13

E-commerce Logistics: More Challenging Than Ever

After reading the chapter, the students should be able to understand:

• Concepts, scope and objectives of e-commerce
• Classes of e-commerce applications
• Role of e-logistics in e-commerce
• e-logistics structure and operation

In the world of e-commerce, competition is just a click away. The successful web businesses will be those that interact with and service the customer with unparalleled responsiveness. Online information sharing, speed and accuracy in material movement and increased visibility form the core of e-commerce logistics strategy. E-commerce logistics is a collaborative solution to improve the efficiency and effectiveness of moving goods to ensure on-time delivery to the customers. It allows the enterprise and the logistics service providers, trading partners and customers to communicate and collaborate in the supply chain, providing 24 × 7 online information sharing.

“E-commerce logistics and e-fulfillment represent the myriad activities that are needed to ensure the customer gets what the customer wants when the customer wants it”

—Deborah L. Bayles¹

13.1 A NEW WAY OF SHOP AND PAY

The progress in technological innovations has totally changed the way business is done in the industry. Traditionally, shopping or buying has been a personalized behavior of the consumer. From the days of trading and bartering till recently, the buying and selling activities were typically performed within the limitations of time and space boundaries. However, the progress in information and communication technologies has created new waves and redefined business frontiers. The development of the Internet and World Wide Web led to the birth of electronic commerce (e-commerce) or commercial transaction over the electronic media. In short, e-commerce is the process of transacting business via computer using the electronic network.

The development of the Internet has shrunk the world into a global village. Hence, business transactions can be carried out at and from any corner of the world on a real-time basis. The scope of e-commerce application is very wide. It not only covers the buying and selling of goods electronically, but also various processes internal to the organization. E-commerce involves using network and communication technology for all internal and external activities in the value delivery chain of a business process.

E-commerce has changed the way products and services are sold, redefining the relationship between the buyer and the seller. There are three general classes of e-commerce applications:

Business-to-Business (B2B) Commerce. This involves the application of e-commerce in business transactions between organizations. The management areas covered include material procurement, manufacturing, distribution, inventory and payment. The chief advantage of e-commerce application here is the speed with which business activities can be performed in real time.

Business-to-Customer (B2C) Commerce. B2C application covers the interactions between an organization and the end consumer. The organization will publish the products electronically. The consumers will then place their orders through the electronic media. After the material is ordered, it is physically delivered to the customer, and the company will secure the money electronically as advance or on delivery asper the terms of the business. The e-commerce business process covers the interactions between the organization and the consumer, through the buying and selling transaction and the money transfer. Transactions, of products and services for individual consumption are covered in B2C commerce.

Intra-Business Commerce. This involves the application of e-commerce for organizing resources and coordination of activities within the organization to deliver superior value to the customer. The major advantage of intra-business commerce is that it facilitates real-time communication within the working group. The major application areas within the business include product development, HR productivity and performance monitoring. Information on such application areas is collected, processed and disseminated within the working group.

The two main enablers of e-commerce are the Internet and Electronic Data Interchange (EDI) technologies. The World Wide Web, a recent addition to the Internet, has given a real boost to the widespread use of e-commerce in business and further led to bridging the gap between buyer and seller, thus making the world a global village in the real sense.

13.2 E-COMMERCE: REQUIREMENTS ON LOGISTICS

E-commerce is a new way of shop and pay. The customers are large in numbers and buy only a small quantity with each transaction. This results in the accumulation of a large number of small packets for delivery to customers unknown to the seller. In e-commerce, the demand in shipment is unpredictable. The suppliers as well as the customers are spread over a wide geographical area, resulting in higher transportation costs for procuring and delivering goods. As the operations need more integration, the accountability for delivering the consignment is extended throughout the supply chain. Because of the virtual nature of all transactions in e-commerce business, customers have high expectations as to the quality of services and demand speedy delivery of the consignment. Normally, consignment returns in e-commerce trade are on the higher side as compared to the traditional trade. Hence, it is necessary for a company in e-commerce trade to have a separate return logistics system in place. In e-commerce, demand for and availability of information required are greater than for the traditional business. The customer focus is on a one-to-one marketing approach that results in customized delivery and after-sales service. Logistics service is a bit complex in regard to fulfilling cross-border orders. The e-commerce trade calls for online processing of orders, which covers transportation mode booking, freight rate quotation, freight payments, shipping documents processing, and so on. Finally, in e-commerce trade there is a larger scope for enhancing customer satisfaction level using an efficient and a cost-effective logistics system.

13.3 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 ecommerce 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 2.9 billions in 2002. 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

13.4 E-LOGISTICS STRUCTURE AND OPERATION

A firm desirous of offering goods on the Internet needs to develop a proper infrastructure for electronically integrating all the operations of logistics in order to ensure customer satisfaction before, during and after the buying process.

Order Processing

The customer, after opening the website, may select one or more items for purchasing. Many websites offer an electronic bucket for customers to pick up the items they want to purchase. The dialog box requires reconfirmation from the customer through the price checking. For the low unit price items or low-value orders, the full payment may be asked through credit card. However, for a large-value order the customer may not pay the full amount at one stroke through credit card. In such cases, the order will be processed with credit terms asper the company norms, after considering the payment history of the client.

For repeat purchases in the case of B2B transactions, the order-processing system needs to build a database of the order history for offering discounts or certain credit concessions or for giving an automatic signal for execution. The inbuilt software will check the prices, taxes, payment terms and delivery. The order will be accepted for execution only after it is technically and commercially cleared and the same will be confirmed to the client electronically.

The order processing on some sites is done online, while many go in for batch processing at the end of the day. For the e-commerce company order processing is of critical importance as it involves the setting up of system standards to meet customer expectations. Depending on the volume of the orders, the firm may process the order on an hourly or a daily basis. The investment in online order processing can be justified on the basis of the volume of order inflow.

Inventory Management

Depending on the business model, the inventory movement needs to be organized after checking with the warehouse or the vendor partners. In e-business the firm has to integrate online order capture with order processing, inventory and fulfilment system. In case an item is not in stock and is under process, late delivery will have to be confirmed to the client before the order is accepted. For stock items the replenishment instructions will be issued as soon as an item is removed from the shelves. The retail giant Wal-Mart uses the Automatic Inventory Tracking System for replenishing the inventory directly by the vendors. The system is connected to all of Wal-Mart’s vendors and 2500 retail shops across the United States. In e-commerce, honouring delivery commitments to customers must be seen as paramount if the seller is to remain competitive. So, the firm needs to have a backup inventory control system that closely coordinates the resources and monitors inventory movement, right from the source of supply to manufacturing to distribution centers and, finally, to the customers.

Order Execution

Once an order is accepted for execution, order filling instructions are passed on to the inventory manager or directly to the vendor for case filling and packaging. The delivery instructions will incorporate the consignee details, item details, quantity and packaging. The vendor or warehouse manager instructs the courier or 3PL partner to pick up the consignment for delivery to the client. All this is done electronically. The delivery details will be immediately conveyed to the customer along with the invoice copy for him/her to be ready with the balance payment against delivery by the courier or logistics firm.

Shipping

Based on the size of the order and the consignment, the transportation will be organized either through a courier service or through the logistics partner of the firm. The Decision software will decide online on the choice of the carrier, transportation mode and scheduling of the dispatch considering the client’s location, public holidays and other eventualities. Some e-commerce sites offer the customer to place an order before the closing of the day for delivery next morning by10 a.m.

Tracking and Tracing

After placement of an order, the client always wants to know the order status or whereabouts of the products during transit. The bar coding system with satellite communication will help track the consignment. Most sellers provide the consignment tracking facility to the client as a value-added service on their websites.

Payments

Payments for a B2C transaction are accepted through credit or debit cards.

In B2B transactions, the system needs credit management support to decide on the credit terms to clients, based on their payment history and the volume of business received. The system needs to generate online invoices, deliver notes, payment outstanding reports, payment reminders, and so forth, using EDI.

Transaction Security

Transaction security can be enhanced by using an electronic fraud-checking system that checks the customer’s credit card electronically by running an anti-fraud algorithm or another type of authentication system at the time of order processing or material dispatch.

Order Postponement, Cancellation and Substitutions

The e-commerce firm has to carefully evolve its policies for order cancellation, postponement and offering substitutes in the event an inventory is not available. Such a situation may arise because of some problem in the supply chain or due to circumstances beyond the management’s control. In such cases, the firm may have to inform the customer in time and request for cancellation of orders. Alternatively, the firm may offer substitute products or postpone the delivery. The system should automatically signal the likely eventualities of stockouts so that the customers are informed well in advance.

Reverse Material Flow

In the event the customer does not like the product, or it has been damaged during transit, or the product performance is below expectation, the firm needs to evolve a product-return policy for issuing guidelines to customers and the operating people of the firm. The time frame to lodge a complaint or return the product at the assigned collection centers has to be carefully spelt out in the sales contract displayed on the website. The responsibilities of both seller and buyer for return of goods have to be indicated to avoid customer dissatisfaction. The machinery to take care of reverse material flow may be a stand-alone system or integrated to forward the supply chain of the firm, depending on the volumes involved in the reverse flow.

Dell Computers represent one of the most successful e-commerce, logistics and supply chain stories. To compete with giants like IBM, Apple and Compaq, Dell has adopted a different strategy to market their PCs. They chose the e-commerce route. To order a PC with the desired configuration and specification, the customer has to log on to the Dell website, place an order and complete the online commercial formalities. There are good chances that the customer will get the PC the next day if he happens to be in the United States. The electronic commerce system installed on the Dell website registers an order after online completion of commercial formalities. The system estimates the demand of the various components going into the computer and places the orders for parts on the various suppliers. The suppliers then deliver the parts to predetermined supply centers where the computer is assembled. While registering the order, the system communicates the details of the customer and delivery location to the logistics partner. The office of the logistics partner nearest to the Dell supply center gets activated to pick up the material for delivery. The result of an efficient process such as this is a near-zero inventory and total customer satisfaction.

Blue Dart is one of the leading logistics service providers with e-commerce initiative in India. Blue Dart offers e-business solutions to facilitate seamless integrated transportation, distribution and supply chain management and helps leading multinational companies to sort out their B2B or B2C logistics problems through Web-based solution. The registered customer can log on to the Blue Dart website and make advanced online queries on shipment status, freights, transit time, billing, pricing and scheduling.

In short, the e-linkage in e-commerce facilitates buying and selling through the Internet. It provides an online communication link for buyer, seller, vendors and logistics partners. Apart from the responsibility of physical distribution of goods, Blue Dart provides online delivery status and payment facility.

E-commerce logistics efficiency and effectiveness depends on the comprehensiveness of Web-based logistic solutions. Operational efficiency improvement requires timely communication across the extended business enterprise from customer to warehouses, distribution centers, manufacturer, vendors, transporters, and the like. The Web provides the way to access the information stored in the transaction database. E-commerce logistics software architecture needs to address the transaction application areas as shown in Figure 13.3.

The e-commerce logistics software involves application in both Internet and intranet Web-based business solutions, since customer satisfaction depends on the efficiency and effectiveness of coordination of the business processes within and outside the organization.

13.5 LOGISTICS RESOURCE MANAGEMENT

Logistics resource management (LRM) is a new IT tool providing browser-based software for automating, planning, managing and optimizing the e-commerce logistics activities. It is a platform for the command and control of logistics execution, which can also operate as a central clearing house of logistics data to meet a variety of other decision-making needs of the e-commerce firm. The LRM environment provides information on the following:

• Cross-border regulatory compliance
• Total landed cost (including taxes, duties and levies)
• Goods movement (by tracking)
• Alert notification messages in exceptional situations
• Carrier selection and negotiation
• Route and lane optimization

Ideally, the LRM platform should be integrated to a payments platform in order to encompass the full cycle of delivery and payments. The platform coordinates and integrates with suppliers and customers through EPR, SCM, CRM and other software applications. Applications such as Enterprise Resource Planning (ERP), Material Resource Planning (MRP), Distribution Requirement Planning (DRP) and Warehouse Management System (WMS) do not provide much competitive advantage. The key to a robust LRM is vehicle management, which includes the use of prescheduled and dynamic dock scheduling, real-time routing of trucks and material-handling equipment, automatic material picking applications, and so on. LRM data provide complete visibility in inbound and outbound logistics operations of the company, suppliers and customers. It is a proactive system for notification of exceptions operating on a real-time basis. LRM provides true cost data for cross-border shipments in inbound and outbound logistics. It is a new weapon for the logistician for proactive decisions in a dynamic marketing environment.

SUMMARY

E-commerce is another way of doing business. There are three general classes of e-commerce applications: B2B, B2C and intra-business commerce. The products and services are displayed in digital form on the website for selection. All business transactions from the placement of order to payment collections are carried out electronically. Hence, the logistics support for e-commerce business differs from the one based on the traditional model. All transactions are carried out with electronic speed and hence the material movements need to be faster than normal. This is done with the help of IT support for information movement across the supply chain of the e-commerce company. The order cycle time is cut drastically by organizing the coordination of related support activities on a real-time basis. On-time product delivery to the customer is ensured through the collaborative efforts based on 24 × 7 information sharing. E-commerce logistics allows the enterprise, the vendors, the logistics service providers, the trading partners and the customers to communicate and collaborate in the supply chain on a realtime basis. Online information sharing increases visibility, speed and accuracy in material movement across the supply chain and brings efficiency and effectiveness to the process of material delivery to the customer. The operational efficiencies are enhanced through Web-based logistic solutions, ensuring close linkages among the manufacturer, suppliers, service providers, vendors and customers. A firm desirous of offering goods on the Internet needs to electronically integrate all the operations of logistics to ensure customer satisfaction before, during and after the buying process. Wal-Mart, Amazon.com, eBay and Dell Computers are among the world’s most successful e-commerce companies, which operate on Web-based logistics solutions to ensure reliability and consistency in product delivery and customer service.

REVIEW QUESTIONS

1. What is E-commerce? Explain how it differs from the traditional business model.
2. How do the logistics requirements for e-commerce business differ from those of traditional business?
3. Is it necessary to address the “change management” issue before opting for a Web-based business? Discuss.
4. Cite examples of two successful Indian e-commerce business firms and discuss how they are organizing logistics operations.
5. Is the present economic and business environment in India conducive to the growth of e-commerce business? Discuss.

INTERNET EXERCISES

1. For e-commerce logistics visit http://www.r0.unctad.org/ecommerce/event_docs/curacao/bayles.pdf
2. eLogistics Ltd. is a Chennai-based leading solution provider for logistics-related issues. Witness a demo of “eTrack” product (vehicle-tracing solution) at http://www.elogistics.co.in

BIBLIOGRAPHY

Aberdeen Group: www.aberdeen.com

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Enasson, Leif. 2006. Future Logistics Challenges. Copenhagen: Copenhagen Business School Press.

Guenes, Joseph, Elif Akcali, PM. Paerdalos, H.E. Romeijn, Shen Zuo-Jun (Max). 2004. Application of Supply Chain Management and E-Commerce Research. 1st edition, Berlin: Springer.

Kalakota, Ravi, and Andrew B. Whinston. 2000. Electronic Commerce. New York: Addison-Wesley, pp. 1–30.

Lawrence, Barry, and Daniel F. Jennings. E-Commerce Logistics and Fulfillment. Singapore: Pearson Education Asia, pp. 320–326.

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Sundaram, Appan. 2002. ‘E-logistics—The Core Strategy in SCM Implementation.’ IPE National Conference on Logistics Management, 22–23 February 2002.

Zhang Qingyu 2007. E-Supply Chain Technologies and Management. IGI Publishing Hershey, PA, USA.

Zikmund, W.G., and Michel Amico 2001. e-Marketing. New Delhi: Thomson Asia, pp. 2–92.