eCommerce Expansion Guide: Navigating Supply Chain Challenges with the Help of a 3PL 

eCommerce supply chain challenges
eCommerce Expansion Guide: Navigating Supply Chain Challenges with the Help of a 3PL 

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The secret to eCommerce success is not just about what your company sells but also how efficiently you get customer orders to their doorsteps. The hard work for online retailers only begins once the sale is made. 

The good news is that the opportunity and effort are likely worth it. Online retail has enjoyed immense growth, but taking advantage of eCommerce requires excellent logistics, which comes with many challenges. On average, online retailers spend 11% of their annual revenue on logistics costs, and 53% state that delivery and fulfillment logistics present significant hurdles to running their business profitably. 

Why is logistics for eCommerce companies such a big deal? 

The main challenge of eCommerce logistics is similar for most companies in that creating a positive customer delivery experience while maximizing shipping efficiency is the goal. Order delivery is the last touchpoint online sellers have with customers, and it has an outsized impact on their buying experience with your brand.  

At the same time, ensuring delivery meets expectations is complicated. Logistics includes much more than just shipping the order. It can cover many steps, including inventory sourcing and storage, order processing, packing, and last-mile delivery — plus returns. The whole customer experience, which makes or breaks an eCommerce business, comes down to the effectiveness of the seller’s supply chain processes.  

Scaling logistics to meet demand growth

In light of the continued growth in eCommerce, it’s become more common for sellers to find they have reached the limits of their logistics capabilities. This becomes apparent as new business challenges emerge. 

On Episode 45 of the eCOM Logistics Podcast From Local to Global: Multichannel eCommerce Growth with Jorrit Steinz, the CEO and founder of Channel Engine shared his experience. 

“When we started out, we built everything ourselves, including the warehouse, WMS, and automated purchase assisting system. We soon expanded to the backdoor neighbor’s space and then into the next-door neighbor’s. In the end, however, we began partnering with 3PLs to help accommodate our growth. Doing so also helps provide more flexibility with the space we need to operate.” 

In addition to a lack of space, here are other areas within a company’s logistics network that can struggle to keep up with growth:  

  • Inventory management: Frequent problems with insufficient or too much inventory in the face of growing demand can mean customers are not getting their orders, and you’re overpaying for stock and storage space you do not need. 
  • Order fulfillment: Rising costs, slower fill rates, and lower pick accuracy due to rising volumes are signs your fulfillment operation needs more flexibility to scale up to meet demand. This becomes extra complicated, however, when volume changes occur as spikes and not steadily.  
  • Communication with customers: Slow or ineffective support that leaves customers unhappy is another result of growth for many eCommerce sellers. Being accessible and responsive is an expectation that never goes away. 
  • Some common best practices and strategies for maintaining consistency with logistics performance and the customer experience include:  
  • Leveraging Automation: Using automation tools and systems can improve different areas of your eCommerce operations as demand increases by streamlining procedures, lowering errors, and ensuring consistency.  
  • Optimize staffing and training: As your business expands, your staff may need to grow with it. This will require more effective staff onboarding and training strategies to uphold your brand’s standards.  
  • Continuous Improvement: The work of improving customer service never ends. Acting on customer input is crucial for improvement and is especially important during growth periods. 

Three common eCommerce logistics models

Online sellers typically manage eCommerce logistics in three ways — while sometimes using more than one concurrently. We explain each below, as well as its advantages and potential disadvantages. 

1 – In-house logistics   

Managing the entire supply chain internally, from inventory control through order fulfillment and shipment, is known as “in-house logistics.” Often, new companies start this way and then evolve to other models as their size and requirements grow. Although it gives companies the most control, it demands significant resources, including more fixed costs for labor and warehouse space.  

Advantages: Greater management control and potential cost savings for larger businesses.  

Disadvantages: High initial cost, constrained scalability, and complexity.  

2 – Dropshipping  

The “Dropship” model removes the requirement of a retailer to maintain inventory and all that goes with it. With this strategy, orders are shipped directly from suppliers to customers when an order is placed. The burden of storing products and packing orders is placed on the supplier, although these expenses are generally included in the cost of goods sold.  

Advantages: Fewer initial expenses, lower inventory risk, and greater scalability.  

Disadvantages: Lower profit margins, restricted stock control, and reliance on a third party.   

3 – Third-party logistics (3PL):   

Outsourcing to a 3PL provider means some or all logistics services, such as order processing, warehousing, and shipping, are managed by a third party. This arrangement can improve the logistics process for eCommerce sellers because a qualified 3PL is an expert at providing the necessary solutions, can offer scalable services, and is incentivized for efficiency.  

Advantages: Scalability, knowledge, cost-effectiveness, and a lighter operational strain.  

Disadvantages: Loss of some control, reliance on a third party, and a potential increase in cost. 

Best practices for managing growth with a 3PL 

A normal evolution for growing companies that manage their logistics in-house is outsourcing the functions to a 3PL. Knowing the perfect time to begin outsourcing and finding the best partner are not simple decisions, but the signs we listed previously are good places to look. 

“The best 3PL partnerships can be strategic. For example, partners that give you a presence closer to customers will reduce transit times and delivery costs,” according to Steinz. 

Remember, however, the goal is always to maintain operational efficiency and a positive customer experience. Strategic allies like 3PL suppliers enable eCommerce companies to expand in new directions while still upholding high levels of customer care. By bringing knowledge, scale, and efficiency to logistics operations, these experts free up organizations to concentrate on their core business and leverage their strengths while leaving the challenges of supply chain management to a qualified team.  

As a company explores the 3PL option, there are several must-haves to look for. Our recommendations are to:  

  1. Be strategic with partner selection: eCommerce companies should pick a 3PL provider with experience managing your types of products and delivering to similar consignees.  
  1. Prioritize effective inventory management: The right 3PL partner will actively help you maintain the ideal inventory levels to avoid overstocking and stockouts, therefore lowering costs and improving the customer buying experience.  
  1. Ensure streamlined order fulfillment: Order fulfillment processes should be streamlined to quickly process, pack, and ship orders. This is what quality 3PLs are experts at. Hold them accountable with clear metrics and KPIs for performance.  
  1. Validate responsive customer communication: Make sure the 3PL offers the support and necessary infrastructure to keep customers clearly and promptly informed about orders, tracking, and assistance as needed. 
  1. Focus on cost optimization: A 3PL needs to pay for itself with the value it brings to an eCommerce seller. This can happen through ongoing cost assessments and supplier reviews, rates and fee negotiations, and continuous investigation of cost-cutting measures.  
  1. Emphasize the need for scalability: How an online retailer can manage growth is the central theme of this article, and the scalability a 3PL service can offer is one of the most significant advantages. Qualify potential partners by knowing they can handle your company’s projected growth in a way that maintains or improves the delivery service to your customers.  

Conclusion

Successfully growing an eCommerce business goes beyond product offerings and hinges on efficient logistics operations.  

Online retailers should focus on maintaining service quality as they scale, including choosing a suitable logistics model. By following best practices and strategies, including partner selection, efficient inventory management, streamlined order fulfillment, responsive customer communication, cost optimization, and scalability, eCommerce businesses can navigate these challenges and continue to grow successfully.  

Take the next step in optimizing your eCommerce logistics operations and achieving sustainable growth. Contact us today for expert guidance and support in developing your logistics strategy and choosing the right partners.   

Book A Call

 

eCommerce Expansion Guide: Navigating Supply Chain Challenges with the Help of a 3PL 

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