We know how e-commerce has changed our lives with a growing amount of shopping happening straight from our phones. Logistics circles have discussed the “Amazon Effect” for years. Something not talked about as frequently is what e-commerce looks like within distribution channels and how its growing popularity is changing the way we move goods. This article provides an inside look at the demands of e-commerce logistics and what that means for companies working to stay competitive.
The end of old distribution channels mainly had the consumer purchasing a product by visiting a physical retail location. Increasingly customers now expect the product to come directly to them. Think about how many packages already arrived on your doorstep this holiday season versus three years ago. According to Supply Chain Management Review, 40% of all brands sell directly to consumers, with sales projected to increase to $130 billion within the next five years. That shift requires a supply chain with very different capabilities – real-time tracking visibility from start to finish, new technologies for enhanced speed, and a significant increase in final mile delivery capacity.
E-commerce also is changing the composition of what gets shipped. Roll back 10-15 years and distribution centers primarily dealt with palletized products. That model now only comprises about 10% of warehouses, with 66% handling a combination of pallets, cases, split cases, and pieces. This means that warehousing is growing increasingly more complex and that the one-size-fits-all model no longer applies. Distribution hubs must reconfigure operations to store, package, and ship products of all shapes and sizes, making efficient space and labor management more critical than ever. An increasing number of SKUs also add to the intricacies of a once straightforward process. According to Modern Materials Handling, 2018 showed higher order velocity and a nearly 7% increase to 14,000 SKUs per warehouse.
While distribution channels increase in their complexity, one thing is not changing – cost pressures. Inbound Logistics conducted a study of shippers’ greatest challenges in 2019, and an overwhelming 95% responded with concerns around cost and price. This translates to distribution channels as “do more without costing more.” The best way to meet those expectations is through technology. In reference to the 14,000 SKUs mentioned above, the amount of those SKUs able to be handled robotically increased to 43% from 29% the year prior. With labor already comprising about 65% of a warehouse’s budget, e-commerce is forcing companies to make significant capital investments in technology to keep pace without compromising speed, profits, or service.
E-commerce has distribution networks moving faster, and also is forcing them to move closer. Shippers managing distribution out of a central location cannot meet customer delivery demands quick enough in an e-commerce model. In response, shippers are adding smaller warehouse and distribution locations throughout their supply chains located within the closest proximity to the majority of customers. Distributed inventory flow forecasting (DIFF) also is gaining in popularity to assist in anticipating demand and knowing what products to stage where without significantly increasing inventory costs.
E-commerce is changing everything. If you represent a shipper scrambling to keep up, don’t worry, because you are not alone. These evolving distribution changes don’t need to be your expertise because they’re ours. We offer logistics, distribution, fulfillment, and warehousing for clients competing in e-commerce across the globe – and we help them win.