According to German research institute Statista, the global e-Commerce market is expected to grow at a CAGR of 20% from $2.29 trillion in 2017 to $3.879 trillion in 2020. It’s also forecasted that the share of e-Commerce in global retail sales will increase from 10.2% to 15.5% during the same period.
In this two-part series of white papers on e-Commerce, we look into the current and future trends in e-Commerce logistics as it’s emerging as the key to success in e-Commerce business.
Shifts in Logistics Brought by the Rise of E-Commerce
We will look into three areas related to logistics infrastructure and process change.
With the rise of e-Commerce, logistics networks are shifting to handle increasing volumes and offer logistics services e-Commerce shoppers want. The size and location of logistics facilities are changing too, shifting transportation methods as well.
In traditional retail, products used to be distributed from a DC1) to stores after being shipped to exporters/importers or distributors. Today, as e-Commerce grows, the distribution network is shifting towards a DC to a FC2) to Customers. At FCs, picking, packing and various tasks specialized for e-Commerce are performed before goods are delivered to customers’ doorsteps.
Also, instead of selling products to retailers or offline stores, manufacturers are increasing DTC3) sales in which they sell products online and deliver them directly to consumers. DTC inevitably requires LMD, and this leads to total logistics cost increase from a manufacturer’s perspective. Nevertheless, not going through a retailer is more profitable to manufacturers. Thus, they’re expected to continue to increase DTC sales by closely working with logistics companies
1) D/C: Distribution Center
2) F/C: Fulfillment Center
3) DTC: Direct-to-Consumer
The rise of e-Commerce has boosted less-than truckload (LTL) shipments, and this is benefiting LMD and parcel companies.
In traditional retail, full truckload (FTL) shipments are usually transported to retailers and wholesalers. In e-Commerce, however, parcel shipments are delivered directly to customers. Although carriers gather as many parcels as possible to achieve scale of economies, it’s not really easy to fill a truck with small parcels. Carriers also need to meet customer expectations for faster delivery. This is why LTL shipping is on the rise.
LMD, as well as parcel delivery, is also growing fast, thanks to e-Commerce. Market research firm TechNavio has forecast the global courier/express/parcel market to grow at a CAGR of 6 percent from 2018 to 2022. Booming LMD has led logistics companies to expand their LMD business. U.S.-based XPO Logistics, one of the major LMD companies in the world, has shown a significant sales increase in LMD. Its last-mile division’s sales in North America has jumped from 840 million in 2016 to 507 million in the first half of 2018 alone.
Warehouses and Warehouse Tasks
As the impact of e-Commerce on logistics grows, warehouses have become more important. Traditional warehouses used to play a role of storage where products come and go in bulk. In today’s e-commerce retail, warehouses are more like FCs in which orders are fulfilled according to final customers’ demand. Also, as they play a significant role in enabling e-commerce retailers to offer quick delivery online shoppers want, changes are occurring on various fronts.
First, logistics facilities are getting bigger these days. Commercial real estate services and investment firm CBRE says that e-Commerce logistics facilities require space two to three times larger than traditional warehouses. This is because they handle a vast assortment of products and need to have enough space for tasks such as picking, packing as well as automation equipment.
Moreover, as there is a growing demand for value-added services (VASs) from e-Commerce retailers, more diverse and complex tasks are getting done at warehouses. These tasks include typical ones involving receiving and putaway, picking and packing for order processing, recalculating inventory after processing returns in parcel unit into product unit, or special storage/special packaging/repair.
Leveraging Technology for Greater Logistics Competitiveness
As logistics has emerged as a key success factor in today’s competitive e-Commerce market, retailers expect 3PLs to provide sophisticated logistics services. In response, 3PLs work to meet the growing logistics needs of e-Commerce companies. Here, it is advanced technologies that enable 3PLs to offer high quality logistics services.
3PLs use solutions, such as TMS4), WMS5) to provide transportation services that meet shippers’ expectation. As network expansion makes it harder to do smart inventory management, 3PLs have also adopted OMS6) to process orders and increase visibility over inventories scattered here and there.
Moreover, it’s essential to apply advanced IT, such as automation technology like robots that helps make picking easier, to warehouse operations to solve problems mentioned earlier – a vast assortment of items, complex operations and worker shortage – and to provide a quick and accurate delivery.
Amazon’s Kiva robots are the key example of this. Kiva robots move the shelves full of items to the picker. Another example is warehouse robots of Ocado, the U.K.’s online supermarket. Unlike Amazon’s Kiva, these robots bring each individual item directly to the order picker. This robotic automation enables users to significantly reduce lead time for shipping delivery and lower return rates by enhancing picking accuracy.
Vision picking and voice picking are useful especially when items are too small for robots to pick. Because order pickers are guided by vison or voice, it doesn’t take long even for inexperienced workers to get used to the job. These solutions also increase work efficiencies as they calculate the most optimized travel distance before giving picking orders. Indeed, workers at a Samsung SDS warehouse in Europe handling electronic parts find the vision picking solution very helpful for their operation.
4) TMS: Transport Management System
5) WMS: Warehouse Management System
6) OMS: Order Management System
The rise of e-Commerce presents new opportunities for not just e-Commerce retailers but also manufacturers and logistics companies. As the market gets bigger and more competitive, e-Commerce is having an increasing impact on logistics.
In order to handle increasing shipment volumes, e-Commerce retailers and/or 3PLs/express couriers are expanding their logistics networks. They are building fulfillment centers near consumers, specifically designed to process e-Commerce orders.
Unlike traditional retail where items used to be transported in bulk, in e-Commerce today, items are delivered to final consumers in parcel unit. This has boosted LTL shipping, leading logistics companies to expand their LMD business.
In addition, e-Commerce warehouses are getting bigger as shipment volumes increase and workers need spaces to create parcels as ordered, prepare for shipping and process returns, special packaging/storage and repairs. They’re adopting advanced technologies for greater productivity.
Meanwhile, e-commerce retailers and 3PLs have started to form a cooperative relation for shipping during peak season, quick delivery and VASs. By adopting advanced technologies to their logistics operations, 3PLs have increased productivity and met increasing expectations of e-Commerce retailers and consumers while reducing logistics costs.
To find out more about e-Commerce of Samsung SDS, visit Cellologistics.com and download the white paper.