ASCM Insights

Make the Best of Ongoing E-Commerce Challenges

By Dan Khasis

Numbers are a proxy for reality. E-commerce has been growing rapidly and even accelerating in the last 10 years. Forecasts by eMarketer estimate that online sales will reach more than $4 trillion in 2020. This rapid growth in e-commerce is spurring dynamic changes that greatly influence the logistics and transportation management that support the retail industry. Here are five key areas being affected by the rapid e-commerce growth.

1: Delivery speed. Consumers have become increasingly impatient throughout the last few years. When they previously would have waited a few days for product delivery, they now expect next-day, same-day or one-hour delivery. Most are even willing to pay extra for the quick delivery. However, if an item will take too long to arrive, the consumer may choose to buy something else or select a different retailer.

All of this puts pressure on the retailer to ensure that each product leaves the warehouse on time and that the transportation method used — whether plane, train, truck or other vehicle — is fast and efficient enough to ensure timely delivery.

2: Customized delivery expectations. But efficient deliveries are not consumers’ only expectation. Shoppers of today also want to customize their deliveries, including when, where and how they receive their orders. Perhaps a consumer wants a package hidden in his or her yard on a specific day of the week. As a result, it has become necessary to process smaller shipments, which translates to an increase in transportation costs. Although some consumers are willing to pay extra for these custom delivery services, retailers still are looking for ways to make this whole process more efficient and cost effective.

3: The returns challenge. With online purchases, consumers cannot touch, feel or try on their items before they buy them. As a result, they are more likely to return items that do not meet their expectations. When this happens, the cost of the return as well as the effort of planning the return usually fall on the retailers’ shoulders. The process also usually involves a third-party courier service to pick up the items from the consumers and return them to the appropriate facilities.

Once the items are received, retailers need to figure out what to do with them. Depending on the issue, the items could be resold as new or at a discount. Some items will need to be refurbished or repackaged in order to make this possible. In addition, the retailer must ensure that a replacement item, if requested, is sent to the consumer in a timely manner. 

To handle the growing number of e-commerce returns, some companies have had to hire whole departments to ensure returns are handled efficiently and effectively. At the same time, retailers also are looking for solutions that can better facilitate this process. Undoubtedly, artificial intelligence solutions will turn up soon to handle this logistics challenge.

4: Storage shifts. Warehouses used to be the main holding points for items that were waiting to be shipped to consumers or ones that were received as returns. However, with demands for more frequent, quicker deliveries, brick-and-mortar stores are becoming the new warehouses, as they often are closer to the consumers placing the orders. Store personnel can pull items from store inventory and then pass them to their own delivery team or third-party couriers, such as UPS, FedEx, DHL and Royal Mail, for home delivery. Companies that do not have brick-and-mortar stores may opt for smaller, local warehouses to fulfill deliveries in certain areas. Because the delivery distance is shorter, items can be shipped more quickly and cost effectively.

Of course, more storage locations equates to more logistics challenges. Route optimization becomes critical for ensuring that items are moved from place to place efficiently, and effective item and vehicle tracking is necessary to make sure orders are delivered on time and in full.

5: Increased tracking technology requirements. In order to keep up with the ever-increasing expectations of e-commerce consumers, companies must ensure they invest in effective tracking technology. Improved inventory management, warehouse management and transportation management programs help retailers ensure that they have the ordered items in stock and transfer them to the proper locations via the most efficient methods, given the timing expectations. Disruptions occur when companies are unsure where a certain item is being stored or when inventory is miscounted and needs to be reordered from the supplier or manufacturer. Similarly, in the case of brick-and-mortar stores acting as warehouses, if an in-store item is not placed in the proper shelf location, it will take more time for the store employee to find it and ship it to the consumer.

Overall, the e-commerce industry needs better logistics and transportation management support to better serve consumers. The constant and rapid growth in the market is bound to keep influencing and driving changes in the logistics and transportation aspects that help keep the industry afloat. With the projections for growth, one can only imagine that more changes will be coming soon.

Dan Khasis is founder and CEO of business route-planning software company Route4Me.