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Any retail business invested in efficiency and customer satisfaction knows the important role eCommerce warehouses play in logistics and the supply chain.
Although not compulsory, most physical and online stores have a warehouse to store products, process orders, and manage exchanges and returns. Interestingly enough, warehouse optimizations have only recently become popular.
The reason behind this is simple: more and more technologies have been developed and are available at an affordable price, and the rise of online shopping has shed light on the cost of inefficiencies. In this sense, implementing one of these warehousing solutions is the next logical step because of their reduction in workload and human errors, which improves customer satisfaction while reducing operational costs.
What is warehousing?
Warehousing is the process of storing products and materials in a warehouse or any other designated storage facility. An eCommerce warehouse holds stock until it gets sold and connects the manufacturing process to the exit of goods (with their sale and shipment).
Warehousing can be as straightforward or as complex as a retailer chooses them to be. In other words, warehouse operations aren’t more difficult just because a business grows.
On the contrary, as an online store increases its sales volume, more advanced technologies are normally implemented to make the most out of the resources available.
Storage facilities with automation and technology are called ‘virtual warehouses’, and, although more efficient, they also come at a higher implementation and maintenance cost (which is why not every eCommerce warehouse works with a virtual warehouse).
However, this is not the only way to optimize warehousing; eCommerce warehouses (or “eWarehouses”) can also implement an efficient warehouse layout design to store more products in the same amount of space, lowering storage costs while increasing productivity.
There are many advantages to warehousing: it helps businesses have accessible and available stock to fulfill orders, minimizing order lead time; shortens the delivery time, improving customer satisfaction; provides more stock control, which helps to track inventory and relate them to sales; gives more room to prepare for upcoming sales events, like Black Friday or Christmas; and, potentially reduces costs by capitalizing on opportunities like a drop in product prices.
Difference between storage and warehousing
Although these concepts are closely related, they don’t necessarily mean the same thing.
Storage is any facility where something is stored. Warehousing, on the other hand, doesn’t only refer to the storage of products with the minimum requisites to ensure their safety (humidity levels, temperature, etc.), but also all the activities that happen within a warehouse.
Moreover, there are warehouses focused on the storage of products, and warehouses designed to process orders (fulfillment warehouses).
Alternatives to an eCommerce warehouse: cross-docking and dropshipping
Despite all the advantages of warehousing, some retailers decide to outsource this process because of a lack of resources to manage these operations due to complexity or costs.
In this case, companies may decide to cross-dock products, sending them from production to the customer — or distribution center — without ever being in a warehouse. This method saves costs by eliminating processes like the picking of products, and cuts down storage costs.
As another alternative, we have dropshipping. This sales and distribution model has gained a lot of attention in recent years because of the advantages it presents to smaller retailers: lower storage costs, fewer responsibilities (since the processing of orders isn’t done in-house), and potentially higher profit margins (only when the products are obtained at a cost considerably lower than the final selling price).
eCommerce warehousing and logistics
Warehousing is a fundamental activity within the supply chain and logistics of any online store. In an eCommerce warehouse, operators will receive products, verify them, place them in the right location, do an efficient picking and packing, and hand the parcel to the courier for their delivery. These are some of the most important logistics tasks and they take place in any eCommerce warehouse.
Warehousing solutions can help control stock levels, thanks to the automation of eCommerce warehouse activities (eWarehousing). At the end of the day, efficient eCommerce warehouses mean: a) lower costs, thanks to the maximization of storage space and effective use of machinery & technologies, and b) happier customers because of shorter processing times.
However, virtual warehouses or warehousing solutions aren’t the only way to optimize warehousing and logistics. Returns and exchanges are also a frequent logistics activity that are totally unavoidable if we talk about an eCommerce warehouse.
Whenever an exchange or return is requested, a warehouse operator will need to assess the state of the product, order a refund, and evaluate if it can be resold, or if it needs to be disposed of.
This is a part of reverse logistics. It also solves the problem of returned items needing to be checked, creating clutter and confusion in the warehouse (which has a direct impact on logistics). By having a dedicated area to handle exchanges and returns, you can cut down on this issue.
Warehouse storage and shipping
Warehouse storage and shipping — or warehousing and distribution, as it’s sometimes called — connect available inventory to offline and online sales. In this regard, it’s important to also work with platforms that ease the process of picking, packing, and shipping orders, like Outvio.
Outvio is the post-checkout infrastructure that helps online stores of all sizes process their orders — regardless of the purchase source — in one single platform. Traceability, efficiency, and reinforced brand image are just some of the advantages of using Outvio.
However, Outvio isn’t the only factor playing in favor of the largest eCommerce companies. Working with different couriers is one of the ways to create a distribution strategy that sets a business up for success.
Factors to choose a warehousing solution
There are three major factors to be considered when choosing a warehousing solution: the number of SKUs a retailer has (in other words, the quantity of product and product variations created by a business), seasonality, and fluctuation in the volume of orders & location of the warehouse, whether this is chosen based on shipping destinations or proximity to other facilities.
1. Number of SKUs
This factor is extremely important since it is, in most cases, directly related to the size of a business. The number of SKUs or product variations has an impact on costs for different reasons: the need for a larger space or more complex technologies. In fact, warehousing solutions tend to charge based on this criterion.
If you are a small retailer with a large quantity of product variations, looking for a cost-effective solution to manage inventory can be more profitable than simply choosing based on the number of SKUs your business handles.
2. Order fluctuations
Another key point to consider before choosing a warehouse is how large the common order volume is, and when the high peaks of commerce appear. Based on this information, you can decide to work with a larger facility permanently — one where you could potentially work with even during high sales season — or, on the other hand, a smaller facility (and make a contract for the high season with a complementary warehouse).
3. Warehouse location
The location of the warehouse is an extremely important factor that partially determines the cost of warehousing. Depending on the size of the business, some companies prefer to locate their warehouse closer to customers in order to reduce delivery times as much as possible, while others choose to reduce warehousing costs by moving warehousing to a rural location where square meters are typically lower.
Warehousing solutions work in tandem with other eCommerce operations, connecting to different parts of the supply chain such as overall logistics or shipping and distribution.
There are many advantages to warehousing and even more to virtual warehousing, although the costs for the latter can only be absorbed by larger retailers. In any case, eCommerce warehouses need to be optimized in terms of layout design, stock control, and efficiency in order to enjoy all the benefits of having available stock at all times, in contrast with other methodologies like cross-docking or dropshipping.
Warehousing and logistics play an important role in the efficiency of reverse logistics because of the rising demand for online exchanges and returns. For this reason, warehousing is not only associated with logistics, but also with distribution and shipping since sometimes a product “travels” in more than one direction (from warehouse to customer and from customer to warehouse again).
Although an eWarehouse may not be necessary for every business, it drastically changes the growing opportunities of an online store, thanks to all the advantages we already discussed.