Executive Summary – Innovations in E-Commerce
The Stanford Global Supply Chain Management Forum and
International Post Corporation
1 February 2011, Stanford University, Palo Alto, California
Executive Summary – Innovations in E-Commerce Roundtable
Stanford Global Supply Chain Management Forum
International Post Corporation
Introduction
On Tuesday 01 February 2011 the Stanford Graduate Business School‟s Global Supply Chain
Management Forum and International Post Corporation together hosted a senior-level roundtable in
Stanford University in Palo Alto, California.
The one-day roundtable brought together leading online, offline and cross-channel retailers including
eBay, Wal-Mart, Gap and Safeway, key figures in the e-commerce value chain from the IT, logistics,
and postal industries, as well as senior IPC executives and academics from the Stanford Global Supply
Chain Management Forum.
Speakers at the roundtable were: Mark Carges, Chief Technology Officer, eBay; Chris Curtin, Vice
President Digital Strategy, Corporate Marketing, Hewlett-Packard; Jane Dyer, Director Markets and
Communication, International Post Corporation; Hau L. Lee, Thoma Professor of Operations,
Information and Technology, Stanford University; Paul Vogel, President & Chief Marketing/Sales Officer,
United States Postal Service, and Jin Whang, Jagdeep and Roshni Singh Professor of Operations,
Information & Technology, Stanford University.
The roundtable ended with a panel discussion on the future development needs of the global supply
chain to meet emerging e-commerce needs, followed by a question-and-answer session. Moderated by
Shoshanah Cohen, Codirector GSCMF, Stanford University, the panel comprised Liam Casey, Chief
Executive Officer & Founder, PCH International; Randy Clark, Chief Executive Officer, Streamlite, Jin
Whang and Paul Vogel.
Executive Summary
The future of e-commerce and the logistics to support it will be driven by a number of key factors,
namely ongoing and ever-increasing convergence in technologies, and the continued drive to respond to
changing consumer demand.
While the demise of pure-player brick-and-mortar is not foreseen, roundtable participants did predict a
greater convergence of brick-and-mortar and online/mobile, going beyond evolutions in click-andmortars to the emergence of retail experiences that combine the physical and virtual aspects of
shopping seamlessly. Global social media platforms like Facebook and Twitter will increasingly act as
key drivers to e-commerce, and future growth will likely be predicated on the strong role of mobile
technologies that integrate a range of existing and new features that will lead to the ubiquity of hyperconnected, always-on consumers.
Meeting the demands of emergent consumer types will pose several challenges to the logistics of ecommerce. One of the core issues to emerge from discussions is consumer demand for perceived free
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delivery, predicted to remain prevalent. While there is of course no such thing as free delivery –
someone has to pay for it – figuring out how to provide what consumers perceive as free delivery is a
core challenge for all players along the e-commerce value chain. Consumers will evaluate the final cost
of goods purchased via e-commerce, delivery included, and will increasingly demand a global price for
any order delivery. Another issue for the delivery chain was the issue of goods delivery tracking by
consumers, or indeed proactive tracking pushed to the consumer, which again implies costs. Consensus
emerged that consumers would accept the lack of tracking services – and relatively slow delivery time of
7-10 days – for low-value purchases of less than say $10. Combined purchase value of above this level
would trigger consumer demand for tracking services.
The opportunities provided by cross-border are great, however again here certain friction points need to
be resolved in order to realise the full potential of cross-border e-commerce. Among these are landed
costs, returns and issues around companies‟ differential pricing across markets.
The key priority identified for the postal industry is the provision of cross border visibility and
standardized tracking events and bar-coding.
Another major discussion point to emerge was around the trust issue in e-commerce. Participants felt
that e-commerce is a self-regulating arena where consumers display relatively sophisticated
interactional behaviours: consumers will not engage in business with brands they do not implicitly trust.
A benefit-of-doubt factor is prevalent for first-time experiences, however if the e-commerce experience
does not fulfill consumer expectations, the retailers and/or channel may not be afforded a second
chance.
A further issue on the trust variable is that of the use of consumer details gleaned by e-commerce
players for promotional and marketing purposes. Most retailers offer consumer opt-outs, and while
opting out is generally not made as easy as it could be, it is not by consumers perceived to be a deal
breaker in the e-commerce. Millennials are far more trusting, who will spread trust to other generations
with time. However any perceived misuse of personal data will likely result in consumers blacklisting the
company, and to a receptive and wide audience thanks to social media.
Lastly there are fundamental changes taking place today in the world of e-commerce which will affect
the future of how people shop, these forces are identified as digital, social, mobile and local.
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Detailed Report
Introduction
Hau L. Lee, Thoma Professor of Operations, Information and Technology and Co-director, Stanford
Global Supply Chain Management Forum, Stanford University, opened proceedings by thanking
International Post Corporation for co-organising the event and welcoming the participants and speakers,
noting that the number of roundtable participants had been restricted in order to encourage deep
interaction and ensure the high quality of debate.
Lee presented opening thoughts on technological innovations in the global supply chain. New
technology, he said, can impact business in two ways: it can change the nature of a product through –
for example the transformation of greeting cards from physical to digital medium allows for
customisation, personalisation, and the addition of music, animation and other features; and it can also
lead to changes in process, as a result of which companies have to offer new services and business
models, leading to the servicization of business – of which Amazon is an example.
New business models lead to further process and product innovations, in a self-reinforcing cycle of
innovation. Lee then introduced the day‟s programme and speakers.
Key Research Findings and Initiatives to Promote E-commerce
Jane Dyer, Director Markets and Communication, International Post Corporation
IPC and USPS presented key findings from primary proprietary research into e-commerce, its value and
projected evolution, and the value chain. Jane Dyer (IPC) first presented the findings of International
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Post Corporation‟s research into the projected development of the postal industry and of e-commerce as
a sector, underscoring opportunities for growth.
In a world of declining letter volumes e-commerce is vitally important to IPC‟s 24 members that
collectively represent 80% of world mail volumes. IPC projected the future revenue of three business
units (letter mail, financial services and logistic services) of 12 IPC members, three non-member postal
operators and integrators USPS and FedEx on the basis of a 50% drop in letter volume and 10%
increase in diversification to provide a comparative analysis of the resultant marketplace. Such change
would mean that highly-diversified postal operator DeutschePost DHL would only lose 7% of total
revenue, but operators highly dependent on letter mail such as USPS would lose up to 40% of total
revenue in such a scenario. The postal industry is undergoing significant change, and e-commerce will
offer significant opportunities to posts that need to diversify.
At IPC‟s 2010 Annual Conference eBay CEO John Donahoe projected that online retail would grow
from its current of around 5% of total retail to about 20% by 2012.
In proprietary research carried out for IPC the Boston Consulting Group estimate a current global
parcels and express market of a value of some €133bn. Three major regions – North America, Europe
and Asia-Pacific – account for the majority of shipping volumes, which is growing due primarily to the
expansion of e-commerce growth, with particularly strong growth in the latter of the three.
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IPC research examines e-retailers and consumers‟ attitudes to cross-border e-commerce, focusing on
sectors where the postal sector is involved in the delivery of parcels across markets, and examines
consumers with internet access at home comparing the behaviour of those who buy domestically to
those who purchase cross-border. Comparing frequency of purchase with shopping behaviour we see
that consumers shop more and more online and those that shop cross-border are more experienced
shoppers and buy online more frequently.
Some of the major drivers for cross-border are related to price, exclusive products, wider range, and
convenience. Barriers to cross-border are mostly related to perceptions of no need as the same
products are available nationally, and there are also doubts about retailers consumers do not know, as
well as about costs and returns.
There has been a strong consolidation of purchase types in e-commerce, with the top four purchase
categories accounting for 60% of all products. A parallel concentration of e-commerce transactions in
more mature markets compared to less mature ones can also be noted: markets such as UK and
Germany account for more than twice of e-commerce transactional value of those of certain immature or
intermediate markets. This can in considerable part be ascribed to the more adventurous and higherspending behaviour of seasoned online consumers, reflecting a trend for consumers to start out with
low-value goods and then spend gradually more per purchase as well as shop online more frequently.
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Examining e-retailer business strategies reveals five scales of business types: Inert, Embryonics,
Emergers, Embracers and Exploiters. Postal operators see an opportunity to create value in helping
removing the pain points for SMEs and other would-be e-retailers to sell internationally, from embryonic
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up the scale to emergers, accompanying them as they become exploiters. Similarly, IPC foresees great
opportunities for confirmed e-retailers in the US to sell more broadly in international markets and a role
for USPS and other postal operators in helping them do so.
Return services are an important aspect of e-commerce. The level and quality of return services vary by
country, led in large part by consumer demand for such services. Germany is a key example of a market
where return rates are much greater than in others. Given their extensive network of retail assets and
last-mile operational network, postal operators are uniquely placed to deliver seamless returns solutions
for e-retailers.
Consumer demands for cross-border e-commerce are:
 Low shipping prices
 Provision of estimated delivery date
 All-inclusive pricing at the point of purchase
 Full integration of tracking data in the web portal of purchase
 Pro-active notification of delivery to the consumer
 Simple clear and speedy returns process
The main conclusion to emerge from IPC‟s research is that e-retailers do, are perceived to and need to
own the relationship with the consumer. The e-retailer can obtain from postal operators the necessary
information flows, competitive pricing and network capabilities as key service partners, but the consumer
will see the e-retailer and not the postal service provider as their interlocutor. Posts in turn need to
mitigate against the commodotisation of their services, and explore where they can add much more
value to e-retailers. To this end IPC has already begun working on a number of key areas with its
members in developing and delivering solutions that meet these needs of e-retailers, working together
with whom IPC looks forward to a bright future.
Initiatives to Promote E-commerce
Paul Vogel, President and Chief Marketing/Sales Officer, United States Postal Service
Paul Vogel presented a detailed look at the tactical side of e-commerce value chain and processes.
Vogel presented research work he had completed as an industry consultant that examined the shipping
part of e-commerce. E-commerce he noted has a very amorphous supply chain that gets into many
elements of business, but there is one very important part called shipping, with many challenges that go
along with the physical part of e-commerce. Vogel laid out some of the key challenges along each stage
of the e-commerce value chain.
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Marketing
Multi-marketing strategies are required to get consumers onto an e-commerce site, which needs to be
integrated, multichannel and multi-faceted, and built around consumer retention, with a focus on
returning consumers back to the site for repeat purchases.
Product Selection
Consumers spend a majority of their time on any e-commerce site on product selection, which leads one
to conclude that consumers are faced with too much choice when shopping online. Typically, too much
information available to consumers, and product selection variables are so great that most people have
a hard time choosing.
Ordering
The product-ordering process has at times proved challenging for consumers, but it is consistently and
constantly improving. The product ordering process can prove a challenging activity especially for those
in the shipping industry.
Pricing
Pricing needs to include total product cost, including shipping and product handling. Too often online
pricing mechanisms are too complicated, which frustrates consumers and leads to cart abandonment.
Payment
Payment is becoming a significant issue due to security processes that restrict fund transfer. It is true to
say that the whole payments process is becoming more complicated.
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Fulfilment
In terms of order fulfilment, the world of logistics is changing dramatically, with more warehousing and
fewer companies working under a specific brand, and many companies going offshore to complete
fulfilment.
Shipping
Is it the consumer, retailer or fulfilment company that determines the shipping? This question has not
been resolved yet, but whoever does fulfilment correctly usually determines the shipping. Shipping itself
is becoming a commodity; it is not the driver of the process but allows e-retailers to become competitive.
There is no such thing as free shipping, and so a challenge for e-retailers is how to present shipping as
free while still charging for it. As many e-commerce solutions are still not fully integrated, many eretailers cannot offer a seamless experience to consumers, who often themselves get redirected away
from the e-retailer site to the shipper‟s site for the completion of their transaction.
Returns
Unlike bricks-and-mortar shopping, in many e-commerce clothing shopping transactions, consumers
plan on returning a portion of almost every shipment – an estimate of some 50% of purchases are
returned. Only a few e-retailers have developed efficient returns solutions e.g. zappos.com, but none
has yet resolved the conundrum of how to offer seamless returns on an international level.
There exists a need to examine each individual step of the e-commerce value chain in order to innovate
and improve each, and thereby the whole value chain. There exists ample opportunity to build even
more sophisticated platforms, and some companies have figured out certain pieces of the value chain
better than other parts of it.
Some companies may offer a hassle-free purchasing experience but do not do multi-marketing well,
some lose visibility of the product when it goes into the fulfilment state, some players are local, national
and some international, but few, if any, have completed it all. Another major problem is that solution
providers with great ideas and stand-alone processes do not integrate along the value chain. All players
need to work towards a universal platform for e-commerce. If they did, the potential unleashed could be
enormous and would demonstrate that we have not yet witnessed even the beginning of the true ecommerce revolution.
Is service management best provided by a third party or by the e-retailer?
The e-retailer needs to own the value chain but often it does not possess sophisticated knowledge of the
entire chain. In terms of returns it frustrates me to see that a $20 t-shirt costs $20 to return it from
California to Maine. Why not establish a local deposit point where the consumer can get instant credit for
the returns, and the company does not face costs that are greater than the value of the product, which
also has a positive impact environmentally?
Do you have a vision of what the integration of functional pieces looks like?
The challenge is what one does first to build the platform. The returns service is a priority as no-one has
figured out the back-end, but they have the front-end. No-one can today do the whole thing from scratch.
It could be built in a 2-3 year time horizon but one would need to figure out what needs to be done first.
From USPS‟s perspective, returns are the priority.
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There is a generational distinction where Millennials trust everyone, x-gens trust no-one. You need to
build accordingly. A lot of consumers want to be able to touch and feel the retailer – and part of the
challenges for pure e-retailers and also for international e-commerce is missing that touch and feel. In
that case you need a trusted third party broker, whether eBay, shipping agent, or postal operator. If we
can co-brand activities, the more trust is put into the calculation. Trust is an absolute.
Why is so much of what is purchased online being returned?
Nobody knows exactly how much is being returned, but it‟s not the total shipment but part of it - buy
three shirts, return one. Returns are an integral part of the e-commerce process. We have to come up
with a much better system of returning people‟s payments, you cannot wait until the whole returns
process and warehousing is completed before reimbursing payments. People overbuy and therefore
returns and payment reimbursement are integral parts of the process.
The Future of Shopping is Now
Mark Carges, Chief Technology Officer & Senior Vice President, eBay
The changes we have witnessed in technology over the past two years are going to do more to radically
change e-commerce than what we had seen in the previous 15 years. Fundamentally, the e-commerce
business model has changed little over that time; however, key trends like mobile, local, social and
digital are driving tremendous change moving forward.
eBay is the world‟s largest online marketplace, with about 94 million active customers and 200 million
items available concurrently. There are approximately 25 million sellers around the world, many of whom
make a living from selling on eBay. Because eBay is a marketplace, not a retailer, inventory and
shipping are handled by individual sellers.
Of course, issues of returns and trust are of great interest to us and to our customers, and the key
priority identified for the postal industry is the provision of cross-border visibility and standardized
tracking and bar-coding. The company is now focusing on the management of its marketplace in order to
ensure that people coming onto the platform adhere to trust standards. eBay has also witnessed an
evolution in the type of purchases that take place on its platform. Although its origins are as an auction
site, auctions now represent the minority of total sales: today, 60% of sales are fixed-price purchases.
PayPal has 94 million active registered accounts around the world and is used in 190 markets using 24
currencies. It works with current global financial networks, and has industry-leading fraud detection
technology that has helped it grow into the world‟s leading online payment system.
Cross-border trade is a significant aspect of our business. eBay‟s core gross merchandise volume
(GMV) across borders was 19% for 2010 and PayPal‟s was 24% for 2010. About $62bn worth of
products sold on eBay in 2010. That‟s a lot of cross-border shipping activity!
eBay doesn‟t have warehouses and inventory, so offers a different model from that of Amazon and other
e-tailers. eBay sellers compete for buyers, and each one has a different strategy when it comes to crossborder trade. Some of the larger sellers in Asia are warehousing in the US so that the consumer thinks
they are buying domestically rather than cross-border. Is this truly cross-border e-commerce? From a
consumer‟s perspective perhaps not, but from the e-retailer‟s perspective it most definitely is.
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Buyers do not necessarily care where the goods come from – just that their standards are met. Sellers in
China exporting to the US understand this well. eBay has a whole team based in China that works with
sellers to help them meet consumer demands in quality standards. Expectations are different by region –
for example, providing a tracking number is important in the US, but not as important to customers in the
UK.
There are fundamental changes taking place today in the world of e-commerce, and eBay has identified
four forces that are driving this.
Digital
Content, like currency, is going digital. Over one billion downloads of iPhone applications have been
registered. Songs are being downloaded over the web, books are being digitized for e-readers and
tablets; videos are streamed in high-definition … these are just a few of the goods that are fast turning
digital.
Devices themselves are extremely important in enabling the consumption of digital content. eBay
participates in digital in some ways. For example, when a consumer buys a CD they own it and can
resell it, but not if they buy a digital album. This is challenging the marketplace model, and raises
interesting issues about digital ownership and transfer.
Social
Social networking is driving shopping behaviour. This is not about social marketing, but about how social
networks are facilitating consumer feedback, changing the way in which people shop. An example of this
is eBay‟s group gift solution, that allows consumers to interact online socially in the purchase of a group
present (www.groupgifts.eBay.com). PayPal makes it easy to transfer money and eBay has the largest
and most varied gift catalogue on the web. Combining the two through eBay Group Gifts allows us to
solve the problem of collaborative shopping for bigger-ticket gift items.
Another example of social commerce is the eBay Fashion Vault – where consumers use the „like‟
mechanism to share what they‟re browsing for on eBay. This kind of social activity, which includes
recommendations and user reviews, drive traffic to eBay and strongly influence purchasing. Sharing is
built into the eBay experience, regardless of the channel (iPad, mobile, or other devices).
Mobile
People clearly like to shop, and if you put that capability in people‟s hands they will shop constantly.
Currently some 60 million Americans access the web via mobile devices.
Over time we will no longer distinguish between laptops and phones; each will just be a different form of
access to the internet. Sites are recognising the importance of mobile by developing different versions of
their sites for specific mobile devices. The convergence of technologies will allow mobile commerce to
thrive.
Today, we‟ve started to build some of this technology into the eBay experience. For instance, frontfacing cameras are a key the augmented-reality feature of the eBay Fashion app for iPhone. Essentially,
this feature allows you to see how a pair of sunglasses being considered for purchase looks on your
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face. Also, we‟ve built in Red Laser technology into our core eBay app so that you can scan barcodes of
products to find the best deals online. Mobile is a huge opportunity for us – and we are the leader. We
went from $0 in mobile sales two years ago to $2bn in 2010.
Local
Geolocation is a standard mobile technology feature that is enabling local commerce as well. At eBay,
we intend to bring the world‟s offline inventory online. And we‟re going to do it through technology like
Milo, which we recently acquired. Here‟s a company that bridges online and offline by letting consumers
know through their phones what‟s available – real time – in local stores. As we integrate Milo into the
eBay experience, eBay customers can one day physically go to a store to purchase the goods, without
having to wait for them to be shipped. This is simply another choice consumers will have. Cross-channel
shopping, where online and local come together, is six times the volume of pure ecommerce … and the
lines will continue to blur.
Local C2C transactions – or online classifieds – are another area of interest: why limit oneself to a local
market when one can sell globally online? Selling a washing machine or couch will still be relevant for
the local market classifieds, but those selling mp3 players could have a much broader marketplace.
Selling is not a social activity for C2C sellers – they just want to sell something quickly and easily, not
necessarily socialize with people or even do much heavy lifting to sell their product. So the question for
us is how to overcome these barriers to open up the global marketplace to C2C sellers?
One way we‟re doing so is through eBay Instant Sale (www.ebay.com/instantsale), which brings tradeins to a whole new level. Anyone with a used smartphone, for example, can get an estimate for the value
of their used device, receive easy instructions from us about shipping the product, then has the money
deposited into their PayPal accounts after we‟ve verified the device. Afterward, the reverse-logistics
partner we work with lists the refurbished product for sale on eBay. That‟s simple selling.
These four major trends are all happening together and building off one another, presenting challenges
and very exciting opportunities.
What’s the feedback for the posts to support eBay’s business?
Friction reduction for the buyer at the right price; what the buyer wants is greater knowledge to choose.
A lot of e-retailers are not meeting consumer cross-border needs, especially consumer sellers, as they
cannot figure out customs requirements and other barriers. If the posts can resolve these challenges for
sellers, it would help unlock the cross-border market for eBay‟s consumer sellers.
Building a Global Omni-Channel Presence for Hewlett-Packard
Chris Curtin, Vice President, Digital Strategy, Corporate Marketing, Hewlett-Packard
Consumers expect fluidity across devices. Hewlett-Packard sells $2bn online, $80bn offline, and
integrates off and online channels. Hewlett-Packard is building out the digital network from A to Z. More
traffic is coming to the company via social media and online searches, so the company does not view
Facebook and such others as competitors but as partners.
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Personalisation
Hewlett-Packard wants to ensure that it operates intelligently throughout all of its channels. Technology
has to be informed by business rules. The ability to anticipate what the consumer needs and sell this
back to the consumer is what it calls intelligent marketing. Personalisation leads to 25% greater
conversion rates. HP identifies two forms of conversion: click-throughs, and shopping basket conversion.
With each click Hewlett-Packard understands more about consumers. Improving search functionalities
can double conversion rates. It is trying to better meet consumer search requests through
searchandising – understanding the generic request and proposing products and solutions that meet
those demands.
Searchandizing is done very well in the world of offline, with helpful shop assistants suggesting products
based on browsing interests. Conversely some of the worst retail experiences are when the suggestions
do not match the consumer‟s interests. In online searchandising, when the mouse hovers but doesn‟t
click, a pop up can be activated to propose information on specific products. Some consumers have an
instant message experience depending on the number of clicks/hovers over a specific item. It‟s about
reaching out to the consumer and meeting them halfway.
Hewlett-Packard identifies three elements in building a digital ecosystem – website, social and mobile,
ensuring seamless interoperability throughout. Hewlett-Packard can track, follow, and pursue its
consumers irrespective of how they enter the ecosystem.
Hewlett-Packard has been able to take the learnings from what it has done internationally to benefit their
business customers. It is more important to build relationships with its monthly 156 million visitors to
hp.com, than to grow that number. Hewlett-Packard has done deals with Facebook and other social
sites to encourage printing off the website. E-commerce is an HP business priority – most people visiting
the website are researching, browsing and doing comparative shopping. On average people visit four
times before buying. The customer lifecycle at HP is long and a lot of the interaction happens digitally.
Hewlett-Packard is partnering with companies such as ShopKick that send consumers premium
discounts for bricks-and-mortar retail outlets based on geolocation. Quick Response, or QR codes are
bringing the offline online, helping to inform consumers in real-time and feed through discounts. This
means that Hewlett-Packard owns the product information flow with consumers and is not reliant on the
reseller to represent its products. One of the biggest challenges about Hewlett-Packard‟s multi-presence
strategy is generating consistent, compelling content that‟s refreshed and updated constantly, especially
important as consumers are constantly connected via mobile.
The bigger companies get the more conservative they get, which is anathema to the digital world, which
is based on constant innovation, and companies like Hewlett-Packard need to continue to review and
iterate to stay relevant in the ever-evolving digital space. One cannot compete with the pace of change
in the digital marketplace as a technology company if blocked by old working models.
Winning the Last Mile
Jin Whang, Jagdeep and Roshni Singh Professor of Operations, Information & Technology.
Codirector, Stanford-National University of Singapore Executive Education Program in
International Management, Stanford University
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E-grocery operations have come and gone – WebVan, Kozmo, Streamline have all collapsed because of
the last mile. There are however success stories such as Amazon and Netflix, which have prospered on
the last mile. Amazon now believes that the last mile is its core asset and focuses on it.
Innovations in e-fulfilment include:
 Logistics postponement – postpone shipments using accurate information.
 Consolidated shipping and clearance – pushing goods near to customers so they can be
delivered at the last minute.
 Prepositioning – instead of maximised mileage (product manufactured in China, sold in the
US, bought online by a consumer in China and shipped back from the US, the product is
kept in China).
 Dematerialisation – providing virtual content instead of physical (music downloads,
streaming video, digital books, instead of CDs, DVDs, paperback). However only a limited
number of products can be dematerialised.
 Resource exchange – virtual resource sharing at multiple sites. Swapping supply side with
more locally-available alternatives. Interflora is a prime example of this. Physical flowers are
not sent from sender‟s location, but sent from the local florist‟s closest to the addressee.
 Leveraged shipments – using existing networks for shipments. Goods sourced from chain
store closest to the addressee. If goods are out of stock, supplies come from another
warehouse.
 Click and mortar – last mile pick-up by buyer at existing outlet points. Delivery to the nearest
agreed retail point (post office, 7-Eleven in Japan, etc).
 Kiosks for delivery pick up – do everything but the last mile.
Case Study: Yamato of Japan
Founded in 1919 in Tokyo, Yamato is the largest C2C service company in Japan with sales in 2010 of
$15bn, profits of $400 million and over 165,000 employees.
The Yamato philosophy is service first, profit next.
Yamato is the market leader in door-to-door delivery in Japan, with 39% of market share. However it
doesn‟t benchmark its service against other delivery companies, but rather opts for comparison to other
service industry companies such as Disney and the Imperial Hotel; companies that focus on service
satisfaction levels. Yamato ranks number eight overall in the Japanese service satisfaction ranking.
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Yamato Transport
Co.,Ltd
© 2010 Yamato Transport Co., Ltd. All rightｓ reserved
15
Yamato has created partnerships with 261,000 local dealers which enable the delivery network to place
a collection agent within just four minutes of a consumer anywhere in Japan. Each day Yamato delivers
3.8 million packages through this dedicated delivery network. Delivery agents are people that are known
in their local communities and as such the consumer believes they have a relationship with a “family
driver”. To arrange delivery after notification, the consumer will contact the “family driver” to specify the
designated delivery place and can choose from six delivery time windows every day, 365 days per year.
The delivery time slots available to the consumer are:
 Before noon
 12pm – 2
 2-4
 4-6
 6-8
 8-9pm
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Yamato Transport
Co.,Ltd
© 2010 Yamato Transport Co., Ltd. All rightｓ reserved
17
Innovations
Yamato has built up its market share and reputation on the back of its programme of innovations. In the
1980s the company introduced a ski service whereby customers could take their skis and equipment to
their neighbourhood Yamato office from where they would be transported to the mountains to await their
owner. This was extended in 1984 to a golf equipment delivery service. In 1988 the company introduced
a cool delivery service for perishable goods and frozen foods. In the 1990s customers were offered the
six time delivery slots per day option and the 365 day per year service. More recently the company
introduced an e-money service in 2007.
The CEO of Yamato was quoted as saying ”customer satisfaction leads to efficient operations, but not
vice versa”.
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Workshop 1
Transferring retail from Main Street to direct delivery to consumer households – when and how
fast and what can be done to accelerate this trend?
Drivers of offline and online
There won‟t be a pure transfer from offline to online, there will be some, but there will be a lot more
cross-channel, which is the fastest growing areas of e-commerce, according to the statistics. If the
challenge is to move people out of brick and mortars into e-commerce what is keeping people going to
the stores? Human shopping experience requires touching and feeling and responds to the immediate
gratification of walking out with something. A further question is whether there is a generational or
geographical aspect about the in-store experience. Does rural versus urban have an impact on the
proportion of online shopping? The concept of suburban shopping centres is not being replicated in
emerging economies where there the space for them is lacking.
For traditional retailers where only a small percentage of turnover in the US is from online, it is
acknowledged that future business will come from expanding global e-commerce operations. The
problem is the friction points including taxes, duties and returns. Retailers will be is interested in the
multichannel experience but may feel that there is a lot of experimentation and scepticism within the
market.
Do we see different categories moving online more than others? There is also the shopping experience
that people will want to have. Some of the business models are trying to address the trying-on of
clothes, but if you take the Apple store idea, it‟s about having the whole Apple experience. Collaborative
filtering marketing that drives more and more online, leading to smart marketing, moving beyond the
clunky „other people were interested in this‟.
Differential pricing
For the most part online divisions to not have flexibility in establishing pricing, but there is starting to be a
decoupling of on and offline pricing, with consumers comparing pricing online. In future online pricing will
lead offline pricing. Wal-Mart has one price per item online but each store can set its prices locally. Is the
online side going to be more reflective and flexible in pricing to the geographies and the local store
managers having big control over item pricing? Can online pricing be customised? An example is a
music-lover who may pay a premium for recommendations and value-added services instead of
commodity prices.
Home Depot asks for a ZIP code and prices differentially because of that. That could be about local
store pricing matching, but this could be a huge PR liability. This is an interesting evolution leading to
totally custom prices all the time. JustForYou provides more focused individual marketing – intuitively
looking at different shopping habits and matching pricing strategies accordingly – but again this is
admittedly open to PR issues. However the airline ticket model of dynamic pricing doesn‟t support the
idea that people will always buy at the lowest price. It‟s about the right price at the right time with the
right product features.
The cost of shipping
Is there a curve that suggests that if the consumer doesn‟t get something within a certain period of time
they abandon? Shipping fees are a matter of priority and urgency: people will be prepared to pay
premium shipping fees if they need goods urgently. The first thing that has happened is that there is no
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minimum purchase value for free shipping, leading to a situation where free shipping has become the
most important selling point psychologically for consumers. In addition, free delivery is a price
comparison variable compared to in-store shopping. Large-ticket purchases that include free shipping
and no sales tax will push increased e-commerce but governments will figure out way to claw back such
missed taxes.
Wal-Mart is looking to expand their physical retail outlets and would like to incorporate within them the
data that is available online to consumers such as product reviews. An example is having shopping lists
on line and collecting the goods in store. Wal-Mart aims to provide seamless customer experiences at
low price - it‟s the whole shopping experience, the after-sales experience that is important. Free shipping
is offered from site to store within 20 days and for large goods this can be advantageous. For example, a
store may have only one large plasma TV in stock, on which it offers a four-hour pick up and a 20 day
delivery service. Popular models of large screen TVs will be in the shops, but for consumers wanting to
buy online Wal-Mart will ship to a store for free delivery.
M-commerce
Japan and South Korea are two of the most interesting countries in terms of e- and m-commerce. In
Japan, NTT DoCoMo owns the relationship and is the fulfiller. That is a model that is going to spread,
where the mobile operator becomes the payments provider. Peer to peer payments via mobile telephony
in emerging economies like Kenya has leapfrogged traditional banking and the telcos are emerging as
finance service providers, which offers opportunity for mobile commerce. In China, China Mobile is
viewed as a lifestyle brand. Like PayPal, the telcos can offer the fabric overlying the current payment
structures.
E-commerce in China
E-commerce is a unique phenomenon in China and not quite what one would want to see. The
government has a large role – companies are often majority owned by the government or Chinese
agencies. Some Chinese companies are looking to import Western e-commerce models wholesale. Two
major problems affecting the growth of e-commerce in China are access to credit and logistics.
Workshop 2
Where is consumer technology headed and how will its adoption spur further e-commerce
growth?
Current trends
Is consumer behaviour driving technology or vice versa? We are going to see more books going online.
Companies need to invest in different aspects of the technology such as the delivery platform, have the
conversion from say a book to be able to deliver onto different tablets across the globe. The other issue
behind that is enabling the micro transaction for consumers to be able to pay for those books.
The trends identified today by eBay are, digital, social, mobile and local. Mobile is coming to the forefront
with Bluetooth connecting to the cash register and Milo Local connecting inventory to stores. It is about
making it easier for the consumer to purchase and reducing the abandonment rate – it‟s about the
software and the apps that will make it easier to drive the change.
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From a Wal-Mart perspective there are a lot of mobile applications and how to bring user information
about what other customers thought about a product – how do you bring the rich online innovations to
the customer when they‟re in the store; whether it‟s through a phone, technology in the shopping aisles
or through other technologies.
Electronic download is growing, players are recognising this as a direction and are racing to get there –
Amazon, eBay, and Staples are all entering the space. Staples have recognised that as much as they
have brick and mortar and they need to play in that market. Download is a viable area and Staples is
working hard to get their service offering up there. Many are worried about where brick and mortar is
going and also looking to expand in the digital arena.
Cost of rooftops, and kiosking
Rooftops are expensive so people are looking to shut down rooftops. The iPod vending machine is an
example of how to develop smaller rooftops. There is a lot of interest in the idea of kiosking products in
others‟ spaces or for example in the case of USPS having someone else use its space. This leads to a
very strategic decision as to which spaces you want to close and which you want to keep open and drive
traffic to. (Anything you can do at a post office in the US can be done online.
Technology will allow consumers to shop for the best deals – red laser will allow consumers to get the
best price in a five mile radius. There is going to be some pressure to say „I‟ll match that price‟ as
retailers want to shift the biggest amount of inventory possible, and this will put pressure on the bricksand-mortar. But will that push a move to models where price doesn‟t become the differentiating factor?
Supply-chain integration, track & trace
IPC recognises the need for a seamless integration of networks because consumers want to use the
posts as they have the last mile delivery and the retail network. Two of USPS‟s biggest customers are
FedEx and UPS. There is true integration of the delivery chain. Together the companies have developed
universal flexilables that can be read by each other. Consumers won‟t care about the integration until
they need to track and trace – the proliferation and integration of delivery suppliers would suggest the
need for the e-retailer to provide the tracking data. However there is currently consumer confusion due
to other elements of the value chain. A concrete example: a consumer buys from Amazon, the product is
sourced from Best Buy, and the consumer returns it because they think it‟s not the product they ordered.
The technology exists, but payment is tied to scanning, and there is a cost to track and trace that
everybody wants. People like the ability to track and trace, actually they want to be kept informed of
where it is. Managing delivery expectations is important.
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PrivacyResearch shows that Millennials want their information out there but want laws to protect them if
there is misuse so that they can be protected. This raises the issue of when is technology too intrusive?
Although companies are required to offer the means to unsubscribe, often a consumer has to do this for
each of division within a company. Technology allows us to be more open but it‟s changing and
information posted by individuals will remain out there forever.
Location
From a venture capital angle, one of the areas favoured is location based technologies that will drive
ecommerce. Algorithms will improve behavioural recommendations. There are more pre-loaded
applications to capture data that will link to Facebook – to link to the routes you take each day to work
and to make shopping/restaurant recommendations based on your journey.
Panel Discussion: Future Development Needs of the Global Supply Chain to Meet
E-commerce Demand
Moderator: Shoshanah Cohen, Codirector, GSCMF, Stanford University
Liam Casey, Chief Executive Officer & Founder, PCH International
Randy Clark, Chief Executive Officer, Streamlite
Paul Vogel, President & Chief Marketing/Sales Officer, United States Postal Service
Jin Whang, Jagdeep and Roshni Singh Professor of OIT, Stanford University
We discussed the potential of a supply chain network where information can be linked from
entity to entity to enable calculation of total landed cost. What do you see as the path forward to
make this happen?
Clark: Liam transmits to us information on what he wants to deliver, he puts our label on it, sends it to us
and we do the last mile.
Casey: The kick-starter was a massive overnight success on a global offering. A customer wanted a
one-priced door-to-door delivery. We were able to deliver 17,000 orders in one shipment from China to
the US through Streamlite. The end-to-end price is not necessarily the cheapest but that is fixed is
important. It‟s also important to understand who does customs clearance.
Vogel: Trust is a big part of it, not necessarily a technology element but a cultural part. Money is a
different issue, landed costs is one issue, delivery fees and costs of merchandise and the different
values attributed to merchandise. This is one of the biggest inhibitors to global e-commerce. I don‟t see
a solution to that yet but we need to find one.
Are we witnessing any innovations in product design to make it more appropriate for ecommerce?
Casey: In e-commerce there are two moments of truth – the checkout, and taking the product from the
box. We work hard with our clients to make both go well. We developed a solution called PFA,
Packaging for Airfreight, to design the optimal packaging. „Vanilla‟ products are „flavoured‟ at the last
minute and customised for the ultimate consumer experience. We send prototypes of pieces to ship so
that they can be shipped in classifications that are the most appropriate and least expensive.
Vogel: A unified standardised barcode would solve a lot of problems. Barcodes are the way to go.
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Consumers over-order, especially for apparel. Are we making it too easy?
Clark: It‟s good for business as we get those return shipments, so it‟s good for the revenue line. In most
shipments there is a return label however it is more expensive to ship the goods back to the sender. If
you make it too difficult, e-retailer revenue will decline. One of our largest verticals is pharmaceuticals,
where there are returns due to bad addresses. Returns in pharmaceuticals have to be destroyed. We
will however redirect as long as the product has not been opened and for one of our clients, which has
saved the client considerably in returns.
Whang: If the consumer knew the right size and the manufacturer makes it to the right specifications
then this would reduce over-ordering. It looks like no-one has come up with a way of doing this. Land‟s
End‟s return rate is 14%, way below the standard. They have three layers of information in their help
system if the customer asks about the product so the consumer has a maximum amount of information
before making purchases, which helps reduce the returns rate.
What do you say to the criticism that the postal service hasn’t been doing enough in e-commerce
and has just been focused on the last mile?
Vogel: Not just USPS but any postal operator in the world. For 200 years or so the postal service has
seen year-on-year growth and continued to grow until the most recent recession. The problem over the
past 30 years was that growth was outstripping capacity. Then the internet came along and cut $8m in
revenue in 2008 and again in 2009. What is it going take to get us back into the game to use that
infrastructure that we have? We have to use retail outlets or close them; the latter option is a politically
difficult position. Up until two years ago we didn‟t have the incentive or political support to change.
Are there a lot of companies in China doing what PCH does (manufacturing, packaging and
fulfilment)?
Casey: Yes on each individual business stream but we‟re unique in terms of integrating all three.
Do you see that we’re in a state of flux right now and what does the landscape look like ten years
down the road in the delivery side?
Vogel: The crystal ball isn‟t that clear but a competitive environment is a perfect place to be, as we see
in Japan where there are five or six delivery companies and a liberalised post. Similar in the US, the big
play is how to provide consumers with a level of service that they have never experienced before; the
world has changed, there was a time when everyone wanted everything overnight and were willing to
pay $30 a go to get it. That day‟s gone, and I don‟t see it coming back. Consumers want reliability,
services they can trust, track and trace, and delivery within a reasonable timeframe. FedEx and UPS do
most of USPS‟s air transportation, whereas USPS does most of their last-mile delivery – each player is
focusing on the part they‟re most effective at, and we need to look on working together in a socially
responsible manner, and you need some sanction of law to ensure that the consumers are given the
products they demand. I see it changing radically in the next ten years and becoming much more
socially responsible.
Clark: There is always going to be an end-delivery, people want things overnight but aren‟t going to pay
the premium. I see more and more slowing of products. I see the parcel business going through the roof
and USPS playing a much bigger role in the next ten years.
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With the cost of fuel going up, what happens?
Vogel: If oil goes to $200 a barrel, we start looking at alternative fuel vehicles much more intently.
Clark: On international you‟ll see delivery slowing and delivery transferring to ocean freight.
Casey: Where you manufacture will change depending on the cost of fuel.
Is free shipping here to stay and if so, does it change your relationship with the retailer?
Clark: Yes, it‟s here to stay. It‟s free to you, but the retailer does have to pay for it. It‟s free for the least
expensive mode so there‟s no choice. I think it will be built into the product in the future.
Vogel: Not sure if it‟s here to stay or just a fad. I like the idea of it because it makes cost comparison
much easier at time of selection. There is a downside to this, as averages have a tendency to help some
people and hurt others, so maybe I might want to take advantage of some of those other ways of picking
up goods.
Casey: It has to be there as an option but if you want it faster you pay for it.
What are the next big things in e-commerce, what are the next game-changing advances?
Whang: What lies ahead is beyond internet, mobile, the ubiquitous network. Full access. There are two
big camps, one idea is to have a tiny device we carry everywhere , the other model was for example why
bother to take your laptop because soon there will be little points everywhere. The basic destination is
ubiquity, irrespective of how we get there, but it‟s being fulfilled by mobile phones. Yamato is making the
best use of the idea of mobility – phones with apps allow greater flexibility and consumer choice, as well
as last-minute demands and real-time adjustments. Mobility is key, the internet alone is not sufficient.
Casey: E-commerce in China – it‟s taken off so fast in China this is the big gamechanger for businesses
in the US. E-commerce development is happening along the same lines as telephony in Eastern Europe,
leapfrogging the bricks and mortar network that isn‟t well developed. Another game-changer is when
companies like Facebook get into e-commerce.
Vogel: E-commerce is going to grow disproportionally as prosperity returns to the US and as consumer
power grows in China, India and emerging markets. To challenge the group, e-commerce will grow more
quickly if I can spend less than 80% of my time deciding on what I want to buy – product selection has
transferred the shopping frustration offline to online. We need to make product selection easier, less
time-consuming.
What are the predictions for logistics in delivery in China?
Casey: Many regional players, large investment in distribution centres, companies like TaoBao are
investing and infrastructure is developing rapidly. The biggest challenge is the number of large cities –
there are 200 cities with populations in excess of one million people.
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About the International Post Corporation
The International Post Corporation (IPC) is the cooperative association of 24 member postal operators in
Europe, North America and Asia-Pacific. IPC develops technology systems that bring transparency to
the mail processing system and delivery chain and drive improvements in the quality of mail services.
IPC engages in industry research, creates business intelligence for its members, and provides a range
of platforms for member CEOs and senior management to share best practices, discuss strategy and
engage with third-party thought-leaders from industry, think tanks and academia. IPC also manages the
system for incentive-based payments between postal operators. For more information on the
International Post Corporation visit www.ipc.be.
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