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Is Logistics Management Important to eCommerce?

Is Logistics Management Important to eCommerce

ECommerce is typically seen as a technology business. In reality though, online commerce involves as much physical world logistics management as its offline counterparts. Managing operations is one of the key KPIs that govern the success of eCommerce businesses.

This is especially true in modern times where market leaders like Amazon pride themselves on same day or next day deliveries. For eCommerce businesses competing with the behemoth, it is not only enough to drive traffic to your website and maximize conversions, but also own an operations strategy that is as efficient and has low cost overheads.

Streamlining operations is thus an important parameter in eCommerce management and goes a long way in improving shopping experience. Doing so helps your business focus on cost and efficiency and thus deliver a superlative supply chain. Here is a short guide on how you can go about doing this.

The 80-20 rule

New businesses try to take up whatever orders that come their way. Nothing wrong with that; however, it is important to identify where the “80%” of your orders are coming from. This will help you determine where to set up your warehouses, what suppliers to establish relationships with, and so on.

Studies show that nearly a quarter of your customers cancel orders because of slow shipping. As it is with any 80-20 scenario, a large chunk of your orders tend to come from a targeted 20% of your serviceable area. Setting up your fulfillment from a central location allows you to offer quick delivery to a large chunk of your customers in a cost-effective way.

Integrating all stakeholders

A typical order fulfillment goes through several stakeholders. This includes your supplier, fulfillment center and shipping partner.

While the location of your fulfillment centers can play a large role in determining delivery time, this is also influenced by other seemingly minor factors. For example, it is typical for many shipping firms to handle dispatches at a specific time of the day. Breaching this deadline by even a minute could mean a delay of at least 24 hours.

Establishing an integrated inventory management system that provides stakeholders with real-time updates of orders placed, and those awaiting shipping could save precious minutes in processing times that can ensure quicker dispatches.

An effective operational strategy also involves timely alerts to the respective stakeholders. For instance, your fulfillment center could alert your shipping company once the products to ship are ready for dispatch—this allows the shipping partner to schedule their pickup accordingly.

You can integrate your email marketing system with apps that handle your online orders, payment processing and inventory management in order to automate this alert system.

Diversifying your operational assets

Small eCommerce stores typically work with just one or two suppliers and shipping partners. The underlying logic here is that the cost of operations reduces with scale and by tying up with few partners, you benefit from economies of scale.

While this is a valid concern, it is also incredibly risky. A failure to deliver by one supplier could disrupt your entire operations for weeks, or even months, and could potentially threaten the very survival of your business. Partnering with multiple suppliers can ensure greater reliability. Also, what you lose by reducing order quantities are often more than made up by market forces that compel these different suppliers to bring their prices down in order to continue their relationship with you.

The diversification strategy is also applicable for other operational assets by fulfillment centers, shipping partners, etc. In addition to improving reliability, the diversification strategy may also bring down the delivery time of your products.

What strategies has your business taken to streamline eCommerce operations? Share your ideas in the comments.

Published: September 13, 2019

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