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e-Commerce Warehousing: Definition, Types, Benefits & Best Practices

e-Commerce Warehousing: Definition, Types, Benefits & Best Practices

The surge in demand for e-commerce warehousing is an unmissable trend for any business in the e-commerce industry. Why do online businesses use warehouses? What types of warehouses are there? What is e-commerce warehousing and how do you manage a warehouse? Read on to get your answers.
Written and published by
Hazel Siu

The e-commerce boom in the 2020s has spurred intense demand for industrial warehouses. Half of the U.S. markets posted warehouse occupancy gains of more than 5 million square feet, according to a report released by Colliers.

With the rising demand for warehouses, the sector responded with construction of more storage space. A record 520 million square feet of warehouse space was under development at the end of 2021, a 50% jump from that in the previous year.

For businesses in the e-commerce industry, this is an unmissable trend to watch. Why do so many businesses use warehouses? What types of warehouses are there? What is e-commerce warehousing and how do you manage a warehouse? Read on to get your answers.

  • What is e-commerce warehousing?
  • What is e-commerce warehouse management?
  • What is an e-commerce warehouse?
  • Why do businesses use warehouses?
  • Types of e-commerce warehouses
  • e-Commerce warehouse management best practices
  • Some last words

What is e-commerce warehousing?

e-Commerce warehousing refers to the storage of physical products before they are sold online.

It’s part of the e-commerce inventory management process, covering activities such as storing inventory, tracking how long your goods have been in stock, where they’re kept, and how much inventory you have on hand.

What is e-commerce warehouse management?

A concept related to warehousing for e-commerce is e-commerce warehouse management.

As its name suggests, e-commerce warehouse management is the process of managing all activities involved in the operation of a warehouse. These include:

  • Keeping inventory safe and secure

  • Managing employees who work in the warehouse

  • Keeping track of all equipment used in the warehouse

  • Building and maintaining relationships with third-party carriers

  • Forecasting demand to prevent under-stocking or over-stocking

  • Monitoring all processes involved from the time the goods arrive at your warehouse to the moment they’re shipped off

  • Maintaining safety precautions to prevent accidents and ensure the safety of all employees, goods and equipment

What is an e-commerce warehouse?

An e-commerce warehouse is a facility in which physical goods are stored for online sale.

In the eyes of many small business owners, the term “warehouse” is synonymous with a garage, living room or basement. This is where they keep their inventory, stacked floor-to-ceiling, before the goods are shipped to customers.

Larger companies, on the other hand, use dedicated warehouses. Sometimes their warehouses also handle e-commerce order fulfillment. An example is Amazon’s fulfillment centers, where goods are stored, packed and shipped from the same location.

Why do businesses use warehouses?

Many online ventures start small and grow large. Starting as home-based entrepreneurs, many e-tailers turn to warehouses when their businesses reach a certain scale.

The primary reason behind this move is to get more space for an increasingly large quantity of goods. That being said, using warehouses has a handful of other advantages.

Below are three benefits of using a warehouse for your online business:

  1. Organize inventory better
  2. Expedite order fulfillment
  3. Reduce stress levels

1. Organize inventory better

Running an e-commerce business without a warehouse would fill your home or garage with Tetris stacks, only that the towers aren’t made of bricks but boxes of goods.

To prevent a Tetris tower from building up in your place, it’s best to use a warehouse. A warehouse typically comes with shelves, labels and inventory management software to help keep your inventory organized and keep you out of trouble like the following:

  • Your home is buried with mountains of goods as your product catalog gets longer

  • You need to look everywhere to find a particular product so as to fulfill an order

  • Items are out of stock because you aren’t aware of low inventory levels

  • You over-buy inventory as your gut feeling about customer demand isn’t always accurate

  • Inventory is lost due to misplacement of goods or theft

2. Expedite order fulfillment

Online shoppers today have heightened expectations for speed and convenience, thanks to the Amazon Prime Effect. They want their orders handled promptly, as 68% of consumers say ‘fast shipping’ would lead them to make an online purchase.

While you may not have time to pack and fulfill orders every day, a third-party logistics (3PL) provider with a warehouse can do this. The team of logistical experts will not only save you from the weekly runs to parcel drop-off points, but also give your customers better shopping experiences.

3. Reduce stress levels

Preparing orders for shipment, staying alert of low stock levels, keeping an eye on near-expired products… There’s a lot of work and pressure to take care of all these aspects, especially when inventory is managed manually.

But an e-commerce warehouse management provider can take these work off your plate. They handle the tedious but essential tasks of the e-commerce logistics process, so that you can focus on higher-level business priorities.

With less stress on inventory management, you can better spend your time and brainpower. For instance, you can consider delighting customers with creative e-commerce packaging, starting an affiliate marketing program or seeking e-commerce funding to grow your business.

Types of e-commerce warehouses

When we talk about industrial warehouses, images of massive facilities spanning thousands of square feet probably spring to your mind. The mere thought of rental costs scares off many small or medium-sized business owners.

Intake bay of an Amazon fulfillment center
Source:
Wired

As a matter of fact, there are many types of e-commerce warehouses to choose from. Not all of them require a deep pocket, so you can pick a type that suits your needs and budget:

  1. Public warehouses
  2. Private warehouses
  3. Government warehouses
  4. Consolidated warehouses
  5. Cooperative warehouses
  6. Bonded warehouses
  7. Smart warehouses

1. Public warehouses

Owned by governmental bodies, public warehouses can be rented for personal or business use.

Compared with private warehouses, this type of warehouse is available at more affordable rates, but a drawback is that they are usually smaller in size and less advanced in functionality.

Nonetheless, public warehouses should be able to meet your storage needs in the early stages of growing your online store, and are perfect for companies with a tight budget.

2. Private warehouses

Private warehouses are owned by non-governmental establishments, such as manufacturers, wholesalers, retailers or distributors. An example to illustrate this is Amazon, the online marketplace which owns some 26.3 million square feet of fulfillment and data centers.

As private warehouses are built to meet owners’ needs, they are usually more technologically advanced, with larger floor areas, tailored features and amenities such as temperature control or freezers.

However, as you may have expected, private warehouses require huge capital outlays and are used mostly by businesses with abundant financial resources.

3. Government warehouses

Government warehouses are not only owned by the government (or local authorities), but also managed and controlled by them.

This type of warehouse can be used by businesses at affordable rates. If you’re unable to pay for the rent, though, the government has the right to sell your goods to recover its loss.

4. Consolidated warehouses

At consolidated warehouses, shipments are collected from different suppliers and grouped into larger ones before they’re distributed to buyers.

By combining shipments, consolidated warehouses help merchants reduce the costs of e-commerce transit, making it a great option for businesses just getting off the ground.

Another benefit of using consolidated warehouses is a low inventory threshold. Since there’ll be inventory from many other sellers, you won’t have to keep a large volume of goods at the warehouse.

However, a limitation is that this mode of shipment only works when all goods are intended for the same geographical location.

5. Cooperative warehouses

Cooperative warehouses are private establishments jointly owned by two or more businesses.  To cater these facilities to the storage needs of specific products, the joint owners usually come from the same or related sectors (e.g. farmers and wineries).

The sharing of physical storage facilities and resources entails sharing of costs, which means each co-op member only has to pay a portion of the fees involved in running the warehouse.

Therefore, cooperative warehouses are cost-effective warehousing solutions for businesses in partnership.

6. Bonded warehouses

Bonded warehouses can be privately or government-owned. They are usually located near ports or airports, and are used to store imported dutiable items (also called “bonded goods”) before customs taxes and duties are paid for.

Many importing businesses use bonded warehouses to improve cash flow and achieve cost savings. This is because customs duties are paid only when goods are sold and leave the warehouse, not right after they enter the borders. Sellers can hence invest additional resources in pre-sale activities, such as advertising and getting legal work done.

7. Smart warehouses

With the use of artificial intelligence (AI) and other technologies to optimize workflow, smart warehouses are the paradigm of e-commerce automation in action.

A classic example of smart warehouses is Amazon’s fulfillment centers, where conveyor belts, scanning technology and picking robots are known to replace manual labor and improve operational efficiency.

These technologies could be expensive to implement though.

e-Commerce warehouse management best practices

Last but not least, we’ll look at some best practices for e-commerce warehouse management.

The five tips below will help you manage your warehouse efficiently, optimizing workflow whilst achieving time and cost savings:

  1. Use an e-commerce warehouse management system
  2. Create a warehouse layout map
  3. Try and test order picking methods
  4. Store inventory in multiple locations
  5. Aim for two-day shipping

1. Use an e-commerce warehouse management system

Traditionally, warehouse management systems (WMS) are used to assist operations in the warehouses of brick-and-mortar businesses.

An e-commerce warehouse management system, on the other hand, is designed to meet the needs of online businesses. It’ll help optimize your warehouse operations with the following functions:

  • Monitoring activities along the e-commerce supply chain

  • Providing real-time insights into stock levels and product availability

  • Performing inventory forecasts to estimate when stock will run out and when to re-order
  • Streamlining the order fulfillment process at your warehouse
  • Integrating with your e-commerce site and other tools

Source: Decartes

2. Create a warehouse layout map

A key difference between a warehouse and a garage is that the former is well-organized but the latter isn’t. 

Ideally, your e-commerce warehouse should be structured and labeled in a way that a newly hired operator can make sense of the layout in 5 minutes. For example, you can assign letters (A-Z) or numbers to each row, shelf and bin.

Having a clear and easy-to-understand layout will not only save training times, but also help boost operational efficiency in routine activities like order fulfillment and physical inventory counts.

Example of a warehouse layout map
Source:
NetSuite

3. Try and test order picking methods

The simplest way to prepare an order is called discrete order picking. It involves picking one order at a time, and works well when you only receive a few orders per day.

However, the one-at-a-time approach would become both inefficient and impractical when order volume increases. Batch picking, for example, would be a better alternative to save picking time.

Therefore, it’s advisable to review your warehouse operations and revise order picking methods as your business grows and scales.

How batch picking works
Source:
NetSuite

4. Store inventory in multiple locations

If your online shop has customers from different geographical locations, the best practice is to store goods in different warehouses. This allows for quicker deliveries, hence better customer experiences as goods can be dispatched from the warehouse closest to your customers.

JD.com in China has a distributed network of warehouses
Source: JD.com Inc., Financial and Operational Highlights (March 2022)

5. Aim for two-day shipping

When it comes to online shopping, two-day shipping is the new standard.

Looking at data a few years back, as much as two-thirds (65%) of consumers expected their goods to arrive in 2-3 days. Some shoppers even looked for delivery in less than 2 hours.

Image source: Ware2Go

As customer expectations continue to rise, e-tailers must adapt and respond to changes in the macro environment.

Express same-day delivery offered by e-commerce giants (e.g. JD.com and Amazon) may be too much to ask from smaller businesses, but two-day shipping is the new norm that all market players must abide by — or you risk losing customers to your competitors.

Some last words

As discussed earlier, e-commerce warehousing has many benefits. It provides a dedicated space to store and organize inventory, allows for quicker and easier order fulfillment, and takes pressure off your shoulders.

However, you may soon realize that a by-effect of using warehouses is that you have to buy inventory in large quantities, so that you can use your storage space to its maximum capacity (also to get a bulk discount from your supplier).

The result is that money gets tied up in inventory assets, and you can’t spend it elsewhere to fund e-commerce operations or grow your business.

To overcome cash flow constraints, revenue-based financing is a solution you can consider. It’s a type of e-commerce funding commonly used by digital merchants to smooth out short-term cash flow gaps and fuel their businesses’ growth.

Interested in learning about revenue-based financing for e-commerce businesses? Check out more information here or apply for funding now!

About Choco Up

Choco Up is a global technology and financial services platform, offering revenue-based financing and business growth solutions for digital merchants and startups.

With data analytics and machine learning at its core, Choco Up employs vast integrations to automate fund deployment, providing fast-growing companies with zero-equity funding in a quick and seamless manner.

We currently have offices in Singapore and Hong Kong and serve clients worldwide, providing smart-growth analytics and global payment solutions to fuel their growth.

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