E-commerce logistics: New ways to create customer value

E-commerce logistics

By Prof. Dr. Wout Dullaert and Prof. Dr. Ir. Sander De Leeuw

Recent market research reports show a continuous, significant increase in online sales at the expense of traditional offline store-based retail. Hardly a topic for logistics professionals and researchers, one might think? The VU Logistics group does not agree. The success of online sales happens to be strongly dependent on the logistics performance of the online supply chain moving products from the supplier to the doorstep of the consumer. Research shows that the failure to live up to order fulfilment promises such as delivery times can be detrimental to a consumer’s loyalty to an online retailer and hence to online sales. All players from the online supply chain are affected by the logistics performance of the online supply chain. This not only includes the web shops themselves, but also the carriers that deliver parcels and pick up product returns on behalf of the online retailers. The fulfilment of online orders provides considerable challenges to practitioners and academics, but it is a topic that has received little attention in academic research.
To gain a thorough understanding of online order fulfilment, we have set up several initiatives in the area of e-commerce logistics. First of all, together with the FEWEB Department of Marketing, the Department of Mathematics at the VU Faculty of Exact Sciences and Twente University, we received a grant from the Dutch Institute for Advanced Logistics in 2012 to fund three PhD students to perform research in this area.
Furthermore, we set up several individual research projects with companies, for example to investigate the pick-up of online orders, the composition of assortments and the preferences of consumers for specific logistics options.
Furthermore, in 2013 the Logistics group, together with e-commerce logistics expert company E-sharp, investigated the state-of-the-art of web shop logistics of almost 1,000 websites across eight leading e-commerce countries in the world, including the UK, the US, the Netherlands, Germany and France (see www.globalwebshoplogistics.com). Several Master’s TSCM students participated in the data collection and data processing. Our research in this area has yielded a number of important insights to practitioners:

DELIVERY WITHIN 24 HOURS IS BECOMING THE NORM AND ONLINE ORDER CUT-OFF TIMES ARE GETTING LATER
Our research showed that around 50% of Dutch web shops communicate a delivery time of ‘within 24 hours’. In Germany, France and the UK, however, the figure is only 10%. In comparison, the standard delivery time across the EU is 2-3 days. The US and Australian web shops typically offer lead times of four days and longer.
An order cut-off time of X implies that if one orders before moment X, the pick, pack and ship of the product that one orders will be the same day. We found that everything indicates that for Dutch web shops, order cut-off times are becoming an increasingly important competitive aspect. The evolution in cut-off times between 2010 and 2013 is spectacular. In 2010 more than 70% of Dutch web shops indicated a cut-off time of 6 p.m. or earlier; by 2013 this percentage had decreased to 35%. More than 50% of Dutch web shops used a cut-off time of 9 p.m. or later in 2013, whereas only 25% did so in 2010. In fact, the latest order cut-off time we observed for next-day delivery is midnight. It goes without saying that these developments increase the logistics challenges in the fulfilment process.

RETURNING PRODUCTS: COOLING-OFF PERIOD LONGER AND MORE RETURN OPTIONS
By law, consumers are entitled to return products they have ordered online within seven days with no questions asked (the cooling-off period). The Netherlands, Germany, Norway and Sweden tend to use a cooling-off period of 15 days. In the countries with the most mature e-commerce markets – Australia, the US and the UK – we see a clear trend towards a cooling-off period of 28-30 days. Products may be returned in a variety of ways, e.g. pick-up at home, return via a store and return via a postal network. UK web shops offer the widest range of return options: 15% offer at least three different ways to return items.

‘FREE DELIVERY’ AND ‘FREE DELIVERY ABOVE A THRESHOLD’ ARE INCREASINGLY COMMON
We find that the share of web shops in the Netherlands, Germany, Australia and the UK offering ‘free delivery’ (for delivery in their own country) is close to 20%. More than half of the websites we investigated offer some form of free delivery (e.g. free above a certain threshold in purchases). We have also observed fierce growth in delivery options, with in-store pick-up of orders increasingly being the delivery option that is offered for free.

WEBSHOPS INCREASINGLY FOCUS ON CROSS-BORDER DELIVERY
The UK is leading the pack in delivery to European or global customers: about 75% of the web shops investigated provide cross-border delivery opportunities. US web shops follow in second position at 50%. German web shops are also focusing more and more on international (more particularly, European) customers: about 40% of German web shops offer cross-border delivery. Dutch web shops are lagging behind: only 30% of Dutch web shops deliver outside the Netherlands and Belgium. Given their logistics capabilities in terms of order cut-off times and lead-times, we see a clear opportunity for Dutch web shops to offer their goods to other nationalities.

These findings have inspired us to explore several new research avenues. We are examining how retailers can stimulate online order pickup in their stores. Empirical evidence has shown that consumers who pick up their online orders in-store also buy additional products in-store and hence generate more revenue than those who receive products at home. Furthermore, we are using Operations Research methods to optimize the product range in offline and online stores, examine the costs and benefits of extending order cut-off times and how to best organize product return processes. As such, this allows us to illustrate the multi-disciplinary nature of e-commerce and how logistics affects a wide variety of manufacturing and service organizations.

For further inquiries about the research project, please contact Prof. dr. Wout Dullaert, w.e.h.dullaert@vu.nl.