Virtually dropping the item you want into the electronic shopping cart and soon holding it in your hands – this is part of the customer convenience in the age of e-commerce. What is often left unspoken: it is a tremendous and challenging task for those who have to ensure that everything runs smoothly. Find out what it takes to make e-commerce logistics work, and which solution is best for what purpose.
E-Commerce Logistics Definition and Characteristics
E-commerce logistics is the entirety of all processes required for logistics management in online retail. This includes:
- Storage planning and choice of warehouse type
- Inbound logistics with quality control
- Consolidation and order picking
- Outbound logistics with packaging and handover to transport service providers
- Shipment tracking
- Delivery management including returns management
In contrast to stationary trade, logistics in online retail involves many more tasks. Physical stores carry a limited range of products and only need to ensure that all items are in stock. Missing products are reordered as needed, while from the moment of purchase, customers take care of all the other “logistical” tasks. They usually transport the goods themselves to their destination. Delivery times, shipping costs, delivery options, and returns management are all specific to e-commerce. These issues do not exist in traditional retail.
Online retail is also more dynamic. An unexpectedly trending product can rapidly generate high demand that must be met immediately. To be able to react quickly, a good flow of information with high data transparency between all parties involved in the value chain is of utmost importance. Flexibility and scalability are also crucial.
E-Commerce Logistics: Challenges of Online Trading
Online retail changes supply chains and the flow of goods: products are ordered 24/7 and must be available at all times. Depending on the shipping option, these orders must be delivered to a specific location at a specific time. Fast and flexible delivery with high accuracy and, if necessary, efficient returns management are particularly important for a positive customer experience in online retail. In e-commerce, reverse logistics is much more important than in traditional retail.
Networking Is Key
These challenges require precise inventory control and accurate demand planning on the part of online stores. Fast delivery service is only possible if the entire supply chain is integrated and warehousing is decentralized and as close to the customer as possible. If you only ship from one location or have to constantly reorder out-of-stock products from a wholesaler or manufacturer, you can quickly reach the limits of your business growth or fail to meet delivery quality requirements.
Focus on Sustainability
Another typical feature of global e-commerce logistics is a high number of orders, each with a small amount of items. Most of the transportation activity takes place over the last mile. This poses not only an organizational challenge, but also becomes a sustainability issue when more and more delivery vehicles are on the road. Despite large delivery quantities in small units, the amount of deliveries should be reduced to a minimum. This demands a concerted effort on the part of all parties involved: for example, space-saving packaging on the part of the retailer and intelligent route planning and load building on the part of the transport logistics provider.
E-Commerce-Logistics and E-Commerce Fulfillment: What‘s the Difference?
E-fulfillment is a comprehensive service whereby the tasks of e-commerce logistics (as described in the definition above) are executed by a service provider. The full scope of e-fulfillment may include the maintenance of article master data, invoicing, returns management, and customer service. E-fulfillment service providers perform either all the tasks involved in processing online purchases or only those tasks for which they have been contracted.
In short, the difference between logistics and fulfillment can be described as follows: E-commerce logistics refers to all the necessary logistics tasks involved in online commerce, and e-commerce fulfillment is the service provided by a logistics partner that takes over these tasks for the online retailer.
E-Commerce Logistics Solutions
Obviously, a small crafts business that wants to sell its own products not only locally but also over the internet, or an online store for second-hand records, have completely different logistical needs than fashion or technology stores sourcing and selling their merchandise on a global basis. Thus. there are different ways to handle e-commerce, depending on the needs and budget for different logistics requirements.
Option 1: In-House E-Commerce Logistics (First Party Logistics)
Online retailers manage the entire supply chain: they store, pack, ship, and manage returns themselves.
This logistics solution provides full cost and quality control, but it is only suitable for online stores with limited shipping volumes, or where goods are not procured from multiple sources. Otherwise, warehousing and labor costs may become too high and e-commerce logistics management too time-consuming.
Option 2: A Contracted Transport Logistics Partner Handles Shipping (Second Party Logistics)
In this case, the online retailer is still responsible for warehouse logistics, including consolidation, order picking, and packing. Collection and delivery are the responsibility of a designated partner. The profit margin is reduced by the amount of the negotiated service fee – but with a reliable partner like DHL Freight, you can count on extensive expertise and scalability of logistics services.
Option 3: E-Commerce Fulfillment (Third Party Logistics)
With e-fulfillment, online retailers outsource both transport and warehouse logistics to an e-commerce logistics service provider. The scope of services provided by the fulfillment partner depends on the requirements, as described above. A comprehensive fulfillment service comes at a price – but it frees up resources for the company’s core business. It is important that the partner’s service quality is high, as a negative customer experience resulting from poor logistics services will reflect on the online store itself.
Option 4: Dropshipping
In the case of dropshipping, webshops trade goods that they do not actually own, do not store, and do not ship. When an order is received by the online shop, the corresponding item is requested from a manufacturer or intermediary. These partners store, pack, and ship the products directly to the customer without the online store having any control over the quality of the logistics services. This limited control and the low profit margin are the main disadvantages of dropshipping. However, because the goods are not the property of the online retailer, the necessary financial investment – and therefore the financial risk – is lower.
Trending Developments in the E-Commerce Logistics Industry
The logistics options 1 to 3 are also known as first, second, and third party logistics – or 1PL, 2PL and 3PL for short. DHL Group and DHL Freight offer demand-driven and cost-transparent logistics models for e-commerce companies in the 2PL and 3PL segments. DHL is expanding its network to consistently enhance and improve its services. For example, DHL Freight, DHL eCommerce, and Post & Package Germany this year opened a state-of-the-art and sustainable logistics center in Poznan, Poland, to meet the growing e-commerce volumes.
But the evolution of logistics services does not stop at 3PL: the trends of the future are fourth party logistics (4PL) and fifth party logistics (5PL) with even greater integration and use of digital capabilities.
Conclusion: Only the Most Fitting Solution Is the Right Solution for Logistics in E-Commerce
Customer satisfaction in e-commerce depends on reliable, high-quality logistics services. Accuracy and speed of delivery are especially important to customers who are eagerly awaiting their goods. If you can guarantee this on your own, there are good reasons for you as an e-commerce retailer to keep everything in your own hands. If, on the other hand, you want to reallocate company resources or you cannot guarantee high delivery quality with your own means, you may want to outsource the entire logistics operations. In this case, a reliable logistics partner is essential.
We will consult with you to find the best solution for your company. Feel free to contact us. DHL Group has certified e-commerce specialists. Whether you are a small business needing standard domestic delivery services or a large e-commerce provider looking to optimize your global e-commerce solutions: DHL Freight and DHL have the products to meet your needs.
