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R(e) Logistics - an overview

Prof. Rommert Dekker

B2C - various products, food, advantages to companies

B2B- various models, info exchange, reverse logistics

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e-logistics - B2B

Logistics is a critical success factor for e-commerce (Christmas 99)

Delivery options to customer1. electronically (advice, software, electronic cards)2. by mail (tickets, subscriptions, CD’s)3. parcel carriers, like TNT(books, toys, etc)4. by delivery services (furniture, TVs, PCs, refrigerators)5. by specialised (cooled) transport (food)

In case of 1,2 customers do not need to be at home. In case 3,4,5 he/she does. Time is critical in case of 5. Logistics cost decrease if multiple customers can be served in one run.

Alternatives: delivery at work, at gasoline stations, cooling box at home, works in some cases.

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Delivery of food

Many failures: Webvan, Makro online, Peapod

Delivery options: Store - advantages no extra infrastructure needed, close to customers

Fulfillment centres - advantageseasier and paperless picking, no cash-register, cheaper locations, larger assortment

Ahold: bought Peapod: limit home service to densely populated areas, offer several delivery windows, combine with drugstore, liquor store in fulfillment centres.Marginal business: consumer does not want to pay for his own

time!

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Warehousing - consequences

Many small parcels to be packed in a limited amount of time: this requires different material handling techniques, like pick-to-belt and faster packing (see de Koster et al)

Mail order companies like Wehkamp have successfully picked up e-commerce, as they had already the right marketing and logistical experience!

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Advantage e-commerce to companies I

E-commerce allows centralisation of stockse.g. Amazon uses few Distribution centres against many individual bookstores of Barnes and Noble (or Bruna)

Inventory centralisation pays off most for expensive, slow moving products with high demand variability (not for cheap bestsellers!) Many more books can be held on stock centrally (100.000 vs 10.000 in a store)

Inventory savings have to be balanced against higher transportation costs and less impulse buyings.

Hence model works better for PC manufacturer DELL than for Amazon.

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Advantage e-commerce to companies II

E-commerce allows product customisation to consumer needs.

E.g. customer composes a PC (harddisk, processor, memory, supplies) himself. Then PC manufacturer assemblies it from component stocks and transports it to customer (DELL case)

Advantage: no obsolete inventories (costs: 3% per month!)react faster to market changes. DELL forces suppliers to keep stock at its assembly plants (Vendor Managed Inventory), hence it has negative stock costs (because customer is charged earlier than vendors are paid!)

Model only possible for easily configurable goods.

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One main problem for e-commerce: returns

Data (Gentry 1999) on % of returns- 6% for general products- 15% for mass products- 35% for catalogue sellers and e-tailers

Striking example: cloths sold through internet

Issues:- how to return (by mail, or collect)- how to handle returns (in warehouse, return centre)- administration (refunds, VAT, customs!)- what to do with returns (re-use, remanufacturing, recycle)

Return management is needed

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B2B - logistics - subjects

• portals and market places for transportation services• web platforms for information exchange• tracking and tracing supply chains• new organisational forms for logistical services

(hypermediators)• new business models for reverse logistics

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Portals and Market places for transportation services

Transportation is often a commodity (airlines, shipping, trucking)

product can be well-defined

• administration cumbersome• transportation is a perishable good• large inefficiencies in transportation (many truck drive

empty or half full)

Portals and electronic market places make market more visible.Many were set up, only few survive. Open models led to very

low prices and bad services. Closed market places work.

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Web platforms for information exchanges

Document flow connected to container transport is enormous (250 messages per container; many parties involved)

Large cost for entering info, large cost due to bad info, large logistical inefficiences

In past in R’dam: EDI initiatives yet EDI is mainly point to point and expensive

Other ports have set up webplatforms acting like information hubs (Portnet Singapore), which store info in a central database and on which extra applications can be run

R’dam - behind, by EDI applications and the lack of a central director (and too much focus on physical aspects)

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Tracking and tracing supply chains

Many supply chains involve multiple parties and multiple activities. Controlling supply chain is very important for providing customer with right products at the right time.

Quite often things go wrong or change and actions are needed, which should be based on actual info of status of goods

(e.g. products do not arrive at customer: where are they)

Tracking and tracing products / containers in the chain and making this info available through web is vital

Courier services like UPS provide this service for packages. Will shipping lines, airlines or logistic service providers do this in the box / container sector?

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Virtual organisations in supply chains

Efficient logistics requires coordination of many different parties (shipping / airlines, trucking companies, rail / barge companies, warehouses, customs, banks, insurers, authorities, etc)

and economies of scale in goods transported.

Virtual web based companies have been set-up to coordinate whole supply chains, buying various transportation activities

Traditionally forwarders bundle small shipments in harbours in a manual way.

Will these virtual companies have the market power to survive?

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New business models in reverse logistics

• Return aggregatorsbring together suppliers and customers, automates procurement of returns ebay, www.qxl.com, www.metalsite.com

• specialty locatorsvertical portals focused on a specific target segmentwww.find-a-part.com, www.bigmachines.com

• integrated solution providersuse IT to offer matching of demands and returns and other target-specific serviceswww.returnlogistics.com, www.pharmacyreturns.com

(see Kokkinaki et al 2001)

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Properties new business models

CharacteristicsA inclusion of reverse logistic activities (collection, inspection,

sorting, remanufacturing)B level of control (take ownership of products, arrange

transport, etc)C added value

Return aggregators: A low, B low, C medium

Specialty locators: A high B medium C high

Integrated logistic providers: A medium, B high, C medium