that work with the USPS to kind of do the first 90% of the value chain, while the USPS does the final mile.”

      Gone is the “10-business-day delivery.” Customers expect timely delivery of their orders and are upset when it’s not an option. Yet Morris believes a healthy, responsive, delivery time create a return customer:

      “The ultimate paradox that’s going on in the United States right now, in particular, is customers want their orders increasingly fast, but they don't want to pay for it. If you look at 2014, the average time from click to doorstep was actually over six days, that means fulfillment and shipping combined.

      “In 2016, the average was down to just over three days. That’s three days gone in the supply chain in just two years.

      “And we all know where it’s going. It’s probably closer to two days today. That trend is gonna continue.”

      You must keep up with other companies shipping in three days or fewer. It’s important to find a logistics company that will keep up with your orders in that amount of time, enabling you to retain customers.

      Resource:

      How To Overcome The Challenges Of Ecommerce Logistics At Scale

      How to Calculate Free Shipping Thresholds

      8. Regionalize Inventory to Reduce Cost

      According to Morris, 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:

      “We know a lot of, particularly some of the bigger brands, the bigger retailers are now experimenting with same day [delivery]. The answers to that paradox really exist in the supply chain.

      “We talked about regionalizing inventory to remove distance from the equation. 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 LA to LA, you can use the USPS workshare products and get two days and that sure beats two day express product from Kentucky or somewhere in the middle of the country.

      Localization opens up many options to leverage different types of carriers.

      “You’re not dependent on national incumbents anymore. You can start to work with regional carriers, metro couriers, and so forth, that can bring tremendous savings to the table, versus their national counterparts.”

      Consider how local deliverers can be sourced for your product shipment, and you may find yourself saving money and time.

      Resource:

      How To Overcome The Challenges Of Ecommerce Logistics At Scale

      The Beginner’s Guide to International Warehouses in Global Ecommerce

      9. Leverage Technology for Logistics Rates

      Different rates for different shipments can offer significant savings, but it requires the technology, information, and skills to be able to make the best shipping decisions:

      “There’s tremendous opportunity in the market to work with niche carriers, whether they’re regional providers or companies like DHL e-commerce that really specialize in the lighter weight parcels, to get really significant savings and to figure out ways to do two or three days nationwide in a much more affordable way.

      “But, in order to capitalize on these multiple carriers, you need certain capabilities and the most important one is rate service shopping. You need the technology either in your WMS, or transportation management system, to make the best possible shipping decision, giving the details of the order.

      “What’s the origin zip, where is it going, how much does the parcel weigh, what are the dimensions of the parcel? Which carrier? What's my service level? What carriers can execute that?

      “Then, rate shopping across those carriers to try and do that in the most affordable fashion.”

      Shopping around and paying attention can save a lot of hassle and allow for affordable, quick delivery.

      Resource:

      How To Overcome The Challenges Of Ecommerce Logistics At Scale

      Global Fulfillment: A Guide to Finding the Right Shipping Partner Internationally
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      Still want more on ecommerce logistics?

      Discover how to ...

      • Select the right third-party solution
      • Manage inventory and multiple locations
      • Optimize shipping to give your company a competitive advantage

      Watch the full event here

      Final Thoughts on Ecommerce Logistics

      Logistics can be complicated, but it can be solved methodically. It’s not a matter of luck, but rigor and discipline. More and more companies vie for customer loyalty — make sure that you’ve created a smooth, delightful, customer experience before trying to move forward with anything else.

      The growth you’ll experience is never as predictable as you’d like — Morris’s advice enables you to capitalize on each and every opportunity.

      About the Author

      Herbert Lui is the creative director of Wonder Shuttle. He was a staff writer for Lifehacker, and his writing has appeared in The Globe and Mail, the New York Observer, and Fast Company.