Online retail is accounting for an ever-larger part of total retail sales. Consumers armed with smartphones now expect increased choice, convenience, and price savings by buying online. If enterprises are to provide such advantages, their logistics must be organised to match. ‘Born digital’ companies like Amazon and Alibaba started with a green field. Now, traditional ‘bricks and mortar’ companies like supermarket chain Woolworths in Australia and international home furnishings company IKEA are adding ecommerce to operations already in place to become ‘clicks and mortar’ operations.
Make No Assumptions
Ideally, in a clicks and mortar business, logistics activities would be the same between fulfilment of online and physical sales. A common logistics network means simplification, efficiency, overall reduction of inventory and effort, and lower costs. By comparison, ‘variation breeds inventory’ and other expenses.
However, even if the process of designing a network stays the same, no assumptions can be made about current logistics practices being optimised for online retail. For example:
In physical retailing, your sales and service points, perhaps tens or hundreds of them, are probably collocated with geographical concentrations of customers. Your regional distribution centres may follow a similar pattern. At each outlet local sales staff serve customer who travel to the outlets to buy.
In online retailing, your sales people may all be in just one customer call centre on the Web. Your distribution centres (perhaps now just one or two big ones) may be remote from any cities. On the other hand, you now need to ship to thousands or millions of customer locations (their home addresses).
Let Customer Needs Drive Network Design
Logistics network design for online retail must start from your customer service offer. Factors for consideration include:
Order size and predictability. In online retailing, orders tend to be individually smaller and less predictable than those shipped to physical sales outlets.
Shipping destinations. With internet access widely available, ecommerce customer demand can originate almost anywhere.
International shipments. E-fulfilment may be more complex internationally than shipping for traditional distribution.
Return logistics. Online retailing may have higher product return rates for a variety of reasons. Examples are unsuitability of products that consumers cannot see or handle before ordering, damage in transit, or undeliverability. Some products generate especially high returns. Statistics indicate that online consumers return 20% to 30% of orders of apparel.
Fast Shipment, Free Delivery, and Other Online Retail Myths
Unfortunately, some traditional companies rushed into online retail. They were lured by new revenue or scared of falling behind competitors but omitted to plan the logistics. Attractive conditions were proposed to customers without checking the financial impact. Free home delivery was a prime example. This was often offered in haste and regretted at leisure, especially with last-mile shipment expenses accounting for as much as 28% of total transport costs.