How E-Commerce is Changing Physical Distribution Systems

The increasing popularity and success of eCommerce has meant a parallel change in the existing support structures in place to facilitate the retail system.
Changing Structure of Retail

The increasing popularity and success of eCommerce has meant a parallel change in the existing support structures in place to facilitate the retail system. Traditional business models are evolving and traditional supply chains and logistics processes are also evolving to accommodate this new mode of doing business.
Conventionally, a customer had the responsibility of becoming the last link in the supply chain by travelling to a store location and making their purchase. To facilitate and encourage customers, businesses would need to make significant investments in creating the perfect store in the perfect location. The costs associated with this would then be reflected in the final price of the good available for sale. The seller would also need to keep a particular level of inventory on hand and this would need to be regularly replenished.
Several changes have occurred to the system because of the shift towards online selling. The major changes include:

Sellers: Some sellers in the new marketplace are entirely online, with no physical retail presence at all. Concurrently, there has been widespread adoption of online retailing by traditional brick-and-mortar stores as well. In many cases, the new system allows the seller to be both a retailer and a distribution and fulfilment centre.

Locations Flexibility: Because online sellers do not need to be overly concerned with the location of their operation, they enjoy a lot more flexibility in choosing a place that allows them to minimise costs. Smaller online sellers can even use their own house as a warehouse, while bigger more established ones often choose to have a network of distribution locations to better meet the needs to regional markets and minimise distribution costs.

Connection to Supply Chain: Customers communicate with the store directly and are in essence, connected directly to the supply chain itself.

Tracking: A customer who chooses to shop online is also choosing a method where the gratification can be significantly delayed. This means that a purchase is made without actually having experienced the product firsthand and the customer needs to wait a while before the order is received. This means that they will expect a bit more from the delivery process and demand accurate and real time transit information for their purchase, which means that there need to be information systems in place to provide this information.

Though there is not enough information at the moment on the consequences of these changes in logistics, there are some trends that can be observed. These trends relate to how eCommerce is changing physical distribution systems.
For one thing, traditional stores had put their focus on economies of scale through large stores in key locations. The new system challenges this by instead focusing on warehouses that are located in less urban and metropolitan areas and ship high numbers of smaller parcels to individual buyers. Economies of scale similar to traditional sellers can be achieved if a large volume of online sales is achieved and the shipments can be consolidated to a degree.
Another important aspect of this change is the cost of moving purchases from the point of sale to the point of consumption. Traditionally, this was the responsibility of the customer. But with eCommerce, this system, though still often paid for by the customer, needs to be integrated into the distribution process. This means more focus on aspects such as packaging and a lot more freight actually shipped. A traditional logistics system would not be able to handle this additional requirement.

E- Commerce Logistics: As online retail has grown, especially in non-food related industries such as fashion or electronics, where goods are shipped to customers through postal or freight networks, there has been a need for three major functions from logistics:

Mega E-Fulfilment Centres: The merchandise to be sold is stocked in these centres. These centres may either be maintained by the eCommerce retailer themselves or by a third-party logistics service provider. These facilities can be as large as or larger than one million square feet in size and usually operate 24 hours a day, seven days a week.

Parcel Hubs: Parcel hubs or sortation centres are points where the outgoing parcels are divided based on destinations so that they can be sent to the parcel delivery centres.

Parcel Delivery Centres: The parcel delivery centre is the last stage before the package reaches the customer. The sorted parcels arrive to these centres and are then sent out to the customer.

Authured By: Nitish Roy, Founder and CVO of Royzez.com

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