Whether you launch your e-commerce platform or you want to develop your activities, logistics will always be a determining element of your success. Beyond sourcing or product development, marketing strategy, and the implementation of reactive customer service, logistics allows you to meet the first requirement of today's consumers: to receive their orders as fast as possible.
According to an OpinionWay study, the delivery time and the respect of the delivery time are the most important purchase criteria!
However, logistics has become relatively complex in the e-commerce sector in recent years, especially with the rise of Amazon Prime and its free two-day delivery. Your customers' expectations are shaped by this new fast delivery standard, which forces you to consolidate your supply chain management. And to anticipate the multiple logistics issues unique to e-commerce.
Do you already have a headache just thinking about this massive project? No worries! In this article, we'll take a deep dive into how e-commerce logistics work. But also, to understand how to offer the best shipping options to your customers!
The icing on the cake: you'll also discover why outsourcing your logistics has become commonplace for e-commerce brands. But first, let's get back to the basics of this complex topic.
1. What is e-commerce logistics or e-logistics?
In short, e-commerce logistics refers to the processes involved in storing and shipping your products. With over 160 billion packages delivered every year in the world, it is essential to have a system in place that is efficient enough to ensure that your orders arrive on time while keeping your logistics costs under control.
E-commerce logistics covers a wide range of events and elements: the supply chain starts when your manufacturer's inventory is transported, and ends when your products arrive at the customer's destination.
But beyond transportation issues, logistics management is one of the most critical elements of your business. This includes tracking your inventory and stock level. You have to ensure that you have the needed amount of finished goods ready in a distribution centre near your customer available for fulfilment. This is a prerequisite for meeting sustained demand, even during busy holiday seasons or sales periods.
Any shortfall (for both communication and execution) in your supply chain will hurt the customer experience. And unfortunately, that can quickly impact your revenue...
But don't panic! The better you understand your customers' needs and expectations, the more you can deliver a frictionless experience.
2. Understand your consumers' expectations
2.1 Shipping costs: an obstacle to purchasing for European consumers
To make the right decisions regarding your e-commerce logistics, you have to start at the beginning. In other words, your first task is to identify the needs and expectations of your target market. Starting with the price your future customers are willing to pay for the delivery of their order. Indeed, this parameter will directly and significantly impact your business model and your logistics organization!
The main difficulty you may encounter affects all merchants. This difficulty is to find a balance between high e-commerce logistics costs and consumers who are used to not paying shipping or return costs for their orders.
68% of European online shoppers abandon their carts due to high shipping costs, as per multiple studies. They would rather cancel their order and look for a website with no shipping costs (which they will have no trouble finding).
2.2 Are there alternatives to free shipping to optimise costs?
However, there are situations in which a customer will be more willing to pay for the delivery of their order.
According to Trusted Shops, this is the case if they are very interested in the product when the shopping cart is less than £22. Or if the shipping costs do not exceed £5! It is up to you to carry out surveys, and studies or to observe the behaviour of your site's visitors to define their limits!
Besides shipping costs, consumers are also susceptible to transparency. They will be more likely to abandon their shopping cart if the paid delivery is not announced before their journey. But they will also be put off by an unclear returns policy.
In general, transparent e-commerce logistics will always allow you to limit disputes and thus keep your customers loyal.
And more generally, here are some ideas you can apply to:
- Waive delivery fees in exchange for an annual or monthly subscription (Amazon Prime’s model);
- Offer free shipping during specific promotional periods only;
- Offer free shipping in exchange for a minimum shopping cart amount or a minimum number of items ordered.
Once you have understood your consumers and defined your policy, it's time to take action! Let's start by deciphering the range of options you can choose from.
3. What e-commerce logistics options are available to you?
When it comes to e-commerce logistics, you will generally have to choose between:
- Direct delivery (or dropshipping);
- E-commerce fulfilment partners;
- The implementation of your own logistics system (most often via a partnership with a carrier).
Let's see what the main characteristics, advantages, and disadvantages of each of these options are.
Dropshipping is a system of e-commerce logistics consisting of offering products that you do not store yourself. These products will be delivered directly to the address of your customers by their manufacturer or supplier.
The advantages of dropshipping
Dropshipping offers many advantages. Starting with the fact that you don't have to buy inventory. Therefore, this strategy considerably reduces your initial investment and risks, especially in terms of inventory management and shipping processing. Dropshipping is, consequently, the least demanding option in terms of e-commerce logistics.
Drawbacks of dropshipping
Nevertheless, don't forget that it is also the most competitive and the least profitable. If you don't have to take care of inventory and delivery, your margins will also be lower (between 15 and 40% depending on the product). Not to mention your leeway in terms of customer experience, which is also very limited.
In addition, be aware that even if you go through an intermediary, you are still legally responsible for product defects. But also for delivery incidents or accidents related to the use of the sold product! A risk that remains low but essential to be aware of.
3.2 Outsourcing to an e-commerce fulfilment partner
Another way to outsource your e-commerce logistics operations is to work with a third-party e-commerce logistics partner, or 3PL. In concrete terms, your e-commerce company will entrust storage, effective inventory management, order processing, picking, packing and shipping to a partner.
The advantages of e-commerce fulfilment services
The whole point of e-fulfilment is to simplify your life while benefiting from a dedicated service provider’s expertise, technology, and quality control.
The negotiation with the different transport partners is already done, and you will benefit from preferential rates and you access to preferential rates for storage space, order processing, and shipping.
Unlike dropshipping, you own your inventory, which means you have to invest more capital. On the plus side, you will make a higher margin with more control over your inventory and sales process.
For example, if you choose to work with multiple carriers, you will probably need an automated platform to track your orders and inventory at once. Your 3PL will provide you with the needed tools like access to inventory management software that gives you full inventory control.
The disadvantages of e-commerce fulfilment services
Keep in mind, however, that hiring a partner to execute your e-commerce logistics is not free. This logistics approach is therefore often used by online stores with large sales volumes. When you are starting a small business, you might consider this next option.
By choosing a platform like Bigblue, you will be able to decide which carrier (Colissimo, Mondial Relay, UPS, Colis Privé...) or shipping method (standard, express, green delivery) is the most suitable for your customer and product. Some will even help you make this choice automatically, especially for bulky parcels or international shipments.
3.3 Set up your own e-commerce logistics system
To avoid working with a third-party logistics partner, you can also choose to manage your e-commerce logistics from A to Z internally. But beware, this also represents a lot of work and constant unanticipated events to manage.
If you don't want to deal with all your orders (from printing labels to managing returns), you can team up with a logistics partner, which will involve additional costs.
To limit the risks (inefficient service provider, delivery errors,...), you will need to work with different carriers. And thus, to compare the options to track the status of orders, the speed of delivery, the possibility of recovering packages at relay points, etc... To sum up, it demands a lot of effort and time!
4. What logistics capabilities are critical to your e-commerce business?
Whether you decide to use an external partner or develop your own e-commerce logistics service, it is essential to optimise the following elements.
4.1 Inventory location
As the shipping cycle gets shorter and shorter, sellers are now forced to store their inventory in smaller warehouses closer to their customers.
This also allows them to work with local carriers, which are often less expensive.
4.2 Big Data and Artificial Intelligence conquer e-commerce logistics
Mega data, enhanced by AI, is also changing the game in e-commerce logistics.
When properly mastered, these tools can help you identify demand patterns and trends. And thus, better plan your inventory according to the interest for your products.
Essential to meeting demand as quickly as possible, automated systems can also notify your customers of a potential delay with tracking emails or notifications.
Automated delivery trucks and drone delivery will also be commonplace shortly.
Silos are the enemy of logistics. Synchronising all elements of your supply chain can reassure your customers about the status of your inventory and its shipment.
5. The last-mile delivery, the spearhead of e-commerce logistics
Your logistics management is the most complex and expensive component (between 28% and 53% of the total cost). First, because it forces your customer to stay home to receive their order. Second, because it represents the last interaction with your brand. For all these reasons, it must be part of your priorities.
E-commerce is not only about the quality of your offer.
To succeed in an increasingly competitive market, you need to meet the demands of your future customers, especially in terms of delivery. Whether through a third-party logistics provider or by developing your in-house capabilities, strong e-commerce logistics is essential for your business to grow and thrive!