14 September 2022

A Guide To E-commerce Logistics: What You Should Know

Logistics is an important part of e-commerce and is what gets your products to their doorstep. Here’s an easy-to-understand guide to e-commerce logistics.

Oliver Thyra

Reading time: 5 minutes

E-commerce logistics is what makes product-based online businesses possible. It gets your products from the internet to your customer’s front door. It is the thread that connects the manufacturer and the consumer.

The global e-commerce logistics market is projected to grow to $2618 billion by 2030.

But, what is e-commerce logistics exactly? What processes does it consist of? What are its components? What is shipping?

The list of questions goes on.

In this article, we will explain everything you need to know about e-commerce logistics. Let’s get started!

What is e-commerce logistics?

The collection of processes that involves, storing, managing, and shipping inventory between a store or a marketplace and the customer.

All these processes work seamlessly to deliver the product from the warehouse to the customer on time. In the case of e-commerce, the success of a brand really depends on their logistics.

But, your next question may be:

How does e-commerce logistics work?

E-commerce logistics works in two directions.

The first direction is from the warehouse to the customer. It takes place when the customer places the order. Depending on the type of e-commerce store, payment may happen before or after shipping.

The second direction is from the customer back to the warehouse. It is kicked off when the customer receives the wrong or damaged product. Many e-commerce stores are also allowing the return of the product even if the product is accurate under different circumstances.

The e-commerce logistics company has to handle a lot of things to make sure that these processes are executed smoothly. Here are the broad things that they need to do:

Warehouse management: Keeping track of inventory, ensuring that products are properly stored, and updating all the paperwork. It is done by collaborating with the supplier or manufacturer and adhering to their guidelines.
Tracking system: Until the product is delivered to the customer and verified, it needs to be tracked. Although modern codes and keys have made this simpler, it is one of the most complex systems that need to be always up and running.
Shipping methods: Big e-commerce logistics companies like UPS and FedEx ship products in many ways. It involves taking care of and adhering to international regulations and investing in assets like freight vehicles.
On-field partners: The logistics companies need to understand the routes that get the product delivered. That means partnering with local vendors or setting up shops where they don’t exist.
Customer relations: Everyone has complaints. Logistics companies get the most of them. Dedicated departments and processes are necessary to handle that as it involves a lot of personalized solutions.

The overall process can be described by the following four steps.

1. Storing the inventory

Products from the supplier or manufacturer arrive in fulfillment centers. Products move from these centers when orders are confirmed.

Presently, the use of a micro fulfillment center is becoming popular as it reduces costs and error rates.

2. Processing the order

In this step, the customer confirms the order with the e-commerce store. The labelling and packaging begin only after that. The stock-keeping units (SKUs) that make up the order are packaged for shipping.

The inventory is then updated.

3. Shipping the products

The first step is to determine which shipping process is best for that order. It also depends on whether the customer has specific shipping requests. Some e-commerce stores charge more for faster delivery.

Depending on the nature of the store and order, the payment might be collected after this.

4. Returns

Only in the case when the customer receives damaged goods. Often, after returns, the correct product is re-shipped to the customer again. This step determines the customer satisfaction level.

Even in this direction, the steps remain the same. The return is processed, the best shipping method is decided, and inventory is updated accordingly. Some e-commerce brands charge for returns even though the products are damaged.

The four crucial elements of e-commerce logistics

The following four elements are intricately connected with each other. Information and inventory travel in both directions. Both forward and reverse direction e-commerce logistics are possible by the successful integration of all the elements.

The importance of each element with respect to the logistics process cannot be overstated. Failure or delay due to one of the elements will have compounded effects on the entire process.

E-commerce stores

This is the most important element of e-commerce because its where the customer places their order. An e-commerce store acts as your brand’s online storefront, where customers can enter your website and browse through products.

You’d want to make sure that your website is optimized for a seamless experience. Here are some things you can do to optimize your e-commerce store:

Use high-quality product images
Add trust badges
Enable a one-click checkout process
Offer discounts and free shipping

The rest of the processes take place after your customer places an order. The confirmation of this process is generally marked by the completion of payment, and the order is completed after delivery.

Manufacturers and/or suppliers

This is the source of the product. When demands are sent from the e-commerce stores, they are manufactured and dispatched from here.

It takes care of the initial packaging and provides instructions to the warehouse regarding the storage and handling of goods.

Fulfillment centers and warehouses

These are the places that are closer to people. When an order is received and confirmed, it is the responsibility of the warehouse to get it to the end customer.

Checking the order quantity and updating the inventory, packaging, and assigning a tracking number are done almost immediately. Warehouses can be interpreted as a checkpoint between manufacturer and consumer.

Carriers

They put the product in the hands of the customer. They could be global companies or your local courier company. Carriers do a lot of on-field work and need a lot of geographical information to carry out the operations correctly.

In case of return requests, carriers also get the product from the customer back to the warehouse for further inspection.

Shipping in e-commerce logistics

Shipping is the part of e-commerce that directly touches the consumer. Every step in the process and every cog in the machine works to keep this process efficiently going. Let’s start by understanding the types of shipping options available for customers.

Expedited shipping for faster delivery. In this case, customers might have to pay extra. It will get them their product much faster. For example, instead of cargo, the product might arrive by air.
Freight shipping for larger goods. Bulk orders, larger goods, or heavier goods often arrive by this method of shipping. Cars are a great example of this. They can arrive by land, air, or sea.
Timed shipping upon request. There are a lot of e-commerce stores that get things delivered on a specific date. For example, sending a gift for a loved one. Generally, they charge extra to the customers.
Conventional shipping. This is the “default” mode. It depends on the e-commerce store, the location of the customer, and other factors similar to those. Most modern e-commerce companies have enabled next-day shipping or one-day shipping. This is possible due to the presence of lots of distribution hubs, dropshipping hubs, and micro fulfillment centers.

The impact of shipping cost and speed

If logistics don’t work perfectly, it has a drastic and direct impact on the e-commerce business. It either slows down the shipping process or requires a lot of money. It needs to create a proper business plan before moving forward to run an e-commerce business.

Higher shipping costs and time increases cart abandonment. According to research, 41% abandon the card because the shipping cost is too high and 26% do so when the shipping time is too long. This will reduce the number of purchases a particular store gets.

Slow shipping results in a poor online shopping experience. Fast shipping speed is termed as the most important contributor to a good e-shopping experience by 62% of US consumers.

If the underlying logistical issues are not sorted, the consumers will have to pay extra or wait longer to get their favorite products at the same time. This is a terrible experience and will turn customers away fast.

Wrapping up

As customers’ demands are growing, it’s important to iron out your e-commerce logistics and ensure that you’re on the top of your game. Having proper logistics in place can ensure smooth delivery of goods, reduce shipping costs, and provide a good shopping experience.

With that said, we hope that you have gained a better understanding of e-commerce logistics.

The most important part of e-commerce logistics is people. Without dedicated teams who are determined to get your goods to their destinations, all processes and tools have no meaning.

For more information on e-commerce, check out these resources! 👇