Small packages – big impacts

How e-commerce fulfilment and returns are reshaping logistics

Whether you’re a consumer or a business, buying products or services is now largely an online activity. E-commerce has changed the nature of logistics, and companies must adapt to accommodate increasingly smaller orders. In 2022, Eureka highlighted the phenomenon of ‘reverse logistics’. Gian Schiava returns to that topic, to find out how supply chains have changed and whether they are managing the reverse flow effectively.

We see order picker trucks driving around with scanners and other technologies to get the work done faster, while keeping inventory data up to date.

The traditional forklift driver may now be operating specialised man-up turret trucks (Images 1 & 2) or medium/high-level order pickers (Images 3 & 4).

Effects on logistics organisations

The popularity of buying online has led to generation of many reports, market overviews, studies and other research publications. Logistics service suppliers, consultants, equipment providers and even financial organisations write continuously on the latest trends. A major common denominator, especially for retailers, is the increasing amount of business turnover coming from their websites. In some cases, like Amazon, the business is purely e-commerce. Nobody predicts an opposite trend when it comes to growth.

So, how have companies had to adapt the way they store, transport and deliver their products?

Image 3 (above). Order picking is amongst many fulfilment activities now being outsourced to 3PL suppliers. Pictured truck: Cat NOM10P medium-level order picker.

Sustainability and the art of reverse flows

There are two other interrelated trends that are drawing much attention these days.

First, the flow of reverse logistics. In 2022, Eureka presented this as an ‘upcoming wave’. Today, it seems to have settled in as a structural activity. Coping with this flow first requires freeing up of people, as it’s a labour-intensive process. It involves checking, repackaging, relabelling, restocking, and perhaps repairing or even writing off products entirely. Next, the process must be speedy (so the business can get back to selling). IT systems must be prepared for items to be quickly reabsorbed into the stock inventory. In the ideal case, warehouse managers must design this as a separate process, possibly with the aid of a WMS tool.

IT systems must be prepared for [returned] items to be quickly reabsorbed into the stock inventory.

Warehouses need to take countermeasures to reduce these costs. Setting up a new reverse logistics process, as described above, is the first thing to do, but there are other steps you can take. Collecting data on why products are returned could be helpful in getting the right product out in future. Look at ways of integrating forward and reverse logistics. For example, you can schedule deliveries around return pick-ups, or find other overlaps. Perhaps the most obvious measure is simply to rethink your return and exchange policies. Many consultants advise companies to drop free shipping on returns or to ask for at least a partial contribution.

Image 4. To maximise storage density, racking heights have (almost) gone through the roof and working aisles have become narrower. Pictured truck: Cat NOH12PH high-level order picker.

Some companies have even started using AI in this process. Dutch shoe retailer OMODA faced an almost 50% return rate. It led the business to work with Google on a process to gain insights into how likely a customer would be to return goods. Customers who proved to have a higher probability of returning received different advice and different advertisements from Google than other buyers. In this way, OMODA tries to influence buying behaviour during the shopping process!

The second big trend is that of sustainability. Without a doubt, e-commerce has had environmental impacts, which may be in the opposite direction to where we as consumers want to go. Increased shopping and caring for the planet is a difficult balancing act. Many companies are implementing sustainable initiatives aimed at reducing their carbon footprint. These include electric-powered materials handling and delivery vehicles, green warehouses, eco-friendly packaging, and a general reduction of material waste. In fashion, especially, some innovators are offering repair services to persuade you not to throw away your pair of jeans or jacket too soon.

Next to increased efforts on the supply side, we are seeing government interventions. For example, the European Parliament recently approved a new European packaging regulation. This law aims, among other things, to reduce the growing amount of waste and to stimulate a circular economy. Companies will have to reduce the amount of plastic packing waste (fillers), and they must not exceed a maximum empty space ratio of 50 percent.

In addition, certain types of single-use plastic packaging will be banned. Reusability of alcoholic and non-alcoholic drinks packaging will become a target. Meanwhile, all packaging (except lightweight wood, cork, textiles, rubber, ceramics, porcelain and wax) must meet strict recyclability criteria. All of the above will put extra pressure on e-commerce operations to meet sustainability requirements, especially in their reverse flows.

Increased shopping and caring for the planet is a difficult balancing act.

In the last decade, the e-commerce boom has opened many new markets and ways to make profit for many companies. At the same time, the fragmentation of orders has forced businesses to rethink their processes to avoid excessive costs. The increasing stream of returns, along with increased pressure to be sustainable, will lead to massive innovations in logistic organisations in the years to come. Going green, in combination with maximising efficiency, is the key here.