Essay: E-commerce and the logistics network design system in Logistics activities

Introduction
The aim of this assignment is to elaborate further on E-commerce and the logistics network design system in Logistics activities. In order to link E-commerce and Logistics network design system we will be briefly discuss the evolution, factors of E-commerce, and the types of E-commerce that are set for specific products and services and how the whole aspect of E-commerce links to the Logistics network design system.
With e-commerce evolving at a rapid speed, logistics distribution has been impacted by the changes and customer needs have shifted. For logistics providers, this change in ecommerce has meant that delivery, fulfillment and the entire supply chain has had to change. In order to illustrate the link between e-commerce with logistics, the background from a retail perspective of logistics on a broad timeline will be outlined looking at the general phases of the evolution of ecommerce, starting from the 1970’s to the 1980’s to the 1990’s and briefly at 2000’s that retail logistics and e-commerce have passed through.
Factors of E-commerce are profound factors that contribute to the E-commerce system as a whole, factors such as demographics and transport infrastructure which play an important role in the logistics network distribution system and providing the final delivery of the product/service to the customer, Internet penetration simply describes what E-commerce(companies) aims to achieve with its customers by providing easy access to the internet and finally we will discuss order completeness of customer orders, this relates to how the system (electronically) fills customer order and how customer focus is achieved.
The best supply chain innovations (e-commerce and systems design) are the ones that enable better bottom-line results (higher customer service levels and minimise costs of production) on a global scale. To get there, E-commerce team works with clients to design the right solutions based on a deep understanding of the reality of their operations today, as well as the challenges and opportunities they may face tomorrow, some key elements of how E-commerce makes global logistics easier will be discussed.
E-Commerce logistics models drive to changes in physical distribution networks and logistics network distribution and they will be discussed further in detail below and how the link is interpreted.
The aim of this assignment is to link E-Commerce with logistics network distribution systems and how the implementation should be conducted for a successful E-Commerce system.
The Evolution of E-Commerce in Logistics.
E-commerce defined as, the ‘automation of commercial transactions using computer and communication technologies’ by JC Westland and T Clark (1999) has evolved over the years and made logistics systems easier and accessible boosting numerous countries Gross Domestic Product levels.
Source: adapted from http://www.jil.com/services/industriesindustrial-and-logistics/ecommerce-transforms-retail-logistics (FIGURES 1)
The first part of the analysis will examine the 1970’s.
‘E-commerce actually began in the 1970’s when larger corporations started creating private networks to share information with business partners and suppliers.’ http://www.uky.edu/classes/MKT/390/slides/ecomm.ppt According to Bahar Barami (2001:2) in a E-commerce: Implications for Supply Chain Productivity, Carrier Competitiveness, and Efficient Allocation of the External Costs of Transportation report; mainframe and minicomputers were used to automate and organise a number of back-office functions, including customer and payroll accounts.
During this period most retail stores were replenished by direct deliveries from suppliers or wholesalers. As illustrated above, in figure 1, it could be said that in most cases the ‘middle man’ between manufactures and retail stores was not present and the application of e-commerce did not lay in the actual operations throughout the entire distribution design but was more focused on the internal administrative functions.
The impact of the computers on national productivity in the United States (U.S) during this period was mainly significant in terms of labour productivity, statistics for the 1963-73 period show an average annual growth rate of 2, 66% resulting from increased capital input as computers were substituted for labour. (Bahar Barami: 2001)
The second part of this analysis will consider the year 1980’s.
During the 1980’s personal computers emerged. It has been founded by The Supply Chain and Logistics Institute that the emergence of personal computers provided tremendous better access to planners and a new graphical environment for planning. This meant that there was flexibility in spread sheets and map based interfaces which enabled huge improvements in logistics planning and execution technology.
Retailer began centralizing their store deliveries through new distribution centers of with the company specifically controlled. Distribution centers, wholesalers etc. were introduced to integrate inbound, outbound and reverse flows of products, services and information. It was generally considered that service flowed from the main domestic suppliers to the retail distribution center to the retail stores. According to B Barami (2001: 3), with the arrival of personal computers, computers moved from the back office to the front office and began to automate a large number of white-collar clerical tasks. To illustrate the implications of e-commerce, The Supply Chain and Logistics Institute stated that ‘The Material Handling Research Center provided leadership in developing new control technology for material handling automation.’
The impact of personal computers on productivity during this period in the U.S according to B Barami (2001:3) , was rather minimal at an average rate of 1,27% despite the fact that it was a critical phase in development of digital age.
The third part of the evolution analysis will consider the 1990’s
The 1990’s were known as the ‘Age of Web’. B Barami (2001:3) claims that ‘the third wave of Information Technology in the U.S. coincided with the global spread of the Internet in 1991 and the introduction of World Wide Web browser technology in 1994.’
Globalisation, of non-food products, started during this period due to companies freely or as close to no costs they had access to multitude of data bases through the internet. Goods, services and information began to be imported and exported between countries. Given that the internet was introduced, oversees suppliers and retail import centers were to receive and process goods were included in distribution networks. Retailers had to strategically consider their logistics strategies due to having deal with the factor of complex distribution networks because multiple entries were spanning multiple countries with diverse control.
According to B Barami (2001:4) as a result of the commercialization of the internet economic growth figures begun to reflect profoundly on the productivity figures with an overall rate of 1.3% between 1990-1997 and in 1998 with a ranging quarterly wide swings rates of 2,7% to 4,2%.
The final level of the evolution will consider the 2000’s
Having considered the past three decades, in the new millennium retailers established e-fulfillment distribution networks by expanding services through the extensive use of the internet.
Based on a report released by the U.S. Department of Commerce in 1999, B Barami (2001:3) mentioned that it was estimated that the number of on-line users during the year 2000 were accepted to be 250 million and for the year 2005, 350 million. This is due to the fact that the internet became widespread in the 2000’s which transformed the way logistics and distribution operations were conducted. In addition to computers and personal computers being used by businesses and the internet being introduced in the 1990’s, mobile phones became an integral part of the distribution channels. Customers had information at the tip of their fingers and demand for products became interesting yet complex.
Goods (except for food) could be delivered directly to the customers, eliminating the use of retailers. Bearing this in mind, companies began making use of third party logistics to deliver the products to customers. Even though this enhanced the customers experience to consuming goods in their own comfort, it raised transports costs for most companies.
Factors that affect E-commerce
E-commerce is a means of increasing communication between a company and its suppliers, customers and so forth, a way to make customer orders convenient, numerous factors contribute to the success of E-commerce and a few factors (the most critical factors) will be briefly discussed in detail below. A better understanding of how E-commerce and logistics link to better the services provided to customers all over the world.
Technology has evolved over the years and has made logistics systems much easier and accessible, bearing in mind that the factors of E-commerce also play a crucial role in the evolution, now turning to the factors of E-commerce and how they contribute to the overall success of a company and how customer satisfaction may result in repeat business eventually contributing to a company gaining a competitive advantage over its competitors. There are countless factors of E-commerce in Logistics we will focus of the following: internet penetration, demographics, transport infrastructure and the order completeness of customers through E-commerce.
Internet Penetration is one of the factors that acknowledge the rapid growth of E-commerce over the years, this is indicated by internet sales and the growth of online sales over the years mostly in South Africa according to Van Belle & Joubert South Africa is lagging behind when it comes to internet usage this is because of the expensive internet access due to the lack of competition (monopoly- Telkom) in the industry but in 2014 the completion is increasing other companies are making internet easily accessible therefore this impacts E-commerce directly since this is a perquisite to the structure/development of E-commerce in logistics. The internet has proven to be a valuable factor for E-commerce as it identifies a convenient way for customers to place orders through online sales.
Demographics according to Hakwins & Mothersbaugh (2013), describes a population in terms of its size, distribution and structure, demographics also influences consumption behaviours, demographics links E-commerce with transport infrastructure in terms of distribution according to the definition. E-commerce receives information (e.g. an order online) from the customer than the physical product has to be delivered to the customer, the process in between deals with information technology (E-commerce), the actual structure (warehouse, DCs etc.) has to be mapped/located to an actual physical location that’s where the transport infrastructure falls into place, the actual transport is given instructions through the information provided by the customer (E-commerce) to the delivery location, then transport has to collect the physical product ordered by the customer from the structure (warehouse, DCs etc.) and then deliver to the customer in the most effective and cost efficient way.
Demographics and transport infrastructure are independent of each other, this is because they are interlinked to perform an activity that ultimately illustrates how E-commerce contributes to the final customer through online orders and how it provides a faster service.
The order completeness of customers through E-commerce, according to kompakt (2012) the accepted definition is: ‘the sale of goods and services via the
Internet’ which elaborates the findings of the table below by Erlandsson & Lind??n (1999) which deals with how E-commerce (internet sales) has changed the way companies focus on customer completeness of orders through E-commerce in logistics, this table emphasizes the aspects that indicate that customer service has improved using the ‘New logic’ phenomenon versus the ‘Old logic’ which indicates that before E-commerce the focus of companies was to generate the maximum profit regardless of a relationship with a consumer. As indicated by Erlandsson & Lind??n in 1999 E-commerce can be defined by customer driven orders which companies share their information with the customer through sales over the web (Internet), as per the definition internet sales have become a determining factor for most companies to reach to a bigger market and to provide that extra customer service adding to customer success and creating value through internet sales.
Value Chain Old Logic
(Before E-commerce) New Logic
(After implementation of E-commerce)
Product Development Technology driven Customer driven
Procurement ‘Suppliers are Suppliers’ ‘Suppliers are partners’
Production To stock To order
Marketing Market share Share of customer
Sales Traditional channels Over the web
Order fulfilment ‘It comes when it comes’ Value added functionality over the web
After sales Customer service second priority Customer service is the key to survival
Source: Table 1 Differences between the old and the new business logic (Erlandsson & Lind??n, 1999)
As indicated in Table 1 above it must also be noted that the ‘New Logic’ is very effective and efficient to the company and the customer due to the fact that the overall companies lookout is customer driven which in turn means satisfied customers which means repeat business, and all the above directly shows how E-commerce plays a role in the customer infrastructure being a solid structure to the companies vision. Companies exist to make money and E-commerce systems must directly contribute to that principle.
Whilst it is generally agreed that E-commerce is fast growing in South Africa, it can be said that the factors discussed above have a systematic logical approach to contributing to the effectiveness of E-commerce. In general what this indicates is that the factors reviews the different attempts to make a better communication system, electronically.
E-commerce logistics models drive to changes in physical distribution networks and logistics network distribution.
The continuous implementation, development and improvement of E-Commerce in our everyday lives certainly simplifies everything we do. In the past, before the internet came to be, everything we did had to be done manually. The order process of any item used to start off with seeing the product somewhere, making a trip to the store, finding the product in the store and then walking over to the counter and physically paying for it, then making your way back home. In the 21st century all we need to do is switch on our computer, press a few buttons, enter our credit card details, and it will be delivered to our doorsteps in a certain amount of time.
This online ordering process eliminates the necessity for certain physical distribution channels or intermediaries such as retailers, thus there is also a cost save associated with transportation from the wholesaler to the retailer.
Online purchases are the preferred choice as there is such a large range on offer. Seeing that there is no need to have the products in a physical storage facility. This means that the products such as machinery will be made upon request and therefore delivered as soon as they are completed.
As shoppers we develop trends or patterns. These can be monitored better online. This will allow ‘suppliers’ to narrow the broad options according to your preferences. It also creates a more personal feel, making it seem like the personal relationship you have with the store assistant, even though it will be merely virtual.
One of the many advantages of not having to go to a physical store is the flexible shopping hours that comes with online shopping. The internet never sleeps so we can do our shopping at any time, from anywhere in the world. Online shopping means that you have a 24 hour store at your fingertips!
According to Meha Agarwal (28 November 2013) Global online retail has grown 14.8% on average per year from 2007 to 2012.
The significant growth in online sales has a large impact on the inventory levels that a business has to keep in physical storage facilities. There may be a slight delay in the reception of a product ordered online, depending on what the product is and how far the customer is from the manufacturer.
A single delivery for a specific area can then be made once the orders for that specific region is complete (for example: on a weekly basis). This will also result in cost savings as transportation costs will be minimized by making a single trip for multiple deliveries as opposed to delivering every time an order is processed.
When ordering online, we can monitor how far along the order is at a specific point in time. This is the only confirmation we get as customers who shop virtually as we do not get a physical receipt as we would if we were purchasing from a retail store.
A potential problem we may encounter with online sales would be in the event that we are dissatisfied with the product and would like to return it. Since you are not there yourself to choose or try out the product, the possibility of wanting to return the product is larger than if you were there yourself at the time of the purchase. Sending back the product could result in extra costs being incurred (e.g. Postage costs or transportation costs associated with the return of the product).
A new system is being implemented to help simplify this return process. It will involve a centre where unwanted products can be sent to and will be handled.
Online shopping may seem simple and easy to us as consumers but behind the scenes things may be a bit more complicated. Shopping within a certain country is easier, the complexity comes when buying from another country which does not have the same logistics and transportation infrastructure as our own. These are factors that should be taken into consideration when making an online purchase as it may have an impact on the time it takes to receive the delivery. Thus if you are making a purchase for a product that you need immediately, an online purchase is not the best way to go about it. It will be quicker and easier to get into your vehicle and drive to the store instead.
Although e-commerce is within our comfort zone, it is not available to all due to internet restrictions some countries may still experience. It is however growing at a rapid rate in developing countries such as South Africa, because more people are getting access to the internet in some way or another (e.g. Smartphone’s and more Wi-Fi hotspots).
Online sales also sometimes takes the approach of having a central location or hub where they send the products to. This is closer to the customer than the warehouse is to the customer. Thus the manufacturer sends the ordered products to that central location and each customer is then responsible to collect their own order from there. This means lower transportation costs as there will not be any door-to-door deliveries done. The customer is likely to incur a minimal transport charge (driving to the hub to collect their product).
Different e-commerce logistics models are used for the sale of different products, meaning that the physical distribution networks will be affected in their own way, depending on the products being sold.
How E-commerce makes global logistics easier
Rapidly changing business environment requires new approaches and methods for supporting management systems in all types of companies (not only logistics companies). Modern companies doing business use e-commerce systems by default. One of the key areas of e-commerce systems is logistics and the supply chain. The optimal way to ensure the success of logistics and supply chains is to put in place modern systems that integrate all functions of the enterprise and are customer-oriented. These network design systems can help the methods of attaining competitive advantage in all market segments. The following introduces how E-commerce makes global logistics easier:
‘ Reach more customers over wider geographic region, while improving the quality of the company offerings(products and/or services)
‘ In a modernised business e-commerce logistics models can handle the ever increasing volumes of orders from global customers
‘ The rise in access channels, most people these days shop online and with the increasing number of people buying internet enabled cell phones
‘ Accessibility & more online security, reliable payments methods (cash on delivery) reduces the risk of fraud. These payment methods allows customer to see the product before paying for them, thus increasing the number of transactions
‘ More geographic spread ,consumer markets in currently concentrated regions with high purchasing power and increasing total spending (like JHB regions Sandton)
‘ Build your own networks,(customise your networks) , incorporating the teams into the business model to ensure quality in the increased speed of delivery & improved customer service
‘ It is important for leading companies to understand if & where to deploy their own logistics network design capabilities as in the’ last mile delivery’ the further the delivery travels the higher the costs to the end delivery point and this becomes complex with other deliveries along the route
‘ Outsourcing to third party providers, this providers are more experienced with only a certain part of the entire logistics network design and the can assist in any aspect that is not well familiar to the business and even suggest possible new features (growth and investment plans)
‘ If possible all products & services could be sold online as they lower costs significantly like Transport, facilities and inventory costs
‘ The need for speed is what drives the consumers, and relevant logistics network systems should be put in place to satisfy the customer’s level needed.
‘ The desired outcomes of e-commerce logistics model is to lower costs factors and increase in information availability so that higher service factors are meet
‘ Consumers can buy the same item on many different websites that uses e-commerce and the customer experience is key in this regard as the system serve the platform of the company
‘ To be successful, e -commerce companies must pay attention to the entire sales processes, Can the customer receive the item they expect, on time and undamaged’? Communication is very important, e-mails can be sent to all customers from the network system about discounted deals of the whole product range
‘ Regular diverse goals & rapid fulfilment of customer orders
‘ Increasing(B2C), cutting out the Intermediary players that results in costs that ‘eat out profits’
‘ In large Organisations with high inventories commerce helps to managing items in a way that creates a lot of different skills(this is because of a range of factors like sizing and colours)
‘ The customer oriented model of e -commerce system helps with the criteria to maximise production output of the system
Conclusion
The evolution of ecommerce in logistics has had huge implications in the way business has been done. Even though ecommerce has brought about certain complexity, like extensive paper work and complicated planning of distribution it has also produced advantages like speed and flexibility.
To sum up factors of E-commerce are necessary aspects that contribute to customer success in a company, by concentrating on these factors as mentioned above E-commerce is a crucial tool in the 21st century for the growth of the company by growing with the demanding growth of customer’s quick accessibility and the demand for satisfactory service.
To summarise how E-commerce makes global logistics easier, the company should offer clients access to the latest e-commerce and logistics network designs innovations and tools across borders, but it takes everyone’s insights and participation to develop a truly effective system. That’s why the system should just focus strongly on developing great relationships and trusting partnerships with clients. Working together with clients configure end-to-end solutions that meet their unique requirements, lead to competitive advantage and capture maximum value.
The conclusion of this assignment is in reference to the aim of the assignment which indicates that E-commerce is directly linked to logistics network distribution system, the assignment has linked these two and it can be said that the implementation is the critical part to lower overall costs of and organisation.