Challenges 3PLs Faced with Ecommerce Growth
Like many people, I turned to online stores and marketplaces to complete most of my holiday shopping. As usual, I had some overwhelmingly positive experiences and some underwhelming experiences. While I started early in many cases, I placed all of my orders comfortably before shipping cut offs.
Big surprise…several of my gifts didn’t arrive on time.
Why would that happen if all orders placed showed inventory in stock and were placed before shipping cutoffs?
Unprecedented volume? Delivery backlogs? Inventory management issues? Yes. This year businesses experienced these challenges and more.
With that in mind, let’s explore some of the lessons from this past record-breaking holiday season.
Scaling Ecommerce Fulfillment
Every year, I manage to sneak in a few presents for myself. Well, the great news is that this holiday season keeps on giving, but not receiving. I ordered an item on December 14th which appeared available for delivery prior to Christmas. I quickly received an order confirmation. Since then, I didn’t receive any communication until Monday, Jan 4th showing my order on its way. Checking their website, they offer no way to check order status…not exactly what I would call a great consumer experience.
So many businesses hadn’t scaled at the pace needed to address the prolific ecommerce growth in the past year, often lacking scalable order management processes or fulfilment capabilities. Although many of these businesses make their own products and manage their own online stores, many have chosen to partner with third-party logistics (3PL) warehouses to fulfill orders and maintain their inventory.
Mastercard reported 49% growth in ecommerce sales year over year during the holiday season compared to only a 3% increase in retail sales. This created incredible pressure on organizations to scale their ecommerce infrastructure as never before.
For direct-to-consumer businesses, scaling to meet this onslaught of demand means making sure to have robust online shopping carts integrated with order management systems (OMS) and connected to their 3PL warehouse partner’s warehouse management system (WMS). For 3PLs this means offering inventory and warehouse management tools that allow you to support ecommerce or omnichannel demands. Those companies lacking these processes and relying on legacy systems or manual efforts suffered this past holiday season.
Lesson #1: If you want to support ecommerce demand, invest in the right WMS technology with comprehensive shopping cart integrations and ensure that your WMS has reliable small parcel pick, pack, and ship functionalities that enable you to scale exponentially.
Inventory management has challenged many companies this past year, having to decide what inventory will go to 3PL warehouses fulfilling their online orders or to their retail storefronts. While a retailer can’t have a storefront without product (even if those stores have significantly less foot traffic than usual), it also can’t fulfill online orders without inventory.
While many companies had to worry about inventory balancing acts, the 3PLs who offered omnichannel fulfillment thrived this past year. Those warehouses providing omnichannel fulfillment were 271% more likely to show high growth numbers. Providing omnichannel fulfillment allows for the consolidation of inventory with the 3PL to fill orders through any manner, including sending orders to stores to support buy-online, pick up in store (BOPIS) orders. This limits the inventory needed in the actual store fronts.
Omnichannel fulfillment denotes supporting orders from the many different purchasing channels available to consumers (e.g., online, to the store, marketplaces, shopping carts, etc.) through platforms, like a 3PL’s warehouse management system, that seamlessly interact with different applications, shopping carts, marketplaces, or other order management software to manage multiple supply chain processes.
Lesson #2: Offer omnichannel fulfillment to diversify revenue streams and provide better coverage for your customers.
As early as the beginning of December, predictions of some of the most significant holiday shipping and delivery delays flowed into the market. At the peak of the 2020 holiday season, an estimated six million packages were left behind in warehouses by USPS, FedEx, UPS, Amazon, and other shippers.
UPS and FedEx cut off delivery service for some retailers to help address shipping volumes and USPS was plagued by extensive delays. More than a million packages missed their Christmas delivery date.
Facing unprecedented online fulfillment volume and pressure from their customers, 3PL warehouses had to quickly support new shipping carriers, load balance through traditional carriers, and find unique solutions that would enable them to fulfill for their customers’ demand and satisfy the end consumer.
Lesson #3: Ensure your WMS offers integrations with a wide variety of shipping carriers to allow for flexibility to address bottlenecks in the shipping process.
Planning for the Year Ahead
With ecommerce shopping expected to continue growing through this year, third-party logistics providers need to evaluate current processes and ensure the agility and flexibility needed to handle unexpected surges.
To learn more about how 3PL warehouses can become more resilient and innovative this year, access Extensiv’s 2021 State of the Third-Party Logistics Report.