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How to optimise your logistics e-commerce ?

Published on April 20, 2023
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To meet growing demand, both quantitatively and qualitatively, e-commerce logistics must adapt. The challenges are numerous: rethinking the last mile, controlling the cost of order preparation, developing a premium offer, making demand more reliable… So, how can you optimize your e-commerce logistics? Julien Monterisi, e-commerce logistics specialist, answers ORSYS' questions.

How to optimize your e-commerce logistics?

How is e-commerce logistics doing in France?

To understand the context of e-commerce logistics, we must cross-reference e-commerce and logistics data. First, the e-commerce sector is doing well in France. This market is reaching maturity. Indeed, all sectors of activity have moved to e-commerce, whether cross-channel or exclusively online.

This is also what emerges from the latest assessment of Fevad (Federation of e-commerce and distance selling). Thus, in 2022, e-commerce will maintain dynamic overall growth. To take a few key figures: online sales increase by 14 1TP3Q, driven by the sale of services, bringing turnover to some 147 billion euros. And, even if sales of online products fell by 7 1TP3Q last year, they remain significantly up compared to 2019 (+ 33 1TP3Q). E-commerce represents 12.5 % of product sales in retail. The number of active merchant sites increases by 5 % with more than 10,000 new sites in one year. Finally, the average basket stands at €65, an increase of almost 7 %.

In this context, logistics activities, and more particularly e-logistics, are growing. To give an idea of the importance of the sector, logistics represents 10 1TP3Q of GDP French. It has 150,000 businesses and employs 1.8 million people. All this for a turnover of around 200 billion euros in 2020-2021.  

However, e-commerce logistics is faced with specific challenges compared to traditional logistics.

What are the biggest challenges in e-commerce logistics? 

The issues are at different levels.

On a social level, we first think of the Uberization of delivery. But it seems more likely that an economic model adapted to urban centers will emerge with economic actors using employees. On the other hand, the problem of recruitment already appears to be major with the labor shortage current. Logistics is synonymous with physical professions, whether transport or order preparation. These professions which no longer attract are nevertheless in full evolution. With the automation of warehouses, new skills needs are emerging which bring them closer to industrial professions. You also need to master the IT tools related to e-commerce.

Economically, e-commerce logistics must control your costs to maintain its profitability, but without compromising on quality. In particular, we need to rethink last mile logistics, in other words being able to do city center logistics or urban logistics. Another major challenge: order preparation with unit packaging. Furthermore, how can you maintain the link with your customers when the last step (delivery, collection of the product) is carried out by a service provider?

On the environmental plan, constraints are also strengthening, both at the societal and legal levels.

In this context, how do actors adapt to the constraints of urban logistics?

Customers are mainly located in large urban centers. Today, to limit costs, the standard is still delivery via shared trucks. However, the gradual banning of thermal engines within EPZs (low emission zones) is forcing logistics players to adapt.

On the one hand, this requires them to green their fleet with electric vans and cargo bikes. And why not invest in small delivery robots, like in Shanghai and London? But, of course, significantly developing a fleet of adapted vehicles increases the cost of the last mile.

Additional difficulty: the new regulations result in a great heterogeneity of the standards applicable in the field. Indeed, beyond the overall framework, each municipality organizes itself as it wishes for implementation. This is the new challenge for carriers, subject to different constraints depending on the cities delivered.

On the other hand, e-commerce logistics will have to rely more and more on small logistics platforms in town, as close as possible to the recipient.

Does this mean the development of warehouses in the city?

Urban center logistics are indeed evolving. First, for multi-channel commerce with the gradual reduction of the sales area to increase the logistics area. But also with the appearance of small warehouses in town, which are also called mini-preparation centers or mini logistics centers (with mechanization on a smaller scale than in large warehouses). They make it possible to have more stock in town, therefore to be closer to the customer.

This has a double advantage: on the one hand, reduce the availability or delivery time, on the other hand, reduce the cost of the last mile. For example: from 2021, the consulting firm Adameo, specializing in logistics and supply chain, and the company AutoStore, specialist in warehouse automation, have installed a automated storage location in a La Poste mail and parcel distribution platform in Paris.

What about large warehouses dedicated to e-commerce logistics?

In large warehouses, developments are linked to the specificity of preparing orders from e-commerce. It is no longer a question of moving pallets but of picking process. In fact, a large majority of orders contain only one product or a single unit of several different products. This involves a lot of travel to collect these products from increasingly larger logistics warehouses. To give an idea: 12 to 15 km per day per order operator. Travel without added value!

To counter this difficulty, the model Goods To Man has grown significantly in three years to become a standard in e-commerce logistics. These are the products that move towards people: robots fetch boxes or shelves move to the logistics operator's workstation. This then carries out the packaging of the products and the labeling for transport. For example, Transitic, a specialist in connected intralogistics, creates automated paths within the warehouse to transport products to the shipping stage.

The need to control the cost of order preparation also explains the development of mechanization and robotization of the sector. We are also talking about automation, even industrialization, of logistics. The cost of these installations is certainly significant, but tends to decrease. And above all, it is counterbalanced by the productivity gains: from + 40 % to + 60 %. Not counting the saving space in warehouses. Storing more goods in smaller spaces also means reducing real estate costs.

Beyond an obvious financial advantage, are there other advantages to adopting this type of organization?  

Quite. And this should even become strategic in the next 10 years.

Indeed, the construction of new warehouses risks being largely hampered by regulations prohibiting the artificialization of land. Here again, environmental constraints weigh heavily on the logistics sector. We can ask ourselves what the warehouses of the future will look like. Will they have several floors? Will they be made from recycled or recyclable materials? Will their roofs be green?

Furthermore, automation reduces floor space, but increases energy consumption. Energy whose price is also increasing…

We can only see constraints or… opportunities. For example : systematize photovoltaic panels on the roofs of warehouses to produce part of the electricity they consume… thus helping to reduce their environmental impact as well as logistical costs.

What are the specificities of e-commerce logistics in terms of inventory management?    

La inventory management is not specific to e-commerce logistics, it is a question of general logistics. However, for a cross-channel brand, the current problem is to make its stock available everywhere and at the same time. For an e-commerce company, the question may arise if it has several remote logistics warehouses. In this case, the solution is “unified stock”. Logistics must be able to pick up the product where the preparation cost will be least significant. To do this, professionals can rely on software – for example, the French OneStock – which makes the stock visible wherever it is located and calculates what will be the least expensive. In other words, choose the product that is in stock in a store close to the delivery location rather than a product in a distant warehouse.  

Does the current shortage context affect inventory management?

Absolutely. We can even say that it explodes the usual rules of inventory management. Indeed, in the event of a shortage on an e-commerce site, the customer can very easily place an order on a competing site. We therefore observe the overstocking of certain products to the detriment of cost optimization.

How can e-commerce logistics avoid this pitfall?

In a broader supply chain vision, the key is to more precisely assess demand, or even move from forecast to prediction. For this, there is of course artificial intelligence, big data or even machine learning. But this requires data scientist or data analyst skills. On the contrary, logistics professionals need tools that are easy to use and deploy. Software publishers have understood this and are working in this direction. For example, the French start-up Verteego.

What's more, physical inventory remains essential. Today, the RFID technology allows you to store and retrieve data remotely (from a few centimeters to several tens of meters). RFID tags or radio labels speed up reception operations and make stocks more reliable. For inventory, the time saving is considerable, from a few minutes to an hour maximum for a store. If the tags are less and less expensive (10 to 15 cents per tag), the equipment to manage them (RFID reader) is more expensive. Tomorrow the question of recycling or re-encoding of tags will undoubtedly arise.

Faced with so many developments and constraints, how can we keep our customer promise?

Beforehand, the customer promise should undoubtedly be redefined.

First, because the e-consumer seems to have contradictory expectations. He would like to be delivered quickly, as close as possible to his home (if possible at home), in a personalized way and without this having any impact on the environment. However, he will have to make choices.

Then, because professionals would benefit from ensure the real needs of their customers. Some players have imposed their ability to deliver very quickly as a standard. Does it really meet expectations? We can doubt it. On average, a customer takes more than five days to collect their order, even though it is delivered in three days to a relay point.

Today, expectations seem to focus more on quality of delivery through a range of services aimed at ensuring more flexibility and reliability. Examples: specific delivery slots, the possibility of rescheduling delivery to another time or location, simple product returns.

“Providing different services to get closer to your customers”

This ties in with another major challenge in e-commerce logistics: keeping control of the customer relations and the image of his company. Indeed, when the logistics service provider manages the preparation of the order and delivery, it is he who transmits a good or bad image of the company. The latter “loses” part of its customer relationship, carried out by people whose work it can neither direct nor control. Brands are therefore working more and more on additional services providing added value to delivery to recreate this customer relationship. The repurchase of old products is part of this.

Should you outsource your e-commerce logistics? When ? How ?

There are no ready-made rules or thresholds (turnover, volume) to determine when you should outsource your e-commerce logistics. It all depends on the constraints specific to each company. Of course, internalizing your logistics has a cost and requires significant investment capacity (warehouses). But this presents an undeniable competitive advantage: keeping control of your customer relationships. You may also find yourself faced with a saturated warehouse or decide on a strategy focused more on sales than logistics.

To choose the right service provider, you must ask yourself certain questions. For example :

  • What relationship would I like to have with my logistics provider?
  • How will my volume change in the years to come?
  • I am a small e-retailer: what are the advantages and disadvantages of choosing a small or large logistics provider?
  • Should I keep control of the transport part?
  • Is this service provider able to fulfill orders while ensuring quality service?

Furthermore, once logistics is outsourced, the work is not finished: it is necessary to audit to ensure that the service provider is fulfilling its mission.

Finally, outsourcing your logistics is not a journey of no return. Companies experience cycles, depending on the needs, which lead them to outsource, reinternalize, outsource again, etc.  

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