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Procedia CIRP 52 (2016) 179 – 185

Changeable, Agile, Reconfigurable & Virtual Production

E-commerce Logistics in Supply Chain Management: Practice Perspective

Ying Yua*, Xin Wanga, Ray Y. Zhongb, George Q. Huanga
a
HKU-ZIRI Lab for Physical Internet, Department of Industrial and Manufacturing Systems Engineering, The University of Hong Kong, Hong Kong
b
Department of Mechanical Engineering, Univresity of Auckland, Auckland, New Zealand

* Corresponding author. Tel.: +85222194298; fax:+85228586535.E-mail address:[email protected]

Abstract

E-commerce is booming with the development of new business model and will be continuously boosted in the several decades. With large
number of enterprises carrying out E-commerce, logistics driven under the background has been largely influenced. This paper presents the
state-of-the-art E-commerce logistics in supply chain management from a view of practice perspective. Worldwide implementations and
corresponding models together with supporting techniques are reviewed in this paper. Typical E-commerce logistics companies from North
America, Europe, and Asia Pacific are comprehensively reviewed so as to get the lessons and insights from these practices. Opportunities and
future perspectives are summarized from the practical implementations so that interested companies like E-commerce and logistics companies
are able to get some guidance when they are contemplating the business.
©2016
© 2016TheTheAuthors.
Authors. Published
Published by Elsevier
by Elsevier B.V.is an open access article under the CC BY-NC-ND license
B.V. This
(http://creativecommons.org/licenses/by-nc-nd/4.0/).
Peer-review under responsibility of the scientific committee of the Changeable, Agile, Reconfigurable & Virtual Production Conference.
Peer-review under responsibility of the scientific committee of the Changeable, Agile, Reconfigurable & Virtual Production Conference 2016
Keywords:E-commerce; Logistics; Supply Chain Management; Practice; Review.

1. Introduction B2B transactions involving sub components or raw materials,

and only one B2C transaction, specifically sale of the finished
Based on the booming E-commerce, logistics and supply product to the end customer. The purchase of B2B products is
chain management (LSCM) has been greatly influenced when much riskier than B2C products. Thatis because purchasing
we are now already overwhelmed by its successes in both the wrong product or quantity, or at the wrong terms, can put
developed and emerging economies.In the E- the entire purchasing business at risk (Sila 2013).
commerceLSCM,there are two major types of business The modern logistics have become the most important
models. They are business to consumer (B2C) and business to means to improve the efficiency of material flow, reduce
business (B2B) (Bolumole, Closset al.2015). In B2C model, distribution costs in various industries; at the same time, the
business website is a place where all the transactions take recent development of E-commerce also contributed to the
place between a business organization and consumer directly expansion of the logistics market, promote the development of
(Miangiaracina, Marchet et al. 2015). In this model, a technologies related to logistics. Large numbers of practices
consumer visits the website and places an order to buy a have been carried out in the E-commerce logistics (Bask,
catalog. The business organization, after receiving the order, Lipponen et al. 2012, Masmoudi, Benaissa et al. 2014,
will dispatch the goods to the customer. Successful examples Ramanathan, George et al. 2014). In order to figure out
like Amazon.com and Priceline.com are B2C leaders (Rappa current movement of E-commerce logistics, this paper gives a
2008, Ta, Esper et al. 2015). Key features of this model are comprehensive state-of-the-art review of E-commerce
heavy advertising required to attract large customers, high logistics in supply chain management from a practice
investment of hardware and software, and good customer care perspective so as to get the lessons and insights from various
service (Nica 2015). B2B refers to a situation where one practices for guiding future implementations. This paper
business makes a commercial transaction with another, thus, summarizes the logistics models and supporting techniques
the transaction volume of B2B is much higher than the for the E-commerce logistics and highlights the challenges,
volume of B2C. In a typical supply chain there will be many opportunities, and future perspectives.

2212-8271 © 2016 The Authors. Published by Elsevier B.V. This is an open access article under the CC BY-NC-ND license
(http://creativecommons.org/licenses/by-nc-nd/4.0/).
Peer-review under responsibility of the scientific committee of the Changeable, Agile, Reconfigurable & Virtual Production Conference 2016
doi:10.1016/j.procir.2016.08.002
180 Ying Yu et al. / Procedia CIRP 52 (2016) 179 – 185

The rest of this paper is organized as follows. Section 2 Lowe’s business model is very similar as the one used by
presents the worldwide implementations in various practices Home Depot. Although Home Depot has larger market shares
from the real-life company. Section 3 highlights the which improve its supply chain management continuously to
challenges and future directions. Section 4 concludes this save cost, Lowe’s has to explore in other ways to keep
paper. increasing in the home improvement market (Gukeisen 2005).
First, instead of quick expansion in metropolis, Lowe’s
2. Worldwide implementation chooses to explore the consumption potential in small and
medium size cities. Second, Lowe’s adds the categories of
products, invests for store decoration, redesigns the layout of
2.1. North America retailer stores, and finally attracts a lot of women customers
shopping in Lowe’s (Fogel 2002). Third, Lowe’s builds its
2.1.1. Home Depot own service team to cover logistics service, sales guidance,
installation service, design service and so on. Lowe’s also
Home Depot is an American retailer company selling home
transfers part of do-it-yourself (DIY) products into only buy-
improvement, construction products and service. Until 2014,
it-yourself (BIY) products, and offers special service to
it has more than 355,000 employees, and runs more than
different types of customers.
2,000 superstores that are located in America, Canada,
In Lowe’s case, customer service is the first priority. The
Mexico, China, and so on. In the year of 2006, in order to
good shopping and service experience they provide to
adapt to the dramatically increased E-commerce market,
customers is the breakthrough point to gain market share
Home Depot decided to remodel its traditional supply chain
under Home Depot’s intensified competition pressure. It
into omni-channel supply chain and upgrade its logistics
ensures Lowe’s sales keep increasing steadily every year
service network (Maloney 2009).
(Timothy Thacher 2007). However, the product diversity,
In the traditional model, each retailer store has a logistics personized service, quick expansion in smaller cities and other
management department, and this department is in charge of characteristics that bring by self-support logistics service team
the store’s replenishment, storage management, in/out all lead to the serious problem of cost control, as the E-
products flow controlling and any other relative issues. When commerce order emerges, this problem will become more and
suppliers receive the stores’ replenishment orders, they have more serious. Lowe’s has to find a balanced way between
two ways to deliver orders to retailers, of which one is high customer service and cost effective supply chain
directly sending products to the store, the other is using Home management.
Depot’s distribution center to ensure cost effective
transportation. However, in real situation, 80% of the orders 2.1.3. Amazon
are sent to the retailers directly, because each store has its
Amazon is an E-commerce and cloud computing company.
unique replenishment cycle and requirement so that it is hard
It’s the biggest Internet Retailer in the America. It began as an
for suppliers to realize full truckload during one piece of set
on-line bookstore but its current business scope covers DVD,
time. The company’s legacy network of distribution network
blue ray, CD, video game, electronic, furniture, food, toys,
is also hard to achieve customers’ service expect, for the E-
jewellery and so on. Amazon has independent sales website
commerce orders are increased at dramatic speed.
facing different countries and areas, including America, the
For the Line-Haul phase, the Home Depot sets centralized
U.K. and Ireland, France, Canada, Germany, Italy, Spain,
inventory and replenishment (I&R) department in the
Netherlands, Australia, Brazil, Japan, China, India and
corporate’s headquarters, develops and deploys of a new
Mexico.
network of distribution centers for store replenishment. The
Amazon saves a lot of storage costs by integrating the
new I&R department takes place of the individual stores’
inventories in DC (Distribution Center) and the warehouses of
replenishment teams, and is responsible for all the stores’
partners. Then there is no need for Amazon to keep a high
inventory management. The centralized replenishment
level of inventory like physical retail stores (Chiles 2005).
improves the demand forecast accuracy, gains more power for
The determinants for locating DCs consist of distance from
Home depot while negotiating with suppliers as the single
customer intensive places and level of taxes. Within the DC,
order is much larger than before and it also brings benefits of
Amazon has different processing procedure and equipment
transportation cost effective, high top-selling SKUs (Stock
when dealing with various product groups. Those products
Keeping Units) availability which can achieve 99% and so on.
which are easily classified and transported are stored in highly
automated equipment (Hays, Keskinocak et al. 2005), while
2.1.2. Lowe’s
those irregularly shaped products are handled by equipment of
Lowe’s is the second largest home improvement retailer low-level automation.
company in the North America. Until the year 2011, there are When dealing with inter-city transportation, Amazon sets
1840 Lowe’s retailer stores all over the world. Most of them some injection points, i.e. transportation hubs (Cronin 2014).
are located in North America, and some are located in They are located in the districts where customers are highly
Austria. Lowe’s is recognized as the top service provider in concentrated to save cost. Orders are integrated in the
home improvement industry. distribution centres first. After that, the less than truckload
 Ying Yu et al. / Procedia CIRP 52 (2016) 179 – 185 181

shippers or truckload shippers will supply the long-haul picked up by customers in the nearby store. For those who
shipment service, carrying them from DCs (Distribution still requires for delivery, IKEA will charge a considerable
Centers) to injection points. As the unit mile costs for LTL distribution fee (Ikea, 2016). In IKEA store’s storage areas,
(Less than truckload) and TL (Truckload) shippers are the shelves are well designed for customers to get their
relatively low, the overall transportation costs could be saved products easily, and helpers are available in the picking area
in this way (Oti 2013). in case customers need assistances (Banker 2009). Since most
of IKEA’s products are flat packed, most customers can
transport their orders by car. IKEA always provides large car
2.2. Europe parking areas for customers near the store. What’s more,
packaged service is offered near the exit of the store, and well
trained packers will help customers to make their goods easy
Ikea is a furniture company from Sweden, it is famous for
to handle (Ikea, 2016).
flat design and low price furniture products. Until the year
2014, Ikea has 349 stores which are located in 43 countries
over the world, most of which are in Europe, and the rest are
2.3. Asia Pacific
dispersed in America, Canada, Austria and Asia (Bai 2011).
The successful story of IKEA’s logistics cost control
2.3.1. JingDong
should start from the product design. IKEA’s design
department is located in the enterprise’s headquarters in JingDong is the second largest E-commerce company in
Sweden. Every year thousands of new products’ blueprints are China, it sales millions of products on its platform. According
sent out from this department to IKEA’s suppliers. All of to the company’s latest annual report, in the second season of
these new products are enable to be packed in flat packages, 2015, the total trading amount is 11.45 billion RMB and the
and all those packages are standardized (Hou and Ji, 2011). number of orders is more than 0.3 billion.
Those flat standardized design plays an important role in Even though the company has to deal with enormous
logistics efficiency and cost saving. number of orders every day, JingDong is famous for its fast
IKEA has more than 2,000 suppliers all over the world. In and reliable logistics service. There are various logistics
order to transport products from suppliers to retailer stores, services provided by JingDong, such as “211 program”, “next
the company operates 31 centralized distribution centers in 16 day delivery”, “3 hours delivery” (Cui 2014). As the E-
countries. In this Line-Haul phase, IKEA chooses to deliver commerce business is increasing dramatically in recent years
products by boat/ truck/ rail to control transportation cost. in China, many companies has the big problem of logistics
Only less than 10% products are sent by air. In the future, service, while JingDong achieves more than 95% of positive
IKEA will buy more rail lines in Europe and more Line-Haul feedback rate and zero complain from customers.
deliveries will be completed by train. Until 30th June 2015, JingDong has built 166 big
Because most of IKEA’s SKUs (Stock Keeping Units) are warehouses in 44 cities, and 7 logistics centers as its own
in standardized packages (only three kinds of pallets are used supply network to cover the whole country. Those logistics
in IKEA’s warehouse) (Ikea, 2013), the distribution center of centers are located in Beijing, Shanghai, Wuhan, Xi’an,
IKEA can realize high automation, around 20% of the SKUs Chengdu, Shenyang and Guangzhou. What’s more, JingDong
but account for 80% of volume are supported by automatic also cooperates with other companies, attracts high quality
storage and retrieval facilities (Automated Storage/Retrieval suppliers to open their own online shops on JingDong’s
System, Conveyors, High bay pallet rack, Conventional pallet platform, and JingDong provides logistics service for them
rack, Warehouse management system), and the rest 80% (Guo 2011). When a customer place an order on JingDong,
SKUs which only account for 20% of volume are handled by the order might be picked up in JingDong’s warehouse or
operators in distribution centers(Liu and Hou 2011). Those other supplier’s warehouse, and be transported by JingDong’s
high automation distribution centers help IKEA to achieve fleet or supplier’s large truck for Line-Haul phase.
fast and effective transshipment (each stacker extracts goods In the second phase, no matter whether the products are
from distribution center can be done in 10 seconds to 2 from the suppliers or JingDong’s logistics centers, they all
minutes). arrived at JingDong’s distribution center for transshipment.
The location of each IKEA’s distribution center has been Starting from this phase, JingDong takes over all the
demonstrated so that the replenishment route from distribution products’ logistics service (Wei Guo 2013).
center to stores is optimized (Trebilcock 2011). The principle In the last mile distribution phase, JingDong employs
of deciding the location is that if the distribution center is deliverers who dressed in the company’s uniform and trains
response to the fast moving consumer goods (FMCG), it them to provide standardized service. For those customers
should be near the relative stores to ensure the goods’ failing to receive their orders, JingDong also provides other
availability. Whereas for slow product flows, the location of ways, such as PUDOs where customer can pick up his order
relevant distribution center should be considered the from specific cabinet after typing in a group of password (Xu,
distribution cost as first priority. The final objective is to Hong et al. 2011). Customers can also choose to pick up their
minimize the total cost (Trebilcock 2011). orders in nearby convenience stores which are called self-
During the last mile distribution phase, IKEA encourages
pickup points. There are 4142 self-pickup points all over the
customers to DIY. E-commerce orders are suggested to be
182 Ying Yu et al. / Procedia CIRP 52 (2016) 179 – 185

country, covering more than 2043 towns and districts in self-support logistics team such as JingDong, Lowe’s and
China. Amazon, they provide really good logistics service experience
to customers, and the rates of customer satisfaction of these
2.3.2. GuoMei companies are high.
However, considering the cost and revenue, operational
GuoMei is the largest household appliance retailer in
flexibility, investment, core competency and other factors,
China. It operates more than 1,200 stores with more than
companies find that outsourcing is the most effective and
300,000 staffs in China and its annual sales amount can
reasonable way to fulfil all customers’ logistics service
achieve 100 billion RMB. GuoMei was founded in 1984, and
requirement (Wilding and Juriado 2004). But outsourcing
launched its E-commerce platform in 2011. As the first
should not be a simple decision as “no or nothing ” (Millen,
company to try the B2C plus physical store model, GuoMei
Sohal et al. 1997). (Joong-Kun Cho, Ozment et al. 2008)
started to improve its supported logistics system in the same
showed that outsourcing has different effect on different
year.
companies, for those companies with low logistics capacity,
GuoMeiconcentrates logistics investment on building
outsourcing has significant positive effect on company’s
centralized distribution centers. Since 2002 when the
company’s logistics management department was set, performance especially on sales growth, but it has negative
GuoMei has already built 25 distribution centers, and the total coefficient for high logistics capacity companies. It is
warehousing area is 232,000 square meters(Wang 2005, Xie suggested that those companies should avoid overlapping
2012). In order to keep pace with the expansion of retailer investment on the same logistics service part.
network and sharp increase E-commerce market, GuoMei According to recent successful implementation cases and
decided to build 7 large central distribution centers (CDC) in relative research works (Rao and Young 1994, Rabinovich,
first-tier cities, 40 distinct regional distribution centers Windle et al. 1999, Bolumole 2001, Knemeyer, Corsi et al.
(RDC)in primary markets, and small distribution centers (DC) 2003, Wilding and Juriado 2004, Highfield 2014), the future
to cover the secondary markets. Many advanced techniques development of E-commerce logistics should consider to
are applied in those CDCs, such as AS/RS system, AGV classify logistics service first based on the specified
(Automated Guided Vehicle), RFID (Radio Frequency company’s situation. For IKEA, it divides its products into
Identification), information management system like WMS, high-flow and low-flow categories based on the circulation of
ERP and so on (Gao 2007). Around 300 suppliers of GuoMei products, while Home Depot designs different delivery
are responsible to the Line-Haul transportation, and products channels for its products based on the circulation and size of
are sent from manufacturer’s warehouses to GuoMei’s products. JingDong classifies its service categories mainly
distribution centers. based on regions not characteristics of products, and Amazon
In the last mile distribution phase, GuoMei outsources likes to divide customers into different service groups.
most part of logistics service. It owns only 186 trucks and the
rest 4,800 trucks belonged to third party logistics companies.
In addition to this, GuoMei’s 11,000 deliverers and most 3.2. Challenges in Technologies
logistics service providers are from outsourcing companies
(Jiang 2007).
With the globalization of the company, the design of
logistics model becomes much more complex. Taking Home
3. Challenges and future directions
Depot for example, it is really hard to enter successfully into
Chilean and Chinese market(Bianchi 2006). Firstly, it is
because the consumer behaviour is different in these countries
3.1. Challenges in logistics model
from North America. Customers in these countries have to
work for a long time, so they do not have time to read
The relationship between logistics performance and E-
instruction to assemble or repair furniture, and women decide
commerce customer loyalty is much closer in E-commerce
what to buy for house decoration. DIY market is very small in
business than in any other industries (Ramanathan 2010). E-
these countries. Home Depot thus can only achieve around
commerce orders are always small but the shipment of these
5% of the market share in Chile. Secondly, Home Depot still
orders is rather complex, so the scope requirement for the role
uses the same supply management strategy in Chile and
of logistics is much larger, and the logistics service is directly
China, even when the market situation has changed a lot.
provided to the final customer who always has high
Suppliers reject to coordinate with Home Depot when they
expectation on the logistics service level. Many studies show
find the sales volume is small while the coordinate terms are
that customers consider the logistics performance as an
harsh. Thirdly, Home Depot has strong local competitors who
important factor of E-commerce, especially the last mile
know the local customers’ requirement well (Bianchi and
distribution (Esper, Jensen et al. 2003, Agatz, Fleischmann et
Ostale 2006). As a result, Home Depot had to close all its
al. 2008). And company’s logistics capacity has significant
retailer stores after entering Chilean and Chinese market for
and positive effects on logistics performance in E-commerce
around three years. The lesson from Home Depot in Chile and
market (Joong-Kun Cho, Ozment et al. 2008). Future logistics
China is not only about the market research, but also includes
model should focus on controlling the last mile distribution
that during different company development period, different
service quality, as mentioned in section 3, companies have
 Ying Yu et al. / Procedia CIRP 52 (2016) 179 – 185 183

supply chain management strategy and supported logistics and O’Donnell 2015). (Graham, Manikas et al. 2013)
model should be applied. In the early stage of providing the highlighted the E-logistics by full use of the Cloud Computing
logistics service network, outsourcing transportation, rent technology and infrastructures. In the E-commerce logistics,
warehouse can be applied first, because it is the most cost the SCM needs a large computation ability to work out
effective way and it is positive for sales performance(Li and optimal solutions or decisions, thus, the distributed computing
Ding 2014). resources could be utilized to figure out the decisions locally
There are now several popular information management and globally. The services models like infrastructure as a
systems. One of them is ERP system. ERP can help service (IaaS), Platform as a service (PaaS), and Software as a
coordinate various departments of the enterprise, integrate the service (SaaS) could be associated with different layers of the
information system of the whole company and add new E-commerce logistics.
modules to satisfy new requirements. ERP system is flexible, Another information innovation is highly customized
accurate, convenient and interactive. Logistics usually software applications which can link the company into its
demands highly in dispose of order, contract, delivery and partners’ system. The information such as inventory levels
return of goods. It should rely on data share in real time, and product types can be shared and displayed together. It
integration of parcel flow, capital flow and information flow, enables the company to receive orders or manage the delivery
remote control and various management strategies. better using their supply chain business models. There are for
sure other kinds of WMS or IMS. Companies having sound
capital foundation usually try to develop and update their
3.3. Future directions systems to match the higher and higher market needs.

Considering the advantages and disadvantages of self-built 4. Conclusions

and outsourcing, usually companies have to make a decision
after trade-off. The factors which need to be considered This paper talks about the E-commerce logistics in supply
include status of fund, sales volume, management level, and chain management from a practice perspective. Due to the fast
informationization capability. Future technologies for development and large influence of E-commerce, logistics has
supporting E-commerce include three future perspectives: been greatly changed compared with several decades ago.
Internet of Things (IoT), Big Data Analytics, and Cloud This paper highlights the logisitcs models and supporting
Computing. These technologies maybe able to upgrade and techniques which have improved the E-commerce logistics
transform the E-commerce logistics into a wider significantly. Worldwide implementations such as North
implementation not only for giant corporations, but also for America, Europe, and Asia Pacific are reported. Typical E-
small and medium-sized enterprises (SMEs) to get the commerce companies are reviewed in this paper aiming to get
benefits from E-commerce era.IoT is a smart network of the opportunities and future perspectives which may be used
physical objects, devices, vehicles, architectures, and other for guiding practitioners and academia when contemplating E-
items that are embedded with sensors so that these objects commerce logistics and supply chain management in the near
could communicate and exchange data within an intelligent future.
environment (Xu, Xu et al. 2014, Qiu, Luo et al. 2015, Zhong, For the practice view of E-commerce logistics, the IT
Huang et al. 2015a).After using vast number of digital devices technology plays an essential role in improving the efficiency
in E-commerce logistics, huge number of data will be created. and effectiveness of supply chain management. Future
The large number of data from E-commerce logistics may technologies like Internet of Things (IoT), Big Data
carry rich knowledge which could be used for supporting Analytics, and Cloud Computing would be possibly adopted
advanced decision-makings for various enterprises. Thus, Big to enhance the E-commerce logistics in terms of system level,
Data Analytics is another future perspective to lift E- operational level, and decision-making level that may be real-
commerce logistics. Big Data refers to the data sets with so time and intelligent in the next decade.
huge volume or complexity that typical data processing
technologies or approaches cannot deal with in an efficient Acknowledgements
and effective way (Ciobanu, Cristea et al. 2014, Tan, Zhan et
al. 2015, Zhong, Huang et al. 2015, Zhong, Xu et al. 2015). This work is supported by National Natural Science
To process the large number of data with reliable Foundation of China (Grant No. 51405307), Project Funded
approaches, Cloud Computing maybe suitable since it is a by China Postdoctoral Science Foundation (2015M570720).
kind of Internet-based computing where resources, data, and Authors are grateful to the Zhejiang Provincial, Hangzhou
information are shared to computers and other devices on- Municipal and Lin’an City governments for partial financial
demand. In such model, on-demand access to a shared pool supports as well.
with configurable computational resources (Armbrust, Fox et
al. 2010, Chaabouni, Kchaou et al. 2013, Kehoe, Patil et al. References
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Cross-boarder comparative analysis of E-commerce and logistics -----

take JingDong logistics and SF best as the examples.” Market
Modernization 15: 35-36