On August 11, 1994 Dan Kohn changed the way that we shop forever. Kohn sold a copy of a CD of Sting’s "Ten Summoner’s Tales'' to a friend in Philadelphia. While a transfer of goods such as this has been around since cavemen were bartering, this transaction made its way into the history books because it was the first transaction that took place entirely on the Internet. The click of a buy button that completed this $12.48 transaction was the first step in changing commerce from an endeavor where the consumer took part in each step to one where the consumer clicks a button to trigger a hidden world of supply chains spanning international logistics, surface transportation and warehousing to last mile delivery.
The emergence of eCommerce has meant that consumption is not limited to what is physically available in a handful of zip codes. Consumers and enterprises now have the power to purchase anything in a retailer’s inventory and this has massively shifted retailers' investments and strategy from optimizing brick and mortar stores to optimizing the world that exists behind the buy button. The eCommerce supply chain has enabled the current reality of retail and is turning into a major fixture in our daily lives (whether we realize or not). Let's take a dive into the world behind the buy button.
Locate The Item
Once an order is placed, inventory management software begins solving the giant optimization problem that is finding a customer's purchase in a warehouse that will get it to them in the shortest amount of time (and at the lowest cost). Warehouses are strategically located within a two day shipping radius of customers in the continental US -- east of the Rockies in TN, KY, OH, and west of the Rockies in UT, AZ, CA -- and stocked with items that companies think are most likely to sell in a particular region based on consumption habits. This helps make this process faster and cheaper.
Large retailers such as Amazon or Walmart who offer one or same day delivery have an even more complicated optimization problem to solve. They must have additional warehouses or rely on brick and mortar stores that are located in urban and suburban areas stocked even more strategically with inventory so they can deliver an order to a customer in an expedited period of time.
Once it has been determined where your item is, your order is sent to a warehouse where it is processed, packaged, and shipped. Warehouses are run on warehouse management systems (WMS) which control and optimize every aspect of the processing, packaging, and shipping of orders. Once the order arrives at a warehouse it is put on a queue for a warehouse worker to pick the item from inventory, pack it in a box, and queue for outbound pick up. The picking process accounts for 55% of the operations cost of the warehouse and it is the most expensive and labor intensive part of warehouse operations. Thus, a lot is done to optimize this process. Robots are used to reach items that are not in an ergonomically easy place for humans to reach and are used to move inventory around the warehouse. The inventory in the warehouse is also organized to make this process more efficient by grouping items that are purchased together based on purchase history. Warehouse pickers are assigned zones of the warehouse to pick in and work with other warehouse employees stationed in other zones to fulfill an order so they don’t have to walk around the length of the entire warehouse unnecessarily.
After the item is picked it is packaged. The warehouse packer inspects the items to make sure they are in good condition and then packs them. The box and the packaging that come with an online order are determined by an algorithm that is designed to lower shipping costs for the retailer while offering the most protection for the item so it does not get damaged during shipping. After it is packed, the box is sealed, a label is attached to the box and it is ready for pick up on an outbound dock.
Trucks leave an outbound warehouse dock as either a full truckload (FTL) or less than truckload (LTL). When a truck is at LTL, it is common for the truck to make multiple stops at other warehouses so the truck reaches capacity. LTL truckloads are a common practice for SMBs because goods can depart the warehouse quickly and end up costing less for the eCommerce retailer. FTL truckloads are more common among larger retailers because they have enough homogenous freight to haul, can control the means of delivery (trucks, planes, routing), and they typically offer expedited delivery schedules).
Once the orders are on a truck, the truck is then routed to its destination. Some trucks may go to airfields where packages are loaded on a plane. Items are shipped via air freight when they can’t reach their final destination in a certain time period by truck. It is not uncommon for an order to be flown to multiple destinations and go on multiple trucks before they reach the final distribution center. This routing is exactly what logistics is - logisticians increasingly rely on routing software that is designed to save the 3PL and the retailer money while getting the package to the customer the faster.
Last Mile Delivery
Before the item reaches your doorstep, it goes to the final distribution center where it is processed and put on a final delivery route. In the US, most last mile deliveries are performed by parcel carriers such as UPS, USPS, and FedEx , but large retailers such as Amazon have been investing in their own last mile delivery service so they can have more control over the process. This final route is once again decided by an algorithm that optimizes the cost for the retailer, the amount of packages delivered, and the time it takes to deliver a package.
These routes will vary depending on whether the area is urban, suburban, or rural. Last mile urban delivery offers an opportunity to lower costs by optimizing shipping runs to include more packages per mile due to population density. Lower population densities in suburban and rural areas make route optimization harder and can be more expensive for shippers. Once the route is determined, the orders are loaded onto a truck and they are delivered according to the routing algorithm. Once the truck reaches your door, the package is scanned and you have your purchase!