Logistics as a competitive factor for marketplaces and suppliers

Amazon has greatly increased the expectations of customers regarding the quality of delivery in e-commerce. Sellers and manufacturers, but also the marketplaces themselves, must adapt to this. With a professional logistics setup, operators and providers can make the best possible use of their opportunities. For marketplace operators, fulfillment quality is essential for customer satisfaction and therefore for their success. In most marketplace approaches, however, the fulfillment quality of the partners is a kind of black box. The marketplaces have little or no influence on delivery speed and delivery quality.

 

In the eyes of the customers, however, marketplaces are responsible for delivery speed and delivery quality and are the first contact for complaints, should something go wrong during delivery. Therefore, as far as possible, control over your own marketplace logistics is advisable – up to the establishment of your own end customer logistics. 

 

For a discussion on “marketplace logistics,” it is necessary to differentiate between different tasks: 

 

A1) Marketplaces offer their partners logistics services (e.g.: Fulfillment by Amazon “FBA”) 

A2) Sellers and manufacturers deliver their products to the marketplace, which takes over the end customer logistics (e.g.: FBA delivery) 

B) Sellers and manufacturers take over the retail logistics for marketplace orders themselves (Fulfillment by Merchant)

 

Fulfillment by marketplace – invented by Amazon

 

The Amazon marketplace has also grown so quickly and successfully because the providers can use “Fulfillment by Amazon” there. The platform thus had an additional USP for manufacturers and retailers, who partly avoid digital trading out of fear of end customer logistics. Apart from Amazon, however, there are only a few players who also set up their marketplace business as a fulfilment service provider. 

So far, it is mainly large marketplaces such as Zalando, ManoMano and Douglas that have put “fulfilment by marketplace” on their strategic agenda. In 2022, Kaufland will also roll out its “Fulfillment by Kaufland” logistics service in Germany. Other providers will follow. 

 

Getting these fulfillment services up and running is challenging, because the design of the “Fulfillment by marketplace” means mastering logistics for many and especially many small partners as efficiently as possible. Among the biggest challenges are the continuous labeling and identification of the items in the incoming goods and the product data management. For this purpose, it is advisable to set up a separate item number logic as a marketplace, which is not based exclusively on EANs of the manufacturers. Item data is not always available clean and structured. In particular, the so-called geometric data, i.e. length, width, height, and weight, are prone to errors. However, for a maximum efficient processing, the item data must be synchronized with the physical logistics in the best possible way. For this reason, each marketplace sets its partners concrete requirements for delivery via so-called “delivery conditions,” which vary considerably and are consistently maintained in different ways or even punished in the event of non-compliance. 

 

Deliveries to marketplaces – challenge for manufacturers

 

Due to these specific requirements, the delivery to marketplaces is therefore more demanding than it appears at first glance. Manufacturers and sellers must adapt the B2B delivery individually to the conditions of the marketplaces; for some players they can deliver mixed goods shipments, for others only sorted by article and material/SKU. Unlike stationary B2B customers, precise requirements in data management and scheduling must also be taken into account. Efficient planning is critical to success in the marketplace business. For example, suppliers have to clarify whether they want and are allowed to make goods available to the marketplace for a week, a month or for a six-month period. This is done depending on their pricing model, their availability of goods, the capital commitment and the flexibility in their own logistics processing. Where relevant sales are achieved via marketplaces, delivery to marketplaces should also be professionally addressed.

 

Retail logistics for marketplaces means one-piece orders 

 

If manufacturers and sellers take over the end customer logistics for marketplace orders themselves, they gain some degrees of freedom in their design and are masters of their own logistics, which can be advantageous especially when operating several sales channels simultaneously. However, companies should prepare their fulfillment to have to process predominantly one-piece orders. Even if a customer orders larger shopping baskets on a marketplace, the individual manufacturer and supplier is responsible usually for only one product. Efficient logistics for this purpose look different from the online shop or in particular the B2B processing, which is normally aimed at processing several items at once. For these end customer logistics, the requirements in terms of service levels, cardboard packaging, branding, sustainability, and carrier selection must also be taken into account, depending on the connected marketplace. This complexity must be managed on the system side – also against the background of the scaling potential when opening marketplaces. The increasing demands in the case of internationalization must be taken into account as well. 

 

Inventory management separates the chaff from the wheat 

 

For the logistics of the marketplace, the supply of the marketplaces, and the end customer logistics by manufacturers/sellers, inventory management is a crucial task. As long as sufficient stock is available for the orders, everything is good. However, if only two products are left in stock for your fulfillment, but three orders are received, it becomes treacherous. Non-deliverability and non-delivery are punished by the marketplaces. Pre-reservations and assignments would solve this problem but are so demanding on the system side that most companies cannot map this in their existing inventory management or commodity management systems. 

Only a superior order management system would provide a lasting remedy. Likewise, the manufacturer or distributor is responsible for the availability of their products at the marketplace. Therefore, the continuous supply – and as automated as possible – of the stocks at the marketplace is also highly relevant because unavailability often leads to losses in the ranking and reduces sales potential sustainably.

 

Make or buy – on which core competencies should one build? 

 

Running marketplace logistics economically is anything but trivial for manufacturers and retailers. The more marketplaces a company joins and the more international the business becomes, the more complicated it becomes. Companies must also actively manage the expected growth of online marketplaces. Especially among manufacturers, however, there are still some that are not yet geared towards professional B2C logistics. The plea is therefore: To analyze your own value chain and develop a clear strategy of what you can and want to do, what the processing costs are, and how it can be scaled quickly if necessary. 

 

Outsourcing is also a conceivable option. By now, a separate service universe has been formed around e-commerce and marketplace logistics that can provide support for inventory management, physical logistics (warehousing, picking, and dispatch preparation), system-side support, and the complete process chain. Likewise, marketplaces must ask themselves the big question for their own logistics services: Do you have the energy and resources in the long term to scale logistics like Amazon? Or would you rather choose the path of an outsourced logistics service with high self-control of the goods flows like Zalando? Precisely because marketplace logistics entails a high degree of complexity, marketplace operators as well as manufacturers and retailers should put the topic of logistics at the top of their priority list, develop a strategy, and build and provide the appropriate competencies, capacities, and systems.

 

Thousands of suppliers ensure that doing business on the marketplaces is more efficient, faster, and more scalable. The complicated part is figuring out which service you should outsource and which service provider is the right one to cover this part.