1.
Chapter – 10
The Development of E-tail
Logistics
John Fernie and Alan McKinnon
Presented by –
Group No. 1
Jappreet S. Bhatia
Deepak Jain
Lokesh Yadav

2.
Introduction
 Whilst members of the supply chain have sought ways
to foster collaboration, the rise of e-commerce has posed
a set of challenges for retailers .
 The rise and subsequent fall of many dot com companies
in 1998–2002 led to a high degree of speculation as to
the reconfiguration of the business to consumer (B2C)
channel.
 Ultimately, e fulfilment, especially the ‘last mile’
problem of delivering goods to the final customer, holds
the key to success in this channel.
 The business to business (B2B) channel, however, has
more to offer members of the supply chain because of
the number and complexity of transactions

3.
Main Issues
 Why have ‘pure players/retailers’ failed in this channel ?
Identified four key challenges:
1. limited online potential;
2. high cost of delivery;
3. selection–variety trade-offs;
4. existing entrenched competition.
 The advantages of the store model are the low initial
investment required and the speed of rolling out the
service to a wide geographical market.
 The problem here, however, is that out-of-stocks and
substitutions of products are more prevalent as online
shoppers compete with in-store counterparts for
products.

4.
The Rise of Ecommerce
 While it is generally accepted that e-commerce has
grown considerably in the 1990s
 One of the reasons for over-optimistic forecasts for e-
commerce growth in the 1990s was consumer
acceptance of the Internet and widespread adoption of
PC usage.
 By 2002 it was estimated that the number of Internet
users numbered 450 million
 The increased sophistication of mobile phones with
WAP applications also offers potential opportunities
 Traditional retail channels were to be disrupted as new
players entered the market with online offers

5.
Country Estimate Country Estimate Country Estimate
1. USA 149.0 14. Brazil 6.1
27. Czech
Republic 2.2
2. China 33.7 15. Australia 5.6 28. Norway 2.2
3. UK 33.0 16. India 5.0 29. Finland 2.1
4. Germany 26.0 17. Poland 4.9 30. Argentina 2.0
5. Japan 22.0 18. Thailand 4.6 31. Philippines 2.0
6. South Korea 16.7 19. Sweden 4.5 32. Malaysia 2.0
7. Canada 14.2 20. Hong Kong 3.9 33. Chile 1.8
8. France 11.0 21. Turkey 3.7 34. Denmark 1.6
9. Italy 11.0 22. Switzerland 3.4 35. South Africa 1.5
10. Russia 7.5 23. Portugal 3.1 36. Greece 1.3
11. Spain 7.0 24. Belgium 2.7 37. New Zealand 1.3
12.
Netherlands 6.8 25. Austria 2.7 38. Singapore 1.3
13. Taiwan 6.4 26. Mexico 2.3 39. Israel 1.2
Source: Michalak and Jones, 2003
Table 9.1: The Largest Users of the Internet Worldwide: A Comparison of Estimates for 2002 (millions)

6.
The E commerce Consumer
 Internet connectivity, as revealed in Research , depicted
an English- speaking, developed country phenomenon
 In the early stages the profile of the e- commerce
shopper was a young male professional in a middle-
class neighbour hood.
 As the technology becomes more accepted the gender
and socio-economic mix has changed
 This shows an online lifecycle from infrequent online
purchases – virtual virgins, chatters and gamers and
dot.com chatters – to frequent online purchases – surfing
suits and wired living.

7.
Group 1 Virtual Virgins
Of those online, this group is least likely to have bought online. Less
than 2 per 1,000 will have made any form of online purchase last month.
Their time online is half the national average and they are likely to have
started using the Internet more recently than other people.
With the exception of chatting, this group do Internet activities less
frequently than average. Because of their relative inexperience they are
more likely to worry about security and delivery problems with buying
online and to consider the process to be difficult.
People in this group are twice as likely as those in any other group to be
female. The elderly and children are more commonly found in this type
than any other.
Group 2 Chatters & Gamers
This group, predominantly young males, might spend as much time
online as the most avid type of Internet user; however they tend not to be
buyers. Only one in five has ever made an online purchase. They may
consider shopping online to be difficult and their fear of delivery and
security problems is above average.
These people are avid chatters and gamers who use news groups and
download as frequently as the most active and experienced surfers.
Nearly half are under 25. The schoolchildren in this type are more likely
to connect from school/university than any other e-type, although
connection from home is still the most frequent.
Group 3 dot.com Dabblers
As average Internet users, these people have mixed feelings regarding
the pros and cons of online shopping. Around 40 per cent will have
made some form of purchase online, and with the exception of chatting,
their interests spread across all forms of Internet activity. These people
may see benefits of the Internet in convenience and speed of delivery.
Classification

8.
Future
 All of this research shows that e-tailing has been most
successful to date where a multi-channel ‘click and
bricks’ approach is adopted.
 In this context, we are referring to non-food products,
where traditional department stores and clothing
specialists have considerable experience of dealing with
the non-store shopper through their catalogues and ‘low
tech’ selling techniques.
 Similarly the early e-tailing specialist pioneers with
CDs, books, videos and computing equipment already
had an infrastructure to deal with home-based orders.
 The grocery sector is much more complex, and home
delivery is more associated with food service and added-
value products.

9.
The Grocery Market
 Grocery shopping impacts on all consumers. We all have
to eat! However, our populations are getting older so
shopping is more of a chore; conversely, the younger,
time-poor, affluent consumers may hate to waste time
buying groceries
 Online grocery shoppers bought for the family. They
were younger, female and better educated with higher
incomes. The final survey showed that customer
retention rates were good
 The two main e-grocers in the UK, Tesco and Sainsbury,
claim that their online customers spend more than their
conventional customers

10.
The Major E Grocers
Tesco UK Webvan USA Streamline USA Peapod USA
Background
The biggest
supermarket chain
in the UK
Started as a pure
e-grocer in1999
Started as a pure
e-grocer in 1992
Started home
delivery service
before the Internet
in 1989
Investments
in e-grocer
development US $58 million
Approx US $ 1200
million
Approx US $80
million
Approx US $ 150
million
Main
operational
mode
Industrialized
picking from the
supermarket
Highly automated
picking in
distribution centre
(DC)
Picking from the
distribution centre,
reception boxes,
value adding
services
Picking from both
DC and stores
Current
status
The biggest e-
grocer in the world.
Expanding its
operations outside
the UK. Partnering
with Safeway and
Groceryworks.
Operations ceased
July 2001
Part of operations
were sold to
Peapod in
September 2000.
The rest of
operations ceased
in November 2000.
Bought by global
grocery retailer
Royal Ahold.
Second biggest e-
grocer in the world.
Source: Tanskanen, Yrjola and Holmstrom, 2002

11.
Challenges for E Grocers
 limited online potential;
 high cost of delivery;
 selection–variety trade-offs;
 existing entrenched competition.
 Internet users tend to be trading off the time it takes to
shop.
 However, as Research has shown, the 58 per cent net
gain in convenience benefit is often eroded by ‘leakages’
in the process of ordering to ultimate delivery.
 Furthermore, the next two key store choice variables
tend to be price and assortment.
 Price may have been competitive with stores but
delivery charges push prices up to the customer.

12.
Suggestions for E Grocers
e- grocery should be a complementary channel rather than
a substitute, and that companies should be investing in
service innovations to give value to the customer.
 The customer needs a credible alternative to self-service,
and the researchers suggest that this has to be achieved
at a local level, where routine purchases can be shifted
effectively to e-grocery.
 To facilitate product selection, Web-based information
technology can tailor the retail offer to the customer’s
needs.
 The virtual store can be more creative than the
restrictions placed on the physical stocking of goods on
shelves; however, manufacturers will need to provide
‘pre-packaged’ electronic product information for
ordering on the Web.

13.
The Logistical Challenges
 Over the past decade many e-tail businesses have failed
primarily because of an inability to provide cost-
effective order fulfilment
 The greatest logistical challenges are faced by
companies providing a grocery delivery service to the
home.
 They must typically pick an order comprising 60–80
items across three temperature regimes from a total
range of 10–25,000 products within 12–24 hours for
delivery to customers within 1–2 hour time-slots
 Online shopping for non-food items has demanded less
logistical innovation

14.
Logistical Requirements
 First, it is substantially increasing the volume of goods
that must be handled, creating the need for new
distribution centers and larger vehicle fleets.
 Second, many online retailers are serving customers
from different socio-economic backgrounds from the
traditional mail order shopper.
 As they live in different neighbour hoods, the
geographical pattern of home delivery is changing.
 Third, online shoppers typically have high logistical
expectations, demanding rapid and reliable delivery at
convenient times

15.
Home Delivery Channel
 The home delivery channel terminates at the home or a
nearby customer collection point.
 It is less clear where it begins. the start of the home
delivery channel is defined as the ‘order penetration
point’
 This is the point at which the customer order, in this case
transmitted from the home, activates the order fulfilment
process.
 This physical process usually begins with the picking of
goods within a stockholding point.
 Only when picked are the goods designated for a
particular home shopper.
 Distribution downstream from this point is sometimes
labelled J4U, ‘just for you’.

16.
Contd ….
 Within multi-channel retail systems, this order
penetration point is the point at which home deliveries
diverge from the conventional retail supply chain which
routes products to shops.
 For example, in the case of those supermarket chains
that have diversified into home shopping, the order
penetration point is either the shop or a local fulfilment
(or ‘pick’) centre, where online orders are assembled.
 Both of these outlets draw supplies from a common
source, the regional distribution centre.
 It makes sense, therefore, to regard the home delivery
channel for grocery products as starting at the shop or
the pick centre

17.
While the upper levels of the home delivery channels for grocery
and non-food products are different the last link in the chain
(the so called ‘last mile’) is depicted herein

18.
Distribution of Non Food
Items
 They are generally supplied directly to the home
from the point of production or a central distribution
centre
 Within these J4U ( just for you ) delivery networks,
each order must be individually packaged at the
central distribution point.
 Within home shopping systems, whether catalogue-
or Internet based, there is a large flow of returned
product

19.
Distribution of Grocery Items
 In contrast to the average general merchandise order,
which comprises from one to three separate items, the
average online grocery order contains 60–100 items,
many of which are perishable and need rapid picking
and delivery.
 This requires localized order picking in either an
existing shop or a dedicated fulfilment (or ‘pick’) centre.
 Over the past few years there has been much discussion
of the relative merits of store-based or fulfilment centre
picking

20.
Store Based Fulfilment
 The main advantage of store-based fulfilment is that it
minimizes the amount of speculative investment in
new logistical facilities for which future demand is
uncertain.
 Basing home delivery operations at existing shops
allows retailers to improve the utilization of their
existing assets and resources
 Another major benefit of shop-based fulfilment is that
it enables the retailer to achieve a rapid rate of
geographical expansion, securing market share and
winning customer loyalty much more quickly than
competitors committed to the fulfilment centre model

21.
The Last Mile Problem
 In making the final delivery to the home, companies
must strike an acceptable and profitable balance between
customer convenience, distribution cost and security.
Most customers would like deliveries to be made
urgently at a precise time with 100 per cent reliability.
 A fundamental distinction exists between unsecured and
secured delivery.
 Unsecured delivery, sometimes called ‘door stepping’ in
the UK, involves simply leaving the consignment
outside the house, preferably in a concealed location.
 This eliminates the need for a return journey and can be
convenient for customers, but obviously exposes the
order to the risk of theft or damage.

22.
Contd….
 When no one is at home, the delivery can be secured in
four ways:
 Giving the delivery driver internal access to the home or
an outbuilding.
 Placing the order at a home-based reception (or ‘drop’)
box.
 Leaving it at a local collection point.
 Delivering the order to a local agency which stores it
and delivers it when the customer is at home.

23.
Diagram

24.
Environmental Impact
 Concerns have been expressed that online retailing is
likely to generate more transport and impose a heavier
burden on the environment than store-based retailing
 According to the research , which included ‘trucking,
air freight, production, packaging and passenger trips’,
energy consumption, air pollution, greenhouse gas
emissions and
 the quantity of hazardous waste were, respectively, 16,
36, 9 and 23 per cent lower in the case of online
retailing
 If delivery vehicles directly substitute for car trips, the
kilo metres saved per shopping load are likely to be
substantial – with reductions in the order of 70 per cent
or more.

25.
Conclusions
 Despite the collapse of the dot-com bubble, online
retailing has been enjoying healthy growth in recent
years, and this is predicted to continue.
 The future rate of growth will partly depend on the
quality and efficiency of the supporting system of order
fulfilment.
 E-grocery logistics has presented more formidable
challenges
 The more successful ‘bricks and clicks’ retailers may
eventually have to invest in new facilities to
accommodate future growth

26.
E commerce in India ET
17/2/16

27.
THANK YOU