Logistics and e-commerce, mutual dependencies

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The cornerstone of e-commerce is the convenience of ordering products from any place and any device directly to our home. Together with the development of the market and customers' requirements, product delivery times had to be significantly shortened and the cost of delivery should be kept at a low level. Buyers are the happiest choosing the option "free shipping" which is not in line with the growing fuel prices and taxes. How to align the customer's expectations with the market rules?

The answer is the analysis of evolution of dependencies between the e-commerce market and logistics, i.e. the qualitative transition from the "last mile of the delivery" to the "win-win model" - namely the transition from logistics services which must be used be e-commerce (delivery to the end customer), to services e-commerce may use (outsourcing).

 

Change of priorities

When analysing the processes which occur in logistics as a consequence of e-commerce development, we may notice a change of expectations of both manufacturers and buyers. Once orders were delivered in huge quantities on pallets to warehouses; today what matters most is the individual and quick approach, accurate and safe delivery of the product to the customer. The core of the business is the warehouse whose role has changed over the years. Warehouse logistics is constantly changing in order to adjust to the new reality.

Still in the 1970s most shops were supplied directly by suppliers. Ten years later one could spot a form of centralization and the emergence of distribution warehouses. In the 1990s, opportunities opened to transport and storage of goods not only from local suppliers but also from abroad. It was the quantum leap in the development of e-commerce, which is successful even today. Expansion of the Internet as a medium and the division of sales stages into smaller, more specialized sectors has triggered changes in the world of logistics.

Currently the warehouse has taken over many logistics functions of a shop: contact with dozens of suppliers, many customers, and management of the growing number of distribution channels. The way between the manufacturer and the customer is getting longer and more complex, the price of delivery, however, must remain at a low level while the service quality - on the highest.

 

Accommodating conflicting objectives

Logistics transport has become more integrated and capable of maintaining the stability and the rapid pace of delivery, thanks to which the demand for logistics services for e-commerce is constantly growing. It is estimated that the e-commerce market in 2016-2020 will note the growth at the level of 9.69% CAGR (Research and Markets, 2020 Analysis for Global E-commerce Logistic Market, publication: February 10, 2016). According to the research carried out by Colliers International and published in the report Global Industrial & Logistics Trends 2015, the highest volume of online shopping is done by citizens of EMEA countries and of Asia and Pacific, whereas Great Britain and Ireland are in the lead. This strong and rapid development of Internet trade accelerates the development of logistics on many levels, particularly when it comes to international freight forwarding.

 

Impact of online sales on warehousing technology

Depending on the type of product, the customer, the mode of delivery and the share of online sales, warehouses can significantly differ in size, specifications and location.  A large share of e-commerce is the trigger of technological development of warehouses. In order to boost efficiency, logistics centres fully utilize the mobile technology and thorough data analysis which allows for many improvements in the transport process. One of the innovations implemented in logistics is the RFID technology (Radio-frequency identification) which uses radio waves to send data. It allows for controlling the supply chain by appropriate sorting of products and for cataloguing products according to their BB Dates and properties, which translates into quicker warehousing and packaging of products, which is extremely useful when it comes to transporting food products. 

 

Logistics in e-commerce

Logistics, next to marketing, plays a key role in e-commerce. This is a complex dependency between the supply and distribution. The unifying factor is most frequently the programmes which an e-shop is based on (osCommerce, Shoper, Presta Shop, SOTE), as well as those which serve as a CRM with additional warehouse management and forwarding functions.

Logistics factors which influence the functioning of e-business are above all:  timeliness and effectiveness of deliveries, payment types, transport costs, product offer (horizontal and vertical) and delivery forms.

The most frequently used logistics models are:

  1. Own warehouse - which offers the possibility of purchase of higher quantities of goods, which opens the possibility of negotiating purchase prices and shortens lead times.
  2. Dropshipping – a form of logistics outsourcing which is based on IT integration between an online shop and the goods provider who takes over logistics services from the seller.
  3. Pseudo just-in-time – the shop pools orders from clients and only later orders specific amounts from suppliers. However, this strategy requires having at least a small warehouse capacity which would allow for consolidation of the order and sending parcels.
  4. Brokerage of goods – this model engages additional links of the supply chain. A customer places an order in a shop which contacts a distributor who, in turn, contacts the goods manufacturer.
  5. Mixed method - which is a mix of the above-mentioned methods adjusted to the current market needs, e.g. sales peak connected with shipping Christmas orders. It most frequently combines dropshipping or just-in-time for products of the "long sales tail" (goods seldom looked for and ordered by customers) with warehouse sales of FMCG.

The development of e-commerce has triggered the emergence of logistics models based of outsourcing of services.   The most complete form of this model is Fulfilment - transferring the service to companies specializing in such operations and not to the supplier, the importer, etc. Transfer of logistics into the hands of specialized companies allows for combining the interests of the customer and the supplier, thanks to which the buyer is more and more frequently choosing online shopping.

What lies ahead? Above all - the growing quality and higher flexibility of logistics services. It comes down to very late hours of courier deliveries, two-shift work on Saturdays and other forms of "meeting expectations", as well as courier vans waiting at the ramps 24/7 for parcels of a particular customer of a logistics company.  Already today - on the one hand we have options like Home Delivery in specific time slots on Saturday, and on the other, the works on highly useful applications for customers are in progress. It is not an empty phrase to say that the service which today exceeds e-commerce market expectations (as a whole), tomorrow will be overtaken by market expectations which will be largely shaped by clients of our customers.

14.07.2016
Sławomir Rajch

Sławomir Rajch

E-commerce Customer Manager

He has extensive experience in direct sales and effective building relations with the Customer. He cooperates with the leading Polish and international online brands. In Raben Group he is responsible for long-term and stable relations with e-commerce Customers.

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