A guide to ecommerce logistics and warehousing

Fulfilment and its core aspects of logistics and warehousing are critical to achieving success in the ecommerce industry. It is vital to get it right to meet your customer needs and expectations. Otherwise, you risk losing competitive advantage, as consumers will find someone else who does it better.

For a moment, put yourself in your buyer’s shoes. Suppose you ordered a product on an ecommerce website and perhaps it was late, lost, or damaged. Would you purchase from that online store again? Most probably not. It’s not a pleasant experience.

Research shows that 39% of customers say they will not repeat buy from a seller if they’ve had a negative delivery experience.

That’s why it’s imperative to pay attention to your order fulfilment process, which essentially involves inventory management, storage, packing, and shipping orders.

Inventory Management Strategies

Without the right inventory management strategies in ecommerce, it’s easy to oversell or end up with too much dead stock on hand.

Keeping track of the inventory process can go a long way towards preventing costly excess stock and time lag from processing orders for delivery.

Managing inventory can become more challenging as your business grows. Many ecommerce businesses usually outsource their order fulfilment processes to third-party logistics (3PL) providers.

3PL companies have access to valuable systems and tools to manage inventory efficiently and effectively while meeting customer demands.

In this section, we will share some inventory management tips to help you steer your ecommerce business and fulfilment strategy in the right direction.

Set par level

By par level, we mean the minimum stock that your ecommerce business must maintain at all times for each product. That way, you will never run out of stock, leading to unnecessary delays (should customers unexpectedly order products when you’re in the process of restocking).

When calculating the par levels, you will need to determine:

• The rate at which items sell
• How long the restocking process takes

Please note that conditions are subject to change over time. Therefore, ensure you re-evaluate the buffer zone a couple of times throughout the year to adjust the levels accordingly.

Computerising your process can help. Automated systems can generate weekly or monthly reports, providing you with valuable insights. You will be better equipped to know when it’s time to order more.

Manually verify incoming stock

After receiving goods from the supplier, make sure the numbers are accurate. Mistakes can happen during the packing process.

In fact, research shows that suppliers incorrectly pack 1% to 2% of stock orders. Unfortunately, miscounting can lead to understock issues and potential losses further down the line – only leading to your and your customers’ disappointment.

Comparing what gets delivered against what you ordered can help you avoid paying for goods you haven’t had and ensure you receive compensation or the supplier sends you the missing stock.

Monitor the shrinkage rate

The loss of inventory is a common problem for online retailers. Businesses are losing an average of 1.4% of their stock to shrink. Your risk could be even greater if you fail to check the stock levels regularly.

Shrinkage is the discrepancy between physical inventory and inventory recorded in books of accounts.

Suppose book inventory is worth £300,000, and you run checks and realise the available physical stock is valued at £288,000. The shrinkage representing the lost stock is £12,000.

Inventory loss can occur due to theft, fraud, damage, administrator error, unsellable returns, and more.

By monitoring the stock levels, you can determine the sources of shrinkage. That way, you can implement systems and strategies that reduce the inventory loss rate and boost your margins. If you’re using a fulfilment company, this will be done for you.

Catalogue your ecommerce items carefully

Errors are likely to arise during shipping if you don’t clearly separate products in storage areas. Delivering the wrong item will mean you have to bear the costs of returning. That’s not to mention your customers will form a bad opinion about your products or services.

The techniques for stocking goods vary depending on your business type. For example, some items will require designated rooms or sections. Others are easy to locate on clearly labelled shelves.

A fulfilment centre will often have separate areas for “standard” products, food products, dangerous goods, bulky or non-standard items, etc.

Label and barcode products correctly

It is imperative to name, barcode or label all your products, especially if you stock products of different makes, models, sizes, colours, etc. Labelling should eliminate any potential confusion, making it easier to pick the correct product for shipping in no time.

If you use similar product packaging to determine the items to ship, you run the risk of committing mistakes that put your reputation on the line.

Barcoding of your items will improve your ecommerce fulfilment operation as items can be scanned without the need for the picker/packer to use a keyboard and mouse to use their fulfilment devices.

This greatly improves efficiency and improves the accuracy of the ecommerce fulfilment process.

Create a reminder system for product expiry dates

If the items you’re selling come with a shelf life (such as food products with use-by dates), having computerised reminders in place for each product line can save you from damaging lawsuits or legal trouble. The system will alert you when your stock is about to go bad.

But even with a reminder system, you still want to double-check the expiry dates of individual products every time you are about to ship. This is especially true if your stock consists of multiple batches. That’s because the best before dates may not be essentially the same for all the batches.

If you use a fulfilment centre or 3PL provider, it’s likely that they will input expiry dates into the system so that they send products with the shortest expiry period, but will also ensure that products with an upcoming expiry aren’t sent to your customers. This avoids customers having a bad experience of receiving expired or soon-to-expire products.

Have a returns management plan

Studies show that at least 30% of items ordered online end up being returned to the sellers. It is fair to say you should always be prepared for returns in this line of business.

The way you manage the products returned matters. Does your business have a defined process for tracking and handling returns and issuing exchanges?

It pays to have a plan even before the problem knocks at your door. You will be in a better position to provide quick solutions, as you already know what to do with products that might be sent back.

If you have to replace products because they were rejected for being defective, ensure you send a report to your supplier and correct your stock levels. If you use or plan on using a fulfilment centre, be sure to discuss your ecommerce returns and exchanges policy.

Implement a regular stock-checking plan

It doesn’t matter how you go about inventory management; you need to review stock levels regularly. It helps detect and correct inaccuracies, weaknesses, and errors that may arise along the way.

Checks provide you with the business intelligence needed to improve your customer experience and maximise ecommerce profits.  They are worth the effort, regardless of how time-consuming they seem to be.

How Order Fulfilment Works

Order fulfilment typically involves the following steps:

1. Receiving and Warehousing
2. Picking
3. Packing
4. Shipping

Receiving and Warehousing

Fulfilling orders essentially starts with receiving, storing, and organising inventory in dedicated warehousing storage spaces and locations. Having stock in hand helps speed up the order processing and delivery.

Picking

When a customer submits an ecommerce order, the automated fulfilment system sends a slip to the picking team. The slip has the details of the items, quantities, storage location, etc.

Packing

It is worth giving product packaging a little more attention. Ideally, your ecommerce fulfilment company should choose packaging materials that protect your ecommerce shipment while adding the lowest dimensional weight.

Please note carriers take into account the product weight and dimensions when determining your shipping costs.

Packaging can also serve as a branding tool and are great for improving brand recognition.

The material you choose generally depends on the type of product to be packaged, branding needs, and cost. Better fulfilment companies will use sustainable, recycled and recyclable packaging.

Shipping

Once the order is ready for shipping, a carrier should be notified to pick it up from your fulfilment centre or drop off location. Distribution companies allow you to track the order during shipping.

It is advisable to note the customer reactions to your delivery options, especially if you’re using the cheapest available services. Some companies can dent your reputation if you are not careful.

Using a fulfilment company can reduce your shipping costs as they will have access to the best rates based on their shipping volumes.

Your Order Fulfilment Options

The most common order fulfilment options available for ecommerce businesses include:

1. Third-party fulfilment
2. Amazon fulfilment services
3. Courier services

Let’s explain each in detail.

Third-Party Fulfilment

Outsourcing inventory management and order fulfilment to a 3PL (third-party logistics) is often a smart move, particularly if your business starting to scale up. Many retailers facing increased transactions often opt for this method to save themselves from the highly demanding supply chain-related tasks, but also to reduce their costs and responsibility for staff, fulfilment times, warehouse safety, stock-keeping, etc.

When there’s significant business growth, you will probably need extra storage space to meet the customer’s needs. You will also be compelled to add new members to your in-house management team.

Outsourcing the fulfilment process may save you money on infrastructure, labour, equipment, etc. as you do not need to enter leases, buy expensive materials or commit to hiring staff upfront. In fact, fulfilment centres are nearly always cheaper – whether you’re a micro-business, multinational or anything in between.

Your external third party ecommerce fulfilment partner can handle all those time-consuming tasks on your behalf, allowing you to concentrate on other areas to increase sales. A reliable 3PL can help you make a positive difference in your business, from inventory management and packing, to shipping orders and managing returns.

Keep in mind, though; some fulfilment companies usually have minimum volumes that they accept. Just take your time to compare different providers for better decision-making regarding price and other critical aspects.

Fulfilment by Amazon

With fulfilment by Amazon (FBA), a business outsources its order fulfilment process to Amazon. Amazon charges you for each item sold.

Your stock gets stored in specified Amazon’s fulfilment centres. You can sell the products directly on Amazon Marketplace. If a buyer makes an order, Amazon will pick, pack, and ship the product while providing customer service.

Amazon is a trusted platform, so it’s not that hard to convince potential buyers, considering past buyers can leave reviews. With positive feedback, retailers stand a good chance of making more sales. Also, products tend to reach the customer quickly.

The problem with Amazon is that you compete directly with other FBA service users. On top of this, Amazon isn’t the cheapest option and has many pricey tiers and every little extra is charged as extra. Therefore, you pay separately for picking, packing, taping, packaging, bubble wrap, shipping, storage, pack-ins, etc.

Shipping to customers outside of Amazon or different countries is also significantly more expensive than when only using their platform.

Courier Services

You can do everything right from the start, but things can turn costly as you get to the shipping step. It is possible to record losses where you could have made profitable sales.

How well you handle your packaging, distribution, and delivery process has a significant bearing on your success.

When your order volume gets too high, posting out individual parcels personally wouldn’t be a good idea. You may want to partner with courier service providers.

A courier company either comes and collects parcels directly from the seller or provides fulfilment to a depot, where a driver is assigned packages based on their coverage area.

The driver then transports the parcels to designated stations where customer can collect their purchases. Or, they deliver the packages directly to customers at home or work. Deliveries are invoiced on their trade account.

Since couriers often deliver many orders to a specific area or region, the cost is usually far less than shipping individual packages personally. Retailers that have a business account with a courier company can receive shipping discounts. When you distribute large volumes of orders, you can negotiate for better deals.

Ecommerce order fulfilment companies often have the same rates as they have tens, hundreds or thousands of ecommerce customers. As a result, they will ship larger volumes of items than you and will have access to much better shipping rates.

Whatever order fulfilment methods you choose, make sure you do the math and consider all the costs involved when selling through online stores. The order fulfilment fees can quickly eat into your profits.

Ecommerce Taxes

Ecommerce transactions attract taxes. British business owners are required to register for VAT after their turnover reaches a specified milestone. VAT registered businesses are authorised to collect taxes on the goods they sell. These taxes are then remitted to HM Revenue and Customs (HMRC).

There’s the VAT Mini One Stop Shop (MOSS) option available for digital businesses catering to customers across the EU. With this service, you will only need to forward the VAT taxes to HMRC rather than deal with tax authorities in every country you sell. HRMC will take care of the rest on your behalf.

In addition to VAT, businesses are liable for income tax. Your tax liability depends on the profits generated. In that sense, it’s advisable to keep proper financial records. HRMC will need it when you file for tax returns.

Tax is a complex area for the untrained eye. We recommend seeking professional help from an accountant, solicitor, or tax specialist. They can walk you through the tax requirements that affect your business and offer advice to ensure you continuously comply with the current laws.

Ecommerce logistics and warehousing summary

Never overlook the impact your inventory management, picking, packing, and shipping process can have on your ecommerce profitability. While businesses may have different needs, you can never go wrong with outsourcing order fulfilment to a 3PL as you scale up.

The services and pricing models of 3PL providers vary. You can request order fulfilment estimates from different companies to get an idea of how much the services cost. But above all, make sure you choose a trustworthy company with a proven track record.