The Importance Of Ecommerce Distribution Center For Retail In Today's Online Landscape

In the fast-paced world of ecommerce, traditional warehousing may not provide the speed and efficiency you need to compete with other fast-shipping online brands. As your business grows, the complexity of order fulfillment and managing supply chains at scale may also become a burden.

Distribution centers managed by third-party logistics (3PL) companies have become increasingly popular among ecommerce businesses. These specialized facilities are rapidly replacing traditional warehouses with their focus on agile logistics.

This article will explore the numerous benefits of using distribution centers to help your ecommerce business achieve its goals.

We also touch on Ecommerce distribution in general, presenting a broad look at it alongside some of its challenges.

WHAT IS ECOMMERCE DISTRIBUTION?

Before we dive into distribution centres, a broad look at Ecommerce distribution may help to add a wider context.

In general, Ecommerce distribution is the term used to discuss the methods and strategies used to ship and transport products from a distribution centre to the customer.

It includes everything from warehouse ordering to delivery to the customers - returns also fall under the umbrella of Ecommerce distribution.

Many retailers work with third parties like SEKO to reliably handle distribution through their wide knowledge of logistics. Others choose to manage distribution in-house.

WHAT IS AN ECOMMERCE DISTRIBUTION CENTER?

An ecommerce distribution center is a specialized warehouse with fast and efficient order fulfillment processes. This type of storage facility may also be called a fulfillment center. An ecommerce distribution center is the central hub for your order fulfillment process in a specific geographic location.

WHY ARE DISTRIBUTION CENTERS IMPORTANT FOR ECOMMERCE?

Third-party logistics (3PL) companies use these strategically placed distribution centers to speed up delivery and reduce transportation costs. The decentralization of inventory puts your products near the “last mile” of delivery in primary markets, making it easier to offer faster shipping options to more customers.  You can also use ecommerce distribution centers to expand into new territories. With products on hand near untapped markets, you can start advertising in these locations to drive sales.

WHAT IS THE DIFFERENCE BETWEEN DISTRIBUTION CENTERS AND WAREHOUSES?

Distribution centers and warehouses are both storage facilities that fulfill orders, but with some key differences. See the table below.

WHAT ARE THE BENEFITS OF USING A DISTRIBUTION CENTER FOR YOUR ECOMMERCE BUSINESS?

Outsourcing your warehousing and order fulfillment to a third-party logistics (3PL) provider gives you access to a network of distribution centers. While your 3PL runs your supply chains with maximum efficiency, you can focus on sales, marketing, and designing new products. Imagine how much free time you’ll have when you offload order fulfillment to seasoned professionals. Here are more ways an ecommerce distribution center can benefit your business.

COST-EFFECTIVE SHIPPING

Ecommerce distribution centers consolidate shipments to make routes more efficient. Their high shipping volume also allows them to negotiate lower rates with carriers. These strategies help reduce transportation costs resulting in cost-effective shipping.

ADVANCED INVENTORY MANAGEMENT

Avoiding out-of-stock items is crucial to prevent lost sales and poor customer experiences. Ecommerce distribution centers use inventory management software to track real-time product availability. This technology helps your business maintain sufficient inventory levels and respond to changes in demand.

FASTER DELIVERY TIMES

According to Statista, more than 40 percent of US consumers expected their online delivery to take two to three days. Distribution centers located near major markets help you reduce delivery times and associated costs. For example, SEKO Logistics offers True Next-day Delivery to the US, UK, and Australia. Offering next-day shipping can help you attract more customers looking for on-demand services.

SIMPLE RETURNS PROCESS

A report by IMRG states that a quarter of all consumers return between five  and 15 percent of the items they buy online. Designing a simple returns and exchanges policy is one of the best ways to keep your customer engaged long enough to build brand loyalty. This is especially true if you operate an online fashion brand where the return rate is 26 percent of online purchases. An ecommerce distribution center has the systems to handle returns and exchanges with speed and efficiency.

PLAN FOR FUTURE DEMAND

Adapting quickly to changes in demand without compromising your logistics helps you capitalize on new business opportunities. Ecommerce distribution services provide flexibility to grow your business without additional physical locations or designing elaborate supply chains. The best third-party logistics (3PL) providers make it simple to scale warehousing and order fulfillment to your new markets.

IMPROVED CUSTOMER SERVICE

Ecommerce distribution centers have highly trained staff specializing in shipping, handling returns, and customer service. This level of support helps customers get quick and effective solutions to their problems. Distribution centers often use advanced technology and inventory management techniques to process orders efficiently and accurately. Their use of technology can lead to faster shipping times and fewer errors. Some distribution centers provide 24/7 support to ensure customers receive prompt assistance anytime.

HOW HAS THE GROWTH OF ECOMMERCE IMPACTED THE NEED FOR DISTRIBUTION CENTERS?

Ecommerce has shifted away from in-store sales to an increasing number of products shipped directly to consumers. Some third-party logistics (3PL) companies transformed their traditional warehouses into distribution centers to meet the growing demand for direct-to-consumer sales. Traditional warehouses aren’t fully equipped to handle the order processing speeds required for ecommerce. 

Before this direct-to-consumer shift, traditional warehouses would store various products in one bulk shipment and deliver the goods to a physical retail location. Then, the retailer would sort and display products in their store. Now, 3PLs store retailers' products as individual inventory units in distribution centers.

The increased number of inventory units leads to a phenomenon known as “SKU Proliferation” and requires specialized picking, packing, and shipping processes. Sophisticated 3PLs use in-house technologies to handle the high volume of SKUs and create a smooth order fulfillment process. 

To gain a competitive advantage, some online retailers have tried to improve their “Fulfillment Responsiveness” with physical retail stores acting as small warehouse fulfillment centers. These "Dark Stores" are usually located closer to their customers in congested urban areas and help with faster delivery.

HOW DO ECOMMERCE DISTRIBUTION CENTERS HELP BUSINESSES MANAGE INVENTORY AND STREAMLINE FULFILLMENT PROCESSES?

Technology and automation play a central role in helping third-party logistics (3PL) companies optimize their distribution centers for ecommerce. These technologies require a heavy investment, ongoing maintenance, and continuous innovation to stay ahead of the curve. 

Partnering with a tech-savvy 3PL ensures your business always has access to the latest logistics technology while saving you from the high costs of software development. Take a look below to learn more about how distribution centers optimize the fulfillment process and enhance inventory management.

• Inventory Management Systems: Barcodes and RFID chips help provide real-time tracking of inventory levels to ensure product availability.
• Automation Technologies: Conveyor systems, automated storage, sorting machines, and robotics help reduce labor costs and streamline operations.
• Fast & Accurate Order Fulfillment: Automation technologies help reduce the risk of errors and speed up fulfillment processing.
• Warehouse Management Systems: These systems help distribution centers manage the movement of products—from receiving, storing picking, and shipping. 
• Efficient Layouts: An ecommerce distribution center uses strategic layouts to minimize the time and distance required to move products from one location to another.
• Transportation Management Systems: These systems optimize delivery routes and carrier selection to make transportation more cost-effective.

SEKO has developed best-in-class software solutions to help your business achieve the highest level of operational efficiency. These platforms include MySEKO, SEKO 360, and SEKO IMS. To learn more about these industry-leading technologies, please visit this page: SEKO’s Specialist Technology Systems.

HOW DO ECOMMERCE DISTRIBUTION CENTERS CONTRIBUTE TO THE OVERALL CUSTOMER EXPERIENCE FOR ONLINE SHOPPERS?

It’s not enough to have a great product. Your company needs to create a memorable customer experience. An ecommerce distribution solution provides many value-added services to help you achieve this goal. Below are some of the services you can use to your advantage.

• More Shipping Options: Offer expedited shipping, same-day delivery, and curbside pickup to cater to the different needs of your customers.
• Order Tracking: Technologies like automated order tracking and email notifications inform customers of estimated delivery times.
• Returns & Exchanges: A convenient returns policy makes it easier for customers to engage with your business and develop a strong relationship.
• Customer Support: Some ecommerce fulfillment centers provide customer support 24/7/365 to resolve any issues your business or customers may encounter.

WHAT IS THE ECOMMERCE DISTRIBUTION PROCESS?

Before we finish, we’ll touch more on the Ecommerce distribution process which is generally made up of four steps:

1. Order Management

Order management plays a pivotal role in all orders. It begins when an order is placed online, and ends when the package is delivered - unless a return is involved).

Order management includes, but isn’t limited to elements such as:

• Receiving the order

• Accepting payment

• Providing an email receipt

• Passing the order to the warehouse

• Preparing the order to be shipped

• Tracking the order

• Managing customer expectations

2. Shipping

Shipping can be an exceptionally complex process, where Ecommerce distribution centres play a key role. 

Large and enterprise-level businesses will often not send deliveries directly to the customer, but to an Ecommerce distribution centre. These centres are in the general area of the customer and allow for internal sorting and delivery routes to be set.

3. Last Mile Delivery

How the package arrives at the customer’s doorstep is often the most expensive and most difficult part of the delivery process to plan for - This is last mile delivery.

Finding an efficient route for last mile delivery is tough, and often businesses rely on software to help with planning.

4. Returns Management

Facilitating customer returns is the fourth and final step in Ecommerce distribution, and it plays a much larger role than you might expect. In fact, at least 30% of all products ordered online are returned.

Therefore, having a system that can manage customer returns both in shipping and inventory management is essential.

Not only is returns management incredibly important for maintaining a strong customer relationship, but it will also help to build your brand. Having an effective returns policy is vital in assuring this and in today’s world of Ecommerce, should be a priority.

Challenges with Ecommerce distribution

Ecommerce distribution centres are incredibly effective in helping to create a stronger customer experience, but what challenges may face businesses who rely on Ecommerce distribution as a part of their business model?

1. Shipping and Delivery

It can be extremely complex to manage deliveries cost-effectively while still ensuring their on-time arrival.

If you have clients who require tight turnarounds, you may run into issues like increased shipping costs.

When dealing with multiple distribution channels, this can compound and become extremely challenging.

2. Inventory Management

Managing inventory can be an exceptional challenge, particularly with Ecommerce distribution networks that may require rapid restocks and lots of storage space.

3. Managing returns

If you are unable to effectively manage returns, you may find that operational costs increase and inventory management becomes much more difficult to keep up with.

Having a smooth returns process in place is vital for avoiding difficulties.

4. Operations scaling

Business growth with Ecommerce can often be fast and relentless, and a broad distribution network can exacerbate issues that naturally come with scaling.

Be prepared to invest in logistical tools and infrastructures like Ecommerce distribution warehouses, alongside new technologies to handle that distribution.

You should consider this for both direct and indirect distribution channels if you wish to manage scaling.

5. Regulations and Compliance

If you fail to remain compliant with shipping regulations, you may face penalties, and delays are almost always assured.

It can be especially complex to navigate regulations and compliances, though, especially if your Ecommerce distribution network requires you to ship from and to international markets.

Be sure to thoroughly understand the regulations for the markets you’re shipping to. If you’re working with a third-party logistics expert like SEKO, be sure to ask after regulations and compliances if you have concerns.

6. Meeting Customer Expectations

Customers expect a lot from Ecommerce businesses - from fast deliveries to exceptional customer service. Balancing these expectations can be extremely challenging, and robust processes and systems are required to keep customers happy.

Consider how you might manage expectations across both direct and indirect distribution channels.

WHY HIRE SEKO FOR ECOMMERCE DISTRIBUTION CENTER SERVICES?

SEKO offers various solutions to help your business optimize its supply chains and improve the customer experience. Some of the best businesses in the world trust SEKO to provide fast and reliable order fulfillment services.

We take a client-first approach to understand your needs and design effective solutions around them. Choose SEKO as your 3PL and become a member of our thriving business community. 

• Over 40 Years of Expertise: SEKO has provided businesses of all sizes with first-class logistics solutions for decades. We’re here to help you navigate the complex world of ecommerce logistics.
• Advanced Technologies: SEKO has developed best-in-class software solutions that integrate with the most popular ecommerce platforms to give you complete visibility into your supply chains. These technologies also help enhance your fulfillment process for fast and efficient delivery.
• Global Reach: With our expertise in international shipping, currency exchange, and customs regulations, your global expansion will be a simple process. Our 15 multi-channel distribution centers located across 60 countries allows us to provide you with end-to-end global logistics. 
• Quality Customer Service: SEKO is committed to providing exceptional customer service. Our dedicated team of experts can answer your questions and provide support. We’re committed to giving you the highest care and attention.

Read this case study to learn how SEKO secured a US distribution center for Canyon Bicycles and gave them access to American buyers.