Many small ecommerce businesses start at home. At first, storing your handmade candles in your garage may work, but as sales gain momentum and visibility increases, you’ll need a little more space. Scaling up is any small business owner’s dream, but your inventory needs to keep up with your sales volume. Finding a storage solution—like warehouse space—can help you handle growing demand. Here’s what you need to know about ecommerce warehousing.
What is ecommerce warehousing?
Ecommerce warehousing refers to storing ecommerce products in a physical facility, commonly known as a warehouse, before they’re shipped out to customers.
Warehousing involves keeping products organized, accounted for, and in good condition. With a solid ecommerce warehouse management system, you can track where your products are, how much you have in stock, and how long your goods have been in storage. Efficient warehousing is crucial for the smooth functioning of the supply chain and the timely fulfillment of customer orders.
Types of ecommerce warehouses
- Fulfillment centers
- Distribution centers
- Public warehouses
- Private warehouses
- Cooperative warehouses
- Smart warehouses
- Consolidation warehouses
- Government warehouses
There are many types of warehouses available to business owners, depending on your budget and storage needs. Here are a few examples:
Fulfillment centers
Fulfillment centers handle the short-term storage of products before shipping them directly to the customer. These centers typically are owned or leased by single ecommerce companies who may hire third-party logistics operations to handle warehouse management and order fulfillment.
Distribution centers
Rather than delivering products to a customer, distribution centers are commonly used in the middle of the supply chain. These warehouses serve as intermediaries between one source, such as a production center, and another source, such as a brick-and-mortar store or fulfillment center. Distribution centers are often used in the grocery industry, and may offer specialized storage services, such as refrigeration.
Public warehouses
Public warehouses are owned by third parties and leased out to private companies or individuals. These facilities may lease space to multiple companies and store products under one roof. Public warehouses often charge an additional fee to provide fulfillment services.
Private warehouses
Private warehouses are large product storage facilities owned by a single company for storing their own products. Having your own ecommerce warehouse has several advantages, including the ability to customize a space to suit your products’ needs. However, owning and maintaining a private warehouse can be more costly than renting space at a public facility. Many large companies, such as Amazon, use private warehouses to store inventory.
Cooperative warehouses
Cooperative warehouses are jointly owned by a collection of businesses or individuals. Many cooperative warehouses offer storage to both co-op members and external parties but may provide a discounted rate to members.
Smart warehouses
A smart warehouse is a storage facility that uses advanced technology, including AI and computer vision, to enable faster, more accurate item selection. For example, some smart warehouses may use drones and robotics to store and retrieve products.
Smart warehouses are often efficient and precise and can reduce errors, like shipping the wrong inventory to a customer. However, these facilities can be expensive to set up and maintain, the cost of which passes down to the client business and, ultimately, the consumer.
Consolidation warehouses
Consolidation warehouses combine products from multiple businesses into one shipment. These warehouses are operated by third-party companies and offer a variety of shared resources. For example, combining shipments bound to the same location can help bring down shipping costs for individual businesses.
Government warehouses
Government warehouses are owned by federal, state, or local governments. These warehouses may be used by government agencies for storing essential supplies and essential goods, but also by businesses, and even private individuals. Government warehouses are not always high-tech, but they often offer a good level of security and affordable rates.
How to find the right ecommerce warehouse for your business
- Determine your spatial requirements
- Consider essential equipment
- Choose a warehouse management system
- Collect and analyze data
The exact steps to setting up an ecommerce warehouse space will vary depending on the type of warehouse you choose: Establishing a private warehouse is typically more complicated than leasing space in an existing warehouse, and will involve additional steps like shopping for real estate, hiring warehouse managers, and choosing an insurance policy.
However, here are some steps to help you decide what kind of warehouse you need:
1. Determine your spatial requirements
Deciding how much storage space you need can help you choose the correct warehouse facility. Consider how much product you have on hand and your inventory turnover rate.
2. Consider essential equipment
Optimize your workspace for peak performance or choose a warehouse equipped with the necessary tools. You may need warehouse equipment including storage solutions like shelving, handling equipment like forklifts, and shipping supplies like bubble wrap and boxes. Perishable items like food may have specialized equipment needs, such as a refrigeration system.
3. Choose a warehouse management system
The right warehouse management software can help keep track of your product status. There are a wide variety of management software services to choose from, depending on your needs. Helpful features may include the ability to track inbound shipments and optimize packing workflow. To help manage inventory, some can be programmed to deliver customized alerts, notifying you if stock is running low or has been in storage for too long.
4. Collect and analyze data
Collecting and analyzing data can help ensure that your warehouse is operating efficiently. Select data points that support your goals. Consider tracking metrics like the average cost per package, how frequently products are returned, and the average time it takes for an order to be fulfilled from when it’s placed to when it’s shipped.
Tips for ecommerce warehouse management
Proper warehouse management can help your ecommerce store operate efficiently and increase profit margins. Consider these best practices for daily warehouse operations:
Aim for efficiency
Warehouse items are pulled off of the shelves by individual workers or machines—a process known as product picking. Establishing an efficient product-picking system can help reduce the time your team spends assembling each order. Organize your warehouse space so that frequently ordered products are easily accessible, or devise a system that enables workers to pick products for multiple orders at once.
Consider warehouse location
If products ship directly from your warehouse to the customer, the location of the warehouse plays a critical role in shipping time. If your customers are spread out across the country, consider choosing a centrally located warehouse or distributing your products across multiple warehouses to reduce shipping times.
Keep the right amount of inventory
When it comes to inventory management, ecommerce retailers should aim to find a sweet spot: Excess inventory can lead to unnecessary production and storage expenses—these products must sell to see any return on investment. On the other hand, low inventory can result in delayed shipments and frustrated customers.
Challenges of ecommerce warehousing
Navigating ecommerce warehousing solutions can be tricky. Here are some common challenges to watch out for as you set up your warehousing system:
Shipping delays
Shipping delays can pose challenges at either end of the ecommerce supply chain. Manufacturer shipping delays could leave you without enough product on hand, while outbound shipping delays could lead to frustrated customers. A well-executed warehouse management system minimizes outbound delays by reducing the time it takes to locate and pack products, and a robust inventory management system can help you determine if you need to increase or decrease your inventory levels.
Managing returns
Hassle-free returns are a key component of a successful ecommerce business model, but managing returns can be challenging. Consider implementing quality checks and restocking returned items, or partnering with a logistics company to liquefy returned merchandise.
Shipping costs
Consider partnering with a preferred shipping carrier that offers bulk shipping discounts.
Ecommerce warehouse FAQ
What is the average size of an ecommerce warehouse?
Data suggests that the average warehouse size in the US is more than 180,000 square feet, but warehouse sizes can vary greatly, even within the same company. For example, large Amazon fulfillment centers can be up to one million square feet, while AmazonFresh distribution centers are often less than 45,000 square feet.
How does technology play a role in modern ecommerce warehousing?
Ecommerce warehouses can employ advanced technology to improve speed and efficiency. Smart warehouses use technology like computer vision, drones, and robotic picking arms to quickly identify and select stored products.
What’s the difference between cross-docking and traditional warehousing?
Cross-docking is the process of unloading goods from one mode of transportation and immediately loading them onto another. In the traditional warehousing system, products are unloaded and stored in a warehouse before they move on to their next destination.
