You've undoubtedly noticed the changes at your warehouse. The days of large shipments containing dozens of SKU's seem to be passing. Less deliveries are going to retailers, and more and more small packages are going every day, assuming you and your team can keep up.
Whether good or bad, the trend is soon to become a traditional practice, as e-commerce sales are predicted to grow from eight to 12 percent in 2017 with little slowdown in sight. Let's discuss what warehousing and logistics changes are coming down the pike.
The Effect on Modern Warehousing and Logistics
While the end consumer broadly benefits from this practice, e-commerce is providing both a challenge and opportunity to every retailer.
From a daily operations standpoint, smaller shipments can mean more bottlenecks in the picking and shipping process, which can lead to orders not being shipped out the same day they were received. Overall, this can affect customer satisfaction and ultimately the bottom line.
To meet the increased demand, short-term fixes like overtime and extended shifts can greatly add costs to the shipping process. Therefore while serviceable as a short term fix, these solutions are less viable for the long term.
In years past these costs could have been mitigated by adding additional shipping fees to the order that would have been payed by the consumer. If that was what the customer expected, it was a reasonable model.
Over the past few years, however, customer expectations have changed. Certain companies have been able to promise and deliver "free" two-day air shipping on all products ordered. While this isn't technically free, as the consumer must usually pay some type of subscription fee, it has extended the expectation of free and fast shipping to every e-commerce provider.
The reality is that free two-day shipping just isn't feasible for most companies, at least with how they're positioned to fulfill their customer needs. Matching this free shipping promise can literally lead to a loss on every order, which isn't a sustainable method of doing business.
Shipping products out of a warehouse isn't the only issue here - customers expect to be able to return a product they don't like. There are two main strategies for how that's handled. On the more customer-friendly side, companies will include a return label with every shipment that allows for an easy return of their goods. Others will require the customer to call for their return authorization number, and this extra step can cause some customers to give up on the process.
Either process, however, results in a higher cost per shipment when the customer service personnel and return freight are accounted for.
Large Freight Carriers to the Last Mile
The e-commerce changes aren't just affecting retailers and their warehousing and logistics - the actual freight carriers are facing large adjustments in the seasonality of the shipping business. While one warehouse may be handling about 2,000 packages a day during most of the year, the holiday season can see that rate tripled, quadrupled, or more.
While one truck per day was able to meet the demand of the warehouse during most of the year, the holiday season might demand three to four trucks. However, when every warehouse is asking for more delivery vehicles, the freight carriers don't have those vehicles sitting idly.
To accommodate this demand, in addition to the usual seasonal temp workers and rented trucks, freight carriers are building more warehouses and expanding their infrastructure. The catch is that these extra resources are only truly required for about two months out of the year. This means that their profit-per-package rate is declining, even though the volume has increased, especially so during the high volume season.
With thinner carrier profit margins, the negotiation power of retail companies is diminishing. Where there once used to be significant discounts for high volume, those same offers from the parcel carriers are now much more rare. On the other hand, retailers are trying to maintain competitiveness by offering deep discounts and reduced rates on shipping and handling. Due to this pinch of giving customers reduced or even free freight and not being able to get greater discounts from the parcel carriers, creativity is required to maintain and grow your business.
The Way Forward
E-commerce isn't going anywhere, so it's up to the warehousing and logistics teams to prepare methodology and systems that make small package fulfillment as smooth as possible. This includes software changes, business process management studies and even a different approach to infrastructure. Everything must be on the table, and that means a reevaluation of picking, put away and replenishing practices as well as shipping.
Different companies will have different strategies for this. For well-established brick and mortar stores, they may find that it's both cheaper and faster to ship from a retail location in the same state as the order than it is to ship from a distribution center across the country. This could mean large changes in the practice of the retail store, but the cost savings could be significant.
New companies have more flexibility in their approach, such as setting up smaller distribution centers around the country rather than one large warehouse in a specific location. For example, if a customer orders an item in California and the only distribution center is in Atlanta, expensive air shipping is the only way to reach them within two days.
A smaller distribution center in Nevada, however, would be able to reach the same customer in two days via ground shipment at much less cost to the shipper. Innovations such as these, which fall under the omnichannel services approach, are important ways that companies can not only survive but thrive in the growing e-commerce industry.
E-commerce isn't a trend that will pass, and companies that do not adapt and plan accordingly will struggle. Strategies to use new methods of fulfillment must be a common topic of discussion for all business units in a company.
This means adopting a plan that not only deals with the reality of now but the increases in the future. Building processes for distribution that meet your current needs will be poor planning in three years when those needs have vastly expanded.
Those organizations that can adapt to these changes and adopt effective strategies, however, will find themselves in a highly advantageous business position moving forward.