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Re-Writing The Rules of E-commerce

In many countries, this is the time of year when E-commerce transforms the retail experience. But with Cyber Monday deliveries on average 20% slower in 2015 compared to 2014, it looks like E-commerce may be too popular for its own good. Sindhu Hariharan  discovers how the sector can innovate

There used to be a time, not so long ago, when online shoppers felt highly impressed and excited about buying a wide range of products with a single click of the mouse and finding the merchandise delivered in a week or two.
Little did people know then that it was just the herald of a phenomenon called E-commerce that is sweeping over the retail industry today.
Digital markets research firm eMarketer estimates the global E-commerce market to grow at a CAGR of 17% from $1.5 trillion in 2015 to $2.5 trillion by the end of 2018.

The logistics network catering to this large market is a very important cog in the wheel of E-commerce’s growth.
E-retail giants like an Amazon and eBay are spearheading most of the innovation in E-commerce logistics. While large industry leaders like Amazon can afford investments in logistics platforms and solutions of their own, there are countless other retailers with growing E-commerce presence and aspirations, for whom, working with 3PLs or 4PLs makes more sense.

MENA’s E-commerce story

The proportion of population shopping online in MENA may be small but is increasing. Industry observers say that the region is positioned at an exciting stage – one where perhaps Western markets were 10 to
15 years ago.

“There are about 4.4 million online buyers in this region, and this figure is set to rapidly increase with an expanding population surpassing world average growth rates. There is also a predominantly young population, especially in the Gulf countries, who are more tech-savvy and prone to explore the world of on-line purchases,” says Nour Suliman, CEO, DHL Express – MENA.

In a research report, market research firm Research and Markets opines that the UAE leads the growth of B2C E-commerce in the Middle East, owing to having the highest Internet and smartphone use and payment cards penetration. Saudi Arabia, Qatar, Kuwait and Bahrain are other markets closely behind UAE in the adoption
of E-retail.

In the absence of organised data, estimating market potential of E-commerce vertical for the logistics industry is difficult. However, Cathy Robertson, experienced logistics professional and founder and head analyst, Logistics Trends and Insights states that as of 2014, MENA’s E-commerce logistics market stood at $3bn – depicting 10% rise
from 2013.

Delivery fulfilment under E-commerce

The MENA region has unique traits when it comes to E-retail, which transporters must factor.

Cash on Delivery (COD) – a concept alien to the US or Europe – is still the norm here in MENA, and the rate of return of merchandise is higher than global average. Lastly, the all-important “last-mile” delivery leaves a lot to be desired with customers still having to direct drivers street by street on call.

“In a short period of time, we have seen consumers becoming more demanding and competition becoming fierce across E-commerce logistic players. Logistics companies should not fall into the trap of setting up infrastructure, processes and systems to meet a current demand for ‘two to three day delivery’ when this could quickly turn into ‘same day delivery’ market,” say Julian Thomas, Middle East supply chain leader, PwC and Ashley Koussa, Middle East supply chain senior manager, PwC.

Logistics companies, on their part, need to unlearn traditional fulfilment procedures to handle e-commerce needs.
Picking, packing and shipping multi-line item orders, split case picking and more real-time inventory management are some aspects to be mastered.

For instance, Swisslog (provider of supply chain automation solutions) offers a picking system called ‘CarryPick’ specifically for E-commerce. CarryPick combines transportable racks, robots and Warehouse Management software with multi-functional workstations, providing retailers with a flexible solution that can adjust quickly to changing requirements. “The automated storage and goods-to-person order fulfilment system is specifically designed for the intralogistics requirements of E-commerce businesses, where product variability, delivery times and cost efficiency are daily challenges,” states Swisslog.

Due to the digital nature of E-commerce, integration of front-end and back-end processes of the supply chain is also needed. The transporters must be able to track each parcel being shipped.

“Personalised track-and-trace systems, competitive pricing structures, efficient last-mile delivery and smarter warehousing and inventory management are just some of the ‘must-dos’ for logistics players,” lists
out Suliman.

Innovations around last-mile delivery like parcel lockers, GPS-oriented deliveries and round-the-clock parcel centres also need to grow further. Global integrated logistics provider Aramex recently announced its plans to launch private, automated parcel lockers for e-commerce and express shipments across Dubai, providing a convenient delivery option for its customers.

Returned merchandise is another contemporary aspect of the supply chain process that logistics providers need to get used to. ‘Reverse Logistics’, as it is called, requires tech platforms used by logistics companies to match returns with corresponding dispatch, inspect the integrity of the returned item and sorting accordingly. All this needs a well-defined returns policy and procedures and also a well-integrated tech logistics platform/ ERP.

Robots of the Amazon

Robotisation of warehouses is emerging as a key contributor to efficient E-commerce warehouse operations in the mature markets. This form of automation ensures accurate orders, lower labour costs and storage space saving among other benefits.

Last year, industry leader Amazon unveiled a cutting-edge technology to handle the deluge of online orders – its warehouse robots. The world’s largest online retailer is now reported to have almost 25,000 robots working across over 10 its US warehouses/fulfilment centres.

While globally advanced tech is used, MENA’s logistics companies are seeing only basic form of automation for E-commerce needs. Industry trackers tell us that technology usage is restricted to solutions like Pick-to-light, Pick-to-voice, dynamic slotting and racking tools and zone-wise picking, to name a few. Very few large logistics companies in MENA have gone this way yet.

Aramex, which has its roots in MENA, offers E-commerce specific solutions as part of its portfolio. Aramex’s ‘Shop and Ship’ is a product that allows members to shop from online merchants spread across 15 countries in MENA, USA, Europe, South East Asia and Africa, which it then delivers to their doorstep at competitive rates.

Identifying differentiations that is needed for E-commerce fulfilments, Suliman of DHL says: “Geo coding, GPS positioning and location mapping are just some of the new mechanisms being introduced in our industry to ensure a more customer-centric approach. DHL is also on the verge of deploying a system called On-Demand Delivery (ODD) where customers can choose the location and time of delivery, pushing for more flexibility.”

Feature-rich and flexible Warehouse and Transportation Management Systems (WMS/TMS) also play a major role to seamlessly connect the shopping cart with the logistics processes. The analytic capabilities of these systems can help logistics players analyse customers’ shopping and delivery preferences too.

Bridging the gap

Analysing the region-specific hurdles, Suliman explains that disruptions in road connectivity that affect timely deliveries – especially in the case of intra-regional transactions – is the biggest challenge. “There is also a limited number of E-commerce players based in the region which is limiting the industry’s potential,” he adds.

“The challenge is to always arrive at a cost-effective model to complete efficient E-commerce deliveries by way of using technology and optimisation methods and we are working towards that,” states Iyad Kamal, COO, Aramex.
Robertson of Logistics Insights agrees. “Much of the E-commerce growth is via overseas/cross border businesses, with Amazon, eBay and so on. These are delivered by large express providers such as DHL, UPS and FedEx and then delivered last mile by local providers. The challenge is to encourage more domestic E-commerce growth,”
she stresses.

“With regards to infrastructure, there is a disparity of road quality across the countries in the MENA region, and in many countries, especially the Middle East, rail is not yet a major player in the transportation of goods,” observes Thomas and Koussa of PwC.

Additionally, innovations in E-commerce logistics need to keep pace with massive volume increase being seen by E-retailers and sometimes specific seasonal demands.

As per recent news reports, management consulting firm Kurt Salmon, which annually releases a study of shipping times during the holiday season, has said that orders placed on this year’s Cyber Monday (a day of tech products sale in the West) were delivered in an average of 6.9 days – 20% slower compared to 2014.

Analysts view this as an early sign that most shippers are operating at full capacity and tend to get bogged down by holiday rush, which is only swelling up with each passing year.

Perfecting the last mile

Conveying the company’s outlook on E-commerce logistics as a vertical, Kamal of Aramex says: “We see more opportunities emerge as opposed to challenges in this E-commerce wave. At Aramex, we have been investing heavily for the past few years in our last mile delivery infrastructure, customer service, warehouse designs and automation solutions to accommodate E-commerce packages. We also plan to launch a B2C mobile application soon that will support last mile deliveries in E-commerce to enhance customer experience.”

“We (logistics companies) have to tackle E-commerce as a separate sector altogether, it is much more than just delivering a product to the client, it’s about customer satisfaction at every step of the process and living up to a promise. We are bound to see the rise of a more demanding, price-conscious segment that seeks more control over their delivery process,” emphasises Suliman of DHL.

As logistics businesses get pulled from all directions thanks to advent of E-commerce, it is the responsibility of the region’s logistics companies to adapt themselves to the changing supply chain requirements to separate themselves from the pack.

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