Retail Logistics and E-commerce

Retail Logistics and E-commerce

Logistics are being impacted by e-commerce, particularly by its business to consumer segment. In a conventional retailing supply chain, customers are responsible for purchasing their goods at the retailer’s location. They are assuming the “last mile” in freight distribution by traveling to the store and come back with their own purchases. For bulky purchases such as appliances and furniture, retailers offer local deliveries for their customers. Because locations are an important dimension of retailing, the retailer must assume significant costs to retain accessible locations, which defines its market area (its customer base). These costs, such as store labor and rent, are reflected in the final costs of a good, which is assumed by the consumer. The retailer maintains a level of in-store inventory (in the form of stocked shelves), replenished by regional distribution centers (RDC) where goods from a wide range of suppliers are stored. The most efficient retailers have a network of stores and distribution centers, some operating on the cross-docking principle.

The emergence of e-commerce has changed the relationships between customers and retailers (e-retailers):

  • Actors. In some cases, entirely new e-retailers have emerged, but the adoption of an online strategy by conventional retailers has also been common. In the emerging distribution system, the e-retailer is at the same time a retailer and a distribution center; an e-fulfillment center (EFC).
  • Locations. The locational choice of e-retailers is much more flexible, permitting the use of lower-cost locations that would not have been considered otherwise as suitable for retail. Large e-retailers can maintain a network of distribution centers to optimize their market coverage and service regional markets.
  • Purchasing. Customers are virtually interfacing with a store (a platform), and the orders are shipped through parcel services, which take care of home deliveries. Figuratively, the customers are directly linked to the supply chain since their product orders interact directly with the distribution center.
  • Deliveries. The deliveries are now the responsibility of the e-retailer, a move away from standard retailing where the customer took charge of the goods as soon as they were purchased. To do so, parcel delivery services must be used.

The above underline the intensiveness of distribution-based consumption that relies on well-coordinated logistics tasks related to procurement, inventory management, order processing, and deliveries. The backend operations of inventory storage rely on high throughput systems, many partially or fully automated. Frontend operations are related to order processing and retrieval as fast-paced as well and must take into temporal demand fluctuations into consideration, as well as the available delivery capacity. Delivery options such as home delivery or deliveries to a delivery point such as a locker bank require accurate tracking for coordination along the delivery chain.

Due to the time delay of home deliveries, as opposed to the immediate access in stores, there is a range of goods that are less suitable for e-commerce. Groceries and pharmaceuticals have a lower e-commerce share than apparel, cosmetics, and electronics. To capture additional market share or new market segments, online retailers are trying to establish same-day or next-day deliveries by pre-positioning high demand goods in urban logistics depots.