With consumer behavior increasingly shifting towards purchasing online outside of domestic markets, proficient cross-border delivery performance becomes a necessity – as well as a huge competitive advantage for those players in European markets that manage it well. In this article, I want to give an overview and explain how companies in Europe can successfully tackle the challenges of cross-border delivery.
Buying shoes in Italy, books in England and art in France with the click of a mouse – one of the great accomplishments of the internet is how easy international E-Commerce is making it for customers to find and buy things at any time and from almost any market.
I am sure that the long-lasting success of E-Commerce is not only due to the mere opportunity to shop wherever and whenever we want, but also due to the experience of increasingly high service levels when it comes to the delivery of orders.
Especially large companies such as Amazon and Zalando continue to push high service level standards, and those who purchase over the web have become accustomed to the many perks of online shopping: free delivery, free returns, next day delivery and real-time information of the ongoing delivery progress such as track events are services that many customers expect today. Where the product is shipped from is second-tier for many shoppers.
26% of Total E-Commerce Sales in Western Europe is Cross-Border
As of now, very few – and mostly only the large – companies have a comprehensive strategy that can fulfill high customer expectations cross-border.
This might soon pose a problem. More than half of European E-Commerce sales are generated in the UK, France, and Germany alone, three markets that are in focus for many brands and retailers that sell their goods in Europe. In all of Western Europe, approximately 26 % of the total E-Commerce sales are already cross-border orders. The potential of gaining competitive advantages in Europe through delivering a proficient cross-border shopping experience is huge.
According to Eurostat and IPC, the two largest problems in cross-border E-Commerce orders are longer than indicated delivery times and high delivery costs. So what does the picture look like right now?
Many Players Fulfill Orders From a Single Country
A significant share of players today fulfills all European orders from a single country, which means having to rely on international deliveries to service customers in other markets. Unsurprisingly, this often means longer delivery times: It takes about 1 to 2 days to deliver an order from a German provider to a German consumer but for example, about 3 to 5 days to deliver to Germany from the UK. Consumers can often choose next day Express delivery, but this comes at a considerable price premium.
Easy and quick returns are another challenge. With return rates of 25 % and above not being uncommon in online retail, getting international orders back to the country of origin can often take a long time and create delays for consumers – a nuisance that doesn’t help competitiveness in the market. So, what options do companies have to up their performance in this respect?
Moving Inventory into Multiple Markets to Speed Up Cross-Border Delivery
To succeed in cross-border E-Commerce in Europe, retailers and brands need to put the consumer experience at the center of their supply chain strategy, acknowledging that many consumers in Europe expect fast (i.e. next day) and reliable delivery – which also means being able to choose delivery time slots on specific days, also with unattended delivery options, etc.
One option that brands and retailers can explore is getting their stock close to the demand, i.e., by moving inventory into multiple countries. Once you decide to pursue this strategy, many questions will arise that you will need to find answers to, such as: How do I optimize the allocation of inventory to each country to make sure that I have the right SKU’s in each country? What IT and data analytics capabilities will I need to acquire? How do I make the decision from which fulfillment center and stock an order should be fulfilled? How do I manage last-mile carriers in all those countries?
To be successful when facing these challenges, it is most important to focus on the essentials: Moving to distributed fulfillment often marks a major shift in the supply chain strategy and requires investments into IT-capabilities, data analytics as well as a physical warehouse footprint.
What could such a new strategy look like? What options are there to master the cross-border E-Commerce challenge successfully?
Develop Your Own or Become Part of a Network
In principle, there are two approaches that companies can choose from when planning on distributing inventory across Europe and creating a fulfillment network:
1. Develop your own network
Developing your own network can mean running fully independently without third-party logistics providers (3PLs), setting up your own Warehousing footprint in multiple markets alongside the required IT-capabilities. You could also have warehouses across multiple markets managed by 3PL(s) but invest into your own IT-capabilities to orchestrate the network yourself. In both cases, you are the one controlling your network.
2. Become part of a fulfillment network
The other option is to become part of an already existing fulfillment network offered by a 3rd party that provides and invests in the required IT-capabilities as well as the Warehousing space. In this scenario, sites are usually shared by different retailers and brands. In comparison to developing your own network, this second option is less capital intensive as you do not have to take all the investments yourself but rather pay a transactional price for using an existing network. This circumstance makes it manageable to benefit from distributed fulfillment with limited resources and reduced risks. You are, however, dependent on a 3rd party provider and do not have total control over your fulfillment infrastructure.
More than the Smart Warehousing Cloud
The concept of a distributed fulfillment network does have a connection to the Smart Warehousing Cloud (SWC), which can be described in simple terms as the “Airbnb of Warehousing”, as outlined in one of my previous articles. It, however, expands the SWC idea by:
- Increased use of IT-systems that are applied in combination, such as distributed order management systems to make decisions on which stock location to fulfill from – a multitude of providers exist for such solutions like SymphonyRetailAI or Order Dynamics. Further, forward-looking inventory allocation becomes key in a distributed fulfillment setup that leverages data analytics and AI to continuously become better in allocating stock across the fulfillment network and learn from past (mis)allocation decisions. Providers such as Blue Yonder offer interesting solutions and case studies here.
- A wider scope of activities covered, for example orchestrating domestic last mile delivery across multiple markets and returns services in each country, which means a local return experience instead of a cross-border return experience for consumers – a considerable relief for online shoppers.
Logistics as the key competitive advantage
Companies that can meet the high service expectations of European shoppers on short delivery times, reliable and flexible delivery options and convenient returns for purchases made across European borders have a huge advantage in the market. A dress can be as pretty as it may, if you need to wait for it for over a week and have troubles returning it when it doesn’t fit, you will not purchase at the same online shop again.
Delivering on proficient cross-border shopping experience through the right supply chain strategy is your chance to maximize your reach and availability across European markets while controlling the costs of doing so.
How do you think retailers and brands are going to meet the demands of cross-border delivery? Have you thought about a supply chain strategy that includes distributed fulfillment? I am looking forward to discussing the topic here on my blog or on LinkedIn.