Around the world, e-commerce companies and their logistics providers face three uniquely challenging problems. First, digital shopping demand is higher than ever before. Second, customers' demands for fast, reliable, and cost-effective delivery services cannot be ignored. In fact, about two-thirds of customers expect between two and three-day delivery. Third, truck shortages and rising fuel costs increasingly affect logistic operations.
But while these three issues affect every e-commerce business – large and small – there is a fourth challenge that only affects small and medium-sized operations: the Amazon factor. What do I mean by that? Amazon, Walmart, and other delivery giants spend millions of dollars on logistics. Their speed is due to fully automated warehouses inhabited by robots and massive logistics platforms that notify customers and employees ahead of time.
Truth be told, a smaller company simply cannot afford such immense investments in its logistics chain. But there’s no need to despair. Instead, stores can purchase or develop effective and accessible logistics solutions custom to their problems to improve their delivery promises. Let’s explore.
New logistics goals
Companies that ship goods to their customers have seen an unstoppable rise in online sales over the past two years. Impressively, this is in addition to an average growth rate of 15% per year over the past decade in the US. However, as demand has risen, so have costs. McKinsey estimates that companies (or stores’ internal logistics departments) take in $12 to $20 of every $100 in sales – a considerable increase over the $3 to $5 a typical brick-and-mortar retailer spends on logistics.
However, consumer demands are changing. Next-week delivery is no longer enough. With most large providers going for same-day delivery, smaller companies have to try to keep up. Overall, the more productive your logistics are, the more you can sell and retain customers. But the greater the variety of products, the more complex it is to keep inventory accurate. Today, a company's logistics goals consist primarily of:
- Meeting customer needs
- Minimizing costs and environmental footprint
- Increasing turnover
- Establishing systematic logistics operations and continuous optimization
To achieve these goals, logistics departments need to invest in key areas including transparency of logistics operations, AI for optimization, and automation of redundant processes.
Improve visibility on inventory metrics
Recent data from Adobe shows that out-of-stock products in 2021 were 250% higher than before the pandemic. The first thing stores require to tackle this challenge is improved visibility – both for their own metrics and to report to customers and stakeholders. The process starts with getting inventory visibility:
- What do I have in stock and how much?
- How long does it take to replenish?
- How often do customers buy this product?
- Do I run out of stock frequently? Why?
By answering these questions, logistics departments record data on inventory changes and orders placed with the manufacturer, enabling them to view order status and inventory management details. They will also be able to understand bottlenecks much better.
With more visibility, stores can measure their key performance indicators and analyze room for improvement. For example, suppose they find out that most delays are due to manufacturer delivery or warehouse staff not communicating that products are out of stock. In this case, companies can easily address the problems that previously could only be addressed piecemeal.
Further, when the company knows where products are and how long it takes to reorder them, it can accurately inform customers of the delivery status. Whereas companies like FedEx and DHL have used messages for a long time, more minor, local providers have worked on even more pinpoint, minute-to-minute forecasts. These innovations are a welcome step for stores towards enhancing customer service and service visibility.
Use AI to optimize metrics
Collecting data and improving the visibility of operations serve its intelligent optimization. Technology has made tremendous strides in this area, with AI now able to optimize an entire range of metrics throughout the logistics chain. By predicting demand based on past orders and factors such as seasonality, and even artificially correcting demand with marketing initiatives, AI machines have revolutionized e-commerce.
But AI doesn't just improve inventory management – it can also help with the delivery itself, from the warehouse or store to the customer.
The most critical way AI can optimize resources in trucking and shipping is by optimizing routes. Until now, roughly half of the total logistics costs are lost between the warehouse and the customer's doorstep. Delivery trucks slowly making their way through congested cities, driving from neighborhood to neighborhood, are a complete waste of fuel and time.
Have you seen how Amazon's Kiva robots move shelves of goods to pick stations and provide automated retrieval? What still looks futuristic has become a new normal in warehouses of large department stores. Of course, robots don’t always make sense for small and medium-sized stores, but automating processes does.
Automation can be as simple as digital order management. IT departments should configure automation to sync with the store's point of sale system. For example, an automated bot can communicate via emails and order portals from suppliers to place reorders. The purchasing manager often only needs to monitor notifications and approve the request.
Customer service is another area where automation can save time and costs. For example, when a customer makes a return of a $50 item, this is expected to cost an average of $33, according to Optoro. These costs can be reduced with a mobile app for logistics partners to determine the overview of the location and return arrival time to re-sell the item in time and enhance operational efficiency.
On a final note – when it comes to logistics processes, it's essential to know that automating or optimizing every possible operation doesn't always equate to ease. Sooner or later, a problem will arise that requires manual input or challenges the business at a higher level. This means that e-commerce companies must have a technically savvy and logistically competent team to analyze each business case through a human-technical lens and find the best solution for cost, time, and customer satisfaction.