eCommerce Warehousing: The Complete Guide to Unlocking Success (Types, Benefits, and Best Practices for 2023 & Beyond)
Imagine this: you're an ecommerce merchant, running a successful online business from the comfort of your own home. You started small, managing inventory in your spare room or garage.
But as your business grows, you find yourself outgrowing your home-based warehousing solution. Your living space is filled with products, and managing inventory has become increasingly time-consuming and challenging. Sound familiar?
If you can relate to this scenario, you're not alone. Many ecommerce merchants reach a point where they need to consider alternative warehousing solutions to meet their growing demands.
Indeed, a recent Logistics Management survey reported that 50% of businesses are looking to move production or manufacturing closer to demand and customers in 2023.
In this blog post, we will explore the world of ecommerce warehousing. We will discuss its importance, the benefits it offers, the risks of neglecting it, the different types of ecommerce warehousing solutions available, and best practices to effectively manage your ecommerce warehouse.
By understanding these key aspects, you'll be equipped with the knowledge and insights to optimize your warehousing operations in 2023 and beyond.
What is Ecommerce Warehousing?
Before we delve deeper into ecommerce warehousing, let's start with a simple definition. Ecommerce warehousing refers to the storage, management, and fulfillment of inventory specifically for ecommerce businesses. It involves the processes and systems required to efficiently receive, store, and ship products to customers who purchase online.
Ecommerce warehouses can be owned and operated by the retailer itself, or they can be managed by third-party fulfillment providers and third-party logistics (3PL) companies. These warehouses are designed to handle the unique requirements of ecommerce businesses, including managing warehouse employees, receiving and storing inventory, ensuring safety and security measures, optimizing warehouse slotting, conducting audits, tracking stock levels, and forecasting customer demand.
Why is Good Ecommerce Warehousing Important?
Now that we understand what ecommerce warehousing entails, let's explore why it is crucial for the success of your online business. Here are some key benefits of implementing effective ecommerce warehousing:
1. Ship to Your Customers Faster
Fast shipping has become essential to be competitive in the modern-day ecommerce environment. For example, a whopping 47% of American’s now have an Amazon Prime account, with the top reason for having one being ‘convenience’. So, In a world where consumers expect next day delivery, shortening your shipping times is essential.
What’s more, data from an eFulfilment Service report noted that 42% of consumers consider 2-3 day delivery as ‘fast’. Two years ago, 63% considered this time frame to be fast, a clear indicator that delivery expectations are increasing among online buyers.
Placing your inventory closer to your customers can significantly reduce the time and cost of order fulfillment. When your products are stored in strategically located fulfillment centers, it takes less time for online orders to reach your customers.
We know well that faster shipping is directly related to customer satisfaction. According to a survey conducted by Stitch Lab, 40% of respondents reported that consistent, on-time delivery of orders is the most essential factor in making happy, lifelong customers (Schliechtriem, 2021).
2. Handle Returns With Ease
As an online retailer, you know that returns are a reality of the business. But handling returns can be a time-consuming and complex process if you don't have the right systems in place.
By utilizing dedicated areas within your warehouse for returns, you can establish a seamless process for receiving, inspecting, and processing returned items. This means no more cluttered workspaces or struggling to find space for returned inventory.
With an organized warehousing system, you can easily track returned items, update inventory levels, and determine the best course of action for each return. By streamlining your returns process, you can provide a smooth experience for your customers, enhancing their satisfaction and increasing the likelihood of repeat business.
3. Better Organization & Forecasting
Ecommerce warehousing improves the accuracy of inventory tracking and prevents lost items. By implementing a robust warehouse management system (WMS), you can track inventory turnover rates, proactively reorder inventory, and gain valuable insights that help you forecast demand. For example if you're selling clothing, you can better predict seasonal demand and place your orders in good time with your wholesale clothing supplier. This helps you avoid overstocking or out-of-stock situations, ensuring that you have the right products available at the right time.
4. Save Time to Focus on More Important Things
Managing inventory in a disorganized manner can be time-consuming and inefficient. By investing in proper ecommerce warehousing, you can free up valuable time spent searching through piles of products or trying to carefully balance products a mile high. This time can be better utilized to focus on growing your business, promoting your store, and enhancing customer experiences.
5. Reduce Stress
A well-organized warehousing process, coupled with the knowledge that your products are in good hands, can significantly reduce stress levels. When your inventory is properly managed and stored securely, you can have peace of mind, knowing that you are prepared to meet customer demands and fulfill orders promptly.
The Dangers of Skimping on Ecommerce Warehousing
While the benefits of effective ecommerce warehousing are clear, it's important to understand the risks and downsides of neglecting this aspect of your business. Here are some potential dangers of skimping on ecommerce warehousing:
1. Your Run Out of Storage
As your business grows, you may find yourself running out of space at home to store your inventory. Storing products in your living space or garage becomes increasingly impractical and can hinder your ability to scale. Insufficient storage space limits your ability to expand your product range and can lead to missed sales opportunities.
2. Your Inventory Gets Lost or Damaged
Without proper warehousing in place, the risk of inventory misplacement increases, especially as your business and product catalog grow. Lost inventory not only leads to financial losses but also results in delays and dissatisfied customers.
3. You Ship The Wrong Inventory
Fulfilling orders accurately is crucial for maintaining customer trust and loyalty. However, without effective warehousing practices, the risk of shipping the wrong items increases. A survey conducted by Stitch Labs showed that 62% of respondents mentioned human error from manual process management as the number one root cause of inventory or fulfillment issues. Such errors can drive first-time customers away and discourage repeat business.
4. You Run into Stock-Outs or Over-Purchasing
Effective ecommerce warehouse management helps you determine the optimal amount of inventory to have on hand. Too little inventory can result in stock-outs, leading to missed sales and dissatisfied customers. Conversely, having too much inventory ties up valuable capital and may result in outdated products that are difficult to sell.
The Types of Ecommerce Warehousing
Now that we understand the importance of ecommerce warehousing and the risks associated with neglecting it, let's explore the different types of warehousing solutions available. Each solution offers its own set of benefits and drawbacks, and choosing the right one depends on your business's unique needs and requirements. Here are some common types of ecommerce warehousing:
1. Warehousing from Home
Many ecommerce businesses start by storing inventory at home, utilizing living rooms, basements, garages, or office spaces. This approach is suitable for businesses with a small order volume. However, as your business expands, problems can quickly arise, such as space limitations, inefficient organization, and difficulty in managing larger inventories.
2. Privately Leased Warehouses
In this scenario, an ecommerce company privately leases a commercial warehouse to store and manage their inventory. Private warehouses offer dedicated space for your business and provide more control over your warehousing operations. However, they often come with higher costs compared to other solutions, such as public warehouses.
3. Fulfillment & Distribution Centers
Dedicated fulfillment and distribution centers are designed specifically for ecommerce businesses. These centers receive, store, and fulfill your orders on your behalf. The most common types of fulfillment centers used among ecommerce businesses are outsourcing fulfillment to a 3PL like ShipBob or utilizing Amazon for FBA (Fulfillment by Amazon). These professional fulfillment services handle order processing, inventory management, and shipping logistics, allowing you to focus on other aspects of your business. This solution provides scalability, expertise, and operational efficiency but involves additional costs.
Dropshipping is a unique approach to ecommerce fulfillment where the product's manufacturer controls the entire supply chain. When a customer places an order online, the manufacturer ships the item directly from their factory to the consumer, bypassing the need for the merchant to handle inventory. Dropshipping can be a convenient option for dipping your toe in the water of ecommerce without significant upfront investment - and there many successful dropshipping stores doing serious volume. However, it comes with limitations, such as limited control over quality control, longer shipping times, and potential supplier-related issues.
5. Bonded Warehouses
Bonded warehouses are facilities where imported goods can be stored before the company is required to pay customs duties. These warehouses are authorized by the authorities and provide space for rent, ensuring that companies don't incur financial losses when their products are released. Bonded warehouses are particularly useful for eCommerce businesses engaged in cross-border trading. They are known for their safety, security measures, and compliance with customs regulations. However, they are typically utilized by importers and wholesalers rather than B2C retailers.
6. Public Warehouses
Public warehouses are owned by governmental bodies and offer space for personal or business use. These warehouses are generally more affordable, making them suitable for small businesses requiring temporary storage solutions. However, public warehouses may lack advanced technological capabilities compared to other solutions.
How to Choose the Best Ecommerce Warehousing Solution
Now that we've explored the different types of ecommerce warehousing solutions, you may be wondering how to choose the best option for your business. The decision ultimately depends on several factors, including the size of your business, available capital, and the resources you can dedicate to your ecommerce logistics strategy. Here are some considerations to keep in mind:
1. Evaluate Your Business Needs
Assess the unique needs and requirements of your ecommerce business. Consider factors such as order volume, storage space, scalability, shipping requirements, and budgetary constraints. Understanding your business needs will help you narrow down the most suitable warehousing solution.
2. Consider Costs and Budget
Determine the financial implications of each warehousing solution. Private warehouses and dedicated fulfillment centers may require significant upfront investments and ongoing operational expenses. On the other hand, utilizing public warehouses or dropshipping may offer more cost-effective options, particularly for small businesses with limited budgets.
3. Scalability and Flexibility
Assess the scalability and flexibility offered by each warehousing solution. If you anticipate rapid growth or seasonal fluctuations in demand, consider options that can easily accommodate your changing inventory needs. Fulfillment centers or partnering with a 3PL can provide the necessary scalability and flexibility to support your business growth.
4. Expertise and Resources
Consider the expertise and resources required to manage your ecommerce warehouse effectively. Owning and operating your own warehouse demands time, labor, and knowledge of logistics and inventory management. If you lack the necessary expertise or want to focus on core business activities, outsourcing to a fulfillment center or utilizing dropshipping may be a viable option.
5. Location and Customer Reach
Evaluate the geographical location and customer reach of different warehousing solutions. Placing your inventory strategically closer to your customers can reduce shipping times and costs. Additionally, consider if the solution provides international warehousing options if you engage in cross-border trade.
6. Technology and Integration
Assess the technological capabilities of each warehousing solution. A robust warehouse management system (WMS) can streamline operations, optimize inventory management, and provide real-time visibility into your supply chain. Integration capabilities with your ecommerce store, shipping carriers, and other tools can enhance efficiency and automate workflows.
By carefully considering these factors, you can determine the best ecommerce warehousing solution that aligns with your business goals, budget, and operational requirements.
4 of the Best eCommerce Warehousing Solutions
Ok, now that you know what to look for when deciding on an eCommerce warehousing solution, let’s take a brief look at who you can start looking at - specifically if you’re looking for a third party fulfillment solution.
1. Shopify Fulfillment
Shopify Fulfillment is a comprehensive order fulfillment service provided by Shopify, an ecommerce platform. It allows online retailers to outsource their fulfillment operations to Shopify, streamlining the entire process. With features such as warehousing, inventory management, order processing, and shipping, Shopify Fulfillment integrates seamlessly with a merchant's Shopify store. It leverages strategically located fulfillment centers to store inventory and handle logistics efficiently. By utilizing Shopify Fulfillment, merchants can benefit from faster shipping times, reduced operational overhead, and improved customer experience. The service simplifies the fulfillment process, enabling merchants to focus on growing their business while leaving the complexities of logistics to Shopify's dedicated infrastructure.
- Seamless Integration: Shopify Fulfillment seamlessly integrates with your Shopify store, making it easy to manage your inventory and order fulfillment in one place.
- Scalability: The service is designed to handle high volumes of orders, allowing you to scale your business without worrying about logistics.
- Fast and Reliable Shipping: Shopify Fulfillment utilizes strategically located fulfillment centers to ensure fast and reliable shipping to customers.
- Inventory Management: The service provides real-time inventory tracking, allowing you to keep accurate stock levels and avoid overselling.
- Order Tracking: Shopify Fulfillment provides order tracking information, allowing you and your customers to monitor the progress of shipments.
- Limited Availability: Shopify Fulfillment is currently available only in select countries, so it may not be accessible to all merchants.
- Limited Customization: While the service offers basic customization options, it may not provide the same level of flexibility as working with a third-party fulfillment provider.
- Pricing: While Shopify Fulfillment aims to be cost-effective, the pricing structure may not be the most competitive for all businesses, especially those with low order volumes.
- Limited Warehousing Options: Shopify Fulfillment operates through its own network of fulfillment centers, so you have limited options in terms of choosing specific warehouse locations.
- Reliance on Shopify Ecosystem: Using Shopify Fulfillment means relying on the Shopify ecosystem for all aspects of your ecommerce business, which may not suit every merchant's preferences or requirements.
ShipBob is a popular third-party logistics (3PL) provider that offers comprehensive order fulfillment services for ecommerce businesses. As a 3PL, ShipBob takes care of warehousing, inventory management, order processing, and shipping on behalf of merchants, allowing them to focus on other aspects of their business. With a network of fulfillment centers strategically located across the United States and internationally, ShipBob aims to provide fast and cost-effective fulfillment solutions to merchants of all sizes.
Pros of ShipBob:
- Multi-Channel Integration: ShipBob seamlessly integrates with various ecommerce platforms, marketplaces, and shopping carts, making it easy to sync inventory and automate order fulfillment across different sales channels.
- Fast and Reliable Shipping: With their strategically located fulfillment centers, ShipBob enables fast and efficient shipping, resulting in quicker delivery times for customers.
- Scalability: ShipBob's infrastructure is designed to handle high order volumes and scale with growing businesses, allowing merchants to expand without logistical constraints.
- Inventory Management: ShipBob provides real-time inventory tracking, giving merchants visibility into stock levels and the ability to automate inventory replenishment.
- Advanced Technology: ShipBob utilizes cutting-edge technology and analytics to optimize fulfillment operations, improve efficiency, and enhance the overall customer experience.
Cons of ShipBob:
- Pricing: ShipBob's pricing structure may not be the most cost-effective option for low-volume or small businesses, as there are minimum order requirements and additional fees for services like kitting and storage.
- Limited International Presence: While ShipBob has expanded its fulfillment network globally, its international coverage may not be as extensive as some other 3PL providers, which could limit options for merchants targeting specific markets.
- Contractual Commitments: ShipBob typically requires merchants to sign contracts, which may not suit businesses looking for more flexibility or those with fluctuating fulfillment needs.
- Customer Support: Some users have reported mixed experiences with customer support, citing delays in response times or difficulties in resolving issues.
3. Fulfillment By Amazon (FBA)
Fulfillment by Amazon (FBA) is a comprehensive order fulfillment service offered by Amazon. With FBA, sellers can store their products in Amazon's fulfillment centers, and Amazon takes care of picking, packing, shipping, and customer service for those orders. FBA is available to sellers on Amazon's marketplace, as well as for orders from other sales channels.
Pros of Fulfillment by Amazon (FBA):
- Prime Eligibility: FBA enables sellers to offer their products with Prime eligibility, which can significantly enhance the visibility and appeal of their listings to Prime members.
- Global Fulfillment Network: Amazon has a vast network of fulfillment centers across various countries, allowing for fast and efficient shipping to customers around the world.
- Customer Service: Amazon handles customer service and returns on behalf of FBA sellers, providing support and resolving issues with orders, which can save sellers time and resources.
- Inventory Management: FBA utilizes Amazon's advanced inventory management system, ensuring accurate tracking of stock levels and proactive replenishment to avoid stockouts.
- Amazon Prime Day and Deals: FBA sellers can take advantage of Amazon's promotional events, such as Prime Day and Lightning Deals, to boost sales and exposure.
Cons of Fulfillment by Amazon (FBA):
- Fees: FBA charges various fees, including storage fees, fulfillment fees, and additional fees for special services. These costs can significantly impact the overall profitability of products.
- Lack of Control: When using FBA, sellers relinquish some control over the fulfillment process, as Amazon handles inventory storage, order processing, and shipping, which may not align with the specific requirements or branding of certain businesses.
- Competition and Buy Box: Being part of the Amazon marketplace means sellers are in direct competition with other sellers offering similar products, and winning the Buy Box becomes crucial for visibility and sales.
- Restricted Categories: Certain product categories have restrictions or additional requirements for FBA participation, which may limit the eligibility of certain products or sellers.
ShipHero is a cloud-based software and fulfillment service provider that offers comprehensive solutions for ecommerce order fulfillment. It combines advanced technology with warehousing capabilities to streamline and optimize the fulfillment process for online retailers.
Pros of ShipHero:
- Warehouse Management System (WMS): ShipHero provides a powerful WMS that offers real-time inventory tracking, order management, and reporting capabilities. It allows merchants to efficiently manage their inventory across multiple sales channels.
- Integration and Automation: ShipHero integrates with popular ecommerce platforms, marketplaces, and shipping carriers, enabling seamless order synchronization, label printing, and tracking updates. Automation features help streamline the fulfillment process and reduce manual tasks.
- Flexible Warehousing: ShipHero operates its own network of strategically located fulfillment centers, allowing merchants to store their inventory in multiple locations. This helps optimize shipping costs and delivery times by placing products closer to customers.
- Customizable Branding: ShipHero offers white-label packaging and branding options, allowing merchants to create a unique and consistent unboxing experience for their customers.
- Customer Support: ShipHero provides dedicated customer support to assist with any fulfillment-related queries or issues, ensuring a smooth experience for merchants.
Cons of ShipHero:
- Pricing: ShipHero's pricing structure may not be the most cost-effective option for small or low-volume businesses. Depending on the order volume and specific services required, the costs associated with fulfillment and storage can vary.
- Learning Curve: ShipHero's advanced features and functionalities may require some learning and familiarization, particularly for merchants who are new to fulfillment software or technology-driven operations.
- International Coverage: While ShipHero operates in multiple locations, its international coverage may not be as extensive as some other fulfillment providers, which could limit options for global expansion.
7 Ecommerce Warehouse Management Best Practices
Now that you have a clear understanding of eCommerce warehousing and how to choose the right solution for your business, let's explore some best practices to effectively manage your ecommerce warehouse. Implementing these practices will optimize your operations and ensure smooth order fulfillment. Here are some key practices to consider:
1. Use an eCommerce Warehouse Management System (WMS)
Implementing a WMS specifically designed for ecommerce warehouses can revolutionize your operations. A WMS automates key processes such as inventory tracking, order fulfillment, and warehouse optimization. It provides real-time visibility into inventory levels, enables accurate forecasting, and streamlines pick, pack, and ship processes.
2. Integrate Your Ecommerce Store and Warehouse Systems
Seamlessly integrate your ecommerce platform with your warehouse management system. This integration ensures that inventory levels are automatically updated, orders are synced, and shipping details are shared in real-time. Integration eliminates manual data entry, reduces errors, and improves efficiency.
3. Optimize Warehouse Layout and Slotting
Efficient warehouse layout and slotting can significantly impact productivity and order fulfillment speed. Organize your warehouse based on product categories, popularity, and order frequency. Use bin location labeling systems and implement efficient picking paths to minimize travel time for warehouse employees. For example, the new breed of q-commerce grocery retailers like Shuppa, build and optimize their micro-fulfilment centers so they can pick an entire grocery order in just 3 minutes, before delivering it by eBike in just 12 minutes.
4. Embrace Automation
Leverage automation technologies to streamline warehouse operations. Consider implementing technologies such as conveyor systems, automated picking systems, barcode scanners, and robotics to increase efficiency, reduce errors, and improve order accuracy. For example, checkout how Amazon is using automated picking robots in some of their warehouses:
5. Prioritize Safety and Security
Ensure the safety and security of your warehouse and inventory. Implement proper safety measures, such as training employees on equipment usage, conducting regular safety inspections, and maintaining clean and organized workspaces. Invest in security systems, such as surveillance cameras and access control, to protect your inventory from theft or damage.
6. Regularly Conduct Audits and Cycle Counts
Perform regular audits and cycle counts to maintain accurate inventory records. Regularly reconcile physical inventory with the data in your WMS to identify discrepancies, prevent stockouts or overstocking, and improve inventory accuracy.
7. Continuously Monitor and Optimize
Continuously monitor key performance indicators (KPIs) to identify areas for improvement. Analyze metrics such as order accuracy, order cycle time, inventory turnover, and fulfillment cost per order. Use the insights gained to optimize processes, make informed business decisions, and drive efficiency.
Go Forth & Optimize Your eCommerce Warehousing
Effective ecommerce warehousing is vital for the success of your online business. By understanding the importance of warehousing, the risks of neglecting it, the different types of warehousing solutions available, and best practices for managing your ecommerce warehouse, you can optimize your operations and provide exceptional customer experiences. As eCommerce continues to grow and evolve, investing in robust warehousing solutions and implementing best practices will position your business for sustained success in 2023 and beyond.
Further Reading on eCommerce Warehousing
eCommerce warehousing is a massive topic that's difficult to cover in a single blog post. Here’s some resources that’ll give you more insight into various areas of warehousing and fulfillment:
- Shipbob’s State of Ecommerce Order Fulfillment & Shipping PDF
- The 7 Best eCommerce Fulfillment Services (Shopify)
- Global Ecommerce Explained: Stats and Trends to Watch (Shopify)
- Logistics Management Ecommerce Fulfillment Trends Report
- Research & Markets Global Ecommerce Logistics Market Outlook to 2027
- Gitnux eCommerce Fulfillment Statistics