Consumption has always been dependent upon distributional capacity and capabilities. The conventional retail model was to establish distribution systems efficient enough to supply stores, a model which in time became increasingly efficient with large retailers establishing a high command of logistics. The advance of e-commerce has pushed this model further with distribution-based consumption; personal consumption contingent upon physical distribution to a set location and within a set time frame. Distribution-based consumption is dependent upon:
- Procurement. Online retailers are increasingly able to influence the procurement and manufacturing of consumption goods. In addition to the purchasing power online retailers have in commanding prices and volumes, e-commerce sets virtual marketplaces for suppliers and customers (B2B). The procurement process must be quick and flexible enough to match the accelerated pace of online purchases.
- Inventory management. The backend of the e-fulfillment center (EFC) distribution center servicing e-commerce relies on complex inventory management for fast storage and retrieval of goods available for sale. Many large e-fulfillment centers are opting for a random storage strategy where items are stored in the nearest space available, which is paradoxically more efficient considering the nature of online orders (single items shipped in single parcels). An emerging trend is same-day or next-day deliveries, which require the pre-positioning of goods in regional or urban freight distribution centers as an inventory management strategy.
- Order processing and packaging. The frontend of the distribution center servicing e-commerce relies on the fast retrieval and packaging of orders. This process is highly automated and takes place in specialized e-fulfillment centers.
- Deliveries. Once they have reached a critical sales volume, some e-retailers enter the own account transport market using their dedicated delivery vehicles. This is done in order to have a higher control over the timing and frequency of deliveries, namely express and weekend deliveries. In addition to the standard home delivery of a parcel, deliveries are also taking new forms such as workplace deliveries as well as collection points such as locker boxes or nearby stores offering such a service. Customers have therefore several delivery options available to fit their constraints (not at home) or preferences.
- Tracking. Customers want accurate time-in-transit information for the various shipping options. This challenges the distribution industry to implement information systems tracking parcels as well as vehicles. It requires sensors to collect positional information, such as once an action has been performed (order shipped) or when the parcel enters a specific location (a nearby sortation center), including a delivery notification.
As the level of control and management of these activities include, a closer level of integration between consumption and distribution emerges.