How did e-commerce change our view of logistics?

The supply chain used by online and physical shops is partially common in delivering goods to customers, but especially warehouse supply is two separate paradigms. During the first years of the e-commerce revolution in the world, it did not take long for us to realize that specialized human resources and software in warehouse logistics are not suitable for this new form of trade. Although e-commerce logistics is supported by many new technologies and software, it is useful to know that there are serious challenges considering warehouses, especially when we take into account the volume of e-commerce that will increase in the coming years. As the e-commerce scale grows, the transition to fully automated unmanned warehouses will be inevitable.

Physical Store is out of the chain 

The supply chain in conventional logistics is as follows:

Manufacturer> Distribution Warehouse> Physical Store> Customer

The supply chain in e-commerce logistics is as follows:

Manufacturer> Distribution warehouse> Customer

The physical store point was an intermediate station that averaged the scale in reaching the customer. Since there is no scale average in e-commerce, there is a great pressure in warehouses.

The role of manufacturers in the supply chain has decreased.

In conventional logistics, the distribution warehouse usually belongs to the manufacturer, rarely it is a vertical 3pl warehouse.

In e-commerce logistics, the warehouse is mostly owned by e-commerce company, rarely when it is the manufacturer’s online store, the warehouse belongs to the manufacturer. Also, e-commerce logistics has 3pl warehouses specific to e-commerce.

SKU Number Reaches Astronomical Levels

Conventional warehouses are mostly vertical. That means it contains the same type of products. Often they are products of the same brand, in some cases, they are products of different brands of similar category. This can be a shoe distribution warehouse and a book distribution warehouse. In this type of warehouse, the number of SKUs is usually below 5000. In e-commerce logistics, warehouses contain products of all brands and categories. There may also be a specialized vertical e-commerce warehouse, but there are products from many brands. In rare cases, manufacturers have their e-commerce distribution warehouse. The number of SKUs in e-commerce warehouses cannot be below 100 thousand and even 1 million SKU number is not a surprise.

Unit stock quantities decreased

In the classic warehouses, the product stock numbers are high, around 100 or 200 for a SKU. When the number of reserves is below a certain number, a new pallet is drawn from the manufacturer to the warehouse.

Product inventory is low in e-commerce warehouses. The stock quantity of  SKU is mostly 1, rarely more than 10. Large e-commerce sites sometimes reserve items in pallet scale for bestsellers, but usually, products that are thought to sell on the e-commerce site may have 1 or 2 items, and sometimes the product may not be available at all.

The method of delivery changed; direct delivery to the customer

Conventional warehouse delivers to the store. This distribution is mostly delivered by the warehouse’s car. An average of 500 deliveries are made.

Delivery in the e-commerce warehouse is made to the end customer. The package is prepared for the end customer and mostly delivered by cargo. An average of 10 thousand deliveries are made.

Stock availability is more fragile, even the non-warehouse product can be sold

In conventional warehouses, if there is no problem in the production plan, the product is always in stock, when the shop orders it, it is sent from the stock. In e-commerce warehouses, a product may not be in stock, it can be ordered from the manufacturer when the customer requests and is delivered to the warehouse. Half of the products that will go to the customer that day in an e-commerce warehouse are sold once a year. So it doesn’t make sense to keep everything in stock.

Conclusion

A conventional warehouse manages a small number of SKU variations and prepares large volumes of shipments. The number of posts is often too small to be managed on paper that does not require automation. In an e-commerce warehouse, products are collected from millions of product variety, prepared in smaller packages are sent faster. The average number of posts is around 10000 and around 40 thousand products are collected and packed for customer orders. The huge variety of products and the number of shipments is the biggest challenge that the e-commerce store should manage.

Today, e-commerce warehouses manage the customer orders and the collection and packaging processes of the products with software, while product collection, handling, and packaging are mostly manual. This means a huge number of warehouse workers. This challenge in front of e-commerce warehouses will be overcome only when human labor in picking, handling and packaging operations is replaced by robots. Important steps have already been taken on the road to future unmanned warehouses.

Mehmed Ali Çalışkan