Efficient order processing plays a crucial role in business success. Companies that excel in managing their logistics operations gain a competitive edge, satisfying customer expectations and boosting their bottom line. However, many businesses struggle with common pitfalls that can have a significant impact on their performance and reputation.
This article explores five costly e-commerce logistics mistakes to avoid in order processing. From neglecting reverse logistics to poor inventory management, these errors can lead to dissatisfied customers and lost revenue. We'll also delve into the importance of providing a top-notch shipping experience, integrating systems effectively, and making timely decisions about outsourcing. By understanding and addressing these challenges, e-commerce businesses can streamline their operations and pave the way for sustainable growth.
Reverse logistics refers to the end-to-end process of processing, receiving and analyzing returned merchandise to maximize resale opportunities and ensure seamless customer experiences. Poor reverse logistics can significantly impact a company's bottom line. It can increase the operational costs associated with handling returns, repairs and exchanges. Inefficient reverse logistics processes can also lead to higher transportation expenses, inventory holding costs and lost revenue from unsellable returned items.
Impact on Customer Satisfaction
If reverse logistics is not managed effectively by your business, your customers WILL notice. Whether it's long return processing times, difficulty getting refunds or the cost/time of shipping products back to the warehouse independently, poor return experiences mean poor post-purchase experiences, which have a measurable impact on customer loyalty. If the return process was full of frustration and difficulty getting the desired outcome, why would that customer want to shop with you again? While these opportunity costs might not be immediately visible, it does contribute to higher customer churn.
Processing and approving returns manually puts a lot of pressure on your customer support team, in addition to your warehouse team. If shoppers experience a lengthy wait between requesting a return and receiving a refund or exchange, customer satisfaction will plummet. Using a returns automation platform enables your business to enforce your chosen return policy automatically, without requiring a human to intervene. Customers simply need to provide their order number via an online portal on your website and can lodge return or exchange requests themselves. As well as boosting customer satisfaction with the return experience, self-service returns also free up your customer support team to manage more complex tasks.
Cost Implications
Returned merchandise became a significant, costly problem. In 2022, retailers processed $800 billion in returns, according to the National Retail Federation. Retailers may have felt compelled to accommodate free returns during the uncertainty of the pandemic. But, as conditions began to normalize, the majority of retailers have been quietly rewriting return policies with an eye on cost containment and deterrence.
By mid-2023, more than 81% of retailers were charging for at least one return method – and the numbers are expected to increase. This wide-spread strategy to curtail returns has paid off as 53% of retailers that implemented return fees saw a reduction in return rates. However, 48% have also seen a drop in average order value and in sales overall. If retailers are not offering free shipping, 39% of consumers would expect free returns to compensate.
In a Radial survey, three out of five retail executives reported that the biggest challenges they face in reverse logistics are the cost to repackage/restock (60%) and returned inventory that cannot be exchanged (60%). Additional challenges were maintaining healthy profit margins (43%), customers returning too much inventory without exchanging it (39%), and limited warehouse or storage space (14%). When asked what change they would make to the returns process to improve profitability, again, three out of five retail executives reported that they would streamline the returns process (61%) and offer shorter return windows (61%).
One study estimated that in 2022, returned inventory in the United States created 9.5 billion pounds of landfill waste and 24 million metric tons of carbon dioxide emissions.
Strategies for Efficient Returns
Reducing the costs of reverse logistics optimizes operational efficiency and enhances profitability. By implementing streamlined processes and innovative technologies, companies can minimize expenses associated with handling returns, repairs and exchanges. An effective cost reduction strategy in reverse logistics not only improves the bottom line but also improves the customer experience.
An exchange represents revenue that your business has managed to retain – as well as the continuation of the customer relationship – while a return represents revenue lost. By making an effort to encourage and incentivize your customers to exchange instead of return, you can minimize revenue losses and increase the likelihood of customers continuing to shop with your brand.
Analyzing returns data holds the key to solving the root causes of returns at your business. For example, if customers are consistently returning a particular sweatshirt due to problems with sizing, this is a key indication that you need to consider updating your size guide and include wording such as 'runs small' or 'oversized'. In doing this, customers can choose the right size accordingly and reduce returns at the source.
Brands that have built enough relational equity over time often get more chances to make a mistake, be forgiven, and make up for it. But not always. Reducing returns is less about containing costs and more about delivering a precise, positive customer experience. Consumers will not return items that fit their needs and desires. To reduce returns overall, brands need to focus time and attention on improving the customer experience. A better customer experience naturally leads to fewer returns.
Crafting a return policy to naturally hinder returns — even if the returns are free — will help reduce costs. The next step is to make sure your policy is clear, visible, and easy to understand. Retailers should regularly evaluate their transportation methods, policies, and costs. For reverse logistics, they can determine if trucks delivering products can also pick up returns. Discuss rate negotiations with carriers, as well. Anywhere the order fulfillment and reverse logistics processes can be integrated or shared in transportation will help reduce costs and speed up the time it takes for product to be restocked, replaced, refurbished, or recycled. Having a returns partner handle reverse logistics for you may be the most cost-effective way to reduce returns expenses without impeding on the customer experience.
Understocking and overstocking can both have severe consequences for an ecommerce business. Overstocking, or holding more inventory than necessary, may seem prudent to meet unexpected demand surges, but it often leads to significant financial strain. The capital tied up in excess inventory restricts cash flow, limiting investment in critical areas like marketing and product development. Additionally, the costs associated with storing surplus stock, such as warehousing, insurance, and maintenance, can quickly escalate, eroding profit margins.
Consequences of Overstocking
The implications of overstocking extend beyond financial metrics, encompassing operational inefficiencies and market responsiveness. As inventory levels swell, managing and tracking stock becomes increasingly complex, leading to potential errors in order fulfillment, delayed shipping times, and decreased customer satisfaction.
Risks of Understocking
On the other hand, understocking leads to stockouts, where demand exceeds supply, leaving businesses unable to fulfill customer orders. The immediate impact is lost sales, as customers often turn to competitors when they cannot find what they need. However, the long-term effects can be more damaging, including eroded customer trust and loyalty. Inventory shortages can also lead to increased operational costs as businesses scramble to expedite shipments or find alternative sources at higher prices.
Inventory Optimization Techniques
Achieving the right inventory balance is crucial for maintaining financial health, operational efficiency, and customer satisfaction. Businesses must leverage a combination of inventory forecasting, demand planning, and real-time data analysis to navigate the complexities of inventory management. Techniques like economic order quantity (EOQ), minimum order quantity (MOQ), ABC analysis, just-in-time (JIT) inventory management, safety stock inventory management, LIFO and FIFO costing methods, reorder point formula, batch tracking, consignment inventory, perpetual inventory management, dropshipping, lean manufacturing, Six Sigma, lean Six Sigma, demand forecasting, cross-docking, and bulk shipments can help optimize inventory levels.
Advanced inventory management software becomes indispensable, offering tools for better stock level optimization, automated reordering, and integrated analytics. Solutions like Pacvue, Sellbrite, and Extensiv (formerly Skubana) provide advertisers with the ability to manage and optimize their eCommerce campaigns, view inventory levels, forecast demand, and adjust inventory levels accordingly.
By accurately predicting demand through historical sales data, market trends, and consumer behavior analytics, businesses can align their inventory levels with expected sales, minimizing the risks of overstocking and understocking. Regular and accurate inventory counts, such as cycle counting, are also crucial for efficient inventory management.
Customer Expectations
Customer attitudes towards shipping speeds are critical, and consumers are notoriously impatient. If they've ordered something from you, they don't want to wait very long before it's in their hands. If you can't deliver what they want within the timeframe they want it, they'll go to another supplier who can meet their needs . According to a study, 7% of abandoned carts were abandoned when the estimated delivery time was three days or less from when the order was placed . This percentage increased to 15% for estimated delivery times of 4-5 days and 6-7 days, respectively . Nearly 40% of abandoned carts were abandoned when the estimated delivery time hit 8 days from when the order was placed . The takeaway is clear: Being slow to deliver goods will cost you sales.
Reducing your total order cycle time is one way of driving this number down and retaining customers, but your timeline will ultimately always be limited by the geographical space between you and your customers . The first step to staying competitive means being able to ship all orders the same day they are received . If your customer wants a package on their doorstep in less than 3 days, you are going to have to pay your package handler more money to get it there on time . However, customers don't like to pay extra fees for fast shipping:
according to a survey by Jupiter Media Matrix Inc., 63 percent of customers cite excessive shipping fees as a reason they have canceled a purchase . This means consumers don't want to pay any shipping fees, leaving supply chain executives in a predicament: Either pass the shipping fees on to customers and risk losing the sale, or eat the fees themselves and make less money (or even lose money) on the sale .
Though customers want their orders faster than ever before, they don't want to pay for that service . Luckily, many customers are willing to meet you in the middle: If one- or two-day shipping is too expensive for their tastes, many customers would like the option of picking up their order in person . This drives down shipping charges for both the retailer and the customer and speeds up delivery time . In a sense, this forces all e-commerce and retail companies to become omni-channel, and there is a lot of groundwork that has to be done to make this option a reality . But regardless of the work that it entails, omni-channel delivery is becoming increasingly necessary.
Packaging Considerations
Packaging is often the first in-person interaction your customers have with your brand — it's crucial to make sure it's a great first impression . Custom packaging helps you make a great first impression, stay memorable, generate buzz, and build brand loyalty . However, the Environmental Protection Agency estimates that packaging makes up one-third of all household waste . As ecommerce sales continue to rise, so will the waste they produce. Your business can help reverse this effect by choosing ecommerce shipping solutions and packaging options that are good for the planet and your business .
Shipping Options and Costs
Today, online shoppers want fast, cheap (or free) shipping options . This growing demand in customer delivery expectations has increased competition in the ecommerce space as retailers try to find expedited shipping at low cost . Offering free or low-cost shipping will help retailers realize higher conversion rates . Giving buyers more control over their delivery timings means they will be more likely to shop online, helping retailers increase conversions and sales . A retailer providing faster delivery and multiple shipping options at low cost has a real chance to stand out from the competition .
Giving customers more control over deliveries, like the ability to correct a wrong address or reroute a package to a more convenient address, will decrease instances of failed delivery attempts and improve the overall delivery experience . One way to manage consumer delivery expectations is to offer multiple shipping options such as same-day, next-day, two-day, and standard shipping . This gives them more control over the delivery speed and price at which they want their packages delivered.
You can also manage consumer delivery expectations by offering free shipping over a certain spend, as buyers will not expect very speedy deliveries with free shipping and will likely be willing to wait for an extra day or two to receive their package .
Using time and price delivery incentives is another excellent way to manage consumer delivery expectations, especially during the holidays . For the sake of customers' convenience, you should display delivery timelines and prices at checkout so they can choose the most appropriate shipping option .
This will help them know what to expect before they make the purchase. Another way to manage consumer delivery expectations is to share tracking information through automated messages so they can see where their package is and when it will be arriving . This will help mitigate any anxiety on the customer's side and reduce pressure on your customer service team. Displaying cut-off times for each shipping option is also a great way to manage consumer delivery expectations .
Let your buyers know the latest they can make orders to get faster delivery times for same-day, next-day, or overnight shipping. Shipping labels provide shipping carriers with important information about the origin and destination of your package . Without clear shipping labels, your customers' orders could be lost, delayed, or mishandled, creating a negative customer experience, damaging brand loyalty, and ultimately losing sales .
Shipping insurance offers reimbursement to senders whose parcels are lost, stolen, and/or damaged in transit . If you're shipping fragile items or very expensive products, you may want to look into shipping insurance, which can significantly increase your shipping cost.
Returns can be a huge headache for ecommerce businesses, but having the right ecommerce returns process in place pays off: 95% of shoppers who are happy with the returns process said they'll purchase from the same retailer again . However, shoppers who are unhappy with the returns process are 3x more likely to never purchase from that retailer again .
Importance of Data Connectivity
E-commerce logistics software tools are specialized applications designed to manage and optimize the logistics and supply chain operations of online businesses. These tools are critical in a brand's technology stack as they streamline the entire process from order fulfillment to delivery, ensuring efficiency and customer satisfaction.
Navigating the complex world of logistics software can be a daunting task, especially when looking for solutions that seamlessly integrate with e-commerce platforms. As e-commerce continues to grow, the need for efficient and reliable logistics management becomes increasingly critical.
Benefits of Integrated Systems
Integrating e-commerce logistics software with other tools in a company's tech stack brings numerous benefits. Integration with e-commerce platforms like Shopify or WooCommerce ensures seamless synchronization of sales and inventory data.
The right software can make all the difference in handling inventory, processing orders, and ensuring timely delivery, which are essential components of a successful online business. Understanding the key features that facilitate integration and the benefits they bring is vital for making an informed decision.
With integrated order management, you have better control over your inventory. Being able to know at all times how much of a product you have, or need, means there is no longer any guesswork involved in the order process. Furthermore, your different teams can keep better track of your available products and the orders coming in to ensure everything is fulfilled appropriately.
Managing multiple sales channels with different software solutions and data sources can quickly lead to errors. An integrated order management system puts everything in one place, allowing you to synchronize the data from all channels and compare them in real time. This allows you to know how each channel is doing, what marketing efforts are proving more effective, and gives you the data you need to shape your sales strategies.
With standard systems and manual processes, it's hard to be up-to-date on all aspects of your business. An integrated order management system can provide real-time data on all aspects of your business, from inventory to sales and distribution. You don't have to worry about blind spots. Digitizing your documents not only saves you time and space, but also allows access to critical information at all times from any system connected to your software. Digitization increases the security of your information and saves on costs related to producing and storing paper documents.
By automating your order processing system and inventory management, you can offer an updated look at the status of your orders. This makes it easier for your teams to work on each order and allows customers to know where they stand on theirs. Your customer service efforts will be more effective with real data to pull from, and your customers will be more satisfied overall. With updated inventory, your customers won't be left guessing whether a product is available or when it will be on stock.
They also don't have to guess when their package will arrive or wait around for it, thanks to real-time status of their orders. Being able to synchronize all your sales channels means you'll give your clients more options to choose from, making their lives much simpler.
Errors with orders and inventory happen due to two things: human mistakes and lack of information. An order management system fixes both of those. Your inventory data will be constantly updated so you don't make any decisions based on incorrect information, and the system works automatically which drastically reduces the chance for errors from human input.
In sales, information is power–and with an integrated order management system, you'll have all the information you need. Your sales channels can be monitored from one place to coordinate your efforts cohesively.
You'll know exactly what marketing efforts are working effectively, and which ones aren't. What is selling, and what isn't. Plus, your sales team will have updated inventory information that allows them to adapt their sales strategies and confidently approach potential customers knowing what they can offer. A business where all channels have access to the same data–and where that data is constantly updated live–is one that runs smooth as silk. With an order management solution, ecommerce operations will be easier than ever before. It simplifies your order and inventory management, and keeps your customers updated and happy.
Tools for Seamless Integration
Key components and features of e-commerce logistics software include inventory management, which keeps track of stock levels in real-time, preventing overstocking or stockouts. Order management systems efficiently process orders, integrating sales channels and fulfillment processes. Shipping and carrier integration functionalities allow for the selection of optimal shipping methods, automatic generation of shipping labels, and tracking of shipments.
Additionally, these tools often include warehouse management features, enabling efficient storage, picking, packing, and dispatching of products. Returns management is another crucial aspect, simplifying the process of handling returns and exchanges, which is vital for customer service and satisfaction.
Order Management Systems (OMS) centralize and automate order processing, integrating orders from different sales channels and managing them through a single platform.
Inventory Management Systems focus on tracking and managing stock levels across multiple warehouses or locations, ensuring optimal inventory levels are maintained to meet customer demand without overstocking.
Warehouse Management Systems (WMS) are specialized software for managing warehouse operations, including stock storage, order picking and packing, and inventory audits.
Shipping and Fulfillment Software streamline the shipping process, offering features like carrier integration, rate comparison, label printing, and tracking of shipments.
Returns Management Systems are designed to handle the returns process efficiently, managing return requests, processing refunds or exchanges, and restocking returned items.
Since the order processing software is tied to QuickBooks, the sales rep has instant access to all important customer account information. They do not have to make phone calls to office staff when on a sales call. Rather than spending time navigating the labyrinth of paperwork, your sales team can focus on providing best quality of service to your customers with all the information regarding their account at the sales rep's fingertips online.
Automatic integration between quality order processing software and your QuickBooks account reduces the time necessary for manual entry and also reduces the need for management controls to check the manual data entry. With automatic integration between order processing software and your business accounting and warehouse management systems, you significantly reduce the opportunity for data errors, data loss and data security breaches because the data passes through fewer hands. With a customer portal for tracking and reviewing orders online, you reduce the opportunity for misunderstandings between you and your customers.
A good order processing system will give you the ability to easily send orders straight to your warehouse without needing to rekey the order. With this ability you are able to reduce errors, decrease warehouse costs and increase order to ship time. Customers and sales reps are also able to see shipping confirmations and tracking info in real time.
Signs It's Time to Outsource
Nearly all ecommerce businesses begin with an in-house fulfillment process, with most outsourcing it once they have scaled to a certain point. Slipping delivery standards is probably the best indication that it's time to outsource fulfillment, as a large number of customers will not return to your store following a poor delivery experience. If building a loyal customer base is the goal, you should consider outsourcing options before standards are drastically affected and customers experience late or incorrect deliveries.
Outsourced order fulfillment partners such as 3PLs providers will have the knowledge, staff, and space to deal with an increase in order volume as you grow or seasonal trends kick in, ensuring correct and timely deliveries to keep customers happy and loyal. Logistics issues are also one of the most common factors in basket abandonment, so streamlining fulfillment processes through outsourcing can help reduce basket abandonment rates by enabling cost savings that can offset a free shipping option.
If your conversion rate is low despite efforts like reducing prices, offering free delivery, and sending basket abandonment emails, you may be missing the impact of logistics on your success. Outsourcing to a provider who can enable fast, economical shipping can help avoid this issue. As your business grows, overall warehousing, staffing, shipping, and packaging costs also increase, making outsourcing fulfillment a way to save money that can be reinvested or added to profits.
Managing multiple sales channels, increased order numbers, and ramped-up marketing activities is time-consuming, and trying to manage fulfillment as well can distract you from these important tasks, especially when fulfilling more orders. Outsourcing fulfillment takes this stress and time off your plate, allowing you to focus on expansion plans. As orders mount up, handling them in-house becomes trickier, resulting in missed deadlines, overworked staff, and poor standards.
Having enough space to hold more stock that comes with an increase in orders is another common problem for growing ecommerce retailers yet to outsource fulfillment. Fulfillment providers have multiple warehouses across the country, allowing you to expand your delivery locations without incurring additional warehouse costs. Growth also generally requires employing additional temporary and permanent employees, a cost and hassle you can avoid through outsourcing.
If you are not able to offer tight delivery turnarounds with in-house fulfillment, it may be time to look at outsourcing, as fulfillment partners have the technology and knowledge to meet tight delivery timelines regardless of volume. The efficiency of outsourcing can also enable savings that can offset the cost of free deliveries. If your current fulfillment process involves a complicated combination of different services and partners, outsourcing can help unify your processes and achieve cost savings, increased efficiency, and consistency across marketplaces, especially useful for multi-channel ecommerce businesses.
If your day is spent performing several tasks in the order fulfillment process, it may be time to consider outsourcing and getting back to managing your business while a partner handles the shipping process, allowing you to invest time and attention back into growing your business.
Benefits of Third-Party Logistics
A third-party logistics provider (3PL) can be a valuable asset for your business, helping increase efficiency, reduce costs, and deliver a strong customer experience. Outsourcing logistics to a 3PL allows you to focus internal initiatives on high-level activities like sales and marketing while the 3PL ensures your supply chain management needs are carried out seamlessly.
The right fulfillment partner will have extensive experience providing omnichannel solutions focused on bolstering customer loyalty and retention. Customization is also imperative for driving brand awareness, so look for a 3PL that offers custom packaging and inserts to create a sense of personalization and positive customer experience.
A good 3PL partner will focus on building a thriving relationship with your business, ensuring your goals and challenges are actively discussed and incorporated into your strategy. They will value communication and work quickly to resolve any issues that may arise. A forward-thinking 3PL provider will understand the importance of technology in handling logistics complexities and optimizing the supply chain. Look for a partner that harnesses data and automation to streamline and improve your fulfillment and logistics processes and can easily integrate with your current technology stack to ensure visibility and cohesiveness.
The right 3PL partner will have systems in place to help you scale more quickly while minimizing growing pains. As your sales increase, they should be able to easily increase the volume of products managed during warehousing and fulfillment, and have warehousing locations to accommodate expansion into new markets. It's vital to look for a 3PL with robust security systems to protect sensitive data and financial information, and the ability to provide data security certifications.
A 3PL with a reputation for accuracy across the supply chain, from order placement and inventory management to picking/packing and shipping, with at least a 99% inventory and order accuracy rate, is essential for driving repeat business and customer loyalty.
Choosing the Right 3PL Partner
While the benefits of 3PL fulfillment are advantageous for various businesses, outsourcing logistics isn't suitable for every company, so it's important to fully understand how partnering with a 3PL can improve your supply chain. When evaluating 3PL logistics services, consider whether it could be for certain aspects of your operations or all your fulfillment processes.
3PLs can help reduce the cost per order compared to internally managed operations by aggregating numerous clients into a single facility and investing in greater technology and automation that may exceed what a single business could do on its own. They can also lower capital investment by eliminating the need to invest in new or upgraded warehouse facilities, warehouse management systems, and automation. Using 3PL services allows you to change fixed costs to variable costs that rise and fall with volumes processed, unlike internal fulfillment where over 50% of costs are fixed investments in facilities, material handling, conveyance, and IT systems.
3PLs can reduce time-to-customer and shipping costs by having strategic locations across the US, allowing small to mid-sized retailers to benefit from the reach of large retailers like Amazon, Walmart, and Target in delivering in two days or less. They provide scale at peak times, efficiently handling holiday peaks and expanding distribution capabilities needed to meet strategic plans, addressing challenges like recruiting, hiring, training peak staff, and addressing greater capacity needs that internal fulfillment often faces during peaks.
Partnering with a 3PL allows companies to concentrate management's time on core competencies like marketing, merchandising, and ecommerce analysis, which some companies leverage 3PLs for to avoid distractions from responsibilities like supply chain management that aren't their core competency.
Typically, there are two main reasons why companies start searching for a new 3PL partner: operational challenges, where certain logistics operations like warehousing, order fulfillment, or inventory management are not running smoothly, leading to issues with customer conversion rates, on-time delivery performance, inventory turnover, operating margins, or other critical KPIs; or business changes due to growth, expansion into new markets or product lines, or business model shifts. When these structural changes occur, you may need to add capacity or capabilities to meet your evolving business needs, signaling it's time to engage a new 3PL provider.
There are two types of 3PLs: traditional and more flexible. Depending on your business needs and goals, you may find that one type or a combination of both traditional and flexible 3PL providers is a better fit. For example, engaging Amazon Multi-Channel Fulfillment (MCF) as your 3PL gives you access to Amazon's world-class global logistics network across 27 countries with over 2,000 facilities, including more than 200 fulfillment centers, 120,000 trucks, vans, and planes, and 1,275,000 associates and partners to fuel the growth of your ecommerce business across various sales channels.
On the technology front, ensure the systems your 3PL uses can be easily and effectively integrated with your order management, enterprise resource planning (ERP), and other systems. Some 3PLs like MCF offer free-to-use integrator apps and other integrations that can swiftly and seamlessly connect the back-end systems you and your 3PL use.
Think long-term when choosing a 3PL, selecting a provider that can not only help you conquer current logistics challenges but also will be able to help your business scale in the future. Many ecommerce businesses partner with multiple 3PLs, although some opt to work with only one provider. Given the supply chain challenges and volatility seen in recent years, having a flexible 3PL partner that can consistently provide flexible, first-class logistics services regardless of supply and demand conditions is paramount.
Although price is an important factor, focus on which 3PL provider will drive the most value for your customers, as the legendary investor Warren Buffett said, "Price is what you pay. Value is what you get" – wise words that hold true when it comes to 3PLs. Choose the 3PL you believe can truly help you delight your customers and drive business growth.
Conclusion
To wrap up, efficient order processing is crucial for e-commerce success. By avoiding common pitfalls like neglecting reverse logistics, poor inventory management, subpar shipping experiences, lack of system integration, and delayed outsourcing decisions, businesses can streamline operations and boost customer satisfaction. These improvements have a positive impact on the bottom line and help build brand loyalty.
In the end, staying ahead in the competitive e-commerce landscape requires constant attention to logistics and fulfillment processes. By addressing these key areas, companies can create a strong foundation for growth, making it easier to scale operations and meet evolving customer expectations. Ultimately, mastering these aspects of e-commerce logistics puts businesses in a better position to thrive in the ever-changing online marketplace.