Addressing the logistics operating model in eCommerce in APAC

Disruption of O2O in APAC

In recent years, more and more retail brands have started to set up eCommerce business in most of APAC. Online sales channel is another way, in addition to offline sales, to expand business. Another reason why eCommerce is of strategic importance to retail brands is the disruption of O2O (online and offline integration). With the lines between digital and physical becoming irrelevant for consumers, many retailers are looking to transform from a siloed channel approach to a seamlessly integrated retail model. Thus, O2O is an area that many retailers are keen to develop. At its most basic this involves using online channels to increase awareness and subsequently drive consumers into offline physical stores. O2O is drawing significant interest from leading internet firms with many making major investments in physical stores and distribution networks, offering the convenience of eCommerce.

From consumer perspectives, today consumers weave in and out of online and offline channels, often simultaneously. Thus, retailers need an O2O strategy that supports this complex journey. This O2O strategy includes not only developing a user-friendly online platform where consumers can place online orders. More importantly, the rapidly increasing online orders require an agile logistics processes in the backend for order fulfillment. Without efficient goods delivery, there would be no customer satisfaction to speak of. As a consequence, the branding will be impacted as well.

Thus, this article articulates the considerations and knowhow when we design the logistics process for retailer’s eCommerce business setup.

Self-owned eCommerce platform V.S. Third-party eCommerce platform

When a retail brand intends to set up eCommerce business in a market, the first consideration is the selection between self-owned eCommerce platform and third-party eCommerce platform. Using a third-party platform, such as Tmall and JD in Asia, for sure has several benefits. They have well-established traffic for online users. Retailer can outsource the logistics operations to the third-party platform. And the cost for online market entry is relatively low. But there are obvious disadvantages as well. Customers have easy access to peer products. The competition will easily become a price war. Of course, fake products are inevitable. However, with your own online platform, you can decide everything by yourself. One of the decisive factors for many retail brands to launch self-owned eCommerce platform is the mobile app. App is quite common in digital era. Mobile app is actually developed from own eCommerce platform. It is beneficial for retail branding as well.

Logistics process design for a B2C distribution center

After eCommerce platform goes live, there will be thousands of online orders. And customers expect the goods to be delivered to them in several days. Thus, physical logistics process design is important for efficient order fulfillment. The logistics process includes incoming goods management, pick and pack, distribution management, inventory management, returns management. These seem to be typical operations processes in a distribution center. However, this is actually not the case because the logistics processes for a B2C distribution center are totally different from those for a traditional B2B distribution center in the following perspectives.

  • Working hours The B2B distribution center normally works 8-12 hours a day. In contrast, the B2C distribution center works 24 hours a day. Thus, the planning with a 3PL should be clearly defined

  • Lead time The B2B distribution center is for retail store replenishment. The stores will place the orders well in advance. Thus, the distribution center has plenty of time for order fulfillment. However, B2C distribution center is for online customer order fulfillment. Thus, distribution center has only one day or even several hours for goods delivery.

  • Order demands In B2B distribution center, the order demand from retail stores is in batch. However, in B2C distribution center, the order demand from customers is in piece. This difference will impact receiving, storage and pick in piece level or in carton level.

  • SKU movement between B2B distribution center and B2C distribution center B2B distribution center can be the same facility with B2C distribution center, especially at the beginning of eCommerce business setup. However, the good practice is to have separate distribution centers for B2B and B2C distribution centers because of independent operations and independent profit/cost centers. Thus, the location of B2C distribution center should be carefully selected to facilitate the SKU movement between two distribution centers.

System flow design and system integration

Physical logistics process design is the prerequisite for retail eCommerce business setup. To enable these processes, system implementation is necessary. In an eCommerce platform, typically there are six systems involved: SAP, online order placement systems, WMS, couriers’ systems, online payment systems and file conversion systems. Different systems are integrated through different tests, such as point-to-point tests, end-to-end tests, regression tests, pressure performance tests, user acceptance tests, smoke tests, test buy, etc. Only when all the system test results are verified can the eCommerce platform go live. From system perspective, one point that is specific to B2C eCommerce is inventory alignment between SAP, WMS and online order placement systems. When customers purchase an item online, the inventory customers see is online stock. It should be aligned with the actual stock in WMS. If not, stockout will happen and customer satisfaction will be ruined. SAP is for accounting settlement of actual stock increase and decrease. Thus, the inventory of SAP, WMS and online order placement systems should be aligned.

Go-live and maintenance

After go-live, there will be maintenance period. Maintenance is an ongoing process and the best practice is to have a dedicated maintenance team. However, at the start of the maintenance, it is favorable to have the project team for hyper-care. Hyper-care in system support can be considered as the phase after the system has gone live. The main purpose of the hyper-care period is to closely monitor the smooth functioning of the system. The normal practice is that when hyper-care support ends, the system is stable and can be handed over to maintenance team with the usual support activities.

Digital era

The eCommerce and digital era is already here. Both famous retailers and private labels have leveraged eCommerce platforms to expand sales channels and provide O2O customer experience. For famous brands, eCommerce platform helps them strengthen the market share. For private labels, eCommerce platform can help them penetrate the new market as a trial with less costs. Freelog has already embraced this new era by designing efficient logistics processes and designing the system flows for system integration