What is Ecommerce Logistics? How It Applies to Ecommerce

Unless you have the bandwidth to focus on ecommerce logistics, this essential but complicated element can be a painful drain on your team’s resources.

Ecommerce business owners don’t always have the luxury of housing stock in brick-and-mortar locations.

That means you’ll need to figure out the logistics behind how an online order gets picked, packed, and shipped to the person buying it—regardless of where they (and your products) are.

So, how do you deliver the same top-quality experience when you’re scaling? This guide shares how to fine-tune your ecommerce logistics process and prepare your business for an influx of online orders.

What is ecommerce logistics?

Ecommerce logistics is the management and coordination of various activities involved in fulfilling online orders. It encompasses inventory management, order processing, warehousing, packaging, and shipping. Ecommerce logistics ensures efficient and timely delivery of products, optimizing the supply chain to meet customer expectations in the digital marketplace.

Having a well-thought-out logistics process isn’t just a nice-to-have. Ecommerce brands are seeing fast and efficient logistics as a competitive advantage. Some even report huge risk to their business if their logistics process doesn’t meet customer expectations.

Key processes in ecommerce logistics

Order fulfillment

Order fulfillment refers to receiving, processing, and delivering customer orders. Quality, order accuracy, and getting orders out of a fulfillment center in a timely fashion are the most important capabilities you need to look at when you’re talking to potential vendors.

It’s a critical component of ecommerce logistics because it directly affects the customer experience and your reputation. If you can’t fulfill orders on time, you’ll struggle to meet the demands of online shoppers.

Nothing disappoints the consumer more than screwing up the basics. No amount of wow factor, and no amount of marketing buzz will ever overcome logistical nightmares in an ecommerce supply chain. Customers want confidence that their order will arrive as and when intended.

Inventory management

Inventory management is exceptionally important and also, frankly, a science. How much of a given product to have in stock varies based on the retailer’s situation, what they sell, and where they find themselves financially.

Excess inventory is bad, right? It ties up cash you could use more productively in other areas of your business. But on the flip side, we’ve all been in situations where we’ve been shopping online and find the thing we want to buy, but unfortunately, there are no units on hand.

There’s a lot of information online about how to determine how much inventory to hold, how to calculate and analyze your inventory turn rates and turnover days, and so forth. But it boils down to a few variables:

• How much does your inventory cost?
• How much do you typically have on hand at any one time?
• How predictable is your demand?
• How do you replenish your inventory?

The simpler those variables are, the more feasible it is for you to manage your inventory. The more complicated they are, the more difficult it will be—which means it might make sense to consult with experts.

Warehouse design

Warehouse management describes how and where you store products before they are shipped to customers. Online retailers use warehouses to scale fulfillment and take on more orders, without sacrificing delivery speed and accuracy.

A warehouse management system helps plan, organize, staff, and control available resources in your warehouses. It integrates with your ERP and can provide advanced reporting capabilities to optimize workflows. Many retailers partner with a third-party logistics (3PL) provider and use its warehouse to make supply chain management easier.

Picking and packing

Picking is when warehouse staff locate and retrieve the right products for each order. Studies show it represents nearly 55% of warehousing costs. While it sounds straightforward, efficient picking requires strategic warehouse layout, clear inventory tracking, and smart route optimization to minimize the distance workers travel between items. 

Many successful ecommerce operations use zone picking, in which workers focus on specific warehouse sections, or batch picking, in which multiple orders are gathered simultaneously to save time.

Once items are picked, the packing stage transforms individual products into shipment-ready packages. Using appropriately sized boxes and the right protective materials avoids dimensional weight-pricing penalties and guarantees products arrive undamaged.

Shipping 

Shipping is where your logistics operation connects with the outside world, and it's often the most visible part of the process to customers. In ecommerce, shipping makes up nearly 90% of total order fulfillment costs, and last-mile delivery represents the biggest part of it. 

Retailers typically work with multiple shipping carriers to balance cost, speed, and reliability. While major carriers like UPS and FedEx offer extensive networks, regional carriers sometimes provide better rates and delivery times for specific areas. 

Returns and reverse logistics

Ecommerce returns and reverse logistics involve handling and processing returned products, either due to customer dissatisfaction or damage during transit.

Ecommerce logistics is more than getting your product to an end consumer. You’ll need a process in place to handle the movement of products in the opposite direction, known as reverse logistics.

Returns plague ecommerce retailers—often through no fault of their own. Customers are honest with the fact they buy variations of a product with the intent of returning most of them.

A popular reverse logistics strategy is allowing customers to return things they bought online, in-store. “It’s a far better consumer experience, because it doesn’t involve printing labels, cardboard boxes, and, most importantly for shoppers, it doesn’t involve waiting to get your money back,” says David Sobie, CEO and cofounder of Happy Returns.

Fulfillment centers and ecommerce logistics 

Fulfillment centers and ecommerce logistics go hand in hand. Traditional warehouses simply stored products, but fulfillment centers manage everything from order processing to distribution. They are built to handle the rapid-fire nature of online orders. 

These facilities maintain real-time inventory tracking that syncs with your online store, automatically updating stock levels as orders come in. When a customer clicks "buy," the fulfillment center's systems immediately locate the item, initiate picking, and begin the fulfillment process.

Many ecommerce businesses use multiple fulfillment centers strategically placed near major population centers or transportation hubs. This helps reduce shipping costs and delivery times. So, when a customer orders from Seattle, their package can ship from a West Coast facility rather than crossing the entire country.

The right fulfillment center strategy becomes a competitive advantage, helping retailers offer faster delivery times and lower shipping costs. 

Types of logistics management

Third-party logistics providers

Third-party logistics (3PL) providers are the middle ground between a completely hands-on and hands-off approach. With a 3PL, you’re still in control of the products you’re selling through your ecommerce site. The only difference is that your products are stored, labeled, and packed in a third-party distribution hub and fulfillment center.

One 3PL provider is the Shopify Fulfillment Network, with centers dotted all over the country that can act as the home for your unsold stock.

When it’s purchased by a customer online, staff (and their robotic support) in the fulfillment centers pick, pack, and ship your products to your customers. It’s a time- and cost-saving way to take the logistical nightmare out of selling online.

And if you’re wondering how you can find the perfect 3PL partner for your business and customer needs, we have a checklist that can help. You’ll find a set of questions to ask 3PLs to ensure you’re choosing the best possible provider for your needs:

In-house logistics

Companies with brick-and-mortar stores or warehouses can opt to do their logistics in-house.

In this case, you have a dedicated team that welcomes incoming goods, stores them, and picks them out when an online order is made. You’ll need to partner with a shipping carrier—like FedEx, USPS, or DHL—that collects the orders and delivers them to a customer.

Dropshipping

The logistical process for retailers using a dropshipping business model is much less complex—they don’t touch the items they’re selling through their online stores. As soon as an online order comes through, it’s sent to a third-party provider who picks, packs, and ships it.

Learn more: What Is Logistics Management?

Ecommerce logistics companies

Shopify Fulfillment Network

Don’t want to deal with the logistics process of shipping products to end customers? Shopify Fulfillment Network will pick, pack, and ship orders as soon as they’re generated through your ecommerce platform or point-of-sale (POS) system.

Retailers can see real-time analytics on their inventory right from their Shopify dashboard. Simply ship stock to a distribution center if you see it running low and you’ll always have stock ready to fulfill new orders.

Each fulfillment center uses collaborative robots that help maintain fast fulfillment speeds and 99.5% order accuracy. Plus, staff working in each distribution center are bound by social and ethical codes of conduct that cover safe working conditions and fair pay.

ShipBob

ShipBob is another ecommerce platform that helps direct-to-consumer brands manage their logistics process. It has a global fulfillment network for ecommerce companies to rely on when they’re promising fast shipping to global customers.

Veeqo

Veeqo makes it easy for retailers to sell across several channels. Its omnichannel inventory and fulfillment services help retailers manage logistics for orders made through their Shopify website and marketplaces like eBay and Etsy.

It acts as a single source of truth for your entire logistics process—regardless of where, what, or how you sell.

Ecommerce logistics technologies

AI

AI makes ecommerce logistics smarter and more predictive. In warehouses, AI algorithms analyze historical order data to predict busy periods. Machine learning models also power demand forecasting, automatically adjusting stock levels based on factors like seasonality, marketing promotions, and even weather patterns.

For example, AI can predict when you'll need to reorder popular items by learning from past sales patterns and current trends. It can also analyze real-time traffic, weather, and delivery schedules to suggest optimal routes for last-mile delivery.

Automation

Robotics and software are making a splash in ecommerce logistics. The global warehouse automation market size was estimated at $19.23 billion in 2023, and is projected to grow at a CAGR of 18.7% until 2030. 

Some key advancements include:

• Automated guided vehicles (AGVs) and robots are used to pick, pack, and sort products faster and more accurately.
• Conveyor belts and automated packaging machines speed up the processing of bulk orders.
• Systems automatically reorder products based on stock levels.

Picture a warehouse where robotic arms pick items from shelves, autonomous vehicles move packages between stations, and smart conveyor belts automatically sort packages by shipping destination. That's modern logistics automation in action. These systems work 24/7, don't get tired, and keep accurate inventory levels.

Big data

Big data provides the insights needed to make smart operational decisions. Every scan, movement, and delivery generates data that can be analyzed to improve efficiency. 

Modern logistics systems track metrics like order processing time, shipping accuracy, and delivery performance in real time, so managers can spot and fix bottlenecks quickly. For example, big data analytics can reveal that certain products are frequently ordered together, suggesting they should be stored near each other in the warehouse.

IoT

The Internet of Things connects physical devices to digital systems, creating a more transparent and trackable supply chain. 

Smart sensors monitor inventory levels, track package locations, and even measure storage conditions like temperature and humidity. RFID tags and GPS trackers provide real-time visibility into shipment locations and conditions.

Best practices for ecommerce logistics

• Find an ecommerce logistics partner early.
• Balance value-add logistics with profit.
• Prioritize free (and fast) shipping.
• Automate what you can.
• Regionalize inventory to reduce cost.
• Diversify your supply chain.

1. Find an ecommerce logistics partner early

There are issues to deal with managing warehouses, dedicating store space toward housing your inventory, and navigating the complexities of selling in new countries.

Keeping on top of this as a retailer can be extremely difficult. You need to have an honest dialogue about when logistics is really interfering with the success of the business.

The most obvious advantage to working with a partner is access to capabilities you don’t have. Whether that’s technology, resources, expertise, or new geographies, outsourcing gives you the power to bring in specialists who do it 24/7.

There are also advantages from a cost perspective. Typically, 3PLs have economies of scale to give you a better cost per unit than what you’re able to achieve yourself. You’ll also have access to infrastructure that you would not be able to deploy by yourself.

Before signing a contract with a larger logistics company, talk with any 3PLs that you could work with to see if they give you a better rate on deliveries. Contracting with two companies can help if one is better at local deliveries and the other is better with long distance.

2. Balance value-add logistics with profit

Making sure your products are perfectly packaged can increase customer satisfaction, but it’s important to know when these value-added services cause more trouble than they’re worth.

It’s always a good idea to ask about what value-added service capabilities a 3PL has. For example:

• What kind of experience and capabilities do they have with kitting?
• Are they able to handle custom packaging?
• Can they do gift bags?
• Can they do custom messages?
• Can they work with fancy tissue paper?
• Can they work with samples?
• Can they personalize the package?

These points are all becoming increasingly important for consumers and retailers. Ask the questions above when you’re questioning potential vendors.

Retailers need to make sure they have the appropriate return on their investment. You always need to balance the operational implications with the marketing wow factor. If the fulfillment process is too expensive or takes too long, it won’t matter how pretty the package is.

3. Prioritize free (and fast) shipping

Offering a no-cost delivery can encourage people to move forward with their shopping. Free delivery is the top reason people shop online.

There are ways to manage free-shipping costs, such as having a minimum order size to qualify for it, or offering it only with promotions or select items. Yet with any free-shipping option, retailers need an ecommerce logistic solution that is affordable.

Ask your potential 3PL vendors about last-mile delivery—an item’s final journey to the customer. After all, you’ve got the hard task of preventing customers from being incentivized to use Amazon’s same-day shipping.

4. Automate what you can

While you’re investigating the technology a 3PL has to offer, consider whether you can automate any part of the logistics process.

One way to do that is to find an ecommerce fulfillment center that uses robots. According to McKinsey, some companies’ automated pallet-handling systems can halve average shipment-processing times.

It’s estimated that by 2030, many logistics operations performed by third-party service providers can be automated. Examples include product inventory management for stock forecasting and replenishment, picking robots, and multishuttle systems.

But logistics automation doesn’t have to be that complex. Fashion retailer GoudronBlanc uses a logistics partner that integrates with their Shopify store. All online orders are synced with the logistics software, but their team manually confirms which orders should be picked, packed, and shipped.

5. Regionalize inventory to reduce cost

Distance equals time and money, and cutting distance down can save a lot of dollars while maintaining or even improving service levels.

If you’re shipping large volumes to San Francisco, for example, it makes sense to have a warehouse or 3PL partner that can store items in that area. Customers can get free (or same-day) shipping if the product they’re buying is already closeby.

6. Diversify your supply chain

While many 3PL vendors have backup plans in place, some issues in an ecommerce supply chain are unavoidable. Employee strikes at a logistics provider, or issues with their own supply chain, can wreak havoc on how fast (and accurate) your online orders are processed.

Parker Russell, owner and CEO of Black Ink Coffee, has experienced issues with his company’s supply chain due to the nature of the business: “Since coffee beans are a traded commodity with their own harvesting seasons, we have found that you need to have many avenues open when it comes to your logistics,” he says.

“That’s why you need a backup plan for your backup plan, to practice proper risk management, and to always keep your employees and staff trained so that they can handle diversities.”

Benefits of ecommerce logistics 

Better customer experiences

Logistics determines how fast and transparent deliveries are. A 2022 study found that 90% of customers want to track their orders. If you can’t offer that, some 60% will find another retailer. Real-time tracking, accurate delivery estimates, and proactive updates have become standard expectations rather than premium features. 

Optimized delivery processes

Smart warehousing is helping retailers reduce their delivery windows, with one study showing that 52% of multichannel retailers are working towards 24-hour standard delivery times. The technology also supports multiple delivery options, including click and collect, pick-up points, and home delivery, giving customers more choice in how they receive their orders.

Retailers are also expanding from single-warehouse operations to networks of two to five distribution centers, complemented by micro-fulfillment centers (MFCs) in urban areas. This decentralized approach puts inventory closer to customers for faster delivery times and more efficient order fulfillment. 

Reduced returns costs 

Each ecommerce category has different return rates. The clothing industry leads with a 24% return rate, followed by shoes (16%) and accessories (12%), according to Statista. 

On average, customer returns cost companies between $25 and $30 per return due to shipping, customer support calls, product damage and other expenses, a Narvar report found. A good ecommerce logistics system helps reduce return costs through prevention and efficient processing. For example, you can use AI for quality control and package verification to guarantee you’re shipping the right item and improve customer loyalty.

Scaling online orders doesn’t have to be a logistical nightmare

There’s no doubt that the logistics process for online businesses gets more complex as you grow.

Whether you’re handling reverse logistics cross-border or finding logistics services to regionalize your inventory, there are three overarching themes that make your logistics process a success: accuracy, cost, and speed.