Summary
- The first three weeks of the holiday season did see an upturn in economic activity in spite of slowing factors like the coal crisis. The rest of the weeks till the English new year seem to be full of opportunity.
- There are several logistics options like dropshipping, eFulfilment Centers and in-house logistics facilities that businesses can explore based on the game they want to play.
- While drop shipping gives most operational ease and yield lesser margins, in-house logistics gives highest long term returns.
Introduction to eCommerce logistics
This festive season, the boom in economic activity is partly because of higher eCommerce activity. With the 2020 situation, eCommerce players have experienced a radical shift with the extensive use of digital media and electronic communication.
Today, the industry is touted as a major driver of economic growth and companies can’t ignore the
revenue opportunities an online portal or marketplace brings.
While retailers focused on low prices and convenience earlier, they’re now inclined towards
improving
the overall digital experience, products, and services.
See Also: A deep dive into business outlook for the quarter beginning Oct
20
While setting up a digital eCommerce portal or a marketplace can be easy with Shopify or
Woocommerce, it
is only 1/3rd of the process. The order fulfilment cycle usually remains hidden. Logistics is a
major
part of this fulfilment cycle.
Even though logistics remain hidden behind the scenes, it is crucial for improving the customer
experience. It is essential that online businesses must come up with strategies to address logistic
concerns.
That’s why we’ve created an article that gives an overview of the latest logistics processes and
have
enumerated their pros and cons.
eCommerce Logistics Options used in past
An average retailer spends about 20-40% of their turnover on logistics. And this cost can’t be
recovered
easily as the consumer isn’t willing to spend on shipping and returns.
Given the above scenario, how can retailers survive in the marketplace alongside eCommerce giants
like
Amazon?
Should they outsource logistics or maintain the operations in-house?
This section on eCommerce logistics options will give you an overview of the various options used,
and
the pros and cons of each option to help you choose the right option for your business.
Dropshipping
Dropshipping (also called direct shipping) is the practice of selling products not stocked by the
retailers themselves.
Suppose you are a retailer with an online portal, when someone places an order on it, you in turn
order
the product from the manufacturer or supplier who then sends it to the customer.
And it’s a lucrative option if you want to start with a small investment and scale up from there.
For instance, brands like Wayfair have built a business centered around dropshipping. They deal with
more than 7,000 different vendors and sell more than 7 million items on their site.
Here are some pros and cons of dropshipping:
- You don’t handle the product directly. Therefore, you save on handling costs, inventory costs and warehousing costs.
- Depending on your agreement with the manufacturer, you can receive a commission which will cover a part of your marketing and a part of your shipping costs too.
- You will be in a position to offer more products and cross sell and up sell to your existing customer base. You can reach out quickly to newer customer segments too.
Cons of dropshipping
- As much as dropshipping looks like fun, you share the profits with the manufacturer. Many times the margins may be low. But if you are acquiring new customers or generating more repurchases from your existing customers, this may still be acceptable short run strategy
- Since you aren’t shipping the final product, you don’t have any control over the delivery experience.
eFulfilment Centers
eFulfilment centers handle all operations from the time an order is placed on the website. These fulfilment centers can:
- Store your products
- Pick and pack them
- Ship your order
- Allow your customers to track the order and
- Handle deliveries and returns
They are flexible enough to handle one or more of the above operations and charge based on the
services
they provide.
You should consider outsourcing logistics operations only if it makes financial sense and will help
streamline your operations.
Consider this example:
Let’s say you see that there will be a huge demand for diwali items and if you stock and store some
of
these items, it would be to your advantage. But, at the same time, for the rest of the year, these
items
are not usually sold under your roof.
In such cases you don’t want to build infrastructure to handle only this seasonal demand. But at the
same time, you don’t want to lose out the opportunity.
So, you would perhaps look for an eFulfilment center. But you should carefully weigh the costs and
revenues before you make a decision.
See Also: Amazon
launches mega logistics hub in Bengaluru to meet festive demand
At Logibee, we feel that if you are new to online business and want to quickly establish your
presence,
then you should take advantage of massive festive events and build your brand presence. If you can
provide a good shopping experience customers are likely to come back and buy.
Pros of eFulfilment Centers
- Helps save money on infrastructure and transportation, especially for a seasonal demand upsurge.
- Lower shipping costs through bulk delivery discounts from service providers. 3PL players can better optimize capacity and routing and hence offer lower costs comparatively.
- Better short-term RoI, considering the customer acquisition and brand image that one can create.
Cons eFulfilment Centers
- Managing an eFulfilment center is complex and one should have appropriate technology to deliver flawless service. Finding such a service provider may be a little tough.
- Although 3PL services save a lot of time, external factors like tariffs and weather can hamper the supply chain and increase your costs.
- You may not have complete control over the entire delivery operations. This may impact the visibility of the delivery operations and sometimes bad customer experience.
In-House Logistics
Companies with a brick-and-mortar store use an in-house logistics system as they can use stores as
distribution centers. However, they still need to enter into contracts with multiple carriers to
ship
their products. One way to get around this is to have your own fleet as well. YOu may begin with a
single delivery vehicle doing small volumes and scale up as you increase.
An example is Pepperfry. They did not find a transporter who could ship bulky furniture safely,
without
damage and cost effectively. Thus, they started their own fleet to gain full control over the entire
delivery journey. Today their fleet has more than 500 vehicles and they are able to deliver to tier
2
and tier 3 locations as well.
Pros of In-House Logistics
- Since your team is more knowledgeable about your business than a 3PL service, they can solve logistics problems quickly, reduce delivery failure and increase customer delight.
- You’ve complete control over the customer experience and delivery.
- Branding opportunities build up marketing equity and generate additional up and cross selling opportunities.
Cons In-House Logistics
- High operational overheads and technology costs. Fluctuations in fuel costs, maintenance overheads and other related costs can jack up in the short run.
- Higher coordination costs as in hiring, training and managing drivers and shifts.
Conclusion:
The type of logistics operations you want to run depends on what exactly are your goals are for the
festive season. Appropriate planning and the right choice will ensure your marketing will lead to
better
returns. While dropshipping gives you the easiest scaling up and lowest of margins, In House
Logistics
gives you complete control over the delivery operations and long term RoI. A judicious decision has
to
be made.
Drop us a line, in case you need help with managing your delivery operations. Logibee will be glad
to
reach out with our technology solutions.