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  • Patrick de Jong

Typical mistakes when scaling the network - Part 1/4: Timing

Aktualisiert: 23. Juli 2019

"With great growth comes great responsibility."

Worrying about outbound shipments going through the roof is a bit of a luxury. Only a few e-commerce players are ever in the situation that they grow faster than their logistics can stomach. It is a tricky and decisive phase, nonetheless. There are several aspects that should not be neglected. This series of articles will give an overview about typical mistakes made by online retailers.

The first article out of four will cover the (maybe) most obvious question: when do I have to create new capacity?

The timing of creating logistics capacity

Regardless of whether you are processing via 3PL (third-party logistics) or your own locations, once the growth curve accelerates you will have to ask yourself how long your current setup will hold up. Ideally you should take note of this development before your sourcing department announces 20 sea freight containers of goods that, according to your warehouse head, will have to remain on the yard due to lack of shelf-space.

Should you learn it the hard way you won't have many other options than buying short term capacities at rather high expenses. Of course it would have been better for your business to have foreseen these requirements two to three, if not even fours years ago. In that case there would have been enough time to take counter-measures by setting up projects that create new logistics capacities the most efficient way possible.

Note that, depending on the respective scale, this type of project tends to have a rather long lead time until their full potential unfolds. In addition to a decision and planning phase you have to add the time of realization (most likely construction), but also a reasonable learning and ramp-up phase. Regarding construction projects of a relevant size one may assume 1.5 years for a manual setup and 2.5 years for an automated concept (without anything too fancy). The subsequent ramp-up may take another 1 to 3 years, depending on scale and automation degree. Hence it is advisable to setup an analytical base for forecasting project start dates and timeline, analyse sensitivities and get the management board to sign off the respective budget and manpower.

While it is possible to tackle this matter without elaborate software or algorithms, one should be aware of a couple of pitfalls along the way to a thorough capacity plan. Despite merely matching the development of existing and planned logistics capacities with derived processing and storing requirements of the coming years (typically based on the business case), small inaccuracies may accumulate over time and create a significantly distorted picture. The impact as well as the underlying investment amounts justify a high level of analytical diligence in this regard.

Another thing worth mentioning is that logistics capacities include static (storage) as well as dynamic capacities (inbound, outbound, returns, ...). The individual bottleneck is not always obvious. It is thereby recommended to create a holistic picture of the material flow and pay close attention to the plausibility of the resulting KPI and their development (basket size, return rate, stock turnover, ...).

An analysis of your future capacity curves should happen once or twice a year. Having put some effort into user-friendly but accurate tools greatly facilitates the following iterations and ensures consistency. Properly equipped companies can easily brace themselves for future scenarios and will have no problem to stay ahead of the wave.

I will gladly discuss concrete methods and tools, if you are interested. Reach out any time via: LinkedIn / Xing / Contact

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