Logistics – The Backbone of E-Commerce

E-commerce has revolutionized the way business is done and the way goods are sold and deliv­ered to the customer. Logistics plays a vital role in delivering the products to individuals with speed and complete order flexibility. The logistics solutions are provided by the companies— manufacturing or dot-com—operating in the B2B or B2C domain, wherein they provide online trading or e-commerce as part of their service package.The service support for material movement (physically) is offered by the logistics companies. The manufacturing companies require e-logistics solutions, evolved by themselves or provided by the service provider, for their e-commerce transac­tions in the B2B domain. Manufacturing organizations such as Panasonic, Philips and Nike received e-logistics solutions support from dot-com companies like Rediff.

According to the logistics model followed by the company, the user first clicks on the product offered for sale on the site. If the person is interested in the product and wants to purchase the same, he/she is required to fill up the instruction form and make the payment through credit card or in cash on delivery as per the policy and value of the transaction (see Figure 13.2).

After the order is placed the vendor goes through it and delivers the goods to the respec­tive customer. The customers are usually unaware of the vendor location. There are two options for delivery to the customers. One is that the vendor receives the delivery order from a dot-com company and the material is directly supplied to the customer through a courier company. This is the way Nike does it from Faridabad and Compaq from their Bangalore plant. The dot-com companies and the vendors have their logistics partner such as Blue Dart, Elbee, FedEx and AFL to deliver the material anywhere in the world. The second option is to pass on the order to the dealer nearest to the customer location for delivering the material. Philips India passes the order on to the dealer, who carries out the transaction on behalf of the company. This is called the soft- touch approach.

For perishables like cakes, flowers and fruits a different model is followed. Rediff has local part­ners in the major cities of Mumbai, Delhi, Chennai, and Kolkatta for delivery.

Companies like Rediff and Yahoo are tied up with a number of manufacturers for the supply of goods displayed on their websites. Many dot-com companies follow the mall approach requir­ing them to have their own warehouses to store the materials that they offer on their websites. The price quoted includes the transportation or courier charges, taxes, service charges and their mar­gins. For consumer durables like computers and audio-visual systems, they ask for separate installa­tion charges. The lead time differs from product to product, based on the stocks maintained by the company, market demand and availability, transportation facilities and location of the customer. However, customized products have a longer delivery time. Finally, the logistic partners of the e-commerce company carry out the physical delivery of the material.

Amazon.com, the world’s largest online trading company, follows a different approach for its e-commerce business. It has both online shopping malls and auction services. The major sales come from the revenue model based on fixed- price offering. The company started as an online retail bookstore in 1995, the first of its kind in the United States. Over the years they have grown by doubling their sales every year. The company had generated a revenue of USD 34.20 billions in 2010. The prod­uct portfolio covers books, music, cards, gifts and a variety of consumer durables and electronic goods. The company’s goal is to become the earth’s most consumer-centric e-company. Amazon.com reaches its customers the world over through the Internet. The company has its own warehouses to stock goods and an online partnership with a number of suppliers for non-standard goods.

eBay, another online e-retail trading giant in the United States, operates totally on the auction model. They have over two million items for auction daily and reached a revenue of USD 1 billion in 2000. They have tie-ups with a number of manufacturers for a variety of consumer products. Both Amazon and eBay use the services of 3PL service suppliers for delivering the ordered material to the buyer in the shortest possible time frame.

Logistics fulfilment for the e-commerce business is not possible through the traditional logis­tics approach for movement of goods from the supplier to the consumer. Traditionally, the move­ment of goods to the customer is in bulk through the select channels of distribution. The primary transportation is taken care of by the manufacturer, while retailers take care of the secondary trans­portation. The material is unitized in containers, pallets or cartons. Depending on the size of the consignment, unit value of the product and the urgency, the material is dispatched by rail, road, sea or air. There is no visibility of the material movement from manufacturer to the client.

With the advent of e-commerce, however, traditional logistics is being transformed to take on an entirely new approach. With customers spread over a large geographical area, a large number of low- value orders are generated. As these mostly relate to consumer items, the delivery requirements are urgent. Therefore, the order fulfilment cycle needs to be shortened. The manufacturer should be in a position to fulfill the customized requirement of individual customers. The shipments are directly delivered to the customer. To keep customers informed on the order status and assist them in track­ing the whereabouts of the material at any point of time is part of the customer service requirements.

The e-commerce business is characterized by the large volume of transactions, small-value individual orders, odd place of delivery, speed in material movement, a wider product portfolio, and a larger number of customers spread over a wider geographical area. Manual operations have no scope in e-commerce logistics method. The components of logistics such as order processing, transportation, inventory management, packaging and delivery require close coordination using IT solutions. E-commerce logistics solutions need to be based on the following design considerations:

• Online facility for organizing and tracking the shipment
• Online order status and documentation
• Online dispatch documentation and invoice
• Auto-reminder for payments
• Seamless interface with existing SCM or ERP system
• Online alert for critical information through WAP/mobile
• MIS reports on past data analysis and delivery history

E-commerce logistics systems based on the above consideration ensure the following benefits to sellers, buyers and 3PL service providers:

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

Source: Sople V.V (2013), Logistics Management, Pearson Education India; Third edition.