Electronic commerce and logistics

Internet provides today a broad range products and services. From logistics viewpoint the most important difference between “brick-and-mortar” shopping, i.e. traditional retail store, is the need to deliver the goods. Customers have traditionally taken care of the home delivery of products themselves. In electronic commerce (also e-commerce, eCommerce, Internet shopping, online shopping or e-business) the goods are delivered directly from warehouse to customers. This has a

number of logistical consequences:

  • Storage and warehousing can be centralized
  • Delivery size decreases with deliveries to individual consumers
  • The number of deliveries is growing
  • Home deliveries and related logistics volumes rise

Centralization of storage reduces both the number of stock keeping units, as well as, the amount of total inventory. In theory, customers can be served globally using a single centralized warehouse. This on the condition that an adequate level of service can be provided with fast transports and at reasonable costs. 

The current  warehouses are typically planned for wholesale operations and are consequently not well suited to on-line logistics. However the growth of e-commerce is changing the traditional multi-level storage structure toward  more centralized systems. The level of stocks is also reduced due to modular product structures. This means that the consumer products are assembled from components and modules to fulfill customer orders. For example, computers are assembled from modules providing are a wide variety of different versions. Similarly, the appearance of the product can be varied by means of coloured components. This may have a significant impact on the number of items in inventory (Stock Keeping Unit or SKU).

Another important effect on e-commerce logistics, and particularly on transports, are the decreasing lot sizes, as goods are delivered to individual consumers. Thus, the lot size is reduced from tens or hundreds to single products.

The number of shipments will also increase due to the same reasons. This can been seen in the rise of international carriers. When consumers order books directly from, e.g. USA, they are delivered as individual packets, instead of larger batches which the book wholesalers would order.

Mail or postal services have traditionally taken care of a large part of home deliveries. When consumers purchase products from various internet stores, it increases the number of home deliveries. This is called the “last mile challenge”, i.e. how the products are delivered from the supplier to consumers.
Consumers require a variety of options for delivers, such as:

  • pickup points at home or close to home
  • automated pick up points 
  • courier services

Pick-up points are traditionally offered by post offices, but today can also be found at gas stations, mall, kiosks and at stores, which have the advantage of long opening hours. Consumers want pick-up points close to their homes, as wellas,  at commuting points. Consequently, pick-up points are found in cities at railway and metro stations and at other transport hubs.

Automated pick up points offer facilities to pick up, and also send packets around the clock, and accordingly the number and use automated pick up has grown rapidly in recent years. Low costs are also driving their numbers. 

Courier companies offer premium services for fast and flexible transport services. Experiments have also been carried out by providing homes with delivery boxes situated e.g. in garages. This enables distribution without the recipient’s presence, and facilitates better scheduling of distribution. Otherwise, with home deliveries the problem is that all households want their products at the same time (“between 17-19”).

Online shopping  includes  also sold non-physical products and services, such as tickets, games and entertainment content. The connected logistics  does not require traditional storage or transport, as the goods can be delivered directly to the customer as electronic or mobile tickets.  The sales of travel tickets has almost completely moved to internet due to lower costs.

Food and groceries online

Food is one of the largest grocery sales items, and they are also the main reason why consumers go to shops and markets several times a week.

During the Internet boom at the turn of the millenium, it was generally expected that also grocery sales would go online. However, this did not realize.  In recent years however, grocery e-commerce has grown in several countries. Particularly, in the UK the grocery giant Tesco has expanded its sales by offering online shops with home deliveries and store pick-ups.

Large volumes have enabled the automation of storage and pick up, too.

During 2020 food home deliveries have grown up to several hundred percent. it remains to be seen how much of this will be permanent.

Online shopping brings along higher pick up and home delivery costs in grocery business. One of the challenges is that consumers are generally not willing to pay for the work done for them and typical delivery charges range  from 7 euros upwards.  In same markets delivery service packages with a yearly cost are available. For example, Amazon Premium customers can with a lump sum order as many times as they want.

Perhaps the most important reason for the slow growth of foodstuff e-commerce is consumers desire to choose products themselves. In particular, fruits and vegetables are among the goods that consumers want to pick and choose. E-commerce has great potential in groceries, and its growth would have great impact on logistics and particularly home delivery services.

Impact of e-commerce on logistics and supply chains

Online stores deal directly with the consumer, and consequently the supply chain is much shorter than the traditional supply chain which consists of producers, importers, wholesalers, distribution warehouses and stores.

Doing business directly with the producer can cut down costs, but requires effective logistical solutions for success. These services are usually purchased from logistics service companies. From customer viewpoint the

quality and timeliness of  is emphasized, as the challenge is to deliver a large number of products to customers at promised times. This is particularly relevant in home deliveries with large number of customers. Online store need not  themselves carry out logistical operations, as these can be outsourced to specialized logistic companies. These firms provide a wide range of services from individual transport and storage services to the complete package solutions. Online stores can therefore outsource logistics completely with the logistics company handling the entire supply chain from  international transport, storage and distribution to home deliveries.

Returns are a significant logistical challenge in online shopping, as for example in clothing business a large percentage of products are returned.

Multi­channel logistics

Multi- channel means the use of several different channels in the sales and delivery of products and services. In practice, this means that products can be purchased from the traditional store, online and through mobile devices. This development can be seen already in banking services, which can be used by visiting the branch office, ATM or by using a computer, tablet, or smart phone.

Using multiple channels changes logistics solutions, as goods are not delivered directly at stores, but have to be delivered otherwise to consumers’ homes.

Multi-channel approach will also change the role of stores and shops. They are no longer the main place to buy goods, but assume the role of showrooms for consumers to look and try the goods. Logistics services will then deliver the goods to consumers.

Currently, it is typical for consumers to search and compare goods online and then purchase from stores and shops.

Online sales of special products

Traditionally a wide range and large number of products has been considered as the competitive strength of stores. From logistic viewpoint, this has always been a problem, as it leads to large stocks, and to threat of obsolescence of products. Consequently, volume products are the strong point of traditional stores. However, with centralized stocks, online store can provide very special products to wide markets with reasonable costs. These are called “long-tail” products where volumes are low, but customers can be served over a wide area.

Figure 1 describes the differences between the mass of the products and long tail products.

Sales volume at vertical axis, number of products at horizontal axis

Customers of e-commerce and purchasing

According to statistics (Statistics Finland, other statistics) e-commerce has grown dramatically in recent years, with up to 10% annual growth, and this is expected to continue in the near future.  This has a clear impact on demand of logistics services. During 2020, the growth has been up to several hundreds of percents, but the permance of this growth remains still an open question.

In addition to domestic online shopping, a large share of purchases are  directly bought by consumers from foreign online stores. United Kingdom, Germany, United States and, most recently, China have increased their share of online consumer sales. The market is also dominated by few large players, and e.g. Amazon’s recent enter to Scandinavian market, may change the competitive situation.

The main product categories are consumer electronics, which almost half of the buyers have bought in online stores. In addition clothes, shoes and media products are growing rapidly.

Consumer groups and e­commerce

There exist wide differences in the use of e-commerce among different consumer groups. While the younger generation (so called e-natives) is using e-commerce on a daily basis, the elderly ones use it less frequently.

However, it is notable that there is a great potential in the older age groups (over 60’s) in online shopping,  as the majority of this group is using internet and mobile phones regularly. The non-users are found mostly in the age group of over 75’s. The older age groups have also the greatest need for home deliveries of goods, because for them the traditional supermarkets are difficult to use. Therefore, it is forecasted that the elderly will be an important user group of home deliveries. This has to some extent realised during 2020 Pandemia.
In the younger age groups online shopping, and in particular, information and product search is also increasingly done by smart phones and tablets.

Pick-up point

Pick up point is for pick-up location of the goods for consumers. Their advantages are mostly long opening hours, allowing easy access and convenience to consumers. Pick-up points are available, e.g. at supermarkets, shopping malls, gas stations and alike. Typically they are connected to long evening and weekend opening hours and good parking facilities. In the cities of pick-up points are also found at public transportation hubs, such as metro and train stations.