eCommerce Warehousing 101: Definition, Types, Benefits, and More
The eCommerce industry is growing rapidly, as more people start their own online businesses and retailers expand their offerings.
In 2020, Wix eCommerce stores made $5.4 Billion in online transactions and saw 114% YoY Growth in sales revenue.
That means there’s no better time to start your own eCommerce business. On the surface, it may seem like all you need to do is create a website and watch the sales roll in. In practice, it’s so much more. For that reason, it’s essential to learn as much as you can about the eCommerce business model, and to implement these strategies as you build your own eCommerce website.
Read Also: How to start a business
One of the most crucial practices is to learn where to store your stock and how to manage it effectively. That’s where eCommerce warehousing and eCommerce warehouse management come into play. In this article, you’ll learn all about this crucial technique, from what it is to the different types of eCommerce warehouses available.
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What is eCommerce warehousing?
eCommerce warehousing refers to the process of storing goods specifically for sale online. Relatedly, eCommerce warehouse management encompasses all the processes involved in operating an eCommerce warehouse, such as:
Managing the employees who work in the warehouse
Keeping products secure
Monitoring all processes from the moment stock arrives in the warehouse until it ships out to a customer
Building and maintaining relationships with shipping carriers
Forecasting demand to avoid running out of stock or having too much stock
Maintaining safety precautions for accident prevention and to protect employees, equipment and inventory
When you reach a point in your business growth where you’re having trouble keeping up with your order volume, it may be time to outsource fulfillment. There are many third-party logistics (3PL) providers that can help with eCommerce order fulfillment so you don’t have to manage it yourself, such as Shippo, ShipBob and ShipStation. This Wix eCommerce guide to fulfilment services will help you recognize when you need to outsource and which companies can be easily integrated with your online store.
Types of eCommerce warehouses
No two warehouse locations are the same. What works well for the startup business or a traditional brick-and-mortar store won’t be sufficient for major retailers like Walmart. Here are the main types of eCommerce warehouses and everything you need to know about them:
01. Public warehouses
A public warehouse is owned by a governmental body. Space is available for personal or business use.
Small business owners typically find these are the most affordable way to store goods for a short time. One drawback, however, is that these warehouses aren’t the most technologically advanced.
02. Private warehouses
Manufacturers, wholesalers or distributors typically own private warehouses. Amazon and other large retailers, for instance, typically have private warehouses of their own.
Private warehouses cost more than public warehouses but can be a strategic move for eCommerce small businesses. They are especially important if you need a strong presence in a particular market.
03. Cooperative warehouses
Cooperative warehouses are owned and operated by cooperative organizations, like wineries and farmers. The co-op members and those outside the co-op can store goods, but co-op members can do so at a reduced rate.
04. Government warehouses
A government warehouse is a facility that a governmental body directly owns and controls. These types of warehouses offer affordable rates to businesses. If a business is ever unable to make its rent payment, the government has the authority to recoup the lost revenue by selling the inventory.
05. Fulfillment centers
Also known as distribution centers, these are storage spaces built with specific requirements. Storage in fulfillment centers is often temporary, as items shift rapidly throughout the supply chain. The fulfillment center receives a large inventory, and then distributes it to resellers and retailers within a matter of days.
In cases of perishable items, the goods are typically distributed within 24 hours. Distribution centers offer affordable leases. However, they can vary widely, based on the types of products stored there. Many all-in-one eCommerce platforms, like Wix eCommerce, allow users to easily connect their stores with popular eCommerce fulfilment service companies like Shippo, ShipBob and ShipStation.
06. Smart warehouses
A smart warehouse uses AI automation to handle storage, management and fulfillment. The automation goes beyond software like inventory management systems and includes drones and robots to pick and pack the orders for shipment. The robots and drones will also weigh, transport and store goods. Major eCommerce companies like Alibaba and Amazon use smart warehouses to speed up order fulfillment and reduce error.
07. Bonded warehouses
Bonded warehouses can store imported goods before a company is required to pay customs duties. Authorities offer renting space in warehouse bonds, which ensures that the company doesn’t lose money when its products are released.
Furthermore, until the products are released, a company storing goods in a bonded warehouse isn’t required to pay customs duties. It’s also possible to store restricted items in a bonded warehouse until the necessary paperwork is finished. Companies can use this space to store items for the short term or for a longer period of time.
These warehouses are the ideal choice for importers so that they can keep items duty-free until they’ve found someone to purchase them. They are known for safety and security, so they’re an excellent option for eCommerce businesses that engage in cross-border trading.
08. Consolidated warehouses
Consolidated warehouses take small shipments from various suppliers and group them into larger shipments before they are distributed to buyers. All the shipments have to be for the same geographical area, so this typically isn’t an ideal option for eCommerce sellers.
Choosing an eCommerce warehouse
Now that you’re familiar with the different types of eCommerce warehouses, consider which option is best for your business. Here are some factors to consider:
Specific business needs
Whichever option you choose, remember that your decision isn’t irreversible. As your business grows and evolves, you can always consider changing types.
eCommerce warehouse management best practices
No matter which types of eCommerce warehouse you select, there are several best practices you’ll need to keep in mind if you want your operation to run smoothly. Poor eCommerce warehousing processes waste money and may even delay orders. On the other hand, investing resources into proper warehouse management improves customer experience and, ultimately, boosts revenue. For an effective warehouse management strategy, implement the following tips:
Use an eCommerce warehouse management system (WMS)
Integrate your eCommerce store with other tools
Store your inventory across several distribution centers
Set inventory minimums
Test multiple picking systems
01. Use an eCommerce warehouse management system (WMS)
This specialized software monitors and controls day-to-day warehouse operations. This includes:
Giving real-time insight into product availability and inventory levels
Managing the eCommerce supply chain
Streamlining order fulfillment
02. Integrate your eCommerce store with other tools
Integrating your store with your WMS and other tools allows you to streamline your overall workflow. You can automate tasks such as:
Sending order updates and shipment notifications to customers
Automatically ordering more inventory before items go out of stock
Managing inventory across multiple sales channels
03. Store your inventory across several distribution centers
Distribute your products to multiple warehouse locations across the country so that customers receive their orders from the closest possible warehouse. This not only ensures they’ll get their products faster and improves the customer experience, but it also helps cut down on eCommerce shipping costs.
04. Set inventory minimums
Finding balance in your inventory is always one of the most difficult things to do in commerce. When you’re first starting out and don’t have historical data to run on, it’s almost impossible to estimate how much inventory you need.
On the one hand, you don’t want to have so much inventory that you lose money because you’re unable to sell it. This can drive up your inventory carrying costs, too, since you have to pay for storage space to hold the items.
On the other hand, you don’t want to have so little inventory that you risk running out of stock and missing out on sales. If this happens too often, you’ll upset customers, and they may not be willing to come back and give you another chance.
That’s where it helps to set up inventory minimums. When inventory hits a certain level, the WMS will automatically place another order for more. This way, by the time the last stock sells, you’ll have more inventory waiting for customers—or, at least, have it on the way to your warehouse.
Of course, there’s always the chance that inventory will sell faster than you anticipate because demand may change. But, this precaution at least protects against long-term out-of-stock issues.
05. Test multiple picking systems
You’ll have no shortage of options to choose from. If you only get a few orders per day, then using a one-at-a-time approach may work. But, for growing companies and larger operations, this isn’t practical or efficient. Advanced tools make things like auto-generated picking lists and batch-picking possible.
For direct-to-consumer eCommerce businesses there are many reliable 3PL fulfilment centers that offer these operational features as standard. Although most of these fulfilment and warehousing companies can be easily integrated with your chosen eCommerce platform, it’s best to conduct your own thorough research to find the right one for your business model.
By trying out multiple systems, you can determine what works best for your company and order volume. Your final choice should be something that can grow and scale with your business.
Benefits of eCommerce warehousing
In the beginning, while you’re trying to build revenue, it may not be practical to invest in warehousing for your eCommerce business. But when you reach a certain point, those resources come with many benefits.
Get products to your customers faster
Courtesy of the Amazon Prime Effect, today’s online shoppers expect their orders to arrive quickly. They don’t necessarily want to pay for shipping either, even when they shop with other merchants.
Wix stores that offer free shipping have a higher average order value (18%)
It’s not reasonable to expect that a relatively small eCommerce operation would be able to provide the same fast and free shipping that Amazon does—but oftentimes, customers don’t care that you’re not a large-scale operation.
Leveraging the power of warehouses ensures that your customers will receive products faster. Orders are picked in batches, rather than one at a time, and always ship from the closest distribution center. Plus, you’ll be able to take advantage of bulk shipping discounts, which make eCommerce shipping costs more manageable.
Packing up orders one at a time and shipping them yourself is time-consuming. Turning to eCommerce warehousing eliminates the hassle of storing your goods in your garage, and takes care of everything else for you, too. All you have to worry about is shipping your inventory to the warehouses.
Keeping stacks of boxes in your garage seems like a good idea at first. But the more orders you pick and pack, the more potential there is to lose track of where everything is and where everything should be. Reorganizing everything will be stressful, and may not even be possible if you’re limited on space.
You’ll have more accurate reports on the current status of inventory. You’re also much less likely to lose items. And, you’ll get a better understanding of your inventory turnover rates, so you’re always able to reorder proactively.
eCommerce warehousing isn’t just about the space to store your inventory. It’s about coming up with packaging ideas, shipping, managing stock, re-ordering, and so much more. That’s a lot of stuff to deal with. When you pass it all over to an eCommerce warehouse management provider, you can focus on other aspects of your business, like marketing and customer service.
Without eCommerce warehousing, you’ll run into a variety of problems as you run your business:
Your storage space will eventually run out (unless you want to build a second garage or buy a storage shed, again and again.)
You will undoubtedly lose inventory at some point.
You may ship the wrong inventory to your customers. This can damage your reputation, and prevent a first-time customer from becoming a loyal customer.
You may find yourself dealing with stock-outs and excess inventory because you don’t have a clear idea of your best and worst-selling products.
Watch our webinar on how to plan for holiday order fulfillment with Casey Armstrong, CMO of ShipBob.
What to look for in an eCommerce warehouse space
No matter what kind of eCommerce warehouse, or inventory management process (be it LIFO, last-in, last out or something else) you choose for your business, quality warehouses are more than just buildings to store your stuff. As you choose your provider, look for:
Security and safety, for both your inventory and your employees
Market proximity and accessibility
Adequate storage space with a properly designed interior
Latest appliances, equipment and software
Emergency protocols in line with the latest recommendations
Highly organized receiving and order picking processes
Good customer service and prompt delivery
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Co-Founder, Ecommerce CEO
Darren has 15+ years of marketing experience for retail, manufacturing, and internet corporations. Darren has an MBA in Internet Marketing and is the Co-Founder of Ecommerce CEO.