There are several reasons why traditional warehouses are not best suited to e-commerce logistics.
Firstly, the choice of online consumers is no longer limited to the products available in the shop.
Consumers want to be able to order any product at any moment in any quantity. As a consequence, there is a shift in supply-chain thinking from “push” to “pull”. In a push model, suppliers “push” their products to consumers through the distribution channel. In the pull model, consumers create the demand and suppliers respond.
Secondly, in e-commerce order quantities are smaller than production quantities that are typically sent to stores.
On average, online consumers spend around $56 (€51) per order. E-tailers need to keep loose products in stock rather than lots of pallets. So e-fulfillment sites are typically equipped with shelving racks and mezzanines to increase floor space.
Thirdly, e-commerce is bringing sales and marketing aspects into the warehouse.
E-commerce and digitization are driving demand for personalized products. As a result, some value-adding steps have moved from the production environment to the warehouse. An example is product labeling and repackaging.
The online channel must also take daily peak patterns into account.Typically, the peak for an e-commerce warehouse is toward the end of the afternoon and lasts throughout the evening. There is also a peak on Mondays following weekend orders, and usually on Fridays too, to ensure all orders are dispatched before the weekend. The average order turnaround time in the supply process must be less than an hour to ensure orders are delivered fast enough. This demands enormous flexibility from e-fulfillment warehouse staff.
Conclusion:
Bearing in mind all the requirements an e-fulfillment warehouse must satisfy, retailers clearly face many challenges in adapting their traditional supply chain infrastructure to the needs of online retail. At the same time, it is important to switch to online retail quickly so as to be able to meet to current consumer demand. So outsourcing e-commerce logistics is worth considering.
State of the market
In Europe, logistics is the third-most outsourced activity. But the extent to which companies outsource their activities differs from sector to sector. The Fast Moving Consumer Goods (FMCG) sector outsources the most, followed by the automotive industry. This could be due to the high price pressure and consequently lower profit margins in these sectors, which place more emphasis on cost efficiency.
Pressure on margins
Hardly any online stores charge end consumers the full cost of fulfillment and delivery. Many e-tailers try to offset this “loss” by increasing their product margin, but an efficient fulfillment chain remains one of the main strategic drivers of competitiveness for e-tailers.
Shipping companies spend 36% of their total logistic budget
Shipping companies that source logistics services from third parties will, on average, spend 36% of their total logistics budget on these services this year. Domestic transport (80%), international transport (70%) and warehousing (67%) are the most frequently outsourced logistics activities.
The top five are all operational and repetitive activities. More strategic, customer-oriented and IT-intensive logistics activities, such as order management and fulfillment, are outsourced least often.
Shippers say that by outsourcing logistics activities they cut costs by 11% on average, hold 6% less stock and save an average of 23% on fixed logistics costs.
By outsourcing their activities, e-tailers have fewer fixed costs, such as labor and warehouse rental. Cost savings can also be achieved through economies of scale — which is especially true for smaller businesses. Companies can get volume discounts when contracting an e-fulfillment business. Outsourcing also has a beneficial effect on cash flow as shipping fees can be paid 14 to 30 days after the receipt of the invoice fees rather than up front. That means e-tailers hold on to their money longer and spend it on additional products or extra marketing.
Other advantages for outsourcing
Outsourcing also has advantages not directly related to costs. For example, outsourcing logistics activities can help deal with seasonal and daily peaks, enable businesses without e-fulfillment centers to roll out online activities sooner, and usually enable e-tailers to offer consumers more delivery options.
Another big plus in outsourcing e-commerce logistics is that e-tailers can focus on their core activities. Online retailers invest a lot of time in setting up a good balance of online marketing and sales activities. But this pays for itself, because web optimization, social media strategy and digital marketing pull in more online visitors and so generate more sales. Additionally, organizing logistics activities can often be time-consuming and e-tailers make meager savings by doing so themselves.
Logistics service providers, express delivery companies and postal operators have in recent years invested heavily in IT systems that support track-and-trace technology. Online consumers clearly demand this additional transparency in the supply chain.
Insourcing logistics activities
Although the general trend is to increasingly rely on third parties for logistics services, some organizations deliberately choose not to outsource. They usually do so to maintain control over their logistics chain, though other factors also play a role.
main challenges
complex logistics
Businesses that view logistics as one of their core competencies are not quick to outsource their logistics activities. In particular, organizations that have an extremely complex logistics network tend to keep their logistics – and so their knowledge of various processes – in-house.
cost savings not met
The failure to meet cost savings targets or optimize logistics processes are the other most-cited reasons for taking these activities back in-house.
performance and impact on brand image
Another challenge in outsourcing logistics activities is managing the performance of outsourced services.
Logistics activities are a critical component in the organization of e-commerce businesses. When goods delivery goes wrong it has a direct impact on brand image and customer experience. Logistics activities significantly influence customer satisfaction and market share.
Technology transparency
Technology is providing many new ways to integrate data and services over and above traditional Electronic Data Interchange (EDI). An example is the integration of real-time Internet of Things (IoT) data.22 Yet IT integration and the lack of transparency can sometimes be a barrier to outsourcing logistics activities for many companies.
Trust in third party
Outsourcing e-commerce activities also requires trust in the third party. Sharing confidential information is key to a smooth and efficient logistics service.
The reality is rarely black and white. Every business has to look at its own processes, requirements and strategy, and decide for itself which logistics activities can and cannot be outsourced.
E-commerce logistics poses complex supplychain challenges for e-tailers. Because not only online consumers are demanding more; e-tailers themselves are also making greater demands on e-commerce logistics. It is our strong conviction that by outsourcing logistics e-commerce activities, e-tailers are able to concentrate on their core activity and so safeguard their sustainable growth.
http://landmarkglobal.com/outsourcing-e-commerce-logistics-pros-and-cons/
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