Success of E-commerce Lies in its Efficient Logistics!
Led by technology and consumer oriented market, e-commerce is reaching new heights every year, around the globe as well as in India.
KPMG report states that the e-commerce market in India was estimated at USD 17 Million in 2014 and expected to become USD 136 Billion by 2020!
E-commerce in India, right from its inception, is accelerating fast towards greater heights. The reasons being:
- Usage of internet and smartphones are spreading widely and deeply in India.
- Changing consumer habits towards ease and convenience by using various devices like smartphones, tablets, iPad etc.
- Changing lifestyle needs.
- Integration with online payment gateways facilitating easy and secure payment process
- More and more entrepreneurs are directly going online, instead of brick and mortar stores because of lower start-up cost.
- Modes of advertising and marketing is becoming technology oriented as well as consumer centric.
Picture is extremely good for e-commerce but it has its own challenges! Those challenges has to be faced in a strategic manner. One such challenge is Logistics. It is the key factor to success of online business.
E-commerce has its competitive edge because it promises and meets right product price, customer service, quick and speedy delivery like delivery on the same day. Now to meet this promise of quick and speedy delivery, e-commerce needs to have an efficient logistics. If you are struggling with it, you will not be able to provide timely delivery and hence your customers will be dissatisfied by your services. That will lead to declining sales.
So, what is logistics? It is the behind-the-screen player. In other words it is the back-end supply chain management. Logistics can be described as the process by which the products are obtained, stored and delivered to the customers by proper planning, execution and control within a time frame to meet desired targets.
Logistics varies with business types:
Broadly there are three e-commerce retail models:
Inventory Led Model:
In this model, inventory is bought by the purchase arm of the e-commerce business and stored by them in their own fulfilment centres. In short, inventory is bought and maintained by the online business itself
Fulfilled by E-commerce Business:
It is slightly different from inventory led model. In this model, inventory is not purchased by the online business, it is purchased by the vendors and stored at the fulfilment centres of e-commerce business.
Market Place Model:
In this model, Inventory may or may not be stored by e-commerce retailer. The products may be packaged and checked by the vendors and then sent to the warehouses of the e-commerce retailers. The products may be directly also shipped from the vendors to the customers.
Since this business is done from home or is on a very small scale, the business own the inventory as it is very limited in number and having maybe one or two vendors.
We understood the various business models first because process of logistics is highly dependent on the type of business model
Process of e-commerce retail logistics
- First Mile Logistics
- This is the process of delivering products from the seller to the fulfilment centre of the e-commerce business or the warehouse of market place.
- In inventory-led model the products are directly sent to the fulfilment centre without packing and labelling.
- After that physical stock is carried out again challan/Advance Ship Notice (ASN)
- Quality check
- Products are placed on inventory racks
- Inventory in the inventory management modules is updated
- New stock report can be generated
- In marketplace model, the products are completely packed and labelled and then sent to the warehouses
- There they are checked against the list sent by the vendor
- Products placed stored in the warehouses
Once the customer has placed the order on the e-commerce website, the product is then packed and labelled and ready for the last mile delivery. Inventory is updated accordingly.
- Sorting Based on the Location
There may be multiple orders for the various product from different locations. So all the products are sorted out based on the delivery location. In case the e-commerce has tied up with the third party logistics (3PL), then this process is carried out by them.
- Line Haul
This process connects the main hub and the delivery hub via air, mail, land depending on the promised time of delivery and cost parameter. In case of 3PL, they carry out this process.
- Last Mile Delivery
This is the last process of delivering the products to the customers. It involves delivery of the products from the final hub to the customer’s location through vans, trucks, bikes etc.
- Cash on Delivery (COD)
If the customer accepts the package and if the e-commerce business has given him the option for COD, he will do the payment in cash.
When the customer is either displeased with the delivery service or the products itself, they return back the package. These returned goods also needs to go all the logistics process in reverse order. Finally when reached back at the fulfilment centre or the warehouse, inventory is corrected again as return goods.
Small business, with limited amount of orders, they directly send the package to customer via courier, post or through any delivery person. Their process cycle is small.
Few big e-commerce enterprises have the facility of having their own logistics department, but nowadays many hire Third Party Logistics Company and outsource the whole logistics operation. Hence these logistics companies are coming out with innovative ideas of improving the operation by involving the latest technologies.
Some of the top logistics companies in India are DHL, Blue Dart, First Flight, DTDC, FedEx, Gati, etc. While online shopping giants like Jabong has its own Logistics Company-GoJaVAS and flipkart too called Ekart.
Conclusion is that Logistics is the backbone for e-commerce business. In parallel to ecommerce growth, logistics has to be made more efficient to make timely delivery as promised. That is #1 criterion for the customer satisfaction.