Principles of E-Commerce Circulation

Abstract

Electronic commerce circulation is commerce an expression in the field of electronic commerce, in accordance with the order of the circulation of commodities, the flow of electricity can be divided into product procurement, warehousing, and logistics and distribution, in three stages. Through this book, readers can understand the procurement process of e-commerce products, warehousing logistics distribution mode and e-commerce circulation principle, and master the influence of product circulation on the development of e-commerce industry.

Knowledge Map of this Chapter

FormalPara Take Charge and Continue to Promote the Construction of a Three-Tier Logistics System

Around the Ministry of Commerce and the other 17 departments “on strengthening the construction of county commercial system to promote rural consumption opinions” and other policy documents, China Post will continue to fully implement the construction of a county and village logistics system to promote the quality of rural consumption expansion.

• (a) Adhere to the overall planning, and systematically promote the construction of a three-tier logistics system

China Post will follow the “four unified” principles of unified planning, unified standard, unified brand, and unified system, and take “two centers and one site” (county center + township center + village site) as the main construction mode to further improve the three-tier logistics system. China Post is committed to building an open, shared, intelligent and fast postal logistics system for counties and villages, and improving the last-kilometer delivery capacity. By the end of 2021, complete the first batch of 417 key demonstration counties’ and cities’ three-tier logistics system construction; strive to use 2 years to complete the national three-tier logistics system construction. Rely on postal delivery, rural e-commerce, inclusive finance, and other business resources to create a collaborative service model of China Post to help rural revitalization.

• (b) Highlight key areas, and comprehensively enhance the service capacity of the three-tier logistics system

First, optimize the rural network architecture. The government takes county, town (town branch) and village stations as three-level nodes, and adopts the network mode of “county + town + village station”, “county + town”, and “county + town branch + village station” to build the foundation of the county service network. Second, strengthen the construction of three-level nodes. Strengthen the hub node function of county-level center, promote the integration of processing center and storage center construction, according to the needs of local industrial development coordinated planning and construction of cold chain storage; implementation of “postal in the countryside” “courier to the countryside” gear upgrade project, promote the township post offices, express network standardization, and information transformation, strengthen the township center in the three-tier logistics system in the county and township postal road and delivery line junction, post and express cooperation on behalf of the collection and delivery of the function of the handover point; construction of village-level “comprehensive convenience service station”, relying on the village post station, post and shopping station, integration of village committees, convenience service stations, and other existing resources, to achieve multi-station unity. Enhance the comprehensive service capacity of the end nodes. Third, enhance the network service capacity. Optimize the postal routes in counties and villages, and adopt the combination of “own + commission office + cooperation of delivery and postal services” to improve the operational efficiency of postal routes; optimize the organization of delivery operations, and through “radiation from county-level centers”, “radiation from township centers”, “radiation from township branch offices”, and “radiation from county-level centers”. Optimize the organization of delivery operation, and enhance the frequency of delivery in key towns through three modes of “radiation from county-level centers”, “radiation from township centers”, and “radiation from township branch offices”; optimize and integrate delivery lines, increase capital investment, and introduce subsidy policies to promote the automobilization of rural delivery. Fourth, promote “traffic and postal cooperation” and “postal and fast cooperation”. Combined with the General Office of the Ministry of Transport issued the “2021 work plan to promote the integration of rural passenger, cargo and mail development”, the government should promote the integration of postal express and rural passenger, and freight operations. Expand the scope of post and express cooperation, to create a postal rural infrastructure network as the main body of the county-level common distribution platform, all-round enhance the county and village levels of private express delivery capacity, the formation of farmers benefit, and “post” “fast” win–win situation. The Government is satisfied with the virtuous cycle.

• (c) Build the operation system and comprehensively create a comprehensive service model for postal benefit to farmers

First is to create a comprehensive service platform to enhance the equalization of basic public services in rural areas. Based on the concept of “open sharing, superimposed empowerment and ecological establishment”, the company will improve the service ecology of “outlets + sites” and create a “universal service” + “inclusive finance” + “rural e-commerce” + “postal and fast cooperation” + “governmental services for the people” + “agricultural cooperation" transformation model of “universal service + 5”. Second is to create a service system for the benefit of agriculture, and focus on cracking the “three difficult” pain points. For agricultural and rural “financing” “sales” “logistics” pain points, play the importance of postal “three streams in one” advantage, build the “government + postal + new agricultural business entities” for the agricultural service system, for the new agricultural business entities to provide a set of rural finance, rural e-commerce, agricultural products delivery, and agricultural capital and agricultural technology as one of the integrated service solutions. Focus on helping farmers’ cooperatives to develop with high quality and promote the integration of small farmers into the modern agricultural development pattern. Third is to improve the production and marketing docking system and serve the development of agricultural industries with special characteristics. Around the characteristics of local agricultural industries, strengthen the layout of China Post’s agricultural product base, complete the construction of 150 agricultural product bases nationwide in two years, start building “origin warehouses” and “sales warehouses”, and dock “field warehouses”. Strengthen the brand empowerment of agricultural products, establish the whole process of quality control and traceability system of agricultural products through social cooperation, smooth the pathway of branded agricultural products from the field to consumers, shorten the intermediate links, and help farmers increase their income. Fourth, strengthen the supply of rural financial products and services to inject fresh water into agriculture and rural areas. Implement the spirit of the document of the People’s Bank of China on the demonstration project of financial technology empowering rural revitalization, accelerate the implementation of the digital transformation plan of the Bank of China Postal Savings for three rural finance, and promote the construction of a digital inclusive financial ecology; strengthen credit product innovation, focus on the important subjects of rural revitalization, and take the construction of credit villages and supply chain finance as the hands to continuously provide good financing services; promote the construction of rural credit system, and improve and promote the construction of rural credit system, improve the data platform of “three rural areas”, actively connect with the platforms of rural government, rural public payment, rural “three assets”, and rural property rights trading, and do a good job of integration, governance, and application of “three rural areas” data; and promotes the development of direct marketing bank and digital RMB pilot, and makes every effort to promote the construction of scenarios of financial technology-enabled rural revitalization.

Reflections:

• 1. What substantial impact will the construction of the three-tier logistics system have on rural life?

• 2. Which aspects are still needed to promote rural revitalization?

Source China Post Group Corporation “Build a three-tier logistics system, build a postal ecology for farmers, and create a special service model for China Post to help rural revitalization”.

The principle of e-commerce circulation is mainly to solve the timeliness between production and consumption.

“Circulation” is an economic concept, which refers to the whole process of exchanging commodities from the production field to the consumption field, the purpose of which is to realize the “value exchange” and “physical exchange” of commodities through circulation. The purpose is to realize the “value exchange” and “physical exchange” of goods through circulation.

By its nature, the trade and distribution industry is a tertiary industry. In a broad sense, the commerce and distribution industry encompasses the sum of all trade relations among commodity owners and collects commercial flow, logistics, information flow, and capital flow, including wholesale, retail, catering, logistics, information, finance, etc.; in a narrow sense, it only refers to the four industries of wholesale, retail, catering, and logistics. E-commerce, as a mode of commerce, is an individual in the system of commerce and circulation. Under the support of the three basic elements of information flow, logistics, and capital flow, there is an interaction between e-commerce and commerce and circulation. In the process of China’s rapid economic development, there are also distinctive regional differences; in the trade circulation industry, the application of information technology for e-commerce can be used to improve the quality of inter-regional transactions, while the regional economy has the characteristics of uneven development; it can make full use of this advantage, a reasonable layout of the scope of business, to enhance the level of industry, and in turn for the development of e-commerce services. Therefore, the relationship between e-commerce and the trade circulation industry is complementary and supportive of each other. E-commerce has the potential to promote the development of trade circulation, therefore, e-commerce circulation is a reflection of trade circulation in the field of e-commerce. Referring to the broad and narrow definitions of the trade distribution industry and the process of product circulation, e-commerce circulation can be divided into three links: product procurement, product storage, and product logistics and distribution in order.

6.1 Product Procurement

From the perspective of the operation mode of e-commerce enterprises, the source of goods of traditional enterprises is mostly products produced by the enterprises themselves, while the goods of mainstream e-commerce-based enterprises often come from procurement. The procurement process of e-commerce is the process of ordering goods from suppliers initiated by procurement business personnel, based on procurement, in order to have the subsequent business about goods warehousing, returns, sales, logistics, etc. Therefore, procurement is the first link to e-commerce circulation. In an e-commerce enterprise, the role of the procurement system is to determine when to purchase, from whom to purchase, at what price, and when to receive goods and other procurement matters based on the enterprise’s demand for goods. For e-commerce companies, a good procurement system can help them shorten the lead time for ordering, reduce inventory levels, save costs, ensure normal sales and event promotions, and improve service quality. Unlike manufacturing enterprises, suppliers of e-commerce companies have not only traditional commodity suppliers but also virtual commodity suppliers, resellers, and other multi-type suppliers, which have different strategies for conducting procurement business. Here, we only analyze the supply and procurement of physical goods.

Generally speaking, the procurement system mainly includes the business aspects of supplier management, purchase order management, procurement inbound management, and return management.

6.1.1 Procurement Model

In the e-commerce industry, there are three main common procurement models: self-pick and self-sell model, one-piece dispatch model, and multi-owner warehouse model. Among them, the self-pick and self-sell model and one-piece dispatch mode are the most common.

6.1.1.1 Self-pick and Self-sell Model

The self-sourcing model means that the goods inside the e-commerce company’s own warehouse are not produced by itself, but are purchased through suppliers, and then displayed and sold in its own online store or website. In this model, the seller has ownership of the goods after buying them. This model is similar to traditional wholesale, requiring e-commerce companies to make bulk purchases, and many suppliers do not support single-piece purchases, so the capital requirements for the purchase of goods is very large, and will bring the risk of inventory backlog.

6.1.1.2 One-Piece Dispatch Mode

With the development of technology and social progress, compared with traditional shopping, consumers prefer online shopping; the number of online stores on various shopping platforms is huge, and competition is intensifying. Therefore, only rapid delivery, quality control, and stable, high-quality sources of goods can continue to meet the needs of agents, and shorting the product purchase link is imperative. So the “one-piece delivery” business model was born. It is a very common model with the self-pick and self-selling model.

Specifically, this model means that once the platform has sold the goods, it is not the platform but the supplier who is responsible for delivery and then settling the goods and logistics costs according to the order. Strictly speaking, this model does not only involve the procurement process but also cover the delivery of the products. Compared with the self-sourcing model, the seller in this model does not own the goods. The actual supply and demand relationship is between the supplier and the buyer who has the demand for the goods. The supplier will display the key information such as the style and color of the goods on the webpage, and then promote it to the buyer who has the demand through the search engine.

In one-piece delivery mode, the supplier will deliver the goods after the consumer orders. The network operators do not need to build their own warehouses to store goods, so this model not only saves the cost of goods inventory but also effectively avoids the accumulation of goods and cannot find the sale of the situation. And, one piece of hair cleverly avoids the disadvantages of the traditional wholesale model. The traditional wholesale model has certain restrictions on the quantity and amount of goods, but in the one-piece delivery model, even if only one piece can be shipped. In addition, the price of goods online is becoming increasingly transparent; the purchaser of the online store can more easily “compare three”, then select the most appropriate price and quality of the purchase channel. For newcomers to the e-commerce store, the operation of this store is very simple. They just register an account in the platform and provide the supply manufacturers with product images and descriptions, and do not need to spend energy on product information early.

However, the one-for-one model may lead to sellers being stuffed with suppliers’ backlog inventory, thus taking risks. Moreover, with the gradual transparency of information on the network, the one-piece dispatch model, which uses the information gap to earn a price difference, will gradually lose its advantage in the price and quality selection of goods. Unknown variables such as the choice of suppliers and changes in the signing of agreements may dilute the original model of stable sources of goods and good quality control of the advantages, but bring risks in this regard.

6.1.1.3 Multi-owner Warehouse Model

Multi-master warehouse mode specifically refers to that the logistics head office opens the warehouse to the supplier, and when the supplier’s goods enter the warehouse, they belong to the ownership of the supplier’s goods. Compared to the first two models, the multi-owner warehouse model is less common, but the characteristics of the model determine that it has more room for development in the future.

This model originated from the needs of small and medium-sized e-commerce enterprises. Such platforms need to build warehouses at the end of each distribution in the country if they want to ensure logistical efficiency, but this is a matter that requires extremely high costs and a very long time. This level of resource investment is enough to drag down small and medium-sized e-commerce companies. And the advantage of the multi-shipper warehouse model is that it can solve the problem of small and medium-sized e-commerce companies due to the construction of warehouses and the funds generated by the purchase of goods to enhance the ability to control the end of sales. For the head of the open warehouse logistics company, they can make full use of the idle storage capacity and rent it out for cash, thus realizing the mutual benefit of logistics companies and e-commerce platforms.

6.1.2 Procurement Process

6.1.2.1 Formation of Purchase Order

The procurement of goods marks the beginning of e-commerce distribution, and all procurement actions revolve around purchase orders.

First, the e-commerce business department according to the enterprise’s own needs in the procurement system fills out the procurement plan, the procurement plan through the approval of the procurement clerk will be sent to the supplier procurement quotation, and the supplier then sends their own mind feedback quotation to the procurement clerk; through such a process, a regular agreement price implementation will be put in place; after that, the procurement clerk will finalize the purchase price recorded in the purchase order. Once the above work is completed, the e-commerce business will officially begin to purchase goods. A typical purchase order includes information such as warehouse, SKU, quantity, demand time, applicant, and remarks, as shown in the following Fig. 6.1.

Fig. 6.1

Example of a typical purchase order

Purchase order is the core of procurement, so the procurement process also revolves around the purchase order. The purchase order unfolds in SKUs and the main process can be divided into six steps as follows.

• (1) The business party requests a purchase order and fills in the purchasing information. Then the audit department reviews and submits the purchase order, and if the audit does not pass, the purchase order is rejected and re-edited; if the audit passes, it flows to the next step.

• (2) Merchants and suppliers finalize purchase details and sign purchase contracts.

• (3) The dispatch center generates purchase entry orders, dispatches them to the warehouse, and generates purchase entry orders in the warehouse management system.

• (4) After the purchase is physically warehoused, the warehouse management system will generate the physical entry order, and the dispatch center will update the purchase order and inventory according to the physical entry.

• (5) Some goods will be stocked in batches. After all the goods are stocked, the financial system will generate the purchase statement and flow the settlement in the financial system.

• (6) After the settlement is completed, the status of the purchase order in the business system is updated accordingly and changed to completed (Fig. 6.2).

  Fig. 6.2

  

  Purchasing process

In the procurement process, we first make a procurement plan based on safety stock, procurement lead time, order point, order quantity, and other factors, and then create a new purchase request order based on the procurement plan. The safety stock in the procurement plan is the stock set to prevent uncertainty in procurement (such as quality problems of products), and the procurement system will generate an early warning or generate a purchase order to automatically replenish the stock when it is lower than the safety stock. From the generation of purchase orders to the purchase of physical warehousing, there is a certain procurement cycle in between, and the length of the cycle will affect the management of procurement and warehousing. The order point and order quantity are mainly related to the demand, and the procurement system can decide when to order and how much to order based on the forecast of the demand.

The above process is the formation of a single purchase order; in addition to individual orders, you can also place purchase orders in bulk. In this case, the system will split the orders according to the dimension of suppliers and warehouses, and distribute them to each supplier and each warehouse.

6.1.2.2 Purchasing into the Warehouse

When an order is placed in the purchasing system and then approved, the information will be synchronized to the Warehouse Management System (WMS) to generate the corresponding purchase entry order. At the same time, the purchasing staff should send the purchase list to the supplier and indicate the key information such as the name, specification size, quantity, and arrival time of the purchased goods in the list to facilitate the subsequent process management.

The supplier sends out the goods needed by the purchaser according to the requirements on the purchase list. When the goods are delivered to the destination, the warehouse personnel have to verify the actual quantity of goods received according to the purchase list and then verify whether the quality of the goods is qualified or not. Generally speaking, when the quantity of goods is relatively large, the quality of goods will be checked by means of random inspection. If there is any problem with the quantity or quality of this batch of goods, the warehouse staff must reflect the problem to the purchasing supervisor the first time, and the purchasing supervisor will then negotiate with the supplier side on the handling method.

After the treasurer confirms that the quantity of goods is correct, the inspector checks the goods according to the incoming material standards and handles the warehousing procedures for the goods that meet the standards, and prohibits the entry of goods that do not meet the standards. After all the goods are warehoused, the purchaser, the warehouse manager, the inspector, and the vendor need to sign on the incoming order to confirm. When all incoming orders show “Received or Completed”, the result of warehousing will be uploaded to the business system, the incoming purchase orders will be settled by the finance department for payment, and the status of the orders will be shown as “Completed”.

The goods need to be tagged before they are put on the shelves in the warehouse. SKU is the unique identification code of the goods in the system, which can not only help the system identify the goods but also simplify the subsequent selection and delivery process. The shelf clerk can scan the warehouse code and commodity code to confirm the number of shelves and update the inventory in the warehouse according to the warehouse recommended by the system.

6.1.2.3 Purchase Returns

The entire procurement process consists of two main processes, namely the forward procurement of incoming goods as described earlier and the reverse procurement of returned goods to be introduced. The occurrence of returns is a very normal phenomenon, which is the process of e-commerce enterprises returning some goods to suppliers. Specifically, the enterprise will make returns in the following three cases: First, the enterprise received the goods on the existence of problems and did not pass the quality inspection of goods; in this case, there are problems with this part of the goods that can be rejected not to do inventory processing; second, the consumer received the goods with quality problems; third, the goods that do not sell.

First, the warehouse needs to confirm that the goods can be returned to the processing, and then through the status of the goods “positive to disabled” or according to the goods of the warehouse to adjust the information back to the purchasing clerk. Then, the procurement staff according to the information received create a new purchase return order (or the warehouse department can directly use the SCM system to create a new return order). After the business internal audit, the return order is synchronized with the “supplier and merchant management platform”, and after the platform audit, it is synchronized and uploaded to the WMS system for return operation, and then the WMS will send the return inventory details back to the SCM system, and the upper system deducts the inventory, and finally the system generates the receipt and release order according to the release details. The flow of documents is similar to purchase order.

6.2 Product Storage

6.2.1 Purchasing Warehouse Management

After the procurement process, we have to manage the storage of the purchased goods.

The core object of the purchasing behavior is the Stock Keeping Unit (SKU), and the purchase price and inventory are the most critical reference factors for the SKU. Purchasing is an action within the purchasing system related to suppliers; inventory is an action within the e-commerce WMS related to the warehouse. Therefore, in the procurement system, the data displayed in the list of purchased items are mainly SKU’s category, barcode, name, brand, specification, unit, real-time cost, and overall inventory. Broken down, the price data of the supplier dimension are mainly SKU information, supplier, agreed price, recent purchase price, historical price, etc.; the inventory data of the warehouse dimension are mainly SKU information, warehouse, warehouse stock, available stock, in-transit stock, cycle demand, etc. (Fig. 6.3).

Fig. 6.3

Purchasing product list display data

Since the purchased SKUs must go to specific warehouses, the purchasing staff needs to know the inventory of each warehouse. The stock information of specific SKUs is shown in Fig. 6.4, where the stock that has been placed but has not yet arrived in in-transit stock, and since some of the in-transit stock can be sold as pre-sale stock on the front end, we have listed the 3-day in-transit stock separately, but the consumers must be informed in advance of the delivery time of this part of the product.

Fig. 6.4

Example of purchase inventory order

6.2.2 Intermediate Storage

After the purchase of goods into the warehouse, in the e-commerce circulation process in the middle of the distribution, the circulation process has not only an important role in the intermediate storage, both manufacturers and e-commerce enterprises to study the focus of planning, but also an important link in the modern e-commerce circulation. Efficient and reasonable warehousing helps manufacturers to improve the speed of material flow, reduce costs and ensure smooth production; and makes e-commerce enterprises improve the efficiency of goods distribution, to achieve effective control and management of resources.

According to the ownership of the warehouse, the intermediate storage of circulation can be divided into three models: self-built storage, third-party storage, and self-built + third-party storage.

6.2.2.1 Self-built Storage

Self-built warehousing means that companies store their products in their own warehouses. In this mode, the enterprise has absolute control over the material handling equipment and the construction of the warehouse. If a company requires a high degree of autonomy in warehouse operations and a high degree of stability in product storage conditions, self-built warehouses are indeed a good choice.

The e-commerce company has ownership of the warehouse and can design the warehouse system according to the product characteristics of its own business, so it can better understand the state of the warehouse and can effectively coordinate the relationship between the warehouse and other systems, thus improving the efficiency of operational management. In addition, because the self-built warehouse can be used for a long time, according to the theory of economies of scale, the cost of storage per unit of goods can be reduced. And products stored in its own warehouse, to some extent, can reflect the strength of the enterprise, and can give customers a good impression of the strength of the enterprise, and stable and reliable operation, which helps to improve the competitive advantage of enterprises.

But enterprises need to invest a lot of human, material, and financial resources to build their own warehouse, compared with other storage methods of high investment costs. And no matter how the demand for storage space, warehouse capacity is fixed, and cannot be expanded or reduced with the increase or decrease in demand. When the enterprise demand for storage space is reduced, enterprises still need to bear the cost of the unused part of the warehouse; and when the enterprise has additional demand for storage space, the warehouse cannot meet, it can be seen that the internal movement of self-built warehousing flexibility is poor. Similarly in the external aspects, the flexibility of the location of the warehouse also has problems. If companies can only use self-built warehouses, they lose the flexibility to strategically optimize the location, because the number of warehouses is limited and the location of space is fixed. The size of the market, location, and customer preferences all have a major impact on whether an e-commerce business can survive in the marketplace, and if it cannot adapt to these changes in warehouse structure and services, the business will miss out on many business opportunities.

6.2.2.2 Third-Party Warehousing

Third-Party Warehousing, also known as contract warehousing, refers to e-commerce enterprises that will be warehousing logistics activities subcontracted out, by the cooperation of external company enterprises to provide comprehensive logistics services warehousing method.

Compared to the traditional leased warehouse model, third-party warehousing is designed at a higher level, allowing for a higher level and specialized storage that can better meet the storage requirements of certain special commodities (such as biological drugs that are very sensitive to temperature requirements), in addition, third-party warehousing can also provide efficient, economical, and accurate specialized distribution services. In essence, third-party warehousing is a partnership between e-commerce companies and professional warehousing companies. Unlike traditional warehousing companies, the third-party warehousing model can provide shippers with storage, loading and unloading, consolidation, order picking, on-site inventory, transportation allocation, transportation management, information, and other integrated logistics services required by shippers.

The resource utilization rate of third-party warehousing is much higher than that of self-built warehouses. The third-party warehousing model can more efficiently handle the off-season and peak-season storage issues typical of seasonal producers and improve the utilization of warehousing facilities and space. At the same time, the management experts of third-party warehousing companies have more innovative distribution concepts and master more ways to reduce costs, and therefore subsequent logistics efficiency is higher. Moreover, the third-party warehousing model is able to receive large quantities of goods from different shippers at the same time and can be transported on a large scale in consolidated containers, which saves transportation costs to a large extent. Because of the simultaneous processing of goods belonging to different owners, this “scale effect” compared to self-built warehousing is more efficient. In addition, e-commerce platforms generally require more time and manpower to set up distribution facilities to open up new markets, but by using third-party warehousing networks, e-commerce companies can use such short-term third-party warehousing to explore the market demand for their products when promoting them, thus achieving their goals more quickly.

Although third-party warehousing has the above-mentioned advantages, it also has some inevitable shortcomings. Compared to self-built warehousing, e-commerce companies using the third-party warehousing model have no ownership of the warehouse and no control over logistics activities. In addition, the operation of the warehousing process of the enterprise for the hired staff control is also less, for which the total value of goods and high e-commerce enterprises and the risk of damage to goods in transit will increase.

6.2.2.3 Self-built + Third-Party Warehousing

This comprehensive model is a combination of the above-mentioned self-built warehousing and third-party warehousing model, that is, partly self-managed, partly outsourced out, and the two models can be switched at any time. Using this hybrid model of e-commerce enterprises in the production or storage of goods often has special requirements, such as personalized assembly and sub-warehouse multi-zone location.

E-commerce companies in the hybrid model can reduce the number of their warehouses to single digits and outsource the logistics of each region to third-party warehousing. This combination of free warehousing and third-party warehousing helps companies reduce direct labor costs and expand their market reach while retaining direct control over centralized warehousing facilities.

6.3 Product Logistics and Distribution

The development of the e-commerce economy and the circulation of e-commerce are closely related to the mode of logistics. Logistics, as part of the supply chain, originally means “physical distribution” or “distribution of goods”, and is the process of planning, implementing, and controlling the efficient and low-cost flow and storage of goods and services from the origin to the consumption end in order to meet the needs of customers. It is the process of planning, implementing, and controlling the flow and storage of goods and services from the origin to the consumption end in order to meet the needs of customers.

E-commerce logistics, also known as “online logistics”, is a new business model based on Internet technology, which aims to promote the innovative development of the logistics industry. It brings together the world’s largest logistics needs of shippers and logistics service providers, and establishes a neutral, fair, and free online logistics market, helping logistics supply and demand sides to trade efficiently. Logistics and distribution of e-commerce products is an important part of the e-commerce circulation system, an important carrier for expanding domestic demand and promoting consumption, and an important link between domestic and international markets. Promoting the high-quality development of product logistics and distribution is conducive to linking production and consumption on a larger scale and improving the overall operational efficiency of the national economy.¹

6.3.1 Divided According to Intermediate Storage

In the new retail context, e-commerce platforms strive to achieve accurate and fast delivery of products, focus on intensive development, and pay more attention to consumer demand and satisfaction. According to the type of warehousing and the distance between the warehouse and the consumer, logistics models can be divided into five categories: cold chain model, central warehouse distribution model, front warehouse model, store-warehouse integrated model, and origin model.

6.3.1.1 Cold Chain Model

Cold Chain Logistics refers to the logistics and distribution mode in which the products are always under the specified low-temperature environment during production, storage and transportation, sales, and all the links before consumption to ensure quality and reduce loss. This mode has higher requirements for refrigerated and frozen equipment, and the corresponding management and capital investment is also larger than the ordinary room temperature logistics, which is suitable for some commodities with higher and more complicated requirements than the general room temperature logistics system, such as primary agricultural products, processed foods, and drugs. The warehouses of e-commerce companies that adopt the cold chain logistics model, self-owned warehouses, and third-party warehouses are far away from consumers in terms of physical distance. When a customer places an order, the own warehouse or third-party warehouse will choose a professional cold chain logistics company to deliver the food to the customer in the form of cold chain packaging.

The “14th Five-Year Plan” of the “Outline” clearly pointed out that the construction of a modern logistics system accelerates the development of cold chain logistics and improves the backbone of the cold chain logistics base facilities conditions. In the 13th Five-Year Plan period, the state issued a series of policies to support the development of the cold chain logistics industry, such as the “Notice on the First Batch of National Backbone Cold Chain Logistics Base Construction” and “Opinions on Promoting the High-Quality Development of Logistics to Promote the Formation of a Strong Domestic Market”.²

• (1) Cold chain distribution process

In the upstream of the cold chain logistics model, the products are kept in low-temperature cold storage, refrigerated trucks, and other professional refrigeration equipment to ensure the quality of these special products. In the midstream of the cold chain commodity circulation, the products will go through the steps of dry transportation, loading and unloading into storage, and refrigerated preservation, all of which are carried out under refrigerated and frozen conditions. After this, these goods will enter the downstream stores, be stored in commercial coolers, or directly mailed to the downstream consumer end (Figs. 6.5 and 6.6).

Fig. 6.5

Cold chain logistics transportation system

Fig. 6.6

Cold chain logistics process

• (2) Characteristics

From the nature of cold chain logistics transportation of goods and other aspects, the characteristics of cold chain logistics mainly include the following points.

• ① Perishability of goods

The goods using cold chain logistics mode are mostly fresh products and pharmaceutical products with high requirements on temperature and storage conditions, such as fresh fruits and vegetables, and biological drugs, which are often perishable and poorly resistant to storage. Improper control of temperature conditions will lead to the growth of microorganisms on the surface of cold chain goods and produce a certain degree of damage to the goods.

• ② Delivery timeliness and coordination

Due to the special nature of the products delivered via cold chain logistics and the high-quality requirements of consumers, the longer the goods are in transit, the greater the risk of deterioration. Therefore, cold chain logistics requires more preparation time than general commodity logistics. Cold chain logistics requires coordination, close cooperation, and comprehensive arrangements among all parties to ensure the quality of the goods while minimizing logistics time and improving customer satisfaction.

• ③ High cost of distribution

The high cost of cold chain logistics is mainly reflected in the following three aspects. Firstly, due to the special characteristics of cold chain distribution products, the logistics system must invest in professional cold chain equipment, such as cold storage and refrigerated trucks, which means high initial investment costs; secondly, energy consumption is very high because cold chain products must be stored in a strictly defined low-temperature environment throughout the transportation process. Thirdly, compared with traditional logistics products, products that require cold chain transportation during the circulation process will incur costs for natural damage of goods due to their perishability, which will also lead to higher costs.

• ④ High professionalism in distribution equipment

The cold chain logistics distribution process requires professional equipment and professional technology to ensure a low-temperature environment throughout the cold chain products in circulation, such as professional refrigerated vehicles, special temperature control devices, and advanced logistics information technology. The high professionalism of logistics equipment can also lead to huge expenses in the whole distribution process.

• (3) Application

Compared with the traditional ambient temperature logistics system, cold chain logistics is more demanding, more complex, and has higher capital expenditure, which is a huge system of engineering. Usually, this model is applicable to goods sensitive to temperature changes, and it is common in life for fresh food e-commerce in the integrated platform category (Fig. 6.7).

Fig. 6.7

Cold chain logistics of a domestic e-commerce company

The brand started building a cold chain logistics system in 2014 and introduced it in 2018 to supply fresh and medicinal products. Based on the “three-one” integrated service function of a cold chain storage network, cold chain delivery network, and cold chain distribution network, the brand has become a cold chain service platform with core products, and science and technology. In addition, the brand has also established a one-stop cold chain service platform with F2B2C processes and scenarios to realize secure payment between goods and consumers. In terms of cold chain storage, the brand has 10 dedicated cold storage facilities across the country, covering a deep freezing layer of −30 °C, a freezing layer of −18 °C, and a cold storage layer of 0–4 °C. The temperature and humidity in each temperature zone are monitored and managed in real time to fully guarantee the quality of the goods during delivery. After launching the “211” delivery service in core cities, the brand also launched the “Night Delivery” service from 10 to 7 pm and the “Precision Delivery” service for delivery within 2 h. These services have improved the delivery time and efficiency of fresh products in all aspects.

Generally speaking, the traditional order flow is approximately as follows: warehouse-picking center-customer. But the brand’s fresh food transportation process is different. The brand has established a mobile storage model based on the distribution network, and then the “inventory front”, also known as the mobile order flow, which brings the distance between consumers and goods closer, improves delivery efficiency, and achieves “hourly delivery” for the best-selling category. This fresh food mobile warehouse model not only effectively enhances customer experience and improves customer attention and interaction on site but also further consolidates the brand’s fresh food competitiveness at a high level. The cold chain integrates cold chain warehousing, cold chain city distribution, and freshness express as one, which brings convenience and efficiency to freshness transportation and delivery.

6.3.1.2 Pre-positioning Mode

Front-end warehouse is a logistics and distribution model developed by e-commerce companies to improve distribution efficiency. This model takes the form of small storage units at the end of the supply chain and replaces traditional distribution centers with a large number of distributed small warehouses in order to better shorten the distance between consumers and storage.

• (1) Front warehouse distribution process

The front warehouse will be positioned according to the community to select and build a warehouse, and conduct a circle within about 5 km to cover the surrounding communities to ensure that it can deliver goods to consumers within two hours. First, rely on data analysis and own supply chain resources (such as cooperative origin, and city batch market and brand suppliers) to select suitable goods, distribute to the city sorting center for product testing, and then transport these standard products to the front warehouse for small warehouse stocking after steps such as packing and grouping orders. At the same time, a logistics team is set up to briefly assemble the short-stocked goods after consumers place orders, and deliver the goods from the front warehouse to consumers within 2 h. Compared with traditional distribution centers, front warehouses are usually closer to consumers, which allows the supply chain network to sink further (Fig. 6.8).

Fig. 6.8

Chain in front position mode

• (2) Characteristics

As a new storage mode, the front warehouse can achieve efficient distribution while ensuring the quality of fresh food with its advantages. The central warehouse, as a traditional mode of storage, is mainly used for centralized distribution. Fresh products will be transported to the distribution center in each city through the central warehouse, and then transported to consumers by the distribution center.

For cost reasons, central warehouses are often located in suburban areas far from the city center, with long shipping distances, making it difficult to meet consumer demand in terms of speed of delivery. To address these drawbacks, front-end warehouses were developed.

In the front warehouse mode, consumers place orders directly on the fresh food e-commerce platform, and the products are picked up and packaged directly from the front warehouse for delivery. This is because the merchants have delivered the products to the front warehouse near the local community in advance according to the demand of the surrounding consumers.

It has high degree of digitalization and accurate prediction of end-user demand. The front warehouse is not only the last link point in the whole supply chain to reach users but also the closest distributed operation center and data center to users. The continuous progress of big data analysis and intelligent algorithms draws a clearer portrait of consumers, predicts more accurate traffic, and operates the supply chain through traffic as the core, making more accurate commodity procurement and more timely adjustment of commodity categories and quantities.

6.3.1.3 Central Warehouse Mode

Central warehouse, also known as central warehouse, is a traditional logistics concept and belongs to the first layer of the logistics system. It can be divided into the central distribution center CDC and the regional distribution center RDC. Central distribution center refers to receiving multi-species and high-volume goods from suppliers, and then delivering the complete goods to logistics companies or designated organizations according to demand through storage, sorting, distribution and distribution processing, information processing, and other operations.

The central warehouse is usually located close to the origin or supplier to facilitate the aggregation of products for outbound distribution. According to the location of the corresponding customer base, the second level of the logistics system after the regional warehouse or city warehouse is possible. With the rapid development of e-commerce and the regulation of the express industry, many platforms will adopt the logistics system of factory direct delivery and origin direct sales; in a broad sense, such factory warehouses and origin warehouses can be called “central warehouses”.

• (1) Central warehouse distribution process

After the consumer places an order, the central warehouse will collect the order, and then the goods will be transported from the source end (for example, the primary wholesale market and the main production area of agricultural products) to the central warehouse at the distribution end. In the central warehouse, the products needed for each order will be sorted, packed, and loaded, and the orders will be aggregated and then aggregated, packed, and sent out in a unified manner during the selected time period, and finally transported to the consumers (Fig. 6.9).

Fig. 6.9

Central warehouse model flow

• (2) Characteristics

• ① Smaller input cost

Front warehouses are generally laid out near neighbourhoods, while central warehouses often choose to be built in the suburbs, so the rent will be less. In addition, a central warehouse has a large area, generally one in an area is sufficient, and there is no need to build many like front warehouses.

• ② Low staffing

The central warehouse is characterized by small quantity and large area, and it does not have the function of business. Therefore, in terms of staff allocation, fewer staff are needed than the pre-warehouse mode, and the expenditure on staff wages is slightly smaller.

• ③ Concentration of operation time period

The central warehouse usually goes to the unified processing of customer orders at a fixed time, and the distribution is also unified. Although there will not be a long delay, fresh food and medicine have high requirements for order response speed and delivery speed of goods, so the central warehouse is obviously not competitive in this kind of market.

• (3) Application of central warehouse + front warehouse model

Take a domestic fresh food e-commerce company as an example; the products will be stored and distributed through suppliers, central warehouse, and front warehouse in turn, and finally delivered to customers in a relatively short time (Fig. 6.10).

Fig. 6.10

Flow of central warehouse + front warehouse model

• ① Supply from suppliers

First, the central warehouse forecasts and develops a purchase plan based on available inventory and sales, and initiates a purchase request to the supplier. The supplier makes timely delivery by air, land, and sea under appropriate conditions as requested by the central warehouse.

• ② Central warehouse storage and distribution

The staff of the central warehouse will randomly inspect the fresh products received, and only the accepted food products can be stored in the central warehouse. After the inventory system of the front warehouse sends a replenishment order to the central warehouse, the central warehouse will quickly organize the complete inspection, release, and distribution of the relevant food products, and use refrigerated trucks to deliver the fresh products to the front warehouse.

• ③ Front warehouse storage and distribution

Once the fresh products arrive at the front warehouse, the front warehouse staff will check and store these products. When the consumer places an order, the staff will quickly sort the products according to the order information, and the products that pass the quality inspection will be delivered by self-operated or third-party delivery personnel.

• ④ Consumer order and after-sales

After consumers select goods on the platform, if they are not satisfied with the goods received, they can apply for a return or exchange within the time specified by the platform, provided that the goods meet the return criteria of the platform. After submitting the return application, the front warehouse staff will actively respond to the customer’s needs and promptly process the returned goods.

6.3.1.4 Store and Warehouse Integration Model

The store-warehouse model, i.e. the “in-store + at-home” model, promotes the integration of online and offline development by virtue of its store-centric features, and cultivates consumers to develop the consumption habit of placing orders online and picking up goods offline. The stores mentioned here play the role of mini-supermarkets as well as storage centers for online delivery.

• (1) Store and warehouse model process

Under the store-warehouse integrated mode, suppliers can directly supply to offline stores.The “warehouse” in this mode is different from the traditional logistics mode. It reduces the rent, labor input and operation investment of the warehouse. In the case of online to home, consumers select goods and order through the e-commerce platform, and generate orders after the offline shop store warehouse for the packaging and delivery of goods, quickly to the hands of consumers. In the offline-to-store mode, consumers go directly to the store for shopping; they can get direct processing services. This store warehouse is different from the single delivery to home and offline shopping, so we can say that “online to home + offline to store” enriches the consumer’s buying experience (Fig. 6.11).

Fig. 6.11

Flow of store-warehouse model

• (2) Characteristics

• ① Meet the demand for timely delivery

The integration of the store and warehouse mainly serves consumers within 1–3 km of the surrounding area. The offline store as a small warehouse can achieve very fast delivery of products; the transport time is basically within 30 min, which ensures the high quality of fresh products and meets the dual needs of consumers for product quality and timely delivery, bringing consumers an excellent shopping experience. In addition, offline stores give consumers a true sense of the shopping environment, product quality, and service quality, which helps to enhance consumer trust and improve consumer retention and repurchase rates.

• ② Online and offline mutual attraction

The store-warehouse integration model is a combination of Internet-driven and offline store experiences. For online users, products that can be purchased online are displayed in offline stores, and then online users are more willing to go to offline stores for self-pickup in order to understand whether there is a difference in product quality and quality control between online and offline sales, thus realizing the import of online users to offline. And through the guidance of service personnel and the attraction of activities such as membership, consumers who love offline shopping can be precipitated. The full coverage of users in both online and offline channels reduces the cost of customer acquisition for online stores and brings traffic to offline stores, achieving a win–win effect.

• ③ Data-based operation

Compared with traditional superstores, the store-warehouse integration model has more online shopping channels, and also allows a better grasp of consumer demand online. By aggregating online store orders and collecting shopping information such as consumers’ cell phone numbers, customer unit prices, and recent purchases, the platform can analyze consumers’ recent shopping tendencies. For example, for recent hot-selling products, offline stores can change the way they display goods and place them in more prominent locations to further increase product exposure; and for products that are not selling well, they can take the form of bundled sales with hot-selling products and drive sales by offering a combination of discounted prices. This can help the platform to get close to consumers, wirelessly approaching their inner needs, so as to target more accurate marketing activities.

• (3) Application

A pioneer of a new domestic retail superstore is a typical model of store-warehouse integration. The retailer has created an integrated online and offline new retail model that not only meets the needs of consumers shopping in-store but also provides consumers with various additional leisure and entertainment activities to improve the overall shopping experience of consumers.

Any product that consumers see in the store can be found in the online store at the same price and quality as the offline product, which is in line with the “what you see is what you get” mentality of consumers. In addition, users visiting the brand’s offline stores will be invited to install an app, which will make it easier for offline consumers to order online, thus introducing a closed-loop consumption model of offline experience and online ordering. In order to eliminate barriers to offline and online interface, the brand will also combine online and offline product management, including information on prices, promotions, and points for all products, through electronic tags and other means, forming a closed loop of online and offline consumption, while achieving omnichannel sales.

As of 2020, the brand has more than 200 stores nationwide, serving more than 10 million consumers and operating stores for more than 1.5 years with average daily sales exceeding 800,000 for a single store, fully confirming the feasibility of the store-warehouse integration model.

6.3.1.5 Mode of Origin

The origin model, i.e. the origin warehouse model, is to set up a warehouse near the producer of the origin of the product and do direct delivery for the manufacturer or brand, thus making the logistics-intensive and large-scale logistics model, which is different from the ordinary logistics model of multi-level distribution.

This origin-direct distribution model can unify many independent links in sales logistics and realize the integration of logistics links between goods from producers to consumers. Products from the origin are transported to the origin distribution center via industrial agricultural companies, agricultural cooperatives of origin, and other agencies on their behalf. The distribution of goods passes through the logistics center warehouse and the retail terminal, and finally reaches the consumer. In this process, the origin warehouse is very close to the origin, and far from the consumer, which is set to ensure the quality assurance of the products in the “first kilometer” of transportation. This model is mainly for third-party e-commerce channels. With the increase in the share of online sales, the origin model has slowly become part of the brand focus on the development of logistics methods (Fig. 6.12).

Fig. 6.12

Flow of origin model

Logically, the origin warehouse model is exactly the opposite of the front warehouse: in terms of physical distance, the origin warehouse is farther from the end of the distribution and closer to the origin; in terms of service object, it is converted from serving customers to serving origin suppliers; the supply chain is continuously extended upstream and is more inclined to supply-side logistics optimization.

Because the origin direct mode is not traditionally handled by distributors for sales and logistics, but by manufacturers directly, small batches and multiple batches directly to the client, which is a more realistic response to consumer demand, record all consumption scenarios and help the supply side to understand the end, more in line with the principle of flexible production.

• (1) Characteristics

The origin warehouse model brings many benefits to all parties in the supply chain.

For upstream suppliers, this model can realize multi-frequency and small-lot continuous replenishment from the origin warehouse to the distribution center and forwarding center, shorten suppliers’ billing period and order lead time, optimize stocking structure, and improve spot rate, improve the ability to handle urgent orders, increase suppliers’ sales, and improve customers’ time-efficient experience. At the same time, the proximity of origin warehouses to suppliers also reduces logistics costs.

For the downstream e-commerce platform, due to the location characteristics of the origin warehouse, in-transit inventory will increase, safety stock can be reduced thereby reducing stagnation, the inventory area of e-commerce companies can be reduced, and the spot rate can be improved. And multi-frequency small-batch replenishment improves the frequency of supplier delivery and reduces the inventory turnover days. In terms of operation management, the platform can know the future arrival of goods in advance, reduce the difficulty of receiving goods, improve the efficiency of receiving goods, and reduce the cost of the warehouse and upstream and downstream communication.

• (2) Application

In 2020, China will achieve full victory in the battle against poverty and promote rural revitalization in 2021, which is a historic shift in the focus of the work of the three rural areas. To promote rural revitalization, we must solve the problem of storage and preservation of agricultural products from the source, guarantee the “first kilometer” of agricultural products out of the village, consolidate and expand the achievements of poverty eradication and rural revitalization, and enhance the modernization level of the rural industrial chain supply chain.

For farmers whose main income comes from the sale of agricultural products, it is crucial to do a good job in the “first mile”. The application of the origin warehouse model can make agricultural products transported out in time, not rotting in the ground, and reduce product loss. At the same time, the origin warehouse connects the planting side and the production side, improves the agricultural conversion rate through modern information technology, realizes the digital production and standardized planting of agricultural products, and allows the order agriculture model to greatly help farmers.

The pioneer brand of domestic e-commerce retail has tried to optimize and upgrade the “first mile”. The application of the origin warehouse connects the two ends of supply and production, and combines digital technology to build a more efficient warehouse and distribution system. At the planting end, the brand has given its partner bases and farmers planting and picking standards, and through digital system monitoring and guidance, it ensures that the planted produce is of high quality and reduces losses. At the supply chain end, through the cold storage of bases, cold chain logistics of radiation bases and origin warehouses, the quality of agricultural products is stabilized while grading standards are established for each kind of agricultural product, thus truly achieving superior prices.

6.3.2 According to the Division of Distribution Subject

According to the actual process of logistics operation of e-commerce enterprises, the logistics of e-commerce products mainly includes the logistics transportation stage as well as the terminal distribution stage.

When a customer places an order, the system will send the order information to the warehouse nearest to the consumer, which will complete the packing and delivery of the goods. The goods will first be delivered to the city distribution center where the warehouse is located, and then the distribution center will agree to deliver the same city destination express to the distribution center in the target city. In the end distribution stage, the distribution center will make a delivery plan to deliver the express goods to the customer according to the customer’s service requirements (such as time constraints).

In the process of product delivery from the warehouse to the hands of customers, according to the distance of distribution, logistics belongs to the long line and takes up most of the distance in circulation. According to the difference of the main body that carries out logistics distribution, i.e. the operator of distribution, the logistics of e-commerce can be divided into three categories: self-operated logistics, third-party logistics, and logistics alliance distribution.

6.3.2.1 Self-supporting Logistics

Self-operated logistics refers to the enterprise’s own logistics business, building a wholly owned or holding logistics subsidiary to complete the enterprise’s logistics and distribution business, that is, the enterprise itself to establish a set of logistics systems. The main economic source of this type of enterprise is not in logistics, but has the ability to undertake its own logistics business and make profits from it.

In the mode of self-operated logistics, the logistics department of e-commerce enterprises or their own logistics enterprises are responsible for all links, including the self-established logistics distribution center, terminal self-service points, organization of express vehicles and delivery personnel. This is a complete system, from upstream commodity supply, procurement, transportation, and storage to downstream commodity warehousing, transportation, and distribution, which requires the interconnection of all links of e-commerce enterprises and requires more manpower and capital investment, further testing the overall layout of the network structure and decision-making process of express enterprises.

• (1) Self-operated logistics advantages

The characteristics of e-commerce companies owning their own logistics services give this logistics model a unique advantage, with competitiveness in terms of control, corporate capital flow, transaction costs, and brand value.

• ① Hold the control

E-commerce companies that adopt the self-managed logistics model have the most detailed information about the performance and specifications of their internal procurement and sales chain goods, the supplier’s supply quality, and the platform’s operational capabilities. This information can therefore be used to effectively coordinate all aspects of logistics activities, to solve logistics management problems more quickly, and to obtain the most timely information from suppliers and end customers to adjust their business strategies at any time. For example, companies can set the location of their warehouses based on various relevant factors and deliver orders and other information to the warehouse within the shortest distance from the consumer. Strong control plays an important role in improving logistics efficiency.

• ② Activation of assets

Companies that choose to operate their own logistics find it easier to transform their business management structure and original logistics resources, thereby increasing the flow of capital and creating greater profits for the company.

• ③ Reducing transaction costs

In the self-managed logistics model, the company has complete and real information about the logistics service provider because there is no information asymmetry. E-commerce companies can make full use of their own management of all-selected control of the purchase and sale of goods, without having to spend human and financial resources to negotiate for warehousing, transportation, distribution, and after-sales service issues, thus avoiding multiple transaction costs and largely reducing the uncertainty and transaction costs.

• ④ Improve corporate brand value

Self-operated logistics system will be able to control sales activities independently; all links are responsible for the logistics department of e-commerce enterprises or their own logistics enterprises, which on the one hand can personally serve customers at home, so that customers are close to understanding the enterprise and familiar with the product; on the other hand, enterprises can grasp the latest customer information and market information, and according to customer demand and market development trends to make adjustments to the strategic plan to improve the pertinence of the strategy and customer satisfaction. At the same time, an in-depth understanding of customer needs is also conducive to e-commerce enterprises to develop value-added business.

• (2) Disadvantages

• ① Increased investment burden

In order to realize the direct organization and management of logistics, enterprises adopting the self-management model must spend a lot of money to allocate warehouses, transportation equipment, and logistics personnel, and the investment burden of enterprises increases significantly so that the enterprises’ investment in other areas will be reduced accordingly, which undermines the enterprises’ ability to resist market risks and reduces the competitiveness of enterprises.

• ② Management is difficult to control

Although logistics has a very important impact on business, for most e-commerce companies, the logistics department is just the logistics department and logistics activities are not the core business of the company. In this case, if the company chooses to adopt its own logistics model, which it is not good at, then the management of the company will have to spend a lot of time, energy, and resources to deal with these auxiliary work, cross-industry operation is not highly specialized, the result can be said to be half the effort, and its own key business does not play the core role. Therefore, self-managed logistics can lead to more difficult departmental management, and the core competitiveness of the enterprise may also be affected.

• ③ Limited application scale

For e-commerce enterprises that are not large enough to buy and sell a very limited number of products, it is difficult to achieve economies of scale using the self-operated logistics model. On the one hand, this leads to high logistics costs, which reduces the competitiveness of products in the market; on the other hand, due to the limited use, the specialization of logistics distribution is very low, which makes it difficult to meet the logistics and distribution needs of e-commerce enterprises.

• ④ Benefit assessment is difficult to conduct accurately

In self-operated logistics enterprises, all the commodity circulation process is completed by specialized logistics departments or logistics companies, forming an integrated system, then each internal function will not separate logistics for independent accounting, so the enterprise cannot calculate the accurate product logistics costs; it is impossible to objectively assess the benefits.

6.3.2.2 Third-Party Logistics

Third-party logistics is relative to the “first-party” consignor and “second-party” consignee; it is a logistics form by the third-party logistics enterprises to undertake enterprise logistics activities, independent of the supply and demand sides.

• (1) Third-party logistics distribution process

Take a well-known domestic e-commerce platform website as an example; after the buyer places an order on the platform, the seller packs the goods according to the requirements of the order, signs a logistics contract with the third-party logistics company through telephone, network order, courier bill printing, etc. and delivers the goods to the courier who delivers the received courier parcels to the regional network and waits for the delivery vehicle to deliver them to the regional collection network as described by the courier company. When the goods arrive at the regional outlet, they are reclassified and shipped to the regional logistics center at their destination. The goods are scanned and redistributed to the distribution warehouse, where they are organized to reach the appropriate distribution point. Depending on the services contracted for, air or road transportation is selected. The goods will be re-sorted according to the address of the recipient and shipped in full truckloads to the buyer’s logistics distribution center where they are reordered and delivered to the courier point for inspection and sign-off by the buyer (Fig. 6.13).

Fig. 6.13

Third-party logistics model

• (2) Advantages of third-party logistics

• ① Business Advantages

In terms of business quality, the third-party logistics model undoubtedly has a great advantage. Due to the different characteristics of the goods and other factors, the resulting logistics service requirements are very different, for example, fresh products with short storage cycles and some special drugs need fast transportation and refrigerated storage, and dangerous chemicals need to be well secured when dispatched on the road. Companies owning their own logistics systems often cannot meet these differentiated requirements, but the third-party logistics market has to be segmented according to these requirements. Therefore, companies can outsource these tasks to third-party logistics companies, which provide targeted logistics services, thus greatly improving the quality of trade.

In addition, third-party logistics can reduce the impact of backward logistics equipment and IT network delays on the enterprise. The non-specialized logistics department of e-commerce enterprises in the self-operated mode often cannot coordinate with external resources, and when the core business of the enterprise develops at a high speed, the self-operated logistics system cannot keep pace with the forward development of the business due to the backwardness of the equipment and the limitation of the information network, but the third-party logistics can perfectly help the enterprise break through the bottleneck caused by the backwardness of the hardware facilities.

In this way, the capital invested by e-commerce companies in warehouses, fleets, and infrastructure can be released, accelerating the capital turnover of the companies. In this way, the third-party logistics model can achieve an effective allocation of resources and a higher degree of scale.

• ② Cost advantage

Firstly, the third-party logistics model can reduce the operating costs of e-commerce enterprises. Professional third-party logistics providers use the professional advantages of scale production and cost advantages to improve the utilization of resources in the circulation process by integrating various logistics resources, so that enterprises can benefit from the separation cost structure. In addition, as enterprises use external logistics roles, they can obtain the cost or fee affirmed by logistics service providers in advance, and the variable cost is converted into constant cost, and this stable cost structure makes the planning and budgeting procedures easier.

Secondly, third-party logistics can reduce the amount of investment in fixed assets of enterprises. By outsourcing logistics, enterprises can reduce the investment in logistics infrastructure and information systems, changing fixed costs into variable costs, and transferring the financial risks caused by the uncertainty and complexity of logistics needs to third parties, especially those companies whose business volume shows seasonal changes; the impact of outsourcing on the company’s asset investment is more obvious. After saving the cost and human resources of operators and enterprises, e-commerce companies will have more money and energy to invest in their own products, reducing costs while improving competitiveness.

• ③ Advantage of customer service

E-commerce companies can take advantage of the information network of third-party logistics companies to improve customer satisfaction in a way that other logistics companies cannot. This information network helps companies improve their ability to process orders, reduce response time to customer needs, provide direct-to-home point-to-point delivery services, and increase customer satisfaction by reducing the delivery time of goods.

Third-party logistics providing targeted customized logistics services can improve the customer’s service experience, create higher service value for customers, and significantly enhance the market appeal of enterprises. In addition, the third-party logistics enterprises also have the quality of information network resources, and the ability to monitor the entire logistics process, through advanced information technology and communications technology to monitor the goods in transit in real time, to ensure the timely detection and handling of delivery accidents, and to ensure that the goods can be safe and timely delivery to the destination.

• (3) Disadvantages of third-party logistics

• ① Lower control ability

In this model, the enterprise’s express business all outsources to a third-party logistics company. If an e-commerce platform wants to master the whole process of logistics information, it can only get this information through the logistics information management system; in this case, it reduces the platform’s control over logistics operations, making the platform subject to the limitations of third-party logistics companies, resulting in slow feedback response, delivery service quality, and low level of operational efficiency problems, and due to the existence of external service providers, enterprises are more likely to appear within the situation of mutual blame, affecting efficiency. For example, in the case of problems in coordination between the two sides, there may be a risk of loss of control of logistics, thus reducing the level of customer service of the enterprise.

• ② Risk in customer relationship management

As e-commerce enterprises entrust their logistics and after-sales service to third parties, the direct contact with customers becomes less, and the relationship between enterprises and customers is weakened, which is not conducive to the establishment of stable and close customer relationships. In addition, customer information is a very important resource for enterprises, but third-party logistics companies do not deal with only one customer. When third-party logistics companies provide services for the enterprise’s competitors, it will increase the possibility of leakage of corporate trade secrets.

• ③ Increased operational risk

Third-party logistics and e-commerce enterprises have a long-term cooperative relationship; if the logistics enterprise itself is not operating well, it may affect the operation of e-commerce enterprises. But because the stable partnership is often built on a longer teething period, the dissolution of the partnership will incur higher costs.

• (4) Third-party logistics and the “last mile”

The “last mile” in logistics distribution refers to the distance from the logistics sorting center to the hands of the customer, that is, the process of delivering the goods to the customer by means of transportation. This “last mile” of distribution is not only the end of the entire logistics chain but also the only link with direct face-to-face contact with customers, a link that is highly valued by e-commerce consumers and a key link to the success or failure of enterprises. Only by doing a good job of “last mile” distribution work, the entire logistics process can be an unimpeded distribution process. Then e-commerce enterprises can really develop.

With the rapid development of society and steady economic growth, automated distribution represented by “unmanned” third-party logistics can effectively promote the development of “last-mile” distribution as an emerging industrial model for the development of the logistics industry. Since January 2020, with the expansion of the epidemic, unmanned logistics has been widely and rapidly applied to the logistics activities of emergency supplies. Currently, China’s unmanned logistics distribution is being used efficiently during the epidemic. A well-known domestic logistics company set up an unmanned distribution emergency team in early February 2020 to test the distribution area from the Ninth Hospital in Wuhan City to the surrounding communities, and completed the deployment of unmanned distribution remotely in just 4 days and successfully completed automated distribution logistics activities in one go. It was possible to deliver 50% of the order quantity using the unmanned robot and to include the neighbourhoods along the route planning in the delivery area. Based on the entire route planning and transportation operation, the “unmanned” third-party logistics delivery can greatly reduce the number of staff on-site supervision and be directly controlled remotely by the system, so that the courier can work through the instructions issued by the system, improving the efficiency of the delivery.

6.3.2.3 Logistics Alliance

Common Delivery, also known as logistics alliance distribution, is a mode in which multiple enterprises join together to provide distribution services by a third-party logistics service company in order to achieve their respective strategic logistics objectives, generally under the unified planning and unified scheduling of the distribution center. These enterprises make a horizontal alliance to form a loose organization with complementary advantages, risk sharing, and benefit sharing. In essence, it reduces operational costs through the scale of operational activities and therefore improves the efficiency of logistics resources utilization.

• (A) Logistics Alliance Distribution Process (Fig. 6.14)

  Fig. 6.14

  

  Logistics alliance distribution process

• (B) Distribution characteristics of logistics alliance

Due to the structural peculiarities of the logistics alliance, this distribution model has the following advantages.

• ① Mutual partners to reduce logistics costs and risks

The communication links between the enterprises within the alliance are very close, and they can share their resources with each other, which makes the costs arising from searching for transaction objects and transaction information greatly reduced. In addition, through the alliance of logistics services, a good trust relationship is established between these enterprises, various performance risks can be reduced, and conflicts arising from the services can be resolved through peaceful negotiation.

• ② Contracts for long-term cooperation to maintain the stability of transactions and profits within the alliance

For the sake of maximizing their own interests, all the enterprises within the alliance consider effective long-term cooperation as the optimal strategy. This long-term cooperation can maintain the stability of the logistics alliance, and thus each enterprise can develop stably in the internal environment formed by the coordination of the established alliance mechanism. In this way, the frequency of uncertainty and inefficient transactions in the transaction process will be significantly reduced, which in turn will reduce transaction costs in this respect. Such stable, long-term cooperation will motivate these companies to make their common profits bigger and obtain stable profit margins.

• ③ Learn from each other, build on the strengths, and avoid the weaknesses, and the model development potential is high

From the development history of logistics, logistics alliance is a modern form of logistics cooperation established between enterprises and professional logistics service providers. In the logistics alliance, the continuous development of logistics organizations will deepen the connection between the supply chain of enterprises, and mutual collaboration will also enrich the logistics needs of users. With the gradual development of continuous and honest cooperation, these e-commerce enterprises can learn from each other, such as each other’s technical advantages and rich experience, so as to build on their strengths and avoid their weaknesses and gain sustainable development.

However, the logistics alliance model is faced with many uncertainties because it involves multiple cross-border e-commerce enterprises, thus making it difficult to ensure operational efficiency. When a logistics alliance fails to obtain the expected benefits for its members due to poor operation or when the benefits of the alliance are distributed unreasonably, it may lead to members adopting a negative cooperative attitude, thus failing to give full play to the complementary value of members’ advantages. In addition, in actual operation, it is often due to a variety of reasons that the logistics alliance cannot effectively integrate the human, financial, and material resources of each member, thus making the logistics alliance model unable to play its proper value.

• (C) Application of logistics alliance

The distribution of fresh agricultural products has always been a major difficulty in the logistics business of enterprises. Fresh agricultural products are characterized by large order quantities and scattered distribution destinations. Due to the low unit value and high requirements for the freshness of the products, although individual distribution can guarantee freshness, it will certainly increase logistics costs and compress profit margins. If combining the qualities of fresh agricultural products that are different from other commodities in the distribution process, we can build a logistics alliance to break the blockage of fresh agricultural products end distribution, guarantee the quality of fresh agricultural products, and improve the logistics efficiency of alliance members.

• (1) The regional characteristics of the alliance are obvious

Fresh agricultural products have obvious regional characteristics of origin, so when distributing fresh agricultural products, it is not suitable to blindly pursue the expansion of the distribution range. If only the expansion of the distribution range is pursued, it will not only reduce the taste of goods due to the long distance but also increase the storage cost and transportation cost. Therefore, when building the logistics alliance in fresh agricultural product distribution, it is necessary to control the alliance within a certain area, reasonably allocate resources, realize efficient distribution, and reduce the loss of quality of agricultural products.

• (2) Diverse value-added affiliate services

As the value of fresh agricultural products is generally low, if the logistics alliance simply delivers agricultural products for consumers, the logistics alliance cannot meet the diversified needs of consumers. If the alliance can combine the advantages of different distribution enterprises within the alliance to provide comprehensive and enhanced services in the distribution process, such as grading and selecting agricultural products, and even matching different packaging with different products, it can meet the needs of different consumers and improve market competitiveness.

• (3) Agile alliance response mechanism

Compared with traditional distribution methods, the form of alliance is more convenient to realize the form of distribution service with rich variety, small batch size, and high distribution frequency. Generally speaking, retailers tend not to stock a large amount of agricultural products in order to maintain their freshness, which poses a challenge to the construction of logistics alliance in fresh agricultural product distribution, which requires the alliance to find a balance point between the economy of scale and small batch distribution to meet customers’ needs. The logistics alliance can manage the distribution tasks in a unified manner according to the demand situation in the region, and reasonably allocate the distribution volume and distribution path. In this way, the alliance can provide more efficient distribution services and even achieve multiple deliveries a day to retailers, better guaranteeing the freshness of agricultural products.

• (4) Alliance intermediate links are shortened

The quality, taste, and edible value of agricultural products will affect their freshness. If there are too many intermediate links and too long a delivery time for agricultural products such as fruits and vegetables with high moisture content, it will lead to water evaporation and reduce freshness, which will directly affect consumers’ purchasing experience and sales of agricultural products. Therefore, building a logistics alliance in fresh agricultural product distribution will significantly reduce the number of intermediate links from the wholesale market to the retailer and retain the freshness of perishable goods.

• (5) Increased efficiency of alliance distribution

Once the alliance is formed, the information of retailer members within the alliance will be unified and integrated together. Before the alliance was formed, the traditional fragmented distribution method had no way to consider distribution locations from a holistic perspective, which often led to low marginal effects of suppliers in distribution. However, after the alliance is formed, since the daily demand for fresh produce in a regional area tends to be stable and will not fluctuate significantly up and down except for special circumstances, the alliance can refer to the information provided by the previous retailers and consider the information on distribution distance, distribution quantity, and distribution type to provide a stable distribution path for suppliers. In case of special circumstances, the alliance can also rearrange the distribution path according to the specific situation. The formation of a logistics alliance in the distribution chain will greatly improve distribution efficiency and enable retailers to also obtain a relatively stable state in terms of both the quality of agricultural products and distribution services.

• (6) Alliance distribution risk reduction

The traditional distribution process of fresh produce is subject to various constraints such as traffic congestion, and distant or too remote distribution destinations, which often fails to deliver the produce on time and also depletes the quality of the produce. In such logistics alliances, the members are in a risk-sharing partnership to fight against the uncertain risks brought by market fluctuations as a whole. Suppliers coordinate with each other to avoid the risk of out-of-stock to a certain extent.

6.3.3 End-of-Line Express Delivery

Terminal express delivery is the last section of the commodity distribution process, which refers to the logistics activity of delivering the parcels from the last delivery network of the express service provider to the designated address. China’s vast territory, geographic environment, terminal distribution network, and the degree of construction of facilities vary greatly, and the “last mile” of express delivery is crucial to the development of the entire e-commerce industry (Fig. 6.15).

Fig. 6.15

End-of-line express delivery process

The current terminal express delivery mode is mainly divided into two categories: home delivery mode and express pickup mode.

6.3.3.1 Home Delivery Mode

The door-to-door delivery mode is the most common end delivery mode in which e-commerce enterprises deliver goods to designated customers at the agreed time in accordance with the “5R” principle. The delivery personnel deliver the goods to the customer’s required location from the city distribution center and contact the customer when the goods are about to arrive. Delivery personnel from the city distribution center, according to the location requested by the customer, when the goods are about to arrive to contact customers and delivery. “Door-to-door delivery” is a service that directly faces customers, and delivery personnel complete the handover of express delivery with customers in person, and can also provide services such as on-the-spot inspection, cash on delivery, and timely return, which enhance customers’ receiving experience to a certain extent. At the same time, delivery personnel can directly obtain customer feedback, which is conducive to the development and improvement of enterprise business. However, in practice, the vast majority of customers do not specify the time. There is a difference in time matching between the fetching and sending parties; usually, the courier needs to wait. If the delivery time is too long, other orders will be affected. Sometimes, the Courier needs to deliver the goods for a second time, which increases the delivery cost and reduces the delivery efficiency. (Fig. 6.16).

Fig. 6.16

Home delivery service mode

Distribution on the “last mile”, from the perspective of logistics costs, is at the core of the entire logistics process. Improving and solving the “last mile” problem can effectively reduce the logistics costs of express delivery, reduce the total expenditure of logistics costs, and increase the economic profit of the courier industry, which keeps an absolutely advantageous position in the low-end competition. The “march to the countryside” is an important development strategy for all e-commerce enterprises, the home delivery mode has also been from the city to rural towns, but due to traffic, geographic location, and other reasons, the “last mile” distribution costs are high and efficiency is low. This has also become a gulf in the process of the courier to the countryside, the sinking of e-commerce.

6.3.3.2 Express Self-pickup Mode

Express self-pickup mode is when e-commerce enterprises in accordance with the promised time frame deliver the express to the designated pickup point, and notify customers in the agreed time to pick up their own. Express self-pickup mode reduces the waiting time of the single delivery of the distributor, and the distributor can deliver more orders at the same time, but there are also disadvantages of the express self-pickup mode. This mode increases the construction costs of the express terminal self-pickup point, and the simplification of the delivery link leads to more difficulty to recover compensation for damage to the goods.

“Self-pickup” mode is the delivery personnel centralized delivery to the express site, the customer to the express site to pick up.This model effectively solves the problem of low efficiency and high cost of “home delivery” delivery. At present, the main forms of self-pickup outlets are self-pickup stores, intelligent self-pickup cabinets, and cooperation with convenience stores.

• (1) Self-pickup stores

The delivery personnel will send the express mail to the self-pickup stores and notify the customers to pick up the parcels through SMS, and the customers will pick up the parcels at the stores according to the information. This model assists express delivery enterprises to complete the “last mile” delivery work by establishing terminal delivery stores, realizing the efficient integration of terminal resources such as delivery personnel and outlets, and solving the problem of “difficult delivery” for express delivery enterprises.

• (2) Intelligent self-service cabinets

This model is set up by electronic control and monitoring of the automated storage smart cabinet to complete the self-pickup of express delivery. Courier companies will store the parcels in the self-pickup cabinet, notify customers of the pickup through SMS, and inform the pickup code; customers pick up the parcels according to the pickup code, making the pickup more flexible. And the store is usually manned, and customers can get a timely solution to problems encountered in the pickup process, which is conducive to improving customer satisfaction. However, self-pickup stores are generally established in places with convenient transportation and high traffic flow, and these places often have higher rents, resulting in higher store construction costs. On the other hand, the pickup distance also affects the customer experience to a certain extent.

From the customer’s point of view, compared to the manned self-service stores, self-service cabinets through the pickup code to pick up the pieces are conducive to the protection of privacy. From the operator’s point of view, self-service cabinets replace manual services with technology. In the long run, if the use of self-service cabinets can reach a certain scale, the model will greatly reduce the labor cost of terminal distribution. However, due to the type and size of parcels in the cabinet being limited, customer pickup is not timely and has higher maintenance costs; the self-service cabinet model still has certain limitations: the short term cannot completely replace the manual distribution.

• (3) Convenience stores

These stores generally refer to super convenience stores, mailrooms, etc. In its essence, this model treats convenience stores as terminal distribution outlets. Courier companies will deliver the parcels to the convenience stores, and the customers will go to the nearest stores to receive the express mail at a convenient time.

Compared with the self-built self-pickup stores, the model saves the construction costs of the network, but there are certain shortcomings. First of all, convenience stores have their main business; compared to the professional operation of the courier collection outlets, the collection and management of couriers will not be in place; secondly, because customers cannot pick up the goods in time, convenience stores charge customers overtime charges, inevitably affecting customer satisfaction; finally, cooperation with convenience stores needs to pay a certain amount of delivery costs to them, which in turn increases the input of courier companies (Fig. 6.17).

Fig. 6.17

Courier pickup service model

6.4 Summary of this Chapter

E-commerce circulation is a manifestation of commerce circulation in the field of e-commerce. According to the order of commodity circulation, the circulation of e-commerce can be divided into three links: product procurement, product storage, and product logistics and distribution.

Product procurement is the first link of e-commerce circulation, based on this, there is a follow-up on the goods into the warehouse, sales, logistics and distribution, and other circulation processes. In the e-commerce industry, the common procurement model is mainly self-selling model, one piece of hair model, and multiple owners warehouse model, three types. Procurement link is to generate purchase orders, followed by the normal product warehousing and returns. As an intermediate link in the flow of e-commerce, the procurement of products from the warehouse and the next circulation process of warehousing are in the middle of the flow of goods. According to the ownership of the warehouse, product warehousing can be divided into self-built warehousing, third-party warehousing, and self-built + third-party warehousing, three models.

Product logistics and distribution is the final link and an important part of the e-commerce distribution system, and an important carrier for expanding domestic demand and promoting consumption. With the development of digital technology and the advent of the new retail era, a variety of logistics and distribution models have emerged. According to the different locations of warehouses from customers and the main body that carries out logistics and distribution, the product logistics mode can be subdivided into various logistics modes such as cold chain mode and self-operated logistics mode. Terminal express delivery is the last section in the process of commodity circulation in the real sense. These logistics and distribution modes are changing with the development of the times and the needs of consumers, and the innovation of logistics and distribution is very crucial to solve the problem of the “last mile”.

6.5 Review Reflection Questions

• 1. Briefly describe the specific process of product procurement.

• 2. Analyze the application scenarios for which the three procurement models are suitable.

• 3. Briefly describe the significance of the storage aspect of product distribution for the development of e-commerce.

• 4. What kind of applications are there in the cold chain logistics model at home and abroad? What is the development status?

• 5. Briefly describe the operation process of the front warehouse + central warehouse model.

• 6. How does the application of the origin model guarantee the “first mile” of agricultural products out of villages in China?

• 7. How will the innovation of the third-party logistics model solve the problem of the “last mile”?

• 8. What kind of impact has the new crown epidemic had on the development of logistics and distribution?

• 9. Summarize the similarities and differences between the three logistics models according to the distribution body.

• 10. Briefly explain how end distribution should be reasonably applied in grassroots areas in China.

• 11. How will the innovation of the three links of e-commerce circulation affect the development of China’s trade circulation industry?

• 12. How does the development of e-commerce circulation contribute to the solution of the problem of inadequate and unbalanced development in China?