E-Commerce Frenzy forces retail supply chains to adapt or languish

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E-Commerce Frenzy forces retail supply chains to adapt or languish

24 Oct 2018 Hong Kong

Few if any consumer-oriented businesses have escaped the explosive growth of “The E-Commerce Frenzy” - which is now forcing retail supply chains to rapidly adapt, or suffer the consequences.

E-commerce leverages the web-based technology platforms, much-loved by tech savvy consumers that enable their access to the borderless and always-open internet world of online shopping. 

With the transformative power of the smartphone’s size and connectivity, digital natives are empowered to shop online to their heart’s content, ordering what they want, when they want, how they want, from wherever they happen to be!

E-commerce has emerged as one of the key driving forces of what has become known as Omni-Channel Retail…

E-commerce has emerged as one of the key driving forces of what has become known as Omni-Channel Retail, which is severely challenging traditional retail models and distribution networks.

This Omni-Channel phenomenon embraces all three primary consumer shopping channels available: 

  • Offline (High Street) – the bricks-and-mortar retail outlets that include convenience stores, mini markets, supermarkets, hypermarkets and shopping malls; 
  • Home - the relatively unemotional and inert home shopping conduits such as TV, direct mail and catalogues; 
  • Online (Mobile) - now embracing the dynamic, exciting online world with internet access available 24-7 through desktop computers, laptops, tablets, smart phones and other mobile devices. 

Spawning global giants such as Amazon and Alibaba, the online shopping revolution is transforming the way in which consumers shop. It dramatically changes consumer expectations of choice, value and service.  

“Today’s digital consumers are determined to Shop Online, until they Drop Offline”

This e-commerce frenzy has been driven by ubiquitous wireless access to the internet, coupled with the widespread availability of affordable smart phones. Large, young populations in developing economies have become today’s digital-native-consumers who are determined to ‘shop online, until they drop offline’.  

Large, young populations in developing economies have become today’s digital-native-consumers who are determined to ‘shop online, until they drop offline’. 

Online Shopping - massive and fast growing retail market

eMarketer’s latest forecast for 2018 is that Worldwide Retail E-Commerce Sales will increase 23% to reach USD 2.842 trillion.
Over the next three years, they forecast overall growth of 72% to USD 4.878 trillion in year 2021, when e-commerce will represent 17.5% of total global retail sales.

The largest segment - and biggest potential for further growth - lies in the emerging and developing markets, specifically across Asia, where e-commerce sales in 2017 grew by over 30% to USD 1.35 trillion, some 58.5% of the global total.

China of course dominates the picture, with 2017 e-commerce revenues of of USD 1.132 trillion - almost half the world’s total – and online shopping – much of it transacted through mobile devices - accounting for 23% of total retail sales in China.

Online shopping challenges established supply chain models

This new borderless world of open-all-hours online shopping impacts every aspect of the supply chain ecosystem. 
Changes are required to systems and processes that manage products, inventory, warehouses, fulfilment, picking, packing, shipping, transport, distribution and the all-important information and financial flows. 

Servicing the online element of omni channel retail is seriously challenging some long established Business-to-Business (B2B) retail distribution networks. The online revolution also introduces additional new dilemmas into the traditional model of servicing consumers - including free shipping, last mile residential deliveries, product returns and cross-border parcel transactions.

Operational Complexities

Most logistics operations serving consumer-oriented retail distribution models have traditionally focused on carton (or pallet) picking for bulk orders, shipped to retail outlets, often as full truck load (FTL) shipments, which include hundreds of products from numerous suppliers all destined for one store or supermarket. 

However, today’s e-commerce model of online webstore direct to consumer typically involves logistics management of multiple individual shipping orders, the majority of them comprising just one or two pieces, to hundreds of individual delivery points – typically residential addresses.

To serve this expanding business-to-consumer (B2C) online shopping sector, logistics operators can no longer rely purely on bulk storage of pallets and cartons, handled using fork lift trucks in a distribution centre. They now need capabilities to manage single unit order fulfilment, involving piece-pickers, shelving storage, tote boxes and individual packing stations. 

In China for example, the major online retailers are now processing millions of individual end-user orders per day, the vast majority of which are for just one single item.

Many traditional third party logistics (3PL) service providers are challenged in adapting to this new e-fulfilment business model, which in turn generates new opportunities for new entrants. 

Non-traditional distribution companies are well positioned to establish e-commerce fulfilment centres – physically configured specifically to process the large-volume small-order demand that is created through online retail. 

Unencumbered by legacy systems and mismatched operational practices, new entrants can start with a green-field solution and capitalise on the logistics opportunities to serve single-unit order fulfilment with efficient item-level pick and pack business solutions.

Free delivery expectations unleashed – the genie is out of the bottle!  

The pure-play online e-tailers such as global giants Amazon and Alibaba were the ones that ‘let the genie out of the bottle’ by establishing free and fast delivery as the norm – which the consumers have happily accepted!  

Of course the delivery is not actually free of cost; trucking operations cost money, fuel costs money and drivers have to be paid!

Of course the delivery is not actually free of cost; trucking operations cost money, fuel costs money and drivers have to be paid!
Whilst delivery is provided free of charge to the consumer, the logistics costs are actually being absorbed elsewhere within the supply chain ecosystem.

E-tailers develop logistics platforms and capabilities

Online retailers such as Amazon, Alibaba, Lazada and JD.com and many other leading e-commerce platforms have invested massively in their logistics capabilities. In fact, their logistics prowess has proven to be a key source of competitive advantage in the brutal world of online retail.

As such, the traditional lines demarcating retail, e-commerce and logistics have become blurred.

Although the e-commerce players are generally considered to be Internet companies, their effective and efficient logistics networks are critical success factors for their online business models.

This powerful combination of online retail plus e-commerce logistics is what differentiates them from traditional bricks and mortar retailers and established logistics service providers. 

As online-shopping changes-the-game in supply chain, then Logistics becomes the new Retail.

Conclusion

In today’s Omni Channel world, both retailers and logistics service providers are threatened with fundamental challenges across every dimension of their business model, their profitability - and even their future. 

If they will not, do not or cannot adapt to this omni-channel world of online shopping and digital consumers - then their future must surely be in doubt! 

IRU World Congress

Join logistics expert Mark Millar in Oman 6-8 November.

Mark Millar, Author, Independent Expert Logistics Consultant, Visiting Lecturer

One of the foremost authorities on supply chain and logistics in Asia, Mark Millar honed his wisdom thanks in part to executive roles at DHL and UPS earlier in his career that helped him build an impressive body of knowledge. 

Nowadays, Mark is a revered visiting lecturer at Hong Kong Polytechnic University, a chairman on the Logistics Committee at the British Chamber of Commerce in Hong Kong, a published author, and is recognised as a top influencer in logistics and supply chain in Asia by numerous institutes and publications, most recently for six consecutive years by the USA-based media group Supply & Demand Chain Executive (SDCE).