In the second quarter of 2022, ecommerce held a 14.5% share of total retail sales in the U.S. This amounted to $257.3 billion, a 6.8% increase over the same quarter the previous year.
As ecommerce becomes a significant sales channel, it’s important for companies to have the right supporting infrastructure in place. A major part of this is ecommerce logistics, the process by which an ecommerce store transports goods from warehouses to customers.
In this article, we cover the main components of ecommerce logistics chains, as well as how to establish the necessary infrastructure to ensure it runs smoothly for your business.
What is ecommerce logistics?
Ecommerce logistics refers to the process and management of receiving, storing, and delivering products to the end customer through a customer-facing digital storefront online.
Even before a product is sold, ecommerce logistics is involved in transporting inventory from manufacturers or suppliers to the company’s warehouse facilities.
Once an order is received, ecommerce logistics is then responsible for order fulfillment: picking and packing the product and getting it to the customer’s doorstep by the expected delivery date.
Ecommerce logistics is largely similar to logistics for brick-and-mortar companies, with both industries relying on retail management software to fulfill customer deliveries
However, with ecommerce logistics the customer experience begins and ends online, while ecommerce brands often offers wider distribution than brick and mortar, with multiple types of fulfillment services, and may accommodate both deliveries as well as click and collect fulfillment.
5 Components of the ecommerce logistics chain
The ecommerce logistics chain is made up of multiple components working together to get products from the company to the customer as efficiently as possible. These are the five main components of an ecommerce logistics chain:
1. Ecommerce inventory management
Ecommerce allows companies to expand their product offerings without investing in more retail space or sales representatives. However, increased inventory requires a clear view of when to reorder products, keep inventory levels updated, and reassess sales forecasts based on inventory turnover.
Optimal inventory management enables companies to track products across the entire order fulfillment process and helps speed up the delivery of customer orders.
2. Warehouse management
Ecommerce warehousing includes many of the same functions as traditional warehousing (assuming you don’t primarily use a 3PL for fulfillment:
- Organizing layout and product location
- Optimizing picking routes and workflow
- Managing warehouse employees
- Coordinating with other teams along the supply chain
- Tracking all inventory types, from raw materials and packaging to finished goods
With ecommerce businesses products are often distributed across multiple locations. This includes company-run facilities, consolidated warehouses, third-party logistics providers, or a combination of several storage types.
To consolidate inventory information across all locations, ecommerce companies rely on warehouse management systems to track the exact inventory count and location.
3. Ecommerce order processing
Ecommerce order processing starts the instant an order is placed through an online retailer.
An order management system receives the customer order details and automatically assigns them to the best fulfillment hub, depending on product availability and delivery address. The fulfillment team’s job is to pick, pack, ship, and track the order.
By integrating an order management system into ecommerce checkout, a company can automate inventory updates, assess the best reorder points, send notifications to the appropriate teams, and reduce overall delivery time.
4. Order packing and shipping
Packing and shipping involves a number of steps, including picking all ordered items from the warehouse, securely packaging them in the appropriate materials, printing and attaching shipping labels, and scheduling shipment according to the customer’s delivery window.
Ecommerce orders may be shipped through a company’s in-house operations or a third-party logistics company.
5. Ecommerce returns management (Reverse logistics)
A significant part of ecommerce logistics is handling returns, also known as reverse logistics. When customers make online shopping purchases without seeing or knowing the product in detail, it more likely leads to a higher rate of order returns.
Returns management is an expected function of ecommerce’s logistics solution. Once a return is approved and sent back to the appropriate storage facility, fulfillment then works to check the product’s condition, restock it in the warehouse, and make sure inventory levels are updated.
Best practices for efficient ecommerce logistics
While ecommerce logistics takes several cues from traditional logistics, the channel comes with its own unique challenges. Here are some proven best practices for an efficient ecommerce logistics process:
Distribute your inventory efficiently
The key to optimal ecommerce fulfillment service is keeping inventory close to customers. Whereas a large percentage of logistics deals with large wholesale shipments to fewer destinations, ecommerce logistics typically delivers smaller quantities to hundreds of customer locations.
Instead of a single fulfillment center, ecommerce companies benefit more from distributing their inventory across smaller, more strategically located facilities. Distributed inventory helps facilitate last-mile delivery and allows companies to gain a competitive advantage by offering same-day or overnight shipment.
Maintain agile operations
Thanks to the rapid changes in the ecommerce industry, customer orders can quickly increase or decrease without warning. Ecommerce logistics management should be optimized to handle fluctuating demand and flexible enough to accommodate market changes.
Respond to customer demand
An ecommerce store’s success relies on meeting customer needs and delivering as much value as possible. This doesn’t only relate to product selection.
For example, expedited shipping, free delivery, custom packaging, and the like can be the difference between winning and losing the sale.
When planning what value-adds to offer your customers, it’s best to coordinate with other teams to make sure the additions are cost-effective and have the potential to help gain market share.
Ensure order fulfillment accuracy
An important step in ecommerce order fulfillment is accommodating each customer order’s details and shipment time frames. When checking out, customers can usually choose their desired quantity, delivery date, and time before making an online purchase.
Online stores offering a range of products may require unique packing material for specific items. With so many variables for each shipment, ecommerce fulfillment requires special attention to order details to prevent bad customer experiences.
Plan for supply chain management alternatives
The occasional issue will arise that prevents ecommerce logistics from operating as usual. While companies can’t completely prevent any problems from happening, they can reduce adverse effects by having a contingency plan in place.
This involves strategic assessment, risk management, and additional training, but can prove highly beneficial if a company finds itself facing unexpected circumstances where its supply chain is unable to fulfill orders.
Synchronize data across all parts of logistics
A challenge with ecommerce logistics management is keeping all the company’s inventory, shipments, and storage facilities organized across all locations. The best way to do this is with a best-in-class business management software like QuickBooks Enterprise that consolidates information and connects all parts of the logistics process.
The right solution will ensure accurate inventory levels visible to all teams, reducing chances of overstocking or stockouts.
How to create your own ecommerce logistics infrastructure
The first step in creating your own ecommerce logistics infrastructure is to assess your current operations.
- What are the main product lines you offer?
- Where do the majority of your sales come from?
- What are your current logistics resources (i.e., warehouse locations, workforce, equipment, software)?
- Do you prefer to handle your own in-house ecommerce logistics or outsource to a third-party service?
From here, you can determine what’s needed to build your initial infrastructure.
Choose the optimal number of distribution centers or warehouses within your covered region and the type and quantity of inventory SKUs to store at each location. It’s best to inform your decision by looking at historical and projected sales data.
If you plan to run your own ecommerce logistics, make a list of the required labor, machinery, and other resources needed for each location.
Alternatively, you can outsource any part of operations to a supply chain partner. Carriers (i.e., Fedex, USPS), sorting facilities, distribution centers, logistics partners, and similar companies are all options to complete your ecommerce fulfillment.
Finally, select a business management software like QuickBooks Enterprise to link your ecommerce supply chain. The right system lets you easily track and monitor all inventory data in real time and find opportunities to improve operations.
How QuickBooks Enterprise keeps your ecommerce logistics delivering for customers
QuickBooks Enterprise offers all the tools needed to simplify your ecommerce logistics. With integrations with ecommerce platforms like Shopify, Amazon, and WooCommerce, QuickBooks Enterprise allows you to add product listings across channels easily.
This data is automatically collected and available to share with your team with 14 built-in retail reports, such as monthly sales per customer or gross margins by inventory item, as well as the option to build custom reports.
Seeing the full scope of your ecommerce logistics operations allows you to pinpoint exactly where profits are coming from, address any potential issues, and ensure long-term success.
