Reuters Events | Supply Chain & Logistics Business Intelligence

Article by Adam Robinson from Cerasis - Published on April 30th 2014

E-Commerce Logistics Models

In developed economies, e-commerce logistics represents the latest big driver of change in logistics and physical distribution networks, which have evolved substantially over the past 40 years or so. Currently, it remains the case that as e-commerce continues to grow, most shippers, particularly multi-channel shippers, are still only just beginning to work out what this will entail for their distribution network infrastructures.

Let’s Take a Look at the Evolution of Logistics

From a distribution property perspective, this evolution has passed through various general phases and very broadly in the timeline as follows:

• In the 1970s, most retail stores were replenished by direct deliveries from suppliers or wholesalers.
• In the 1980s, retailers started to centralize their store deliveries through new distribution centers which they controlled.
• In the 1990s, global sourcing (for non-food products) took off, with many retailers developing import centers to receive and process mostly containerized imports.
• From around 2000, e-commerce began to rapidly expand with pure-play (internet only) retailers leading the way in establishing e-fulfillment distribution networks

E-Commerce Logistics in Developed Markets

In developed economies the growth of online retail has been stronger in sectors such as fashion, electrical and ICT goods, as opposed to food.

In the former, where purchased items are typically distributed via a postal, parcel or freight network, e-commerce logistics models have led to a wave of new demand for four distinct types of logistics functions:

1. Mega e-fulfillment centers where the merchandise is stocked and picked at item level. These facilities, which are either operated by the retailer or a logistics service provider, are typically 500,000 sq ft to one million sq ft in size, or even larger. They often operate 24/7.
2. Parcel hubs/sortation centers which sort orders by zip or post code so that they can be delivered to the relevant parcel delivery center for final delivery to the customer’s home or designated collection point.
3. Parcel delivery centers which handle the ‘last mile’ delivery to the customer
4. Seamlessly integrated technology where shopping carts connect via API, web xml or some other connection to a transportation management system so shoppers are getting the exact price quote of shipping of larger items more suited for less than truckload modes, as these technology products for logistics, such as a TMS, must accomplish along with the shopping cart for better management:
   1. Ability to organize and track shipment no matter what mode
   2. Online order status and documentation
   3. Online dispatch documentation and invoice, such as a bill of lading and freight invoice
   4. Auto reminder for payments
   5. Seamless interface with existing SCM or ERP system
   6. Online alerts for critical information via text or mobile
   7. Information systems reports on past data analysis, delivery history, etc.

These types of e-commerce logistics systems, based on the above considerations, ensure the following benefits to shippers, customers, and 3PL service providers:

• Improved communication
• Transparency into the supply chain
• Improved customer satisfaction
• Cost reduction
• Improvement in efficiency
• On-time delivery

We will go further into the benefits of setting up an effective e-logistics structure and operation in this ongoing series. However, these are the top things to consider when looking to set up a program.

With E-Commerce in the Equation, Let’s take a Look at Supply Chains, Then and Now (AKA, The Amazon Effect)

It’s been close to 19 years since Jeff Bezos opened his online bookstore from a 400-square foot garage in Seattle.  Today, Amazon is one of the largest companies in America, with operations across the world and a stock valuation greater than most Fortune 500 companies. The concept, initially, was simple: to do business exclusively online, offering customers the convenience of shopping from home and giving the seller little overhead costs.

Since ecommerce was born, everything has changed: the proliferation of the Internet into daily life; the look and feel of the online space; the speed of internet connections; even who is getting online and how they’re getting there!  Convenience and low prices were the driving forces for ecommerce in the early days. But today, with ecommerce retailers catering to every kind of product, service, and shopping experience, the challenge has shifted. Here is a brief look at how direct-to-consumer order fulfillment has evolved over the years to match those challenges.

So, How have Supply Chains Evolved in an E-Commerce Logistics World?

Then: Supply chains handled old-school, brick and mortar retail, where products arrived in warehouses in bulk, were moved around in pallets and selected by the case, and were shipped out to store in bulk.

Now: Ecommerce poses the unique challenge of inventory arriving in bulk, but requires much care from there – receiving bulk orders, then inventorying and picking those SKUs as individual products. Therefore, ecommerce retailers have to find a way to standardize and synchronize business processes to have real-time access and insight to inventory movement. Often, with dozens of suppliers, multiple warehouses, and an extensive number of sales channels, the chances of a misplaced order are much higher.

However, order fulfillment technologies have helped integrate the front-end and back-end of online retail. The back-end process is now a collaborative effort thanks to automated software and real-time fulfillment data. The alignment of important touch-points in the supply chain has reduced inefficiencies and had helped identify redundant processes. Heck, we even have robots that will pick inventory for us AND move it around the warehouse!

How has Freight Shipping Changed in an E-Commerce Logistics World?

Then: In the early days of e-commerce, it was about the convenience of ordering a product from home. No driving to the mall and no waiting in line, just living life and waiting for the package to be delivered to your doorstep. Shippers still used snail mail and phone calls to communicate with customers and order delivery times were in the weeks, not days. Free shipping quickly became a tool that brought in competitors’ customers, since there weren’t many carrier options, no additional costs (such as sales tax) existed, and order delivery times were slow anyway.

Now: E-commerce merchants collect sales tax, fuel charges are much higher, and the ever-popular free shipping is the farthest thing from free to retailers. Other than giants like Amazon, not many retailers have the resources to operate multiple distribution centers in strategic locations and instead are turning to third party logistics service providers to reach their customers.

The evolution of multiple shipping options allowing customers more control over the delivery process than ever before, expanding from only small package from USPS, UPS, and Fed Ex to now get larger items via less than truckload modes.

It’s no longer about being the fastest rat in the e-commerce delivery race. Instead, it is about being able to deliver an order at a time frame and price point that customers want.

How has e-commerce logistics had any impact on your business? Let us know in the comments below.

Stay tuned over the next week for more on the world of e-commerce logistics.