E-COMMERCE AND LOGISTICS

One of the interesting definitions describes logistics as “having the right item at the right time at the right place in the right quantity to the right customer” (Susan Mallik, 2010). The all-inclusive definition talks about the holistic nature of the traditional business logistics – right from production, procurement, distribution, inventory management and of course delivery across the entire supply chain. Logistics industry used to rely heavily on individual skill and dexterity of the employees. Efficiency used to be thought as an outcome of practice. However, with advent of technology, especially with information technology, revolution is happening across the business sectors.

Logistics industry also has become equipped with new ways of doing things. In many instances, manual labour has been eliminated or has been reduced significantly. Skill requirement has enhanced as well, in terms of grasp and capability around the new methodology. The new skill set required includes efficiency in using new technologies; the faster one gets hold of the technology and starts using to its full potential, the stronger it makes its presence felt in the industry. IT- Operations integration paved the way for a faster and smoother logistics industry by reducing the frequent errors and glitches.

With the advent of e-commerce, nature of business is undergoing changes. Along with it, the conventional logistics problems are also changing. Earlier the process used to be supplier driven, whereas now the drive comes from the customer. It is more of order fulfillment rather than stocking.  The good old logistics is getting changed. Typically, in Indian e-commerce industry, the back-end operation is often outsourced to some logistics firm who would take care of the physical supply-chain process with the e-commerce sites providing the user-interface with the front end operations. However, there are a few players who do manage their own distribution network partially.
In a conventional supply chain, there are two distinct players in between the manufacturers and the customers.  In the e-commerce business, the middle two layers are becoming more and more overlapping.

In the conventional structure, the warehouses used to be located in the distribution level of supply chain across various places including both rural and urban locations. However, in e-commerce, the warehouses are often integrated with the manufacturing stage and are located in outskirts of a medium to big city. According to the order placed online, the goods are moved to the exact locations in smaller truckloads. The transportation has become more frequent and less bulky. At the same time, the transportation need has become more intensive because of the B2C (Business-to-Customer) outlook. This shift in the logistics eventually has impacted the whole supply chain. Since there is no physical presence of retailers in e-commerce, the retailing objective has been changed entirely. Instead of making a good physically available to the customer through the intelligently planned retail layout, the retailers are attracting customers online through pages. There too, competition is on for giving the customer more and more real life look and feel of a product. Order-to-delivery time is also increasingly becoming a competitive feature for the various e-retailers. As a result, the onus is often on these retailers as far as the stocking or inventory management is concerned for a particular product. For instance, let us take the example of e-retailing of a novel by Chetan Bhagat just before the launch of the movie made on it. It is expected that there would be huge demand for the book. Since publishing rights would be restricted, there would be a limit over the number of prints available of the book. So, the various e-retailers would eventually be competing for a share of an almost fixed pie. The more the stock, the more profit a company would make. The more profit a company foresees, the more discount it can offer. The more discount is on, the more is the chance of a money transaction by the customer.

More and more e-commerce sites are now investing in strengthening their logistics. They are cutting on the outsourcing. One prominent example would be Flipkart. As a start-up, it started in 2007 in the Amazon model. Becoming the most popular choice for online book-retailers, Flipkart has ventured into FMCG, apparels and small and medium sized electronics as well. It now has 7 warehouses across 25 cities to cater to the customers.

However, building your own logistics does not necessarily mean that you have to cut down on outsourcing.  Specially, in a country like India, where distribution has always been an issue for some and the competitive advantage for some others, it does make sense to reach as many customers as you can by all means. Naaptol has been following the same strategy of a mixed distribution. They are continuing to follow a mixed model where they are outsourcing, as well as banking on the self owned delivery mechanism for the last mile delivery. According to Naaptol, in Indian e-commerce context, the mix-model will rule for at least a while. So, for a company to have a fully self owned logistics it will need money and the revenue. Investment only manages to provide a slow but steady support in the entire process.

As far as the challenges are concerned, one major challenge in e-commerce lies in the geographically and demographically dispersed traffic these sites cater to. In a conventional retail based supply-chain system, it is comparatively easier to understand your customers, their needs and also to trace their purchase patterns. However, in case of an e-commerce site, the trend analysis could be difficult. Here comes the demand of better analysis procedure. Often, the information provided by an online shopper is so minimal in nature, that it is practically impossible to trace any sort of correlation between his or her background and purchase pattern. This problem qualifies to be a double-edged sword as it puts you in a dilemma whether to ask your customer about personal information or to make the process as hassle free as possible for the customer. Bombarding the customer with questions makes you lose to your competitors and on the other hand, if you don't, you end up losing the factor which connects your customer to you. We must also acknowledge the dynamic nature of e-commerce in contrast to the traditional business. Here, the customers are from varied background. Since, there is no geographical boundary; the customer base is also continually changing. Challenge remains in correct prediction of the demand. One solution to mitigate the risk of faulty prediction could be to switch to a dynamic business model altogether. This model will ideally have zero or negligible inventory and also a supporting strong distribution so as to minimize the order fulfillment gap.

It is true that e-commerce rejects many of the facets which are crucial for conventional logistics problems. For instance you no more need to worry about your physical shelf space, physical layout design. But, at the same time, e-commerce also introduces many newer aspects to the logistics problems. E-commerce calls for a more dynamic, more versatile framework of logistics. In order to achieve that, we need to have an efficient data-collection and analysis methodology.  This, together with a dynamic and flexible implementation, will help us integrate the e-commerce and logistics.

References:
[1]. Susan Mallik (2010). Hossein Bidgoil. ed. The Handbook of Technology Management: Supply Chain Management, Marketing and Advertising, and Global Management, vol 2 (1 ed.). Hoboken, New Jersey: John Wiley @ Sons, Inc.. p. 104
[2]. E-commerce matures, players invest in logistics, warehouses, Business Standard
[3]. Anshoo Sharma, AEmerging Trends In Indian E-Commerce: On Logistics, No Poach, Payment Gateways & More.

This article has been written by POUSALI CHAKARBATHI. She  is an Electronics and Instrumentation Engineer from Heritage Institute of Technology. Her interest areas are Operations and Supply Chain. She can be reached at pgp12032.pousali@iimraipur.ac.in.

This article was published in Strive (Volume 2, Issue 2) .