Today’s logistics empire is not your grandfather’s or even your father’s logistics operation. Consumers are expressing an unprecedented amount of power through eCommerce, and in fact, eCommerce logistics is growing increasingly reliant on small parcel and package delivery options daily. Meanwhile, eCommerce is catalyzing significant changes in retail real estate as more companies vie for warehouse space and transportation services to meet a growing number of online orders, explains Alexander Frei and John Morris of Area Development. But, the changes are not limited to warehousing, and you need to understand how they will impact the modern supply chain.
In 2011, eCommerce represented a fraction of overall retail operations. But, by the end of 2012, eCommerce logistics had grown to 5 percent. Today, eCommerce is the primary driver of small package logistics. More importantly, small packages make up $82.2 billion of the logistics industry, and that number will only grow from here. As a result, more incoming orders and greater order diversity naturally requires increased numbers of warehouses. Fortunately, some shippers have a plan for enhancing warehouse usage.
The simplest way of making a warehouse run efficiently is by managing inventory better. At the same time, more warehouses only mean more products can be stored. They do not mean more packages can be sent. So, the only solution to better managing inventory for eCommerce is by changing the internal layout of a warehouse, reports Inbound Logistics.
Employees need to be able to access a variety of products with the shortest travel distance. Consequently, warehouses are creating new picking procedures and using advanced software systems to automatically identify what items should be picked in a given order.
For example, some warehouses are keeping a huge variety of products within small areas of a warehouse, allowing for the rapid picking and packaging into small parcels. The short bin-to-package distance enables workers to pick more products, and in some cases, robotics are being deployed to further enhance the number of picked orders. As a result, warehouses can ship more packages.
Analytics are critical to helping warehouses and shippers determine the fastest routes to get products to customers. However, actual transportation represents a small portion of areas that need to be analyzed. For example, the location of distribution centers impacts the distance between warehouse and consumer. Yet, warehouses cannot be conveniently located in every region, or can they?
The eCommerce consumer expects free shipping, fast delivery, and hassle-free returns, asserts the Eli Broad College of Business at Michigan State University. Therefore, traditional warehouse and distribution center models are being abandoned in favor of smaller, localized regional centers to handle specific markets. But, this brings back the fundamental problem of small packages that many shippers experience; small package shipping tends to be labor-intensive and costly.
Third-party logistics providers (3PLs) offer significant advantages to shippers and retailers engaged in eCommerce. In addition, many retailers lack the resources and equipment to provide low-cost shipping and returns processes to their eCommerce consumers. As a result, shippers and retailers have turned to 3PLs to provide expanded resources, web analytics, increased visibility of shipments, handling of web orders and web portal needs, and technology-based picking for eCommerce orders, such as robotics and low-energy sensors.
Existing fleets are also stretched to the breaking point. The capacity crunch seems to be only growing worse, and the major carriers have already taken steps to increase rates for 2016 and beyond. Yet, dimensional pricing models are starting to make shipping high-volume, low-weight products costlier than high-weight, low volume products. Unfortunately, the only way to stay competitive with the major carriers is by having access to discounted, negotiated rates through a 3PL.
eCommerce logistics is not just a big deal for shippers and retailers in the U.S. According to Athira A Nair of Your Story, eCommerce in India is expected to be valued at more than $220 billion by 2025. Yet, the whole value of the logistics empire in India as of today is only $300 billion, with an annual compounded growth rate of 12.17 percent until 2020. Consequently, the overall value of the logistics market in India could easily double in size by 2025, and other markets around the world show similar trends, explains Patrick Burnson of Logistics Management. So, the problem starts to arise when more companies seek to keep shipping costs down in an international eCommerce market.
Fortunately, 3PLs have large global footprints, capable of organizing and adapting to the growth of eCommerce logistics across international borders. This will help to avoid customs’ delays and problems when moving across international and geographic boundaries. Since the majority of online sales are shipped via small package, having the ability to convert small package to LTL or to full truckload is essential to keeping up with the demand and pressures of lower prices. In other words, the vitality of a 3PL is necessary if today’s eCommerce businesses hope to survive throughout future growth of online sales and distribution.
eCommerce logistics is only going to continue to influence logistics operations around the globe, and many businesses will unlock huge markets and tap into new resources through the expansion of eCommerce. However, these businesses need to understand the current state of logistics in eCommerce in order to prepare for the ecommerce needs of the future.
ECommerce is growing at an astonishing rate. In fact, the number of online sales rose 16.3-percent annually, reports Jeffrey B. Graves of Inbound Logistics, accounting for nearly one-half of $1 trillion by 2010. Meanwhile, the number of warehouses has not yet grown enough to accommodate the surge in order fulfillment and processing. As a result, today’s shippers need to work more efficiently and productively to stay competitive and provide customers with viable solutions. Fortunately, shippers and warehouse managers who follow these best practices can improve production to meet the surging demand.
The U.S. and much of the world is hypervigilant in the wake of numerous terrorist attacks, attacks of police and increased violence. It stands to reason that compliance requirements, such as the EDI 856 Advanced Shipping Notice, will continue to become more important. For example, the required information could easily expand to include details that are not mandated as of now. While you need to pull this information throughout the day, it should be an automated process. In fact, this details should be compiled and reported from within your warehouse management system (WMS), which reduces the amount of time required in processing thousands, if not tens of thousands, of orders.
Returns not simply a nuance for shippers; they are critical to providing consumers with peace of mind while shopping online. As explained by Carl Marin of Advantage Business Media, large-scale online retailers, including Amazon and Wal-Mart, are serving consumers with unparalleled return options, making any possible returns easier and virtually free to consumers. Unfortunately, consumers are far less likely to complete an online purchase if return policies are non-existent or too expensive, and many consumers will simply forgo purchasing your products if it can be obtained with a returns’ guarantee from another eCommerce solution. In other words, shippers need to be prepared to take on the costs of free return shipping, assistance when printing shipping labels and processing returns as they come in.
ECommerce warehouses are processing more orders than ever before. As a result, a single eCommerce warehouse may actually be responsible for processing groceries, fresh fruits and vegetables, beauty supplies, apparel and practically any other type of product. Shippers need to proactively pull orders as they come in, but the key to making this practice success is prioritizing order picking to meet the demands of the consumers. According to the following graphic, created by the Ivey Business Journal, prioritizing can be broken down by type:
Historically, order channels were split among different distribution centers. Orders for retail spaces came from one center. Meanwhile, orders processed online were left exclusively in another center. Yet, the separation was even more apparent as small package shippers operated almost independently of large-scale shippers using less-than-truckload (LTL) and full truckload (FT). However, the unyielding push toward cheaper products, low shipping costs and faster delivery is making it harder for shippers to operate independently of one another.
In this space, the role of using a dedicated transportation management system (TMS), which includes a WMS, has become vital to success. A TMS combines the perks of working independently with the benefits of working together, and shippers can combine orders from different channels and of different modes into one environment, reducing unnecessary delays and costs along the way, reports Roberto Michel of Logistics Management.
The endless flow of incoming orders via eCommerce actually reflects one part of the multichannel supply chain. In other words, an eCommerce order may be a final order by a retailer when a customer placed an order in the physical store. Ultimately, the role of eCommerce stretches beyond purely eCommerce order and transportation needs. However, shippers should use metrics to track the percentage of orders fulfilled within time requirements, numbers of orders shipped within a given time frame, accuracy in orders picked, packaged and shipped, and labor productivity. Each of these metrics relates directly to consumer promises, such as free two-day shipping.
Having metrics to track progress and productivity is only half of the battle. Your staff members need to have a reason for working more efficiently than the fear of not being employed. Furthermore, threatening the employment and financial security of your staff will only breed hostility. Instead, you should implement an incentive-based program to encourage all staff members to work together and increase progress and productivity. This increases collaboration, which can also be leveraged to increase collaboration across other parts of the supply chain.
For example, staff members who have the lowest error scores for a month’s worth of eCommerce orders may be awarded additional PTO orders. As a result, your employees will be more willing to make changes in order to access cheaper, faster and more efficient shipping options, such as outsourcing auditing of small packages to a third-party logistics provider.
Aside from the labor costs of having staff members physically pick products, the cost of transporting a shipment to the customer represents one of the highest costs in the supply chain. While many small orders may come in, the warehouse should proactively work to reduce the transportation costs by picking and packaging products for intermodal transportation, asserts Art Eldred and Tony Hollis of Supply Chain 24/7. As a result, shippers can reduce transit times and fuel costs, which promotes faster, on-time delivery.
ECommerce shows no signs of slowing, and those who refuse to enhance warehouse and shipping processes will lose their competitive advantages and fail. However, the future for eCommerce is filled with opportunity. If shippers and warehouses can leverage the power of insurmountable demand to improve the processes during order fulfillment and shipping, they can become the industry profiteers of tomorrow.
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