Executive Summary

Dynamics of Logistics in the E-commerce Industry

Presented by:
Team Optimist IIM Shillong
Aditya Khare (1220)
Peeush Goel (1219)
Soumya Guha (1226)

Global business to consumer (B2C) e-commerce sales have increased sharply over recent years, driven by a
growing online population and changes in consumer behavior. In the year 2013 global E-commerce sales
touched the $1 trillion mark and market size is still growing at a healthy pace of 19.4%.While online retail is
growing everywhere, the global e-commerce landscape is hugely diverse, with different regions and countries
at very different stages in terms of their e-commerce and online retail maturity. In developed e-commerce
markets, online retail sales typically account for between 5% and 15% of total retail spending, and per capita
online spending is relatively high. The quality of the logistics infrastructure in many developing economies
is also highly variable.

In addition outside of these markets, the quality of the existing warehouse buildings is relatively poor. All of
these issues raise challenges for efficient online order fulfilment beyond the major cities. It is unsurprising
that in countries such as Brazil, Russia and China, e-commerce and retail logistics are most developed around
the major cities. In developed economies, e-commerce represents the latest big driver of change in retail
logistics and physical distribution networks, which have evolved substantially over the past 40 years or so.

Three distinct types of logistics facilities have emerged over the years:

Mega e-fulfilment centres: These facilities are typically 500,000 sq. ft. to one million sq. ft. in size
and often operate 24/7.

Parcel hubs / sortation centres: which sort orders by zip or post code.

Parcel delivery centres: which handle the last mile delivery.

In India, online retail currently accounts for less than 1% of total retail spending. E-commerce-related
warehousing is designed to service the Tier 1 cities. At present, the countrys multiple tax structure has
encouraged decentralized warehouse networks with relatively small state-based facilities, rather than larger
facilities. However, the implementation of a Goods and Services Tax (GST) will change this by encouraging
the consolidation of distribution networks, which will grow the demand for larger distribution centers.

The brand image of e-commerce firms may get tarnished due to scarcity of quality logistics. The major
problems faced in e-commerce logistics are late delivery, damaged/lost parcels and bad attitude of delivery
people, slow cash-on-delivery, lengthy return procedures and no special services such as installation or
product try-on. For tackling such problems firms can either build their own logistics system or acquire or
partner with existing logistics companies.

However, this only works only for efficient firms with large volumes, especially in last-mile delivery, which
mostly accounts for half of total logistics costs. Better solutions will come from strategic partnerships among
e-commerce firms and third-party logistics. Alibaba, the Chinese e-commerce giant invested $4.5 million in
Star Express and has future plans to build a network of warehouses across the nation.

Emerging new types of logistics facilities

Mega e-fulfilment centres

Parcel hub / sortation centres

Parcel delivery centres and urban logistics depot

Return processing centres

Dot.com warehouse for online food fulfilment