Do you know that the stairway to success for major eCommerce companies is paved by their warehouses? That’s because a warehouse is an active agent managing the products online retailers manufacture and sell to their customers.
Warehouses are remodeling themselves to accommodate the growing requirements of online retailers. They are operating at full swing to dispatch orders for same-day and two-day deliveries. Data suggests that by 2027, 25% of all warehouse space will be dedicated to e-fulfillment.
This article aims to present an in-depth understanding of eCommerce warehousing, its types, benefits and talks about some best practices.
Understanding eCommerce Warehousing
Let’s begin with a simple description of a warehouse. It is a structure, typically a large building that stores manufactured goods before their distribution or final sale. An eCommerce warehouse adapts this functionality specifically for online sales.
In other words, it manages the flow of inbound inventory received from the suppliers and outbound shipment to carriers for shipping. It tracks stock levels within its premises, and handles stock replenishment for retailers. The specific use case of eCommerce warehousing is to pick and pack the items and dispatch them.
Sometimes, warehouses are used only to store safety stock i.e. the excess stock reserved for situations like supply chain disruption or stockouts. This makes it an agent controlling price fluctuations in the market in cases of product shortages or disruptions. It also assures eCommerce businesses that they don’t incur loss in such conditions.
With the advent of eCommerce, warehouses have become versatile to the needs of specific client segments and developed specialized roles. They have the infrastructure to safely secure inventory and sort inventory into bins, racking shelves, pallets, totes and bins.
They also have the required staff expertise, certifications, shipping supplies and machineries like forklifts and automatic guided vehicles (AVGs) to evolve e-fulfillment.
List of 10 Types of Warehouses Specifically Useful for eCommerce Businesses
Here we present ten warehouse types that have specific utility for different eCommerce businesses:
1) Private Warehouse and Warehousing From Home
Usually, online retailers starting their business prefer to fulfill orders from their office or home. The need for warehousing arises when the business outgrows its storage space and chooses to either build their private warehouse or lease one.
The function of a private warehouse is to store and manage its proprietor’s inventory solely. This type of warehousing requires significant capital investment and is usually reserved for large enterprises. Take the example of Tesla’s Gigafactory 1, a production center and warehouse that’s privately owned by Tesla.
Pros: Exclusively manages the storage, distribution and fulfillment of inventory for the eCommerce company.
Cons: Requires high investment for building and maintaining it.
2) Public Warehouses
Public warehouses are owned by government bodies and leased to private companies for storing inventory in the short term or long term. The rent is decided after adding every square foot space products occupy. This warehousing works best for SMBs allowing them to stay competitive against online retailers leasing third party warehouses.
Pros: Offer better pricing than private counterparts.
Cons: May not have the best state of art technology and inventory management facilities.
3) Fulfillment Centers
Fulfillment centers are an evolved version of traditional warehouses. They are specifically designed to receive, store, pick, pack and ship products for eCommerce companies. They are adept in fulfilling large volumes of orders.
Usually fulfillment centers are run by third-party logistics. They are used by eCommerce companies for faster order fulfillment and added facilities for custom packaging, kitting, and bundling.
Pros: Lowers shipping costs with negotiated carrier rates.
Cons: Outsourcing order fulfillment can distance retailers from controlling the process.
4) On-Demand Warehouses
This relatively new mode of warehousing operates as a marketplace model. A network of warehouses and fulfillment centers compile their extra space and lease it to retailers in need of a short term storage solution. Some consider it a flexible warehousing solution for storing inventory during seasonal demand hikes and excess supply orders.
Pros: Leverage the warehouse’ technology and services to your advantage alongside a flexible pricing model.
Cons: Limited capacity for long-term inventory storage.
5) Smart Warehouses
These warehouses incorporate the best of everything logistics technology has to offer. They are either fully or heavily automated utilizing Internet of Things (Iot), automated picking tools, AI, 5G connectivity, and Automated storage and Retrieval Systems (AS/RS) amongst others.
Technology ingrained warehousing optimizes throughput, minimizes picking times and dramatically reduces human made errors.
Pros: Its use of advanced technology enhances inventory management.
Cons: Staff have to be trained to use the technology, making its set-up costly.
6) Distribution Centers
A distribution center is a warehousing facility that is exclusively used to manage inventory flow from one location to another. The inventory is quickly transferred from the center to either wholesalers, retailers, 3PLs or customers. These facilities are often located near transportation hubs so it can swiftly receive merchandise and ship it to its next destination.
Pros: Can store huge volumes of goods and are usually equipped with best-in-class technology to handle inventory.
Cons: Have high demand thereby creating competition to secure space in times of urgency.
7) Bonded Warehouses
Custom bonded warehouses are facilities that store imported or exported goods for inspection and clearance of duties. These warehouses are either owned by the government or private customs brokerage houses.
It takes its name from the bond issued to the company by competent authority guaranteeing space and security for their merchandise. They are generally used during cross-border shipping.
Pros: Offers duty-free secure storage for imported merchandise until the company finds the right buyers.
Cons: Potential delays in completing paperwork and releasing the merchandise.
8) Consolidated Warehouses
A consolidated warehouse specializes in order consolidation. It is here that small quantities of merchandise from suppliers are combined into larger shipments before distributing them down the supply chain.
Consolidated warehouses are also used to tie together orders from different eCommerce companies intended for similar delivery locations. This is an affordable way to ship for SMBs since the requirements for shipment volume and upfront costs are fairly small.
Pros: Reduce shipping costs burden on single seller and minimizes fuel emissions.
Cons: Time consuming process requiring extensive planning and organizing with all the involved parties.
9) Warehouse for Cold Storage
These are logistics facilities that specialize in controlling and maintaining temperatures of perishables and sensitive products. Cold storage maintains a stable temperature and humidity levels to prevent bacterial contamination. It uses insulation and HVAC cooling technology to maintain shelf-life of medicines, FMCG products, cosmetics, organic textiles and even artworks.
Pros: Preserves the natural conditions and quality of perishable goods.
Cons: Cannot store products with temperatures above 70 degrees fahrenheit.
Dropshipping is an evolving form of eCommerce fulfillment model. There are two ways dropshipping works.
In the first case, manufacturers ship their merchandise to customers from their warehousing or manufacturing facility.
In the second scenario, eCommerce sellers don’t keep products stocked in a warehouse. Instead, they purchase the inventory from the manufacturers, or wholesalers and sell it to the customers from their sales channels. The onus of order fulfillment and shipping then lies with the original producer or 3PL logistics partner.
Pros: Saves time and money on labor and inventory carrying costs.
Cons: Retailers have less control over the order fulfillment process and quality of the shipping service.
5 Benefits of eCommerce Warehousing for Online Retailers
1) Receive and Store Merchandise
A warehouse undertakes the responsibility of receiving purchase orders from suppliers. They coordinate this cumbersome process by managing the docking process, and arranging staff and equipment to unload merchandise.
Next, it stocks the products by designating them as SKU (Stock keeping unit) in proper storage systems. A warehouse has multiple storage systems to securely place the product into bins, totes, AS/RS systems, pallet racking, multi-tier racking etc.
Sometimes acts as an assembly line combining separate pieces of a product to create the final one. Thus, warehouses make an important part of the production process especially for the ‘assemble to order’ manufacturing model.
2) Track and Control Inventory
Managing inventory is a core service warehouse offer to eCommerce retailers. It helps eCommerce businesses keep a track of their merchandise quantities that are in turn reflected in their websites to customers. Displaying the availability of an item is an important metric of influencing customer’s purchase decisions.
A warehouse also assists in multi-channel inventory control. It acts as a centralized location managing the flow of products for different sales channels an eCommerce retailer has.
3) Facilitate Order Fulfillment for Customers
An eCommerce warehouse is equipped to handle single-order fulfillment unlike traditional warehouses that process bulk shipments. It ensures to pick the right product a customer orders, and packs it to an optimal Dimensional weight. It then hands it over to the carrier partner for the last mile delivery.
4) Promote Flexible and Expedited Shipping
Fast and expedited shipping are the new hallmarks of delivery that every customer expects from their eCommerce companies. This is where warehouses like distribution centers and consolidated warehouses come into the picture.
These facilities are usually located near urban centers and transportation hubs. Retailers can strategically place their inventories near customers and dispatch orders within the same day or the next day of order placement.
5) Manage Returns and Exchanges
Returns is an eventuality in all eCommerce businesses. Thus, an eCommerce warehouse like fulfillment centers are adept in handling returns and exchanges.
They perform quality checks on the returned merchandise, and restock the items that are in good condition to be resold. They refurbish or revamps items and disposes of others that are damaged. Fulfillment centers help retailers offer a smooth exchange experience to customers.
5 Best Practices that Promote Maximum Warehousing Efficiency
Here are some of the best tips online sellers and warehouse owners can use to uplift their eCommerce warehousing:
1) Install a Warehouse Management System (WMS)
A WMS is an end-to-end solution for managing the day-to-day activities of a warehouse. It is an efficient control tower that monitors the inventory levels and product availability stored within the warehouse. In this way, it can accurately forecast replenishment times, giving a heads up to retailers before stocks run out.
2) Find the Right Picking System
Warehouse picking is the most labor intensive process and directly impacts the time required to fulfill an order. In eCommerce fulfillment, speed takes the lead.
Thus warehouses can implement a multi-prong approach to picking that ensures faster picking speed and efficiency. This includes picking methods like multi-order pick to tote, pick and pass, zonal picking and batch picking.
Warehouses should also be adaptable to demand fluctuations and changes in consumer behavior. Thus, a warehouse needs to have strategies in place implementing wave picking to ensure order fulfillment is done on-time.
3) Implement Automation and IoT Technology
Internet of Things (IoT) and automation are benchmarks of state-of-the-art warehousing facilities. These technologies create a streamline warehouse workflow, eradicating delays from picking, packing, kitting and shipping processes.
IoT examples like RFID tags, sensors, AVGs, conveyor belts and robots help move, manage and track stocks in real-time. They improve productivity, unburdens staff from stacking and moving constantly, and prevents product damages.
The IoT devices monitor SKU location, condition, stock count and detects theft or quality deterioration. Already eCommerce giants like Amazon and Alibaba have increased warehouse efficiency with automation.
4) Define a Minimum Inventory Range
Having a minimum inventory point is a good practice to ovoid SKU proliferation, oversticking, understocking or out-of-stock situations. Keeping the right stock levels can help warehouses and retailers avoid storage costs, order fulfillment delays and backorders.
Setting a minimum inventory range can help logistics managers examine the demand and turnover of each SKU. Moreover, it helps retailers reserve a batch of SKUs as safety stock. They are reserved stock that are used during stockouts until a replenishment is made.
5) Design Warehouse Layout for Maximum Efficiency
A design and layout of a warehouse has significant bearing on its receipt, storage, retrieval, packing and shipping functions. For example, a warehouse lacking a proper layout structure increases travel time for staff and slows down their picking.
An optimal warehouse layout allocates maximum space to storing and processing inventory like designing shelf structures and routing. Attention must be paid to increasing accessibility in navigation within the warehouse for both staff members and robots.
Next step is to determine the installation capacity for equipment like conveyor belts for efficiently managing warehouse throughput. Similarly, while designing the floor area and workstations, safety of the personnel must be considered. The production zone should have enough space to fit the aisles and shelves and pickers/packers to move without obstacles.
The Future of eCommerce Warehousing
Warehousing is no longer only for large eCommerce businesses. Many new forms of warehousing types are emerging like on-demand warehousing, co-warehousing that benefits SMBs and women entrepreneurs. Take the example of Saltbox, which offers affordable co-warehousing assisting 700+ online businesses led by women of color.
The future of warehousing is coursing towards adopting discrete automation like predictive analytics and smart warehouse designs. The advent of D2C businesses have brought another transition in eCommerce warehousing, advocating for hybrid warehousing models. Alongside this, warehouses are becoming increasingly conscious about sustainability.
Warehousing dictates how efficiently an eCommerce business fulfills customer orders, manages inventory and scales their business. Over the years, different forms of eCommerce businesses model, B2B, B2C, D2C have adapted warehousing in its core business practices.
It assists with receiving goods from suppliers, putting away inventory, picking, packing and shipping them to other businesses or customers. We hope this eCommerce warehousing guide will give you a good understanding of eCommerce warehouses and their benefits.
1) How much is the cost of building or renting an eCommerce warehouse?
The cost of eCommerce warehousing will differ if you build a warehouse vs. rent one. The typical cost in building a warehouse revolves around $20 to $60 per square foot. For example, the cost of a 5000 sq. ft. warehouse can be $140,000 or $25 per sq. ft. On the other hand, the cost of renting a warehouse is anywhere between $0.85 to $11.40 per square foot or more depending on the warehousing type and facility.
2) How can businesses find the right eCommerce warehousing solution?
To find the right warehousing solution you can first consider your required storage space so that you know how much inventory it can hold. You can also look at the warehouse location to be closer to your customers and timely deliveries. Other factors include connectivity with transportation systems like highways, experience and overall services.