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How Should You Manage Ecommerce Logistics?

Retailers who sell their goods online are often faced with challenges that brick and mortar retailers never had to deal with before. These challenges include managing inventory, shipping, returns, customer service, and much more.

And it's not just retailers. Suppliers who could once count on consolidating orders and shipping periodically to their retail clients now find them shipping to retailers in ways that look exactly like consumer shipping: packages of a single item, each going to unique destinations.

While there are many ways to approach these issues, there is one thing that every business owner should consider: eCommerce logistics.

Though ecommerce was growing before the pandemic, retail executives had to urgently adapt their operations to the new realities created by the shutdowns and subsequent rapid eCommerce growth. These changes included modifying their purchasing behaviors, merchandising plans, sales staffing, knowledge-sharing and clienteling, and other operational aspects of their businesses. Of these, ecommerce logistics is the least glamorous, and possibly the most expensive, both in terms of real costs and - if you don't get it just right - brand damage.

Ecommerce logistics is the term used for the supply chain management of products sold online and includes all aspects of the supply chain that support the delivery of goods to customers.

What do retailers need to know about ecommerce logistics costs?

The cost of ecommerce logistics can be broken down into three main categories:
1) Inventory Management Costs
2) Shipping Costs
3) Returns/Returns Processing Costs

Inventory Management Costs

Inventory management covers everything from storing your product in the safe or in your case until someone buys it. While jewelry inventory doesn't take up much space, it does consume a lot of cash. Online shoppers don't appreciate waiting more than a few days for you to get their package in the mail. You can typically acquire diamond jewelry and some major brands on memo, but the rest needs to be purchased. Furthermore, your sales mix is likely to look different online than it does in the store. All this adds up to a need to stock more SKUs, closely manage inventory, monitor your sales, and use data thoughtfully to react and adjust in real-time, before inventory gets out of hand.

Introducing virtual inventory options on your website is one way to help offset these costs while expanding your inventory offering. Virtual inventory also helps prequalify customers to reduce the number of returns. And VDB's marketplace app also creates efficient lines of communication between suppliers and buyers to decrease the costs associated with purchasing management.

Packaging and Shipping Costs

Shipping costs cover the expenses incurred when sending packages to consumers. The first step in calculating shipping costs is determining how far away each consumer lives from your warehouse location. This distance will determine which carrier you'll choose as well as what type of packaging material you'll use. Next, you must calculate the weight of the item, then multiply that number times the price per pound. Finally, add any applicable taxes and fees.

This sounds simple, but it is one of the most overlooked cost areas when retailers shift into ecommerce operations. Packaging costs are also part of the shipping cost equation. Jewelry retailers are accustomed to delivering purchases in attractive packages. But those attractive packages now need to be packed within an outer box, buffered from shipping damage, labeled, and delivered to the shipper. Customers need tracking numbers to maintain trust. And all of this activity should be automated to reduce the costs of operations.

Returns and Return Processing Costs

Returning items after they've been bought is not only inconvenient but costly too. In fact, according to research conducted by the National Retail Federation, nearly half of U.S. adults have returned something at least once since buying it online.

Return policies vary widely among retailers. Some allow no returns whatsoever; others offer 15 - 30 days to decide whether you want to keep the item or send it back. Still, other companies provide free shipping for returns to make it as frictionless as possible.

For sellers in the luxury goods space, the choice is pretty clear. Offering free, easy returns is critical to creating the trust necessary to build a strong online brand.

Returning products takes resources and money. It requires employees who process returns, track them, and communicate with customers. If you're selling high-ticket items like electronics, apparel, furniture, etc., there may even be additional charges if the customer wants to exchange or refund the purchase.

If you sell through multiple channels, managing returns becomes exponentially harder. How many people handle returns across platforms? What happens if a buyer has trouble returning an order?

The most important thing a business owner can do to manage ecommerce logistics is to understand their costs and margins.

Consider the products you are selling online. Are online average order sizes the same as, smaller, or larger than in-store purchases? If average order sizes are smaller, consider how your website might be contributing to smaller orders or, conversely, how it might encourage larger orders. Consider online average price points too. If the average price point is lower than your store average price point, you may be targeting the wrong online audience, or you may be inadvertently promoting the cheaper products more than you should.

Look at your return rates. Are they higher than average? Is it due to poor quality/design? Do you see trends over time? Can you identify why?

Analyze your shipping process. When an online order comes in, who receives it? Who pulls the jewelry from the case or safe and packs it? Is the process as simple as possible, without room for error? Do you have to manually enter shipping data, or is it passed to a shipping station automatically from your website or POS?

Finally, make sure your staff is all trained to do the most streamlined, simple process, and that all staff members are doing exactly the same things in the same ways. You can't control logistics costs if you have variations in your logistics process.

Until now, retail operators did not have to understand warehouse operations theory or logistics management. But ecommerce is here to stay, and hopefully, you are growing that part of your business while also growing your physical store sales. That means mastering ecommerce logistics.