Top Warehousing Challenges E-Commerce Companies Face in 2023
TL:DR: As E-Commerce market expands, so does the number of potential issues the companies may encounter. Many challenges of this industry have been persistent throughout the years – driven by a chase towards faster deliveries, the hassle of adopting robotics and automation, seasonal spikes and peaks in demand. However, a plethora of new challenges have arisen: like finding land suitable for industrial use or warehouse workers, while also supporting consumer’s growing preference for environmentally sustainable practices. Understanding the shifting landscape of E-Commerce, and how warehousing fits into it, is crucial for tackling these modern problems with modern solutions.
Several years ago, the global E-Commerce market went through a period of rapid growth, brought on by the pandemic. Though the days of COVID-19 are thankfully in the past, in 2023 it is clear that the love for remote purchases delivered to your doorstep is here to stay. By 2026, total global E-Commerce sales are expected to grow by 50%. For a market that relies on the delicate balance of supply and demand, it is paramount to ensure that the supply is safely stored and ready to go. Let’s take a look at the role warehousing plays in 2023 E-Commerce and the challenges the industry is experiencing in that sector.
SETTING THE STAGE: 2023 LANDSCAPE OF E-COMMERCE
The market does not stand still. Recently, there have been numerous exciting developments in the E-Commerce industry, which reflect many important changes in customer behavior. For example, in a matter of several years, 30% of consumers have moved from consulting their friends and family about potential purchases to taking recommendations from the influencers they follow.
Mobile phones are not only vessels for E-Commerce recommendations; they are a powerful tool of online purchases that rivals computers. By 2024, mobile E-Commerce is expected to account for 42.9% of all online sales. Social media have expanded their opportunities for advertisement, and introduction of AI technology into design and copywriting has made the creation of ad copy and visuals easier than ever, meaning that we are moving towards an even more commercialized world.
Delivery is a big part of 2023 E-Commerce. According to Oberlo, free delivery in particular is the top reason for shopping online, with almost half of the surveyed shoppers mentioning it as a significant factor in their decision-making. Efficient logistics can make or break the success of a company’s E-Commerce, and transportation of goods is only the tip of this iceberg.
E-COMMERCE AND WAREHOUSING
Well-preserved and easy-to-access supply is the backbone of all trade. For E-Commerce, the topic of quality warehousing only becomes more relevant. Allied Market Research predicts that the global E-Commerce warehouse market size will reach $832.8 billion by 2032, growing at a CAGR of 18.4% from 2023 to 2032. The need to meet the shoppers’ demands is a huge moving force for the progress of warehousing. To improve their operations, different facilities adopt automation and robotics, and even map out their next location in a way that minimizes shipping time.
Warehousing plays a pivotal role in commerce, serving as the logistical foundation that facilitates the smooth flow of goods within the supply chain. Ensuring the preservation of goods and playing the role of strategic distribution centers, well-run warehouses enable businesses to manage inventory effectively and allow for faster order fulfillment. Four categories segment the e-commerce warehousing market:
- Business Type: B2B or B2C. B2B businesses sell products or services to other companies, while B2C businesses sell products or services directly to individual consumers.
- Product: electronics, apparel, home furnishing, personal care and baby products, books, and others. This segmentation categorizes E-Commerce warehousing based on the types of products stored. It takes into account factors such as size, weight, perishability, and special handling requirements.
- Component: software and services. Software products are standalone applications or programs that are developed, packaged, and sold, while SaaS – Software as a Service – refers to cloud-based applications or platforms that are hosted and maintained by a third-party provider.
- Region: North America, Europe, Asia-Pacific, and LAMEA (Latin America, Middle East, and Africa).
Top Warehousing Challenges E-Commerce Companies Face
No industry has ever been devoid of challenges, and such a fast-growing market as E-Commerce is bound to experience plenty of growing pains. As a result, a lot of its current challenges – warehousing challenges included – are merely the latest versions of issues that have plagued the industry for years.
Inventory management remains a complex puzzle, exacerbated by the need to adapt to ever-changing consumer demands and market trends. Labor shortages persist as a concern, impacting staffing levels and requiring ongoing investment in training and retention strategies. The integration of advanced technologies, such as robotics and artificial intelligence, is crucial for enhancing efficiency and competitiveness, but it presents its own set of implementation and management challenges. Other culprits are:
- Warehouse Space Optimization: As E-Commerce businesses grow, they often face constraints in warehouse space. Maximizing space efficiency while accommodating increased product diversity can be challenging.
- Seasonal Demand Fluctuations: Many E-Commerce businesses experience seasonal spikes in demand. Managing inventory and staffing to meet these fluctuations without overcommitting resources can be tricky.
- Fulfillment Speed and Efficiency: Customers increasingly expect fast and accurate order fulfillment, including options like same-day or next-day delivery. Meeting these expectations while controlling operational costs can be a constant challenge. The relentless pursuit of faster operations puts an immense pressure on warehousing operators, but the difference in delivery times may well define your client’s choice between you and your closest competitors.
- Technology Integration: Integrating and managing various technology solutions like Warehouse Management Systems (WMS), RFID, automation, and data analytics tools can be complex and expensive.
- Order Picking and Packing: Optimizing the order picking and packing process is crucial for efficiency. Balancing automation and manual labor to achieve cost-effectiveness and speed is an ongoing challenge.
- Returns Management: E-Commerce businesses often have higher return rates compared to brick-and-mortar stores. Handling returns efficiently, inspecting returned items, and restocking or refurbishing them can be resource-intensive.
- Regulatory Compliance: Meeting various regulations related to safety, labeling, and environmental standards can be challenging, especially for businesses selling products internationally.
- Last-Mile Delivery Challenges: Ensuring timely and cost-effective last-mile delivery, especially in urban areas, remains a significant challenge. This includes managing urban congestion and addressing environmental concerns.
- Data Security and Cybersecurity: With the increasing reliance on digital systems, E-Commerce companies need to invest in robust cybersecurity measures to protect sensitive customer and business data.
Challenges Specific to 2023
Many of the abovementioned problems are a natural part of the industry, that require consistent adaptation and self-improvement on behalf of the companies. Biting the bullet and investing in progress through digitalization and introduction of innovative technologies is oftentimes the most obvious solution. However, there are also new and more specific concerns to watch out for.
Rising Costs of Industrial Land
In 2023, the complaints about rising real estate prices are as poignant as ever. Today, the housing crisis affects not only individual people, but entire industries. E-Commerce is no exception. Newmark mentions how “between 1Q17 and 1Q22, the Cleveland metro market has seen an average industrial land sale price of $55,288/acre, compared to an average of $27,159/acre between 1Q12 and 1Q17”, which marks a 104% increase over a 5-year timeframe. E-Commerce companies may find it difficult to build or expand their warehouse facilities in locations that would be perfect for their freight.
Unmet Demand for Sustainable Practices
Millennials and Gen Z, the latest generations of potential buyers, make for the most environmentally conscious shoppers, and it is likely that Generation Alpha will continue the trend. If E-Commerce companies want to survive this evolution of client behavior, upgrading to a more sustainable workflow is a matter of “when”, not “if”. According to a Descartes Research Report, 50% of consumers are interested in eco-friendly delivery, and 54% would agree to a longer delivery time if it meant their order is more sustainable. However, only 38% of consumers are content with the current state of sustainable delivery practices. The delay in adoption of environmentally conscious warehousing and freight is costing companies money and wasting the potential to build a loyal customer base.
Shortage of Warehouse Labor
The discourse around unethical warehousing working conditions has really taken off once the giants of the E-Commerce industry started to feel the pain of staff hunger. As a result, the horror stories of separate companies set the stage for the overall expectations from working in a warehouse, making it harder and harder to find new employees. Keeping your working conditions humane and displaying an accurate image of your workflow to potential candidates will go a long way, and so will implementation of automation and robotics.
CONCLUSION: FACING THE CHALLENGES HEAD-ON
For years, warehousing in E-Commerce has struggled with space optimization, labor shortages, seasonal spikes and drops, regulatory compliance, efficient order fulfillment and cybersecurity. Today, this list is expanded with the difficult search for industrial land, demand for sustainable solutions, and the struggle to attract new workers to the warehousing sector.
Looking at these challenges, we see that the future of E-Commerce will be defined by technological advancement, ethical business practices, and adaptation to the demands of shoppers. As online retail becomes more and more popular and the competition intensifies, the ability to move along with the times will decide if your business sinks or swims. Younger generations set higher standards of speed, digitalization and sustainability for retailers, and warehousing will have to catch up to these trends to provide the industry with a solid base to grow.
Innovecs prioritizes innovation and digital supply chain transformation. We can help you maximize the efficiency of your warehouse with innovative software and top-quality tech support. Do you want to increase your deployment speed or come up with a new warehouse plan that will simplify the order picking process? Are you interested in robotic process automation, artificial intelligence or IoT? Check out our newest selection of supply chain services, take a look at our E-Commerce expertise, and feel free to reach out to us with any questions. Let’s improve your warehousing together.