Clicks, Bricks & Orders: Warehousing gets an e-commerce makeover

Divide and conquer

The Amazon effect is largely responsible for the emerging, geographically dispersed fulfillment center setup that is becoming more popular with the growth of e-commerce.

Only one or two decades ago, most fulfillment needs were from big-box retailers, like Walmart, Target or BestBuy. Cost control, rather than convenience, was the rule. Warehouses were in the middle of the country or away from population areas to take advantage of cheap real estate, and inventory moved across the country in pallets, using less-than-truckload (LTL) shipments. With the rise of e-commerce, all of that had to change, as air delivery played a larger role in reducing delivery times.

“With e-commerce, your customers are placing an order today and you only have a narrow window of time – from two to five days – that customers expect the package to get delivered,” said Saxena. What’s more, those customers don’t want to pay extra for faster delivery via air when Amazon Prime promises them free shipping in just two days. Part of managing those expectations is pricing merchandise to include shipping costs, but the better option for sellers and shippers is to change the way the products are stored before they’re purchased.

Space near cities is at a premium, though, and controlling costs means being creative about finding those spaces that can serve as distribution centers. ShipBob uses an eclectic mix of buildings to meet that need, including “a combination of new spaces being built, an old FedEx depot and former storefronts,” Saxena said. “Warehouses for e-commerce should be close to where our customers’ customers are, not close to FedEx or UPS centers.”

When it comes to dividing their customers’ merchandise between locations, technology comes back into play: “Customers then get their products from the closest fulfillment center, and analytics and forecasting should account for what is stored where,” Saxena added.