To 'add to cart' or not to 'buy now': Managing e-tail logistics

Dr B K Mukhopadhyay

(The author is a Professor of

Management and Economics, formerly at IIBM (RBI) Guwahati. He can be contacted at m.bibhas@gmail.com)

Dr. Boidurjo Rick Mukhopadhyay

(The author, international award-winning development and management economist, formerly a Gold Medalist in Economics at Gauhati University)

11th November (11/11) is Chinese Singles day, which happens to be just another shopping spree occasion like Boxing Day. On this day alone, the giant electronic-retail (e-tail, hereafter) Taobao (owned by Alibaba group) registers a sales record range of 6-8 billion dollars every year, and the number grows every year. However, what goes unreported every year are 'product return' and 'product recall' statistics. Customers save all items on the e-cart until 10/11 and once the clock strikes midnight, they click 'buy now'. Therefore, the following two weeks from the single's day is an impossibly busy period for the e-tail logistics and warehousing partner services. Needless to mention, a higher level of pressure kicks in when the 'product return and replace' phase starts after customers receive the deliveries and are not satisfied. Similarly, most amazon orders that come with a 24-hour delivery privilege also pushes the logistics to the limit.

Data suggests that e-commerce brands shipped over 3200 packages per second in 2020. So, for firms who were in the e-tail or any other forms of e-commerce business, it was a good business period albeit with suppliers and logistics pressure. The logistic strategy, therefore, for the e-tails is as important as growth and portfolio diversification strategies that are in place. Most e-tails that are global, of course, manages international e-commerce channels and cross-border shipping – this includes clearing customs, classifying under the right import fees and taxes categories, all while ensuring customers find a product priced at a competitive level if not entirely at a cost advantage. Warehousing and delivery security management are essential components in this context.

'Product Returns' have a certain USP (unique selling point) appeal in the online shopping experience. Whether the shoes that were delivered happen to be of the wrong size to damaged or/ and wrong item sent, online buyers feel a lot more comfortable to shop freely and 'buy now' when there is an option of easy returns and fully-refundable shopping. Research by the AMA (American Marketing Association) shows that 56% of online shoppers make a choice between 'add to cart' and 'buy now' based on the ease of return policy in place. For certain urgent goods and services, however, this might create a lot more hassle than convenience for customers.

On the other side, however, the model sustains a close and interdependent connection between suppliers, logistics operators, and e-tail platforms. Reverse logistics need to be equally efficient as shipping logistics. This phenomenon redefines the typical stakeholder engagement models as we know them in business. Napoleon Bonaparte once said "An army marches on its stomach"—in other words, it is essential for the army to be always well-provisioned to ensure success in war.

Another study shows that in 2019, US businesses spent $1.63 trillion on logistics 2019, using integrated supply chain network management. By 2025, the data is projected to be 5.95 trillion. The stage of 'order fulfilment' starts once an order has been placed and needs to be 'picked' from the warehouse before ensuring it has been properly labelled, packaged, and then shipped to the customer. The five steps in order fulfilment started with A) identifying sources of goods ordered (the players here are manufacturers, wholesalers, farms, etc.), B) receiving the order at the distribution centre, C) storage (owned or outsourced), D) processing (picking up the right item, checking proper labelling, and packaging), and finally, E) shipping (to the doorstep of the customers). Of these, warehousing requires critical attention at all times, depending on the nature of goods and services being dealt with – considerations such as space availability, recognising special requirements such as cold storage, docking facilities and finally the proximity of the warehouses to modes of transportation such as rail lines, shipyards, and airports.

E-tails that also offers door-to-door food and beverage have to stay up to date (and make required investments in R&D accordingly) with warehousing and shipping advancements that have improved significantly over the past decade. Research by the Food Marketing Institute (FMI) suggests that spending on food and beverage would reach $100 billion by 2022. Most of the online delivery service companies tend to shop frozen and refrigerated items last to make sure these remain fresh at delivery. To maintain cold-chain integrity, shoppers store all items in separate insulated bags while choosing items and during delivery. SMEs do a lot of these businesses, a lot many have been successful in South Asia and East Asia. With advances soaked from industry 4.0, these delivery companies leverage machine learning and real-time location technology to most effectively batch deliveries and route drivers. On the cost side, this does hit the grocery margins badly.

It is not only the transportation and warehousing, but the shopping behaviour of customers that can be categorized under 'Unitization' (simply refers to consumers buying products in small quantities) and therefore packaging of the same has to ensure that the products are easy to handle in logistics terms, do not cost a fortune to pack or handle responsibly (handling charges can surpass shipping charges at times). All while ensuring the products retain the appeal and maintain the saleability aspect.

Leading Electronic- Retails (E-Tails) today

Leaders managing e-tails face the cost and recruiting challenges the most. Big players in this industry such as Amazon and Alibaba maintain unprecedented buying power, they maintain an absolute cost advantage that is not only difficult but at times impossible for other retailers to compete on their level. Continued cost reduction at all levels including inventory management, warehouse space, supplier network relationships, transportation modes, last mile, is a big chunk of the internal strategy of e-tails.

On the contrary, there are markets where we don't have many e-tail players competing against each other, e.g., OLX in central Asia, the informal and non-transparent mechanism of e-commerce trading puts the credibility of e-tails at risk. Therefore, competition remains low and the e-tail market does not develop over time.

Two contrasting scenarios, therefore, an extreme level of e-tail competition due to the expansive scale of the popular e-platforms and consequent effect on smaller players, and on the other having one or a few e-tails do not allow the e-commerce sector to take off as it could benefit SMEs and market development.

As industry 4.0 progresses expansively, Artificial Intelligence (AI)-powered automation is helping firms use data more efficiently and effectively than ever before. AI helps disparate sections of the business communicate and cooperate as one, previously these sections acted in silos. This helps in inventory management, improves warehousing efficiency, and coordinates with modes of transportation much faster with increased predictability (e.g., warehousing system talks to ships that are arriving early or delayed – and calculating exact ETA of a delivery).

Leading e-tails at this time of history entails embracing an open leadership style where managers are more accessible to employees. Managers are increasingly tech-savvy and need to ensure proper training and development is provided to employees to keep them updated with the latest advancement in deep learning, machine learning, remote sensing, and AI to better streamline workplace productivity and faster response turnover.

Most e-tails aim to be cost leaders rather than differentiators, more so in densely e-commerce run economies, however, the last mile delivery is still carried out by human labour (and a tiny percentage of these deliveries are by drones in some markets) and this needs continuous attention to ensure staff is trained regularly and stays motivated. Most delivery agents are gig workers and often work for either third-party partners of the suppliers or in most cases, self-employed. They mustn't be ignored as they still represent the company's image directly since customers are ultimately asked to 'rate your delivery experience' alongside 'rate your order/ item'. Much as industry 4.0 offers us regularly during the fourth industrial revolution era, the importance of 'human touch' should not eventually go elusive.