Interview with Paul Brolly, Vice President Global Business Development
E-commerce is growing rapidly. In your opinion, what are the latest trends driving the market?
Consumer behavior has been significantly changed by the pandemic. Two of the most noticeable changes are the increased emphasis on sustainability, and the growth of personalization/customization.
The post-pandemic period saw a rise in Re-commerce - the re-selling, and refurbishing if required, of new or used goods. For instance, secondhand apparel market will grow 3 times that of global apparel market overall (GlobalData 2022 Market Sizing and Growth Estimates). This, along with increasing number of merchandise returns, is driving the burgeoning E-commerce reverse logistics market, which is expected to grow at a CAGR of 5,6% from 2021 to 2028 as per recently published Allied Market Research Report.
Another development is the increasing recognition of the role of logistics in creating competitive advantage for businesses. It is becoming increasingly clear that major E-commerce companies are spending heavily to strengthen their supply chain. For instance, this year Amazon pledged to invest $1 billion to promote innovation in supply chain, fulfillment, and logistics and further enhance the customer and employee experience.
Paul Brolly, Vice President Global Business Development
Why do you think logistics becomes a key success factor in online retailing?
Customer expectation is now far more complex as competitors battle in the market for an enhanced delivery proposition. Free delivery, same day delivery, “white-glove” services are now all largely seen as “normal”. According to survey conducted by Statista around 40% of digital shoppers worldwide abandon their shopping carts due to unexpected delivery costs, and more than half of consumers won’t hesitate to choose a competing online platform if a shorter lead time is available (Capgemini Research Institute, “The last-mile delivery challenge”, January 2019). Customers today expect the same level of quality in delivery as they do in shopping experience. This includes a variety of delivery options, real-time tracking, the ability to select the carrier and the prices they will be charged, and more.
For both marketplace operators and manufacturers, logistics is an essential component of customer satisfaction and success. Against the backdrop of global business operating models, all parts of the supply chain must mesh smoothly in order to provide the customer with a comprehensive customer journey – from the first contact, to the purchase, potentially the returns process, and all this across borders. That's why a well thought-out and professional logistics concept is key to success.
For companies, the "make or buy" question also arises regarding logistics fulfillment. Why do you think outsourcing is the better solution?
The ‘make or buy’ decision depends on many parameters. If there is minimal complexity in terms of processes and interfaces, aligned with high and consistent shipping volumes, an in-house warehouse location can be operated quite economically. However, in E-commerce in particular, the complexity is often high and can be difficult to manage independently. Low volumes due to E-commerce being a “new” venture for the business, or that the business is a start-up, can make it uneconomical to operate in a stand-alone, in-house logistics facility. Economies of scale can usually only be achieved with multi-client capable sites operated by an experienced logistics service provider, able to meet various customer requirements.
While an in-house logistics solution might have previously been sensible, market changes such as a move to E-Commerce and omni-channel sales now creates more compelling reasons for outsourcing. New countries and new channels (e.g. marketplaces) are being opened up, further increasing complexity. Personnel are increasingly difficult to find, and the availability of logistics space is also a growing bottleneck adding further weight to outsourcing. For end-customer logistics, a multitude of requirements must be taken into account with regard to IT structures, service levels, order-to-cash, carrier and returns management, all of which are complex and expensive and require a certain volume before they can be met.
In summary, economical E-Commerce logistics is not easy to achieve. The more marketplaces a company connects to and the more international the business becomes, the more complicated it becomes. Good reasons for outsourcing.
For online retail to succeed, the entire customer journey, from placing an order to receiving the goods, must be streamlined. Fulfillment is the key to success in this case.”
Many companies want to take advantage of the opportunities offered by the continued growth of E-Commerce in marketplaces. What else should they consider from a logistics perspective?
Marketplace integration. When selling via marketplaces, a large number of systems must be connected to exchange data. Item data must be made available on marketplaces. Order data must be transferred from marketplaces to logistics and financial systems. At Arvato Supply Chain Solutions, we developed our own marketplace integration platform that can serve as a single global fulfillment solution. A large number of marketplaces are logistically connected, so implementation efforts can be reduced and an uncomplicated connection of further marketplaces and countries is possible. Arvato are experienced in working with data derived from the customer and our own systems to build an optimal IT infrastructure set up. We work in conjunction with our digital unit, Arvato SCS | DIGITAL, to add value to your logistics process. We dovetail our supply chain and industry knowledge with digital know-how to build and execute efficient, reliable and creative supply chains.
From centralized warehouse and cross-border approaches to decentralized warehouse solutions – what is your recommendation?
Ultimately, there is no recommendation for one solution or another. In close coordination with our customers, we offer all fulfillment and transport concepts and implement them step by step as they grow.
So-called cross-border fulfillment is usually the first step in the collaboration. In this process, the items are shipped from a central warehouse location to a large number of different countries. Transport often takes place via the usual international express service providers. Our central fulfillment centers, for example in the Netherlands, Germany or Poland, are well connected to infrastructure and the major parcel distribution centers of leading partners such as DHL, UPS, or DPD. This allows flexibility in carrier selection and means we typically serve over 250m customers in a typical 4-day period.
In addition, we offer our customers consolidation effects with our European 'line haul network'. This involves bundling daily parcel volumes from several central warehouse locations. These consolidated volumes are transported overnight to various European countries and fed into the local parcel networks. In addition to better acceptance of local parcel services by end customers, there are often cost advantages compared with international express service providers.
If marketplace volumes continue to grow and customer expectation continues to heighten, then additional satellite warehouses can be a good option instead versus shipping cross-border. For the UK in particular, a local warehouse often makes sense.
Logistics as a competitive factor for marketplaces and suppliers
In most marketplace approaches, the fulfillment quality of the partners is a kind of black box. Marketplaces have little to no influence on delivery speed and quality.
However, marketplaces are responsible for delivery speed and quality in the eyes of customers and are the first point of contact for complaints should something go wrong with delivery. It is therefore advisable to have as much control as possible over marketplace logistics.
For more comprehensive insights into the success factors of online marketplaces, read the current study "The Marketplace World 2022".