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E-Commerce & Collaboration

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If everyone is moving forward together, then success takes care of itself.

HENRY FORD

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InsightOn: Editorial Bill Meahl 05

Dear Reader, With the growth of e-commerce, the way people consume is changing rapidly, with strong impact on the way many companies do business and on their supply chains and logistics. Theres no doubt that e-commerce empowers consumers through ease of use and broadening product choice. Plus, for logistics providers, it opens up a whole new area of potential, because, of course, products ordered online need to be delivered to doorsteps. Those doorsteps might be in the next town; but they might also be on the other side of the world. For every opportunity, theres a challenge. How can good delivery performance be achieved cost-effectively in an era of higher fuel prices and higher volumes, for example? Collaboration may be one part of the solution. Collaboration is frequently discussed in business, yet not always fully understood in its entire scope and potential. Most commonly, companies think of collaboration as what happens at a consolidation center, when manufacturers and retailers work to share warehouses, transport infrastructure and information. Some people call this horizontal collaboration, and it is indeed an option that many companies are pursuing as higher e-commerce volumes change the equation on the market. Then theres vertical collaboration in which suppliers in a single industry, such as the semiconductor industry, consolidate goods and share transport, since they are often retracing each others steps and sharing the same customers from a logistics point of view. True collaboration is hard to achieve, of course, as youll read in the second half of this report. Luckily, its also a topic that inspires a great deal of thought leadership, some of which is highlighted in the following pages. I invite you to enjoy our take on e-commerce and collaboration and to find out more about what experts from around the world have to say about both. Best regards,

Bill Meahl Chief Commercial Officer at DHL

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InsightOn: Contents 07

Contents
Editorial Bill Meahl Contents Editorial Ken Allen Facts & Figures The Game Changer Life Plugged In Consumption 3.0 The Expert View Johan Paludan Reaching Customers Globally and Locally Perfection: What Customers Expect with Online Shopping The Ripple Effect of Online Purchases Global E-Facts E-Commerce: The Growing Pains The Expert View Christoph Wenk-Fischer E-Commerce and Collaboration An Evolution of Collaboration Collaboration The Human Factor Collaboration: A Foundation for Supply Chain Innovation The Expert View John Gattorna Orchestration: The New Form of Collaboration The Foundation of Future Business DHL Case Studies Background and Bibliography Page 05 Page 07 Page 09 Page 10 Page 13 Page 14 Page 20 Page 25 Page 26 Page 34 Page 38 Page 42 Page 44 Page 50 Page 53 Page 55 Page 58 Page 65 Page 70 Page 74 Page 76 Page 78 Page 90

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InsightOn: Editorial Ken Allen 09

E-commerce revenues worldwide are expected to reach 1 trillion US dollars this year. By 2015, the world will have 3.7 billion internet users. Already, the number of internet users in Asia is double that of Europe, even though penetration rates in Asia are still low. The numbers are staggering. And, as e-commerce flourishes, they are only set to rise. For retailers with an online offer, then, the international opportunities are both hugely exciting and there for the taking. The phenomenon of online shopping (and it is a phenomenon, touching everyone wherever they are in the world) allows enterprise the chance to break into new markets particularly lucrative developing ones. It also allows them to build a prosperous and truly global customer base. There is, of course, a however and its this. Successful product shipment is going to become more critical than ever for retailers who want a slice of the e-commerce pie. You might have developed a truly groundbreaking product, but if you cant transfer it easily from your website into the hands of your customers, your business will never succeed. Studies have shown that effective logistics particularly in the retail e-commerce sector are a competitive differentiator for merchants. If you can offer the items that people want or need and ship them more efficiently than your competitors, you offer something of real value. Your business is duly marked as a cut above the rest. For those who recognize this, online is a real growth opportunity, a point made in the first half of this InsightOn: report which explores the trends, prospects and challenges of e-commerce. The second half of the report looks at collaboration as a means to tackle some of the more taxing problems and complexities of e-retail. Collaboration is a word we know well at DHL. We believe in close collaboration with businesses in order to drive sustainability initiatives, reduce costs and implement the best, most efficient integrated solutions for their individual needs. Of course, we are well known for providing critical services that enable the vast flow of goods around the world, and for our ability to move high volumes from one corner of the world to another on time and within budget. But we also do far more to support our customers who run businesses online. For example, we provide software products that make it easy for merchants to ship and track their packages and manage their returns a facet of e-commerce highlighted in this report. Whatever viewpoint you are reading from, e-commerce isnt a subject any of us can choose to ignore. Online retail, with all its multi-faceted challenges, is here to stay. With that, Ill leave you to explore our latest InsightOn:. Enjoy your read. Best regards,

Ken Allen CEO, DHL Express

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S AL E
of American retailers polled expected 2011 online holiday sales to increase by at least 15% from 2010

68%

projected annual growth of e-commerce in countries such as Spain, Brazil, China, Russia and Mexico through 2015

26%
More than 1000 101 to 1000 11 to 100 Under 10

7 9

16 number of top 50 online retailers that featured more than 1,000 videos on their site in Q1 2011. 18

InsightOn: Facts & Figures 11

48%
of monthly retail budget that U.K. shoppers spend online

fraction of smartphone users who shopped by phone in September 2011

2/3

$ 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

75%
mobile commerce grew between 2010 and 2011, as measured in the e-tailing groups 14th Annual Mystery Shopping Study

average number of hours internet users in Europe spent online in March, 2011

224 000 000


number of ebays unique visitors per month

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InsightOn: The Game Changer 13

The Game Changer


E-commerce once described how companies operating in the B2B sector conducted business by sharing information electronically. Nowadays, it has a completely different meaning: e-commerce is 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 international phenomenon a consumer in Madrid, say, can order goods from a seller in Missouri. Yet, from a logistics perspective, this involves a long supply chain that crosses borders, currencies and customs regimes and requires a costeffective and consistent solution. The consumers repeat business depends on it. Returns is another conundrum. How does a faulty or unwanted product go back through the supply chain in a way that serves and satisfies the customer, but doesnt squeeze the margins of the e-retailer or the logistics provider? Its a question that the logistics industry is still grappling with. Theres no doubt, however, that e-commerce is a game changer for the retail industry. Its also growing exponentially. Online companies who want growth and what ones dont? know they need to set up their businesses and supply chains to take advantage of a new shopping reality. The ones who dont wont be around to tell the tale about how they tried to turn back the e-commerce tide. So, in the first part of this edition of InsightOn:, we look at the continually evolving e-commerce landscape and investigate its trends, opportunities and challenges from the viewpoints of the consumer, enterprise and the logistics operator. If retailers are going to thrive in the age of e-commerce, then collaboration could offer a way to implement greater competencies in logistics planning and execution. At its simplest level, collaboration is about the sharing of equipment, vehicles and carriers; but its also about sharing critical data on the movement of goods as they

travel to the end user. There are human factors to consider, too: Collaboration between internal team members and their managers, for example, and cross-collaboration between their opposite numbers in external (and sometimes competing) organizations. For this to be successful, a common focus and open communication is needed; plus an understanding of the end goal by staff at many different levels within a business. So how do companies collaborate successfully? What challenges and barriers must they overcome to do it effectively, what is its true cost and how can it be encouraged? In the second half of this report, leading international academics and logistics experts (including author and consultant John Gattorna, and Richard Wilding, a professor of supply chain strategy at Cranfield School of Management) offer the latest thinking and strategies on collaboration. Could it be a turning point for e-commerce?

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Life Plugged In
The digital world with its always-on, 24-hour cycle of information, communication and media permeates lifestyles, shaping the way people interact, consume and make sense of the world we live in.
The changes are well documented. Anthropologists have shown how text messaging expected to top 9.4trillion messages by 2016 (Informa Telecoms and Media, May 2012) has transformed language; how instant messaging has shortened attention spans, and how consumers are collaborating and sharing in new-found communities that are no longer restricted by physical boundaries. These communities often pursue a greater good, such as reducing their carbon footprint or helping others with practical information on things as diverse as home health remedies, fashion trends and where to spot a shopping bargain. From a consumer perspective, computer technology has had the greatest impact of all by revolutionizing the way people shop. Now everything from groceries and home furnishings to cars and holidays can be bought over the internet. More than this, however, consumers can collaborate and share information, write reviews and impart tips in new-found online communities. Shoppers are no longer restricted by physical boundaries. Technology has empowered them. Futurists predict that our electronic connectedness will continue to impact daily lives in profound ways, including the way we consume. It may seem far-fetched now, but some futurists can see the day when you might not have to shop for yourself because your fridge will do it for you. It will be intelligent and, knowing when it is getting empty, able to initiate an order from an online shop thus taking you, the consumer, out of the equation. Your bathroom mirror, meanwhile, could have a dual role as a message centre, reminding you about your schedule as you get ready for the day, and/or summarizing your homes energy consumption and production. By tapping your mirror you post these results on a social networking site, where you are challenging friends to earn the most points to exchange for games and prizes to be collected online. If all this sounds outlandish, scroll back to the world today and notice that what was considered science fiction two decades ago is not only part of the new reality it is driving expectations

InsightOn: Life Plugged In 15

for consumers. For instance, between meetings at work, the busy consumer can now place an online order for a dinner to be delivered to their home at a time of their choosing. All they need to make this happen is two minutes access to a PC, laptop, mobile or tablet and a reliable delivery service, of course

Its no wonder then that retail e-commerce is booming. For several years now, it has been steadily taking market share away from traditional bricks-and-mortar retailers. In the US, for example, e-commerce reached 8 percent of overall retail sales in 2011, compared with roughly 4 percent in 2004. With reliable delivery and plenty of choice, consumers have discovered that click-and-ship is in many ways more gratifying than traditional shopping. People find that it fits into their lives much more easily than a trip to the store, where selection may be limited and comparing prices is done the old-fashioned way: Manually. And thats not to mention the benefits for lifelogistics: No more vying for a parking spot at a shopping area, waiting in line to try on clothes, waiting in line again to pay and then fighting traffic or crowds on the subway on the way home. Governments, too, are keenly aware of the advantages that come with e-commerce, and theyre keen to boost computer and internet usage to keep their economies and workforces competitive. As part of its Digital Agenda for Europe, the European Commission has set a target of enabling 75 percent of the population to be regular internet users by 2015, with the proportion of the population that has never used the internet decreasing to 15 percent. Within the same period, 50 percent of the population should be buying online and 20 percent of the population should buy cross-border online. For businesses and consumers alike, this trend opens up whole new worlds of opportunity.

DELPHI THESIS 46

IN FUTURE the internet connects 100% of the worlds population, based on a new infrastructure (e.g. glass fiber, satellite, mobile devices).
PROBABILITY
Denitely not: 13 % Unlikely: 25 % Denitely: 12 %

With reliable delivery and plenty of choice, consumers have discovered that click-and-ship is in many ways more gratifying than traditional shopping.
Multiple means of communication or hyperconnectivity is the new normal. According to Robert Greenhill, the chief business officer of the World Economic Forum, hyperconnectivity is redefining relationships between individuals, between consumers and enterprises and between citizens and state. He has said, We are beginning to see fundamental transformations in all areas of the economy and society. Most experts believe that e-commerce is not the driving force, but rather e-connectedness. Once connected, people then transfer their experience of instant information gratification and empowerment to the realm of e-commerce. In other words, e-connectedness means consumers want their products fast, easy and on their own terms.

Probably: 31 % Possibly: 19 %

Delivering Tomorrow: Customer Needs in 2020 and Beyond. A Global Delphi Study (see p. 113 for details)

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E-COMMERCE TRENDS
solomo We are perpetually in motion. Thanks to online technology, we can now all have a home and office on the move. With our mobile phones and tablets, we can field business queries, monitor our Facebook pages, send a Tweet, add to a blog and book a table for dinner while were, say, sitting on a train or relaxing at a caf table. Internet trend watchers have come up with a new acronym that could describe this behavior as well as one of the main trends on the world wide web: SoLoMo, short for social-local-mobile. The term conjures up a world dominated by social networks (So), in which local (Lo) commerce and communities thrive while people interact and transact from their mobile (Mo) devices. The Social, Local, Mobile (SoLoMo) revolution is here, says Daniel Laury, the CEO of LSF Network, a US-headquartered global digital marketing company offering digital advertising and performance marketing. With rapid rates of smartphone and tablet adoption, consumers are on the move, looking for information quickly and expecting relevant results on the go. Already in 2007, social networking surpassed email in terms of time spent online. By 2011, users in Israel, Argentina, Turkey and Chile all spent more than 10 hours a month on social networking sites. They were most likely sharing and commenting on photos of friends and family, swapping recipes or comparing their opinions on films, books and current events. Many people use social networks to research purchases and learn about products. For example, Mumsnet in the UK, a place where mothers compare notes and collaborate, has built up such a following that is considered crucial for influencing product choices and even elections. In India, India Consumer Forum is an online platform giving consumers the chance to share information about goods and services, post grievances and give helpful consumerrelated tips and advice. Then there is US site Pinterest, which invites visitors to share their favorite things on pinboards and follow collections created by others, and has over 12 million users a month. Plus, many retail sites have developed a sellers and buyers community forum discussion pages where potential consumers can read comments and reviews by posters who have already bought a particular product. US retail giant Amazon, for example, launched its customer discussion board in 2007. Christoph Schwarzl, a Kurt Salmon partner and the author of the book New Online Retailing, said, Many shoppers now consult their peers online before they make major purchases. For them, other consumers are considered more reliable and trustworthy than advertisers. going local Next comes business, with a definitive local twist, driven by social media users on mobile devices. While business may be global in many ways, companies like Groupon and LivingSocial help generate demand for products and services locally. And check-in services like shopkick drive foot traffic into retail outlets.

InsightOn: Life Plugged In 17

DELPHI THESIS 48

IN FUTURE all across the world, communication costs decrease extremely information and telecommunications are available to everyone at any time and almost for free.
PROBABILITY
Denitely not: 2% Unlikely: 19 % Denitely: 12 %

Indeed, a survey by comScore in 2011 showed that local listings are among the most relevant and trusted search results for consumers. Some 61 percent of online searchers consider local search results to be more relevant, and 58 percent consider local search results to be most trustworthy than others, it said. Relevancy typically means that users recognize the name or address of a business that has the products or services they want in a specific location. For businesses, it translates to a more targeted readership for ads. For a local company looking for local customers or a national company steering customers to local storefronts, local search provides targeted messages to the consumer searching for a product or service in a particular area, Laury said. The Mo trend in SoLoMo is also moving forward at full speed. Almost shockingly, more people on this planet could access a mobile phone network than electricity, if cost were no factor. According to the GSM Association and the United Nations, commercial wireless networks can reach 85 percent of the worlds population while the electrical grid can reach only 80 percent of the world population. With wireless access widely available and mobile handsets far cheaper than desktop PCs, its clear that users of the mobile internet will far outnumber their fixed-line brethren. At the time of writing, PCs are still the preferred way of connecting to the internet; but a new study by NPD DisplaySearch predicts that tablets will overtake PCs by 2016. Indeed, experts say that most of the mass market consumer world will never have a PC, but only a

smart-phone or tablet. The device will be the central nervous system of their lives and the place where they conduct their affairs, relying on the opinions of people in their social networks and services provided locally. In South Africa, for instance, internet use grew 25 percent in 2011, mostly due to access via mobile phones. And India may be raising a mobileonly generation, according to one study. It found that 49 percent of people who are using the mobile internet either never or infrequently use it from a desktop. Essentially, the SoLoMo trend is another example of how electronic connectedness and new consumer technologies have eliminated information asymmetries from the consumers shopping experience and put power into the consumers hands.

Possibly: 27 %

Probably: 40 %

Delivering Tomorrow: Customer Needs in 2020 and Beyond. A Global Delphi Study (see p. 115 for details)

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the internet and the developing world The internet may have its roots in Silicon Valley, but statistics show that its future will be decidedly international. Already, the strongest growth in number of users and the sheer largest number of users overall is in developing countries. Europe and North America now have the highest proportion of internet users among their entire populations, but the overall number of users is dwarfed by countries in the developing world. China, for instance, added more internet users in three years than all the internet users combined that exist in the US, according to Mary Meeker, an analyst at venture capital firm Kleiner Perkins Caufield & Byers and a recognized expert on internet trends and business. China had a population penetration of internet users of only 34 percent in 2010, but that rate was growing at 20 percent per year, according to the International Telecommunications Union and the United Nations. Whats more, the total number of internet users in China in 2010 some 459 million was already nearly double that of the US, where 244 million people were accessing the internet. Popular sites in China include the marketplaces Taobao and 360buy.com, which had more than 40 million registered users in early 2012 and processed 400,000 orders a month. In 2011 in India, 121 million people were estimated to be internet users. If that sounds like a lot, then its nothing compared to the overall Indian population, which stands at 1.2 billion. In such a big country, then, 121 million is a low figure; and, if internet growth was standing still, it would be unremarkable. But internet growth in India isnt standing still. According to research aggregated by wearesocial.net, it is growing

exponentially: 2011 saw 25 percent growth in Indian internet users over just 12 months. The future of the internet in India looks set to be driven by mobile devices. Figures from wearesocial. net highlight that 59 percent of all Indians only access the internet via mobile technology. With an increase in 3G and 2G services, and an Indian Government roll-out of low-cost tablet devices across schools nationwide, internet use is going to get much higher, very soon. With more and more citizens online, e-commerce in India is on the rise. In 2011, it was estimated that the value of online business in India had reached US$10 billion. Popular sites in India include 20North.com, offering electronics, books, music and movies; the fashion site 99labels.com; and Dealsandyou.com, which features deals and discounts on a variety of products. The same story is being repeated in parts of Africa, where undersea cables have opened up high-speed online access and dramatically increased business opportunities. Mobile is big news here: By 2015, mobile phone subscribers are expected to reach 850 million of which 250 million will have mobile broadband subscriptions. In Nigeria, according to statistics from the ITU (International Telecommunications Unions), 35 million new internet users came online during 2007 and 2010. Mobile use is high in the country, with over 95 million mobile subscribers (Nigerian Communications Commission). In South Africa, smartphone users also represent the future potential of internet growth. At the end of 2010, 6.8 million South Africans were using the internet; but by the end of 2011, that figure had increased to 8.5 million; and by the end of 2012 it is estimated to topple the 10-million mark.

InsightOn: Life Plugged In 19

E-commerce in South Africa is growing accordingly, as noted in an Internet Economic Impact Study survey by independent technology research and strategy organization, World Wide Worx, published in May 2012. The study indicates that e-commerce is growing at a rate of around 30 percent a year, and is showing no signs of slowing down, said Managing Director of World Wide Worx, Arthur Goldstuck. In fact, taking into account the fact that a number of major consumer brands and chains have not yet devised comprehensive online retail strategies, the scope for future growth is even greater. The result, says Goldstuck, is that an internet economy worth R59 billion in 2011 and making up 2 percent of the SA economy could grow to as much as 2.5 percent of the economy by 2016. Other points in case: the worlds largest internet properties may be American companies, but they sale, sale, cyber sale Black Friday, the day after the Thanksgiving celebration in the US, consumers typically begin their Christmas shopping. It has become a discount shopping day when millions of US shoppers hope for massive savings. The term Black Friday illustrates the point at which stores start to make a profit, or go "into the black." The holiday shopping season is important for the economy because 19 percent of retail sales occur between Black Friday and Christmas. For some retailers, such as jewelers, the period may bring in nearly 40 percent of their annual revenue.

are used by far more non-Americans than Americans. For instance, more than half of Googles traffic comes from outside the US. And the market valuation of Chinese and Russian internet companies has been rising quickly, according to Meeker. As of late 2011, Chinese companies like the search-engine giant Baidu and the online service provider Tencent were valued at more than US companies such as priceline.com and Yahoo! These rising figures have real implications for companies logistics operations. If businesses are not already shipping to developing markets, then they had better prepare to seize the opportunity in the coming years. A rising, internet-savvy middle class in the developing world is busy writing the next chapter of the e-commerce story.

Often, stores stay open until midnight to attract as many shoppers as possible. In recent years, however, Cyber Monday, the first Monday after Thanksgiving, has become almost as important to retailers. Its the day online shopping is gauged to predict how strong the holiday shopping season will be for retailers overall. With full stores and rising gas prices, online shopping is gaining ground as people simply do the job from their desktops or handhelds. During the 2011 post-Thanksgiving weekend, Cyber Monday sales alone hit US$1.2 billion, making it the heaviest US online spending day in history.

20

Consumption 3.0
Once, the mantra for successful retailing was location, location, location. Now, e-commerce is redefining the concept of place, allowing companies to create a virtual identity that can be marketed just like a physical one and enabling people to travel between both worlds.
DELPHI THESIS 56

IN FUTURE Web-connected interfaces make private homes intelligent environments, where temperature, aroma, personalized broadcasts, and information are automatically adjusted to the preferences of the inhabitants, at all times.
PROBABILITY
Denitely not: 2% Unlikely: 8 % Denitely: 13 %

Take the phenomenon of pop-up retail. In New York, Paris and Berlin, shops can appear quickly and be gone a few days later. The idea is to create a buzz online that transfers back to the physical world, enticing people to partake in short-term, limited offerings at frequently changing locations in city centers i.e. pop-up locales. Over the past few years, Toys R Us has opened hundreds of holiday pop-up retail shops using otherwise vacant retail space, Vogue magazine has rolled out temporary stores for teens that dont sell any items but offer makeovers and model castings, and USretailer Target offered New Yorkers two weeks to buy regular store items onboard a 220-foot long glass-topped boat that it motored into Chelsea harbor. Johan Paludan, a futurist who has worked at the Copenhagen Institute for Future Studies since 1976, says the pop-up retail trend is part of a wider ongoing transformation of retail space to event space. Bricks-and-mortar shops are quickly finding out that they must offer something special to compete with the benefits of buying online. It wont be long before people head to shopping areas not to buy things but to seek entertainment, Paludan said. Digital natives dont want to waste their time. They will only go shopping for one reason: To have fun. Those retailers who are successful in pop-up selling often use the techniques employed by the flash mob performance art movement to quickly

draw large groups of people; typically, they work through social networks and rely on social media to spread the word about deals at shops.

Digital natives dont want to waste their time. They will only go shopping for one reason: To have fun.
The Psychology of Shopping
Over the course of time, shopping has always been about more than just meeting the daily needs of life. The acquisition of certain goods remains a central way for people to distinguish themselves socially and economically from others. And marketplaces have historically offered an important space for social interaction, the exchange of information and spectacle. According to Paludan, the future of live shopping may hinge on its ability to continue to meet these key needs as it adapts to changes in the way we peruse and pursue goods. For hundreds of years, people visited ancient bazaars, seaport commercial districts and general stores to select the things they needed. Then came downtown department stores and suburban shopping malls. But all this was before e-commerce was a force to be reckoned with, with its 470 billion US dollars in sales that are expected to exceed 1 trillion US dollars worldwide by 2012.

Possibly: 36 % Probably: 41 %

Delivering Tomorrow: Customer Needs in 2020 and Beyond. A Global Delphi Study (see p. 123 for details)

InsightOn: Consumption 3.0 21

Despite its tremendous size, the experience of e-commerce is not even fully evolved yet, says Paludan. Right now, popular shopping sites include large marketplaces that aggregate the goods of thousands of sellers, such as Amazon.com and Alibaba.com, or giant retailers with a large web footprint such as Walmart.com. In the future, we may shop in 3D virtual malls that are architectural masterpieces and, at some point, we may even be able to have sensory and tactile experiences while shopping online. Merchants may be able to pipe the smell of bread into your own home, or you may be able to print out sample fabrics to explore their feel, said Paludan. With the fast uptake of e-commerce, and such fanciful developments on the horizon, some experts are already predicting the death of the shopping mall. They say that e-commerce could leave shopping malls in a bind, just as those very malls and hypermarkets have played a part in high vacancy rates in downtown shopping districts. In the US, in a May 2012 report from real estate services firm

CBRE Group, Inc, it was reported that e-commerce had seen its share of core retail sales captured rise from 3 to 6percent during the past six years; while the majority of bricks-and-mortar retailers shares declined during the same period. Jeffrey B Edelman, Director of the assurance, tax and consulting firm McGladrey & Pullen, LLP, believes that 2012 will be another year of lethargic growth, store closings and increased focus on everyday low prices by several major retailers, all of which will have a significant impact on the entire retail landscape. He adds that multichannel is key to survival for many; and that online retailing also threatens existing store economics, measurement systems and incentives. According to a UK-government backed report by Mary Portas, a retail marketing expert, TV personality and fashion designer known as The Queen of Shops, town center vacancy rates have doubled over the past two years, and 50 percent of consumer spending takes place off the high streets. Portas advocates turning the countrys town centers into cultural and social meccas. She says, I fundamentally

BUY

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believe that once we invest in and create social capital in the heart of our communities, the economic capital will follow. Others dont see e-commerce as such a threat. Paludan, for instance, believes it and real-world shopping can co-exist and be mutually beneficial. He says the most successful real-life shopping venues will actually be a blend of both offering interaction between the virtual and real worlds and striking the right mix of entertainment and shopping. Already, people and merchants connect the two worlds. Users do so when they redeem electronic coupons for real-world goods in stores or follow the recommendation given on their handset to walk into a particular store and interact with products. Theres also the trend of sharing your location with friends by checking into physical spaces like a Starbucks using a smartphone and services such as foursquare or Facebooks location-sharing feature. Often companies will reward users with discounts for checking in. Companies, too, are transcending cyberspace. The auction site eBay did so by setting up a pop-up shop in central London for wares available only online. And the carmaker Renault has plugged the virtual into the physical world by erecting an information kiosk at a car show in Holland and enabling visitors to like particular models on their Facebook pages. I see companies combining real-world locations with digital messages of what the consumer can

expect to find there. Its a bridge between event shopping and old shopping as consumers go back and forth between the worlds, said Paludan. This is omni-channel retail the ideal aim for many e-retailers and the ultimate evolution of multi-channel and cross-channel retail. The idea of omni-channel retail is that consumers will be able to access the retailer from whatever platform is available to them in whatever part of the retail process they are, and enjoy a co-ordinated and cohesive experience.

The idea of omni-channel retail is that consumers are able to access the retailer from whatever platform is available to them in whatever part of the retail process they are.
To this end, one company has even reproduced the image of a grocery store on a poster just like a Potemkin village and is giving people the chance to buy items in what appears to be a typical store. Hung in subways by a Korean division of the UK grocer Tesco, users approach the posters

InsightOn: Consumption 3.0 23

and place orders for home delivery with their smartphones while theyre waiting for their train. Though some companies like Tesco seem to be embracing these types of new marketing opportunities and creative ways to position their brands, others still see altered buying behavior as a threat, says Paludan.

working to make target marketing enhance the shopping experience. The profiles generated from collected data also help companies interact with consumers, offering them more chances to be a part of the design and production process. A UK furniture company, for instance, offers democratic designs by asking its customers to vote online about which pieces it should manufacture, and wearers of Nike shoes can now design their own styles and colors, complete with their own initials. Other campaigns are even more ambitious in their size and scope and dont even involve the product itself. In 2011, Johnnie Walker, the blended Scotch whisky, launched its Keep Walking campaign to galvanize support for three innovative initiatives in the fields of the arts, technology and business in a number of markets, for example Brazil and Thailand. The Johnnie Walker consumers in each market were urged to debate, over Facebook, which initiative they thought had the most potential to shape the future in their country. This offered consumers a collective sense of participation and achievement and (will) hopefully spark new thinking about what can be achieved by working together, said Gavin Pike, Global Brand Director for Johnnie Walker. By using our communications to encourage likeminded consumers to connect, collaborate and champion causes that inspire them we will deliver a deeper engagement with our brand as well as showcasing some of the pioneering thinking that could lead us towards a better future. Whether online or in a store, were seeing growing interaction between the consumer and the producer, said Paludan. Call it collaborative consumption if you will.

DELPHI THESIS 57

IN FUTURE purchasing decisions are based on peer-to-peer advice (e.g. via the internet); classical advertising is dead.
PROBABILITY
Denitely not: 8% Denitely: 5% Probably: 16 %

In the end, shopping will become much more individual, as merchants collect intricate data about our preferences.
At present, many retailers are working through their policy for dealing with shoppers who compare prices online for items they see while standing in a store. Some retailers may conclude that its best to forbid the use of virtual shopping assistant applications, while others have already accepted the writing on the wall and are actually facilitating customers as they make purchases via the web or phone while visiting an actual store. The way consumers shop may be shifting, but its a slow metamorphosis. Yet some things never change: Currently, whether consumers purchase in store or online, goods need to reach them as quickly and as effectively as possible otherwise their custom will go elsewhere. Retailers are currently facing the twin-pronged reality of bricks and mortar and e-commerce and realizing the key role that logistics has to play in both. They are understanding the importance of a smoothly operating supply chain. Poor delivery service in either area may have a long-term negative impact on their entire brand, after all.

Unlikely: 45 %

Possibly: 26 %

Delivering Tomorrow: Customer Needs in 2020 and Beyond. A Global Delphi Study (see p. 124 for details)

Collaborative Design

In the end, shopping will become much more individual, as merchants collect intricate data about our preferences, Paludan says. That data is already being used for target marketing campaigns i.e., a strategy whereby retailers focus on a group of potential customers in specific locations or demographic groups; or even shoppers with similar attitudes, tastes and lifestyles. Sellers are

24

try this on For size shape-Fitting technologies Walk into some stores these days and the sales clerk may call your attention to the screen on the back wall instead of the coat on the rack. There you can position yourself to play a game of shopping in a Wii-like way. The program will react when you raise your arms and move your body to signal which items you like and dislike. You may motion to remove an item youre viewing that has been fitted to your personal avatar, or you may swipe wide and twist to have it returned to center-screen for your inspection. What youre doing is interacting with a computerized personal shopping assistant. Such technologies are no longer the realm of futuristic films but

actually available to shoppers around the physical and digital worlds. In the UK, shoppers at Selfridges and New Look can have their bodies mapped by BodyMetrics, and online shoppers can do the same with home-based camera technology. After the profile is made, it becomes a tool for trying on garments across multiple stores on the web. Shoppers will try on clothes via a personal avatar that is an interpretation of their shape. If body measuring technology became the basis for online shopping, it could do even more by helping retailers improve their manufacturing, warehousing and stocking processes because of the ability to predict demand more precisely for particularlysized items. Now thats a good fit for retailers.

InsightOn: The Expert View Johan Paludan 25

The Expert View Johan Paludan


Many people shop online in marketplaces (like eBay), but the experience doesnt feel like that of visiting a mall. Why not? Johan Paludan: Online shopping is fundamentally different from traditional shops. A traditional shop has a general display, where the shopper has to find what she wants. Online shopping will increasingly be based on the supplier knowing more and more about the individual shopper. Online shopping is therefore much more based on the individual displaying what she or he is known to like. What online shopping misses is the social dimension. Man being a social animal, I expect we will continue to go to traditional shops to experience other people. That brings up privacy concerns. Johan Paludan: The basic situation is that suppliers will know more and more about the individual consumer. The talk is about big data and about how to exploit it. People know that the advantage is that they will only get information they find interesting and spam becomes truly a sin. The other side of the coin is that this development will indeed negatively affect privacy. As somebody said, Privacy is gone get over it. It does, however, only take a couple of scandals of somebody misusing the data before we have a new situation. It is basically a matter of trust, and trust takes a long time to build and a short time to demolish. Which products will disappear from the traditional retail trade as consumers shift to online buying? Johan Paludan: The current situation gives the answer: Those products where it is not important to feel, taste and smell were among the first to be popular online, such as books and music. Ultimately, all products could disappear from the traditional retail trade once the digitalization of taste and smell has been accomplished. Right now, that process is still in the lab. Traditional retail will have to survive on the social needs of people and location-based marketing. When you walk in the city you or rather your smartphone will be bombarded with messages about what you could get just round the corner. Instant gratification is always tempting. What is the role of logistics in this picture? Johan Paludan: In traditional retail, the consumer takes care of the last leg of transport from shop to home. In online shopping the retailer has to take care of the last leg, hence this becomes an important element in the competition with others. People are often away and can't receive their goods. My vision is that every home will have an installation like the trap door some people have for letting their cat go in and out. For goods, it would have to be a one-way mechanism with built-in cooling/ freezing facilities.

Johan Peter Paludan serves as the Director Emeritus at the Copenhagen Institute for Futures Studies (CIFS). He is widely known as a creative thinker on social trends, education, business and the popular imagination. A privately funded, non-profit think tank, CIFS provides interdisciplinary statistics-based and subjective research on a variety of topics. Paludan earned a masters degree in political science from Aarhus University and worked as a high school teacher before joining CIFS in 1976. His publications include The Nordic 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.

26

Reaching Customers Globally and Locally


When 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 the website is based outside their country of residence.
For the merchant behind the website, the shoppers physical location is far from irrelevant. Logistically speaking, where the customer is can have a major impact on how quickly or even if they can be served. Shipping goods overseas means dealing with issues surrounding different currencies and customs regimes and longer transport times. Overheads such a factoring in the costs of returns from abroad may put a squeeze on profit margins. Suddenly, from the e-retailers perspective, delivering the goods from A to B is fraught with difficulty, especially if A is on one side of the world and B is on the other. Yet a retailers ability to serve customers abroad may make or break a business, especially during tough economic times. In the UK, for example, merchants are clearly responding to growing competition from domestic websites and cutbacks in household spending due to the financial crisis: A recent survey showed that 64 percent of online retailers there plan to expand internationally in 2012. Good logistics will therefore play a central role in future competition among e-retailers. The real growth opportunity is international, says Andrew McClelland, the Chief Operations

InsightOn: Reaching Customers Globally and Locally 27

& Policy Officer of the Interactive Media in Retail Group (IMRG), a UK e-retail trade group. Overseas e-commerce markets offer a completely fresh customer base and one that is increasing exponentially. By the end of this year, there will be 2.5 billion internet users worldwide. By 2015, this number will rise to 3.7 billion. For merchants, going global is easier said than done. And its just one of the many challenges to tackle as the e-commerce market matures and customer demands rise for the best service and the best prices.

Chinese market, and to better understand how consumers across China interact with Macys and the products we sell, said Terry J. Lundgren, chairman, president and chief executive officer of Macys, Inc. We know that Macys is very well known and regarded in China through international tourism, globally broadcast events such as the Macys Thanksgiving Day Parade, and movies such as Miracle on 34th Street. But we still have a great deal to learn about the shopping patterns and merchandise preferences of consumers in Chinas very diverse and rapidly emerging consumer marketplace. We continue to believe there is significant longterm opportunity internationally for both Macys and Bloomingdales. But we need to be certain that our future decisions in this regard are based on fact and experience. Macys are not alone in being cautious in entering new territories. Only a small proportion of the sites the IMRG has surveyed offer currency converters or customer support in a local language. One hurdle they face is missing infrastructure for cross-border transactions. Search engines, which know no geographical borders, may drive traffic to a retailers site, but sales are lost without the requisite checkout, customs and delivery services for international clientele, as well as a host of other adaptations. These include site-specific ways to handle language and cultural barriers as well as the challenges of cross-border fulfillment and returns. For example, not all merchandise can be shipped across international lines without incurring taxes or duties, and returns from a different country are more complex and costly than domestic ones.

DELPHI THESIS 52

IN FUTURE more than 3 billion people in the world run their businesses completely and more effectively than ever via the internet, making use of the World Wide Webs marketing power; 50% of B2C transactions are carried out online.
PROBABILITY
Denitely not: 1% Unlikely: 25 % Denitely: 10 % Probably: 27 %

A retailers ability to serve customers abroad may make or break a business, especially during tough economic times.
Beginning in the early 1990s as a curious new form of distance selling, e-commerce has become an overwhelming force to reckon with for both small and medium enterprises (SMEs) and the worlds largest retailers. While early entrants like Amazon.com and eBay continue to drive expectations with their giant marketplaces, experts say much unclaimed territory is still available to those online sellers that get multichannel retailing right and learn to cross borders effectively.

Possibly: 37 %

Delivering Tomorrow: Customer Needs in 2020 and Beyond. A Global Delphi Study (see p. 119 for details)

Opportunities A Click Away

According to recent industry surveys, even the biggest names in retail e-commerce are taking a slow, measured approach to expanding abroad, given the risks of failure, which would be costly and damaging to hard-won brand confidence. For example, in May 2012, US retailer Macys announced its intention to dip a toe into the Chinese market by selling an assortment of its private brand merchandise directly to consumers in China through a Macys section on omei.com, a newly established China-based online retailer of in-season luxury and fashion brands operated by VIPStore Co., Ltd. Our relationship with VIPStore will allow us to gain additional experience in the fast-growing

European Cross-Border E-Commerce

Cross-border e-retailing within the European Union would seem easy enough since internet use and online buying from domestic websites is on the rise across member countries, led by adoption in Norway, the UK and Sweden. The percentage of individuals who made purchases over the internet has, on average, more than doubled from 20 percent to 43 percent between 2004 and 2011, Eurostat says. In addition, the European Unions 27 member countries have a common legal basis for trading and 17 countries share the common currency. Yet significant barriers to cross-border e-commerce still exist in Europe. In 2010, some

28

74percent of EU online retailers did not sell to other EU countries. A report released in 2011 by the European Parliament found a lack of consumer confidence in cross-border online commerce. Apparently, customers hesitate before making purchases outside their home countries because of differing rules on sales taxes (VAT), returns and the inability to compare prices in different languages. This fear of the e-commerce unknown seems to be easily overcome, however. A 2011 report, published bythe European Consumer Centres Network, found that 61 percent of the consumers who have already shopped across borders are equally confident in cross-border and domestic online shopping, compared to only 33 percent of the general population. Europe needs more multilingual price comparison sites, says Pablo Arias Echeverra, the rapporteur for a European Parliament Working Group on e-commerce. There are still a significant number of consumers who are not yet aware of the offers and competitive prices that are available from cross-border retailers. Despite the 300 price comparison websites that exist, only a handful provide cross-border price reviews, he has said. Consumer uncertainty and language barriers have made themselves visible in the numbers as well: From 2008 to 2010, cross-border e-shopping in Europe only grew from 6 percent to 9 percent while domestic online purchases rose twofold.

Many companies simply underestimate the cultural divide present when expanding to international markets. Experts believe they do so because of the lingering myth that technology eradicates borders in our lives.

DELPHI THESIS 54

IN FUTURE people are always on the internet, surrounded by easy-to-use appliances and virtual smart agents automatically assisting the users in their daily activities, filtering information and serving as personal coaches.
PROBABILITY
Denitely not: 2% Denitely: 16 %

There are still a significant number of consumers who are not yet aware of the offers and competitive prices that are available from cross-border retailers.
Yet, by neglecting to adapt to local conditions, some retailers could be cutting themselves off from growth: During recent years, e-commerce sales have been the main growth engine of the retail sector. According to the European Commission, e-commerce is the dominant distance sales channel and accounts for around 4 percent of the total retail sector.

Unlikely: 9%

Possibly: 29 %

Probably: 44 %

Getting Cross-Border E-Selling Right

Delivering Tomorrow: Customer Needs in 2020 and Beyond. A Global Delphi Study (see p. 121 for details)

Amazon.com has successfully expanded to international markets. Yet the worlds largest online retailer, with 48.08 billion US dollars in net sales in 2011, acknowledged in its latest annual report

InsightOn: Reaching Customers Globally and Locally 29

that international operations present risks such as a relative lack of operating experience in a particular country, legal and regulatory uncertainty and established local brand-name companies as competitors. Still, a significant portion of the companys total revenues come from outside the US, and it is clearly a leader off of its home turf. Some analysts believe the Seattle-based company may be entering a new international expansion phase after slowing the pace following its 2004 debut on the Chinese market. Amazon has retail websites in the US as well as in Canada, the UK, Germany, France, Italy, Japan and China. It launched in Spain in 2011, and reports say the giant is now eyeing new markets. Even as market leaders like Amazon.com or Alibaba.com forge ahead outside their home markets, significant opportunity still exists. But what works in Michigan wont necessarily work in Mumbai. So how must businesses and supply chains adapt when going abroad? Researching customers and markets is critical, naturally, because each marketplace is different. Apart from getting a handle on culture, language and etiquette, retailers will need to understand what product and packaging will work best in the locations they are targeting. Experts agree that local is the lingua franca. They say companies should start exactly there by making shopping carts, websites and customer service available in the local language and pro-

viding call centers. Thats because some consumers only feel comfortable making a purchase after finding out that the company is real by actually speaking to someone. US retailer Walmart operates a website in China that is highly tailored to the local market. Whereas its global site is designed for consumers who want to purchase online, its Chinese site is made to have an official look and feel appropriate for a retailer with the size and clout of Walmart. According to an analysis of the site by a group of professors from universities in the US, Hong Kong and Taiwan, Walmarts site rightly focuses on whats important in the Chinese market introducing the company, cooperation with the government, social responsibility, the latest news, supplier services and food security. Scott Price, the Asia CEO of Walmart, said the company is very keen on the online market in China. Walmart operates about 370 bricks-andmortar stores across China and has a minority position in Yihaodian, a company that has carved a niche in same-day or next-day deliveries in five cities. Walmart is applying to take a majority position in the company. Were committed to the Chinese market, Price said.

DELPHI THESIS 53

IN FUTURE rapidly expanding mobile infrastructures and free access to information let emerging economies catch up with Western societies.
PROBABILITY
Denitely not: 4% Unlikely: 24 % Denitely: 5% Probably: 31 %

Possibly: 36 %

Delivering Tomorrow: Customer Needs in 2020 and Beyond. A Global Delphi Study (see p. 120 for details)

The Localization Industry

For retailers large and small, the cross-border opportunity is too attractive to ignore, and an industry of boutique companies has cropped up

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tohelp others properly design localized, multilingual websites. According to some estimates, the decade-old industry is already worth more than 10billion US dollars. These consultants are prepared with software and solutions that will help companies run flexible websites that can scale up and down almost by the minute as demand dictates.

Macys is addressing all these questions and more as it expands abroad with its Macys.com website. The companys flagship store in Manhattan is a popular destination among foreign shoppers, and Macys has tried to cultivate that customer segment for years. In 2011, the company began offering shipping outside the US. According to a news report, its website is being reconfigured to detect a shoppers location worldwide and display a welcome screen in the appropriate language. Shopping will then continue in English, but at checkout, the consumer is notified of the price and shipping costs in the local currency. Overall, Macys online sales are booming. CEO Terry Lundgren said in a TV interview that he expects them to exceed 2 billion US dollars in 2012. Were one of the most advanced companies when it comes to the online business. And weve been investing there. A lot of the capital investments Ive made for the company over the last three years have gone into technology. Its really paying off.

The future will be to figure out how to encourage the online customer to come to the stores, and encourage the customer in the store to shop online.
They also help retailers consider critical questions when reaching out to new markets: Is your product selection adapted to local tastes and are prices competitive? Does your advertising comply with applicable law and does the approach resonate with locals? And are your fulfillment process and logistics effective and cost-efficient?

Shopping Channels A La Carte In Store, By Phone, Online

Macys international push online is part of its overall strategy to meet the demands of sophisticated shoppers who want access to Macys products and services in a multi-faceted way. Today, the most important customer and the most important trend is what we call the omnichannel 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 implementing 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 Macys already has the technology at its cash registers 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 31

step further. In a move that was unimaginable only a few years ago, it has opened stores in central shopping areas in Aberdeen and Liverpool that dont sell any products at all. Instead of walking in to find racks of products, shoppers enter what looks like a lounge where they can browse but mostly online. Packages are delivered to the customers home or to the shop for pickup the next day. If the consumer happens to be un-initiated into the world of online buying, a friendly assistant is there to help the person navigate the clicks. The move by the House of Fraser illustrates another way retailers are coming to grips with shoppers who want to browse and buy in all possible ways and at their own whim. At any given time, these channel-hopping consumers may want to research online, view in a store, purchase via the web or handle returns by mobile phone and mail. For many consumers, deciding if, when, where and how to shop is a matter of personal freedom, and those vendors who dont enable them to move freely among the channels end up, well, cramping the shoppers style. Accordingly, retailers should carefully organize and plan cross-channel efforts for optimal execution, says Sucharita Mulpuru, vice president and principal analyst for Forrester Research, in the Retail TouchPoints 2010 Outlook Guide.

This isnt about taking baby steps its about committing to multi-channel and aligning your incentives and your organizational structure in such a way that you can set yourself up for success, she was quoted as saying. And if retailers get it right, the bounty could be rich for society at large. In Europe alone, the gains to consumer welfare could be 204 billion euros or 1.7 percent of GDP, if e-commerce grows to be 15 percent of the retail sector, the European Commission says. The Economist magazine predicts winners and losers in what it describes as the coming retail boom. With shops representing a fifth of small businesses in Europe, it says many will have to change their strategies when they face up to competition from their larger counterparts. The magazine wrote: But the winners will outnumber the losers. Some of Europes small shops will give up the battle and reinvent themselves as stylish showcases for e-commerce. Oddly enough, the old continents best chance of preserving its cultural traditions lies with harnessing new technology, not ignoring it.

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chinas big sellers: alibaba, tmall, taobao Tmall, which is part of the Alibaba Group, was launched in April 2008 and is the most visited online retail website in China, offering an extensive brand selection of consumer electronics, home furnishings, designer footwear and beauty products, to name a few. Chinese consumers are certainly buying: Tmall reached its highest single-day transaction volume during a special promotion on November 11, 2011. That day, sales of goods reached a volume of RMB 3.36 billion (531.76 million US dollars), or an average of more than RMB 38,000 (6,022.18 US dollars) per second. Tmalls owner, the Alibaba Group, is a family of internet-based businesses that include online marketplaces which facilitate international and Chinese

B2B trade, retail and payment platforms, a shopping search engine and distributed cloud computing services. Privately held, the group reaches internet users in more than 240 countries and regions and employs more than 25,000 people in some 70 cities in China, India, Japan, Korea, the UK and the US. Alibaba also owns Alibaba.com, a global e-commerce platform for small businesses and the Taobao Marketplace, a popular C2C online shopping destination. Alibaba.com provides three marketplaces: a global trade platform (www.alibaba.com) for importers and exporters a Chinese platform (www.1688.com) for domestic trade in China and a transaction-based wholesale platform on 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. Furthermore, 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 worlds top 20 most visited websites.

clouds parting above the developing world Just as the advent of internet technology allowed giant online marketplaces to flourish years ago, the low-cost and scalable software and services enabled by so-called cloud computing could give a spectacular boost to e-commerce also in the developing world. The cloud computing business model is designed to provide digital storage space on a shared network (i.e. in the cloud) along with the latest versions of software and supporting services. This means businesses using internet-accessible services from the cloud can avoid costly upfront investments in servers or software that needs to be installed on desktops. The cloud revolution, say some commentators, is coming and it could be a breakthrough for many when it does. In part, thats because it offers companies scalability, flexibility, agility and the chance

to launch new services (such as social media) with minimum risk. As such, its uptake is increasing. UK industry body the Cloud Industry Forum (CIF) recently conducted a survey across 250 UK-based organizations and found that 61 percent are currently using cloud-based services, with a 92 percent satisfaction level. The research also showed that the primary reason for the adoption of cloud is the flexible model of delivery (71 percent), scalability (66 percent) and the low cost of adoption (58 percent), although operational cost savings were not the major driver. For instance, international aid organizations often stress how the digital divide, or the lack of access to broadband networks and the internet, harms the economic growth prospects of billions of people living in developing countries. Now some have pinned hopes on cloud computing as a way for countries to catch up, once the broadband networks are available.

InsightOn: Reaching Customers Globally and Locally 33

Mobile telecommunications networks have already done a lot to bring communications and digital services to people in remote areas, and the positive economic impact is well-documented. In Africa, some 65 percent of the population uses a mobile phone. This cellular infrastructure has allowed some developing countries to leapfrog over the age of fixed-line networks and go straight to the mobil e-commerce party. In Kenya, for instance, users not only talk and text with their phones, they also conduct their banking on them. The M-PESA system, which uses cloudbased infrastructure, is well known for having brought payment capabilities to remote villages, thereby helping millions of small businesses thrive. Still, much more must be done to improve lives in developing countries, and experts say the cloud could play an important part. Nir Kshetri, a professor of business at the University of North Carolina in Greensboro, pointed out that cloud services are easier to install, maintain and update than traditional computers with desktop software and therefore provide a benefit of particular importance for rural users with little IT training. all eyes on amazon The name Amazon.com is nearly synonymous with the concept of e-retailing, and most experts credit the company with opening the floodgates of online commerce. When it was launched in 1995 by Jeff Bezos, the companys CEO, few would have imagined that the company would grow to its current size and scale in less than two decades. Now the worlds largest online retailer, with 48.08 billion US dollars in net sales in 2011, Amazon.com is a strong force in setting expectations among consumers, with its huge selection, prices and customer service. The story goes that Bezos boxed up the first book sold on Amazon.com in his garage in Seattle. His idea in the early years was to focus on cheap-to-ship books and other media that was already catalogued and therefore easy to be uploaded on a website. Today, Amazon offers a product catalogue of millions of items. Many are warehoused, fulfilled and delivered from Amazons logistics centers in north America, Europe and Asia, and many more come from the millions of merchants that also offer goods via the companys marketplaces. Add to that Amazons so-called Prime services, which feature unlimited delivery for a low, fixed price each year,

Microsoft, Google and Amazon.com are among the large providers of cloud services worldwide that may indeed help chip away at the structural disadvantages that exist in health, education and commerce in the developing world. Kshetri wrote: In theory, it is possible for the developing economies to catch up with the West, as the cloud allows them to have access to the same IT infrastructure, data centers and applications.

and its clear to see why the company is a key trendsetter in the market. Forrester analyst Sucharita Mulpuru credits Amazon.coms marketplace model as a key driver of profit, since Amazon earns a commission off the sale of the wares without necessarily having to keep them in inventory or fulfill orders. According to Forrester, marketplace sales represented 35 percent of revenues and 30 percent of unit sales on Amazons website in the fourth quarter of 2010. Other online players are taking a cue from the likes of Amazon and eBay and moving to the marketplace model, including Flipkart.com in India, which offers a cashon-delivery model that makes sales possible for those people in India who do not have bank accounts. Retailers that compete with Amazon have come to discover that offering marketplaces on their own sites is critical to driving margins and remaining competitive on the prices and the shipping fees of the items they do stock in inventory, Mulpuru wrote in a research note in 2011. Companies such as Buy.com and Walmart have introduced marketplaces, and we anticipate others in verticals such as apparel, toys, and sporting goods will follow suit. Mulpuru said, This strategy will help them to retain some of the market share they may otherwise lose to Amazon.

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Perfection: What Customers Expect with Online Shopping


By Andrew Starkey The 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 retailers must examine how consumers are changing their behavior to understand how supply chains should be adapted for e-commerce.

Recently on a Sunday afternoon, I went online to purchase a towel rail for my bathroom. I found a model I liked at a decent price on the website of a UK retailer whose name I wont reveal. After doing some quick research, I was ready to purchase. However, when I got to the checkout stage, Icould not get the web site to accept my order for delivery to my home. I called the companys customer service line, and a representative, sounding a bit surprised, told me that Icould only buy the item in the store. My retort: Well, why is it listed on your website? My easy and convenient home shopping experience turned into frustration, and this retailer is no longer in such high standing in my eyes. Now I wont be purchasing it from them at all; and I may not purchase anything else ever again. I dont think my reaction is particularly draconian. Like other consumers, I know that I can have a reliable and consistent online purchasing experience elsewhere. Why should I give this merchant more of my time? This brings me to a point Id like to make about how deliveries measure up in the world of e-commerce: Too often, logistics and the supply chain lag behind what the consumer actually expects. We at the IMRG, the Interactive Media in Retail Group, the UKs trade association for e-retail, have four years of data to show that consumer satisfaction with physical logistics is lower than that with other steps in the homeshopping process.

The Digital World: Three Reasons Why Consumers Demand More

Andrew Starkey is the founder and lead consultant for Spiral4, a postal and e-logistics consulting company. He is retained by IMRG as its Head of e-Logistics, leading its research and member support program. Starkey has a unique background in the world of parcels, packets and postal logistics, with more than 30 years of experience gained in the commercial sector and the regulatory environment. He held senior posts at Royal Mail, and he has served as an Executive Director of Postcomm and the Commercial Director of Jersey Post International. Starkey is a member of the Chartered Institute of Logistics and Transport and the Institute of Direct Marketing and is a recognized expert on the UK postal and e-retail home-delivery markets.

Consumer behavior is being changed by the spread of ubiquitous digital communications and the alternatives it brings for multi-channel contact. We know that some 70 percent of consumers who make purchases online in the UK are influenced by other channels, including above-the-line media, below-the-line media, digital media and so forth. Secondly, consumers are used to an immediate experience, and theyre looking for that in shopping as well. The result is that they are losing patience. Third, consumers are more mobile. We find that consumers are very often in different locations for different deliveries. They dont spend all day in an office. They dont spend regular hours at home. They conduct their lives from different places. Consumers are simply less predictable. Although theyre more unpredictable, we do know that these individuals shop and increasingly online. Sometimes they shop in a physical environment, but they may do their research in an online environment. When this consumer walks into a store, he may use QR codes or scan a barcode with a mobile device to identify if a particular item can be had cheaper online. These options give consumers more choices, but they also create complexity, particularly for the retailer, since the consumer wants to have a consistent experience no matter what the channel.

High Expectations for Delivery

Then comes delivery. We say delivery begins during the browsing phase. If you go onto an Amazon website and youre browsing for a

InsightOn: Perfection: What Customers Expect with Online Shopping 35

product, it will describe the product and the service you get with the product. If youre shopping fora camera, it will tell you how many pixels thecamera has, plus that cameras absolute availability and the time window when it will be dispatched and when you can expect delivery. This happens at the point of browsing. What market leaders aredoing is replicating the act of walking into a physical store and seeing the item for yourself, knowing you can walk out with it. Many less-advanced e-retailers dont give you this information until youve made your decision to purchase and youre in the checkout process. Only then do they tell you when and how you can receive your camera, and if they dont provide the right options you may well abandon the purchase a time-consuming and costly exercise for both parties. Were getting to a point now where consumers expect to see this supply chain information at the start of their online shopping journey. They want to know the availability, dispatch date, delivery time windows and delivery time options. They want to see this at the time of browsing, and a vast majority of retailers dont give you that information then. So, consumers immediately experience a disconnect between what they expect in the wider digital world and the reality of many e-retailers provide, which is often driven by supply chain restraints (or the lack of understanding of the importance and impact of the supply chain).

Yet some e-retailers still apply delivery charges at checkout after the purchase decision has been made. Other retailers provide a consistent shopping and delivery experience each time. But what happens if it fails? Lets say youre on your third purchase with a retailer and that delivery failed. If that happened, you had a 30 percent failure rate. Nobody in this world would deal with a company that has a 30 percent failure rate. But at least 8 percent of UK deliveries fail to meet the shoppers expectation at the first attempt. Weve got clear data that show that delivery performance is a clear retail differentiator. In excess of 70 percent of UK consumers will positively testify that a good delivery experience encourages them to shop with that retailer again (and again, and again).

In-Transit

During the in-transit stage, consumers want to have instant information at their fingertips as well. However, some retailers disappear after the checkout is complete. Some 70 to 80 percent of retailers do send a confirmation email or SMS to notify the customer that an item has been dispatched. However, only 12 percent will send a message while the goods are in transit confirming the delivery date is still on target. Thats 88 percent of retailers who forget to maintain the positive experience.

Checkout

Returns

As the shopper enters the checkout, he/she expects to know exactly what that product will cost.

The final way that e-retailers can improve customer service and the delivery experience is in the area of returns. I call the current status

36

quo on returns a black hole. We have data that shows that female shoppers are more likely to return goods than their male counterparts. Some 42 percent of female fashion purchases are returned as compared to 13 percent of fashion purchases made by men in the UK. Clearly, ladies are more discerning, so they buy several colors and several styles and they choose the one that suits them best. The rest they return. The problem is that in most cases, the customer has already paid for the item that is being returned but has no control and lacks information about the package during the returns process, even though she may be bearing the cost of the return herself. In fact, thats a key point. Since the consumer may have to pay for the return, she sends it back the cheapest way i.e. through a postal carrier that doesnt provide a tracking number. At this point she is carrying all the risk during the three or four days it may take to return the item. During this time, she has 1)no goods 2) no money 3) and may have paid a premium to return the items. Many e-retailers are generally not good at letting me know that

the goods are back in their system and that Ill be given my refund. During this time, Im in the returns black hole. When the retailer gets the goods back, the credit may be delayed for another three to four days while the return is being processed. All this time, the consumer is feeling uncertain. She may phone the customer service center, asking questions and causing the retailer to incur cost. I always say that an anxious consumer is a bad consumer. This is a customer who the retailer spent marketing money to acquire; and the customer is unlikely to shop with the retailer again if its a bad experience. This is a very vulnerable time. Yet in the UK, most return services remain untracked. The data show that about 85 percent of online shoppers are generally satisfied with their outbound deliveries but only 60 percent are satisfied with services for returns. Again, its a disconnect because shoppers will see both delivery and returns as components of the overall shopping process an excellent outbound experience will be negated by a black hole returns experience.

InsightOn: Perfection: What Customers Expect with Online Shopping 37

Inside the Consumers Mind

I have presented four stages of the online shopping experience as they relate to deliveries and consumer expectations. Its clear to see that a first-class online experience is characterized by communication with the customer that is conducted via the channel pre-selected by the shopper. The buyer is constantly kept abreast about the status of their deliveries, beginning at the browsing stage. Its also clear that consumers demand high levels of service and experience from e-retailers yet frequently experience a gap between their expectations and the available service enhancements in logistics. This gap represents an opportunity for retailers, software providers, technology providers and logistics providers to respond via the supply chain. I would argue that the response must be guided by a full understanding of how the consumer is feeling and why consumers expectations are as so high. Otherwise, we will never be able to properly adapt the supply chain and design low- or no-cost services that address consumer expectations.

idis gold standard Some UK retailers are seeking certification for the use of delivery best practices as a way to differentiate themselves from the competition. IMRG has developed the IDIS Gold Standard, a delivery baseline against which retailers can measure themselves and become certified. Certification indicates to consumers that the retailer is geared up for delivery best practice, such as allowing the customer to specify when the delivery is made. Once the standard is met, the retailer is invited to display the IDIS Gold Best Practice logo on its website to show its customers that it provides an excellent delivery service.

DELIVERY NOTIFICATION

89%

26%

77%
89% of retailers allowed the customer to track their order online, up from 77% last year

11%
Larger retailers were more likely to send texts: 26% did so, up from 11% last year

12%

19%
19% of sites made the customer log-in/register before showing the delivery charge

4%
12% of retailers sent a text message alert regarding delivery, up from 4% last year

38

The Ripple Effect of Online Purchases


Despite its image as virtual, the e-commerce industry depends on effective on-the-ground services, such as fulfillment and last-mile deliveries. The boom in e-commerce is bringing new and different challenges to supply chains.
Consumers may save time and energy by no longer heading to the shopping mall. Instead, they click away and the items are delivered to their doorsteps. But lets say a consumer receives at least five packages a week of foodstuffs, clothing and housewares, because they live in a remote area. The ability to purchase online may have simplified their life, but it still means change and learning a new process: Not only must the cardboard carrier cartons be taken to the recycling bin, the consumer may need to think ahead about where they will be when the packages arrive (i.e. how the delivery will be received) and, in case the product isnt right or is faulty, how it will be returned. Consumers bought 34 billion euros of goods online for home delivery in Germany alone in 2011, according to Christoph Wenk-Fischer, the head of the German e-commerce and Distance Selling Trade Association (BVH). How this boom changes daily lives is only one part of the picture. Flip to the other side, and youll see millions of additional small packages flowing through the delivery networks of postal and express carriers impacts businesses and supply chains in numerous ways. A typical customer order triggers several B2B and B2C logistical operations, says N. Viswanadham, a professor at the Indian Institute of Science and an expert in logistics. Market leaders like Apple have refined their business to the point where a customers order online can initiate the manufacturing of the product. Others have focused on using advanced IT to automate numerous processes, such as the creation of production or picking orders. Still, the higher volumes mean far more people than in the past are needed to handle freight, particularly in countries like China, where logistics capabilities must in some cases be built from scratch.

Step-by-Step: How E-Commerce Impacts Supply Chains

Before an order is placed online, many customers expect to see real-time information about the products availability, how long it will take for delivery and the cost of delivery. This type of information is very useful to the customer but not so easy for internet shops to provide, since they are dependent on a long list of supply chain partners to make that data available in a compatible format and a timely manner. Across the board, much effort is being given to make this information available widely. Next, shoppers place their order. Besides a payment receipt, they expect an electronic confirmation about when the order will be shipped. Andrew Starkey, the head of e-logistics at the UKs trade association for e-retail, IMRG, the Interactive Media in Retail Group, says, Most merchants and logistics companies send confirmation emails with the IT systems they have ramped up in the past years. Often, the IT systems of the merchant are connected to that of the logistics provider or a managing intermediary, or access is provided via the internet. After the order travels through the various information systems (i.e. that of the online shop, the producer, the distributor, etc.), and the product is located in the warehouse, someone (or, in highly automated warehouses, something, i.e. a robot), must then move it off the shelf and place it into a staging area for packing. Indeed, such fulfillment services have seen their share of growth in the past few years, and experts see them growing at 5 to 10 percent going forward, as producers target the directto-consumer market. Its no coincidence that big online retail names have opened up fulfillment centers in emerging markets recently, such

DELPHI THESIS 49

IN FUTURE data and program storage are provided not locally but on huge internet servers, allowing for ever smaller and lighter devices.
PROBABILITY
Denitely not: 1% Unlikely: 12 % Denitely: 15 %

Possibly: 30 % Probably: 42%

Delivering Tomorrow: Customer Needs in 2020 and Beyond. A Global Delphi Study (see p. 116 for details)

InsightOn: The Ripple Effect of Online Purchases 39

as China and India, in order to help with their logistics operations in these countries. In some cases, small online sellers will fulfill orders from their basements; others ask third-party logistics providers to do the job. Companies with larger online volumes often have their own fulfillment facilities, or they have adapted their existing logistics operations for the larger volumes and particular demands of e-commerce. Some even operate their own warehouses for their merchant customers. After outbound packages reach the warehouse dock door, these companies send them with a variety of commercial logistics providers (often express carriers) that deliver to the consumers home. For many logistics providers, doorstep deliveries can be the most costly step in the process and represent one of the biggest areas of change taking place in the business, given the higher volumes of home deliveries and rising demand by consumers to determine for themselves when and where the package should be dropped off. The challenge for the e-retailer and, by extension, the logistics provider is how home deliveries can be made both efficiently and profitably.

The fact is that a merchants customer-focused reputation hangs on fulfillment. Fulfillment is super-critical to the success of any e-commerce enterprise. Unfortunately, fulfillment also gets potentially more complex and costly as e-retailers tap into different markets including emerging markets with all their promise but also with their variable infrastructure while offering increasing numbers of products to their customers. It is essential, then, for the home delivery part of the process to be working efficiently, with the e-retailer utilizing the right logistics networks and solutions that, literally, deliver. Apart from being ultra-reliable, these solutions need to be cost-effective both for the merchant and for the logistics provider (who will be aware of repeat deliveries eating into their profit margins) but also for the customer. Otherwise their business will be lost. The way forward has to be through collaboration. With e-retailers and logistics providers working together to provide each other with better information, the challenges of the constantly evolving e-commerce market can be better understood and the supply chain solutions become that more ingenious.

40

If the customer is not at home when the package arrives, the logistics provider either tries again at another time, takes the package to the nearest post office or, if the proper infrastructure is in place and the customer requests it, drops the package off at a 24-hour un-manned service point, such as DHLs Packstation. A decade ago, un-manned pick-up and drop off stations were few and far between. Clearly driven by e-commerce, their spread is a smart way to deal with the fact that people arent always home to receive a package. Some experts expect grocers to begin to place such stations in their stores as a way to drive sales on their own websites. Consumers can go to the corner store, buy fresh milk and collect their packages from the stores locker. If a second delivery attempt must be made, the delivery companys margins already low are put under further pressure. And then theres the matter of parking delivery vans in dense city centers as well as increased truck traffic in already congested areas. Some companies have come up with innovative solutions to make doorstep delivery more costand time-efficient and to decrease the related emissions. One way is to send customers a text message or email informing them of the time 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 the moment, according to the IMRGs Starkey. Typically, a carrier will make two attempts to deliver a package and offer some form of online tracking of that package for both the merchant and the consumer, services made possible with advanced IT systems. But what happens when the delivery just cant be made? Or the product isnt right and has to be returned?

Delivery Re-Runs

Working In Reverse

Whats obvious is that the package must make its way back to the original sender. Whats not so obvious is the sophistication and skill required by carriers to make this an efficient process, even if the package is returned through a different channel than it was bought. Merchants rely on the returns management services offered by third-party logistics companies and others, and the ability of a business partner to handle returns reflects back directly on the merchant. It impacts their image and is associated with customer service.

Often called reverse logistics, the process of returning an item raises the cost of the transaction, but its a fundamental and unavoidable part of the business.
In many cases, the way a company handles returns can make or break the business. Customer satisfaction is strongly linked to the returns process, and inventory management depends on an efficient and effective returns process. From a customer perspective, an e-retailers returns process cannot be underestimated. Get it right and you can increase customer satisfaction. Get it wrong and you reduce the chance of their repeat business. Returns figure highly on online shoppers wish-lists. According to a survey by comScore, 63 percent of online shoppers look at a retailers return policy before making a purchase. Often called reverse logistics, the process of returning an item raises the cost of the transaction, but its 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 41

organize pick-up from the customer. Poor instructions on how to return the goods included with the original items may ultimately impact on a retailers receiving staff. Returns policies among major e-retailers are broadly similar, in order to remain competitive and encourage the customer. According to a 2008 study by Forrester, 81 percent of consumers surveyed felt they would be more loyal if an online company offers a good returns policy. Some e-retailers are now going one step further and offering free returns policies: A good marketing strategy. Yet by making it easy to return goods, more goods will be returned: Thus the company creates a thorny problem for itself. It may also be shaping new consumer behavior, because why just order the one product you do want when you can order a further four alongside it that you may want? If it turns out you dont want the extra ones, they are easily returned after all.

100 GBP per year for shipping, postage and packaging. In Germany, 80 percent of clothes ordered online are returned, according to the BVH. Across Europe, consumers have 14 days to refuse an item purchased online. Often, they choose to return their purchases, which were delivered by express carriers, in the cheapest (and therefore the slowest) way, using services such as those offered by postal carriers. For merchants, thats a very long 14 days since they are trying to recover some of the lost time and expense associated with the item, said the BVHs Wenk-Fischer, adding, Sophisticated companies handle returns as part of their inventory management. With every additional trip to the post office to return an item bought online, supply chains are once again asked to adapt. Due to the higher volumes, many postal organizations find themselves stretched to the limit, experts say.

DELPHI THESIS 51

IN FUTURE most business transactions are totally automated due to the connection of business databases. Clients and service providers cooperate closely on the basis of aligned integrated IT systems.
PROBABILITY
Denitely not: 4% Unlikely: 15 % Denitely: 9%

Possibly: 31 %

Probably: 41 %

With every additional trip to the post office to return an item bought online, supply chains are once again asked to adapt.
A reverse logistics operation will therefore need to be as efficient and cost-effective as possible and executed in a way that satisfies both the customer and, importantly, the company itself. This is because returns can have a significant impact on business profits. In a paper entitled Reverse Logistics with E-Commerce Strategy, produced by IFIM Business School in Bangalore, reverse logistics is succinctly described as a process done by a firm to minimize loss in the process of capturing value without affecting the quality available for enhanced customer satisfaction. In sectors such as high-end apparel, consumer returns reach levels as high as 20 percent. Apparently, its women shoppers who initiate most of the returns, says the IMRGs Starkey. Women in the UK are more selective shoppers and far more likely to return a product bought online than men, he said. Some estimates put the cost of online returns for UK consumers and retailers at

Who Pays for Returns?

Delivering Tomorrow: Customer Needs in 2020 and Beyond. A Global Delphi Study (see p. 118 for details)

When considering the higher volumes and the costs associated with reverse logistics, one must remember that product returns are not new to the world of distance trading. They were a fact of life for companies and customers of catalogue and television shopping for decades before online shopping existed. Whats different now is the transparency of delivery prices. The rise of IT automation in the global supply chains has allowed companies to calculate more easily the cost of each step of the shipping process at the item level (as opposed to the pallet or container level) and share that information electronically. With transparent pricing, its now far easier to debate over who will pay the fee. Of course, customers dont want to pay anything extra for shipping and handling, said the BVHs Wenk-Fischer. What may not be calculated into the costs is the business complexity unleashed by reverse logistics and multi-channel shopping. Before, retailers had to worry about getting their products to the store. Now, they must place the same stock into multiple channels, manage availability for peak periods, such as Cyber Monday, and handle increased returns. All this requires precision logistics and planning, said Viswanadham.

42

Global E-Facts

united states The success of US-based retailer apples ipad is driving widespread retail site overhauls, with 73.9% of chain retailers, 62.3% of web-only merchants and 69.2% of manufacturers selling online reporting that they will have tablets in mind as they redesign their sites.

aFrica credit card pen-

brazil Although online sales in Brazil will reach


US$22 billion in 2016, up 178% from 2010 figures, import taxes remain steep. A Laptop, for instance, sells for US$1,400 in Brazil, compared with US$800 in Mexico and US$500 in the United States.

etration remains low in Africa, with only 50 million bank accounts spread across a population of one billion. Mobile payment systems like M-PESA have instead helped drive an increase in online transactions, fueled by the continents growing 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 United Kingdom showed the highest engagement, with users spending an average of nearly 36 hours online in September.

ers benefit from relatively cheap broadband and shipping costs. Internet access charges total US$10 a month (compared to US$30 in India, for instance) and shipping a one-kilogram parcel would set a consumer back just US$1, far lower than the US average of US$6.

china Chinese online consum-

india A 2010 report by the Internet and Mobile

Association of India has revealed that Indias e-commerce market is growing at an average annual rate of 70% and has grown over 500% since 2007. Indias online sales were projected to reach US$10 billion by year-end 2011.

world internet usage and population statistics march 31, 2011

world regions africa asia europe middle east north america latin america/carib. oceania/australia world total

population (2011 Est.) 1,037,524,058 3,879,740,877 816,426,346 216,258,843 347,394,870 597,283,165 35,426,995 6,930,055,154

internet users Dec. 31, 2000 4,514,400 114,304,000 105,096,093 3,284,800 108,096,800 18,068,919 7,620,480 360,985,492

internet users Latest Data 118,609,620 922,329,554 476,213,935 68,553,666 272,066,000 215,939,400 21,293,830 2,095,006,005

penetration (% Population) 11.4% 23.8% 58.3% 31.7% 78.3% 36.2% 60.1% 30.2%

growth 2000-2011 2,527.4% 706.9% 353.1% 1,987.0% 151.7% 1,037.4% 179.4% 480.4%

users % of tablets 5.7% 44.0% 22.7% 3.3% 13.0% 10.3% 1.0% 100.0%

Source: http://www.internetworldstats.com/stats.htm

44

E-Commerce: The Growing Pains


bricks-and-mortar stores: Fighting for survival Walk down a high street in Britain these days and youre likely to find more than a few large clothing retailers and sporting goods stores. Over the next five years, youve got a four in ten chance of strolling by storefronts that have been nailed shut and left to graffiti artists. According to a report by the consulting company Deloitte, retailers in the UK will be selling large portions of their property holdings as they struggle to keep up with the changes in the market, driven in part by a shift to online buying. Already, another study says, some 48,000 retail sites across the country are vacant, something thats got communities worried, not only because theyre an eye-sore but also due to the blight that inevitably sets in when urban spaces are abandoned. UK Prime Minister David Cameron is so worried about it that he commissioned a report on how to revitalize downtown shopping zones. The report has come up with 28 recommendations on how to fight the decline. Cameron asked retail expert and TV personality Mary Portas to lead the research. A sought-after speaker known for her creative approach and sense of fashion, Portas frequently lectures around the world on retailing and brand positioning. Published late last year, the report says high streets, or downtown shopping zones, must once again 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 45

While 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 of e-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 receiving their online purchases.

Key recommendations from the report include putting visionary operational teams in place to run high streets like businesses, removing unnecessary regulations so that anyone can trade on the high street unless there is a valid reason why not and exploring further disincentives to prevent landlords from leaving units vacant. Though focused on the UK, these recommendations would surely help in other countries that are experiencing urban decline, which is often symbolized by boarded up bricks-and-mortar stores. Economist trace decline in the US, for example, to the rise of the automobile and the availability of abundant cheap energy that enabled suburban living. Over decades, those trends left countless town squares in America looking like the ghost towns depicted in iconic Westerns. Prince Hinson, an independent pharmacist in the US, operates a store with a single location in Gainesville, Florida. In his 32 years as a pharmacist, he has seen the business move from one that was a neighborhood staple based on a trusting relationship between patient and pharmacist to a mass-market industry dominated by chain stores with drive-thru prescription pickups. Yet Hinson has found a model that is surviving, even as consumers are driven online for better prices or are even forced to fill prescriptions that way by their insurers. Hinsons Westlab Pharmacy has focused on the pharmacist as a chemist i.e. his store continues to mix compounds by hand for individuals and companies. And human in-

teraction, including sound advice about medications, is a big part of his success. Hinson seeks to individualize prescription medications for the patients he sees. For the UKs Portas, Hinsons business may be just what she imagines as an antidote to closed shops.

Mary Portas

46

shopping online and the big unknowns Now that consumers have access to a global marketplace for goods, they are getting their feet wet in making purchases outside their home countries. Research shows, however, that what these consumers actually want is the feeling that theyre buying from a shop around the corner. They want the buying experience to be simple, and the items they purchase should be delivered quickly and without the hassles, costs and delays typically associated with customs. With its international express network, ability to have goods landed in the shortest times, and ties to customs-clearance boutiques like Borderlinx, Deutsche Post DHL is already making one part of that scenario possible. And steady progress is being made on the other side: The company is working together with partners, including IOR Global, to streamline many of the complexities that are associated with the international shipment of goods for consumers. We handle matters such as obtaining licences and permits, or the payment of duties and taxes, so the buyer does not have to be involved, said Ken Muldoon, the CEO of IOR Global, which helps international traders meet the requirements of being an Exporter of Record (EOR) and Importer of Record (IOR). IOR Global operates in all major trading nations across Asia Pacific, the Americas and Europe/Middle East/Africa, consolidating shipments in its own name to keep freight costs down and reduce emissions.

According to Muldoon, online shopping has provided the visibility for the buyer, but much work remains for sellers to maximize the potential. There are a couple of sellers who do it really well. A buyer goes onto their website and prices are in the local currency and they guarantee a delivery time of a few days. The buyer doesnt know, or need to know, that goods are actually shipped from China or Singapore or Brazil or Germany. Theyre transported across the world, cleared through customs with all necessary paperwork, and then delivered to their door. All the buyer sees is a local price and a few days later the goods, said Muldoon. What these companies offer, in one way or another, is whats known in the logistics industry as a Guaranteed Landed Price (GLP). The idea is that the consumer is offered a single price for an international purchase that is an advance calculation in the buyers local currency incorporating the following: The price of the item, its shipment, customs fees, and charges for duties, taxes and quarantine, if necessary. With the GLP concept, which is slowly making its way into the market, consumers will be able to make like-for-like comparisons of prices that remain valid for a given period of time. It may all sound simple enough, but from a process point of view, making the GLP a reality is daunting, not to mention data-intensive. Given the complexity and the difference in customs regimes around the world, getting to a Guaranteed Landed Price is not so easy, says Muldoon. Service providers must review a sellers 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 dimensions of the products, determine the likely freight charges 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 47

counterfeiting and e-commerce: the genuine article Its a fact of life: There will always be unscrupulous people who try to take advantage of a good situation by doing bad things. The world of e-commerce is no exception, with the sale of online counterfeit items reaching epidemic proportions. There has long been a trade in counterfeit goods, of course, but the growth of the internet has rapidly increased and eased its spread. A 2011 report by MarkMonitor a provider of online brand protection technology revealed that websites selling counterfeit goods, including prescription drugs and luxury items, generated more than 92 million visits per year. This is criminal activity with serious implications. The International Chamber of Commerce (ICC) has found that by 2015, the total impact of the trade in counterfeit and pirated goods including those traded on the internet and the added costs to society through lost taxes and jobs will exceed US$1 trillion. Even more disturbing is that profits made from illegal online operations often fund other kinds of organized crime. The anonymity the internet provides has undoubtedly aided the counterfeit trade. Yet buying from an unauthorized website that purports to be dealing in top brands be they Vuitton accessories or Oakley sunglasses is just as risky as buying them at a knock-down price from a nervous-looking man who is selling them from a suitcase in the high street. In both instances, you shouldnt be surprised when your purchase turns out to be a substandard fake. Its not just a financial cost thats at stake from counterfeit e-commerce, however. When you discover that the Rolex watch you bought online isnt the real deal if it arrives at all, that is you risk feeling cheated. If the medicines you buy online are fake, you risk your health and safety, because these can range from inactive, ineffective preparations to harmful toxic substances. Estimates suggest that up to 90 percent of illegal drugs are now sold online; and, worryingly, Robert Mallett, a senior vice-president at Pfizer, has warned that one out of five individuals may use a counterfeit pharmaceutical within five years. The sheer scale of the e-commerce counterfeit problem cant be underestimated and it certainly isnt being ignored, either by genuine retailers

or the authorities. China Daily reported that, over a six-month period in 20102011, Chinese authorities shut down 829 websites involved in counterfeit operations. In all, 426 suspects were detained in cases involving nearly 800 million yuan (US$124.3 million). In November 2011, the US federal authorities shut down 150 websites for selling counterfeit products; and in April 2012, the US District Court for the Southern District of Florida issued a preliminary injunction shutting down over 175 websites engaged in the sale of counterfeit golf products. In the UK, fashion retailer Karen Millen says it has identified over 65 websites selling counterfeit Karen Millen goods, and is taking action against them. The counterfeit e-commerce trade starts with a mouse click. It can stop just as easily if online shoppers only bought from established, authorized retailers; and, on eBay, ones that have been recommended to them.

48

a matter of trust: is e-commerce safe? Major security breaches of brand-name websites constantly make top headlines in the news. Meanwhile, phishing attacks emails directing consumers to scam websites to update their financial or personal data are on the increase. Spam email is a constant bugbear, clogging up personal and company inboxes worldwide, asking for attachments to be opened and links to be followed (these should always be deleted, naturally). Whats more, there are frequent horror stories about malware and the increasing abilities of cybercriminals to, for example, monitor online movements; and, of course, viruses can infect computer systems and wreak havoc across entire companies.

Cybercrime is a big problem and a worrying one. US-based IT security company Kaspersky Lab has revealed in a survey with B2B International that 41 percent of companies polled worldwide are not prepared to counter cyberthreats. Kaspersky Lab also published the results of a survey by Harris Interactive in which 60 percent of internet users from Russia, the US and Europe cited the loss of financial information as their greatest online concern. It may be, but the e-commerce explosion shows that these concerns arent dissuading shoppers from making online purchases. It could, however, be stopping e-commerce from realizing its full potential. This point was underlined recently by Arrie Rautenbach, 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 banks online payment services to the retailers customer base and provide a secure payment facility when shopping for Mr Price apparel online. Online banking is one of the most successful stories to emerge from the advent of e-commerce, said Rautenbach. It provides unprecedented 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 49

Unlike a face-to-face transaction in a store, e-commerce requires trust on the part of the consumer. The consumer has to know that the website they are buying from is genuine and that the financial details they are asked to plug into it will be secure. The bigger players are so wellknown that their authenticity is never in question (although fraudulent sites may impersonate legitimate companies, using similar domain names); but even the largest e-commerce retailer can experience issues around the security of customer records. Some smaller, less well-known or new websites are patently an unknown quantity for the online shopper. Yet more and more consumers are entrusting their personal and financial data to online merchants. So how do shoppers know their information is secure? Many trusted websites rely on third-party suppliers of secure payment methods at the cash register. They may also have their security regime audited by an independent party and carry that groups seal of approval. Tony Ventura, the Chief Information Security Officer Senior Director at DHL Express, says that an important part of DHLs role as an enabler of e-commerce is protecting customer data shared along the supply chain.

E-commerce is about collaboration, and collaboration is about trust. It is our job to protect customer data from loss, prevent its access by unauthorized parties, keep it away from those with malicious intentions, make sure that customer data integrity is maintained and remove any means of interception. Still, stresses Ventura, consumers should stay proactive, watching for red flags that may signal a dubious website. These may include spelling and usage on websites or in emails; design irregularities on websites; the inability to reach someone behind a website, either via email, online chat or phone; and static websites on which many links are broken, except those leading you to a place where you can enter your personal and financial details. For Ventura, consumer vigilance and responsible merchants both play a crucial role in keeping personal data safe in cyberspace. Security techniques have improved dramatically over the past decade. But threats evolve, and so must the ways to fight them. At DHL, keeping on top of the security game is one of our highest priorities.

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The Expert View Christoph Wenk-Fischer


The European initiative comes as other countries are re-working their laws about the commercial use of personal electronic data. The White House released a Consumer Privacy Bill of Rights in February which calls for basic data self-determination, such as transparency regarding data policies and accountability for the companies that collect and use personal data.
Christoph Wenk-Fischer has served as the head of the German e-commerce and Distance Selling Trade Association (Bundesverbands des Deutschen Versandhandels e.V. bvh) since 2010, leading the associations work to promote the long-term interests of the mail order trade. The association maintains close contacts with the German Bundestag and with various associations in Germany. It cooperates with the European Mail Order andDistance Selling Trade Association (EMOTA), which works closely with the European Union. Before joining the bvh, where he also served as deputy head, Wenk-Fischer was the editor in chief of the legal magazine NJW, the Neue Juristische Wochenschrift. Wenk-Fischer also led the legal and real estate activities at Otto Group in Hamburg, where he worked from 1997 to 2007.

Mr. Wenk-Fischer, what keeps your members up at night regarding data privacy? Christoph Wenk-Fischer: The main issue were facing in the next years is European data privacy laws. In Germany, we dont have a problem at the moment because the benchmark for data protection is a very high one. We are leading internationally on data protection law, but the proposed European Union directive for data protection and privacy regulations goes much further than German rules. One thing that would adversely impact every e-commerce merchant is that you could only use data with the consent of your customer under the current draft of the directive. So, it would be very difficult to acquire new customers. Thats the first point. I think the European Commission came up with this idea in response to the data practices of American companies that are well known for their leniency compared to European ones. In what concrete ways would the directive impact e-commerce merchants in Europe? Christoph Wenk-Fischer: Under the draft law, you are asked to give your written consent to use your data if you want to buy something online. This will make it impossible to make sales. In a social network, its easy to collect data because everybody wants to join. But for daily business like e-commerce, it will be difficult to get consent. Right now, e-commerce is booming, but were worried that if the proposal were implemented in the way it is written now, it would cause a downturn in sales. We would be happy if the

India and China, too, are working on data protection rules. Their moves are critical given the fact that more Indians and Chinese will soon be online than there are citizens in Europe and the US. According to the Economist, Indias bill would set up a data-protection authority, call for consent before personal data can be processed and create a formal right to privacy. In China, a 2003 draft law that seems to have lost steam would require, among other things, prior informed consent for organizations that want to transfer personal data. DHL spoke with Christoph Wenk-Fischer, the head of Germanys e-commerce and Distance Selling Trade Association (BVH), which represents 330 companies. Members are combined catalogue and internet sellers, merchants that operate only online, tele-shopping companies, online pharmacies and eBay power sellers. The German e-commerce and distance selling industry represents 34 billion euros in spending per year.

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The European Commission proposed a new set of rules in January 2012 to strengthen the data protection rights of people online and to streamline the way data is handled across Member Countries. The Commission says the new rules, which may go into effect in 2016, could save businesses 2.3 billion euros a year.

German benchmark becomes the European one, but anything more would harm sales. So how does it work now? How are German internet retailers doing business? Christoph Wenk-Fischer: Under German data protection law, theres an exemption for purposes of acquiring new customers. The exemption is that you can use a customers address if its published in the public domain. But in the future under the European directive, this would be impossible. You would need the written consent of every new customer. Another point would be that you couldnt send a catalogue to someone if hes not yet your customer. Now companies can buy addresses from list brokerages. Thats an important business. Under the new directive, profiling would also be prohibited. For Germany, it means that one quite important payment method would be impossible. Nearly two thirds of all customers buy and pay after receiving their goods because they prefer to avoid using a credit card or an electronic method to pay. No merchant would send goods to somebody he doesnt know anything about. So, we need profiling, which is scoring. But profiling would be prohibited. What other data-related issues do your members face? Christoph Wenk-Fischer: Another point is IT security. Our merchants dont worry about it, but politicians worry about IT security. I think e-commerce is daily business nowadays. Especially in Germany, everybody does it and everybody buys everything online. We have reliable merchants, we have great shops. We have secure payment methods. IT security is not the point at all for our merchants.

But I think some politicians consider e-commerce too new and too unknown. They associate e-commerce with the risk of credit card data being stolen or the like. Its always the same story. The real point is that we have to explain how easy it is and how safe it is as well. Indeed there are no big problems in IT security for our customers because of secure payment methods, reliable shops and trust marks. In Germany, we have three or four established trust marks. If you buy in a shop with such a trust mark, its reliable. Period. In closing, what are you doing about the draft European privacy legislation? Christoph Wenk-Fischer: The BVH is talking to politicians and to the European Commission. And EMOTA (the European Multi-Channel and Online Trade Association) is also involved in direct dialogue with European authorities. EMOTA is the European-level e-commerce organization we are members of. The draft law will be discussed in all European forums, such as the European Parliament and the European Council. We do have some ways to influence the discussion. Were talking to politicians in the parliament as well as to the German government. It is our hope that further discussion over the next two years will lead to some sensible changes in the proposal. I think were making progress.

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InsightOn: E-Commerce and Collaboration 53

E-Commerce and Collaboration


E-commerce has made a huge impact in a relatively short timescale. In the last decade it has redefined the term shopping for consumers and changed the face of retail for merchants. Now every retailer recognizes that they must have an online offer if they are to attract customers and keep pace with the competition. In order to survive and thrive, they need e-commerce. And, remarkably, this is only just the beginning of the e-commerce story because its potential in terms of emerging markets, cloud computing and mobile technologies, etc hasnt even begun to be explored. The future is bright and the financial possibilities considerable. In JP Morgans annual Nothing But Net: 2011 Internet Investment Guide on digital commerce, Goldman Sachs predicts that global e-commerce sales will reach US$963 billion by 2013, growing at an annual rate of 19.4 percent. However, as we have seen, there are numerous challenges that e-commerce presents for manufacturers, e-retailers and logistics providers. For most of civilization, retail meant bartering with people in your own physical space and time. Enabled by e-networks, in 2012, it often means short-term agreements executed for and with people in distant places who you may never meet. A successful e-commerce transaction, therefore, is all about good order fulfillment. That means reliable and timely delivery. Yet in order to function properly, protect profit margins and inventories and raise customer service levels, the e-retailer is going to have to drive down costs by enhancing supply chain efficiencies. That means embracing a way of working closely with partners including logistics providers, intermediaries and even other e-retailers. In other words, the supply chain of the future will have to become even more visible and even more collaborative. Collaboration doesnt simply mean sharing warehouse space although that may be part of the solution in some instances, with competing retailers and competing manufacturers looking to consolidation centers for savings on everything from rent and utilities to transport costs. For example, rival consumer electronics companies are sharing facilities via DHL in Scandinavia, and Carrefour is sharing space with other retailers in France. Logistics providers will also have to work together with their customers to improve forecasting and replenishment by integrating information systems and sharing business-specific information. Based on trust and linked information systems, companies will pool their data to create a whole new picture of financial and physical flows that wouldnt otherwise be possible. Theyll aim to balance supply and demand to reduce the cost of shifting goods around the world and to maximize sales for the manufacturer and seller. The ability to do all this has been boosted by ever-cheaper computing power and storage space as well as the expansion of the cloud and cloud-based software services. Dell, Toyota and Walmart have each found new ways to collaborate that were enabled by connectivity. Toyota, for example, links up with its suppliers electronically, sharing key information that allows Toyota to better coordinate its manufacturing schedule. Even here, however, as we now explore in the second half of this report, there are challenges to confront. Simply having the technology to facilitate collaboration wont be enough on its own. The willingness among all players to make it happen has to be strong, too. E-commerce is still in its infancy but, to be successful in its future, companies will require a community of spirit and a new way of thinking.

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InsightOn: An Evolution of Collaboration 55

An Evolution of Collaboration
Collaboration is one of the earliest survival techniques known to humankind. Whether hunters and gatherers or market traders, people collaborated to meet their daily needs.

Today, collaboration remains a survival technique and a competitive advantage for individuals and companies alike. It may take place in cyberspace, and collaboration may be among partners scattered around the world, but it is essential for staying alive in todays competitive business environment. For most enterprises, certain forms of collaboration are already an integral part of each business area. But effective collaboration in the area of logistics is becoming even more important, says N. Viswanadham, a professor and the executive director of the Centre for Global Logistics and Manufacturing Strategies (GLAMS) at the Indian School of Business. Driven by higher fuel prices, lower volumes due to the recession and an acknowledged need to reduce consumption of fossil fuels, some companies are looking to improve the utilization of their transport, for instance by consolidating multiple shipments. For good reason, says Viswanadham: In my view, all successful companies in future will be logistics companies. Companies must not only be able to design and market a product, they also must be able to source its components, build it, move it, store it, and deliver it to the market on time and at a competitive price. Yet barriers to logistics collaboration remain. Some companies are worried about sharing the necessary business information to make collaboration possible. Others want to avoid becoming reliant on partners to hold up their end of the agreement, or they are concerned that partnerships would suffer when it is time to share the gains. If this attitude persists, however, the industry risks the government stepping in, says Alan

Waller, the chairman of a cross-industry group that promotes collaboration in the supply chain, the European Logistics Users, Providers and Enablers Group (ELUPEG) Ltd. The threat is that if we dont stop under-utilizing transport assets, Brussels will force us to do it by introducing taxes that give an incentive to consolidate transport. This could happen in the next three to five years. To avoid such disruptive legislation, the players in supply chain must work together to develop solutions, said Waller. Waller is also the Vice President for Supply Chain Innovation at the international consultancy, Solving Efeso.

Shared Data The Basis for Modern-Day Collaboration

One way companies are already tackling the problem themselves is through increased co-opetition. The term, a blend of the words cooperation and competition, describes competitors working together to a common end without infringing anti-trust law. The basis of their work together in transport management, fulfillment and scheduling is trust and shared data, for instance about inventory levels and freight flows. In Scandinavia, for instance, two consumer electronics firms are working together to cut their costs at a shared DHL Supply Chain facility. The companies have similar delivery patterns for products sent to electronics retailers. At the facility, distribution is organized independently via DHL Freight and other logistics providers, and customers have the opportunity to consolidate deliveries to save on handling and transportation. This requires a collaborative approach in which all parties involved agree on the business rules and the commercial framework.

DELPHI THESIS 07

IN FUTURE competitors collaborate with each other in order to develop innovative solutions for sustainability and to better shoulder rising energy costs.
PROBABILITY
Denitely not: 2 % Unlikely: 4 % Denitely: 23 %

Possibly: 24 %

Probably: 47 %

Delivering Tomorrow: Customer Needs in 2020 and Beyond. A Global Delphi Study (see p. 74 for details)

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DELPHI THESIS 34

Retail-Driven Collaboration

IN FUTURE logistics providers can only survive if they form global alliances and collaborate closely, e.g. to develop new rail networks connecting Russia, Asia, and Europe.
PROBABILITY
Denitely not: 3% Unlikely: 11 % Denitely: 19 %

In other cases, and representing a new trend, suppliers are working together more closely with retailers at consolidation centers. Traditionally, the retailer has been quite dominant in the relationship, but were now seeing manufacturers becoming more influential and taking a more active role in the supply chain in order to get their products to the retail store floor in the most efficient way. They say, If I share a warehouse, or share a vehicle, or share information, then thats fine. The real battle is on the store floor, said Richard Quesne, Customer Management Director, DHL Supply Chain. At DHLs Collaborative Consolidation Center that serves Carrefour in Lomme, France, Carrefour is working together with suppliers to ensure product availability and cut costs by decreasing its stocks and truck movements. Heres how it works: Some 100 producers of items such as shampoo, baby food and laundry detergent deliver from their factories to the center in Lomme, remaining owners of the stock. DHL, which has signed contracts with the manufacturers and operates as a neutral third party, handles all the logistics from the reception of the goods through to order preparation and co-packing on pallets and in cages.

Carrefour places its order with manufacturers, taking ownership of the goods only when they leave the DHL consolidation center. By synchronizing orders, Carrefour ensures that capacity on the trucks that deliver to its facilities is used as much as possible. Since Carrefour can place small orders but still fill trucks, and it doesnt take ownership of the stock until the stock arrives, the company saves money. Manufacturers save by not doing the cross-docking themselves, said Quesne. Overall, the consolidation center can reduce transport costs by up to 40 percent per pallet, cut stock holding costs by 20 percent and reduce carbon emissions by 25 percent, according to DHLs calculations. Despite the benefits that collaboration can bring, much remains to be done to improve collaboration in the logistics sector. Some experts see great potential in cloud computing. Where Electronic Data Interchange (EDI) was the main gateway for sharing data from the 1970s to the 1990s, now applications on the internet and cloud-based software provided as a service (SaaS) are leveling the playing field, making it much easier and cost-effective

Possibly: 21 % Probably: 46 %

Delivering Tomorrow: Customer Needs in 2020 and Beyond. A Global Delphi Study (see p. 101 for details)

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for business partners of all sizes to exchange data and manage their supply chains better.

panys own networks. This information could help with route planning in congested areas and would make it possible to initiate partnerships to consolidate goods along shared routes. The database would be a sort of control tower of global, cross-company supply chain information. Companies would benefit each time another joins, adding their data to the pool; and each time a user corrected or updated data, everyone would benefit. In addition, users could analyze traffic flow scenarios on a global basis for far more accurate planning and predicting than similar analyses based on only internal data. Various organizations are at work building up such a capability and establishing a business as a neutral orchestrator of multiple supply chains. They provide, among other things, the cloudbased solutions and algorithms to enable a sophisticated use of the data. But the practice is not yet widespread. Wallers ELUPEG is working on a similar concept called Vision 2020. If it did catch on, a massive cloud of data about global freight flows could spur all kinds of new cooperation and collaboration and it could be an ideal basis for helping companies cut costs and reduce emissions, said Waller.

Despite the benefits that collaboration can bring, much remains to be done to improve collaboration in the logistics sector.
One grand vision revolves around a global repository of real-time freight-flow and other logistics data that would be generated and maintained by hundreds or even thousands of companies involved in transport. Its a concept not so different from the way the online encyclopedia Wikipedia works, but its all about data, technically sophisticated and maintained by professional users. By inputting their own data and combining that with data from other companies, users could gain a real-time overview of flows outside their com-

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Collaboration The Human Factor


by Stuart Whiting
Overview Where Are We At?
Collaboration has been pursued by business as the holy grail for solving performance problems in businesses for more than a decade. The focus has been primarily on improving systems, processes, operations, IT, controls, financials and other business activities. Improvement in this part of the organization have been addressed through incremental, innovative and revolutionary means yet the results in performance improvement are variable and at times do not seem to justify the effort. There seems to be yet another area to address in the elusive ideal of successful collaboration, one that has been mostly ignored to date. In the supply chain area the focus of businesses has been on systems and processes, however more work needs to be done to address human factors. In 2006, Verizon Business and Microsoft Corp. sponsored an international study of over 2000 organizations that revealed that collaboration is a key driver of business performance around the world. The research, conducted by Frost & Sullivan, developed an index for collaborativeness based on: An organizations orientation and infrastructure to collaborate, including collaborative technologies such as audio conferencing, web conferencing and instant messaging The nature and extent of collaboration that allows people to work together as well as an organizations culture and processes that encourage teamwork Drilling down into this study reveals that the focus is on technologies that allow communication, rather than identifying the more elusive soft-side of collaboration: The organization and the people. This year, on January 24th 2012, Jacob Morgan, a Social Business Advisor wrote in his blog that Collaboration is a Business Requirement. Theres hope here that collaboration is now being addressed in a more people oriented manner. However when reading through the post the focus is still on collaborative tools. So the challenge remains that the focus on collaboration the people side remains difficult to unpack and facilitate. Its much easier to look at tools and technology, than the murky waters of people, culture and collaboration.

So the challenge remains that the focus on collaboration the people side remains difficult to unpack and facilitate.
So, What Is Collaboration?
The term collaboration is derived from the Latin collaborare, to work with, appearing in print as early as 1871. Despite the clarity and simplicity of this definition, collaboration is a complex concept. For collaboration to be successful it requires involvement from an organization at a multitude of levels. This includes the individual who collaborates, their manager who facilitates and assesses the collaboration,

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as well as the organizational context. Each of these factors can enhance or limit collaboration. Then to complicate matters even further, if collaboration is across organizations, the complexity increases as these factors are in play at each level of the other organization as well. This added level of complexity increases the challenge; however, anecdotally it has been reported that the relationships within an organization are often more difficult to negotiate than external ones. If collaboration is to be successful there needs to be an appropriate fit or an alignment of a range of factors. These include disparate things such as: The culture; mutual understanding of the project and the contributors; knowledge (more than just information); organizational values; willingness of the leadership for collaboration to happen; as well as the goal(s) and assumptions of the individuals involved. This is a big call for something that seems to be so simple.

critical to the collaborative experience. This is because it involves generating, converting, and diffusing ideas. In addition, it involves the ability to make decisions not necessarily about the collaboration per se but about when to collaborate and when not to collaborate. Thus collaboration is not really able to be project managed in a truly linear or sequential manner. The aim is more to keep the collaboration moving forward and aiming at definite goals over time. The creative side of collaboration includes aspects such as: Believing all involved can contribute creatively to the project; Support, value and recognize creativity; Set the situation up so that theres a challenge but not too much of a stretch; Provide a situation for those involved to focus on their work rather than on constant deadlines; If people are excited about their work they tend to be more creative; Creativity takes a hit when people in a work group compete instead of collaborate. The most creative teams are those that have the confidence to share and debate ideas (Breen 2007), which means that trust and openness need to be valued in the culture(s) for successful collaboration; and Stable work environments need to be in place as constant downsizing or increasing workloads tend to reduce creativity.
Stuart M. Whiting is the Global Head of Multinational Customers, Government & Defense at DHL Express. Based in Bonn, Germany, Whiting also oversees DHL Express logistics business in a variety of regions. He has a keen interest in customer alignment and buying behaviors and works to apply industry-leading strategies on behalf of customers. Previously based in Taipei, Taiwan, Whiting was General Manager of DHL Express. Before that, he worked in commercial supply chains and other functions in Japan and throughout Asia. Whiting joined DHL Express in 1999 as a Commercial Manager from TNT Express. A Fellow of the Chartered Institute of Logistics and Transport, Whiting holds a Master of Science degree in Logistics and Supply Chain Management from Cranfield University.

Good collaboration is worse than no collaboration at all.


In addition, there are a range of barriers to collaboration such as team and/or organizational conflict; poor focus on results; hostile territory (i.e., relating to the context rather than the individuals); under-estimating the costs of collaborating (including time); and lack of identification and/or acknowledgement of other barriers to collaboration that may be unique to the situation or the organization. Each one of these barriers, if present in an organization, will be challenges that need to be overcome for successful collaboration to happen. These negatives aspects, that are believed to be linked to poor or no collaboration, need to be either eliminated or at least be reduced to a level at which they are less important than the positive aspects of collaboration for success to be possible. Another area of collaboration that is often overlooked is the activity of collaboration at least in the initial stages. Creativity and innovation are non-linear processes that are difficult to control, are not easily regulated, and are

But What About the Status Quo?

Morten Hansen in his 2009 book Collaboration: How Leaders Avoid the Traps, Create Unity andReap Big Results wrote that Good collaboration is worse than no collaboration at all. This counterintuitive idea is the result of research on successful and unsuccessful collaborative projects across a range of industries and businesses. Poor collaboration often involves high levels of friction and a poor focus on results. The drain on resources (products, money and time) through poor collaboration results in a problems for an organization. The other side of the coin, a poor focus on results, is often elusive to some organizations as well as the focus of

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the project drifts from the end goal to the means of achieving the goal collaboration. Hansen reports that the goal of collaboration is not collaboration, but it is actually a means to an end: Improved business performance. The problem is that in many projects this objective is lost in the activity of collaborating and the end goal of an improvement or resolution of a problem becomes lost. The approach Hansen proposes for successful collaboration is disciplined collaboration. This can be achieved by carefully selecting what collaboration projects to pursue and then ensuring that the focus is on the desired outcome(s) throughout the project. Once the project is selected the next step is not to commence the project. There needs to be some background work completed 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 the number involved and may take some time to determine. Part of this may be identifiable through reviewing collaborations that were unsuccessful in the past. Removing or at least reducing these barriers to collaboration through management solutions and careful observation of the project is an ongoing quality of the collaboration itself. This may mean empowering individuals and team members to resolve issues, rather than leaving everything to managers. This disciplined collaboration is defined as theleadership practice of properly assessing when to collaborate (when not to) and instilling in people both the willingness and ability to collaborate when required (Hansen 2009). This then requires delegation of power and the ability of individuals to participate in the process of collaboration, as well as to pursue the project itself.

project per se. The issue is deeper than that. Answering the following questions may reveal a situation that is hostile territory for collaboration. How does the organization reward people? Does the organization encourage productivity through internal competition? Do business units or team compete? Is cooperation rewarded and encouraged? Do employees in the organization interact and share information easily? Or is the system more one of internal competition? If the response to these questions reveals that the emphasis and culture in the organization is internal competition rather than cooperation, it will be more difficult to establish a project that requires collaboration. Even before the project starts it is working against the cultural status quo and is more than likely going to fail.

A different problem, found in an organization with a more cooperative environment is overcollaboration.


Another aspect of hostile territory that is less obviously a barrier to collaboration is where power lies in an organization. If power and decision-making is tightly held with the management team and senior executives then there is little space in the organization for others to make decisions. Do employees have freedom to develop something new without asking permission? Or is everything centralized? Do employees outside the top management team have a way of making their opinion heard? Is there freedom to initiate in the organization? Or is this frowned upon and viewed as subversive? There are two issues with centralized power in an organization or at least when there is a lack or a low level of empowerment of employees. The first is that the culture then tends to work against a project that is perceived to be undermining the power base of the organization. The second issue is that the employees are less experienced in initiating ideas and applying them and thinking outside the box. In this scenario it may be more difficult for the team to get used to the freedom

There are a number of challenges in the cultural and people area that need to be overcome or at least reduced for a project relying on collaboration to be successful. These can grouped into five areas of focus, although not all of these problems will be found in the one organization: There is some overlap and interaction. The first area of concern is trying to establish collaboration in hostile territory. This does notmean that there is negativity towards the

Challenges to Overcome for Successful Collaboration

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of being creative, which is required in collaboration as discussed earlier. A different problem, found in an organization with a more cooperative environment, is overcollaboration. In this type of organization it is easier for the employees to focus on the activity of collaboration rather than the output of the project. This situation is almost the opposite of hostile territory. Instead, in this type of culture the project may lack focus on the end game and the bottom line. After all, the purpose of collaborating is a result, not just the collaboration.

In collaborative projects, which require some level of creativity and have no guarantee of success, there is an element of needing time for the project to come to fruition.
A corollary issue to over-collaborating is overshooting the potential value of the outcome. Some projects are not successful, yet organizations will continue to support them a long time after they should be closed down. In collaborative projects, which require some level of creativity and have no guarantee of success, there is an element of needing time for the project to come to fruition. At times it may be difficult to decide whether to cut losses or to wait. Sometimes, linked to each of the challenges listed above, underestimating the costs of collaboration will lead to an inability to determine when a proposed collaborative project should not be pursued. Additionally, if these costs are underestimated it is difficult to identify when a collaborative project should be disbanded as it costs more than the potential benefits estimated from completion. These costs of collaborating include both financial and non-financial factors. Understanding the absolute necessity of trust is critical to the success of a collaborative project. Even if all other

factors are in place, a lack of trust alone may block success. Despite the fact that the individuals involved in the project may be enthusiastic and committed to collaborating, a lack of support from the relevant touch points in the organization may thwart successful collaboration. Therefore, support for collaboration from the organization itself, including management, and the business units associated with the project is very important. A lack of support will erode most collaborative projects even if they do commence. A soft skill also required within both the collaborating team and organization leadership is the ability to resolve conflict. This has a similar outcome to support with collaborative projects, that is, if the ability to resolve conflict is present it can greatly facilitate collaboration, but if it is lacking, it may not obviously slow down the project and something else may be blamed for a lack of success. Time too, is required for developing a successful collaboration and building trust. Estimating how much time is required to invest in a project, as well as how much time is enough for a project is difficult. Lastly, knowing the required outcome and what the desired benefits are is very important to keeping collaboration on track. 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 recognize both the soft and technical requirements of a collaborative project. A lack of understanding of this may result in a collaborative project costing too much or being disbanded when it could have a large payback.

DELPHI THESIS 59

IN FUTURE virtual companies assemble highly educated professionals on a freelance basis in flexible teams and on demand. Thus, traditional company structures, based on rigid work spaces and fixed working hours, are obsolete.
PROBABILITY
Denitely not: 5% Unlikely: 28 % Denitely: 3% Probably: 22 %

Possibly: 42 %

Delivering Tomorrow: Customer Needs in 2020 and Beyond. A Global Delphi Study (see p. 126 for details)

So What Does Collaboration Really Cost?

In investigating collaboration, Hansen (2009) determined what he believes to be the real cost of collaboration. The collaboration premium (i.e., the full cost of collaborating) is calculated not just by identifying the direct costs of a collaborative project, but it also includes accounting for the opportunity cost in order to identify the true value of the collaboration, positive or negative. This is: Collaboration Premium = Return on Project - Opportunity Cost Collaboration Cost This formula attempts to capture some of the softer culture side of collaboration. The limited business success to date of collaborative projects

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has demonstrated that the commonly used approach of focusing on tools in the supply chain isacceptable, yet limited. It is the equivalent to assessing a companys value using only financial metrics and ignoring the relational, social and human assets. Understanding of this limitation was recognized in the field of accounting and resulted in the assessment of a firms value using the triple bottom line. Intangibles in business are recognized as differentiators between levels of success. A report on high-performing workplaces from the Australian School of Business in October 2011 noted that the intangibles that make a difference in performance are innovation, leadership, fairness, employee experiences and customer experiences. In collaboration the cultural factors, soft skills and intangibles are strong contributors to collaboration success or failure.

tion and knowledge and leave the collaborative project unsupported. Although this may be an individuals trait it may also be a reflection of a more internally competitive culture. The two other individual and team barriers are due more to inability than unwillingness. These are the inability to seek and find expertise required for the project and the inability to work together and transfer knowledge. These may also be due in part to a more competitive culture, but it could also be an experience and maturity issue. A good manager could spot some of these factors and help overcome these hurdles for a successful collaboration.

So What Are the Human Factors for Collaboration?

The human factors in collaboration do not only lie with the individual. In reality they include a wide circle of contributors: individuals such as the designated collaborators; their managers; groups of individuals such as the collaborative teams; and the context of the organization(s). Next there is the interaction between all these, along with the IT set-up, the formal and informal systems in the organization, and processes that contribute to and modify the human factors of collaboration. In Working with Emotional Intelligence (2009) Daniel Goleman stresses the importance of soft skills for success in business. A number of individual behaviors have been identified for successful collaboration. These are often described as high-level or soft skills. Most critical are (self) motivation for the project, ability to do the required work, ability to collaborate and a willingness to participate. Combining these individual skills with the managers contribution of empowerment of the individuals in the collaborative project, support (discussed earlier), the ability to negotiate conflict, provision of appropriate rewards, and being able to shape the project around a specified common goal is a powerful mix. There are some individual and team barriers to collaboration that can work against the project. These include an unwillingness to seek input and learn from others, and an unwillingness to help. These can limit the transfer of informa-

Part of the task of a manager who wants to facilitate the improvement of the organization context for collaboration is working to create a positive environment.
There are a number of requisites of a manager for encouraging successful collaboration. This is critical for the establishment and continuity of collaboration, as it sets a positive context for the project. These include factors expanded previously in this discussion. Empowerment of the team in terms of allowing freedom to make decisions and the ability to function to complete the tasks required. Support for the project and removing organization conflicts and helping with conflict management is something that a manager can facilitate. The development of a common goal for the team and the organization is critical as this can lead to alignment and reinforce the positive aspects of the venture. Tying this all into rewards that relate to the success of the project and identifying the outcomes so that they are measureable is all part of working with the collaboration. In summary the activities on the part of the manager are to provide equal opportunities for the collaboration to occur, help spot the

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barriers to collaboration (before and during the project) and most importantly for the more experienced manager, to help tailor collaborative solutions. Hansen (2009) reports that these can be achieved by using the following three levers: Unification through creating compelling, common goals, articulating the value of the project and consistently talking collaboration. In this the manager frames the project in the context of the culture of the organization; Select people who cultivate collaboration, which is basically the right people in the right place, and support them with training and empowerment to say yes or no to collaboration; and Promote the use of decentralized networks which may in some cases break through the hold of centralized power and decisionmaking to enable more contribution from those collaborating.

Ghoshal and Bartlett (1994) identify four sets of attributes that interact to define an organizations context. The first two, stretch and discipline, contribute to performance management, through stimulating people to deliver highquality results with accountability for their actions. The next two, support and trust, provide the social support through security and space they need to perform. The combination of performance management and social support are believed to be mutually reinforcing, and need to be in balance for the best organizational context. This research matches Hasens (2009, page 49) more recent observations: Collaboration rarely occurs naturally because leaders, often unintentionally, erect barriers that block people from collaborative And the culprit is modern management.

Organizational Context for Encouraging Collaboration

Part of the task of a manager who wants to facilitate the improvement of the organization context for collaboration is working to create a positive environment. This extends the individual actions of a manager encouraging collaboration to changes in the organization. This includes building and strengthening knowledge management and connections (not just information management). The aim is to move from the attitude of not invented here, which is found in an insular culture, and bring it around to reducing status gaps, increasing self-reliance and decreasing fear of decisionmaking. Measuring and monitoring collaboration projects using relevant key performance indicators (KPIs) that may have to be developed in relation to the specific outcomes required from the collaboration. Helping to provide the correct environment and the required time for the project is something that an organization needs to do to ensure that the culture matches the environment that is necessary for successful collaboration.

Collaboration rarely occurs naturally because leaders, often unintentionally, erect barriers that block people from collaborative And the culprit is modern management.
The sub-optimal contexts include over-emphasis on performance management while neglecting the social systems resulting in burnout and frustration of employees. The other situation is when performance is mediocre and the support system is over-developed. One other factor that impacts collaboration is the tools used to facilitate the activities. The function is the same but the activity will vary. Gen Y are described by Graham (2011) as embracing the convergence of creativity, connectivity and collaboration and replacing Richard Floridas creative class.

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InsightOn: Collaboration: A Foundation for Supply Chain Innovation 65

Collaboration: A Foundation for Supply Chain Innovation


by Professor Richard Wilding Cranfield School of Management
Introduction
Asda Walmart, Julian Walker Palin, is quoted in recent supply chain press as saying, Our customers have told us they want retailers like us to provide affordable, sustainable products as the norm, not make it a complex choice with a premium attached. By helping our suppliers to become more sustainable and efficient at the same time through the Sustain & Save Exchange we are helping to ensure everyone can afford to make sustainable choices. Asda Walmart will require the alignment of values across the supply chain. Their customers, it seems, have bought into sustainability, but do other supply chain members embrace this value also? In order for sustainability and efficiency to be created across the supply chain network, partnerships and collaborative relationships will be key. It now seems that many burning platforms are forcing organizations to innovate, and for innovation to be effective, collaboration is often required. Competition is no longer between individual companies but the supply chains they are part of. In this article we explore the concept of collaboration and why we are going to be increasingly dependent on such approaches in the future.
Richard Wilding, a chaired professor of supply chain strategy at Cranfield School of Management, is a specialist in supply chain risk strategies. In 2005 he was named the first ever full professor for the discipline, in recognition of his contribution to the subject. Wilding has applied chaos and complexity science to logistics and supply chain management. The result was new management guidelines for supply chain re-engineering to mitigate risk. In addition to his academic work, Wilding is a consultant to European and international companies in various industries on logistics and supply chain projects. Wilding was the winner of the Individual Contribution Award at the European Supply Chain Excellence Awards 2010. He continues his work on creating collaborative business environments, reducing supply chain vulnerability and risk and maximizing customer value.

At a recent presentation by a leading retailer to a global beverage supplier a simple yet challenging request was made. We need you to cut your logistics costs by 5.25 percent. Without this we cannot do business with you! The response, as you can imagine, was not particularly positive; cries of we dont have that level of margin and we will be giving you stuff for free! were heard at the meeting. After four years of downward price pressures there are no longer the reserves to take such a cut. But after an initial emotional response, it was recognized that new ways of working would have to be used to meet this challenge and this could only be done by working with the customer and perhaps even competitors. It was recognized that by innovation and collaboration perhaps this cut could be achieved.

Collaboration is about working together to bring resources into a required relationship to achieve effective operations in harmony with the strategies and objectives of the parties involved thus resulting in mutual benefits.
There are many drivers resulting in the need for companies to innovate their supply chains. The sustainability agenda, for example, is forcing innovation. Head of corporate sustainability at

How Do We Define Collaboration?

When looking at collaborative and partnership relationships we often find the terms are used interchangeably. Collaboration is about working together to bring resources into a required relationship to achieve effective operations in harmony with the strategies and objectives of the parties involved, thus resulting in mutual benefits. The Global Supply Chain Forum defined a partnership as a tailored business relationship based on mutual trust, openness, shared risk and shared rewards that results in performance greater than would be achieved by two firms

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working together in the absence of partnership. Both these definitions emphasis the multiplication effect of collaboration: By bringing together two parties a win-win relationship is created. We move from one plus one making two, to one plus one making eleven! The language of multiplication. The definition for supply chain management used by Cranfield School of Management is the management of upstream and downstream relationships with suppliers, distributors and customers to achieve greater customer value-added at less total cost.

ships with supply chain partners have proved tobe significantly more resilient to such disruptions.

Horizontal and Vertical Collaboration the Concept of Co-opetition

So, as companies strive to manage their supply chains, collaboration becomes increasingly important.
The key emphasis is the management of relationships within the supply chain. The recognition that competition is no longer between individual businesses but between the supply chains they are part of forces organizations to collaborate and partner with the best to gain competitive advantage. Analysis of how supply chain failures, such as late delivery, trade restrictions and quality issues, impact on shareholder value show an average reduction of nearly 25 percent in the share prices of an affected company. However, such supply chain failures are often not the complete responsibility of the companies whose share price has been hit, but are contributed to by failures in suppliers and possibly customers that then cause a significant failure in one organization. This creates our first burning platform: The pressure of shareholder value and supply chain resilience. So, as companies strive to manage their supply chains, collaboration becomes increasingly important. Recent events, such as the Japanese earthquake and tsunami, the floods in Thailand and volcanic eruptions, havedemonstrated how fragile modern supply chains can be, but those organizations that have built and sustained high-quality relation-

A major challenge and opportunity being recognized is collaboration between competitors. The concept of horizontal collaboration, which has been defined as the pooling of logistics activities and consolidation of supply chains between two manufacturers for mutual benefit, requires new forms of collaborative relationships. The manufacturers could be competing or non-competing, but often organizations are being forced to review how they can work with competitors. Collaboration between competitors, the concept of Co-opetition (from COOPEration compeTITION) where competitors come together in order to compete. Examples of this approach have been commonplace in many industries. For example, brewers Heineken and Guinness build breweries together in developing markets to produce both competitors products. Carmakers Ford and Volkswagen Group co-developed and manufactured the original Ford Galaxy, Seat Alhambra and Volkswagen Sharan people carriers. The advantage to those involved in co-opetition is that a category or market can be developed at lower risk to each organization. Now co-opetition can be utilized by logistics providers to lower CO2 and reduce costs for a group of companies in a sector. The challenge for an organization is having the skills and abilities to manage such relationships effectively.

Creating Effective Collaborative Relationships

To create a win-win relationships there are two key dimensions that need to develop. The first is C3 behavior, a combination of Co-operation, Co-ordination and Collaboration and the second is trust. C3 behavior is seen as being essential to maintain a successful business partnership especially when it is linked with commitment to the achievement of shared, realistic goals. There is generally an evolution that needs to take place. Co-operation is initially required, often in the form of short-duration low-risk interaction. This then builds to co-ordinating activity requiring longer commitment and greater working together and finally collaboration is achieved,

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where both parties may jointly plan and define operations and strategy. This is very similar to any personal relationship. Initially you may go on a short, low-risk date, for example a trip to the cinema. This then may progress to both parties spending more time together, co-ordinating their activities and finally a marriage may occur, where both parties collaborate! Trust is a keystone of business-to-business relationships. Trust enables co-operative behavior, promotes improved relationships, reduces harmful conflict and allows effective response in a crisis.

The New Skills for Collaboration Moving from IQ to EQ

It has become apparent that managers need new skill sets to develop C3 behavior and trust and thus develop collaborative relationships. All organizations need to have an emphasis on so called soft skills. Technical ability and intelligence (IQ) alone do not guarantee success, and may be only one qualifying factor rather than the winning factor in the race to be collaborative. The emotional intelligence (EQ) of the organization is critical in enabling a collaborative culture. When building a collaborative relationship, social skills, empathy and motivation are of high value. Daniel Goleman in his book Working with Emotional Intelligence discusses this factor in detail and Cranfield School of Managements research highlights the requirements for these high-level skills. A survey by the Society of Human Resource Management further emphasizes the need for emotional intelligence in gaining competitive advantage. The survey analyzed a series of top companies, selected for profitability, cycle times, volumes and other key performance measures. They found that the outstanding companies had the following competencies in managing their human assets: organizational belief and commitment to basic strategy; open communication and trust building with all internal and external stakeholders; an interest in building relationships inside and outside the organization where they offered competitive advantage; collaboration, support and the sharing of resources; an environment where innovation, risk taking and learning together is promoted and a passion for competition and continual improvement.

Technical ability and intelligence (IQ) alone do not guarantee success, and may be only one qualifying factor rather than the winning factor in the race to be collaborative. The emotional intelligence (EQ) of the organization is critical in enabling a collaborative culture.
Trust requires risk (a perceived probability of loss), uncertainty (over the intentions of the other party), interdependence (where the interests of one party cannot be achieved without reliance on the other) and choice (options are available) as essential conditions. There is little doubt that repeated cycles of exchange, risktaking and successful fulfilment of expectations strengthen the willingness of parties to rely upon each other and, as a result, expand the relationship, in effect producing a virtuous circle that can be developed and promoted. The alternative, lack of trust, may precipitate a downward spiral of conflict leading to diminished operations or failure.

Effective Collaboration Within Your Organization

Internal collaboration, within an individual organization, is also becoming critically important. Analysis of both internal and external relationships by Cranfield School of Management, using a technique for assessing the strength of collaborative relationships, has shown that it is not uncommon for internal relationships within an organization to be far worse than the external relationships they have with customers or suppliers. The internal relationships may be treated with contempt, with functions trying to gain advantage over each other, like a failing marriage where both parties are continually bickering but in the presence of strangers they appear like the perfect couple!

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Those organizations which collaborated well internally had greater performance in terms of meeting customer needs and accommodating special customer requests, and new product introduction was significantly better. This resulted in an increased customer perception of the organizations which led to increased sales and margin.

The Building Blocks of Collaboration

B2B customers may require suppliers to demonstrate that they have effective processes and measures in place to manage relationships. In the UK for example, a new collaborative standard, BS11000 has been launched by the British Standards Institute. This requires organizations to go through an eight-stage process that includes assessment and measurement.

For collaborative relationships to be successful a number of key foundations need to be in place. Both organizations need a common focus (commitment to a basic strategy). This may, in the retail supply chain, be focusing on the customer and, because data sharing then becomes critical, IT systems need to be in place to enable this. An agreed joint process is required; this is often a problem as it is not uncommon for organizations to have little understanding of their own internal processes so agreeing on a joint one can be difficult. Integration of internal applications is important to ensure good communication and data flow. Flexibility and responsiveness are also critical for both organizations to exhibit, creating agility within the relationship.

Reduce, Re-route, Re-Time, Re-mode

The burning platform of the London 2012 Olympics has also forced organizations to innovate and collaborate. The impact of the Olympics on supply chains in London was significant. The Olympics was Britains largest peacetime logistical exercise, equivalent to running 26 simultaneous sporting world championships at the same time. All businesses with operations in and around London needed to plan to ensure business continued as usual. When considering the movement of goods, deliveries and collections the motto: Reduce, Re-route, Re-Time and Re-Mode was developed.

The Building Blocks of Measurement

One of the biggest requirements is agreed joint performance measures; both parties should be measuring the success of the relationship in a common way using the same measures. Hard measures will need to be used but also soft measures for measuring the success of the relationship in terms of levels of trust and personal relationships. One particular question we do need to ask is if collaboration is so important to the success of a business in our modern global economy, why do so few organizations measure the soft relationship issues and continue to focus on hard performance measures which only reveal the symptoms of failure and not the causes? Organizations need to ask questions like: How many business relationships do we have? Why are they important? Which ones are doing well and why? Which ones are NOT doing well and why? How do we identify hard targets for continuous relationship improvement? Techniques like the Supply Chain Collaboration Index available from SCCI Ltd enable organizations to gain answers to such questions and work together on relationship improvement. This approach has been used by Masterfoods, EDF Energy, AMEC, and the UK Ministry of Defence amongst others to measure and improve the effectiveness of key collaborative relationships. The measurement and management of collaboration is receiving increased notice.

Flexibility and responsiveness are also critical for both organizations to exhibit, creating agility within the relationship.
Reduce Where possible consolidate and join multiple orders into a single delivery to reduce journeys. Collaborate and coordinate with neighboring business to share deliveries. By doing this it is anticipated that a reduction in individual organizations costs and the amount of CO2 produced may result in cost savings. Re-Route By identifying the traffic hot spots using the feely available planning tool provided by Transport for London, companies can identify if it is appropriate to re-route deliveries, perhaps using different depots to supply from or perhaps different suppliers. This will save time and CO2. Re-Time Arrange out of hours deliveries when roads are quieter, plan to receive deliveries outside the busiest times.

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Re-Mode Revising the mode of transport is encouraged. Organizations are being asked to look at using different transport and delivery modes cycling or walking couriers might be used for small deliveries. Use drivers mates to minimize drop off parking by enabling them to jump out and deliver. Use secure drop boxes for smaller items. This potentially can save further time, costs and CO2. These actions may provide a surprising legacy from the games, because it is forcing all in logistics and transport to innovate. The burning platform generated by this event may have lasting impact by reducing costs and increasing sustainability of transport operations for years

to come. Foundational to this is developing new ways of working together

Conclusion

When striving to create win-win relationships it could be argued that the first question all organizations need to ask before creating a collaborative relationship is: How will the company or internal function you want to collaborate with benefit from collaborating with YOU? At the end of the day if there is nothing in it for the other party there is no motivation for collaboration and therefore the multiplication effect will not occur. Burning platforms are often useful to bring the benefits into sharp focus for both parties.

SUCCESS AND FAILURE FACTORS


Frequent, interactive, open communications across all levels of the customer/ supplier interface especially on performance reviews and continuous improvement of products/services and business processes.

Joint planning and business systems supported by free flow of information.

SUCCE

SS

CTO FA

RS

Open, noblame culture aimed at customer and relationship satisfaction which depend upon personal, trusting relationships.

Adversarial, bureaucratic commercial practices and attitudes, which increase costs, cause delays and reduce trust.

Innovative commercial practices, tough but achievable incentives, and meaningful gainshare.

A recent analysis of RE FACTOR over 60 collaborative ILU S A relationships by Professor Richard Wilding found a Those relationships number of foundations that were typified by for success. failure exhibited the following types of behaviors and practices.

Insufficient investment, which generates long-term costs and prevents performance incentivisation.

End-to-end, clearly visible performance objectives agreed by all supply chain players including the end-customers.

Lack of stable customer funding arrangements, which prevent supplier investment planning.

Lack of culturematching results in them and us attitudes, which result in a downward spiral of poor behavior, reduced benefits and low performance.

Lack of investment in good staff, which causes unnaturally high turnover and prevents personal relationship development and efficient business processes.

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The Expert View John Gattorna


Companies that operate this way have reached the much sought-after collaborative zone, a state that inevitably takes time and patience to attain. While a select few parties genuinely collaborate in some supply chains, in many others this is not the case, and its not necessarily desirable, says John Gattorna, a supply chain expert and the author of Dynamic Supply Chains: Delivering Value Through People. Thats because collaboration is one of those concepts that can be over-used and overworked in the supply chain vernacular, and collaborating only makes sense if companies do it with those customers and partners who exhibit true collaborative behavior. Otherwise, they risk wasting their time and money. In the early years of lean manufacturing, as it was first introduced and practised by Japanese manufacturers, companies took for granted that suppliers would collaborate in the systematic joint effort to cut costs, rather than just move them up and down the supply chain. However, as globalization took hold and supply chains became longer and more complex, the idea got lost in translation. According to Gattorna, it is unlikely that more than 25 percent of customers at best will exhibit truly collaborative buying values. Typically, they are those working with partners in continuous replenishment mode. These customers genuinely seek close relationships with their key suppliers, tend to single-source, remain brand loyal, share information freely, exercise price tolerance and, above all, they are forgiving in case of a supply failure. Gattorna argues, therefore, that companies must identify the supply chain needs of their customers and partners to see who has truly collaborative values. These parties must then be treated as a separate segment to the rest in their customer base so that the company can deliver different value propositions via varying supply chain configurations, based on what the customer needs. In addition, executives must match the values of internal personnel with that of the collaborative customers they serve. These may seem like small points, Gattorna says, but we are now operating in a world where nuances make the difference between success and failure operationally and financially, and companies ignore this reality at their own peril. InsightOn: spoke to John Gattorna about the obstacles and challenges of reaching the collaborative zone. Dr. Gattorna, what are the risks of too much or ill-conceived collaboration? Dr. John Gattorna: Collaboration is a condition that is definitely not for everyone. I prefer to think in terms of requisite collaboration, where you collaborate as much as or as little as a particular customer wants or deserves. In this way, companies avoid a lot of costly over-servicing. In some industries, such as logistics service providers, research I have undertaken clearly showed an inverse correlation between the performance of LSPs and the number and complexity of contracts they were locked into. These days, some previously collaborative companies are even moving away from collaboration because of the way they are measured on KPIs. Its only a very enlightened CEO who says, Im going to segment my market. Im going to find out which of my partners and suppliers genuinely appreciate collaboration, and I will set up a collaborative supply chain with them. But for all the others, Im going to have to come up with another solution. But some companies do get it right with collaboration. Dr. John Gattorna: If someone gives you a golf lesson, and youre an absolute beginner, you

Dr. John Gattorna is considered a thought leader on the global supply chain with his unique, multi-disciplinary approach to the design and management of enterprise supply chains. Gattorna, who heads his own advisory business for companies around the world, serves as an adjunct professor at the Graduate School of Management at Macquarie University in his hometown of Sydney, Australia. Gattorna established and led Accentures supply chain practice in the Asia Pacific region for several years from 1995. Before that, he ran a consultancy business specializing in marketing, logistics and channel strategies. A frequent keynote speaker at conferences around the world, Gattornas latest book is called Dynamic Supply Chains: Delivering Value Through People, published by FT Prentice Hall, Harlow, 2010.

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Based on the cultural value of trust an idea treasured above all others collaboration in the supply chain means partners share information freely, seek long-term stability in the relationship and painstakingly forge ahead on strategic matters.

may walk out, pick up your golf club and hit the most fabulous shot down the middle of the fairway. But you dont know how you did it. For the rest of your life, you try to replicate that shot. Thats what companies are doing at the moment. They sometimes get collaboration right and dont understand that theyre in a sweet spot. Next week, theyll do something different, disrupting their own people and customers. Im arguing that you cant make the success of collaboration repeatable until youve determined the behavioral biases of your customers and partners. If you can reduce customers and suppliers to segments based on their buying behavior, you can get cost out of your business, permanently. And you achieve greater customer satisfaction, so you end up with a doublewhammy effect: Higher revenues at lower costto-serve. What are the behavioral segments? Dr. John Gattorna: Weve identified 16 buying behaviors, but when it comes to supply chains, most people fit into four categories. These suppliers, partners or customers exhibit 1) collaborative behavior 2) transactional behavior 3) agile/dynamic behavior or 4) innovative solutions behavior. Once you have identified the truly collaborative customers in your marketplace and where they fit into these segments, you can focus on nonbinding Memoranda of Understandings that provide guidance for engaging each other, but in the end are based on trust. The value of behavioral segmentation was highlighted recently when Australias 2nd and 3rd largest beef exporters (Teys and Cargill) merged. Aware that many mergers and acquisitions do not deliver for shareholders or customers, they used segmentation and Dynamic Alignment to pro-actively manage the process and the result. By identifying the four major segments in their combined customer portfolio and devel-

oping strategies around these key segments they were able to create a unified and positive market positioning for the new business. They were also able to drive internal cooperation and to break down change barriers by focusing management effort on this external objective. The research found that the new companys collaborative segment was larger than either company had predicted, and thus new strategies were designed to ensure they retained and built share of wallet with this group. The other three segments, who did not exhibit a collaborative bias, however also represented a large part of their business. Their specific priorities, ranging from very stable supply to very fast response times and to innovative offerings, were also reflected in the new portfolio of strategies. After close to 12 months there is clear feedback from both shareholders and customers that the merger has been successful. Unilevers former CEO Anthony Burgmans got it right when he said, in effect, that you should only collaborate with those customers and suppliers who genuinely want to collaborate. For the rest, you do whatever you have to do, but dont waste your time trying to convert them to collaborative behaviors. This goes to the heart of my observation that too many suppliers are over-servicing some customers and under-servicing others, and dont have a clue which is which! If you start guessing, then you get into a mess. Collaboration works in the right places: Its like a big jigsaw puzzle. What holds companies back from hitting that sweet spot of collaboration on a continuous basis? Dr. John Gattorna: Generally, people dont have the full picture of the jigsaw on the cover of the box. One big problem for companies is that they organize themselves by functions and divisions the opposite to the way that their customers buy. The company manages itself

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vertically, but its customers buy horizontally, picking and choosing from the products and services offered. Yet, if we cant get people to work together internally to get the finished product to the customer in the way they want to buy it, that means lost revenues. What Im talking about is aligning cultures internally. But when it comes time to do this, many executives are either out of their depth or simply in denial. Why? Because either they dont understand or dont want to delve into the abyss where the socalled forces of darkness lurk in their own organizations. With all the preoccupation with competitors, executives have been distracted from looking more deeply at the internal cultural in their own enterprises that can be improved to bring bigger returns for the time, effort and money invested. We will not be able to go to the next level of supply chain performance until this mountain is climbed and conquered. In the book Im writing now, Dynamic Supply Chains 3rd edition (due 2014), I examine further why true collaboration is difficult to achieve i.e. the language barrier. Language barrier? Dr. John Gattorna: Im not talking about working in an international setting, Im referring to the vernacular inside a company. Im trying to crack the code of that vernacular to understand the subliminal meanings and determine the common metrics that allow for comparison within the company. It leads back to my point about vertical integration. Weve got functions, such as the marketing function, the production function and supply chain functions. All those different functions come from different roots and havedifferent languages are jargon. If youve

studied or worked in procurement, youll talk about tenders. If youve got a marketing degree, youll talk about product portfolios and lifecycle concepts. Production and General management have their equivalent languages, too. Yet at the corporate level, weve got to speak the same language and share common KPIs, otherwise, we fail to understand the demands that the customer is putting on us. Any other suggestions for fostering collaboration? Dr. John Gattorna: One technique that I have developed over the years is called Strategic Partnering. This process involves developing enduring corporate relationships based on understanding and shared knowledge. The process takes its name from developing and maintaining a strategic fit between the goals, capabilities and market opportunities of both buyer and seller organizations involved in a particular situation. The two parties commit to a unique but not necessarily exclusive relationship that is the key, and it works! And what about collaboration at a higher level i.e. via consortia or industry bodies? Dr. John Gattorna: The concept, per se, has merit: By working via consortia, joint ventures and with industry-level solutions, companies have instant access to more skills. But the cultures of these consortia have to be aligned from the outset. If not, problems arise on a macro scale, and internal synergies are hard to achieve. Where is collaboration at the industry level working well and why? Dr. John Gattorna: As many before me have noted, competition is no longer between individual companies but instead between their supply chains. I would take this idea one step further and predict that within 10 to 20 years,

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well see networks competing against networks. Weve gone from individual companies vs. individual companies, to supply chain vs. supply chain, and next up will be network vs. network. I expect more industries to organize like the airlines do, where youve got competitors collaborating in groups like Star Alliance vs. rivals in a different alliances like OneWorld. These companies share spare parts, capacity and facilities. Thats where were moving. Collaboration will be fleshed out even more and become three-dimensional. Thats a sort of co-opetition. Where do you see co-opetition headed? Dr. John Gattorna: I think well see a lot more co-opetition, but the problem is that a lot of people dont understand the difference between co-opetition and collusion. Co-opetition is working with competitors within a well-defined area, such as sharing certain logistics functions to create better economies of scale. A lot of the anti-trust people get very nervous when they see manufacturers in the same industry or retailers working together. I draw the line at price. Price collusion shouldnt be allowed. But the fact that youre working together behind the shop for the benefit of your company and a competitor shouldnt be regarded as collusion. As companies come under more pressure, they will reach for the creativity pill ideas that they wouldnt have entertained in the past. Its happening in the oil industry a lot, where companies enter into swaps arrangements instead of having to transport petrol across geographies at significant cost. How are companies putting your other ideas about supply chain alignment into action? Dr. John Gattorna: Were working with companies like Unilever and Dell to help them consider what to do on a day-by-day basis to achieve finer alignment of their supply chains with customers.

Unilever has examined its demand fluctuation to see that despite swings, some customers still take about 60 percent of a particular product on a regular basis. So, we started filling the trucks with that product, supplying them with 60 percent. And then, when Unilever runs promotions, they have available trucks for the additional volumes and top-ups. Its all about capacity management. And the more volatile the demand, the worse it is for your supply chain. Supply chains hate disruption and volatility; they love predictability. Youve got to understand how much of your supply chain is your baseload and build from there. Maybe only 20 companies around the world are currently able to do this. In closing, Id like to ask where you see the most creativity when it comes to supply chains? Dr. John Gattorna: True innovation in the supply will come out of Indo-Asia rather than Europe or the US, because its so growth-oriented. There are opportunities every which way you look. Some countries like India require so much catch-up. Theyre not going to just follow what the West did; theyre going to leapfrog the West with innovation and new business models. They will try things that others were too frightened to try. Theres a whole motivation in Asia that is totally different than the conservative approaches of the West. The incremental thinking of the Western world will be replaced by far more creative mindsets. And I wouldnt be surprised if some of the ideas are based on collaboration.

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Orchestration: The New Form of Collaboration


N. Viswanadham, the INAE Distinguished Professor at the Indian Institute of Science, spoke to InsightOn: about supply chain orchestration.

Youve talked about supply chain orchestration. What is it? N. Viswanadham: Lets start with what is a supply chain? Its several organizations coming together to deliver the product to the customer. There are suppliers, manufacturers, distributors and retailers, to name a few. And what is collaboration? Its the way each player works together to make production possible.
N. Viswanadham is currently the INAE Distinguished Professor at the Indian Institute of Science. Formerly, he was a professor and executive director for the Center of Excellence, Global Logistics and Manufacturing Strategies at the Indian School Of Business in Hyderabad. He also served as deputy executive director of The Logistics Institute-Asia Pacific. Professor Viswanadham has contributed significantly to the area of automation, in particular to manufacturing and supply and service-chain automation. He is the author of three textbooks, six edited volumes, and more than a hundred journal articles and conference papers about automation. His current research interests include Global Supply and Service Chain Networks. Viswanadham has developed an ecosystem framework for the analysis and design of supply and service supplychain networks.

mitigation strategies are the responsibility of the orchestrator. Why is supply chain orchestration so important? N. Viswanadham: If you take any business, there are three main things. Number 1 is called governance, in other words, you have multiple alternate suppliers and you have relationships with them that need to be managed. Suppose I tell a logistics provider that they have to deliver so many items to my factory at 9:00 a.m. every day. I have to choose my partners and tell them what I want. And the logistic player has to tune their resources, for instance. Thats governance. The second thing is coordination. I have to tell each player what to do when. I have to find the driver and the truck and so on. Coordination is the detail work involved in collaboration. Then you have to execute. And when you do this across borders, like whats necessary to produce the doll, then the process gets complicated. In a single country you have a single currency and a single culture. That makes things easy. But now youve got to execute across borders. And you may need to execute in areas that lack infrastructure, such as in rural India. There, where 400 million people lack access to basic infrastructure, the delivery person may drive a motorbike and only have a mobile phone to run his business. If a company like Flipkart, the Indian operator of a large online marketplace, wants to deliver to a customer in rural India, it may need to hire the motorbike driver. To do that, an orchestrator is crucial. Currently, the above tasks are performed in an ad hoc manner and money and time are spent on expediting.

Take the processes behind producing and delivering a plastic doll. Youve got the cloth dyer in Bangladesh who is preparing fabric for the dolls clothes, seamstresses in Taiwan sewing her outfit, and the dolls hair may come from Japan. What would happen without collaboration? Someone has to be there and say, Hey, have you done this? Is it of quality? and then take us to the next level and across the next border. This is production and logistics at various places. Its something more than collaboration. Its orchestration. I would argue that orchestration is the new form of collaboration. When a single company takes responsibility for the whole thing, its supply chain orchestration. Then what is the difference between a provider of third-party logistics and a supply chain orchestrator? N. Viswanadham: The 3PL delivers goods end to end as per contract. It is only responsible for on-time delivery and takes care of all the tasks from loading the goods at the supplier end, until they are delivered to the customer. The orchestrator does much more. It is responsible for telling the suppliers how much to produce and when and for whom and of what quality. Also, if risks develop on the way, the

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What makes supply chain orchestration possible? N. Viswanadham: Over time, the difference between an ordinary supply chain and an esupply chain have disappeared. In other words, every supply chain is an electronic supply chain. The transition has happened because of the development of the internet and the ease of exchanging information. The result is what is often called supply chain visibility. With that visibility, its possible to coordinate

among multiple partners of the supply chain and use that coordination as a source of value and competitive advantage. As competition shifts from head-to-head competition between firms to competition between supply chains, competitive success will depend increasingly on the ability to coordinate and integrate the production activities at geographically dispersed and organizationally distinct locations. The new supply chain structures that are emerging will play a fundamentally important role in the future of businesses.

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The Foundation of Future Business


by Professor Richard Wilding Cranfield School of Management
Rapid developments in e-commerce have resulted in the need for significant changes within logistics and supply chain environments. Logistics and supply chain was, for many organizations, seen as something of an after thought; an operational issue to be sorted out after the marketing and sales strategy had been defined. Now, e-commerce has driven organizations to recognize the importance of developing their logistics and supply chain strategies in parallel with their sales and marketing strategies. This paradigm requires new forms of collaborative working. For effective e-commerce, effective collaboration within the individual company is required, and between all functions, too but particularly the sales and marketing functions. This, in simplistic terms, is the part of the organization responsible for the demand creation element of the business strategy; while the logistics, supply chain and operations functions are responsible for the demand fulfilment element. These functions need to continually collaborate to ensure value is delivered to the customer at an appropriate cost. Sales and marketing needs to understand what drives value in the final market place for the customer segments the company is serving. This value has to be communicated effectively so that the logistics, supply chain and operations functions can design techniques to deliver successfully to the organization. Conversely, logistics, supply chain and operations can innovate new approaches that sales and marketing can utilize to create more value for the customer. The complexity of managing e-commerce means that few organizations have the internal capability to manage each element of the value delivery system. It can be seen in this report that organizations require capability in, for example, electronic social networking, delivery, returns, cross border payments, managing cross border tax, privacy law, the technology of shape and, location technologies, to enable them to compete. These capabilities are available but can only be leveraged by effective collaboration with a wide variety of suppliers. Organizations will continue to outsource elements, but perhaps the term out-source is now incorrect, because, effectively, businesses need to bring a capability into their organization. By insourcing this capability, a true win-win relationship can be developed where a new and innovative value delivery system subsequently creates revenue and advantage for both parties. Fundamentally, e-commerce is resulting in businesses having to implement new processes, infrastructure, information systems and organizations. This results in major change management initiatives that need to be effectively implemented. For success in e-commerce, it needs to be recognized that competition is no longer between individual companies but the supply chains they are part of. Partnering with the best to create highly efficient supply chains that can deliver value at an appropriate cost will become a foundation of future business. The traditional structures of business are falling apart to accommodate unprecedented change. As Marilyn Monroe so aptly stated: Sometimes good things fall apart so better things can fall together.

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DHL Case Studies


1. borderlinx bringing the world of shopping right to your doorstep
In todays e-commerce realm, exciting collaborations are happening between various interested parties to make online transactions and doorstep deliveries easier and therefore more attractive to consumers. Borderlinx, as we shall see, is one such innovative collaboration, in this case between a logistics provider, a credit provider and a customs-clearance and e-commerce service provider. By working together, they have taken cross-border e-commerce to another dimension, with benefits and opportunities for all concerned. E-commerce shoppers certainly need to be inspired by innovative new joined-up thinking, because cross-border transactions can be exasperating at times. For example, if you are shopping on a UK or US website but live outside those countries it can be frustrating to get to the checkout and discover that your address isnt accepted for shipment, or that customs clearance costs more than the item you want to buy. Its also incongruent with the way many people live today, jet-setting from one continent to another and crossing borders with ease. Its almost as if cross-border shopping hasnt kept up with the times: The actual shopping experience feels international because products appear to be just one click away. But the reality is that national borders can still create an exasperating barrier. And despite growing networks of global economic activity, cross-border online shopping can still be full of surprises, such as unplanned trips to the customs office or unexpected tax bills. For the international logistics provider, cross-border challenges are many. Apart from the need to understand different languages and currencies, there are individual countries differing customs regimes, import tariffs and other regulations, lengthening transport distances and on-time service. These, however, are dealt with on a day-today basis. Not so for many merchants, however, who are unfamiliar with the global logistics landscape and hesitant to learn the ropes of international shipping. They are also worried that sending products abroad may reduce their margins, especially if returns are involved or receivables are difficult or costly to collect, due to the foreign currency and unfamiliar system. The myriad rules and regulations for shipping are also off-putting, such as those concerning hazardous goods and others that come across as merely quirky, usually because theyre designed to protect domestic markets. In Japan, for example, vendors need a special license to import eyeglasses and contact lenses, and radar detectors are restricted in the UAE. Such expert logistics knowledge is a priceless asset. For shoppers, the hitch usually comes with websites that wont accept credit cards with a foreign address or the high cost of international shipping fees. These consumers may be attracted by better prices or a better selection on certain international websites, but theyre hesitant to buy a product when they dont know how much it will actually cost in the end. Good, reliable, easy-flowing logistics, then, is the crucial make-or-break element in effective e-commerce. Thats why DHL, MasterCard and Borderlinx, the Brussels-based customs-clearance and e-commerce service provider, are working together to take the surprise out of shopping online from vendors in faraway countries. The partners are ramping up two services that bring international shopping to consumers' doorsteps, simplifying the whole shopping process for consumers and vendors. In essence, shoppers outsource the effort involved in managing an international shipment to the partners, who provide an end-to-end, e-commerce transaction management service. For e-retailers, this is of enormous benefit as they try to expand their global reach, but find logistics

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problems thwarting them at every turn. The ability to offer reliable cross-border delivery will give them access to new markets, increase their customer base exponentially and offer them long-term growth accordingly. The borderlinx.com offering gives shoppers outside the US and the UK the chance to register on the site and receive their own US and UK addresses. These are input during the checkout process as the shoppers domestic ship-to address. Customers pay with their credit cards with prices displayed in US dollars and the local currency of the final delivery address. Borderlinxs online calculator can be used to add up the cost of getting the item from the merchant to the final international shipping address, including the cost of the product, the shipping and customs fees and a Borderlinx service charge that covers the cost of freight forwarding. Once a person has finished shopping, goods are consolidated at a warehouse operated by DHL on behalf of Borderlinx thereby reducing overall shipping fees. This happens at three facilities one in the UK and two in the US. Items are collected

and stored for free for up to 30 days. Once fees have been paid, DHL forwards the package to the address of choice in the 61 countries and territories served in the DHL-Borderlinx partnership. For vendors, the transaction remains essentially a domestic one, since goods are shipped inland. Yet the market potential is far greater since merchants have the chance to reach shoppers in 61 countries who may want to take advantage of better prices and selection on US and UK websites. At the same time, the Borderlinx offering gives the merchant an advantage over the competition, since only a small number of US and UK-based websites ship internationally at this point. Borderlinx is one of few companies worldwide that is enabling cross-border shopping and has the potential to transform the online retail landscape, said Matthew Mitchell of DHL Express, who works closely with Borderlinx. Others have specialized in what is called hosted checkouts. The process allows shoppers on certain US sites to make purchases from outside that country, but shoppers are typically led off a merchants site

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during the checkout process, even if the merchants branding is still visible. With the Borderlinx solution, users simply input their own US or UK address without ever leaving the merchants site on which they are purchasing. For many shoppers, this is an important matter of trust: They may feel comfortable buying off a merchants own website but become uncertain about buying via an unknown payment system. When the shopper is ready, packages are consolidated and shipped. Before purchase, customers can estimate their shipping fees and duties online with the Borderlinx total-cost calculator. Once packages arrive at a shoppers Borderlinx-sponsored address, Borderlinx provides the customer with final shipping costs based on the actual weight and dimensions of the packages. It also makes it easy for shoppers to pay their international duties.

The second way Borderlinx has opened up the world of shopping is by launching the first-ever website that allows shoppers to buy products internationally from a single source. Called oneworldavenue. com, it makes it possible to pay shipping, duties and taxes up front, taking the risk out of international purchases. According to Mitchell, oneworldavenue.com represents a big opportunity for Borderlinx because the business model simplifies logistics and reduces the cost of shipping compared to the borderlinx. com model. The specifications for goods are known in advance for purchases made on oneworldavenue.com, whereas borderlinx.com orders may come in all sizes and shapes. Borderlinx.com never knows the dimensions, the weight and the value of the items that are headed to the warehouse, and the company must invest time and

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money to look up the information to prepare items for forwarding. With oneworldavenue.com orders, the company is sent an alert about the critical shipping information and does not have to manually look up product information. For merchants who sell via oneworldavenue.com, Borderlinx provides a unique opportunity to outsource the entire international shopping experience for customers as well as the risks that come with it. For shoppers, its the best of both worlds, consolidating the Borderlinx experience and the shopping mall experience into one, said Mitchell. Its the first end-to-end international e-commerce offering, said Mitchell. We envision both Borderlinx partnerships enabling the promise of international e-commerce to truly unfold for merchants and shoppers.

Borderlinx proves that good collaboration between logistics providers and e-retailers is key to success for all. By working together, DHL, MasterCard and Borderlinx plan to successively open up new international markets and sell the joint service to their respective customers. Essentially, the three partners aim to make crossborder shopping as easy as possible. In the process, borders will be broken down for online merchants, the partners will benefit from higher value and a higher number of transactions and, whats more, shoppers will have options they didnt have before. They will be able to get the best deals on the products they really want no matter where on the planet those products are to be found.

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2. enforcing intellectual property rights the dhl view Risk management is the science of balancing out potential rewards with potential costs. In the supply chain, its also a tool for finding the proper equilibrium between legitimate trade and controls meant to curb the buying and selling of counterfeit goods. Online shopping gives the makers of counterfeit goods new reach into new markets boosting what is already a multi-billion dollar industry for knock-off products, such as luxury handbags, medication or mens wristwatches. The trade harms both the original producer and the consumer. In some cases, counterfeit products can even be deadly if they fail at the wrong moment or contain toxic substances. As a leading global logistics company, DHL has formulated a policy about the problem of intellectual property right (IPR) infringement. Among other points, the policy states that: Deutsche Post DHL will not knowingly carry goods that infringe IPR.

Deutsche Post DHL supports efforts to take action against the violation of IPR and is engaged in full cooperation with authorities within applicable legal frameworks. Where it is suspected that IPR infringing goods are being carried by the network, Deutsche Post DHL will cooperate fully with regulatory authorities. One way to strike the right balance between legitimate trade and necessary controls, says Adrian Whelan, the senior vice president and head of Global Customs and Security for DHL Express, is to target controls where they are to be most effective, for instance by using sophisticated risk management techniques that rely on algorithms and models that combine information from intelligence sources to focus in on high-risk areas. Customs officials should apply enforcement systems based on international best practices that use risk analysis and risk management to identify goods which pose potential IPR risks, said Whelan. And, of course, its critical to combat counterfeiting from the supply side i.e. in the country of origin of the counterfeited goods as well as from the demand side, Whelan added.

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3. 500,000 registered users for meinpaket.de A good selection. Secure transactions. And reliable delivery. For many consumers, these criteria are top of the list when choosing an online marketplace. DHL offers just this with its MeinPaket.de online shopping portal, launched in 2010 as part of DHLs strategy to support e-commerce vendors with all possible services. Today, MeinPaket.de presents four million products offered by 2,500 vendors to more than 500,000 registered customers. Merchants, including DHLs business customers, are using the marketplace as an additional sales channel for everything from cosmetics and copy paper to high-end mountain bikes that retail for 3,500 euros. Goods are categorized into areas: Technology and entertainment, living and enjoying, leisure and hobby, house and garden, and special offers. Some vendors offer daily sales promotions with spectacular discounts that can help them lower their inventories: For instance, Kontra sold 1,000 brand-name telephones and Heuer moved 500 game consoles within a single hour. Unlike other marketplaces, MeinPaket.de is advertised through traditional channels as well, representing yet another benefit for vendors. DHL sends out a printed customer magazine by mail to reach those market segments that may not be typical online buyers, such as the over-50 group. The magazine includes articles on a wide variety of subjects,

introduces the products on the portal and eases the way for customers to go online and make purchases via MeinPaket.de. Customers have a range of benefits as well. They can buy from 2,500 vendors through a single, secure DHL login, saving them the effort of registering with the vendors individually. They also have full control over their shipment and have access to the services theyre accustomed to from DHL via the MeinPaket.de platform. For instance, they can track their shipments with a mouse click or manage their returns via a single, integrated account. In addition, the customer can use DHL Checkout, an innovative payment system that is activated at the time of registration on MeinPaket.de. The customers address and payment data are saved during registration. When a customer makes purchases, he or she selects a delivery address and a preferred payment method. The order can be completed within two clicks. Online merchants can integrate the DHL Checkout system into their own web shops independent of their participation on MeinPaket.de MeinPaket.de, available for the German market only, is provided to merchants at a fair price, roughly 4 to 8 percent of the sales price of an article, as well as a 20 euro fee for registering an online shop on the portal. DHL does not see the marketplace as a competitor to that of Amazon or eBay, two important customers with whom DHL will continue to work closely.

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4. helping geeks get their Favorite toys during the holiday rush ThinkGeek, an American online retailer that caters to people who are passionate about technology, had been experiencing tremendous growth, including fourth-quarter sales that were several times higher than usual non-peak volumes. Being computer geeks as they are, ThinkGeeks customers have high expectations that their orders for computer accessories, humorous T-shirts and caffeinated drinks will arrive on time without a hitch. The company had one distribution center that was operated by a small third-party logistics company (3PL), but it needed a more flexible solution to position the company for growth. ThinkGeek partnered with Exel, a sister company to DHL Supply Chain operating in North America, to help it fulfill the huge amount of orders it expected to receive during the fourth-quarter peak and to establish the right solution for future growth. To pick, pack and ship these orders effectively, the two partners began working months in advance to redesign the warehousing and delivery systems supporting ThinkGeek. Exel set up operations at a shared-use distribution center in Ohio that features vertical mechanization,

a technology that allows ThinkGeek to meet peak volumes in the fourth quarter and remain efficient during the rest of the year, when volumes are lower. The company now occupies 130,000 square feet, which is 30 percent less than the previous site, and it uses a three-level pick tower. The tower reduces congestion by storing product up instead of out and ensures efficiency during peak holiday times. A conveyor system can be adapted when needed to keep packages moving. Exel provides the picking, packing and shipping services at the distribution center and manages personnel. Any order that comes in by 2:00 p.m. Eastern Standard Time during non-peak season is shipped out the same day. During peak season, items are sent within 24 hours. Since the partnership began, Exel has successfully fulfilled a significant percentage of volume during the six-week peak period. The flexible supply chain solution has also reduced returns by 5 percent, raised inventory accuracy to 99 percent from 92 percent, and established a year-on-year productivity improvement of 18 percent. The facility and team are now well positioned to meet peak-season demands with a high degree of flexibility and efficiency throughout the year.

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5. packstation: convenient 24/7 parcel services by dhl Seeking to provide a better access for customers to their parcels, Deutsche Post DHL developed the Packstation system. Since its inception in 2002, it has offered a wide selection of services, from delivering shipments to picking up parcels around the clock and franking. For parcel services, customers have the choice to have their shipments delivered to the Packstation, so the parcel is no longer brought to the customers home address but can be picked up individually. The process is easy: Customers register on the internet and receive a Packstation access card. Whenever ordering a parcel they can decide to have it shipped to their home or to a Packstation for collection. If a parcel is meant to be shipped to the home address but the recipient is not there, the DHL courier knows, via the scanning device, whether the customer is a Packstation member and if so can deliver the shipment to the nearest one. Once a parcel has been deposited at the Packstation the customer gets a text message and/or email. The parcel then can be picked up easily using the customers card all over Germany. Dedicated service is provided by a modern touch screen, a card reader device for the customers card and a card reader for the credit card to frank the parcel. The advantage: Franking at Packstation is one

euro cheaper than processing the shipment through a DHL shop. The idea of launching Packstation evolved out of a changing customer behavior. Having more single households in Germany and people travelling bigger distances to work each day, it was difficult for the couriers to deliver parcels during working hours. Another point is the development of online shopping. Since shopping habits have changed due to the significant increase of e-commerce providers, shoppers are able to purchase items round-the-clock on the internet. Having a flexible and time-independent delivery of the parcels fits better with the customers expectations: They want to receive their parcels as fast as possible and circumvent the inconvenience of being at work when the parcel arrives. Having access to a Packstation, customers can easily pick up their parcel after work or make a shipment outside restrictive working hours. Stamps are available at the Packstation and the parcel can be left in one of the boxes where it will be picked up by DP DHL. Currently 2 million customers all over Germany can access around 2,500 Packstations. Starting in 2002 with 56 boxes, there are now over 200,000 boxes available in more than 1,600 cities and counties. The service has been rolled out in a number of countries to date, such as Austria, Lithuania, Russia, Denmark, Luxemburg, Turkey and Dubai.

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6. return solutions It can happen to the best of shoppers: The dress you ordered online arrives cut one size too big. Or the mobile phone you purchased via the internet needs repair. In both cases, its time for a return. In the world of bricks-and-mortar shopping, that would mean a trip back to the store, standing in line at the register and conducting the transaction. For online buyers, returns can be as quick as a few clicks, and, of course, theyre done from the comfort of your own home. Members of the shopping club Brands4Friends.com, for instance, simply select the item that needs to be returned, and a few clicks later, they can print out a bar-coded and pre-addressed label for the outside of their package. Members slap that on the parcel and hand over the package to a DHL driver, at a service center or via a 24/7 Packstation. The idea is to make the returns process as easy as possible for the 3.5 million members of the German fashion club that was acquired by eBay in 2011. It is Germanys largest online shopping club focused on brand-name specials for members who are on average 32 years old. The online returns solution, which is integrated directly into the website of Brands4Friends so that users never have to leave that site, is one of many

elements of DHLs strategy to make online buying as simple and easy as possible for end customers and for thousands of online vendors as well. For instance, when a customer initiates a return with the online returns solution, the merchant is provided with critical data about the returns process. The vendor can forward that information to its own customers, thereby offering superior customer service and building loyalty. DHL also provides its business customers with information that gives them complete transparency and control of expected returns. reverse logistics For many businesses, returns handling and recalls can be a critical factor for success. Some even seek to differentiate themselves from the competition with superior after-sales service. The US-based shoe vendor Zappos, for instance, says its loyal customer base and high reorder rates are partly due to its liberal returns policy. But what happens when returns are more than an occasional package? The answer is not so easy. By some estimates, only 1 to 5 percent of goods are returned, but their handling can use up a disproportionate amount of a managers time and a companys resources. Usually called reverse logistics, the process of getting products back from the end customer to the correct spot for the required action which may be located at the manufacturer, the retailer or a service

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center is indeed complex. Its a part of doing busicentral repair facility. DHL Supply Chain India ness in almost all industries, but reverse logistics are a worked with Acer to consolidate the warehouses particular challenge in the technology sector. to three regional hubs in Mumbai, New Delhi and Kolkata and to perform screening and repair operJust think about what needs to happen to that mo- ations at each of those hubs. bile phone you want replaced or the hard drive that began to overheat and needs repair. DHL is managing the whole reverse logistics process from warehousing, to repair, to transport The package must be handled by the logistics proservices for 10,000 parts repairs per month. It is vider as well as warehousing and customer service also providing a dashboard and metrics so that staff, 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 and seek to improve product information or design. Each Acer are considering taking it global. time the package is handled, the complexity of the recalls transaction and the costs increase. Now imagine that Acer or another company had As a result, companies seek experienced partners to to suddenly recall a product due to a consumer help them manage returns and reverse logistics, and safety issue. This happened in 2009 to a maker of they often want those who can offer additional ca- childrens strollers. The strollers were recalled afpacity during peak return times, such as right after ter 12 children lost parts of their fingers when usChristmas. ing the strollers. Such situations require well-tested plans and fast action to fulfill the legal and Creative partners will help their customers analyze regulatory requirements of recalls and to minimize their returns processes and integrate steps to reduce bad publicity for the brand. costs, such as screening or testing products upfront or providing repair services directly at a warehouse DHL, which has managed large, global recalls, into avoid further transport. cluding the recall of 40 million lithium batteries for a major mobile phone manufacturer, is further developing and standardizing its offering, the DHL service parts and repairs acer Recall Solution. It is also expanding services Acer, a maker of computers, smartphones and peripherals, asked DHL to make suggestions on how it through the DHL Recall Alliance, a consultancy could improve service parts and repair operations in that helps customers make contingency plans for a potential recall. India at the companys 21 parts warehouses and a

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7. easy return a standardized return solution In order to better meet the needs of cross-border e-retailers and their customers in the area of returns, DHL Global Mail has created a service called DHL EASY RETURN. This is a convenient and simplified return solution for European distance sellers outside Germany. For German e-retailers however, a similar service is available under the name of DHL Retoure International, offered by DHL Paket. Europe is now a major marketplace for mail order customers and online shoppers who are more likely to buy a product if they have the option to return it easily, with no incurred costs. Yet buying from a website abroad may be off-putting for some would-be consumers, simply be-

Returning a cross-border parcel by conventional means can be inconvenient and costly. One common method is having the consumers pay for the export parcels back to the distance seller first, who then have to refund the cost of postage (which is troublesome for both parties). Another method is to use couriers who pick up the parcels at a pre-arranged time at the consumers doorstep (but this may be inconvenient for the busy consumer). Finally, a third method is to have the consumers take their parcels to the couriers depot themselves (which is time-consuming and involves travel, usually due to low depot density). The harder it is for the consumers to return their goods to the e-retailer, the less likely it is that they will return to buy from them again. With DHL EASY RETURN, DHL Global Mail provides e-retailers with return labels, customized to

cause cross-border returns can be so complex. Each European country has its own returns rules and border regulations, which can cause insecurity for both e-retailers and consumers. Only the biggest e-retailers have the money and resources to set up domestic returns solutions in each individual country they wish to do business in. With DHL EASY RETURN, however, big and small e-retailers can offer customers outside their home countries a standardized return solution with the backing of a well-known international logistics brand. This takes all the complexity out of cross-border returns to make the process as straightforward as sending a domestic parcel, thereby increasing consumer confidence and encouraging repeat purchases.

almost every postal outlet throughout the EU (presently available for returns from around 20 countries including Germany). The e-retailers can simply download a return label as necessary and send it via email to their customers for printing; or to reduce the workload they can provide a web link via their webpage so that consumers can print the return label out by themselves on the DHL homepage; or they can integrate a web service for label generation in their webpage or system and provide the label this way. The return labels are usually pre-paid for most European countries with only few countries having differing regulations. The consumers then simply fix the return labels to their parcels and take them to one of currently

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more than 80,000 drop-off points across Europe. The postal services take all parcels to DHLs European hub, where the parcels are consolidated and returned the most cost-efficient way to the originating distance seller. DHL EASY RETURN caters for the needs of consumers and e-retailers alike. It offers both ease of use

and flexibility for the consumers and it provides them with a smooth returns experience. For the e-retailers, it is both easy to set up and an effective way to manage their return volumes with minimal effort. The DHL Global Mail web portal provides visibility so that e-retailers using DHL EASY RETURN can trace their returns at any time, improving inventory management and reducing costs.

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Background

InsightOn:
InsightOn: is a series of special reports comprising external and proprietary insights into selected global topics from the world of 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 print version of this report can be ordered, and the PDF version downloaded at www.dhl.com

The Magazine for DHL Customers

ISSUE 3 | 2011

OneVoice
OneVoice is the global DHL customer magazine. 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 issue is comprised of features on logistics and business topics, news, in-depth coverage of key global markets and industry sectors, plus opinions from leading executives. www.dhl-onevoice.com

INDUSTRY FOCUS:

ENGINEERING & MANUFACTURING


COUNTRY FOCUS:

AFRICA
THE EXECUTIVE VIEW:

DIAGEO

Delphi Study
Published by Deutsche Post DHL in 2009, Delivering Tomorrow: Customer Needs in 2020 and 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 Delphi Study is the probability of 81 separate hypotheses being realized, as determined by numerous international experts. www.dp-dhl.com/en/logistics_around_us/ delphi_study.html

DELIVERING TOMORROW
Customer Needs in 2020 and Beyond A Global Delphi Study

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Bibliography
Picture Credits: Page 5: Thorsten Scherz Page 6: Getty Images Page 9: David Klaumer Page 11: Getty Images Page 14: Thinkstock Page 16: Corbis Page 17 top: Getty Images Page 17 bottom: Getty Images Page 19 left: Corbis Page 19 right: Getty Images Page 20: Getty Images Page 23: Corbis Page 24: Getty Images Page 26: Getty Images Page 28: Getty Images Page 29: Getty Images Page 32: Corbis Page 33: Getty Images Page 35: Corbis Page 36: Corbis Page 37: Corbis Page 39: Wehmeyer Page 44 left: Corbis Page 44 right: Corbis Page 45: Rick Pushinsky / eyevine / Picture Press Page 46: Thinkstock Page 47 top: Getty Images Page 47 bottom: Getty Images Page 48 top: Getty Images Page 48 bottom: Getty Images Page 49 top left: Corbis Page 49 top right: Corbis Page 49 bottom: Getty Images Page 54: Thinkstock Page 75: Thinkstock Page 82: Corbis Page 86: Corbis Photographs used in illustrations: Corbis, Getty Images, Thinkstock

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imprint
Editor-in-Chief/Project Director Michelle Bach Writers Rhea Wessel Tony Greenway Picture Editor Marialuisa Plassmann Illustrator Janina Kossmann Print Coordination Williams Lea Manfred Rehberg Managing Editor Hannah Rausche Publisher Deutsche Post DHL Christof Ehrhart | Silje Skogstad Printer Druckhaus Fromm GmbH & Co KG Editorial Contact Michelle.Bach@dhl.com Project Team Diane Rinas Johannes Oppolzer Valerie Smith Paper: Recymago (115 g/m2 inside pages, 200 g/m2 cover). This paper is made from 100 % recovered paper. We are committed to protecting the environment and the worlds resources.