The e-commerce frenzy is transforming the way in which consumers shop, as digital natives enjoy near-universal internet access on their mobile devices to shop when and where they want.
But these tech-savvy customers are creating a headache for traditional logistics services providers (LSPs), especially those exposed to the retail and fast-moving consumer goods (FMCG) sectors.
When purchasing goods online, consumers now expect delivery to be fast and free – increasing the need for LSPs to provide business-to-consumer (B2C) fulfilment.
In traditional retail logistics networks, LSPs serve volume-based business-to-business (B2B) models through retail distribution networks, delivering products from the manufacturers in bulk to retail stores or to warehouses for consolidation.
The B2C fulfilment model, in contrast, represents something of a departure. Take, for example, a pallet load of 1,000 smartphone covers. In a traditional model, these would go from the factory into a warehouse, before travelling to a retail store – all as one large shipment of 1,000 pieces.
However, with 1,000 individuals shopping online, purchasing the same products via their smartphones or laptops, the logistics element becomes a business-to-consumer (B2C) model.
The same 1,000 products might well go to the same 1,000 end-consumers, but in the online world, the e-commerce shopping model bypasses the traditional retail B2B distribution channel with the consumers wanting their phone cover delivered to them at home, at their convenience – and free of charge.
For a traditional 3PL logistics service provider, set up to deliver bulk shipments into distribution centres and retail outlets, this single-unit B2C fulfilment model, combined with residential delivery, is a particular challenge.
Servicing the logistics requirements of the e-commerce supply chain in this way is very challenging – not least because of the need to do so while satisfying three sets of stakeholders: the Consumer, the Manufacturer and the Logistics Service Provider.
- The Consumer – satisfying the expectations of today’s online consumers can be challenging. They are very demanding in terms of service and speed; do not care about the complexities or challenges of residential home-delivery of single-item orders; and, when dissatisfied, can be very vocal across social media networks.
- The Manufacturer – LSPs also face the challenge of satisfying their own client – the manufacturer – whose high expectations around cost of fulfilment and quality of service are shaped by the end-consumers’ assumptions that delivery should be free and almost immediate.
- The Logistics Service Provider – LSPs also need to ensure their e-commerce fulfilment business is economically viable, despite internal challenges thrown up by legacy systems, processes and infrastructure. While this infrastructure may involve exceptionally sophisticated distribution networks and technology platforms, these have been designed for B2B distribution, not B2C fulfilment models.
These challenges for the traditional logistics service providers represent opportunity for new market entrants – who can design from scratch e-commerce supply chains fully tailored to the needs of the digital world, and therefore gain an immediate competitive advantage.
The established business models of both retailers and logistics service providers are being massively disrupted by the frenzied cocktail of digital consumers, online shopping and e-commerce.
The consequential opportunities and challenges will ensure that the next ten years will be one of the most exciting decades for retail supply chain and logistics, in at least the last 30 years.
It will be fascinating to watch how traditional LSPs work through the challenges of developing B2C offerings that allow them to profit from today’s e-commerce frenzy, while also balancing slower growth in their core B2B retail distribution business.
This topic was recently discussed during a wide-ranging interview with Mark by Lloyd’s Loading List, which was published online here.