E-Commerce Logistics: The industry Transformation

In the last few years the E-Commerce has increase to a point where organization are facing major logistics challenges. Not only the volume has increase but the composition, customer services expectation and transportation for the last mile delivery brought even more complexity to the operation.

Most of the organization are facing for years the challenges of optimization their known operation. Now the introduction of E-Commerce has completely change their references and are considering new operational scenarios, until now never considered.

The shopping experience

For the past years and decades, the customers were used to go the ne nearest store or shopping center to look for a product to buy. Now and for the years to come this same customer will probably start its buying experience by entering into a computer, then looking for a particular items on the Internet (Facebook, TripAdvisor or other) or through Google search engine.

Particularly in Canada in the last few years, the Internet on-Line experience has grown to about 5-6% of the total retail experience reaching 303 billion$ in 2014 and projected 338 billion$ in 2018. And according to sectors, the growth has been from 5% to 25% of the total shopping experience.

The customer expectation

The customer expectation relate to E-Commerce service level is very high and today’s offer from the major retails and industry is falling short. For example, cost for order delivery is most of the time expected to be free and retailers are imposing minimum buy to offer free shipping, some other will impose a fix cost per order representing a fairly large proportion of good purchase. Delivery delays is another great debate in the industry from the same day offering from Amazon to 5 to 8 days in a large country such as Canada for retailers having only one DC in the Toronto area. Free return cost and ease to return process is also an important expectation from customers.

Another very important aspect will be the product availability in relation to promotion or commodity offering. Customer expect the WWW level of service: meaning Whatever, Wherever, Whenever…

The Logistics operation

Without any doubt, the most important element of a good E-Commerce operational strategy is to understand the complexity and interrelation of various factors influencing performance. Globally three important operational phases characterize E-Commerce operation.

Phase 1: Start-up and understanding; the E-Commerce business operational model (stock or cross dock), product profile (small, medium large product), order profile (number of expected order, items per order, unit per line), service level as its relate to cut-off time and transport pick-up, technology support requirements;

Phase2: The technology phase; the organisation will require to invest in understanding all operational aspects to streamline and reduce complexity. Most of the time this will relate to best of bread WMS implementation and optimisation. Understanding the suppliers, customer, product, order and transportation details. Some level of first level automation may exist to improve picking and packing processes.

Phase 3: E-DC automation; at this phase organisation are passing 10,000 orders per shift and are considering automation in all aspect of the operation. Receiving process will be optimize using suppliers relationship to identify product-order, pre-sort items to be received, specialize receiving process according to item size and particularities. Picking will be fully automated using pre-cartonization and pre-carrier assignation, automatic carton former, invoice induction, print & apply, picking in a good to man or zone picking, case closing and automatic sortation.

Operation Phase challenges

As easy it is to describe various maturity phase, as difficult it is to projected six month in advance. This is because in order to design the next phase capacity you would need a minimum of 6 to 12 months to design, estimate, found and implementation those describe technologies.

The start-up is definitely the most fragile phase as the company launch the e-Commerce business with minimal expectation. The operation most of the time start with minimal investment, technology and infrastructure, investing in order creation than in logistics operational support. The critical moment come when at 2000-3000 orders level with 2-3 item per order. Management looking at the next phase not knowing the growth rate.

The transition phase is by far the most challenging period of the company growth path. The management has pass the start-up phase, build good understanding of the business and require logistics support and now they are facing important business growth as they will expand their reach to the market. Then come the logistics capacity to growth with the expected order increase and most of the time number of item per order will also increase. Important questions to be answer, in-house versus outsource (3PL) operation, build capacity for storage as we pass from cross-dock to stock inventory, detail E-Commerce WMS information systems implementation and support, start to think about next phase automation solution.

The automation phase will be in scope when the quantity of order reach 10,000 with 3-5 items per order. Then growing with only the WMS or partial automation will not be sufficient to absorb the regular business nor be able to support peak order period. It is important to note on this last point that December could generate 3 time the amount of regular order. Then automation become the only solution with automation relate to: case former, document insertion, picking automation, case closing and sorting equipment.

Those are few points to consider when planning and building E-Commerce business case. Many other points would need to be study in details in order to understand challenges facing E-Commerce business and logistics support challenges. Of course we could add: the market segment, the business model (stock versus non stock), delivery and return strategies, product range offering, type of product (ex: food vs pharmaceutical vs electronics) and many more. The most important point is to really build a solid team of professionals that will help in developing the best sound and scalable logistics to support the business growth.