Last year, e-commerce sales grew by over 15 percent , confirming how valuable e-commerce fulfillment can be to the success of your business. Problems in your fulfillment process — delayed, broken, or missing orders — result in poor customer experiences, churn, and the erosion of profits. Yet the combination of complexity, increasing customer demands, industry consolidation, and shifting market conditions are causing a perfect storm to threaten mid-sized e-commerce fulfillment companies, making it harder than ever to compete.
Here are the five biggest challenges that e-commerce fulfillment companies need to address:
1. Market evolution
We’ve seen the swift emergence of third-party e-commerce fulfillment vendors that handle orders for traditional e-commerce companies, online marketplaces, and brick-and-mortar stores. These companies simplify e-commerce management, reducing order-to-fulfillment cycle times.
They offer flexible capacity through either dedicated or shared-use networks, efficiently weathering the ebbs and flows of business activity. Most importantly, they accomplish this while reducing costs and supporting faster delivery times to most geographic locations.
Stats on customer behavior support the market demand for better solutions. 55 percent of shoppers abandon their carts due to shipping costs. 38 percent abandon their orders when estimated delivery time exceeds seven days. 69 percent of consumers say they will be less likely to shop with a retailer in the future if a purchase isn’t delivered within two days of the date promised.
With the emergence and success of e-commerce fulfillment specialists that can deliver inventory more quickly, more economically, and more reliably, those of us who are not e-commerce fulfillment experts will find that our time is better spent focusing on core competencies.
2. Increased e-commerce fulfillment
By 2021, global B2C e-commerce sales are expected to exceed $4.5 trillion, nearly doubling 2018 sales. In that same time span, global B2B e-commerce sales are projected to rise from $7.7 trillion to $17.6 trillion. This growth has heralded the emergence of more startup vendors and smaller businesses that lack the infrastructure or logistical abilities to handle their orders in-house. An estimated 165 billion packages are shipped in the US each year, and if current trends continue, that number will reach 285 billion by 2021.
This growth puts additional pressure on firms to simplify inventory management , order processing, and shipping to meet rising demands and curb shipping costs. Even established e-commerce fulfillment experts like Amazon are experiencing a rise in shipping costs. Amazon’s shipping costs (including product sorting, packaging and delivery), for example, rose from $11.5 billion in 2015 to $21.7 billion in 2017. As customer demands and complexity increase, these figures will continue to rise. That’s why Amazon is cutting costs through automation, technology adoption, and the creation of its own delivery service.
3. More fulfillment competition
Companies providing e-commerce fulfillment services include divisions of large e-commerce or logistics behemoths, pure-play e-commerce fulfillment services companies, and technology-focused startups. This makes for tremendous competition. The order fulfillment industry, including storage and warehousing, is huge: worth $27 billion in 2019.
Amazon and FedEx Fulfillment are examples of established players offering warehousing, packaging, fulfillment, transportation, and other services. The pure-play companies, such as Radial and Red Stag Fulfillment, are capable of fulfilling millions of orders and providing high-touch customer service. And technology-driven startups like ShipBob and Shipmonk market to small and mid-sized clients, offering simpler pricing models and scalable platforms.
4. Faster delivery expectations
Amazon set the standard with its guaranteed two-day Prime delivery service. Now it’s raising the bar again by offering delivery within one day (including Sundays), and even same-day deliveries in certain markets. As more becomes possible and the best e-commerce fulfillment experts become even better, customer expectations will continue to rise.
5. Industry consolidation
Fulfillment industry consolidation is already underway. Recently, Bpost acquired Radial. Target acquired Grand Junction and Shipt. Additionally, venture capital investment into startups like ShipBob, Shipwire, and Shipmonk are challenging incumbents. The most promising startups will continue to attract sizable investments and will race to either scale or sell. Mid-sized companies will continue to be bought up by competitors, further changing the competitive landscape.
Companies are responding to these challenges in various ways. They can improve the customer experience, tighten their brand identity, partner with third-party e-commerce fulfillment firms, or join the M&A craze. The answers depend on your circumstances. The important thing is to come up with a sound fulfillment strategy, asap. The industry won’t slow its breakneck evolution to wait for you.
Benjamin Gordon is an entrepreneur, advisor, and investor for companies in transportation, logistics, and supply chain technology. He is the CEO of Cambridge Capital and BGSA. He is a published author at Data Driven Investor, Fortune, Modern Distribution Management, SupplyChainBrain,and CNBC. He hosts BGSA Supply Chain, the industry-only CEO-level conference for all areas of the supply chain. Benjamin graduated from Harvard Business School and Yale College.