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    Insighton ecommerce and_collaboration Insighton ecommerce and_collaboration Document Transcript

    • InsightOn: by OneVoice BUY 1001011110110110101010101010101111010111101011101 0101010101010101010101010101010101111010101010000 0100010101010001001010101100101011010101001010101 0101010100001010101010101011101010110010111101101 1010101010101010111101011110101110101010101010101 0101010101010101010111101010101000001000101010100 0100101010110010101101010100101010101010101000010 1010101010101110101011001011011011010101010101010 1111010111000101011101010101010101010101010101010 1010101111010101010010100100010101010001001010101 1001010110101010010101010101010100001010101010101 0111010101101010101010101111010101010000010001010 1010001001010101100101011010101001010101010101010 0001010101010101011101010110010111101101101010101 0101010111101011110101110101010101010101010101010 1010101010111101010101000001000101010100010010101 0110010101101010100101010101010101000010101010101 0101110101011001011110110110101010101011001011110 1101101010101010101011110101111010111010101010101 0101010101010101010101011110101010100000100010101 0100010010101011001010110101010010101010101010100 0010101010101010111010101100101111011011010101010 1010101111010111101011101010101010101010101010101 0101010101111010101010000010001010101000100101010 1100101011010101001010101010101010000101010101010 1011101010110010110110110101010101010101111010111 0001010111010101010101010101010101010101010101111 0101010100101001000101010100010010101011001010110 1010100101010101010101000010101010101010111010101 1010101010101011110101010100000100010101010001001 0101011001010110101010010101010101010100001010101 0101010111010101100101111011011010101010101010111E-Commerce & Collaboration
    • 03If everyone is moving forward together, then success takes care of itself. HENRY FORD
    • 04
    • InsightOn: Editorial – Bill Meahl 05Dear Reader,With the growth of e-commerce, the way people consume is changing rapid-ly, with strong impact on the way many companies do business and on theirsupply chains and logistics.There’s no doubt that e-commerce empowers consumers through ease of useand broadening product choice. Plus, for logistics providers, it opens up awhole new area of potential, because, of course, products ordered online needto be delivered to doorsteps. Those doorsteps might be in the next town; butthey might also be on the other side of the world. For every opportunity, there’sa challenge. How can good delivery performance be achieved cost-effectivelyin an era of higher fuel prices and higher volumes, for example?Collaboration may be one part of the solution. Collaboration is frequentlydiscussed in business, yet not always fully understood in its entire scope andpotential.Most commonly, companies think of collaboration as what happens at a con-solidation center, when manufacturers and retailers work to share warehouses,transport infrastructure and information. Some people call this ‘horizontalcollaboration’, and it is indeed an option that many companies are pursuing ashigher e-commerce volumes change the equation on the market.Then there’s ‘vertical collaboration’ in which suppliers in a single industry, suchas the semiconductor industry, consolidate goods and share transport, sincethey are often retracing each other’s steps and sharing the same customersfrom a logistics point of view.True collaboration is hard to achieve, of course, as you’ll read in the secondhalf of this report. Luckily, it’s also a topic that inspires a great deal of ‘thoughtleadership’, some of which is highlighted in the following pages.I invite you to enjoy our take on e-commerce and collaboration and to find outmore about what experts from around the world have to say about both.Best regards,Bill MeahlChief Commercial Officer at DHL
    • 06
    • InsightOn: Contents 07 ContentsEditorial – Bill Meahl   Page 05Contents Page 07Editorial – Ken Allen Page 09Facts & Figures Page 10The Game Changer Page 13Life – Plugged In Page 14Consumption 3.0 Page 20The Expert View – Johan Paludan Page 25Reaching Customers – Globally and Locally Page 26Perfection: What Customers Expect with Online Shopping Page 34The Ripple Effect of Online Purchases Page 38Global E-Facts Page 42E-Commerce: The Growing Pains Page 44The Expert View – Christoph Wenk-Fischer Page 50E-Commerce and Collaboration Page 53An Evolution of Collaboration Page 55Collaboration – The Human Factor Page 58Collaboration: A Foundation for Supply Chain Innovation Page 65The Expert View – John Gattorna Page 70Orchestration: The New Form of Collaboration Page 74The Foundation of Future Business Page 76DHL Case Studies Page 78Background and Bibliography Page 90
    • 08
    • InsightOn: Editorial – Ken Allen 09E-commerce revenues worldwide are expected to reach 1 trillion US dollarsthis year. By 2015, the world will have 3.7 billion internet users. Already, thenumber of internet users in Asia is double that of Europe, even though pen-etration rates in Asia are still low.The numbers are staggering. And, as e-commerce flourishes, they are only setto rise. For retailers with an online offer, then, the international opportunitiesare both hugely exciting and there for the taking. The phenomenon of onlineshopping (and it is a phenomenon, touching everyone wherever they are inthe world) allows enterprise the chance to break into new markets – particu-larly lucrative developing ones. It also allows them to build a prosperous andtruly global customer base.There is, of course, a ‘however’ – and it’s this. Successful product shipment isgoing to become more critical than ever for retailers who want a slice of thee-commerce pie. You might have developed a truly groundbreaking product,but if you can’t transfer it easily from your website into the hands of yourcustomers, your business will never succeed.Studies have shown that effective logistics – particularly in the retail e-com-merce sector – are a competitive differentiator for merchants. If you can offerthe items that people want or need and ship them more efficiently than yourcompetitors, you offer something of real value. Your business is duly markedas a cut above the rest.For those who recognize this, online is a real growth opportunity, a pointmade in the first half of this InsightOn: report which explores the trends,prospects and challenges of e-commerce. The second half of the report looksat collaboration as a means to tackle some of the more taxing problems andcomplexities of e-retail.Collaboration is a word we know well at DHL. We believe in close collabor­ tion awith businesses in order to drive sustainability initiatives, reduce costs andimplement the best, most efficient integrated solutions for their individual needs.Of course, we are well known for providing critical services that enable thevast flow of goods around the world, and for our ability to move high volumesfrom one corner of the world to another on time and within budget. But wealso do far more to support our customers who run businesses online. Forexample, we provide software products that make it easy for merchants to shipand track their packages and manage their returns – a facet of e-commercehighlighted in this report.Whatever viewpoint you are reading from, e-commerce isn’t a subject any of us canchoose to ignore. Online retail, with all its multi-faceted challenges, is here to stay.With that, I’ll leave you to explore our latest InsightOn:. Enjoy your read.Best regards,Ken AllenCEO, DHL Express
    • 10 S AL E 68% of American retailers polled expected 2011 online ­holiday sales to increase by at least 15% from 2010 26% projected annual growth of e-commerce in countries such as Spain, Brazil, China, Russia and Mexico through 2015 More than 1000 16 – number of top 50 online retailers 101 to 1000 7 that featured more than 1,000 videos on their site in Q1 2011. 11 to 100 9 Under 10 18
    • InsightOn: Facts & Figures 11 48% 2/3 – fraction of smartphone users of monthly retail who shoppedbudget that U.K. shoppers by phone in spend online September 2011$ 1 400 000 000 000 2015 – the year that global e-commerce, including travel and auto purchases as well as online retail sales, will reach an estimated 26 – average number of hours internet users in Europe 75% spent online in March, 2011 224 000 000 ‘mobile commerce’ grewbetween 2010 and 2011,as measured in the e-tailinggroup’s 14th Annual Mystery Shopping Study – number of ebay’s unique visitors per month
    • 12
    • InsightOn: The Game Changer 13The Game ChangerE-commerce once described how companies operating in the B2B sector conducted business bysharing information electronically. Nowadays, it has a completely different meaning: e-commerceis ‘online shopping’ and all that comes with it, such as social shopping, multimedia entertainment,immediacy and, of course, ease.E-commerce is a truly ground-breaking inter­ travel to the end user. There are human factorsnational phenomenon — a consumer in Madrid, to consider, too: Collaboration between internalsay, can order goods from a seller in Missouri. team members and their managers, for example,Yet, from a logistics perspective, this involves a and cross-collaboration between their oppositelong supply chain that crosses borders, curren- numbers in external (and sometimes competing)cies and customs regimes and requires a cost- organizations. For this to be successful, a com-effective and consistent solution. The consumer’s mon focus and open communication is needed;repeat business depends on it. plus an understanding of the end goal by staff at many different levels within a business.Returns is another conundrum. How does afaulty or unwanted product go back through the So how do companies collaborate successfully?supply chain in a way that serves and satisfies the What challenges and barriers must they over-customer, but doesn’t squeeze the margins of the come to do it effectively, what is its true cost ande-retailer or the logistics provider? It’s a question how can it be encouraged? In the second halfthat the logistics industry is still grappling with. of this report, leading international academ- ics and logistics experts (including author andThere’s no doubt, however, that e-commerce is consultant John Gattorna, and Richard Wilding,a game changer for the retail industry. It’s also a professor of supply chain strategy at Cranfieldgrowing exponentially. Online companies who School of Management) offer the latest thinkingwant growth – and what ones don’t? – know and strategies on collaboration.they need to set up their businesses and sup-ply chains to take advantage of a new shopping Could it be a turning point for e-commerce?reality. The ones who don’t won’t be around totell the tale about how they tried to turn backthe e-commerce tide. So, in the first part of thisedition of InsightOn:, we look at the continuallyevolving e-commerce landscape and investigateits trends, opportunities and challenges from theviewpoints of the consumer, enterprise and thelogistics operator.If retailers are going to thrive in the age of e-com-merce, then collaboration could offer a way toimplement greater competencies in logisticsplanning and execution. At its simplest level,collaboration is about the sharing of equipment,vehicles and carriers; but it’s also about sharingcritical data on the movement of goods as they
    • 14Life – Plugged InThe digital world – with its always-on, 24-hour cycle of information, communication and media –­ ermeates lifestyles, shaping the way people interact, consume and make sense of the world we live in.p The changes are well documented. Anthropologists ­ Futurists predict that our electronic connect- have shown how text messaging – expected to top edness will continue to impact daily lives in 9.4 trillion messages by 2016 (Informa Telecoms ­ profound ways, including the way we consume. and Media, May 2012) – has transformed language; It may seem far-fetched now, but some futur- how instant messaging has shortened attention ists can see the day when you might not have to spans, and how consumers are collaborating and shop for yourself because your fridge will do it sharing in new-found communities that are no for you. It will be intelligent and, knowing when longer restricted by physical boundaries. it is getting empty, able to initiate an order from an online shop – thus taking you, the consumer, These communities often pursue a greater good, out of the equation. such as reducing their carbon footprint or help- ing others with practical information on things Your bathroom mirror, meanwhile, could have as diverse as home health remedies, fashion a dual role as a message centre, reminding you trends and where to spot a shopping bargain. about your schedule as you get ready for the day, and/or summarizing your home’s energy From a consumer perspective, computer technol- consumption and production. By tapping your ogy has had the greatest impact of all by revolu- mirror you post these results on a social net- tionizing the way people shop. Now everything working site, where you are challenging friends from groceries and home furnishings to cars and to earn the most points to exchange for games holidays can be bought over the internet. More and prizes to be collected online. than this, however, consumers can collaborate and share information, write reviews and impart If all this sounds outlandish, scroll back to the tips in new-found online communities. Shoppers world today and notice that what was considered are no longer restricted by physical boundaries. science fiction two decades ago is not only part Technology has empowered them. of the new reality – it is driving expectations
    • InsightOn: Life – Plugged In 15for consumers. For instance, between meetings It’s no wonder then that retail e-commerce is DELPHI THESIS 46at work, the busy consumer can now place an booming. For several years now, it has beenonline order for a dinner to be delivered to their steadily taking market share away from tradi- IN FUTURE …home at a time of their choosing. All they need tional bricks-and-mortar retailers. In the US, for … the internet connectsto make this happen is two minutes’ access to example, e-commerce reached 8 percent of over- 100% of the world’sa PC, laptop, mobile or tablet – and a reliable all retail sales in 2011, compared with roughly 4 population, based on adelivery service, of course percent in 2004. new infrastructure (e.g. glass fiber, satellite, mobile With reliable delivery and plenty of choice, devices). consumers have discovered that click-and-ship“With reliable delivery is in many ways more gratifying than traditional PROBABILITY Definitely not: Definitely: shopping. People find that it fits into their lives 13 % 12 %and plenty of choice, much more easily than a trip to the store, where Unlikely: 25 % selection may be limited and comparing prices isc­ onsumers have discovered done the old-fashioned way: Manually.that click-and-ship is in And that’s not to mention the benefits for life- Probably: logistics: No more vying for a parking spot at a 31 %many ways more gratify- shopping area, waiting in line to try on clothes, Possibly: 19 % waiting in line again to pay and then fightinging than traditional traffic or crowds on the subway on the way Delivering Tomorrow: Customer Needs in 2020 and Beyond. A Global Delphi Study (see home.­shopping.” p. 113 for details) Governments, too, are keenly aware of the advantages that come with e-commerce, and they’re keen to boost computer and internetMultiple means of communication – or hyper- usage to keep their economies and workforcesconnectivity – is the new normal. According to competitive.Robert Greenhill, the chief business officer ofthe World Economic Forum, hyperconnectivity As part of its Digital Agenda for Europe, theis redefining relationships between individuals, European Commission has set a target of en­between consumers and enterprises and between abling 75 percent of the population to be regularcitizens and state. He has said, “We are begin- internet users by 2015, with the proportion ofning to see fundamental transformations in all the population that has never used the inter-areas of the economy and society.” net decreasing to 15 percent. Within the same period, 50 percent of the population should beMost experts believe that e-commerce is not buying online and 20 percent of the populationthe driving force, but rather e-connectedness. should buy cross-border online.Once connected, people then transfer theirexperience of instant information gratification For businesses and consumers alike, this trendand empowerment to the realm of e-commerce. opens up whole new worlds of opportunity.In other words, e-connectedness means con-sumers want their products fast, easy and ontheir own terms.
    • 16 E-commerce trends SoLoMo Many people use social networks to research pur- chases and learn about products. For example, We are perpetually in motion. Thanks to online Mumsnet in the UK, a place where mothers compare technology, we can now all have a home and office notes and collaborate, has built up such a following on the move. With our mobile phones and tablets, that is considered crucial for influencing product we can field business queries, monitor our Facebook choices – and even elections. In India, India Con- pages, send a Tweet, add to a blog and book a table sumer Forum is an online platform giving consumers for dinner while we’re, say, sitting on a train or re- the chance to share information about goods and laxing at a café table. services, post grievances and give helpful consumer- related tips and advice. Then there is US site Pinter- Internet trend watchers have come up with a new est, which invites visitors to share their favorite acronym that could describe this behavior as well things on ‘pinboards’ and follow collections created as one of the main trends on the world wide web: by others, and has over 12 million users a month. SoLoMo, short for social-local-mobile. Plus, many retail sites have developed a sellers and buyers community forum – discussion pages where The term conjures up a world dominated by social potential consumers can read comments and re- networks (So), in which local (Lo) commerce and views by posters who have already bought a partic- communities thrive while people interact and ular product. US retail giant Amazon, for example, transact from their mobile (Mo) devices. launched its customer discussion board in 2007. “The Social, Local, Mobile (SoLoMo) revolution is Christoph Schwarzl, a Kurt Salmon partner and the here,” says Daniel Laury, the CEO of LSF Network, a author of the book New Online Retailing, said, US-headquartered global digital marketing company “Many shoppers now consult their peers online be- offering digital advertising and performance marketing. fore they make major purchases. For them, other “With rapid rates of smartphone and tablet adoption, consumers are considered more reliable and trust- consumers are on the move, looking for information worthy than advertisers.” quickly and expecting relevant results on the go.” Going Local Already in 2007, social networking surpassed email in terms of time spent online. By 2011, users in Next comes business, with a definitive local twist, I ­srael, Argentina, Turkey and Chile all spent more driven by social media users on mobile devices. than 10 hours a month on social networking sites. While business may be global in many ways, com- They were most likely sharing and commenting on panies like Groupon and LivingSocial help generate photos of friends and family, swapping recipes or demand for products and services locally. And comparing their opinions on films, books and cur- check-in services like shopkick drive foot traffic rent events. into retail outlets.
    • InsightOn: Life – Plugged In 17 DELPHI THESIS 48 IN FUTURE … … all across the world, communication costs decrease extremely – information and telecom- munications are available to everyone at any time and almost for free. PROBABILITY Definitely not: Definitely: 2% 12 % Unlikely: 19 % Possibly:Indeed, a survey by comScore in 2011 showed that smart-phone or tablet. The device will be the cen- 27 % Probably: 40 %local listings are among the most relevant and trust- tral nervous system of their lives and the placeed search results for consumers. Some 61 percent of where they conduct their affairs, relying on the Delivering Tomorrow: Customer Needs in 2020 and Beyond. A Global Delphi Study (seeonline searchers consider local search results to be opinions of people in their social networks and ser- p. 115 for details)more relevant, and 58 percent consider local search vices provided locally.results to be most trustworthy than others, it said. In South Africa, for instance, internet use grewRelevancy typically means that users recognize the 25 percent in 2011, mostly due to access via mo-name or address of a business that has the products or bile phones. And India may be raising a “mobile-services they want in a specific location. For business- only” generation, according to one study. It foundes, it translates to a more targeted readership for ads. that 49 percent of people who are using the mobile internet either never or infrequently use it from a“For a local company looking for local customers or desktop.a national company steering customers to localstorefronts, local search provides targeted messages Essentially, the SoLoMo trend is another exampleto the consumer searching for a product or service in of how electronic connectedness and new consumera particular area,” Laury said. The “Mo” trend in technologies have eliminated information asym-SoLoMo is also moving forward at full speed. metries from the consumer‘s shopping experience – and put power into the consumer’s hands.Almost shockingly, more people on this planetcould access a mobile phone network than electric-ity, if cost were no factor. According to the GSM As-sociation and the United Nations, commercial wire-less networks can reach 85 percent of the world’spopulation while the electrical grid can reach only80 percent of the world population.With wireless access widely available and mobilehandsets far cheaper than desktop PCs, it’s clearthat users of the mobile internet will far outnumbertheir fixed-line brethren. At the time of writing,PCs are still the preferred way of connecting to theinternet; but a new study by NPD DisplaySearchpredicts that tablets will overtake PCs by 2016.Indeed, experts say that most of the mass marketconsumer world will never have a PC, but only a
    • 18 The Internet and the Developing World exponentially: 2011 saw 25 percent growth in Indian internet users over just 12 months. The internet may have its roots in Silicon Valley, but statistics show that its future will be decidedly in- The future of the internet in India looks set to be ternational. driven by mobile devices. Figures from wearesocial. net highlight that 59 percent of all Indians only Already, the strongest growth in number of users – a ­ ccess the internet via mobile technology. With an and the sheer largest number of users overall – is increase in 3G and 2G services, and an Indian in developing countries. Europe and North America G ­ overnment roll-out of low-cost tablet devices now have the highest proportion of internet users across schools nationwide, internet use is going to among their entire populations, but the overall get much higher, very soon. number of users is dwarfed by countries in the de- veloping world. With more and more citizens online, e-commerce in India is on the rise. In 2011, it was estimated that China, for instance, added more internet users in the value of online business in India had reached three years than all the internet users combined US$10 billion. Popular sites in India include that exist in the US, according to Mary Meeker, an 20North.com, offering electronics, books, music analyst at venture capital firm Kleiner Perkins Cau- and movies; the fashion site 99labels.com; and field & Byers and a recognized expert on internet Dealsandyou.com, which features deals and dis- trends and business. counts on a variety of products. China had a population penetration of internet us- The same story is being repeated in parts of Africa, ers of only 34 percent in 2010, but that rate was where undersea cables have opened up high-speed growing at 20 percent per year, according to the In- online access and dramatically increased business ternational Telecommunications Union and the opportunities. Mobile is big news here: By 2015, United Nations. What’s more, the total number of mobile phone subscribers are expected to reach internet users in China in 2010 – some 459 million 850 million — of which 250 million will have mobile – was already nearly double that of the US, where broadband subscriptions. In Nigeria, according to 244 million people were accessing the internet. statistics from the ITU (International Telecommuni- cations Unions), 35 million new internet users Popular sites in China include the marketplaces came online during 2007 and 2010. Mobile use is Tao­ ao and 360buy.com, which had more than b high in the country, with over 95 million mobile sub- 40 million registered users in early 2012 and pro- scribers (Nigerian Communications Commission). cessed 400,000 orders a month. In South Africa, smartphone users also represent In 2011 in India, 121 million people were estimated the future potential of internet growth. At the end to be internet users. If that sounds like a lot, then it’s of 2010, 6.8 million South Africans were using the nothing compared to the overall Indian population, internet; but by the end of 2011, that figure had in- which stands at 1.2 billion. In such a big country, then, creased to 8.5 million; and by the end of 2012 it is 121 million is a low figure; and, if internet growth was estimated to topple the 10-million mark. standing still, it would be unremarkable. But internet growth in India isn’t standing still. According to re- search aggregated by wearesocial.net, it is growing
    • InsightOn: Life – Plugged In 19E-commerce in South Africa is growing accordingly, as are used by far more non-Americans than Americans.noted in an Internet Economic Impact Study survey by For instance, more than half of Google’s trafficindependent technology research and strategy organi­ comes from outside the US. And the market valua-zation, World Wide Worx, published in May 2012. tion of Chinese and Russian internet companies“The study… indicates that e-commerce is growing has been rising quickly, according to Meeker. As ofat a rate of around 30 percent a year, and is showing late 2011, Chinese companies like the search-engineno signs of slowing down,” said Managing Director of giant Baidu and the online service provider TencentWorld Wide Worx, Arthur Goldstuck. “In fact, taking were valued at more than US companies such asinto account the fact that a number of major consumer priceline.com and Yahoo!brands and chains have not yet devised comprehensiveonline retail strategies, the scope for future growth is These rising figures have real implications for com-even greater.” The result, says Goldstuck, is that an panies’ logistics operations. If businesses are notinternet economy worth R59 billion in 2011 and making already shipping to developing markets, then theyup 2 percent of the SA economy could grow to as much had better prepare to seize the opportunity in theas 2.5 percent of the economy by 2016. coming years. A rising, internet-savvy middle class in the developing world is busy writing the nextOther points in case: the world’s largest internet chapter of the e-commerce story.properties may be American companies, but theySale, Sale, Cyber Sale Often, stores stay open until midnight to attract as many shoppers as possible.Black Friday, the day after the Thanksgiving celebra-tion in the US, consumers typically begin their Christ- In recent years, however, Cyber Monday, the firstmas shopping. It has become a discount shopping Monday after Thanksgiving, has become almost asday when millions of US shoppers hope for massive important to retailers. It’s the day online shopping issavings. The term Black ­ riday illustrates the point F gauged to predict how strong the holiday shoppingat which stores start to make a profit, or go "into the season will be for retailers overall. With full stores andblack." The holiday shopping season is important rising gas prices, online shopping is gaining ground asfor the economy because 19 percent of retail sales people simply do the job from their desktops or hand-occur between Black Friday and Christmas. For helds. During the 2011 post-Thanksgiving weekend,some retailers, such as jewelers, the period may Cyber Monday sales alone hit US$1.2 billion, making itbring in nearly 40 percent of their annual revenue. the heaviest US online spending day in history.
    • 20Consumption 3.0Once, the mantra for successful retailing was “location, location, location.” Now, e-commerce is re-defining the concept of place, allowing companies to create a virtual identity that can be marketedjust like a physical one and enabling people to travel between both worlds. Take the phenomenon of pop-up retail. In draw large groups of people; typically, they work DELPHI THESIS 56 New York, Paris and Berlin, shops can appear through social networks and rely on social IN FUTURE … quickly – and be gone a few days later. m ­ edia to spread the word about deals at shops. … Web-connected inter- faces make private homes The idea is to create a buzz online that trans- intelligent environments, fers back to the physical world, enticing people where temperature, aroma, to partake in short-term, limited offerings at “Digital natives don’t personalized broadcasts, frequently changing locations in city centers – and information are i.e. pop-up locales. want to waste their time. automatically adjusted to the preferences of the Over the past few years, Toys ‘R Us has They will only go shopping inhabitants, at all times. opened hundreds of holiday pop-up retail PROBABILITY shops using otherwise vacant retail space, for one reason: To have fun.” Definitely not: Vogue magazine has rolled out temporary Unlikely: 8 % 2% Definitely: stores for teens that don’t sell any items but 13 % offer makeovers and model castings, and US retailer Target offered New Yorkers two The Psychology of Shopping weeks to buy regular store items onboard Over the course of time, shopping has always a 220-foot long glass-topped boat that it been about more than just meeting the daily m ­ otored into Chelsea harbor. needs of life. The acquisition of certain goods re- Possibly: mains a central way for people to distinguish 36 % Probably: Johan Paludan, a futurist who has worked at themselves socially and economically from oth- 41 % the Copenhagen Institute for Future Studies ers. And marketplaces have historically offered since 1976, says the pop-up retail trend is part an important space for social interaction, the ex-Delivering Tomorrow: Customer Needs in2020 and Beyond. A Global Delphi Study (see of a wider ongoing transformation of retail change of information and spectacle.p. 123 for details) space to event space. According to Paludan, the future of “live” shop- “Bricks-and-mortar shops are quickly finding ping may hinge on its ability to continue to meet out that they must offer something special to these key needs as it adapts to changes in the compete with the benefits of buying online. It way we peruse and pursue goods. won’t be long before people head to shopping areas not to buy things – but to seek entertain- For hundreds of years, people visited ancient ba- ment,” Paludan said. zaars, seaport commercial districts and general stores to select the things they needed. Then “Digital natives don’t want to waste their time. came downtown department stores and sub­ They will only go shopping for one reason: To urban shopping malls. have fun.” But all this was before e-commerce was a force Those retailers who are successful in pop-up to be reckoned with, with its 470 billion US dol- selling often use the techniques employed by the lars in sales that are expected to exceed 1 trillion flash mob performance art movement to quickly US dollars worldwide by 2012.
    • InsightOn: Consumption 3.0 21Despite its tremendous size, the experience of CBRE Group, Inc, it was reported that e-commercee­ -commerce is not even fully evolved yet, says had seen its share of core retail sales captured risePaludan. Right now, popular shopping sites in- from 3 to 6 percent during the past six years; whileclude large marketplaces that aggregate the goods the majority of bricks-and-mortar retailers’ sharesof thousands of sellers, such as Amazon.com and declined during the same period. Jeffrey B Edelman,Alibaba.com, or giant retailers with a large web Director of the assurance, tax and consulting firmfootprint such as Walmart.com. McGladrey & Pullen, LLP, believes that “2012 will be another year of lethargic growth, store closingsIn the future, we may shop in 3D virtual malls that and increased focus on everyday low prices byare architectural masterpieces and, at some point, s ­ everal major retailers, all of which will have awe may even be able to have sensory and tactile s ­ ignificant impact on the entire retail landscape.”experiences while shopping online. “Merchants He adds that multichannel is key to survival formay be able to pipe the smell of bread into your many; and that online retailing also threatensown home, or you may be able to print out sample e ­ xisting store economics, measurement systemsfabrics to explore their feel,” said Paludan. and incentives.With the fast uptake of e-commerce, and such fan- According to a UK-government backed report byciful developments on the horizon, some experts Mary Portas, a retail marketing expert, TV person-are already predicting the death of the shopping ality and fashion designer known as The Queen ofmall. They say that e-commerce could leave shop- Shops, town center vacancy rates have doubledping malls in a bind, just as those very malls and over the past two years, and 50 percent of consumerhypermarkets have played a part in high vacancy spending takes place off the high streets. Portasrates in downtown shopping districts. In the US, in a ­ dvocates turning the country’s town centers intoa May 2012 report from real estate services firm cultural and social meccas. She says, “I fundamentally BUY
    • 22 believe that once we invest in and create social expect to find there. It’s a bridge between event capital in the heart of our communities, the eco- shopping and old shopping – as consumers go back nomic capital will follow. and forth between the worlds,” said Paludan. This is omni-channel retail – the ideal aim for many e-re- Others don’t see e-commerce as such a threat. tailers and the ultimate evolution of ‘multi-channel’ Paludan, for instance, believes it and real-world and cross-channel retail. The idea of omni-channel shopping can co-exist and be mutually beneficial. retail is that consumers will be able to access the He says the most successful real-life shopping retailer from whatever platform is available to them venues will actually be a blend of both – offering in whatever part of the retail process they are, and interaction between the virtual and real worlds and enjoy a co-ordinated and cohesive experience. striking the right mix of entertainment and shopping. Already, people and merchants connect the two worlds. Users do so when they redeem electronic “The idea of omni-channel coupons for real-world goods in stores or follow the recommendation given on their handset to retail is that consumers are walk into a particular store and interact with products. There’s also the trend of sharing your able to access the retailer location with friends by checking into physical spaces – like a Starbucks – using a smartphone from whatever platform and services such as foursquare or Facebook’s location-sharing feature. Often companies will is available to them in reward users with discounts for checking in. whatever part of the retail Companies, too, are transcending cyberspace. The auction site eBay did so by setting up a process they are.” pop-up shop in central London for wares avail- able only online. And the carmaker Renault has plugged the virtual into the physical world by erecting an information kiosk at a car show in To this end, one company has even reproduced Holland and enabling visitors to “like” particular the image of a grocery store on a poster – just models on their Facebook pages. like a Potemkin village – and is giving people the chance to buy items in what appears to be a typi- “I see companies combining real-world locations cal store. Hung in subways by a Korean division of with digital messages of what the consumer can the UK grocer Tesco, users approach the posters
    • InsightOn: Consumption 3.0 23and place orders for home delivery with their working to make target marketing enhance the DELPHI THESIS 57smartphones while they’re waiting for their train. shopping experience. The profiles generated from collected data also help companies interact with IN FUTURE …Though some companies like Tesco seem to be consumers, offering them more chances to be a … purchasing decisionsembracing these types of new marketing op- part of the design and production process. A UK are based on peer-to-peerportunities and creative ways to position their furniture company, for instance, offers “democrat- advice (e.g. via the internet);brands, others still see altered buying behavior ic” designs by asking its customers to vote online classical advertising is dead.as a threat, says Paludan. about which pieces it should manufacture, and PROBABILITY wearers of Nike shoes can now design their own Definitely not: Definitely: styles and colors, complete with their own initials. 8% 5% Probably: 16 %“In the end, shopping will Other campaigns are even more ambitious in their Unlikely: 45 % size and scope and don’t even involve the productbecome much more itself. In 2011, Johnnie Walker, the blended Scotch whisky, launched its Keep Walking campaign toindividual, as merchants galvanize support for three innovative initiatives Possibly: in the fields of the arts, technology and business 26 %collect intricate data in a number of markets, for example Brazil and Delivering Tomorrow: Customer Needs in Thailand. The Johnnie Walker consumers in eachabout our preferences.” 2020 and Beyond. A Global Delphi Study (see p. 124 for details) market were urged to debate, over Facebook, which initiative they thought had the most poten- tial to shape the future in their country.At present, many retailers are working through This offered consumers “a collective sense oftheir policy for dealing with shoppers who participation and achievement and (will) hope-compare prices online for items they see while fully spark new thinking about what can bestanding in a store. Some retailers may conclude achieved by working together,” said Gavin Pike,that it’s best to forbid the use of virtual shopping Global Brand Director for Johnnie Walker. “Byassistant applications, while others have already using our communications to encourage like-accepted the writing on the wall and are actually minded consumers to connect, collaborate andfacilitating customers as they make purchases via champion causes that inspire them we will deliv-the web or phone – while visiting an actual store. er a deeper engagement with our brand as well as showcasing some of the pioneering thinkingThe way consumers shop may be shifting, but it’s that could lead us towards a better future.”a slow metamorphosis. Yet some things neverchange: Currently, whether consumers purchase “Whether online or in a store, we’re seeing grow-in store or online, goods need to reach them as ing interaction between the consumer and thequickly and as effectively as possible – other- producer,” said Paludan. “Call it collaborativewise their custom will go elsewhere. Retailers consumption if you will.”are ­ urrently facing the twin-pronged reality of cbricks and mortar and e-commerce and realiz­ing the key role that logistics has to play in both.They are understanding the importance of asmoothly operating supply chain. Poor deliveryservice in either area may have a long-termnegative impact on their entire brand, after all.Collaborative DesignIn the end, shopping will become much moreindividual, as merchants collect intricate dataabout our preferences, Paludan says. That data isalready being used for target marketing cam-paigns i.e., a strategy whereby retailers focus on agroup of potential customers in specific locationsor demographic groups; or even shoppers withsimilar attitudes, tastes and lifestyles. Sellers are
    • 24 Try This on For Size – actually available to shoppers around the physical Shape-Fitting Technologies and digital worlds. Walk into some stores these days and the sales In the UK, shoppers at Selfridges and New Look clerk may call your attention to the screen on the can have their bodies mapped by BodyMetrics, and back wall instead of the coat on the rack. online shoppers can do the same with home-based camera technology. After the profile is made, it be- There you can position yourself to play a game of comes a tool for trying on garments across multiple shopping in a Wii-like way. The program will react stores on the web. Shoppers will try on clothes via when you raise your arms and move your body to a personal avatar that is an interpretation of their signal which items you like and dislike. shape. You may motion to remove an item you’re viewing If body measuring technology became the basis for that has been fitted to your personal avatar, or you online shopping, it could do even more by helping may swipe wide and twist to have it returned to retailers improve their manufacturing, warehous- center-screen for your inspection. ing and stocking processes because of the ability to predict demand more precisely for particularly- What you’re doing is interacting with a computer- sized items. ized personal shopping assistant. Such technolo- gies are no longer the realm of futuristic films but Now that’s a good fit for retailers.
    • InsightOn: The Expert View – Johan Paludan 25The Expert View –Johan PaludanMany people shop online in marketplaces (like Which products will disappear from the traditionaleBay), but the experience doesn’t feel like that of retail trade as consumers shift to online buying?v­ isiting a mall. Why not? Johan Paludan: The current situation gives theJohan Paludan: Online shopping is fundamen- answer: Those products where it is not impor-tally different from traditional shops. A traditional tant to feel, taste and smell were among the firstshop has a general display, where the shopper has to be popular online, such as books and music.to find what she wants. Online shopping will in- Ultimately, all products could disappear fromcreasingly be based on the supplier knowing more the traditional retail trade once the digitalizationand more about the individual shopper. Online of taste and smell has been accomplished. Rightshopping is therefore much more based on the in- now, that process is still in the lab. Traditionaldividual displaying what she or he is known to like. retail will have to survive on the social needs of Johan Peter Paludan servesWhat online shopping misses is the social dimen- people and location-based marketing. When you as the Director Emeritus atsion. Man being a social animal, I expect we will walk in the city you – or rather your smartphone the Copenhagen Institute forcontinue to go to traditional shops to experience – will be bombarded with messages about what Futures Studies (CIFS). Heother people. you could get just round the corner. Instant grat- is widely known as a crea- ification is always tempting. tive thinker on social trends,That brings up privacy concerns. education, business and What is the role of logistics in this picture? the popular imagination. AJohan Paludan: The basic situation is that sup- privately funded, non-profitpliers will know more and more about the individ- Johan Paludan: In traditional retail, the con- think tank, CIFS provides in-ual consumer. The talk is about “big data” and sumer takes care of the last leg of transport from terdisciplinary statistics-basedabout how to exploit it. People know that the ad- shop to home. In online shopping the retailer has and subjective research on avantage is that they will only get information they to take care of the last leg, hence this becomes an variety of topics.find interesting and spam becomes truly a sin. The important element in the competition with ­ thers. oother side of the coin is that this development will People are often away and cant receive their goods. Paludan earned a master’sindeed negatively affect privacy. As somebody said, My vision is that every home will have an installa- degree in political science from“Privacy is gone – get over it.” It does, however, only tion like the trap door some people have for letting Aarhus University and workedtake a couple of scandals of somebody misusing their cat go in and out. For goods, it would have to as a high school teacher beforethe data before we have a new situation. It is basi- be a one-way mechanism with built-in cooling/ joining CIFS in 1976. His pub-cally a matter of trust, and trust takes a long time to freezing facilities. lications include ‘The Nordicbuild and a short time to demolish. Welfare State’ as well as ‘The Strategy of Corporations: The most Likely Future and the Wilder Alternatives.’ He also contributed to the production of ‘The Dream Society – From Information to Imagination.’
    • 26Reaching Customers –Globally and LocallyWhen surfing and shopping the Web, national frontiers are hard to spot. One click leads to another,and the product is suddenly in your shopping basket. For the consumer, it is of little concern that thewebsite is based outside their country of residence. For the merchant behind the website, the shop- Yet a retailer’s ability to serve customers abroad per’s physical location is far from irrelevant. may make or break a business, especially during L ­ ogistically speaking, where the customer is can tough economic times. In the UK, for example, have a major impact on how quickly – or even if merchants are clearly responding to growing – they can be served. Shipping goods overseas competition from domestic websites and cutbacks means dealing with issues surrounding different in household spending due to the financial crisis: currencies and customs regimes and longer A recent survey showed that 64 percent of online transport times. Overheads – such a factoring in retailers there plan to expand internationally in the costs of returns from abroad – may put a 2012. Good logistics will therefore play a central squeeze on profit margins. Suddenly, from the role in future competition among e-retailers. e ­ -retailer’s perspective, delivering the goods from A to B is fraught with difficulty, especially if A is “The real growth opportunity is international,” on one side of the world and B is on the other. says Andrew McClelland, the Chief Operations
    • InsightOn: Reaching Customers – Globally and Locally 27& Policy Officer of the Interactive Media in Re- Chinese market, and to better understand how DELPHI THESIS 52tail Group (IMRG), a UK e-retail trade group. consumers across China interact with Macy’s and“Overseas e-commerce markets offer a com- the products we sell,” said Terry J. Lundgren, chair- IN FUTURE …pletely fresh customer base and one that is in- man, president and chief executive officer of Ma- … more than 3 billioncreasing exponentially.” By the end of this year, cy’s, Inc. “We know that Macy’s is very well known people in the world run theirthere will be 2.5 billion internet users worldwide. and regarded in China through international tour- businesses completely andBy 2015, this number will rise to 3.7 billion. ism, globally broadcast events such as the Macy’s more effectively than ever Thanksgiving Day Parade, and movies such as Mir- via the internet, makingFor merchants, going global is easier said than acle on 34th Street. But we still have a great deal to use of the World Widedone. And it’s just one of the many challenges to learn about the shopping patterns and merchandise Web’s marketing power;tackle as the e-commerce market matures and preferences of consumers in China’s very diverse 50% of B2C transactionscustomer demands rise for the best service and and rapidly emerging consumer marketplace. are carried out online.the best prices. PROBABILITY “We continue to believe there is significant long- Definitely not: Definitely: term opportunity internationally for both Macy’s 1% 10 % and Bloomingdale’s. But we need to be certain Unlikely:“A retailer’s ability to serve 25 % Probably: that our future decisions in this regard are based 27 % on fact and experience.”customers abroad may Macy’s are not alone in being cautious in enteringmake or break a business, new territories. Only a small proportion of the Possibly: sites the IMRG has surveyed offer currency con- 37 %especially during tough verters or customer support in a local language. Delivering Tomorrow: Customer Needs in 2020 and Beyond. A Global Delphi Study (seeeconomic times.” One hurdle they face is missing infrastructure p. 119 for details) for cross-border transactions. Search engines, which know no geographical borders, may drive traffic to a retailer’s site, but sales are lost withoutBeginning in the early 1990s as a curious new the requisite checkout, customs and delivery ser-form of distance selling, e-commerce has be- vices for international clientele, as well as a hostcome an overwhelming force to reckon with – of other adaptations.for both small and medium enterprises (SMEs)and the world’s largest retailers. While early en- These include site-specific ways to handle lan-trants like Amazon.com and eBay continue to guage and cultural barriers as well as the chal-drive expectations with their giant marketplaces, lenges of cross-border fulfillment and returns. Forexperts say much unclaimed territory is still example, not all merchandise can be shippedavailable to those online sellers that get multi- across international lines without incurring taxeschannel retailing right and learn to cross borders or duties, and returns from a different country areeffectively. more complex and costly than domestic ones.Opportunities – A Click Away European Cross-Border E-CommerceAccording to recent industry surveys, even the big- Cross-border e-retailing within the Europeangest names in retail e-commerce are taking a slow, Union would seem easy enough since internetmeasured approach to expanding abroad, given the use and online buying from domestic websites isrisks of failure, which would be costly and damag- on the rise across member countries, led bying to hard-won brand confidence. For example, in adoption in Norway, the UK and Sweden. TheMay 2012, US retailer Macy’s announced its inten- percentage of individuals who made purchasestion to dip a toe into the Chinese market by selling over the internet has, on average, more thanan assortment of its private brand merchandise di- doubled from 20 percent to 43 percent betweenrectly to consumers in China through a Macy’s sec- 2004 and 2011, Eurostat says. In addition, thetion on omei.com, a newly established China-based European Union’s 27 member countries have aonline retailer of in-season luxury and fashion common legal basis for trading and 17 countriesbrands operated by VIPStore Co., Ltd. share the common currency.“Our relationship with VIPStore will allow us to Yet significant barriers to cross-border e-com-gain additional experience in the fast-growing merce still exist in Europe. In 2010, some
    • 28 74 ­ ercent of EU online retailers did not sell to p Many companies simply underestimate the cul- other EU countries. tural divide present when expanding to interna- tional markets. Experts believe they do so be- A report released in 2011 by the European Par- cause of the lingering myth that technology liament found a lack of consumer confidence in eradicates borders in our lives. cross-border online commerce. Apparently, cus- tomers hesitate before making purchases outside their home countries because of differing rules on sales taxes (VAT), returns and the inability to “There are still a significant compare prices in different languages. This fear of the e-commerce unknown seems to be easily number of consumers who overcome, however. A 2011 report, published DELPHI THESIS 54 by the European Consumer Centres Network, are not yet aware of the found that 61 percent of the consumers who IN FUTURE … have already shopped across borders are equally offers and competitive ­ rices p … people are “always on” confident in cross-border and domestic online the internet, surrounded shopping, compared to only 33 percent of the that are available from by easy-to-use appliances general population. and virtual “smart agents” cross-border retailers.” automatically assisting the Europe needs more multilingual price compari- users in their daily activities, son sites, says Pablo Arias Echeverría, the rap- filtering information and porteur for a European Parliament Working serving as personal coaches. Group on e-commerce. “There are still a signifi- Yet, by neglecting to adapt to local conditions, cant number of consumers who are not yet some retailers could be cutting themselves off PROBABILITY aware of the offers and competitive prices that from growth: During recent years, e-commerce Definitely not: 2% Definitely: 16 % are available from cross-border retailers. Despite sales have been the main growth engine of the Unlikely: 9% the 300 price comparison websites that exist, retail sector. According to the European Com- only a handful provide cross-border price re- mission, e-commerce is the dominant distance views,” he has said. sales channel and accounts for around 4 percent of the total retail sector. Consumer uncertainty and language barriers Possibly: 29 % Probably: have made themselves visible in the numbers as Getting Cross-Border E-Selling Right 44 % well: From 2008 to 2010, cross-border e-shop- Amazon.com has successfully expanded to inter- ping in Europe only grew from 6 percent to 9 national markets. Yet the world’s largest onlineDelivering Tomorrow: Customer Needs in2020 and Beyond. A Global Delphi Study (see percent while domestic online purchases rose retailer, with 48.08 billion US dollars in net salesp. 121 for details) twofold. in 2011, acknowledged in its latest annual report
    • InsightOn: Reaching Customers – Globally and Locally 29that international operations present risks such viding call centers. That’s because some consum- DELPHI THESIS 53as a relative lack of operating experience in a ers only feel comfortable making a purchaseparticular country, legal and regulatory uncer- ­ fter finding out that the company is ‘real’ by a IN FUTURE …tainty and established local brand-name compa- a ­ ctually speaking to someone. … rapidly expandingnies as competitors. mobile infrastructures and US retailer Walmart operates a website in China free access to informationStill, a “significant” portion of the company’s to- that is highly tailored to the local market. Where- let emerging economiestal revenues come from outside the US, and it is as its global site is designed for consumers who catch up with Westernclearly a leader off of its home turf. Some ana- want to purchase online, its Chinese site is made societies.lysts believe the Seattle-based company may be to have an “official” look and feel appropriate for a PROBABILITYentering a new international expansion phase af- retailer with the size and clout of Walmart. Definitely not: Definitely:ter slowing the pace following its 2004 debut on 4% 5%the Chinese market. Amazon has retail websites According to an analysis of the site by a group of Unlikely: Probably: 31 % 24 %in the US as well as in Canada, the UK, Germa- professors from universities in the US, Hongny, France, Italy, Japan and China. It launched in Kong and Taiwan, Walmart’s site rightly focusesSpain in 2011, and reports say the giant is now on what’s important in the Chinese market –eyeing new markets. i ­ ntroducing the company, cooperation with the government, social responsibility, the latestEven as market leaders like Amazon.com or Ali­ news, supplier services and food security. Possibly:baba.com forge ahead outside their home markets, 36 %significant opportunity still exists. But what works Scott Price, the Asia CEO of Walmart, said the Delivering Tomorrow: Customer Needs inin Michigan won’t necessarily work in Mumbai. company is “very keen” on the online market in 2020 and Beyond. A Global Delphi Study (see p. 120 for details)So how must businesses and supply chains adapt China. Walmart operates about 370 bricks-and-when going abroad? Researching customers and mortar stores across China and has a minoritymarkets is critical, naturally, because each market- position in Yihaodian, a company that hasplace is different. Apart from getting a handle on carved a niche in same-day or next-day deliver-culture, language and etiquette, retailers will need ies in five cities. Walmart is applying to take ato understand what product – and packaging – majority position in the company. “We’re com-will work best in the locations they are targeting. mitted to the Chinese market,” Price said.Experts agree that “local” is the lingua franca. The Localization IndustryThey say companies should start exactly there by For retailers large and small, the cross-bordermaking shopping carts, websites and customer o ­ pportunity is too attractive to ignore, and anservice available in the local language and pro- i ­ndustry of boutique companies has cropped up
    • 30 to help others properly design localized, multi­ Macy’s is addressing all these questions and lingual websites. According to some estimates, the more as it expands abroad with its Macys.com decade-old industry is already worth more than website. The company’s flagship store in Man- 10 billion US dollars. hattan is a popular destination among foreign shoppers, and Macy’s has tried to cultivate that These consultants are prepared with software customer segment for years. and solutions that will help companies run fl ­ exible websites that can scale up and down In 2011, the company began offering shipping a ­ lmost by the minute – as demand dictates. outside the US. According to a news report, its website is being reconfigured to detect a shop- per’s location worldwide and display a welcome screen in the appropriate language. Shopping “The future will be to figure will then continue in English, but at checkout, the consumer is notified of the price and ship- out how to encourage the ping costs in the local currency. online customer to come to Overall, Macy’s online sales are booming. CEO Terry Lundgren said in a TV interview that he the stores, and encourage expects them to exceed 2 billion US dollars in 2012. “We’re one of the most advanced com­ the customer in the store to panies when it comes to the online business. And we’ve been investing there. A lot of the capital shop online.” investments I’ve made for the company over the last three years have gone into technology. It’s r ­ eally paying off.” They also help retailers consider critical questions Shopping Channels A La Carte – when reaching out to new markets: Is your prod- In Store, By Phone, Online uct selection adapted to local tastes and are prices Macy’s international push online is part of its competitive? Does your advertising comply with overall strategy to meet the demands of sophisti- applicable law and does the approach resonate cated shoppers who want access to Macy’s prod- with locals? And are your fulfillment process and ucts and services in a multi-faceted way. logistics effective and cost-efficient? “Today, the most important customer and the most important trend is what we call the ‘omni- channel consumer,’” Lundgren told a reporter. “This is the consumer who is shopping on his or her phone, shopping at their desktop and going into our stores. The future will be for us to figure out how to encourage the online customer to come to our stores, and encourage the customer in our store to shop online.” As a result, the retailer is now testing or imple- menting capabilities such as digital receipts, free Wi-Fi in stores and tablet computers for sales clerks that will help improve customer service by giving easier access to online information. And Macy’s already has the technology at its cash reg- isters to allow sales clerks to search for an item online that may not be available in the store and complete an online purchase for the customer who is standing in the store. The UK department store House of Fraser and others have taken the multi-channel idea one
    • InsightOn: Reaching Customers – Globally and Locally 31step further. In a move that was unimaginable “This isn’t about taking baby steps – it’s aboutonly a few years ago, it has opened stores in cen- committing to multi-channel and aligning yourtral shopping areas in Aberdeen and Liverpool incentives and your organizational structure inthat don’t sell any products at all. such a way that you can set yourself up for suc- cess,” she was quoted as saying.Instead of walking in to find racks of products,shoppers enter what looks like a lounge where And if retailers get it right, the bounty could bethey can browse – but mostly online. Packages rich for society at large. In Europe alone, theare delivered to the customer’s home or to the gains to consumer welfare could be 204 billionshop for pickup the next day. If the consumer euros or 1.7 percent of GDP, if e-commercehappens to be un-initiated into the world of on- grows to be 15 percent of the retail sector, theline buying, a friendly assistant is there to help European Commission says.the person navigate the clicks. The Economist magazine predicts winners andThe move by the House of Fraser illustrates losers in what it describes as the “coming retaila­ nother way retailers are coming to grips with boom.” With shops representing a fifth of smallshoppers who want to browse and buy in all businesses in Europe, it says many will have to­ ossible ways and at their own whim. At anyp change their strategies when they face up togiven time, these channel-hopping consumers competition from their larger counterparts.may want to research online, view in a store,purchase via the web or handle returns by mo- The magazine wrote: “But the winners will out-bile phone and mail. number the losers. Some of Europe’s small shops will give up the battle… and reinvent themselvesFor many consumers, deciding if, when, where as stylish showcases for e-commerce. Oddlyand how to shop is a matter of “personal free- enough, the old continent’s best chance of pre-dom,” and those vendors who don’t enable them serving its cultural traditions lies with harness-to move freely among the channels end up, well, ing new technology, not ignoring it.”cramping the shopper’s style.Accordingly, retailers should carefully organizeand plan cross-channel efforts for optimal exe-cution, says Sucharita Mulpuru, vice presidentand principal analyst for Forrester Research, inthe Retail TouchPoints 2010 Outlook Guide.
    • 32 China’s Big Sellers: Alibaba, TMall, Taobao B2B trade, retail and payment platforms, a shopping search engine and distributed cloud computing ser- Tmall, which is part of the Alibaba Group, was launched vices. Privately held, the group reaches internet users in April 2008 and is the most visited online retail web- in more than 240 countries and regions and employs site in China, offering an extensive brand selection more than 25,000 people in some 70 cities in China, of consumer electronics, home furnishings, designer India, Japan, Korea, the UK and the US. footwear and beauty products, to name a few. Alibaba also owns Alibaba.com, a global e-commerce Chinese consumers are certainly buying: Tmall reached platform for small businesses and the Taobao Market- its highest single-day transaction volume during a place, a popular C2C online shopping destination. special promotion on November 11, 2011. That day, sales of goods reached a volume of RMB 3.36 billion Alibaba.com provides three marketplaces: (531.76 million US dollars), or an average of more •  global trade platform (www.alibaba.com) for a than RMB 38,000 (6,022.18 US dollars) per second. importers and exporters Tmall’s owner, the Alibaba Group, is a family of •  Chinese platform (www.1688.com) for domestic a internet-based businesses that include online mar- trade in China ketplaces which facilitate international and Chinese •  nd a transaction-based wholesale platform on a the global site (www.aliexpress.com) geared for smaller buyers seeking fast shipment of small quantities of goods Together, these marketplaces form a community of more than 79.7 million registered users. Further- more, the company offers Chinese traders a wide choice of business management software, internet infrastructure services and export-related services. Taobao Marketplace was launched for consumers in China. With more than 800 million product listings and more than 370 million registered users in 2012, it is one of the world’s top 20 most visited websites. Clouds Parting Above the Developing World to launch new services (such as social media) with minimum risk. Just as the advent of internet technology allowed giant online marketplaces to flourish years ago, As such, its uptake is increasing. UK industry body the low-cost and scalable software and services the Cloud Industry Forum (CIF) recently conducted a enabled by so-called “cloud computing” could give survey across 250 UK-based organizations and found a spectacular boost to e-commerce – also in the that 61 percent are currently using cloud-based developing world. services, with a 92 percent satisfaction level. The research also showed that the primary reason for the The cloud computing business model is designed to adoption of cloud is the flexible model of delivery provide digital storage space on a shared network (71 percent), scalability (66 percent) and the low cost (i.e. in the cloud) along with the latest versions of soft- of adoption (58 percent), although operational cost ware and supporting services. This means businesses savings were not the major driver. using internet-accessible services from the cloud can avoid costly upfront investments in servers or For instance, international aid organizations often software that needs to be installed on desktops. stress how the “digital divide,” or the lack of access to broadband networks and the internet, harms the The cloud revolution, say some commentators, is economic growth prospects of billions of people liv- coming – and it could be a breakthrough for many ing in developing countries. Now some have pinned when it does. In part, that’s because it offers com- hopes on cloud computing as a way for countries to panies scalability, flexibility, agility and the chance catch up, once the broadband networks are available.
    • InsightOn: Reaching Customers – Globally and Locally 33Mobile telecommunications networks have already Microsoft, Google and Amazon.com are amongdone a lot to bring communications and digital services the large providers of cloud services worldwideto people in remote areas, and the positive economic that may indeed help chip away at the structuralimpact is well-documented. In Africa, some 65 percent disadvantages that exist in health, education andof the population uses a mobile phone. This cellular commerce in the developing world.infrastructure has allowed some developing countriesto “leapfrog” over the age of fixed-line networks and Kshetri wrote: “In theory, it is possible for the de-go straight to the mobil e-commerce party. veloping economies to catch up with the West, as the cloud allows them to have access to the sameIn Kenya, for instance, users not only talk and text IT infrastructure, data centers and applications.”with their phones, they also conduct their bankingon them. The M-PESA system, which uses cloud-based infrastructure, is well known for havingbrought payment capabilities to remote villages,thereby helping millions of small businesses thrive.Still, much more must be done to improve lives indeveloping countries, and experts say the cloudcould play an important part. Nir Kshetri, a profes-sor of business at the University of North Carolinain Greensboro, pointed out that cloud servicesare easier to install, maintain and update thantraditional computers with desktop software andtherefore provide a benefit of particular importancefor rural users with little IT training.All Eyes on Amazon and it’s clear to see why the company is a key trend- setter in the market.The name Amazon.com is nearly synonymous withthe concept of e-retailing, and most experts credit Forrester analyst Sucharita Mulpuru creditsthe company with opening the floodgates of online A ­ mazon.com’s marketplace model as a key driver ofcommerce. When it was launched in 1995 by profit, since Amazon earns a commission off the saleJeff ­ ezos, the company’s CEO, few would have B of the wares without necessarily having to keepi­magined that the company would grow to its them in inventory or fulfill orders. According toc­ urrent size and scale in less than two decades. F ­ orrester, marketplace sales represented 35 percent of revenues and 30 percent of unit sales on Amazon’sNow the world’s largest online retailer, with 48.08 website in the fourth quarter of 2010. Other onlinebillion US dollars in net sales in 2011, Amazon.com is a players are taking a cue from the likes of Amazonstrong force in setting expectations among consumers, and eBay and moving to the marketplace model,with its huge selection, prices and customer service. including Flipkart.com in India, which offers a cash- on-delivery model that makes sales possible for thoseThe story goes that Bezos boxed up the first book people in India who do not have bank accounts.sold on Amazon.com in his garage in Seattle. Hisidea in the early years was to focus on cheap-to-ship “Retailers that compete with Amazon have come tobooks and other media that was already catalogued dis­ over that offering marketplaces on their own sites is cand therefore easy to be uploaded on a website. critical to driving margins and remaining competitive on the prices and the shipping fees of the items they do stockToday, Amazon offers a product catalogue of mil- in inventory,” Mulpuru wrote in a research note in 2011.lions of items. Many are warehoused, fulfilled anddelivered from Amazon’s logistics centers in north “Companies such as Buy.com and Walmart have in-America, Europe and Asia, and many more come troduced marketplaces, and we anticipate others infrom the millions of merchants that also offer verticals such as apparel, toys, and sporting goodsgoods via the company’s marketplaces. Add to that will follow suit.” Mulpuru said, “This strategy willAmazon’s so-called “Prime” services, which feature help them to retain some of the market share theyunlimited delivery for a low, fixed price each year, may otherwise lose to Amazon.”
    • 34Perfection: What Customers Expectwith Online ShoppingBy Andrew StarkeyThe demands placed on the supply chain by e-commerce will be driven by retailers’ requirements.But retailers’ requirements themselves are driven by consumers. Logistics providers and retailersmust examine how consumers are changing their behavior to understand how supply chains shouldbe adapted for e-commerce. Recently on a Sunday afternoon, I went online The Digital World: Three Reasons Why to purchase a towel rail for my bathroom. I Consumers Demand More found a model I liked at a decent price on the Consumer behavior is being changed by the website of a UK retailer whose name I won’t spread of ubiquitous digital communications and reveal. After doing some quick research, I was the alternatives it brings for multi-channel contact. ready to purchase. We know that some 70 percent of consumers who make purchases online in the UK are influenced However, when I got to the checkout stage, by other channels, including above-the-line media, I could not get the web site to accept my order below-the-line media, digital media and so forth. for delivery to my home. I called the company’s Secondly, consumers are used to an immediate ex- customer service line, and a representative, perience, and they’re looking for that in shoppingAndrew Starkey is the found- sounding a bit surprised, told me that I could as well. The result is that they are losing patience.er and lead consultant for only buy the item in the store. My retort: “Well,Spiral4, a postal and e-logis- why is it listed on your website?” Third, consumers are more mobile. We find thattics consulting company. He is consumers are very often in different locations forretained by IMRG as its Head My easy and convenient home shopping experi- different deliveries. They don’t spend all day in anof e-Logistics, leading its re- ence turned into frustration, and this retailer office. They don’t spend regular hours at home.search and member support is no longer in such high standing in my eyes. They conduct their lives from different places.program. Starkey has a Now I won’t be purchasing it from them at Consumers are simply less predictable.unique background in the all; and I may not purchase anything else everworld of parcels, packets and again. Although they’re more unpredictable, we do knowpostal logistics, with more that these individuals shop and increasingly on-than 30 years of experience I don’t think my reaction is particularly draco- line. Sometimes they shop in a physical environ-gained in the commercial sec- nian. Like other consumers, I know that I can ment, but they may do their research in an onlinetor and the regulatory envir­ have a reliable and consistent online purchasing environment. When this consumer walks into aonment. He held senior posts experience elsewhere. Why should I give this store, he may use QR codes or scan a barcode withat Royal Mail, and he has merchant more of my time? a mobile device to identify if a particular item canserved as an Executive be had cheaper online.Director of Postcomm and the This brings me to a point I’d like to make aboutCommercial Director of how deliveries measure up in the world of These options give consumers more choices, butJersey Post International. e ­ -commerce: Too often, logistics and the supply they also create complexity, particularly for the re-Starkey is a member of the chain lag behind what the consumer actually tailer, since the consumer wants to have a consist-Chartered Institute of Logistics expects. We at the IMRG, the Interactive Media ent experience – no matter what the channel.and Transport and the in Retail Group, the UK’s trade association forInstitute of Direct Marketing e-retail, have four years of data to show that High Expectations for Deliveryand is a recognized expert on consumer satisfaction with physical logistics is Then comes delivery. We say delivery beginsthe UK postal and e-retail lower than that with other steps in the home- during the browsing phase. If you go onto anhome-delivery markets. shopping process. Amazon website and you’re browsing for a
    • InsightOn: Perfection: What Customers Expect with Online Shopping 35p­ roduct, it will describe the product and the service Yet some e-retailers still apply delivery chargesyou get with the product. If you’re shopping at checkout after the purchase decision has beenfor a camera, it will tell you how many pixels made.the camera has, plus that camera’s absoluteavailability and the time window when it will be Other retailers provide a consistent shoppingdispatched and when you can expect delivery. and delivery experience each time. But whatThis happens at the point of browsing. What happens if it fails? Let’s say you’re on your thirdmarket leaders are doing is replicating the act of purchase with a retailer and that delivery failed.walking into a physical store and seeing the item If that happened, you had a 30 percent failurefor yourself, knowing you can walk out with it. rate. Nobody in this world would deal with a company that has a 30 percent failure rate.Many less-advanced e-retailers don’t give youthis information until you’ve made your decision But at least 8 percent of UK deliveries fail toto purchase and you’re in the checkout process. meet the shoppers expectation at the firstOnly then do they tell you when and how you can attempt. We’ve got clear data that show that de-receive your camera, and if they don’t provide the livery performance is a clear retail differentiator.right options you may well abandon the purchase In excess of 70 percent of UK consumers will– a time-consuming and costly exercise for both positively testify that a good delivery experienceparties. encourages them to shop with that retailer again (and again, and again…).We’re getting to a point now where consumersexpect to see this supply chain information In-Transitat the start of their online shopping journey. During the in-transit stage, consumers want toThey want to know the availability, dispatch have instant information at their fingertips asdate, delivery time windows and delivery time well. However, some retailers disappear after theoptions. They want to see this at the time of checkout is complete. Some 70 to 80 percent ofbrowsing, and a vast majority of retailers don’t retailers do send a confirmation email or SMSgive you that information then. So, consumers to notify the customer that an item has beenimmediately experience a disconnect between dispatched. However, only 12 percent will sendwhat they expect in the wider digital world and a message while the goods are in transit con-the reality of many e-retailers provide, which is firming the delivery date is still on target. That’soften driven by supply chain restraints (or the 88 percent of retailers who forget to maintainlack of understanding of the importance and the positive experience.impact of the supply chain). ReturnsCheckout The final way that e-retailers can improveAs the shopper enters the checkout, he/she ex- customer service and the delivery experiencepects to know exactly what that product will cost. is in the area of returns. I call the current status
    • 36 quo on returns a ‘black hole.’ We have data that the goods are back in their system and that I’ll shows that female shoppers are more likely be given my refund. During this time, I’m in the to return goods than their male counterparts. returns ‘black hole.’ Some 42 percent of female fashion purchases are returned as compared to 13 percent of When the retailer gets the goods back, the credit f ­ ashion purchases made by men in the UK. may be delayed for another three to four days Clearly, ladies are more discerning, so they while the return is being processed. All this buy several colors and several styles and they time, the consumer is feeling uncertain. She choose the one that suits them best. The rest may phone the customer service center, asking they return. questions and causing the retailer to incur cost. I always say that an anxious consumer is a bad The problem is that in most cases, the customer consumer. has already paid for the item that is being re- turned but has no control and lacks information This is a customer who the retailer spent mar- about the package during the returns process, keting money to acquire; and the customer is even though she may be bearing the cost of the unlikely to shop with the retailer again if it’s a return herself. In fact, that’s a key point. bad experience. This is a very vulnerable time. Yet in the UK, most return services remain Since the consumer may have to pay for the untracked. The data show that about 85 percent return, she sends it back the cheapest way – i.e. of online shoppers are generally satisfied with through a postal carrier that doesn’t provide a their outbound deliveries but only 60 percent tracking number. At this point she is carrying all are satisfied with services for returns. Again, the risk during the three or four days it may take it’s a disconnect because shoppers will see both to return the item. During this time, she has d ­ elivery and returns as components of the over- 1) no goods 2) no money 3) and may have paid all shopping process – an excellent ‘outbound’ a premium to return the items. Many e-retailers experience will be negated by a ‘black hole’ are generally not good at letting me know that returns experience.
    • InsightOn: Perfection: What Customers Expect with Online Shopping 37Inside the Consumer’s MindI have presented four stages of the online shop-ping experience as they relate to deliveries andconsumer expectations. It’s clear to see that afirst-class online experience is characterizedby communication with the customer that isconducted via the channel pre-selected by theshopper. The buyer is constantly kept abreastabout the status of their deliveries, beginning atthe browsing stage.It’s also clear that consumers demand highlevels of service and experience from e-retailersyet frequently experience a gap between theirexpectations and the available service enhance-ments in logistics. This gap represents an oppor-tunity for retailers, software providers, technol-ogy providers and logistics providers to respondvia the supply chain.I would argue that the response must be guidedby a full understanding of how the consumeris feeling and why consumers’ expectations areas so high. Otherwise, we will never be ableto properly adapt the supply chain and designlow- or no-cost services that address consumerexpectations.IDIS Gold StandardSome UK retailers are seeking certification for theuse of delivery best practices as a way to differenti- delivery Notificationate themselves from the competition.IMRG has developed the IDIS Gold Standard, adelivery baseline against which retailers can meas- 89% 26%ure themselves and become certified. Certificationindicates to consumers that the retailer is geared 77% 11%up for delivery best practice, such as allowing the 89% of retailers allowed Larger retailers were the customer to track more likely to sendcustomer to specify when the delivery is made. their order online, up texts: 26% did so, up from 77% last year from 11% last yearOnce the standard is met, the retailer is invitedto display the IDIS Gold Best Practice logo on itswebsite to show its customers that it provides anexcellent delivery service. 12% 19% 4% 12% of retailers sent 19% of sites made the a text message alert customer log-in/register regarding delivery, up before showing the from 4% last year delivery charge
    • 38The Ripple Effect of Online PurchasesDespite its image as “virtual,” the e-commerce industry depends on effective on-the-groundservices, such as fulfillment and last-mile deliveries. The boom in e-commerce is bringing newand different challenges to supply chains. Consumers may save time and energy by no p ­ articularly in countries like China, where ­ogistics l longer heading to the shopping mall. Instead, capabilities must in some cases be built from scratch. they click away and the items are delivered to their doorsteps. Step-by-Step: How E-Commerce Impacts Supply Chains But let’s say a consumer receives at least five Before an order is placed online, many custom- packages a week of foodstuffs, clothing and ers expect to see real-time information about housewares, because they live in a remote area. the product’s availability, how long it will take The ability to purchase online may have simpli- for delivery and the cost of delivery. This type fied their life, but it still means change and of information is very useful to the customer learning a new process: Not only must the card- but not so easy for internet shops to provide, board carrier cartons be taken to the recycling since they are dependent on a long list of supply bin, the consumer may need to think ahead chain partners to make that data available in a about where they will be when the packages ar- compatible format and a timely manner. Across rive (i.e. how the delivery will be received) and, the board, much effort is being given to make in case the product isn’t right or is faulty, how it this information available widely. will be returned. Next, shoppers place their order. Besides a pay- Consumers bought 34 billion euros of goods ment receipt, they expect an electronic confir- online for home delivery in Germany alone in mation about when the order will be shipped. 2011, according to Christoph Wenk-Fischer, the Andrew Starkey, the head of e-logistics at the head of the German e-commerce and Distance UK’s trade association for e-retail, IMRG, Selling Trade Association (BVH). the Interactive Media in Retail Group, says, DELPHI THESIS 49 “Most merchants and logistics companies send IN FUTURE … How this boom changes daily lives is only one confirmation emails with the IT systems they … data and program part of the picture. Flip to the other side, and have ramped up in the past years. Often, the IT storage are provided not you’ll see millions of additional small packages systems of the merchant are connected to that of locally but on huge flowing through the delivery networks of postal the logistics provider or a managing intermedi- internet servers, allowing and express carriers impacts businesses and ary, or access is provided via the internet.” for ever smaller and lighter supply chains in numerous ways. devices. After the order travels through the various “A typical customer order triggers several B2B information systems (i.e. that of the online PROBABILITY and B2C logistical operations,” says N. Viswa- shop, the producer, the distributor, etc.), and the Definitely not: 1% Definitely: 15 % nadham, a professor at the Indian Institute of product is located in the warehouse, someone Unlikely: Science and an expert in logistics. (or, in highly automated warehouses, some- 12 % thing, i.e. a robot), must then move it off the Market leaders like Apple have refined their busi- shelf and place it into a staging area for packing. ness to the point where a customer’s order online can initiate the manufacturing of the product. Indeed, such fulfillment services have seen Possibly: 30 % Others have focused on using advanced IT to au- their share of growth in the past few years, and Probably: tomate numerous processes, such as the creation experts see them growing at 5 to 10 percent 42% of production or picking orders. going forward, as producers target the direct- to-consumer market. It’s no coincidence thatDelivering Tomorrow: Customer Needs in2020 and Beyond. A Global Delphi Study (see Still, the higher volumes mean far more people big online retail names have opened up fulfill-p. 116 for details) than in the past are needed to handle freight, ment centers in emerging markets recently, such
    • InsightOn: The Ripple Effect of Online Purchases 39as China and India, in order to help with their The fact is that a merchant’s customer-focusedlogistics operations in these countries. reputation hangs on fulfillment. Fulfillment is super-critical to the success of any e-commerceIn some cases, small online sellers will fulfill or- enterprise. Unfortunately, fulfillment also getsders from their basements; others ask third-party potentially more complex and costly as e-retailerslogistics providers to do the job. Companies with tap into different markets – including emerginglarger online volumes often have their own fulfill- markets with all their promise but also with theirment facilities, or they have adapted their existing variable infrastructure – while offering increasinglogistics operations for the larger volumes and numbers of products to their customers.particular demands of e-commerce. It is essential, then, for the home delivery partSome even operate their own warehouses for their of the process to be working efficiently, with themerchant customers. After outbound packages e-retailer utilizing the right logistics networks andreach the warehouse dock door, these companies solutions that, literally, deliver. Apart from beingsend them with a variety of commercial logistics ultra-reliable, these solutions need to be cost-ef-providers (often express carriers) that deliver to fective both for the merchant and for the logisticsthe consumer’s home. provider (who will be aware of repeat deliveries eating into their profit margins) but also for theFor many logistics providers, doorstep deliveries can customer. Otherwise their business will be lost.be the most costly step in the process and representone of the biggest areas of change taking place in the The way forward has to be through ­ ollaboration. cbusiness, given the higher volumes of home deliveries With e-retailers and logistics providers ­ orking wand rising demand by consumers to determine for together to provide each other with betterthemselves when and where the package should be i ­ nformation, the challenges of the constantlydropped off. The challenge for the e-retailer – and, evolving e-commerce market can be ­ etter bby extension, the logistics provider – is how home u ­ nderstood and the supply chain solutions become ­deliveries can be made both efficiently and profitably. that more ingenious.
    • 40 Delivery Re-Runs Working – In Reverse If the customer is not at home when the package What’s obvious is that the package must make arrives, the logistics provider either tries again its way back to the original sender. What’s not so at another time, takes the package to the near- obvious is the sophistication and skill required by est post office or, if the proper infrastructure is carriers to make this an efficient process, even if in place and the customer requests it, drops the the package is returned through a different chan- package off at a 24-hour un-manned service nel than it was bought. point, such as DHL’s Packstation. Merchants rely on the returns management ser- A decade ago, un-manned pick-up and drop off vices offered by third-party logistics companies stations were few and far between. Clearly driven and others, and the ability of a business partner by e-commerce, their spread is a smart way to to handle returns reflects back directly on the deal with the fact that people aren’t always home merchant. It impacts their image and is associated to receive a package. Some experts expect grocers with customer service. to begin to place such stations in their stores as a way to drive sales on their own websites. Con- sumers can go to the corner store, buy fresh milk and collect their packages from the store’s locker. “Often called ‘reverse If a second delivery attempt must be made, the ­ ogistics,’ the process of l delivery company’s margins – already low – are put under further pressure. And then there’s the matter returning an item raises of parking delivery vans in dense city centers as well as increased truck traffic in already congested areas. the cost of the transaction, Some companies have come up with innovative but it’s a fundamental solutions to make doorstep delivery more cost- and time-efficient and to decrease the related and unavoidable part of emissions. One way is to send customers a text message or email informing them of the time the business.” window for delivery and giving those customers the option to accept the time window or select another. Such a service is possible with existing IT, but only a few companies are using it effectively at In many cases, the way a company handles re- the moment, according to the IMRG’s Starkey. turns can make or break the business. Customer satisfaction is strongly linked to the returns pro- Typically, a carrier will make two attempts to cess, and inventory management depends on an deliver a package and offer some form of online efficient and effective returns process. From a cus- tracking of that package for both the merchant tomer perspective, an e-retailer’s returns process and the consumer, services made possible with cannot be underestimated. Get it right and you advanced IT systems. But what happens when can increase customer satisfaction. Get it wrong the delivery just can’t be made? Or the product and you reduce the chance of their repeat busi- isn’t right and has to be returned? ness. Returns figure highly on online shoppers’ wish-lists. According to a survey by comScore, 63 percent of online shoppers look at a retailer’s return policy before making a purchase. Often called “reverse logistics,” the process of return- ing an item raises the cost of the transaction, but it’s a fundamental and unavoidable part of the business. The right of consumers to return items bought from a distance trader is enshrined in European law, for instance. E-retailers will have to deal with customer product returns because this is a critical part of their customer service program. Customers may be advised to mail goods back – or some merchants will
    • InsightOn: The Ripple Effect of Online Purchases 41organize pick-up from the customer. Poor instruc- 100 GBP per year for shipping, postage and pack- DELPHI THESIS 51tions on how to return the goods – included with the aging. In Germany, 80 percent of clothes orderedoriginal items – may ultimately impact on a retailer’s online are returned, according to the BVH. IN FUTURE …receiving staff. Returns policies among major … most business transac-e-retailers are broadly similar, in order to remain Across Europe, consumers have 14 days to tions are totally automatedcompetitive and encourage the customer. refuse an item purchased online. Often, they due to the connection of choose to return their purchases, which were business databases. ClientsAccording to a 2008 study by Forrester, 81 percent delivered by express carriers, in the cheapest and service providersof consumers surveyed felt they would be more (and therefore the slowest) way, using services cooperate closely on theloyal if an online company offers a good returns such as those offered by postal carriers. basis of aligned integratedpolicy. Some e-retailers are now going one step IT systems.further and offering free returns policies: A good “For merchants, that’s a very long 14 days since PROBABILITYmarketing strategy. Yet by making it easy to they are trying to recover some of the lost time Definitely not: Definitely:return goods, more goods will be returned: Thus and expense associated with the item,” said the 4% 9%the company creates a thorny problem for itself. BVH’s Wenk-Fischer, adding, “Sophisticated Unlikely: 15 %It may also be shaping new consumer behavior, companies handle returns as part of their inven-because why just order the one product you do tory management.”want when you can order a further four alongsideit that you may want? If it turns out you don’t want With every additional trip to the post office tothe extra ones, they are easily returned after all. return an item bought online, supply chains are once again asked to adapt. Due to the higher Possibly: Probably: 31 % 41 % volumes, many postal organizations find them- selves stretched to the limit, experts say.“With every additional Delivering Tomorrow: Customer Needs in 2020 and Beyond. A Global Delphi Study (see p. 118 for details) Who Pays for Returns?trip to the post office to When considering the higher volumes and the costs associated with reverse logistics, one mustr­ eturn an item bought remember that product returns are not new to the world of distance trading. They were a facto­ nline, supply chains are of life for companies and customers of catalogue and television shopping for decades beforeonce again asked to adapt.” online shopping existed. What’s different now is the transparency of delivery prices. The rise of IT automation in theA reverse logistics operation will therefore need global supply chains has allowed companies toto be as efficient and cost-effective as possible calculate more easily the cost of each step of theand executed in a way that satisfies both the cus- shipping process at the item level (as opposedtomer and, importantly, the company itself. This to the pallet or container level) and share thatis because returns can have a significant impact information electronically.on business profits. In a paper entitled ReverseLogistics with E-Commerce Strategy, produced “With transparent pricing, it’s now far easier toby IFIM Business School in Bangalore, reverse debate over who will pay the fee. Of course, cus-logistics is succinctly described as a process tomers don’t want to pay anything extra for ship-“done by a firm to minimize loss in the process ping and handling,” said the BVH’s Wenk-Fischer.of capturing value without affecting the qualityavailable for enhanced customer satisfaction.” What may not be calculated into the costs is the business complexity unleashed by reverseIn sectors such as high-end apparel, consumer logistics and multi-channel shopping.returns reach levels as high as 20 percent. “Before, retailers had to worry about gettingA­ pparently, it’s women shoppers who initiate most their products to the store. Now, they mustof the returns, says the IMRG’s Starkey. “Women place the same stock into multiple channels,in the UK are more selective shoppers and far manage availability for peak periods, such asmore likely to return a product bought online Cyber Monday, and handle increased returns.than men,” he said. Some estimates put the cost of All this requires precision logistics and plan-o­ nline returns for UK consumers and retailers at ning,” said Viswanadham.
    • 42Global E-Facts United States – The success of US-based retailer Apple’s IPad is driving widespread retail site overhauls, with 73.9% of chain r ­ etailers, 62.3% of web-only m ­ erchants and 69.2% of manufac- turers selling online reporting that they will have tablets in mind as they redesign their sites. Africa – Credit card pen- etration remains low in Africa, with only 50 million bank accounts spread across a population of one Brazil – Although online sales in Brazil will reach billion. Mobile payment systems like US$22 billion in 2016, up 178% from 2010 figures, ‘M-PESA’ have instead helped drive import taxes remain steep. A Laptop, for an increase in online transactions, i ­nstance, sells for US$1,400 in Brazil, compared with fueled by the continent’s growing US$800 in Mexico and US$500 in the United States. middle class.
    • InsightOn: Global E-Facts 43 Europe – In September 2011, Russia overtook Germany as the market with the highest number of unique visitors online. The China – Chinese online consum- United Kingdom showed the highest ers benefit from relatively cheap engagement, with users spending broadband and shipping costs. an average of nearly 36 hours online Internet access charges total US$10 in September. a month (compared to US$30 in I ­ndia, for instance) and shipping a one-kilogram parcel would set a c ­ onsumer back just US$1, far lower than the US average of US$6. India – A 2010 report by the Internet and ­Mobile Association of India has revealed that ­ndia’s I e ­ -commerce market is growing at an average annual rate of 70% and has grown over 500% since 2007. India’s online sales were projected to reach US$10 billion by year-end 2011.World internet usage and population statistics March 31, 2011 World Regions Population Internet Users Internet Users Penetration Growth Users % (2011 Est.) Dec. 31, 2000 Latest Data (% Population) 2000-2011 of Tablets Africa 1,037,524,058 4,514,400 118,609,620 11.4% 2,527.4% 5.7% Asia 3,879,740,877 114,304,000 922,329,554 23.8% 706.9% 44.0% Europe 816,426,346 105,096,093 476,213,935 58.3% 353.1% 22.7% Middle East 216,258,843 3,284,800 68,553,666 31.7% 1,987.0% 3.3% North America 347,394,870 108,096,800 272,066,000 78.3% 151.7% 13.0% Latin America/Carib. 597,283,165 18,068,919 215,939,400 36.2% 1,037.4% 10.3% Oceania/Australia 35,426,995 7,620,480 21,293,830 60.1% 179.4% 1.0% World total 6,930,055,154 360,985,492 2,095,006,005 30.2% 480.4% 100.0% Source: http://www.internetworldstats.com/stats.htm
    • 44E-Commerce:The Growing Pains Bricks-and-Mortar Stores: Fighting for Survival eye-sore but also due to the blight that inevitably sets in when urban spaces are abandoned. Walk down a high street in Britain these days and you’re likely to find more than a few large clothing UK Prime Minister David Cameron is so worried retailers and sporting goods stores. Over the next about it that he commissioned a report on how to five years, you’ve got a four in ten chance of stroll- revitalize downtown shopping zones. The report has ing by storefronts that have been nailed shut and come up with 28 recommendations on how to fight left to graffiti artists. the decline. According to a report by the consulting company Cameron asked retail expert and TV personality Deloitte, retailers in the UK will be selling large Mary Portas to lead the research. A sought-after portions of their property holdings as they struggle speaker known for her creative approach and sense to keep up with the changes in the market, driven in of fashion, Portas frequently lectures around the part by a shift to online buying. world on retailing and brand positioning. Already, another study says, some 48,000 retail sites Published late last year, the report says high streets, across the country are vacant, something that’s got or downtown shopping zones, must once again communities worried, not only because they’re an become community centers where people seek cultural and social enrichment. “Our high streets can be lively, dynamic, exciting and social places that give a sense of belonging and trust to a community,” she wrote in the “The Portas Review: An Independent Review into the Future of Our High Streets.”
    • InsightOn: E-Commerce: The Growing Pains 45While people embrace e-commerce, they may also wonder what it means for their livelihoods,their neighborhoods and their privacy. In this chapter of InsightOn:, we explore the side effects ofe-commerce and how the boom is forcing change in companies – and for communities.We also look at what happens when customers are unsure about the final costs for receivingtheir online purchases.Key recommendations from the report include teraction, including sound advice about medica-putting visionary operational teams in place to run tions, is a big part of his success. Hinson seekshigh streets like businesses, removing unnecessary to individualize prescription medications for theregulations so that anyone can trade on the high patients he sees.street unless there is a valid reason why not andexploring further disincentives to prevent landlords For the UK’s Portas, Hinson’s business may be justfrom leaving units vacant. what she imagines as an antidote to closed shops.Though focused on the UK, these recommen­dations would surely help in other countries thatare experi­ ncing urban decline, which is often es­ ymbolized by boarded up bricks-and-mortar stores.Economist trace decline in the US, for example, tothe rise of the automobile and the availability ofabundant cheap energy that enabled suburbanliving.Over decades, those trends left countless townsquares in America looking like the ghost townsdepicted in iconic Westerns.Prince Hinson, an independent pharmacist inthe US, operates a store with a single location inGainesville, Florida. In his 32 years as a pharma-cist, he has seen the business move from one thatwas a neighborhood staple based on a trustingrelationship between patient and pharmacist to amass-market industry dominated by chain storeswith drive-thru prescription pickups.Yet Hinson has found a model that is surviving,even as consumers are driven online for betterprices or are even forced to fill prescriptions thatway by their insurers. Hinson’s Westlab Pharmacyhas focused on the pharmacist as a chemist – i.e.his store continues to mix compounds by hand Mary Portasfor individuals and companies. And human in-
    • 46 Shopping Online and The Big Unknowns According to Muldoon, online shopping has provided the visibility for the buyer, but much work Now that consumers have access to a global mar- remains for sellers to maximize the potential. ketplace for goods, they are getting their feet wet in making purchases outside their home countries. “There are a couple of sellers who do it really well. A buyer goes onto their website and prices are in Research shows, however, that what these consum- the local currency and they guarantee a delivery ers actually want is the feeling that they’re buying time of a few days. The buyer doesn’t know, or from a shop around the corner. They want the need to know, that goods are actually shipped from buying experience to be simple, and the items they China or Singapore or Brazil or Germany. They’re purchase should be delivered quickly and without transported across the world, cleared through cus- the hassles, costs and delays typically associated toms with all necessary paperwork, and then deliv- with customs. ered to their door. All the buyer sees is a local price and a few days later the goods,” said Muldoon. With its international express network, ability to have goods landed in the shortest times, and ties What these companies offer, in one way or an- to customs-clearance boutiques like Borderlinx, other, is what’s known in the logistics industry as a Deutsche Post DHL is already making one part of Guaranteed Landed Price (GLP). The idea is that the that scenario possible. And steady progress is being consumer is offered a single price for an inter­ ational n made on the other side: The company is working purchase that is an advance calculation in the buyer’s together with partners, including IOR Global, to local currency incorporating the following: The price streamline many of the complexities that are as- of the item, its shipment, customs fees, and charges sociated with the international shipment of goods for duties, taxes and quarantine, if necessary. for consumers. With the GLP concept, which is slowly making its “We handle matters such as obtaining licences and way into the market, consumers will be able to permits, or the payment of duties and taxes, so the make “like-for-like” comparisons of prices that buyer does not have to be involved,” said Ken Muldoon, ­ remain valid for a given period of time. the CEO of IOR Global, which helps inter­ ational n traders meet the requirements of being an Exporter It may all sound simple enough, but from a process of Record (EOR) and Importer of Record (IOR). point of view, making the GLP a reality is daunting, not to mention data-intensive. IOR Global operates in all major trading nations across Asia Pacific, the Americas and Europe/Middle “Given the complexity and the difference in customs East/Africa, consolidating shipments in its own name regimes around the world, getting to a Guaranteed to keep freight costs down and reduce emissions. Landed Price is not so easy,” says Muldoon. “Service providers must review a seller’s product catalogue for goods that may cause problems for international clearance, determine if licenses are necessary – and if so which ones – understand the packaging and dimen- sions of the products, determine the likely freight charg- es for single or bulk shipments, and the list goes on.” A few service providers are specialized in doing just this, allowing retailers to sell to any number of countries without the expense of establishing a company there. Providing a Guaranteed Landed Price and customs clearance are services that Muldoon expects more and more sellers to take advantage of. Muldoon said, “It is really about giving access to the vast world market, with the simplicity of a local purchase.”
    • InsightOn: E-Commerce: The Growing Pains 47Counterfeiting and E-Commerce: or the authorities. China Daily reported that,The Genuine Article over a six-month period in 2010–2011, Chinese a ­ uthorities shut down 829 websites involved inIt’s a fact of life: There will always be unscrupulous counterfeit operations. In all, 426 suspects werepeople who try to take advantage of a good situa- detained in cases involving nearly 800 million yuantion by doing bad things. The world of e-commerce (US$124.3 million).is no exception, with the sale of online counterfeititems reaching epidemic proportions. In November 2011, the US federal authorities shut down 150 websites for selling counterfeit products;There has long been a trade in counterfeit goods, and in April 2012, the US District Court for theof course, but the growth of the internet has rap- Southern District of Florida issued a preliminary in-idly increased and eased its spread. A 2011 report junction shutting down over 175 websites engagedby MarkMonitor – a provider of online brand pro- in the sale of counterfeit golf products. In the UK,tection technology – revealed that websites selling fashion retailer Karen Millen says it has identifiedcounterfeit goods, including prescription drugs and over 65 websites selling counterfeit Karen Millenluxury items, generated more than 92 million visits goods, and is taking action against them.per year. The counterfeit e-commerce trade starts with a mouseThis is criminal activity with serious implications. click. It can stop just as easily if online shoppers onlyThe International Chamber of Commerce (ICC) has bought from established, authorized retailers; and,found that by 2015, the total impact of the trade on eBay, ones that have been recommended to them.in counterfeit and pirated goods – including thosetraded on the internet and the added costs tosociety through lost taxes and jobs – will exceedUS$1 trillion. Even more disturbing is that profitsmade from illegal online operations often fundother kinds of organized crime.The anonymity the internet provides has undoubt-edly aided the counterfeit trade. Yet buying from anunauthorized website that purports to be dealingin top brands – be they Vuitton accessories or Oak-ley sunglasses – is just as risky as buying them at aknock-down price from a nervous-looking man whois selling them from a suitcase in the high street. Inboth instances, you shouldn’t be surprised whenyour purchase turns out to be a substandard fake.It’s not just a financial cost that’s at stake fromcounterfeit e-commerce, however. When youdiscover that the ‘Rolex’ watch you bought onlineisn’t the real deal – if it arrives at all, that is – yourisk feeling cheated. If the medicines you buyonline are fake, you risk your health and safety,because these can range from inactive, ineffectivepreparations to harmful toxic substances. Estimatessuggest that up to 90 percent of illegal drugs arenow sold online; and, worryingly, Robert Mallett,a senior vice-president at Pfizer, has warned thatone out of five individuals may use a counterfeitpharmaceutical within five years.The sheer scale of the e-commerce counterfeitproblem can’t be underestimated – and it certainlyisn’t being ignored, either by genuine retailers
    • 48 A Matter of Trust: Is E-Commerce Safe? Cybercrime is a big problem and a worrying one. US-based IT security company Kaspersky Lab has Major security breaches of brand-name websites revealed in a survey with B2B International that constantly make top headlines in the news. 41 percent of companies polled worldwide are not Meanwhile, phishing attacks – emails directing prepared to counter cyberthreats. Kaspersky Lab consumers to scam websites to ‘update’ their also published the results of a survey by Harris financial or personal data – are on the increase. Interactive in which 60 percent of internet users Spam email is a constant bugbear, clogging up per- from Russia, the US and Europe cited the loss sonal and company inboxes worldwide, asking for of financial information as their greatest online attachments to be opened and links to be followed concern. It may be, but the e-commerce explosion ­ (these should always be deleted, naturally). What’s shows that these concerns aren’t dissuading more, there are frequent horror stories about mal- shoppers from making online purchases. It could, ware and the increasing abilities of cybercriminals however, be stopping e-commerce from realizing to, for example, monitor online movements; and, its full potential. of course, viruses can infect computer systems and wreak havoc across entire companies. This point was underlined recently by Arrie Rauten­ bach, Head of Retail Markets at South African retail bank Absa. In August, Absa announced a partnership with fashion retailer Mr Price that will extend the bank’s online payment services to the retailer’s customer base and provide a secure payment facility when shopping for Mr Price ap- parel online. “Online banking is one of the most successful stories to emerge from the advent of e-commerce,” said Rautenbach. “It provides un- precedented flexibility for consumers. However, for e-commerce to realize its full potential, consumers must have confidence in the security of online transactions.”
    • InsightOn: E-Commerce: The Growing Pains 49Unlike a face-to-face transaction in a store, “E-commerce is about collaboration, and col-e-commerce requires trust on the part of the laboration is about trust. It is our job to protectconsumer. The consumer has to know that the customer data from loss, prevent its access bywebsite they are buying from is genuine and that unauthorized parties, keep it away from those withthe financial details they are asked to plug into it malicious intentions, make sure that customer datawill be secure. The bigger players are so well- integrity is maintained and remove any means ofknown that their authenticity is never in ques- interception.”tion (although fraudulent sites may impersonatelegitimate companies, using similar domain Still, stresses Ventura, consumers should staynames); but even the largest e-commerce retailer proactive, watching for red flags that may signal acan experience issues around the security of cus- dubious website. These may include spelling andtomer records. Some smaller, less well-known or usage on websites or in emails; design irregulari-new websites are patently an unknown quantity ties on websites; the inability to reach someonefor the online shopper. Yet more and more con- behind a website, either via email, online chat orsumers are entrusting their personal and financial phone; and static websites on which many links aredata to online merchants. broken, except those leading you to a place where you can enter your personal and financial details.So how do shoppers know their information is For Ventura, consumer vigilance and responsiblesecure? Many trusted websites rely on third-party merchants both play a crucial role in keeping per-suppliers of secure payment methods at the cash sonal data safe in cyberspace.register. They may also have their security regimeaudited by an independent party and carry that “Security techniques have improved dramaticallygroup’s seal of approval. over the past decade. But threats evolve, and so must the ways to fight them. At DHL, keeping onTony Ventura, the Chief Information Security top of the security game is one of our highestOfficer Senior Director at DHL Express, says that priorities.”an ­mportant part of DHL’s role as an enabler of ie-commerce is protecting customer data sharedalong the supply chain.
    • 50The Expert View –Christoph Wenk-Fischer The European initiative comes as other coun- Mr. Wenk-Fischer, what keeps your members up tries are re-working their laws about the com- at night regarding data privacy? mercial use of personal electronic data. The White House released a “Consumer Privacy Christoph Wenk-Fischer: The main issue Bill of Rights” in February which calls for basic we’re facing in the next years is European data data self-determination, such as transparency privacy laws. In Germany, we don’t have a regarding data policies and accountability for problem at the moment because the benchmark the companies that collect and use personal for data protection is a very high one. We are data. leading internationally on data protection law, but the proposed European Union directive for India and China, too, are working on data pro- data protection and privacy regulations goesChristoph Wenk-Fischer tection rules. Their moves are critical given the much further than German rules.has served as the head of the fact that more Indians and Chinese will soonGerman e-commerce and be online than there are citizens in Europe and One thing that would adversely impact everyDistance Selling Trade the US. According to the Economist, India’s bill e ­ -commerce merchant is that you could onlyAssociation (Bundesverbands would set up a data-protection authority, call use data with the consent of your customerdes Deutschen Versand­ an­ h for consent before personal data can be pro- u ­ nder the current draft of the directive. So, itdels e.V. bvh) since 2010, lead- cessed and create a formal right to privacy. In would be very difficult to acquire new custom-ing the association’s work to China, a 2003 draft law that seems to have lost ers. That’s the first point. I think the Europeanpromote the long-term inter- steam would require, among other things, prior Commission came up with this idea in re-ests of the mail order trade. informed consent for organizations that want sponse to the data practices of American com-The association maintains close to transfer personal data. panies that are well known for their leniencycontacts with the German compared to European ones.Bundestag and with various DHL spoke with Christoph Wenk-Fischer, theassociations in Germany. It head of Germany’s e-commerce and Distance In what concrete ways would the directivecooperates with the European Selling Trade Association (BVH), which repre- impact e-commerce merchants in Europe?Mail Order and Distance sents 330 companies. Members are combinedSelling Trade Association catalogue and internet sellers, merchants that Christoph Wenk-Fischer: Under the draft(EMOTA), which works close- operate only online, tele-shopping companies, law, you are asked to give your written consently with the European Union. online pharmacies and eBay power sellers. The to use your data if you want to buy somethingBefore joining the bvh, where German e-commerce and distance selling in- online. This will make it impossible to makehe also served as deputy head, dustry represents 34 billion euros in spending sales. In a social network, it’s easy to collectWenk-Fischer was the editor per year. data because everybody wants to join. But forin chief of the legal magazine daily business like e-commerce, it will be diffi-NJW, the Neue Juristische cult to get consent.Wochenschrift. Wenk-Fischeralso led the legal and real es- Right now, e-commerce is booming, but we’retate activities at Otto Group in worried that if the proposal were implementedHamburg, where he worked in the way it is written now, it would cause afrom 1997 to 2007. downturn in sales. We would be happy if the
    • InsightOn: The Expert View – Christoph Wenk-Fischer 51The European Commission proposed a new set of rules in January 2012 to strengthen the dataprotection rights of people online and to streamline the way data is handled across MemberCountries. The Commission says the new rules, which may go into effect in 2016, could save busi-nesses 2.3 billion euros a year.German benchmark becomes the European But I think some politicians consider e-commerceone, but anything more would harm sales. too new and too unknown. They associate e ­ -commerce with the risk of credit card dataSo how does it work now? How are German being stolen or the like. It’s always the sameinternet retailers doing business? story. The real point is that we have to explain how easy it is and how safe it is as well. IndeedChristoph Wenk-Fischer: Under German data there are no big problems in IT security for ourprotection law, there’s an exemption for purposes customers because of secure payment methods,of acquiring new customers. The exemption is that reliable shops and trust marks. In Germany, weyou can use a customer’s address if it’s published have three or four established trust marks. Ifin the public domain. But in the future under the you buy in a shop with such a trust mark, it’sEuropean directive, this would be impossible. reliable. Period.You would need the written consent of every newcustomer. Another point would be that you couldn’t In closing, what are you doing about the draftsend a catalogue to someone if he’s not yet your European privacy legislation?customer. Now companies can buy addresses fromlist brokerages. That’s an important business. Christoph Wenk-Fischer: The BVH is talk- ing to politicians and to the EuropeanUnder the new directive, profiling would also Commission. And EMOTA (the Europeanbe prohibited. For Germany, it means that one Multi-Channel and Online Trade Association)quite important payment method would be im- is also involved in direct dialogue withpossible. Nearly two thirds of all customers buy European authorities. EMOTA is theand pay after receiving their goods because European-level e-commerce organization wethey prefer to avoid using a credit card or an are members of.electronic method to pay. No merchant wouldsend goods to somebody he doesn’t know any- The draft law will be discussed in all Europeanthing about. So, we need profiling, which is forums, such as the European Parliament andscoring. But profiling would be prohibited. the European Council. We do have some ways to influence the discussion. We’re talking toWhat other data-related issues do your politicians in the parliament as well as to themembers face? German government.Christoph Wenk-Fischer: Another point is It is our hope that further discussion over theIT security. Our merchants don’t worry about next two years will lead to some sensible changesit, but politicians worry about IT security. I in the proposal. I think we’re making progress.think e-commerce is daily business nowadays.Especially in Germany, everybody does it andeverybody buys everything online. We have re-liable merchants, we have great shops. We havesecure payment methods. IT security is not thepoint at all for our merchants.
    • 52
    • InsightOn: E-Commerce and Collaboration 53E-Commerce andCollaborationE-commerce has made a huge impact in a rela- ‘Collaboration’ doesn’t simply mean sharingtively short timescale. In the last decade it has warehouse space – although that may be partredefined the term ‘shopping’ for consumers and of the solution in some instances, with com-changed the face of retail for merchants. Now peting retailers and competing manufacturersevery retailer recognizes that they must have looking to consolidation centers for savings onan online offer if they are to attract customers everything from rent and utilities to transportand keep pace with the competition. In order to costs. For example, rival consumer electron-survive and thrive, they need e-commerce. ics companies are sharing facilities via DHL in Scandinavia, and Carrefour is sharing space withAnd, remarkably, this is only just the beginning other retailers in France.of the e-commerce story because its potential– in terms of emerging markets, cloud comput- Logistics providers will also have to work togeth-ing and mobile technologies, etc – hasn’t even er with their customers to improve forecastingbegun to be explored. The future is bright and and replenishment by integrating informationthe financial possibilities considerable. In JP systems and sharing business-specific informa-Morgan’s annual Nothing But Net: 2011 Internet tion. Based on trust and linked informationInvestment Guide on digital commerce, Gold- systems, companies will pool their data to createman Sachs predicts that global e-commerce sales a whole new picture of financial and physicalwill reach US$963 billion by 2013, growing at an flows that wouldn’t otherwise be possible. They’llannual rate of 19.4 percent. aim to balance supply and demand to reduce the cost of shifting goods around the world – and toHowever, as we have seen, there are numerous maximize sales for the manufacturer and seller.challenges that e-commerce presents for manu-facturers, e-retailers and logistics providers. For The ability to do all this has been boosted bymost of civilization, retail meant bartering with ever-cheaper computing power and storagepeople in your own physical space and time. space as well as the expansion of the cloud andEnabled by e-networks, in 2012, it often means cloud-based software services. Dell, Toyota andshort-term agreements executed for and with Walmart have each found new ways to collab­people in distant places who you may never orate that were enabled by connectivity. Toyota,meet. A successful e-commerce transaction, for example, links up with its suppliers elec-therefore, is all about good order fulfillment. tronically, sharing key information that allowsThat means reliable and timely delivery. Toyota to better coordinate its manufacturing schedule.Yet in order to function properly, protect profitmargins and inventories and raise customer ser- Even here, however, as we now explore in thevice levels, the e-retailer is going to have to drive second half of this report, there are challengesdown costs by enhancing supply chain efficien- to confront. Simply having the technology tocies. That means embracing a way of working facilitate collaboration won’t be enough on itsclosely with partners including logistics provid- own. The willingness among all players to makeers, intermediaries and even other e-retailers. it happen has to be strong, too. E-commerceIn other words, the supply chain of the future is still in its infancy but, to be successful in itswill have to become even more visible and even future, companies will require a community ofmore collaborative. spirit – and a new way of thinking.
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    • InsightOn: An Evolution of Collaboration 55An Evolution of CollaborationCollaboration is one of the earliest survival techniques known to humankind. Whether hunters andgatherers or market traders, people collaborated to meet their daily needs.Today, collaboration remains a survival tech- Waller, the chairman of a cross-industry groupnique – and a competitive advantage – for indi- that promotes collaboration in the supplyviduals and companies alike. chain, the European Logistics Users, Providers and Enablers Group (ELUPEG) Ltd.It may take place in cyberspace, and collabora-tion may be among partners scattered around “The threat is that if we don’t stop under-utiliz-the world, but it is essential for staying alive in ing transport assets, Brussels will force us to dotoday’s competitive business environment. it by introducing taxes that give an incentive to consolidate transport. This could happen in theFor most enterprises, certain forms of collab­ next three to five years. To avoid such disrup-oration are already an integral part of each tive legislation, the players in supply chainb­ usiness area. But effective collaboration in the must work together to develop solutions,” saidarea of logistics is becoming even more im­ Waller. Waller is also the Vice President forportant, says N. Viswanadham, a professor and Supply Chain Innovation at the internationalthe ­ xecutive director of the Centre for Global e consultancy, Solving Efeso.Logistics and Manufacturing Strategies(GLAMS) at the Indian School of Business. Shared Data – The Basis for Modern-Day CollaborationDriven by higher fuel prices, lower volumes One way companies are already tackling thedue to the recession and an acknowledged problem themselves is through increasedneed to reduce consumption of fossil fuels, ‘ ­co-opetition.’ The term, a blend of the words DELPHI THESIS 07some companies are looking to improve the ‘cooperation’ and ‘competition,’ describesutilization of their transport, for instance by c ­ ompetitors working together to a common IN FUTURE …consolidating multiple shipments. end without infringing anti-trust law. … competitors collaborate with each other in orderFor good reason, says Viswanadham: “In my The basis of their work together in transport to develop innovativeview, all successful companies in future will be management, fulfillment and scheduling is solutions for sustainabilitylogistics companies. Companies must not only trust and shared data, for instance about inven- and to better shoulderbe able to design and market a product, they tory levels and freight flows. rising energy costs.also must be able to source its components, PROBABILITYbuild it, move it, store it, and deliver it to the In Scandinavia, for instance, two consumer Definitely not: 2 %market – on time and at a competitive price.” electronics firms are working together to cut Unlikely: 4 % Definitely: 23 % their costs at a shared DHL Supply Chain facil-Yet barriers to logistics collaboration remain. Some ity. The companies have similar delivery pat- Possibly: 24 %companies are worried about sharing the neces- terns for products sent to electronics retailers.sary business information to make collaboration At the facility, distribution is organized inde-possible. Others want to avoid becoming reliant on pendently via DHL Freight and other logisticspartners to hold up their end of the agreement, or providers, and customers have the opportunitythey are concerned that partnerships would suffer to consolidate deliveries to save on handling Probably: 47 %when it is time to share the gains. and transportation. This requires a collabora- tive approach in which all parties involved Delivering Tomorrow: Customer Needs inIf this attitude persists, however, the industry agree on the business rules and the commercial 2020 and Beyond. A Global Delphi Study (see p. 74 for details)risks the government stepping in, says Alan framework.
    • 56 DELPHI THESIS 34 Retail-Driven Collaboration Carrefour places its order with manufacturers, In other cases, and representing a new trend, taking ownership of the goods only when they IN FUTURE … suppliers are working together more closely leave the DHL consolidation center. By syn- … logistics providers can with retailers at consolidation centers. chronizing orders, Carrefour ensures that ca- only survive if they form pacity on the trucks that deliver to its facilities global alliances and “Traditionally, the retailer has been quite domi- is used as much as possible. collaborate closely, e.g. to nant in the relationship, but we’re now seeing develop new rail networks manufacturers becoming more influential and “Since Carrefour can place small orders but still connecting Russia, Asia, taking a more active role in the supply chain in fill trucks, and it doesn’t take ownership of the and Europe. order to get their products to the retail store stock until the stock arrives, the com­ any saves p floor in the most efficient way. They say, ‘If I money. Manufacturers save by not doing the PROBABILITY share a warehouse, or share a vehicle, or share cross-docking themselves,” said Quesne. Definitely not: 3% infor­ ation, then that’s fine. The real battle is on m Definitely: Unlikely: 11 % 19 % the store floor,’” said Richard Quesne, Customer Overall, the consolidation center can reduce Management Director, DHL Supply Chain. transport costs by up to 40 percent per pallet, cut stock holding costs by 20 percent and re- At DHL’s Collaborative Consolidation Center duce carbon emissions by 25 percent, according that serves Carrefour in Lomme, France, to DHL’s calculations. Possibly: Carrefour is working together with suppliers to 21 % Probably: ensure product availability and cut costs by Despite the benefits that collaboration can 46 % d ­ ecreasing its stocks and truck movements. bring, much remains to be done to improve col- laboration in the logistics sector.Delivering Tomorrow: Customer Needs in2020 and Beyond. A Global Delphi Study (see Here’s how it works: Some 100 producers of itemsp. 101 for details) such as shampoo, baby food and laundry detergent Some experts see great potential in cloud deliver from their factories to the center in Lomme, c ­ omputing. Where Electronic Data Inter­ hange c remaining owners of the stock. DHL, which has (EDI) was the main gateway for sharing data signed contracts with the manufacturers and oper- from the 1970s to the 1990s, now ­ pplications a ates as a neutral third party, handles all the logistics on the internet and cloud-based software pro- – from the reception of the goods through to order vided as a service (SaaS) are leveling the playing preparation and co-packing on pallets and in cages. field, making it much easier and cost-effective
    • InsightOn: An Evolution of Collaboration 57for business partners of all sizes to exchange pany’s own networks. This information coulddata and manage their supply chains better. help with route planning in congested areas and would make it possible to initiate partnerships to consolidate goods along shared routes.“Despite the benefits that The database would be a sort of “control tower” of global, cross-company supply chain informa-collaboration can bring, tion. Companies would benefit each time an- other joins, adding their data to the pool; andmuch remains to be done each time a user corrected or updated data, e ­ veryone would benefit. In addition, users couldto improve collaboration analyze traffic flow scenarios on a global basis for far more accurate planning and predictingin the logistics sector.” than similar analyses based on only internal data. Various organizations are at work building up such a capability and establishing a business asOne grand vision revolves around a global a neutral orchestrator of multiple supply chains.r­ epository of real-time freight-flow and other They provide, among other things, the cloud-logistics data that would be generated and based solutions and algorithms to enable a so-maintained by hundreds or even thousands of phisticated use of the data. But the practice iscompanies involved in transport. It’s a concept not yet widespread.not so different from the way the online en­cyclopedia Wikipedia works, but it’s all about Waller’s ELUPEG is working on a similar con-data, technically sophisticated and maintained cept called Vision 2020. “If it did catch on, aby professional users. massive cloud of data about global freight flows could spur all kinds of new cooperation andBy inputting their own data and combining that collaboration – and it could be an ideal basis forwith data from other companies, users could gain helping companies cut costs and reduce emis-a real-time overview of flows outside their com- sions,” said Waller.
    • 58Collaboration –The Human Factorby Stuart Whiting Overview – Where Are We At? soft-side of collaboration: The organization and Collaboration has been pursued by business as the people. the holy grail for solving performance problems in businesses for more than a decade. The focus This year, on January 24th 2012, Jacob Morgan, has been primarily on improving systems, pro- a Social Business Advisor wrote in his blog that cesses, operations, IT, controls, financials and “Collaboration is a Business Requirement”. other business activities. Improvement in this There’s hope here that collaboration is now be- part of the organization have been addressed ing addressed in a more ‘people’ oriented man- through incremental, innovative and revolu- ner. However when reading through the post tionary means yet the results in performance the focus is still on ‘collaborative tools’. So the improvement are variable and at times do not challenge remains that the focus on collabora- seem to justify the effort. There seems to be yet tion – the people side – remains difficult to un- another area to address in the elusive ideal of pack and facilitate. Its much easier to look at successful collaboration, one that has been tools and technology, than the murky waters of mostly ignored to date. In the supply chain area people, culture and collaboration. the focus of businesses has been on systems and processes, however more work needs to be done to address ‘human factors’. “So the challenge re- In 2006, Verizon Business and Microsoft Corp. sponsored an international study of over 2000 mains that the focus on organizations that revealed that “collaboration is a key driver of business performance around collabora­ ion – the people t the world.” The research, conducted by Frost & Sullivan, developed an index for ‘collaborative- side – remains difficult to ness’ based on: un­ ack and facilitate.” p •  n organization’s orientation and infrastruc- A ture to collaborate, including collaborative technologies such as audio conferencing, web conferencing and instant messaging So, What Is ‘Collaboration’? The term collaboration is derived from the •  e nature and extent of collaboration that Th Latin collaborare, ‘to work with’, appearing in a ­ llows people to work together as well as an print as early as 1871. Despite the clarity and organization’s culture and processes that simplicity of this definition, collaboration is a ­encourage teamwork complex concept. For collaboration to be suc- cessful it requires involvement from an organ­ Drilling down into this study reveals that the ization at a multitude of levels. This includes focus is on technologies that allow communica- the individual who collaborates, their manager tion, rather than identifying the more elusive who facilitates and assesses the collaboration,
    • InsightOn: Collaboration – The Human Factor 59as well as the organizational context. Each of critical to the collaborative experience. This isthese factors can enhance or limit collabora- because it involves generating, converting, andtion. Then to complicate matters even further, diffusing ideas. In addition, it involves the abil-if collaboration is across organizations, the ity to make decisions – not necessarily aboutcomplexity increases as these factors are in play the collaboration per se but about when to col-at each level of the other organization as well. laborate and when not to collaborate. Thus col-This added level of complexity increases the laboration is not really able to be project man-challenge; however, anecdotally it has been re- aged in a truly linear or sequential manner. Theported that the relationships within an organi- aim is more to keep the collaboration movingzation are often more difficult to negotiate than forward and aiming at definite goals over time.external ones. The creative side of collaboration includes as- Stuart M. Whiting is theIf collaboration is to be successful there needs pects such as: Global Head of Multinationalto be an appropriate ‘fit’ or an alignment of a Customers, Government &range of factors. These include disparate things •  elieving all involved can contribute creative- B Defense at DHL Express.such as: The culture; mutual understanding of ly to the project; Based in Bonn, Germany,the project and the contributors; knowledge Whiting also oversees DHL(more than just information); organizational •  upport, value and recognize creativity; S Express’ logistics business in avalues; willingness of the leadership for collab- variety of regions. He has aoration to happen; as well as the goal(s) and as- •Set the situation up so that there’s a challenge keen interest in customersumptions of the individuals involved. This is a – but not too much of a stretch; alignment and buying behav­big call for something that seems to be so simple. iors and works to apply in- •  rovide a situation for those involved to focus P dustry-leading strategies on on their work rather than on constant dead- behalf of customers. lines; Previously based in Taipei,“Good ­collaboration Taiwan, Whiting was General •  f people are excited about their work they I Manager of DHL Express. is worse than no tend to be more creative; Before that, he worked in commercial supply chains­collabo­ration at all.” •  Creativity takes a hit when people in a work “ and other functions in Japan group compete instead of collaborate. The and throughout Asia. most creative teams are those that have the Whiting joined DHL Express confidence to share and debate ideas” (Breen in 1999 as a CommercialIn addition, there are a range of barriers to col- 2007), which means that trust and openness Manager from TNT Express.laboration such as team and/or organizational need to be valued in the culture(s) for success- A Fellow of the Charteredconflict; poor focus on results; hostile territory ful collaboration; and Institute of Logistics and(i.e., relating to the context rather than the in- Transport, Whiting holds adividuals); under-estimating the costs of col- •  table work environments need to be in place S Master of Science degree inlaborating (including time); and lack of identi- as constant downsizing or increasing work- Logistics and Supply Chainfication – and/or acknowledgement – of other loads tend to reduce creativity. Management from Cranfieldbarriers to collaboration that may be unique to University.the situation or the organization. Each one of But What About the Status Quo?these barriers, if present in an organization, Morten Hansen in his 2009 book Collaboration:will be challenges that need to be overcome for How Leaders Avoid the Traps, Create Unitysuccessful collaboration to happen. These nega- and Reap Big Results wrote that “Good collabo­tives aspects, that are believed to be linked to ration is worse than no collaboration at all”.poor or no collaboration, need to be either elimi- This counterintuitive idea is the result of researchnated – or at least be reduced to a level at which on successful and unsuccessful collaborativethey are less important than the positive aspects projects across a range of industries and busi-of collaboration – for success to be possible. nesses. Poor collaboration often involves high levels of friction and a poor focus on results.Another area of collaboration that is often The drain on resources (products, money andoverlooked is the activity of collaboration – at time) through poor collaboration results in aleast in the initial stages. Creativity and inno- problems for an organization. The other side ofvation are non-linear processes that are diffi- the coin, a poor focus on results, is often elusivecult to control, are not easily regulated, and are to some organizations as well as the focus of
    • 60 the project drifts from the end goal to the means project per se. The issue is deeper than that. of achieving the goal – collaboration. Hansen Answering the following questions may reveal reports that the goal of collaboration is not a situation that is ‘hostile territory’ for collab­ c ­ ollaboration, but it is actually a means to an oration. How does the organization reward end: Improved business performance. The people? Does the organization encourage problem is that in many projects this objective p ­ roductivity through internal competition? Do is lost in the activity of collaborating and the business units or team compete? Is cooperation end goal of an improvement or resolution of a rewarded and encouraged? Do employees in problem becomes lost. the organization interact and share information easily? Or is the system more one of internal The approach Hansen proposes for successful competition? If the response to these questions collaboration is disciplined collaboration. This reveals that the emphasis and culture in the can be achieved by carefully selecting what col- o ­ rganization is internal competition rather laboration projects to pursue and then ensuring than cooperation, it will be more difficult to that the focus is on the desired outcome(s) e ­ stablish a project that requires collaboration. throughout the project. Once the project is select- Even before the project starts it is working ed the next step is not to commence the project. against the cultural status quo and is more There needs to be some background work com- than likely going to fail. pleted to identify and understand the current barriers to collaboration in the individuals, their manager(s), the team(s), and the organization(s) involved. This aspect is a huge challenge due to “A different problem, the number involved and may take some time to determine. Part of this may be identifiable found in an organization through reviewing collaborations that were un- successful in the past. Removing or at least reduc- with a more ­ ooperative c ing these barriers to collaboration through man- agement solutions and careful observation of the environment is over-­ project is an ongoing quality of the collaboration itself. This may mean empowering individuals collaboration.” and team members to resolve issues, rather than leaving everything to managers. This disciplined collaboration is defined as Another aspect of hostile territory that is less “the leadership practice of properly assessing obviously a barrier to collaboration is where when to collaborate (when not to) and instilling power lies in an organization. If power and de- in people both the willingness and ability to cision-making is tightly held with the manage- collaborate when required” (Hansen 2009). ment team and senior executives then there is This then requires delegation of power and the little space in the organization for others to make ability of individuals to participate in the pro- decisions. Do employees have freedom to develop cess of collaboration, as well as to pursue the something new without asking permission? Or project itself. is everything centralized? Do employees out- side the top management team have a way of Challenges to Overcome for Successful making their opinion heard? Is there freedom to Collaboration initiate in the organization? Or is this frowned There are a number of challenges in the cultural upon and viewed as subversive? There are two and people area that need to be overcome – or issues with centralized power in an organization at least reduced – for a project relying on collab­ or at least when there is a lack – or a low level – oration to be successful. These can grouped of empowerment of employees. The first is that into five areas of focus, although not all of these the culture then tends to work against a project problems will be found in the one organization: that is perceived to be undermining the power There is some overlap and interaction. base of the organization. The second issue is that the employees are less experienced in initi- The first area of concern is trying to establish ating ideas and applying them and thinking collaboration in hostile territory. This does outside the box. In this scenario it may be more not mean that there is negativity towards the difficult for the team to get used to the freedom
    • InsightOn: Collaboration – The Human Factor 61of being creative, which is required in collab­ factors are in place, a lack of trust alone may DELPHI THESIS 59oration as discussed earlier. block success. Despite the fact that the individu- als involved in the project may be enthusiastic IN FUTURE …A different problem, found in an organization and committed to collaborating, a lack of sup- … virtual companieswith a more cooperative environment, is over- port from the relevant touch points in the organ- assemble highly educatedcollaboration. In this type of organization it is ization may thwart successful collaboration. professionals on a freelanceeasier for the employees to focus on the activity Therefore, support for collaboration from the or- basis in flexible teams andof collaboration rather than the output of the ganization itself, including management, and the on demand. Thus, traditionalproject. This situation is almost the opposite of business units associated with the project is very company structures, basedhostile territory. Instead, in this type of culture important. A lack of support will erode most col- on rigid work spaces andthe project may lack focus on the end game and laborative projects – even if they do commence. fixed working hours, arethe bottom line. After all, the purpose of col- A soft skill also required within both the collabo- obsolete.laborating is a result, not just the collaboration. rating team and organization leadership is the PROBABILITY ability to resolve conflict. This has a similar out- Definitely not: Definitely: come to support with collaborative projects, that 5% 3% is, if the ability to resolve conflict is present it can Unlikely: Probably:“In collaborative projects, greatly facilitate collaboration, but if it is lacking, 28 % 22 % it may not obviously slow down the project andwhich require some level something else may be blamed for a lack of s ­ uccess. Time too, is required for developing aof creativity and have no successful collaboration and building trust. Estimating how much time is required to investguarantee of success, there in a project, as well as how much time is ‘enough’ Possibly: 42 % for a project is difficult. Lastly, knowing theis an element of needing r ­ equired outcome and what the desired benefits Delivering Tomorrow: Customer Needs in are is very important to keeping collaboration 2020 and Beyond. A Global Delphi Study (seetime for the project to p. 126 for details) on track.come to fruition.” The final challenge is identifying the barriers correctly, which takes an imitate knowledge of the organization, intuitive knowledge of people and their interaction, and the ability to recog-A corollary issue to over-collaborating is over- nize both the soft and technical requirementsshooting the potential value of the outcome. of a collaborative project. A lack of understand-Some projects are not successful, yet organiza- ing of this may result in a collaborative projecttions will continue to support them a long time costing too much – or being disbanded when itafter they should be closed down. In collabora- could have a large payback.tive projects, which require some level of crea-tivity and have no guarantee of success, there is So What Does Collaboration Really Cost?an element of needing time for the project to In investigating collaboration, Hansen (2009)come to fruition. At times it may be difficult to determined what he believes to be the real costdecide whether to cut losses or to wait. Sometimes, of collaboration. The collaboration premiumlinked to each of the challenges listed above, (i.e., the full cost of collaborating) is calculatedunderestimating the costs of collaboration will not just by identifying the direct costs of a col-lead to an inability to determine when a proposed laborative project, but it also includes account-collaborative project should not be pursued. ing for the opportunity cost in order to identifyAdditionally, if these costs are underestimated the true value of the collaboration, positive orit is difficult to identify when a collaborative negative. This is:project should be disbanded as it costs morethan the potential benefits estimated from Collaboration Premium =completion. Return on Project - Opportunity Cost - Collaboration CostThese costs of collaborating include both finan-cial and non-financial factors. Understanding the This formula attempts to capture some of theabsolute necessity of trust is critical to the suc- softer culture side of collaboration. The limitedcess of a collaborative project. Even if all other business success to date of collaborative projects
    • 62 has demonstrated that the commonly used ap- tion and knowledge and leave the collaborative proach of focusing on tools in the supply chain project unsupported. Although this may be an is acceptable, yet limited. It is the equivalent to individual’s trait it may also be a reflection of a a ­ ssessing a company’s value using only financial more internally competitive culture. The two metrics and ignoring the relational, social and other individual and team barriers are due human assets. Under­ tanding of this limitation s more to inability than unwillingness. These are was recognized in the field of accounting and the inability to seek and find expertise required r ­ esulted in the assessment of a firm’s value using for the project and the inability to work togeth- the triple bottom line. er and transfer knowledge. These may also be due in part to a more competitive culture, but it Intangibles in business are recognized as differ- could also be an experience and maturity issue. entiators between levels of success. A report on A good manager could spot some of these fac- high-performing workplaces from the Australian tors and help overcome these hurdles for a suc- School of Business in October 2011 noted that cessful collaboration. the intangibles that make a difference in per- formance are innovation, leadership, fairness, employee experiences and customer experiences. In collaboration the cultural factors, soft skills “Part of the task of a and intangibles are strong contributors to col- laboration success – or failure. ­ anager who wants to m So What Are the Human Factors for facilitate the improve- Collaboration? The human factors in collaboration do not only ment of the organization lie with the individual. In reality they include a wide circle of contributors: individuals such as ­context for ­collaboration the designated collaborators; their managers; groups of individuals such as the collaborative is working to create a teams; and the context of the organization(s). Next there is the interaction between all these, ­positive environment.” along with the IT set-up, the formal and infor- mal systems in the organization, and processes that contribute to and modify the human fac- tors of collaboration. There are a number of requisites of a manager for encouraging successful collaboration. This In Working with Emotional Intelligence (2009) is critical for the establishment and continuity Daniel Goleman stresses the importance of soft of collaboration, as it sets a positive context for skills for success in business. A number of indi- the project. These include factors expanded vidual behaviors have been identified for success- previously in this discussion. Empowerment of ful collaboration. These are often described as the team in terms of allowing freedom to make ‘high-level’ or soft skills. Most critical are (self) decisions and the ability to function to com- motivation for the project, ability to do the re- plete the tasks required. Support for the project quired work, ability to collaborate and a willing- and removing organization conflicts – and ness to participate. Combining these individual helping with conflict management – is some- skills with the manager’s contribution of em­ thing that a manager can facilitate. The devel- powerment of the individuals in the collaborative opment of a common goal for the team and the project, support (discussed earlier), the ability to organization is critical as this can lead to align- negotiate conflict, provision of appropriate re- ment and reinforce the positive aspects of the wards, and being able to shape the project around venture. Tying this all into rewards that relate a specified common goal is a powerful mix. to the success of the project and identifying the outcomes so that they are measureable is all There are some individual and team barriers to part of working with the collaboration. collaboration that can work against the project. These include an unwillingness to seek input In summary the activities on the part of the and learn from others, and an unwillingness to manager are to provide equal opportunities help. These can limit the transfer of informa- for the collaboration to occur, help spot the
    • InsightOn: Collaboration – The Human Factor 63barriers to collaboration (before and during Ghoshal and Bartlett (1994) identify four sets ofthe project) and most importantly for the attributes that interact to define an organization’smore experienced manager, to help tailor context. The first two, stretch and discipline,c­ ollaborative solutions. Hansen (2009) reports c ­ ontribute to performance management,that these can be achieved by using the follow- through stimulating people to deliver high-ing three levers: quality results with accountability for their a ­ ctions. The next two, support and trust,•  nification through creating compelling, U p ­ rovide the social support through security and common goals, articulating the value of the space they need to perform. The combination of project and consistently talking collaboration. performance management and social support In this the manager frames the project in the are believed to be mutually reinforcing, and context of the culture of the organization; need to be in balance for the best organizational context. This research matches Hasen’s (2009,• Select people who cultivate collaboration, which  page 49) more recent observations: is basically the right people in the right place, “Collaboration rarely occurs naturally because ­ and support them with training and empower- leaders, often unintentionally, erect barriers ment to say yes or no to collaboration; and that block people from collaborative… And the culprit is modern management”.•  romote the use of decentralized networks P which may in some cases break through the hold of centralized power and decision-­ making to enable more contribution from “Collaboration rarely those collaborating. ­ ccurs naturally because oOrganizational Context for EncouragingCollaboration leaders, often unintentio-Part of the task of a manager who wants tof­ acilitate the improvement of the organization nally, erect barriers thatcontext for collaboration is working to create apositive environment. This extends the indi­ block people from collab­vidual actions of a manager encouragingcollab­ ration to changes in the organization. o orative… And the culpritThis includes building and strengtheningknowledge management and connections (not is modern management.”just information management). The aim is tomove from the attitude of ‘not invented here’,which is found in an insular culture, and bringit around to reducing status gaps, increasing The sub-optimal contexts include over-emphasisself-reliance and decreasing fear of decision- on performance management while neglectingmaking. the social systems resulting in burnout and frus- tration of employees. The other situation is whenMeasuring and monitoring collaboration pro- performance is mediocre and the support systemjects using relevant key performance indicators is over-developed.(KPIs) that may have to be developed in relationto the specific outcomes required from the One other factor that impacts collaboration is thec­ ollaboration. Helping to provide the correct tools used to facilitate the activities. The functionenvironment and the required time for the is the same but the activity will vary. Gen Y arep­ roject is something that an organization needs described by Graham (2011) as “embracing theto do to ensure that the culture matches the convergence of creativity, connectivity and col-e­ nvironment that is necessary for successful laboration…” and replacing Richard Florida’scollaboration. creative class.
    • 64
    • InsightOn: Collaboration: A Foundation for Supply Chain Innovation 65Collaboration: A Foundationfor Supply Chain Innovationby Professor Richard WildingCranfield School of ManagementIntroduction Asda Walmart, Julian Walker Palin, is quoted inAt a recent presentation by a leading retailer to a recent supply chain press as saying, “Our custom-global beverage supplier a simple yet challenging ers have told us they want retailers like us torequest was made. “We need you to cut your logistics p ­ rovide affordable, sustainable products as thecosts by 5.25 percent. Without this we cannot do norm, not make it a complex choice with a pre-business with you!” The response, as you can imag- mium attached. By helping our suppliers to be-ine, was not particularly positive; cries of “we don’t come more sustainable and efficient at the samehave that level of margin” and “we will be giving time through the Sustain & Save Exchange weyou stuff for free!” were heard at the meeting. After are helping to ensure everyone can afford tofour years of downward price pressures there are no make sustainable choices.”longer the reserves to take such a cut. But after aninitial emotional response, it was recognized that Asda Walmart will require the alignment of val- Richard Wilding, a chairednew ways of working would have to be used to meet ues across the supply chain. Their customers, it professor of supply chain stra-this challenge and this could only be done by work- seems, have bought into sustainability, but do tegy at Cranfield School ofing with the customer and perhaps even competitors. other supply chain members embrace this value Management, is a specialistIt was recognized that by innovation and collab­ also? In order for sustainability and efficiency to in supply chain risk strategies.oration perhaps this cut could be achieved. be created across the supply chain network, part- In 2005 he was named the nerships and collaborative relationships will be first ever full professor for the key. It now seems that many ‘burning platforms’ discipline, in recognition of are forcing organizations to innovate, and for his contribution to the sub-“Collaboration is about i ­ nnovation to be effective, collaboration is often ject. Wilding has applied required. Competition is no longer between c ­ haos and complexity scienceworking together to bring i ­ ndividual companies but the supply chains they to logistics and supply chain are part of. management. The result wasresources into a required new management guidelines In this article we explore the concept of collabo­ for supply chain re-engin­relationship to achieve ration and why we are going to be increasingly eering to mitigate risk. dependent on such approaches in the future. In addition to his academice­ ffective operations in work, Wilding is a consultant How Do We Define Collaboration? to European and internatio-harmony with the strate- When looking at collaborative and partnership nal companies in various relationships we often find the terms are used in- ­ ndustries on logistics and igies and objectives of the terchangeably. Collaboration is about working to- supply chain projects. gether to bring resources into a required relation- Wilding was the winner of theparties involved thus re- ship to achieve effective operations in harmony ‘Individual Contribution with the strategies and objectives of the parties Award’ at the ‘Europeansulting in mutual benefits.” involved, thus resulting in mutual benefits. Supply Chain Excellence Awards 2010’. He continues The Global Supply Chain Forum defined a part- his work on creating collab­There are many drivers resulting in the need for nership as a tailored business relationship based orative business environ-companies to innovate their supply chains. The on mutual trust, openness, shared risk and ments, reducing supply chainsustainability agenda, for example, is forcing in­ shared rewards that results in performance vulnerability and risk andnovation. Head of corporate sustainability at greater than would be achieved by two firms maximizing customer value.
    • 66 working together in the absence of partnership. ships with supply chain partners have proved Both these definitions emphasis the multiplica- to be significantly more resilient to such dis- tion effect of collaboration: By bringing together ruptions. two parties a win-win relationship is created. We move from one plus one making two, to one plus Horizontal and Vertical Collaboration – one making eleven! The language of multiplica- the Concept of Co-opetition tion. A major challenge and opportunity being recog- nized is collaboration between competitors. The The definition for supply chain management concept of horizontal collaboration, which has used by Cranfield School of Management is “the been defined as “the pooling of logistics activi- management of upstream and downstream rela- ties and consolidation of supply chains between tionships with suppliers, distributors and cus- two manufacturers for mutual benefit”, requires tomers to achieve greater customer value-added new forms of collaborative relationships. The at less total cost.” manufacturers could be competing or non-com- peting, but often organizations are being forced to review how they can work with competitors. Collaboration between competitors, the concept “So, as companies strive of ‘Co-opetition’ (from COOPEration compeTI- TION) where competitors come together in or- to manage their supply der to compete. chains, collaboration Examples of this approach have been common- place in many industries. For example, brewers ­becomes increas­ingly Heineken and Guinness build breweries together in developing markets to produce both competi- ­important.” tors’ products. Carmakers Ford and Volkswagen Group co-developed and manufactured the origi­ nal Ford Galaxy, Seat Alhambra and Volkswagen Sharan people carriers. The advantage to those The key emphasis is the management of re­ involved in ‘co-opetition’ is that a category or lationships within the supply chain. The recog- market can be developed at lower risk to each nition that competition is no longer between o ­ rganization. Now co-opetition can be utilized individual businesses but between the supply by logistics providers to lower CO2 and reduce chains they are part of forces organizations to costs for a group of companies in a sector. The col­ aborate and partner with the best to gain l challenge for an organization is having the skills competitive advantage. Analysis of how and abilities to manage such relationships effec- supply chain failures, such as late delivery, tively. trade restrictions and quality issues, impact on ­ shareholder value show an average reduction of Creating Effective Collaborative nearly 25 percent in the share prices of an Relationships ­ ffected company. However, such supply chain a To create a win-win relationships there are two failures are often not the complete responsi­ key dimensions that need to develop. The first is bility of the companies whose share price has C3 behavior, a combination of Co-operation, been hit, but are contributed to by failures in C ­ o-ordination and Collaboration and the second suppliers and possibly customers that then is trust. cause a significant failure in one organization. This ­ reates our first ‘burning platform’: The c C3 behavior is seen as being essential to main- pressure of shareholder value and supply chain tain a successful business partnership especially resilience. So, as companies strive to manage when it is linked with commitment to the their supply chains, collaboration becomes achievement of shared, realistic goals. There is ­ ncreasingly important. Recent events, such as i generally an evolution that needs to take place. the Japanese earthquake and tsunami, the Co-operation is initially required, often in the floods in Thailand and volcanic eruptions, form of short-duration low-risk interaction. This have demonstrated how fragile modern supply then builds to co-ordinating activity requiring chains can be, but those organizations that longer commitment and greater working to­ have built and sustained high-quality relation- gether and finally collaboration is achieved,
    • InsightOn: Collaboration: A Foundation for Supply Chain Innovation 67where both parties may jointly plan and define The New Skills for Collaboration –operations and strategy. This is very similar to Moving from IQ to EQany personal relationship. Initially you may go It has become apparent that managers need newon a short, low-risk ‘date’, for example a trip to skill sets to develop C3 behavior and trust andthe cinema. This then may progress to both par- thus develop collaborative relationships. Allties spending more time together, co-ordinating o ­ rganizations need to have an emphasis on sotheir activities and finally a marriage may occur, called ‘soft skills’. Technical ability and intelli-where both parties collaborate! gence (IQ) alone do not guarantee success, and may be only one qualifying factor rather thanTrust is a keystone of business-to-business rela- the winning factor in the race to be collaborative.tionships. Trust enables co-operative behavior, The emotional intelligence (EQ) of the organiza-promotes improved relationships, reduces tion is critical in enabling a collaborative culture.harmful conflict and allows effective responsein a crisis. When building a collaborative relationship, s ­ ocial skills, empathy and motivation are of high value. Daniel Goleman in his book Working with Emotional Intelligence discusses this factor in“Technical ability and in- d ­ etail and Cranfield School of Managements r ­ esearch highlights the requirements for thesetelligence (IQ) alone do high-level skills.not guarantee success, and A survey by the Society of Human Resource Management further emphasizes the need formay be only one qualify- emotional intelligence in gaining competitive advantage. The survey analyzed a series of toping factor rather than the companies, selected for profitability, cycle times, volumes and other key performance measures.winning factor in the race They found that the outstanding companies had the following competencies in managing theirto be collaborative. The ‘human assets’: organizational belief and com- mitment to basic strategy; open communicationemotional intelligence and trust building with all internal and external stakeholders; an interest in building relationships(EQ) of the organization inside and outside the organization where they offered competitive advantage; collaboration,is critical in enabling a support and the sharing of resources; an environ- ment where innovation, risk taking and learningcollaborative culture.” together is promoted and a passion for compe­ tition and continual improvement. Effective Collaboration Within YourTrust requires risk (a perceived probability of Organizationloss), uncertainty (over the intentions of the Internal collaboration, within an individual or-o­ ther party), interdependence (where the inter- ganization, is also becoming critically important.ests of one party cannot be achieved without Analysis of both internal and external relation-r­ eliance on the other) and choice (options are ships by Cranfield School of Management, using aavailable) as essential conditions. There is little technique for assessing the strength of collaborativedoubt that repeated cycles of exchange, risk-­ relationships, has shown that it is not ­ ncommon utaking and successful fulfilment of expectations for internal relationships within an organizationstrengthen the willingness of parties to rely upon to be far worse than the external relationshipseach other and, as a result, expand the relation- they have with customers or suppliers. The inter-ship, in effect producing a virtuous circle that nal relationships may be treated with contempt,can be developed and promoted. The alternative, with functions trying to gain advantage over eachlack of trust, may precipitate a downward spiral other, like a failing marriage where both partiesof conflict leading to diminished operations or are continually bickering but in the presence offailure. strangers they appear like the perfect couple!
    • 68 Those organizations which collaborated well in- B2B customers may require suppliers to demon- ternally had greater performance in terms of strate that they have effective processes and meeting customer needs and accommodating measures in place to manage relationships. In special customer requests, and new product intro- the UK for example, a new collaborative stand- duction was significantly better. This resulted in ard, BS11000 has been launched by the British an increased customer perception of the organiza- Standards Institute. This requires organizations tions which led to increased sales and margin. to go through an eight-stage process that includes assessment and measurement. The Building Blocks of Collaboration For collaborative relationships to be successful a Reduce, Re-route, Re-Time, Re-mode number of key foundations need to be in place. The ‘burning platform’ of the London 2012 Both organizations need a common focus (com- Olympics has also forced organizations to innovate mitment to a basic strategy). This may, in the re- and collaborate. The impact of the Olympics on tail supply chain, be focusing on the customer supply chains in London was significant. The and, because data sharing then becomes critical, Olympics was Britain’s largest peacetime logistical IT systems need to be in place to enable this. An exercise, equivalent to running 26 simultaneous agreed joint process is required; this is often a sporting world championships at the same time. problem as it is not uncommon for organizations All businesses with operations in and around to have little understanding of their own internal London needed to plan to ensure business contin- processes so agreeing on a joint one can be diffi- ued as usual. When considering the movement cult. Integration of internal applications is im- of goods, deliveries and collections the motto: portant to ensure good communication and data “Reduce, Re-route, Re-Time and Re-Mode” was flow. Flexibility and responsiveness are also criti- developed. cal for both organizations to exhibit, creating agility within the relationship. The Building Blocks of Measurement “Flexibility and One of the biggest requirements is agreed joint per- formance measures; both parties should be meas- responsive­ ess are also crit- n uring the success of the relationship in a common way using the same measures. Hard measures will ical for both organizations need to be used but also soft measures for measur- ing the success of the relationship in terms of levels to exhibit, creating agility of trust and personal relationships. within the relationship.” One particular question we do need to ask is if col- laboration is so important to the success of a business in our modern global economy, why do so few or- ganizations measure the ‘soft’ relationship issues Reduce – Where possible consolidate and join and continue to focus on hard performance meas- multiple orders into a single delivery to reduce ures which only reveal the symptoms of failure and journeys. Collaborate and coordinate with not the causes? Organizations need to ask questions neighboring business to share deliveries. By like: How many business relationships do we have? doing this it is anticipated that a reduction in Why are they important? Which ones are doing well individual organizations costs and the amount and why? Which ones are NOT doing well and why? of CO2 produced may result in cost savings. How do we identify hard targets for continuous r ­ elationship improvement? Techniques like the Re-Route – By identifying the traffic hot spots ‘Supply Chain Collaboration Index’ available from using the feely available planning tool provided SCCI Ltd enable organizations to gain answers to by Transport for London, companies can identify such questions and work together on relationship if it is appropriate to re-route deliveries, perhaps improvement. This approach has been used by using different depots to supply from or perhaps Masterfoods, EDF Energy, AMEC, and the UK different suppliers. This will save time and CO2. Ministry of Defence amongst others to measure and improve the effectiveness of key collaborative Re-Time – Arrange out of hours deliveries when relationships. The measurement and management roads are quieter, plan to receive deliveries out- of collaboration is receiving increased notice. side the busiest times.
    • InsightOn: Collaboration: A Foundation for Supply Chain Innovation 69 Re-Mode – Revising the mode of transport is to come. Foundational to this is developing new encouraged. Organizations are being asked to ways of working together look at using different transport and delivery modes – cycling or walking couriers might be Conclusion used for small deliveries. Use ‘driver’s mates’ to When striving to create win-win relationships it minimize drop off parking by enabling them to could be argued that the first question all organi- jump out and deliver. Use secure drop boxes for zations need to ask before creating a collaborative smaller items. This potentially can save further relationship is: “How will the company or inter- time, costs and CO2. nal function you want to collaborate with benefit from collaborating with YOU?” At the end of the These actions may provide a surprising legacy day if there is nothing in it for the other party from the games, because it is forcing all in lo- there is no motivation for collaboration and gistics and transport to innovate. The ‘burning therefore the ‘multiplication effect’ will not oc- platform’ generated by this event may have last- cur. ‘Burning platforms’ are often useful to bring ing impact by reducing costs and increasing the benefits into sharp focus for both parties. sustainability of transport operations for years Success and Failure Factors Frequent, interactive, open communications across Adversarial, all levels of the customer/ Joint planning and bureaucratic com- supplier interface especially business systems sup- mercial practices and ported by free flow of Open, no- on performance reviews and blame culture attitudes, which increase continuous improvement of information. costs, cause delays aimed at customer and products/services and relationship satisfaction and reduce trust. business processes. which depend upon personal, trusting relationships. Insufficient rs cto investment, which Fa generates long-term ss A recent analysis of costs and prevents re Factor Succe performance over 60 collaborative a ilu s incentivisation. relationships by Professor F Innovative commer- cial practices, tough Richard Wilding found a Those relationships ­but achievable incen- number of foundations that were typified bytives, and meaningful for success. failure exhibited the fol- gainshare. lowing types of behaviors Lack of investment and practices. in good staff, which causes unnaturally high turnover and prevents personal relationship de- End-to-end, velopment and efficient clearly visible perfor- business processes. mance objectives Lack of culture- agreed by all supply Lack of stable cus- matching results in chain players including tomer funding arran- ‘them and us’ attitudes, the end-customers. gements, which prevent which result in a downward supplier investment spiral of poor behavior, planning. reduced benefits and low performance.
    • 70The Expert View – John Gattorna Companies that operate this way have reached different value propositions via varying supply the much sought-after ‘collaborative zone,’ a chain configurations, based on what the cus- state that inevitably takes time and patience to tomer needs. In addition, executives must attain. match the values of internal personnel with that of the collaborative customers they serve. While a select few parties genuinely collaborate in some supply chains, in many others this is These may seem like small points, Gattorna not the case, and it’s not necessarily desirable, says, but we are now operating in a world where says John Gattorna, a supply chain expert and nuances make the difference between success the author of Dynamic Supply Chains: and failure operationally and financially, and Delivering Value Through People. companies ignore this reality at their own peril.Dr. John Gattorna is consi-dered a thought leader on the That’s because collaboration is one of those InsightOn: spoke to John Gattorna about theglobal supply chain with his concepts that can be over-used and over- obstacles and challenges of reaching theunique, multi-disciplinary worked in the supply chain vernacular, and col- ‘collaborative zone.’approach to the design and laborating only makes sense if companies do itmanagement of enterprise with those customers and partners who exhibit Dr. Gattorna, what are the risks of too much orsupply chains. Gattorna, who true collaborative behavior. Otherwise, they ill-conceived collaboration?heads his own advisory busi- risk wasting their time and money.ness for companies around Dr. John Gattorna: Collaboration is a condi-the world, serves as an ad- In the early years of ‘lean’ manufacturing, as it tion that is definitely not for everyone. I preferjunct professor at the was first introduced and practised by Japanese to think in terms of ‘requisite’ collaboration,Graduate School of manufacturers, companies took for granted where you collaborate as much as or as little as aManagement at Macquarie that suppliers would collaborate in the system- particular customer wants or deserves. In thisUniversity in his hometown atic joint effort to cut costs, rather than just way, companies avoid a lot of costly over-servic-of Sydney, Australia. move them up and down the supply chain. ing. In some industries, such as logistics serviceGattorna established and led However, as globalization took hold and supply providers, research I have undertaken clearlyAccenture’s supply chain chains became longer and more complex, the showed an inverse correlation between the per-practice in the Asia Pacific idea got lost in translation. formance of LSPs and the number and com-region for several years from plexity of contracts they were locked into.1995. Before that, he ran a According to Gattorna, it is unlikely that moreconsultancy business speciali- than 25 percent of customers at best will exhib- These days, some previously collaborative com-zing in marketing, logistics it truly collaborative buying values. Typically, panies are even moving away from collabora-and channel strategies. A fre- they are those working with partners in ‘con- tion because of the way they are measured onquent keynote speaker at con- tinuous replenishment’ mode. These customers KPIs. It’s only a very enlightened CEO whoferences around the world, genuinely seek close relationships with their says, “I’m going to segment my market. I’m go-Gattorna’s latest book is key suppliers, tend to single-source, remain ing to find out which of my partners and suppli-called ‘Dynamic Supply brand loyal, share information freely, exercise ers genuinely appreciate collaboration, and IChains: Delivering Value price tolerance and, above all, they are forgiv- will set up a collaborative supply chain withThrough People,’ published by ing in case of a supply failure. them. But for all the others, I’m going to have toFT Prentice Hall, Harlow, come up with another solution.”2010. Gattorna argues, therefore, that companies must identify the supply chain needs of their But some companies do get it right with collabo- customers and partners to see who has truly ration. collaborative values. These parties must then be treated as a separate segment to the rest in their Dr. John Gattorna: If someone gives you a customer base so that the company can deliver golf lesson, and you’re an absolute beginner, you
    • InsightOn: The Expert View – John Gattorna 71Based on the cultural value of trust – an idea treasured above all others – collaboration in thesupply chain means partners share information freely, seek long-term stability in the relationshipand painstakingly forge ahead on strategic matters.may walk out, pick up your golf club and hit the oping strategies around these key segmentsmost fabulous shot down the middle of the fair- they were able to create a unified and positiveway. But you don’t know how you did it. For the market positioning for the new business. Theyrest of your life, you try to replicate that shot. were also able to drive internal cooperation andThat’s what companies are doing at the mo- to break down change barriers by focusingment. They sometimes get collaboration right management effort on this external objective.and don’t understand that they’re in a sweetspot. Next week, they’ll do something different, The research found that the new company’sdisrupting their own people and customers. ‘collaborative’ segment was larger than either company had predicted, and thus new strate-I’m arguing that you can’t make the success of gies were designed to ensure they retained andcollaboration repeatable until you’ve deter- built share of wallet with this group. The othermined the behavioral biases of your customers three segments, who did not exhibit a collabo-and partners. If you can reduce customers and rative bias, however also represented a largesuppliers to segments based on their buying be- part of their business. Their specific priorities,havior, you can get cost out of your business, ranging from very stable supply to very fast re-permanently. And you achieve greater custom- sponse times and to innovative offerings, wereer satisfaction, so you end up with a double- also reflected in the new portfolio of strategies.whammy effect: Higher revenues at lower cost- After close to 12 months there is clear feedbackto-serve. from both shareholders and customers that the merger has been successful.What are the behavioral segments? Unilever’s former CEO Anthony Burgmans gotDr. John Gattorna: We’ve identified 16 buy- it right when he said, in effect, that you shoulding behaviors, but when it comes to supply only collaborate with those customers and sup-chains, most people fit into four categories. pliers who genuinely want to collaborate. ForThese suppliers, partners or customers exhibit the rest, you do whatever you have to do, but1) collaborative behavior 2) transactional be- don’t waste your time trying to convert them tohavior 3) agile/dynamic behavior or 4) innova- collaborative behaviors. This goes to the hearttive solutions behavior. of my observation that too many suppliers are over-servicing some customers and under-ser-Once you have identified the truly collaborative vicing others, and don’t have a clue which iscustomers in your marketplace and where they which!fit into these segments, you can focus on non-binding Memoranda of Understandings that If you start guessing, then you get into a mess.provide guidance for engaging each other, but Collaboration works in the right places: It’s likein the end are based on trust. a big jigsaw puzzle.The value of behavioral segmentation was What holds companies back from hitting thathighlighted recently when Australia’s 2nd and ‘sweet spot’ of collaboration on a continuous basis?3rd largest beef exporters (Teys and Cargill)merged. Aware that many mergers and acquisi- Dr. John Gattorna: Generally, people don’ttions do not deliver for shareholders or customers, have the full picture of the jigsaw on the coverthey used segmentation and Dynamic Alignment of the box. One big problem for companies isto pro-actively manage the process and the re- that they organize themselves by functions andsult. By identifying the four major segments in divisions – the opposite to the way that theirtheir combined customer portfolio and devel- customers buy. The company manages itself
    • 72 vertically, but its customers buy horizontally, studied or worked in procurement, you’ll talk picking and choosing from the products and about ‘tenders.’ If you’ve got a marketing services offered. d ­ egree, you’ll talk about product portfolios and life­ ycle concepts. Production and General c Yet, if we can’t get people to work together in- m ­ anagement have their equivalent languages, ternally to get the finished product to the cus- too. tomer in the way they want to buy it, that means lost revenues. What I’m talking about is Yet at the corporate level, we’ve got to speak the aligning cultures internally. But when it comes same language and share common KPIs, other- time to do this, many executives are either out wise, we fail to understand the demands that of their depth or simply in denial. the customer is putting on us. Why? Because either they don’t understand or Any other suggestions for fostering collaboration? don’t want to delve into the abyss where the so- called ‘forces of darkness’ lurk in their own or- Dr. John Gattorna: One technique that I ganizations. With all the preoccupation with have developed over the years is called competitors, executives have been distracted ‘Strategic Partnering.’ This process involves de- from looking more deeply at the internal cul- veloping enduring corporate relationships tural in their own enterprises that can be im- based on understanding and shared knowledge. proved to bring bigger returns for the time, ef- The process takes its name from developing fort and money invested. and maintaining a strategic ‘fit’ between the goals, capabilities and market opportunities of We will not be able to go to the next level of both buyer and seller organizations involved in supply chain performance until this mountain a particular situation. The two parties commit is climbed and conquered. to a unique but not necessarily exclusive rela- tionship – that is the key, and it works! In the book I’m writing now, Dynamic Supply Chains 3rd edition (due 2014), I examine fur- And what about collaboration at a higher level ther why true collaboration is difficult to – i.e. via consortia or industry bodies? achieve – i.e. the language barrier. Dr. John Gattorna: The concept, per se, has Language barrier? merit: By working via consortia, joint ventures and with industry-level solutions, companies Dr. John Gattorna: I’m not talking about have instant access to more skills. But the working in an international setting, I’m refer- c ­ ultures of these consortia have to be aligned ring to the vernacular inside a company. I’m from the outset. If not, problems arise on a trying to crack the code of that vernacular to macro scale, and internal synergies are hard to understand the subliminal meanings and de- achieve. termine the common metrics that allow for comparison within the company. Where is collaboration at the industry level working well and why? It leads back to my point about vertical integra- tion. We’ve got functions, such as the market- Dr. John Gattorna: As many before me have ing function, the production function and noted, competition is no longer between indi- s ­ upply chain functions. All those different vidual companies but instead between their functions come from different roots and supply chains. I would take this idea one step have different languages are jargon. If you’ve further and predict that within 10 to 20 years,
    • InsightOn: The Expert View – John Gattorna 73we’ll see networks competing against networks. Unilever has examined its demand fluctuationWe’ve gone from individual companies vs. in- to see that despite swings, some customers stilldividual companies, to supply chain vs. supply take about 60 percent of a particular productchain, and next up will be network vs. network. on a regular basis. So, we started filling the trucksI expect more industries to organize like the with that product, supplying them with 60 percent.airlines do, where you’ve got competitors col- And then, when Unilever runs promotions, theylaborating in groups like Star Alliance vs. rivals have available trucks for the additional volumesin a different alliances like OneWorld. These and top-ups. It’s all about capacity management.companies share spare parts, capacity and fa- And the more volatile the demand, the worse it iscilities. That’s where we’re moving. Collaboration for your supply chain. Supply chains hate disrup-will be fleshed out even more and become tion and volatility; they love predictability.three-dimensional. You’ve got to understand how much of yourThat’s a sort of co-opetition. Where do you see supply chain is your baseload and build fromco-opetition headed? there. Maybe only 20 companies around the world are currently able to do this.Dr. John Gattorna: I think we’ll see a lotmore co-opetition, but the problem is that a lot In closing, I’d like to ask where you see the mostof people don’t understand the difference be- creativity when it comes to supply chains?tween co-opetition and collusion. Co-opetitionis working with competitors within a well-de- Dr. John Gattorna: True innovation in thefined area, such as sharing certain logistics func- supply will come out of Indo-Asia rather thantions to create better economies of scale. A lot of Europe or the US, because it’s so growth-ori-the anti-trust people get very nervous when they ented. There are opportunities every which waysee manufacturers in the same industry or re- you look. Some countries like India require sotailers working together. I draw the line at price. much catch-up. They’re not going to just followPrice collusion shouldn’t be allowed. But the fact what the West did; they’re going to leapfrog thethat you’re working together behind the shop for West with innovation and new business mod-the benefit of your company and a competitor els. They will try things that others were tooshouldn’t be regarded as collusion. frightened to try. There’s a whole motivation in Asia that is totally different than the conserva-As companies come under more pressure, they tive approaches of the West. The incrementalwill reach for the creativity pill – ideas that thinking of the Western world will be replacedthey wouldn’t have entertained in the past. It’s by far more creative mindsets. And I wouldn’thappening in the oil industry a lot, where com- be surprised if some of the ideas are based onpanies enter into ‘swaps arrangements’ instead collaboration.of having to transport petrol across geogra-phies at significant cost.How are companies putting your other ideasabout supply chain alignment into action?Dr. John Gattorna: We’re working withcompanies like Unilever and Dell to help themconsider what to do on a day-by-day basis toachieve finer alignment of their supply chainswith customers.
    • 74Orchestration:The New Form of CollaborationN. Viswanadham, the INAE Distinguished Professor at the Indian Institute of Science,spoke to InsightOn: about supply chain orchestration. You’ve talked about supply chain orchestration. mitigation strategies are the responsibility of What is it? the orchestrator. N. Viswanadham: Let’s start with what is a Why is supply chain orchestration so important? supply chain? It’s several organizations coming together to deliver the product to the customer. N. Viswanadham: If you take any business, There are suppliers, manufacturers, distributors there are three main things. Number 1 is called and retailers, to name a few. And what is collab- governance, in other words, you have multiple oration? It’s the way each player works together alternate suppliers and you have relationships to make production possible. with them that need to be managed. Suppose I tell a logistics provider that they have to deliverN. Viswanadham is currently Take the processes behind producing and deliv- so many items to my factory at 9:00 a.m. everythe INAE Distinguished Pro- ering a plastic doll. You’ve got the cloth dyer in day. I have to choose my partners and tell themfessor at the Indian Institute of Bangladesh who is preparing fabric for the what I want. And the logistic player has to tuneScience. Formerly, he was a doll’s clothes, seamstresses in Taiwan sewing their resources, for instance. That’s governance.professor and executive director her outfit, and the doll’s hair may come fromfor the Center of Excellence, Japan. What would happen without collabora- The second thing is coordination. I have to tellGlobal Logistics and Manu- tion? Someone has to be there and say, “Hey, each player what to do when. I have to find thefacturing Strategies at the have you done this? Is it of quality?” and then driver and the truck and so on. Coordination is­ ndian School Of Business inI take us to the next level and across the next bor- the detail work involved in collaboration.Hyderabad. He also served as der. This is production and logistics at variousdeputy executive director of places. It’s something more than collaboration. Then you have to execute. And when you doThe Logistics Institute-Asia It’s orchestration. this across borders, like what’s necessary to pro-Pacific. Professor Viswanadham duce the doll, then the process gets complicated.has contributed significantly I would argue that orchestration is the new In a single country you have a single currencyto the area of automation, in form of collaboration. When a single company and a single culture. That makes things easy.particular to manufacturing takes responsibility for the whole thing, it’s sup- But now you’ve got to execute across borders.and supply and service-chain ply chain orchestration. And you may need to execute in areas that lackautomation. He is the author infrastructure, such as in rural India. There,of three textbooks, six edited Then what is the difference between a provider of where 400 million people lack access to basicvolumes, and more than a third-party logistics and a supply chain orchestrator? infrastructure, the delivery person may drive ahundred journal articles and motorbike and only have a mobile phone to runconference papers about auto- N. Viswanadham: The 3PL delivers goods his business. If a company like Flipkart, themation. His current research end to end as per contract. It is only responsible Indian operator of a large online marketplace,interests include Global Supply for on-time delivery and takes care of all the wants to deliver to a customer in rural India, itand Service Chain Networks. tasks from loading the goods at the supplier may need to hire the motorbike driver. To doViswanadham has developed end, until they are delivered to the customer. that, an orchestrator is crucial.an ecosystem framework for The orchestrator does much more. It is respon-the analysis and design of sible for telling the suppliers how much to pro- Currently, the above tasks are performed in ansupply and service supply- duce and when and for whom and of what qual- ad hoc manner and money and time are spentchain networks. ity. Also, if risks develop on the way, the on expediting.
    • InsightOn: Orchestration: The New Form of Collaboration 75What makes supply chain orchestration possible? among multiple partners of the supply chain and use that coordination as a source of valueN. Viswanadham: Over time, the difference and competitive advantage. As competitionbetween an ordinary supply chain and an e- shifts from head-to-head competition betweensupply chain have disappeared. In other words, firms to competition between supply chains,every supply chain is an electronic supply chain. competitive success will depend increasingly onThe transition has happened because of the de- the ability to coordinate and integrate the pro-velopment of the internet and the ease of ex- duction activities at geographically dispersedchanging information. The result is what is of- and organizationally distinct locations. The newten called supply chain visibility. supply chain structures that are emerging will play a fundamentally important role in the fu-With that visibility, it’s possible to coordinate ture of businesses.
    • 76The Foundation ofFuture Businessby Professor Richard WildingCranfield School of Management Rapid developments in e-commerce have re- The complexity of managing e-commerce means sulted in the need for significant changes with- that few organizations have the internal capability in logistics and supply chain environments. to manage each element of the value delivery sys- Logistics and supply chain was, for many or- tem. It can be seen in this report that organiza- ganizations, seen as something of an after tions require capability in, for example, electronic thought; an ‘operational’ issue to be sorted out social networking, delivery, returns, cross border after the marketing and sales strategy had been payments, managing cross border tax, privacy defined. Now, e-commerce has driven organi- law, the technology of shape and, location tech- zations to recognize the importance of devel- nologies, to enable them to compete. These cap- oping their logistics and supply chain strate- abilities are available but can only be leveraged by gies in parallel with their sales and marketing effective collaboration with a wide variety of sup- strategies. This paradigm requires new forms pliers. Organizations will continue to ‘outsource’ of collaborative working. elements, but perhaps the term ‘out-source’ is now incorrect, because, effectively, businesses need to For effective e-commerce, effective collabora- bring a capability into their organization. By ‘in- tion within the individual company is re- sourcing’ this capability, a true win-win relation- quired, and between all functions, too – but ship can be developed where a new and innovative particularly the sales and marketing functions. value delivery system subsequently creates reve- This, in simplistic terms, is the part of the or- nue and advantage for both parties. ganization responsible for the ‘demand crea- tion’ element of the business strategy; while the Fundamentally, e-commerce is resulting in logistics, supply chain and operations func- businesses having to implement new processes, tions are responsible for the ‘demand fulfil- infrastructure, information systems and organ- ment’ element. izations. This results in major change manage- ment initiatives that need to be effectively im- These functions need to continually collabo- plemented. For success in e-commerce, it needs rate to ensure value is delivered to the custom- to be recognized that “competition is no longer er at an appropriate cost. Sales and marketing between individual companies but the supply needs to understand what drives value in the chains they are part of”. Partnering with the final market place for the customer segments best to create highly efficient supply chains that the company is serving. This ‘value’ has to be can deliver value at an appropriate cost will be- communicated effectively so that the logistics, come a foundation of future business. The tradi- supply chain and operations functions can de- tional structures of business are falling apart to sign techniques to deliver successfully to the accommodate unprecedented change. organization. Conversely, logistics, supply chain and operations can innovate new ap- As Marilyn Monroe so aptly stated: “Sometimes proaches that sales and marketing can utilize good things fall apart so better things can fall to create more value for the customer. together.”
    • InsightOn: The Foundation of Future Business 77
    • 78DHL Case Studies 1. Borderlinx – Bringing the World of Not so for many merchants, however, who are un- Shopping Right to Your Doorstep familiar with the global logistics landscape and hesitant to learn the ropes of international ship- In today’s e-commerce realm, exciting collabora- ping. They are also worried that sending products tions are happening between various interested abroad may reduce their margins, especially if re- parties to make online transactions and doorstep turns are involved or receivables are difficult or deliveries easier – and therefore more attractive – costly to collect, due to the foreign currency and to consumers. unfamiliar system. Borderlinx, as we shall see, is one such innovative The myriad rules and regulations for shipping are collaboration, in this case between a logistics pro- also off-putting, such as those concerning hazard- vider, a credit provider and a customs-clearance ous goods and others that come across as merely and e-commerce service provider. By working to- quirky, usually because they’re designed to pro- gether, they have taken cross-border e-commerce tect domestic markets. In Japan, for example, ven- to another dimension, with benefits and opportu- dors need a special license to import eyeglasses nities for all concerned. E-commerce shoppers cer- and contact lenses, and radar detectors are re- tainly need to be inspired by innovative new stricted in the UAE. Such expert logistics knowl- joined-up thinking, because cross-border transac- edge is a priceless asset. tions can be exasperating at times. For example, if you are shopping on a UK or US website – but live For shoppers, the hitch usually comes with web- outside those countries – it can be frustrating to sites that won’t accept credit cards with a foreign get to the checkout and discover that your address address or the high cost of international shipping isn’t accepted for shipment, or that customs clear- fees. These consumers may be attracted by better ance costs more than the item you want to buy. prices or a better selection on certain international It’s also incongruent with the way many people websites, but they’re hesitant to buy a product live today, jet-setting from one continent to an- when they don’t know how much it will actually other and crossing borders with ease. cost in the end. It’s almost as if cross-border shopping hasn’t kept Good, reliable, easy-flowing logistics, then, is the up with the times: The actual shopping experience crucial make-or-break element in effective e-com- feels international because products appear to be merce. That’s why DHL, MasterCard and just one click away. But the reality is that national Borderlinx, the Brussels-based customs-clearance borders can still create an exasperating barrier. and e-commerce service provider, are working to- And despite growing networks of global economic gether to take the surprise out of shopping online activity, cross-border online shopping can still be from vendors in faraway countries. full of surprises, such as unplanned trips to the customs office or unexpected tax bills. The partners are ramping up two services that bring international shopping to consumers doorsteps, For the international logistics provider, cross-bor- simplifying the whole shopping process for consum- der challenges are many. Apart from the need to ers and vendors. In essence, shoppers outsource the understand different languages and currencies, effort involved in managing an international ship- there are individual countries’ differing customs ment to the partners, who provide an end-to-end, regimes, import tariffs and other regulations, e-commerce transaction management service. lengthening transport distances and on-time ser- vice. These, however, are dealt with on a day-to- For e-retailers, this is of enormous benefit as they day basis. try to expand their global reach, but find logistics
    • InsightOn: DHL Case Studies 79problems thwarting them at every turn. The ability and stored for free for up to 30 days. Once feesto offer reliable cross-border delivery will give them have been paid, DHL forwards the package to theaccess to new markets, increase their customer address of choice in the 61 countries and territo-base exponentially and offer them long-term ries served in the DHL-Borderlinx partnership.growth accordingly. For vendors, the transaction remains essentially aThe borderlinx.com offering gives shoppers outside domestic one, since goods are shipped inland. Yetthe US and the UK the chance to register on the site the market potential is far greater since merchantsand receive their own US and UK addresses. These have the chance to reach shoppers in 61 countriesare input during the checkout process as the shop- who may want to take advantage of better pricespers’ domestic “ship-to” address. Customers pay and selection on US and UK websites. At the samewith their credit cards with prices displayed in US time, the Borderlinx offering gives the merchantdollars and the local currency of the final delivery an advantage over the competition, since only aaddress. Borderlinx’s online calculator can be used small number of US and UK-based websites shipto add up the cost of getting the item from the internationally at this point.merchant to the final international shipping ad-dress, including the cost of the product, the ship- Borderlinx is one of few companies worldwideping and customs fees and a Borderlinx service that is enabling cross-border shopping and hascharge that covers the cost of freight forwarding. the potential to transform the online retail land- scape, said Matthew Mitchell of DHL Express,Once a person has finished shopping, goods are who works closely with Borderlinx. Others haveconsolidated at a warehouse operated by DHL on specialized in what is called “hosted checkouts.”behalf of Borderlinx – thereby reducing overall The process allows shoppers on certain US sites toshipping fees. This happens at three facilities – one make purchases from outside that country, butin the UK and two in the US. Items are collected shoppers are typically led off a merchant’s site
    • 80 during the checkout process, even if the mer- The second way Borderlinx has opened up the world chant’s branding is still visible. With the Borderlinx of shopping is by launching the first-ever website solution, users simply input their own US or UK that allows shoppers to buy products internation- address without ever leaving the merchant’s site ally from a single source. Called oneworldavenue. on which they are purchasing. For many shoppers, com, it makes it possible to pay shipping, duties this is an important matter of trust: They may feel and taxes up front, taking the risk out of interna- comfortable buying off a merchant’s own website tional purchases. but become uncertain about buying via an un- known payment system. According to Mitchell, oneworldavenue.com rep- resents a big opportunity for Borderlinx because When the shopper is ready, packages are consoli- the business model simplifies logistics and reduces dated and shipped. Before purchase, customers can the cost of shipping compared to the borderlinx. estimate their shipping fees and duties online with com model. The specifications for goods are the Borderlinx total-cost calculator. Once packages known in advance for purchases made on one- arrive at a shopper’s Borderlinx-sponsored address, worldavenue.com, whereas borderlinx.com orders Borderlinx provides the customer with final ship- may come in all sizes and shapes. Borderlinx.com ping costs based on the actual weight and dimen- never knows the dimensions, the weight and the sions of the packages. It also makes it easy for value of the items that are headed to the ware- shoppers to pay their international duties. house, and the company must invest time and
    • InsightOn: DHL Case Studies 81money to look up the information to prepare Borderlinx proves that good collaboration be­items for forwarding. With oneworldavenue.com tween logistics providers and e-retailers is key toorders, the company is sent an alert about the success for all. By working together, DHL,critical shipping information and does not have to MasterCard and Borderlinx plan to successive­y lmanually look up product information. open up new international markets and sell the joint service to their respective customers.For merchants who sell via oneworldavenue.com, Essentially, the three partners aim to make cross-Borderlinx provides a unique opportunity to out- border shopping as easy as possible.source the entire international shopping experi-ence for customers as well as the risks that come In the process, borders will be broken down forwith it. For shoppers, it’s the best of both worlds, online merchants, the partners will benefit fromconsolidating the Borderlinx experience and the higher value and a higher number of transactionsshopping mall experience into one, said Mitchell. and, what’s more, shoppers will have options they didn’t have before. They will be able to get the“It’s the first end-to-end international e-com- best deals on the products they really want – nomerce offering,” said Mitchell. “We envision both matter where on the plan­ t those products are to eBorderlinx partnerships enabling the promise of be found.international e-commerce to truly unfold for mer-chants and shoppers.”
    • 82 2. Enforcing Intellectual Property Rights – •  eutsche Post DHL supports efforts to take ac- D the DHL View tion against the violation of IPR and is engaged in full cooperation with authorities within appli- Risk management is the science of balancing out cable legal frameworks. potential rewards with potential costs. •  here it is suspected that IPR – infringing goods W In the supply chain, it’s also a tool for finding the are being carried by the network, Deutsche Post proper equilibrium between legitimate trade and DHL will cooperate fully with regulatory authorities. controls meant to curb the buying and selling of counterfeit goods. One way to strike the right balance between legiti- mate trade and necessary controls, says Adrian Online shopping gives the makers of counterfeit Whelan, the senior vice president and head of goods new reach into new markets – boosting Global Customs and Security for DHL Express, is to what is already a multi-billion dollar industry for target controls where they are to be most effec- knock-off products, such as luxury handbags, tive, for instance by using sophisticated risk man- medication or men’s wristwatches. The trade agement techniques that rely on algorithms and harms both the original producer and the consum- models that combine information from intelligence er. In some cases, counterfeit products can even sources to focus in on high-risk areas. be deadly – if they fail at the wrong moment or contain toxic substances. “Customs officials should apply enforcement sys- tems based on international best practices that use As a leading global logistics company, DHL has risk analysis and risk management to identify goods formulated a policy about the problem of intellec- which pose potential IPR risks,” said Whelan. tual property right (IPR) infringement. Among oth- er points, the policy states that: And, of course, it’s critical to combat counterfeit- ing from the supply side – i.e. in the country of ori- •  eutsche Post DHL will not knowingly carry D gin of the counterfeited goods – as well as from goods that infringe IPR. the demand side, Whelan added.
    • InsightOn: DHL Case Studies 833.  00,000 Registered Users for 5 introduces the products on the portal and eases MeinPaket.de the way for customers to go online and make pur- chases via MeinPaket.de.A good selection. Secure transactions. And reliabledelivery. For many consumers, these criteria are top Customers have a range of benefits as well. Theyof the list when choosing an online marketplace. can buy from 2,500 vendors through a single, se- cure DHL login, saving them the effort of register-DHL offers just this with its MeinPaket.de online ing with the vendors individually. They also haveshopping portal, launched in 2010 as part of DHL’s full control over their shipment and have access tostrategy to support e-commerce vendors with all the services they’re accustomed to from DHL viapossible services. Today, MeinPaket.de presents the MeinPaket.de platform. For instance, they canfour million products offered by 2,500 vendors to track their shipments with a mouse click or man-more than 500,000 registered customers. age their returns via a single, integrated account.Merchants, including DHL’s business customers, are In addition, the customer can use DHL Checkout,using the marketplace as an additional sales chan- an innovative payment system that is activated atnel for everything from cosmetics and copy paper to the time of registration on MeinPaket.de. The cus-high-end mountain bikes that retail for 3,500 euros. tomer’s address and payment data are saved dur-Goods are categorized into areas: Technology and ing registration. When a customer makes purchas-entertainment, living and enjoying, leisure and hob- es, he or she selects a delivery address and aby, house and garden, and special offers. Some ven- preferred payment method. The order can be com-dors offer daily sales promotions with spectacular pleted within two clicks. Online merchants can in-discounts that can help them lower their invento- tegrate the DHL Checkout system into their ownries: For instance, Kontra sold 1,000 brand-name web shops independent of their participation ontelephones and Heuer moved 500 game consoles MeinPaket.dewithin a single hour. MeinPaket.de, available for the German marketUnlike other marketplaces, MeinPaket.de is adver- only, is provided to merchants at a fair price,tised through traditional channels as well, repre- roughly 4 to 8 percent of the sales price of an arti-senting yet another benefit for vendors. DHL sends cle, as well as a 20 euro fee for registering an on-out a printed customer magazine by mail to reach line shop on the portal. DHL does not see the mar-those market segments that may not be typical on- ketplace as a competitor to that of Amazon orline buyers, such as the over-50 group. The mag- eBay, two important customers with whom DHLazine includes articles on a wide variety of subjects, will continue to work closely.
    • 84 4. Helping Geeks Get Their Favorite Toys a technology that allows ThinkGeek to meet peak During the Holiday Rush volumes in the fourth quarter and remain efficient during the rest of the year, when volumes are lower. ThinkGeek, an American online retailer that caters to people who are passionate about technology, The company now occupies 130,000 square feet, had been experiencing tremendous growth, in- which is 30 percent less than the previous site, cluding fourth-quarter sales that were several and it uses a three-level pick tower. The tower re- times higher than usual non-peak volumes. duces congestion by storing product up instead of out and ensures efficiency during peak holiday Being computer geeks as they are, ThinkGeek’s times. A conveyor system can be adapted when c ­ ustomers have high expectations that their orders needed to keep packages moving. for computer accessories, humorous T-shirts and caffeinated drinks will arrive on time without a hitch. Exel provides the picking, packing and shipping services at the distribution center and manages The company had one distribution center that was personnel. Any order that comes in by 2:00 p.m. operated by a small third-party logistics company Eastern Standard Time during non-peak season is (3PL), but it needed a more flexible solution to po- shipped out the same day. During peak season, sition the company for growth. ThinkGeek part- items are sent within 24 hours. nered with Exel, a sister company to DHL Supply Chain operating in North America, to help it fulfill Since the partnership began, Exel has successfully the huge amount of orders it expected to receive fulfilled a significant percentage of volume during during the fourth-quarter peak and to establish the six-week peak period. The flexible supply the right solution for future growth. To pick, pack chain solution has also reduced returns by 5 per- and ship these orders effectively, the two partners cent, raised inventory accuracy to 99 percent from began working months in advance to redesign the 92 percent, and established a year-on-year pro- warehousing and delivery systems supporting ductivity improvement of 18 percent. ThinkGeek. The facility and team are now well positioned to Exel set up operations at a shared-use distribution meet peak-season demands with a high degree of center in Ohio that features vertical mechanization, flexibility and efficiency throughout the year.
    • InsightOn: DHL Case Studies 855. Packstation: Convenient 24/7 Parcel euro cheaper than processing the shipment ­Services by DHL through a DHL shop.Seeking to provide a better access for customers The idea of launching Packstation evolved out of ato their parcels, Deutsche Post DHL developed the changing customer behavior. Having more singlePackstation system. Since its inception in 2002, households in Germany and people travellingit has offered a wide selection of services, from b ­ igger distances to work each day, it was difficultd­ elivering shipments to picking up parcels around for the couriers to deliver parcels during workingthe clock and franking. hours. Another point is the development of online shopping. Since shopping habits have changedFor parcel services, customers have the choice to due to the significant increase of e-commercehave their shipments delivered to the Packstation, p ­ roviders, shoppers are able to purchase itemsso the parcel is no longer brought to the custom- round-the-clock on the internet. Having a flexibleer’s home address but can be picked up individu- and time-independent delivery of the parcels fitsally. The process is easy: Customers register on better with the customers expectations: They wantthe internet and receive a Packstation access card. to receive their parcels as fast as possible andWhenever ordering a parcel they can decide to c ­ ircumvent the inconvenience of being at workhave it shipped to their home or to a Packstation when the parcel arrives. Having access to afor collection. If a parcel is meant to be shipped Packstation, customers can easily pick up theirto the home address but the recipient is not there, parcel after work or make a shipment outside re-the DHL courier knows, via the ­ canning device, s strictive working hours. Stamps are available atwhether the customer is a Packstation member and the Packstation and the parcel can be left in oneif so can deliver the shipment to the nearest one. of the boxes where it will be picked up by DP DHL.Once a parcel has been deposited at the Packstation Currently 2 million customers all over Germanythe customer gets a text message and/or email. can access around 2,500 Packstations. StartingThe parcel then can be picked up easily using the in 2002 with 56 boxes, there are now overcustomer’s card all over Germany. Dedicated 200,000 boxes available in more than 1,600 citiess­ ervice is provided by a modern touch screen, a and counties. The service has been rolled out in acard reader device for the customer’s card and a number of countries to date, such as Austria,card reader for the credit card to frank the parcel. Lithuania, Russia, Denmark, Luxemburg, TurkeyThe advantage: Franking at Packstation is one and Dubai.
    • 86 6. Return Solutions elements of DHL’s strategy to make online buying as simple and easy as possible – for end custom- It can happen to the best of shoppers: The dress ers and for thousands of online vendors as well. you ordered online arrives – cut one size too big. For instance, when a customer initiates a return Or the mobile phone you purchased via the inter- with the online returns solution, the merchant is net needs repair. provided with critical data about the returns pro- cess. The vendor can forward that information to In both cases, it’s time for a return. In the world of its own customers, thereby offering superior cus- bricks-and-mortar shopping, that would mean a tomer service and building loyalty. DHL also pro- trip back to the store, standing in line at the regis- vides its business customers with information that ter and conducting the transaction. gives them complete transparency and control of expected returns. For online buyers, returns can be as quick as a few clicks, and, of course, they’re done from the com- Reverse Logistics fort of your own home. Members of the shopping For many businesses, returns handling and recalls club Brands4Friends.com, for instance, simply se- can be a critical factor for success. Some even seek lect the item that needs to be returned, and a few to differentiate themselves from the competition clicks later, they can print out a bar-coded and with superior after-sales service. The US-based pre-addressed label for the outside of their pack- shoe vendor Zappos, for instance, says its loyal age. Members slap that on the parcel and hand customer base and high reorder rates are partly over the package to a DHL driver, at a service due to its liberal returns policy. center or via a 24/7 Packstation. But what happens when returns are more than an The idea is to make the returns process as easy as occasional package? The answer is not so easy. By possible for the 3.5 million members of the some estimates, only 1 to 5 percent of goods are German fashion club that was acquired by eBay in returned, but their handling can use up a dispro- 2011. It is Germany’s largest online shopping club portionate amount of a manager’s time and a focused on brand-name specials for members who company’s resources. are on average 32 years old. Usually called reverse logistics, the process of get- The online returns solution, which is integrated di- ting products back from the end customer to the rectly into the website of Brands4Friends so that correct spot for the required action – which may be users never have to leave that site, is one of many located at the manufacturer, the retailer or a service
    • InsightOn: DHL Case Studies 87center – is indeed complex. It’s a part of doing busi- central repair facility. DHL Supply Chain Indianess in almost all industries, but reverse logistics are a worked with Acer to consolidate the warehousesparticular challenge in the technology sector. to three regional hubs in Mumbai, New Delhi and Kolkata and to perform screening and repair oper-Just think about what needs to happen to that mo- ations at each of those hubs.bile phone you want replaced or the hard drive thatbegan to overheat and needs repair. DHL is managing the whole reverse logistics pro- cess – from warehousing, to repair, to transportThe package must be handled by the logistics pro- services – for 10,000 parts repairs per month. It isvider as well as warehousing and customer service also providing a dashboard and metrics so thatstaff, and people in marketing and product develop- Acer has full visibility, traceability and control.ment may also be alerted about the return, as they Since the solution is working so well, DHL andseek to improve product information or design. Each Acer are considering taking it global.time the package is handled, the complexity of thetransaction and the costs increase. Recalls Now imagine that Acer or another company hadAs a result, companies seek experienced partners to to suddenly recall a product due to a consumerhelp them manage returns and reverse logistics, and safety issue. This happened in 2009 to a maker ofthey often want those who can offer additional ca- children’s strollers. The strollers were recalled af-pacity during peak return times, such as right after ter 12 children lost parts of their fingers when us-Christmas. ing the strollers. Such situations require well-test- ed plans and fast action to fulfill the legal andCreative partners will help their customers analyze regulatory requirements of recalls and to minimizetheir returns processes and integrate steps to reduce bad publicity for the brand.costs, such as screening or testing products upfrontor providing repair services directly at a warehouse DHL, which has managed large, global recalls, in-to avoid further transport. cluding the recall of 40 million lithium batteries for a major mobile phone manufacturer, is furtherService Parts and Repairs – Acer developing and standardizing its offering, the DHLAcer, a maker of computers, smartphones and pe- Recall Solution. It is also expanding servicesripherals, asked DHL to make suggestions on how it through the DHL Recall Alliance, a consultancycould improve service parts and repair operations in that helps customers make contingency plans forIndia at the company’s 21 parts warehouses and a a potential recall.
    • 88 7. Easy Return – A Standardized Return Returning a cross-border parcel by conventional Solution means can be inconvenient and costly. One com- mon method is having the consumers pay for the In order to better meet the needs of cross-border export parcels back to the distance seller first, e ­ -retailers and their customers in the area of returns, who then have to refund the cost of postage DHL Global Mail has created a service called DHL (which is troublesome for both parties). Another EASY RETURN. This is a convenient and simplified method is to use couriers who pick up the parcels return solution for European distance sellers out- at a pre-arranged time at the consumer’s door- side Germany. For German e-retailers however, a step (but this may be inconvenient for the busy similar service is available under the name of consumer). Finally, a third method is to have the DHL Retoure International, offered by DHL Paket. consumers take their parcels to the courier’s d ­ epot themselves (which is time-consuming and Europe is now a major marketplace for mail order involves travel, usually due to low depot density). customers and online shoppers who are more like- The harder it is for the consumers to return their ly to buy a product if they have the option to re- goods to the e-retailer, the less likely it is that turn it easily, with no incurred costs. they will return to buy from them again. Yet buying from a website abroad may be off-put- With DHL EASY RETURN, DHL Global Mail pro- ting for some would-be consumers, simply be- vides e-retailers with return labels, customized to cause cross-border returns can be so complex. almost every postal outlet throughout the EU Each European country has its own returns rules (presently available for returns from around 20 and border regulations, which can cause insecuri- countries including Germany). The e-retailers can ty for both e-retailers and consumers. Only the simply download a return label as necessary and biggest e-retailers have the money and resources send it via email to their customers for printing; or to set up domestic returns solutions in each indi- to reduce the workload they can provide a web vidual country they wish to do business in. link via their webpage so that consumers can print the return label out by themselves on the DHL With DHL EASY RETURN, however, big and small homepage; or they can integrate a web service for e ­ -retailers can offer customers outside their home label generation in their webpage or system and countries a standardized return solution with the provide the label this way. The return labels are backing of a well-known international logistics brand. usually pre-paid for most European countries with This takes all the complexity out of cross-border only few countries having differing regulations. r ­ eturns to make the process as straightforward as sending a domestic parcel, thereby increasing con- The consumers then simply fix the return labels to sumer confidence and encouraging repeat purchases. their parcels and take them to one of currently
    • InsightOn: DHL Case Studies 89more than 80,000 drop-off points across Europe. and flexibility for the consumers and it providesThe postal services take all parcels to DHL’s them with a smooth returns experience. For theEuropean hub, where the parcels are consolidated e ­ -retailers, it is both easy to set up and an effectiveand returned the most cost-efficient way to the way to manage their return volumes with minimaloriginating distance seller. effort. The DHL Global Mail web portal provides visibility so that e-retailers using DHL EASY RETURNDHL EASY RETURN caters for the needs of consum- can trace their returns at any time, improving in-ers and e-retailers alike. It offers both ease of use ventory management and reducing costs.
    • 90Background InsightOn: InsightOn: is a series of special reports com­ The print version of this report can be ordered, prising external and proprietary insights into and the PDF version downloaded selected global topics from the world of at www.dhl.com logistics and commerce. Each report takes an in-depth look and examines potential change and solutions on the horizon for each special topic. InsightOn: also serves as a practical resource for businesses, governments and educational institutions. The Magazine for DHL Customers ISSUE 3 | 2011 OneVoice OneVoice is the global DHL customer mag- www.dhl-onevoice.com azine. It is published six times a year and intends to keep readers informed of the latest developments, trends and innovations across DHL and in business around the world. Each INDUSTRY FOCUS: ENGINEERING & MANUFACTURING issue is comprised of features on logistics and COUNTRY FOCUS: AFRICA business topics, news, in-depth coverage of key global markets and industry sectors, plus THE EXECUTIVE VIEW: DIAGEO opinions from leading executives. Delphi Study Published by Deutsche Post DHL in 2009, Deliv- www.dp-dhl.com/en/logistics_around_us/ ering Tomorrow: Customer Needs in 2020 and delphi_study.html Beyond. A Global Delphi Study The Delphi Study identified ten top trends for the future – green technologies and the ­significant role of the logistics industry among them. Also examined within the DELIVERING TOMORROW Delphi Study is the probability of 81 separate Customer Needs in 2020 and Beyond h ­ ypotheses being realized, as determined by A Global Delphi Study numerous international experts.
    • InsightOn: Background & Bibliography 91BibliographyPicture Credits:Page 5: Thorsten ScherzPage 6: Getty ImagesPage 9: David KlaumerPage 11: Getty ImagesPage 14: ThinkstockPage 16: CorbisPage 17 top: Getty ImagesPage 17 bottom: Getty ImagesPage 19 left: CorbisPage 19 right: Getty ImagesPage 20: Getty ImagesPage 23: CorbisPage 24: Getty ImagesPage 26: Getty ImagesPage 28: Getty ImagesPage 29: Getty ImagesPage 32: CorbisPage 33: Getty ImagesPage 35: CorbisPage 36: CorbisPage 37: CorbisPage 39: WehmeyerPage 44 left: CorbisPage 44 right: CorbisPage 45: Rick Pushinsky / eyevine / Picture PressPage 46: ThinkstockPage 47 top: Getty ImagesPage 47 bottom: Getty ImagesPage 48 top: Getty ImagesPage 48 bottom: Getty ImagesPage 49 top left: CorbisPage 49 top right: CorbisPage 49 bottom: Getty ImagesPage 54: ThinkstockPage 75: ThinkstockPage 82: CorbisPage 86: CorbisPhotographs used in illustrations: Corbis, Getty Images, Thinkstock
    • 92ImprintEditor-in-Chief/Project Director Managing Editor Michelle Bach Hannah Rausche Writers Publisher Rhea Wessel Deutsche Post DHL Tony Greenway Christof Ehrhart | Silje Skogstad Picture Editor Printer Marialuisa Plassmann Druckhaus Fromm GmbH & Co KG Illustrator Editorial Contact Janina Kossmann Michelle.Bach@dhl.com Paper: Recymago (115 g/m2 inside pages, 200 g/m2 cover). Print Coordination Project Team This paper is made from 100 % recovered paper. Williams Lea Diane Rinas Manfred Rehberg Johannes Oppolzer We are committed to protecting the environment and Valerie Smith the world’s resources.