eCommerce Workshop

Auckland, June 24, 2004

B2C-Logistics in German Mail-order -Flow system modelling and empirical case studies

Dipl.-Kfm. Jörn Herrmann, MScPhone: +49.175.318.1386E-Mail: Joern_Herrmann@epost.de

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ABSTRACT

B2C-Logistics has developed to be a decisive competitive factor in the German mail-order industry. Through the impact of Electronic Shopping the influence of B2C-Logistics is growing. Our application of research in logistics is based on a qualitative model to describe and explain B2C-Logistics systems in Germany. It includes the trade-offs in the system between its effectiveness and efficiency, the structure dimensions and the environment conditions. In our flow system model we distinguish four structure dimensions: Goods network, data network, relationship network, and institutional network, that need to be managed in different ways following individual goals. The model was adapted to six case studies in the German mail-order and parcel network industry.

***

Jörn Herrmann is a researcher at the department of Business Administration and Logistics of Marburg University, Germany. Before and during his research he worked as a consultant with McKinsey & Company mainly in the logistics and mail-order sector. He studied Operational Research in Southampton, U.K. and Economics/Finance in Hagen, Germany.

2

AGENDA

• Industry background: B2C-Logistics most decisive competitive factor in German mail-order

• Flow systems model to describe and explain B2C-Logistics systems: Parallel network management necessary

• Empirical case studies in mail-order and parcel network industry validate qualitative model

3

AGENDA

• Industry background: B2C-Logistics most decisive competitive factor in German mail-order

• Flow systems model to describe and explain B2C-Logistics systems: Parallel network management necessary

• Empirical case studies in mail-order and parcel network industry validate qualitative model

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3 phases of development:• 70s: Introduction of new logistics-services • 90s: Boom through German reunification • since 2000: Innovations through Electronic Shopping

DEVELPOMENT OF MAIL-ORDER IN GERMANY

1970 1975 1980 1985 1990 2000Share of total retail spendigsin percent

4,3 4,6 5,5 4,4 4,1 5,6

1995

5,8

21,0

11,6 11,4 15,0

20,6 21,2

6,7 4,3

2003

in bn. EUR p.a.

6,0

Growth (CAGR)in percent

+9,3 +11,6 -0,3 +5,6 +6,6 -0,3+0,6

2010

Source: HOFFMANN (2002), pg.17.

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USAGE OF SALES CANNELS IN GERMAN MAIL-ORDER

1-Channel-Customers2-Channel-Customers3-Channel-Customers

Classic mail-order **Total 48,1 (48,6)

Online ShoppingTotal 26,3 (15,4)

TV ShoppingTotal 6,3 (7,0)

in percent of total population in 2004 (in brackets 2002)*

3,8 (4,9) 14,0 (8,5)

1,1 (1,0)

1,0 (0,9)

10,2 (5,0)

29,3 (34,4)

0,4 (0,2)

* N=1000 (1004) representative German inhabitants > 14 years with telephone access** Catalogue, booklets

Source: DEUTSCHES VERSANDHANDELS-INSTITUT (2002, 2004) pg. 1-17.

• Classic mail-order continues to be the dominating sales channel with decreasing influence which is mainly driven by a strong decrease in 1-Channel-Customers (-5,1-pp.)

• Strong growth in Online Shopping (Total +10,9-pp.)

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Mail-order expertise area

SUITABILITY OF PRODUCT GROUPS FOR ELECTRONIC SHOPPING

4,0

3,5

3,4

3,4

3,3

3,2

3,0

2,9

2,8

2,6

2,6

2,3

1,9

1,4

Books/CDs/DVDs

Which product groups are suitable for distribution via Electronic Shopping (0= not suitable ; 4= very suitable)?

Telecommunication

Computer (HW/SW)

Photo

HIFI

Small Electronics

DIY

Apparel

Cosmetics

Pharmacy

White goods

Jewellery

Furniture

Food

Source: Company-Survey Marburg University.

3,9

3,5

3,3

2,5

2,3

2,6

1,6

2,1

3,5

3,0

3,0

2,4

2,5

2,0

1,7

1,4

2003 (N=55) 2000 (N=19) 1997 (N=21)

n.a. n.a.

n.a. n.a.

n.a. n.a.

n.a. n.a.

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EVALUATION OF ATTRACTIVENESS OF PRODUCT GROUPS

Comparability from customer's viewpoint

Challenges in distribution logistics

Key drivers

• Market price transparency • Observable quality

differences • Involvement in buying

process

• Time pressure for delivery

• Risk of theft and pilferage

• Volume/weight/ handling of products

Source: Marburg University.

Evaluation matrix

Co

mp

arab

lity

of

pro

du

ct g

rou

ps

Challenges in distribution logistics

low

high

high low

Competition area

Expertise in assortment

Expertise in logistics

Risky area

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AGENDA

• Industry background: B2C-Logistics most decisive competitive factor in German mail-order

• Flow systems model to describe and explain B2C-Logistics systems: Parallel network management necessary

• Empirical case studies in mail-order and parcel network industry validate qualitative model

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Holistic view of

B2C-Logistics

Text

FLOW SYSTEM MODEL TO DESCRIBE AND EXPLAIN B2C-LOGISTCS

Effectiveness Effectiveness and Efficiencyand Efficiency

Structure Structure dimensionsdimensions

Environmental Environmental conditionsconditions

DescriptionDescription

Inter-organisational description and explanation of organisations, systems, and processes

Analysis of process execution and systems regarding to input/output relations

Definition of environmental factors and external frame of B2C-Logistics

Source: GÖPFERT (2001b), pg. 60.

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ENVIRONMENTAL CONDITIONS OF B2C-LOGISTICS - OVERVIEW

Examples for influencing factors

Socio-economical development

Production technology

Political / legal factors

Impact on model parameters

Influence on stability and robustness of business models

Impact of innovations on efficiency/effectiveness, and stuctural dimensions

Basis of business models in mail-order, parcel network logistics and return management

• Regulatory-, price-, and investment policy

• Distance trade law• Contract law, corporate law

• Traffic infrastructure • Warehousing-technology• IT-systems (e.g. RFID)• Delivery technology ("Last

Mile")

• Customer characteristics• Cost of factor input • Market volume / growth• Development of population

1

2

3

Source: Marburg University

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STRUCTURAL DIMENSIONS OF B2C-LOGISTICS -GOALS AND CONNECTIONS

Goods networkCreation of customer value & ROIC

Institutional networkEnabling of (idiosyncratic) investments

Relationship networkCooperative decisions for cooperative production

Data networkTransparency for cooperative decisions and production

Source: OTTO (2002A), pg. 271.

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EFFECTIVENESS AND EFFICIENCY - APPROACH AND ANALYSES

Source: WISSEN (2003), Marburg University

Input network flow

Inhibiting factors inherent to the network

Output perfor-mance indicators

Material

Information

People and processes

Variability

Waste

Inflexibility

Quality

Cost

Service

ROIC (Return on Invested Capital)

The flow system model of B2C-Logistics is inhibited by variability,

waste, and inflexibility

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AGENDA

• Industry background: B2C-Logistics most decisive competitive factor in German mail-order

• Flow systems model to describe and explain B2C-Logistics systems: Parallel network management necessary

• Empirical case studies in mail-order and parcel network industry validate qualitative model

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GOOD FLOWS IN MAIL-ORDER

Source: GÖPFERT (2000B), pg. 118.

Sourcing/ Purchasing

Procure-ment/Import

Warehousing/Picking and Packing

ConditioningStorage/Further use

Distribution-logistics

Retro distribution-

logistics(Returns)

Classical retail businessB2C parcel network

Return management

Customer

1. 2.

3.

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CASE EXAMPLE LOGISTICS CENTRE OF MAJOR MAIL-ORDER COOPERATION

Case studies:- two major mail-order corporations

- one TV shopping retailer

Sourcing/ Purchasing

Procure-ment/Import

Warehousing/Picking and Packing

Classical retail business1.

Source: Marburg University

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CASE EXAMPLE B2C PARCEL NETWORK

Case studies:- German Post- Private parcel network

Distribution-logistics

Retro distribution-

logistics(Returns)

B2C parcel network

Customer

2.

Source: Marburg University

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CASE EXAMPLE RETURN MANAGEMENT AT MAJOR MAIL-ORDER COOPERATION

Case study- major mail-order cooperation

ConditioningStorage/Further use

Return management3.

Source: Marburg University

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Panta rhei - everything flows.(Heraklit)

References:

Deutsches Versandhandels-Institut (2002) Deutsches Versandhandels-Institut: Versandhandel,Emnid-Studie, FID Verlag, Frankfurt 2002.

Deutsches Versandhandels-Institut (2004) Deutsches Versandhandels-Institut: Versandhandel,Emnid-Studie, Bielefeld 2004.

Göpfert (2000B) Göpfert, I. : Entsorgungslogistik, in: Klaus, P./Krieger, W., Gabler Lexikon Logistik, 2., vollst. überarb. u. erw. Aufl., Wiesbaden 2000.

Göpfert (2001B) Göpfert, I. (Hrsg.): Logistik der Zukunft - Logistics for the Future, 3., akt. u. erw. Aufl., Wiesbaden 2001.

Hoffmann (2002) Hoffmann, D.: Versandhandel in Deutschland - eine Informationsschrift des Bundesverbands des deutschen Versandhandels, 5., erw., erg. u. akt. Aufl., Frankfurt 2002.

Otto (2002A) Otto, A.: Management und Controlling von Supply Chains, Wiesbaden 2002.

Wissen (2003) McK Wissen 2, Nr. 5, 2003.

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