Estimated reading time: 13 Min
Did you know what? Between 85 and 90% of the logistics cost of a ecommerce, it's the last mile.
If we have learned anything over the past few months, it is that the world can change from one moment to the next, and that those who are not prepared or willing to reinvent themselves will not be able to overcome the change.
A few decades ago, when a company entered the S&P 500 index, it had a life expectancy of more than 60 years, that is, it was here to stay. Today, 52% of these companies have disappeared, since the projection of remaining in this index was reduced to 17 years. Why? Because companies do not know how to adapt and although they become great representatives in their sector, due to contingencies outside the company, they are unable to face changes, and this ends up “killing” them.
Many of a company's most important decisions are not made by the General Manager, nor by the Innovation or Commercial areas; they are made by external factors such as COVID 19, a phenomenon that found many ill-prepared companies, forced them to close or forced them to adapt to remain afloat in the market.
Transformations will always be necessary, we live in a world in constant change, where competition in the logistics field is getting stronger every day and has been evolving over time, for example, imagine Walmart 5 or 10 years ago, when it competed against the same format, basically self-services. Today, it is faced with companies at an international level, such as Chinese companies, because in the current market, you no longer have to be physically in the same location as the consumer to be able to sell and deliver the product.
Great growth, great challenges
In the United States, during 2019, the ecommerce represented sales of 12 billion pesos, how much is Mexico compared to this figure? : in an 18th part. Obviously there is a whole issue of population, economy, and other factors involved, but it gives us an idea of all the way we have to go. Even if we add up the revenues for ecommerce of Latin American countries such as Mexico, Peru, Chile and Ecuador, even so, we would need a twelfth of it to grow compared to the North American giant.
Let's now analyze another aspect, how was the growth of online sales during the first weeks of Coronavirus? In 10 years, the United States grew 11 percentage points in penetration against retail, the same 11 points it grew in the first 8 weeks of COVID. In Mexico, we had online sales of $316 billion pesos during the pandemic, however, if this growth was incredible at the commercial level, in terms of the operation, it was a headache.
We couldn't do it! The market exploded and we weren't prepared, the supply chain collapsed, affecting not only ecommerce but to the consumer because of delivery times, shortages, etc., we weren't ready! We didn't have an efficient operating muscle to cope with this monumental growth.
How did 2020 close?
During this period, with respect to ecommerce, Mexico grew by 81% compared to 2019; in Latin America, growth was 66%. Our country has been a spearhead in terms of evolution in this field for 3 consecutive years, that is, we are in the best place in Latin America for the adoption of eCommercand, which is really positive for companies that want to expand their sales channels in this region.
As for the percentage of sales represented by the ecommerce In total retail sales, we are currently at 9%, what does this figure mean? How far are we from more established countries? China, for example, is reaching 50% of sales by ecommerce compared to the total retail sector, which is surprising. We still have to grow by 500% to reach this economy, a big challenge, right?
To achieve the above objective, we need to be prepared in 4 main aspects:
- Consumer Confidence: Let's remember that we come from a culture of fraud, where the fear of being a victim of this crime suppresses online purchase decisions, our ecommerce Must provide the buyer with the necessary confidence to carry out their Buy with peace of mind, offering you the guarantees to make you feel safe throughout the process.
- Lack of logistics infrastructure: an aspect that has been addressed by last-mile companies that have entered the country, with which we are strengthening the delivery infrastructure.
- Lack of banking: only 30% of the Mexican population is banked, in order to attack the remaining 70%, cash on delivery payments must be implemented, or alternative payments to sell for ecommerce to the entire population.
- Lack of regulations: Mexican e-commerce is not yet well regulated, as is the case in other countries.
Why is logistics important?
What are the challenges in Mexico to increase the percentage of online sales and reach 500%? And why is logistics key to this goal? First, start by asking yourself: Why do people shop online? The answer is simple, because you receive your purchases at home, save time, buy faster, find things that are not at the point of sale or products that don't sell in Mexico and access better promotions on this channel.
The above are the motivators of buying, but as in any story, there are also those aspects that make the process doubtful, for example, consumers fear making mistakes during the purchase and not being able to change the product or don't know how to pay in cash. If you realize, of the above aspects, both motivational and negative, most of them are related to logistics or find a solution from it.
Now, let's consider other important aspects, tips that from the ecommerce they should not be ignored...
- The consumer's preferred delivery location is home or work.
- The benefit that the buyer is most interested in is free shipping.
- What the consumer expects most is that the product arrives in perfect condition, having communication throughout the process; complying with the delivery date, and guarantees against damage that the package may cause to the order.
- A quick and easy exchange and return process is also valued by the buyer.
Again, if you notice, there is only one constant in the previous points: the high dependence on the logistics area to offer a very good shopping experience, provide security to the customer and meet their needs. If you have inefficient logistics or a weak logistics muscle, you won't achieve these goals.
Retail vs ecommerce operating process
You sell what you sell, you have two aspects from logistics, one is called Procure to Stock, what you do from the moment you buy the product, until you store it, the other, is Order To Delivery, which happens from the moment a sale enters, until the order is delivered to the customer, both phases occur during the operational process, both in retail and in ecommerce, however, its execution in each case is very different.
The worst thing you can do is to venture into the ecommerce with the same logistics muscle that you serve in retail, it's like wanting to swim with your legs, you're going to move, but not as fast as with your arms, so they're two totally different muscles. Let's do the comparison:
What are consumers looking for online? What can we give him?
Achieving customer satisfaction right from the start is not that complicated, you only need 3 things:
1. Visibility, transparency and communication. When the customer buys, they want to know exactly where their order is, at all times, and if there are any contingencies, they want to be the first to know. Be transparent by providing the status of the order: on the way, in transit, with the delivery person, and, above all, when you cannot meet the delivery date, the product, or the quantity, be honest with your customer and inform them of the situation. If you can't deliver the next day, don't offer it.
2. Peace of mind and guarantee. If any eventuality occurs, that the ecommerce Answer. Regardless of the issue with the packages, you must respond to the end customer for the unforeseen events, I bought from you, not from the transport provider.
3. An experience. In the ecommerce There is no in-person shopping experience, you can't go to a store, talk to a person or touch the product, the ecommerce they must devise strategies such as the above, to provide a satisfactory shopping experience in the digital world.
Cost of serving in ecommerce vs retail
At the logistical level, you should always be very clear, what is the cost of serving? , that is, the associated costs to fulfill the customer's delivery promise, in how long, the quantity you want to deliver and the quality of the product. Segmenting the cost by sales channel is the most optimal, at a commercial level, you will know how much it costs you and how much will be the profit of ecommerce, compared to retail.
If you are very clear about these numbers, you will be able to understand the associated costs of delivering to each customer and even providing discounts, due to the logistical savings you can generate.
Let's look at a simple cost comparison:
- When you receive a product in ecommerce, is very expensive, because you do it per piece instead of a box, at the storage level, it is also more expensive, there are many picking and shelving fronts, unlike retail, where you store per pallet completely.
- As for order generation, in the ecommerce it's very cheap to do it, it's all automatic through platforms like Shopify for example, you don't need a person registering orders, while in retail, it's more expensive, since you require sales personnel to verify orders, which increases the cost.
- At the assortment and packaging level, in the ecommerce it is more expensive, supplies per piece and you require packaging material, which generates more expenses; in retail, supplies per box, per pallet and is very economical.
- At the delivery level, between 85 and 90% of the logistics cost of ecommerce, is the last mile, which is very high, compared to retail, where a local trailer for Mexico City, for example, can cost $5,000 pesos, while delivering for ecommerce 2,500 packages, which is approximately the ratio of a trailer, with packages, will cost you 50 times more, are two totally different operations.
If you want to know in detail the differences in costs by sales channel, we invite you to visit our article From Zero to Ecommerce, where will you know, what it costs to carry out the operation on your own .com (Direct To Consumer) and how much it costs you to do it through Marketplace channels such as Amazon or Mercado Libre.
To make your logistics cost management more efficient, you must start by understanding the strengths and weaknesses of your business, and implement strategies to achieve a low cost per unit, increasing operating volume. Here's a practical example:
Within the dermocosmetic industry, a small-sized cream costs $500 pesos plus $100 pesos for shipping, which is an economic value. If you ship two pieces, it's $1000 pesos of product and $100 of shipping, that is, very cheap. On the other hand, when you sell a grocery product, shipping can cost you almost as much or more than the order; if you send 1 kg of rice to Tijuana or an iPhone, it has exactly the same logistics cost, but in terms of price and profit percentage, the difference is enormous.
Despite the above, you cannot be inefficient in your logistics, devise strategies to optimize in this field, for example, you can open delivery frequencies by location and focus on delegations with the largest population and demand. When you sell a very cheap product, you can also penetrate the market through the ecommerce.
Let's Talk About Trends
7 years ago, people were looking for mass production at a competitive cost, that was the added value, for example, having a factory that produced jeans and being able to distribute them to many places. 60 years later, people began to focus on quality, it was no longer just a matter of mass production but production under certain standards. 20 years later, they weren't looking only for quality jeans, the branding of the brand began to play an important role. Soon after, the topic of service and the shopping experience was incorporated.
Nowadays, the trend, what the consumer wants as added value, is a matter of collaboration to generate a better experience. Studies state that for every peso you invest in collaborating with your client (business strategy, customer approach and knowledge, CRM), you receive $5.6 pesos, which is quite profitable.
In terms of channel-level trends, there are the Delivery Apps for the ecommerce, while retailers are being transformed to eTail, to their own.com, to have an influx of people, both physically and digitally; taking advantage of this, they are building Marketplaces so that sellers can offer their products in those windows, sell them and deliver them to the end customer.
On the other hand, and in terms of operating models, the trend is called omnichannel; in Last Mile, how do you coordinate delivery, how you charge in the COD, how you manage reverse logistics, etc. In the future, there will be lockers to deliver there so that the consumer goes when they want to pick up their product.
We also found the Drop Shipping trend: the collaboration of deliveries with your suppliers. That's what Marketplaces do, where they sell the product and then tell you which buyer to deliver it to.
Finally, at the operational level, there is the Micro trend Fulfillment, which consists of having warehouses very close to the consumer, where orders arrive, are filled, packed and shipped. They are located small distances away so you can make deliveries in less than an hour.
Strategic Allies or Partners
Who do you have to work with, who are your allies or strategic partners to have a good management of ecommerce? This topic covers two important aspects: learning to do things well and the cost, how cheap it is for you to do them.
When you carry out the logistics process internally, unless you are an expert, you must go through a learning curve that will represent errors and investment. When you outsource with a specialist, from day 1 you'll be doing things right.
At the cost level, when you do everything internally, you have several fixed expenses, which, since there are few orders (as happens at the beginning of a ecommerce), make your unit cost very high. Then, as you grow and the volume of sales increases, you must change your warehouse, because it will be too small for you, here, you enter the same circle again, where the unit value is once again expensive. On the other hand, when you outsource, they usually charge you a cheaper variable cost than doing it internally.
Based on the above, there are 3 strategic alliances or suppliers that you can have:
1. Operational. If you are a retail company you should look for a 3PL provider, if you have a ecommerce, look for a Fulfillment Center; with both, you will have an advantage in terms of learning and a competitive advantage in terms of cost, due to the concept of economy of scale. For operations in the Bajío, the Fulfillment Queretaro helps accelerate deliveries and optimize costs.
2. Last mile. Unless you are a company like Bimbo, which has a nationwide distribution, even in the most remote places, you must partner with last-mile couriers to make deliveries, both in retail and in ecommerce, in the first, they are transport providers of one and a half, three and a half, trailers, etc., while, for the ecommerce, are parcel delivery companies that help you get to different places, without you having to be operating directly in those places.
3. Payment gateways. They are very important in the ecommerce; in some cases, the customer has no confidence to buy and in others, there are people who buy with their credit card, the product arrives and dial the bank to report that they did not purchase it, so, since online commerce is currently not well regulated, the bank returns the money to the customer and takes it from the ecommerce; you lose the product, the payment, the freight and the bank commission, ultimately, it's the worst deal in history.
So that this does not happen or is minimized as much as possible, you must make sure that you hire a very good payment gateway that provides you with guarantees in these cases, Mercado Pago and Paypal, are two good options.
Measure and Control
Everything that is not measured, is not controlled, and everything that is not controlled, is not improved. It's important to measure your results, no matter the size of the company. At the logistics level, you can measure the following indicators by process:
1.Search for Stock. It is composed of 3 indicators:
- IRA: measures the reliability of the inventory, if your system says you have 100 pieces, you go and count them, how many do you have? The goal is to have an assertiveness greater than 99.5% in this indicator.
- Dock To Stock: How long does it take, from the moment the product arrives at the door of your warehouse until you organize it to start selling?
- Compliance with the supplier's program: carry out all the activities that help you make deliveries faster.
2. Order To Delivery. From the moment you enter the order until you deliver it, the following are logistical indicators, although they have objectives of ecommerce:
- Fill Rate: The percentage of customer demand that is satisfied with existing inventory. In companies like Walmart, this indicator is 97%, in ecommerce, it should not be below 99.9%.
- On Time Order To Ship: time that elapses from when you enter the order until you ship it, ideally it should be under 24 hours.
- Picking Accuracy: precision in order preparation, you should never misdeliver an order to the customer.
- Transit Time: you have to have it super measured so that you can offer your buyer real delivery times.
- On Time Delivery: make 99.9% of your deliveries within the stipulated time.
- Backorders: late orders that cannot be delivered at the current time, due to lack of inventory, must be below 0.01%.
- Cost of serving: we talked about it earlier, you must measure it with a magnifying glass.
Indicators at the level of Customer Service and reverse logistics
Although in terms of reverse logistics, the return rates in Mexico are still very small (between 1 and 3%), with the increase in regulations for online purchases, their level will increase considerably, especially in the clothing and footwear sector, you must measure this indicator and be prepared to face the process. If, for example, you have a lot of exchanges and returns, you may not have a good size guide.
As for Customer Service, you should evaluate the percentage of tickets and analyze how you can improve it. If you sell 100 orders a month and have 90 tickets, something in the process is really wrong. You must measure First Time Contact to determine, in how long, after a ticket arrives, you have the first answer; this depends a lot on the error or problem the buyer has, it is not the same as being asked: “Where is my guide?” or “What is the status of my order?” To be told: “My order did not arrive”.
Remember: execute, measure and improve. In addition, take advantage of the advantages of the ecommerce such as the agility to sell and the contact with the final consumer to request their feedback and develop greater closeness, from there, you can build better shopping experiences every day.
Are you looking for an ally to help you improve your delivery process, enhance your compliance and customer satisfaction? , don't hesitate to contact us, we are the best Fulfillment center for ecommerce in Mexico and Colombia, You Just Have to Click Here.
