Steffens: cross chain order fulfilment coordination for internet sales

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Cross chain order fulfilment coordination for Internet sales

Tom Steffens Project leader Internet Logistics Rijksuniversiteit Groningen Supported by:

Getting acquainted

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› Bachelor in sport management › MSc Business Administration: Strategy & Innovation › Projectleader Internetlogistics:

Dinalog R&D project Projectmanagement Relations management Aligning academic incentives with business objectives Research on outsourcing warehousing in e-commerce

DINALOG R&D project

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›

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The Dutch Institute for Advanced Logistics Founded in 2009 to guide the Dutch innovation program on logistics and supply chain management.

Dinalog facilitates joint research and development between private sector and universities Funds granted for R&D project Cross-chain order fulfilment coordination for Internet sales, initiated by RuG prof. dr. Kees Jan Roodbergen in september 2010

Consortium partners

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Agenda

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I. Introduction to e-commerce II. Customer-and delivery service operations in ecommerce III. Service supply relationships in e-commerce IV. Strategic positioning of e-commerce firms V. Research on coping with complexity in e- commerce logistics

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I. Introduction to E-commerce

E-commerce as a disruptive innovation

Supported by:

E-commerce

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› How we used to shop

E-commerce

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› Internet added a channel‌.

E-commerce in NL (1)

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E-commerce in NL (2)

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What would you buy online?

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How do you shop online?

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How do you shop for experience goods?

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E-commerce: innovation

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›

E-commerce has significantly altered the way people buy their products and services

As a transactional interface between retailers and buyers, the Internet reduces search costs and enables buyers to locate and purchase many products and services from retailers economically (Rabinovich & Bailey, 2004).

› Online business models differ from offline business models in terms of :

higher interactivity, 24/7 availability (Delfmann et al., 2002)

Radical innovation

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›

E-commerce is a radical innovation (Garcia and Calantone, 2002):

Destroys old bases for competitive advantages and forces incumbents to re-organize their strategies

..provides opportunities for new entrants..

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..and forces incumbents to reorganize their strategies

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Multi-channel commerce

Multi-channel commerce

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Example

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II. Customer- and delivery service operations in E-commerce

• The customer is only “a click away” from going to a competitor • If the delivery service hampers, customers do not order a second time Supported by:

E-commerce: Service operations

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› Client/front-office/back-office interface

ŠTom Steffens

Services in the front-office interface (1)

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› Marketing

Web design: convenient display of entire assortment E-mail marketing, SEO, SEA, social media etc.

› IT services

Electronic shopping cart: organizing items Big data analysis Order process

› Customer service

Handling complaints, returns etc.

Order confirmation Track-and-trace

› Finance Payment

Services in the front-office interface (2)

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Services in the front-office interface (3): Order process

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Services in the front-office interface (4)

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› In order to prevent shopping cart abandonment:

60 - 75 percent of shopping carts are abandoned before the transaction is complete (Goldwyn, 2002; Eisenberg, 2003; Oliver and Shor, 2003; Gold, 2007) Perceived transaction inconvenience the most influential factor on aborted transactions (Rajamma et al. , 2009) - The online shop required me to register before making a

purchase - The order forms were very lengthy

Delivery service operations

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› Shoppers also indicated that limited delivery options or a lack of definitive delivery date keeps them from committing to the purchase (comscore.com) › Offering more delivery options strongly effects back-office processes. › Calls for strict alignment between marketing and logistics

Delivery service operations

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› Customer satisfaction with the order fulfillment process is an important determinant of overall customer satisfaction with the retailer, as well as with the extent of customer retention enjoyed by the retailer”(Rao et al., 2011). › If the delivery service hampers, products do not have the expected price-quality ratio, the post-transaction service is not of the expected quality and convenience, then customers do not order a second time” (de Koster, 2003).

Delivery service

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› E-commerce has changed the “last mile”

Last mile delivery (1)

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› One-to-many relationships (1:n)

› Thin logistics streams › Costly, but the consumer expects….

Last mile delivery (2)

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› Parcel delivery companies still rule the market for this complicated last-mile. › However, regardless of the point in the supply chain at which an error occurs, consumers will hold the Internet Retailer responsible for any failure to deliver the ordered goods in the right time at the right place. › http://www.youtube.com/watch?v=C5uIH0VTg_o

Delivery options (1)

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› Home delivery › Pick-up points (manned) › Pick-up points (unmanned) › In-store pick-up

Delivery options (2)

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› Ordered today-delivered tomorrow

› Specified time-window

Delivery options (3)

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› Sameday delivery

› Or could we do even better? › http://www.dump.com/amazonshipping/

How would you like to receive‌

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And what about returns?

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› Up to 70% in fashion › Regarded as a very important service to customers › But how far would you go? People ordering three sizes of a shirt and sending non-fitting ones back for free. Would you facilitate this?

Diminishing returns at the front-end?

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Measure performance (1)

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› Net Promotor Score (NPS): › Asking one simple question — How likely is it that you would recommend [your company] to a friend or colleague?

›

Customers respond on a 0-to-10 point rating scale and are categorized as follows: Promoters (score 9-10) are loyal enthusiasts who will keep buying and refer others, fueling growth.

Passives (score 7-8) are satisfied but unenthusiastic customers who are vulnerable to competitive offerings.

Detractors (score 0-6) are unhappy customers who can damage your brand and impede growth through negative word-of-mouth.

To calculate your company’s NPS, take the percentage of customers who are Promoters and subtract the percentage who are Detractors.

Measure performance (2)

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› Physical distribution service quality (PDS)

3 construct dimensions of quality in PDS: inventory availability, delivery timeliness, and reliability (Mentzer et al., 1989).

› Physical distribution service quality in Internet retailing:

Determinants: service pricing, transaction attributes (i.e. order size), and firm attributes (experience) (Rabinovich & Bailey, 2004)

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III. Service supply relationships in Ecommerce

Supported by:

E-commerce supply chain

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Source: Delfmann et al. (2002)

E-commerce: Service operations

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› Client/front-office/back-office interface

ŠTom Steffens

Example: shop-in-shop

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Buyer/service provider

End customers

Subcontractor

Drop-shipping

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Source: Delfmann et al. (2002)

How to add (customer) service value?

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› Customer contact: marketing, SEO/SEA › One-stop shopping: Complementary items in one shop › One-stop payment

How to add (delivery) service value?

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› All items delivered at the same moment › Offering logistics services? › A viable strategy for Wehkamp as well?

Services in the back-office interface

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›

Purchasing › Supply chain › Contracting

›

E-fulfilment/logistics › Order fulfilment › Storage allocation › Warehousing › Picking and packing

Back-office: purchasing

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› Online business models differ from offline business models in terms of :

the unique decoupling of customer location and inventory location resulting in specific delivery and sourcing elements (Rabinovich and Bailey, 2004)

The long tail

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The long tail

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IV. Strategic positioning of e-commerce firms

Supported by:

Porter’s generic strategies

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Online/offline presence and Boundary decisions

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› Types of e-retailers (Rabinovich and Bailey ,2004): Pure-Play retailers Bricks-and-Clicks retailers

› Boundary decisions (Barney, 1999)

Outsourcing e-fulfilment

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› Adding another service supply relationship Buyer/service provider

End customers

Subcontractor: Logistics service provider (warehousing and fulfilment)

Alternative typology

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Front-end only pure-player

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› ‘Window-shop only’ › Strong in marketing and customer contact › Case: Bol.com › Bol.com Plaza: platform for external webshops › Fulfilment and stock at CB and Docdata

Front-and-Back-end pure player

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› Operating e-fulfilment in-house › Case: Amazon

› Doing such a good job in e-fulfilment it now serves as a fulfilment service provider for third parties/competitors › In NL: Neckermann.com. Strategic complications?

Front-end only multi-channel retailer

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› Having both digital and physical sales channel › Fulfilment/logistics for both channels outsourced › Case: Nespresso

Semi-integrated multichannel retailer

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› E-fulfilment separated from fulfilment for traditional retail › Case: Bijenkorf

Fully integrated multichannel retailer

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› All e-commerce activities in-house as well as fulfilment of physical channel › Case: CoolBlue

Strategic positioning of LSP’s

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› LSP Docdata offers specific services to five distinguished businessmodels in e-commerce

Source: Docdata Vision 2020

› Link to vision 2020 report: http://www.docdatanv.com/pdf/news/Press_release_20_February_2 014.pdf

Strategic positioning of LSP’s

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V. Research for coping with complexity in e- commerce logistics

Supported by:

Internet logistics

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› Cross chain order fulfilment coordination for Internet Sales › Searching for a sustainable (financial and environmental) logistics organization behind the webshop › 3 envisioned strategies

1) Smart intralogistics 2) Multi-channel strategies 3) An information platform for internet logistics

Intralogistics

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› Many traditional logistical systems, especially in retail, are not sufficiently equipped to manage the new challenges and different logistical tasks that come with e-commerce business (Delfmann et al., 2002). › Important part of the internet fulfillment process organized within warehouse facilities specifically dedicated to serving the e-commerce sales channel: efulfillment centers or Internet order fulfillment centers (Roodbergen, Vis and Boter, 2010).

Intralogistics

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Smart intralogistics

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› Two main challenges

1) Storage assignment: where to store SKU’s?

2) Order Picking: quickest routes to picking multiple individual orders

Storage assignment: possibilities

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› There exists a wide variety of methods to dynamically determine the storage location of products

Random storage Closest open location storage Class-based storage Family grouping

Storage assignment: classbased

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A items B items C items

Across-aisle storage

Within-aisle storage

Multi-channel logistics

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› Integrating online logistics with traditional distribution network › Multi-channel Inventory Positioning (Pieter Stoeltie, Districon) › Localized delivery routing strategies (Inger Kolman, Districon)

Multi-channel logistics

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› Economies of scale from the integration of multiple channels need to be weighed against speciďŹ c requirements of each individual channel (Agatz et al. 2008)

An information platform for internet logistics

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› iLogical

› Phase 1: browser add-on application

App that assists in filling in registration forms As a result: more accurate consumer information Less e-mail bounces (marketing), up-to-date adress information for more accurate delivery

iLogical

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› Phase 2: connecting information

›

Verifying age, payment history of customer, credibility of webshop

Phase 3: storing customer preferences on delivery

Alternative delivery options: neighbours?

To improve delivery service operations Sustainability: assure one-stop-drop delivery Later: Time slots

Checking out‌.

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› Customer service: any questions or complaints?

IT-services: big data analysis

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