The past decade has completely changed the way consumers purchase products and there is no sign of stopping the ever-increasing trend of online shopping within the upcoming years. Nowadays, consumers have – thanks to a more connected world – unlimited options to inform themselves about how, where and when to shop for their desired products. While this phenomenon has given many retailers the chance to sell their products to a broader audience, it has also significantly increased the pressure to meet consumer expectations when it comes to fast delivery times and low shipping costs.
In order to secure a competitive advantage and successfully expand business activities into new markets, improving last-mile distribution becomes more and more indispensable
Most online merchants already have a holistic understanding of their consumers’ behavior, what they want and how they want to get it. Using this knowledge, they should identify their hottest SKUs and build heat maps of their respective distribution paths. Thus, they can track and trace the popularity of products varying by region. By focusing predominantly on top-selling products, E-commerce players should adapt their distribution network and bring flagship products closer to customers, accelerating shipping times and lowering transportation costs.
Think about amazon and how they only qualify their top-selling products for their one-day prime shipping option
How does this impact logistics operations?
Moving top-selling products closer to customers can be realized by adding additional warehouses to the existing distribution network. Before implementing this strategy, it is important to understand how additional fulfillment hubs will influence the operational cost structure, known as the total logistics costs trade-off.
Total logistics costs can be divided into four major cost categories:
- Inventory costs for bound capital
- Transportation costs for last-mile delivery
- Foregone earnings through long delivery times
- Warehousing & fulfillment costs for managing operational and technical complexity
The chart below illustrates the correlation between the number of warehousing & fulfillment hubs and the costs for each category in traditional warehousing setups (read about how flexible warehousing differentiates from traditional warehousing in our blog).
On the one hand, we can see that transportation costs and foregone earnings will drop when adding new warehouses due to shorter and faster last-mile delivery. On the other hand, inventory and warehousing & fulfillment costs increase due to mirroring stock levels at different sites and a rising complexity from managing multiple locations. In particular, the efforts for operational and technical onboarding processes as well as day-to-day handling and IT maintenance grow significantly with additional warehouses. Adding up the different cost categories in the traditional warehousing approach reveals the minimum logistics cost at a relatively low number of fulfillment hubs.
How does flexible warehousing impact the total logistics costs trade-off?
The new form of flexible warehousing significantly slows down the increase in warehousing & fulfillment costs when further warehouses are being added to the distribution network. As a technology platform, Everstox supports in building and operating a flexible distribution network in multiple markets to streamline operational and technical complexity. Moreover, Everstox cloud technology helps to control the increase in inventory costs through smart order routing and demand planning tools.
Flexible warehousing powered by Everstox leads to lower total logistics costs at a higher number of warehouses
Visualizing Everstox´s flexible warehousing and fulfillment concept in the chart below, it shows that the new optimum lowers total logistics costs achieved with a higher number of warehouses.
How can you reduce logistics costs with flexible warehousing?
If you want to decrease your logistics costs by following a distribution strategy based on multiple warehousing and fulfillment hubs, Everstox can help by enabling you to:
- Contract warehousing and fulfillment services from pre-selected third party logistics providers based on your operational and geographical needs – all on flexible terms
- Run all of your logistics operations within one management tool with real-time inventory levels and order flows
- Scale your logistics operations across Europe within our technology and our strong network of independent logistics partners
As shown by the chart above, with Everstox´s flexible warehousing and fulfillment, you can add warehousing hubs without adding a significant stake of warehousing costs to the equation. Your operational setup can enjoy regional and local presence, thus improving last-mile delivery times while simultaneously lowering costs per order shipment. Ultimately, resulting in increased conversion rates and thus higher revenues.
But always remember that pursuing a multi warehousing strategy without the right technology can impact the complexity of your business. Using Everstox´s proprietary control tower you can manage inventory levels and order flows in real-time and control all operations in one single source of truth.
Find the sweet spot for your total logistics costs