If you are a D2C brand wanting to be successful in the new era of commerce, you have to have a 360 view of your business - a strategic, commercial, and operational point of view.
The operational aspect, that being logistics, is like the glue that keeps it all together in the background. Yet, often it doesn't seem to be talked about enough. Shopify stated that the average online retailer spends 11% of their turnover on logistics and 53% have expressed it being a significantly challenging part of their business.
Where do logistics challenges come from and what opportunities could D2C brands be looking at to optimise their operations so that they can focus on the core of their business?
Woolman’s expert, Matias Toukonen, answers these burning questions in an interview.
Listen to the audio version
Jacinda (Content Producer): Would you like to shortly talk about your background?
Matias (D2C Strategist): Sure. So I've been working in and around e-commerce for 15 years now, ranging from big eCommerce houses to smaller startup projects. And also the last couple of years, I was involved in an eCommerce logistics company, so I've been for a while now.
Jacinda: Logistics pose a significant challenge. There's been crisis situations such as the pandemic, the war in Ukraine, and this has caused a huge disruption in the global trading system. The worldwide supply chain is of course experiencing issues and delays and increased freight rates because of this. How has handling the logistics changed from the past to what it is now and how it's affecting businesses?
Matias: As you said, going from the pandemic to the war and the energy crisis now, logistics has of course been heavily affected, supply chain challenges, fuel surcharges, and customer behaviour. So all of this naturally affects not only eCommerce, but businesses and life in general.
It's good to remember that we're all in this together. For many eCommerce businesses, the pandemic was a period of huge, huge growth, but at the same time, manufacturing bottlenecks became a real issue. So there was some issue with supply. At the same time, due to rapidly increasing eCommerce volumes, some last mile companies could experience issues in overwhelming amounts of parcels.
Some even added covid surcharges to their pricing. So, this also opened up opportunities for new players in the last mile landscape, which is not at all so negative for merchants and customers. As the world then opened up, the big pandemic that fueled the growth slowed down a bit and at the same time, manufacturing bottlenecks around the world started to be sorted out.
So supply normalized, but then demand started to slow down a bit. Then of course this year bought a very, very unwelcome challenge in the form of the invasion of Ukraine, as you said, and all the effects that it has had. So at a very rapid rate, we saw last mile carriers, increasing their fuel surcharge dramatically. Many ecom businesses had to react very fast as the costs went up, both for the incoming goods and the last mile pricing. So, I would say keeping track of your costs and your numbers is essential in this period that we are living right now. Also the ability to act fast is very important.
Transparency towards your customer is always a good idea. Everyone understands the challenges that we're facing right now and I would also add that in uncertain times as these, the stock management becomes very crucial. So having control over your purchasing, your restocking and trying to estimate that demand becomes very, very important as well.
Jacinda: Logistics seems kind of like this big puzzle, I suppose there's so many different elements to it and if one thing is delayed, it affects a lot of other things. So how would you see as the best way to optimize your logistics?
Matias: Keep track of your numbers and keep track of your partners as well. Work with partners you can trust whether it be the 3PL partners you may be working with, but, but really, really keep track of your numbers.
Jacinda: So when there are these type of issues, what are some sort of options like delivery options, for example, that businesses need to change and does this have an effect on their revenue?
Matias: As as mentioned, the first and most pressing issue for most companies is that the costs goes way up and someone is always paying for higher costs, whether it be the supplier or the merchant’s ecom business. Ultimately, of course, the customer is paying for either higher product prices or shipping prices. Some product segments maybe have more flexibility in their margins and how you react here is ultimately a business decision. But you need to keep a clear eye on your costs, your numbers, and be fast to react.
Changes in demand for your goods brings, of course, its own challenges in balancing your inventory levels, making sure you don't overstock. It's never a good idea, but especially right now. So balancing the cost of incoming goods with your sales can create a cash flow issue as well.
Jacinda: Coming to the point of overstocking, why do businesses even run to into that problem in the first place?
Matias: First, during the pandemic there were very big issues with supply change and the manufacturing pieces. So things were not available for the merchants to buy, and the demand was very, very high. So now we see this rebound effect where suddenly the demand actually slowing down, but then supply is coming back to normal.
So, now we see merchants stocking items as they become available, but then they're left with overstock. In uncertain times like these it really calls for good analytics tools to really keep track of the demand and try to forecast the demand.
Try to look at stuff like slimming down your product range.
Jacinda: For newer brands though, who are starting a direct to consumer operation. They're not familiar with handling logistics themselves in an eCommerce store. You mentioned already about those third party logistic partners that are available. So would you have any advice for those brands when considering a partner? Or should you even outsource this?
Matias: So, let's try to unpack it a bit. I mean, generally when speaking of e-com logistics, first, we should realize that logistics has a big, big impact on your customer experience.So whether it be the speed and accuracy of going from order to fulfillment, to delivery options while delivering your checkout, or your returns process, it can all make or break your customer experience. So this is also why you should choose your partners well. In most cases, you're giving up control of your customer experience to a third party and that can be scary as well. So, so you need to find a partner which you can trust.
When and if to outsource, it's a great question. That may vary depending on your business case and goals. For smaller companies that are just starting out their income journey and doesn't plan to grow fast, it might make sense to handle your picking and packing yourself at the beginning.
It's also a great way of learning and understanding that part of your business. Very soon though, once you begin to scale up, you want to turn to a third party logistics partner. If you're a traditional big brand exploring the world of D2C, for example, you might be use to business logistics, meaning you move big bulk quarters to your reseller network, then outsourcing your logistics straight from the beginning makes a lot of sense.
Of course some brands might want to explore handling it themselves if they have resources in place or if the products require it. For example, you have some customized or personalized stuff that needs to be dealt with in the manufacturing phase. In most cases, outsourcing is the way to go because, you know, eCommerce logistics is by nature a very high tempo business. So you are dealing with typically smaller sized orders than you're used to and also the last MA shipping options are mostly much better if you partner up with a 3PL provider.
Jacinda: Are there partners that are able to deal with customization requests?
Matias: Yeah, it's a great addition because you should make sure that your business matches their profile. Some might be able to handle customized products as well. Some may be specialized in clothing products or beauty products. So, pay attention to these sort of things because you wanna find that perfect match for you. I would also say that pay attention to the assortment of last mile shipping options available to your potential partner.
Many 3PL companies offer very good prices, several different last miles, since they have been able to negotiate a good discount because of larger volumes. I would also very much consider your target market here. What is geographically the best place for your 3PL partner? Some operate with satellite warehouses around the world even, or in some region.
The market knowhow and the proximity to your end customer is very, very important. I would also urge everyone to really keep an eye on what sort of warehouse management system the 3PL operates. You wanna have that robust, modern warehouse management system that works with your e-com platform, and the integration is in place and if there are issues, support is in place, you don't want broken integration standing in the way of developing and scaling your business.
Remember that working well together with your 3PL partner is a two-way partnership. We mentioned how forecasting is very important for your business. I would say even more important, even for the 3PL partner, as they need to take into account the amount of warehouse space and workforce required on peak seasons etc. So having that two-way dialogue in terms of forecasting is very, very important to make it successful as well.
Jacinda: When you mentioned forecasting with business intelligence tools, Artificial intelligence has definitely developed in the last few years. Do you have any knowledge on that and how that helped to optimize the whole logistics for businesses?
Matias: Yeah, for sure. I think the software side of the business has developed quite much during the years and for merchants, there are some, some very handy tools available.For example, in the Shopify ecosystem, for example, Woolman has their own Ellis platform just for tackling these sort of issues with forecasting, for example. So, really pay attention to that as well and then try to use those and leverage those to be able to forecast better.
Jacinda: You've also talked about the importance of thinking about the customer experience when it comes to logistics, and of course, if you outsource your logistics, you somewhat lose control or some of the control of your business. So is there anything that the brand can still do on the storefront to just maximise a positive experience for the customer?
Matias: Yeah, it's a great topic. I think customer experience is still on the top of the econ food chain, so to speak. There are few things I would highlight here. First of all, don't promise too much regarding delivery times. You should know them and track them and, promise something that you can keep so you don't end up with the negative reviews and negative customer experience.
I would also say that you should clearly communicate delivery methods and shipping times also early on than only in the checkout. It creates more trust. You can communicate it, for example, on the first page or even on the product page. We already touched upon that, but at least offer a couple of different delivery options. They can vary in pricing and speed, but the main thing is that the customer gets to choose what works best for them. We, for example, saw a study in Sweden just recently where 37% of customers said that they abandon their purchase if they don't find the delivery options that they like.
Also note that there might be differences and preferences on different markets. In Finland, for example, we generally love pick-up point deliveries. Customers also of course demand sustainable options. So, all of this has a big impact on your customer experience.
I would also highlight that you should keep your customer updated regarding fulfillment and shipping status. Keeping that customer journey intact by notifying your customer when the order is fulfilled and shipped and you add the tracking number there. Status update emails are also a great way of building better customer experience. You can let your brands tone of voice shine through there.
Jacinda: I just remembered, I once ordered these pillow cases and they sent me this long email where they were making it like this fun story that they had put the pillows in a golden box and sealed it with a ribbon and sent it on a fancy airplane to ship it off. Obviously it was a joke, but I still remember it to this day. It was a a positive experience.
What about the sustainability aspect? Theres this kind of paradox where people also want free delivery, fast delivery. Is there a way you can maybe as a business align those two? Because sustainability is just gonna keep growing and becoming an important for businesses. Of course you also wanna keep your customers happy.
Matias: Yeah. It's a fair and good point. Generally I think we will see eCommerce continuing to grow its share of retail and we will see customers demanding more efficient deliveries, but at the same time, as you said, sustainable choices. I don't necessarily feel that they need to be mutually exclusive of each other either. I think we also see a trend where more and more businesses try to leverage things like micro warehousing, that is that to say that we see businesses putting their high demand products in closer proximity to the end customer. That avoids then the long haul shipping from maybe if you've earlier just had one warehouse in Europe and you, you have customers in the US ordering. It's a long way for a package to travel and it creates more emissions. Now I think we see more and more brands doing this micro warehousing together with maybe their 3PL partner, where they are closer to the end customer, which brings down the delivery time, which is great for the customer, but at the same time, it also creates less CO2 emissions.
We see huge improvements in optimizing packaging. That is a good way also to be more sustainable. Shipping air is never economically or sustainably sound. Together with your 3PL partner or if you manage your own warehouse, try to optimize those package sizes as well. If you get rid of the air inside of the package as much as you can, you will fit more packages on a transporting pallet. That brings down the cost and the emissions.
In terms of sustainability, one of the big challenges in costs going up for businesses is of course to find that balance between cutting costs, but not lose sight of the long term strategic investment in sustainability. I would say that pay attention to what your customers want. Sustainable choices and progress are valued more than ever right now. As a business, your choices and actions matters for people when it comes to, for example, logistical choices. We've seen, for example, businesses not simply offering a last mile choice that fully doesn't align with their sustainable values. So this is really a landscape where you can make a statement as a business.
Maybe the days of super fast global delivery at the cost of more CO2 emissions are changing in that sense. So we see more brands making a statement.
Jacinda: As Woolman is a Shopify Plus partner, are there any benefits in the Shopify Ecosystem when it comes to logistics, other than the analytics tool Ellis we talked about before?
Matias: The really big value lies in creating the rich customer relationship and experienc and this is what Shopify is so good at and gives you the tools directly in the platform. The ecosystem of partners and apps for Shopify is really great when you're looking to enrich your customer experience, whether it is analyzing costs or marketing customers, inventory etc. The ecosystem has you covered with ready build integrations and tools for these sort of things.
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