A matter of maturity

Companies continue to focus on electronic commerce as an important avenue for increased revenue and growth. As a result, enterprises are examining methods to increase online sales—for example, by pushing a broader array of products into a wider geographic footprint. Additionally, they are going to market through an increasingly complex network of e-commerce partnerships and channels (such as mobile and social commerce), which require a great deal of integration and coordination.

To succeed in this growing and complex environment, supply chain organizations face challenges in building the back-end capabilities required to support their companies' e-commerce strategies. While the e-commerce logistical challenges that each company faces are unique, there are several prevalent trends that are influencing today's supply chain organizations. These include:

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[Figure 1] The four stages of e-commerce maturity Enlarge this image

• Expansion into products that require special handling or packaging (for example, perishables)
• Expansion into global markets that have less mature logistics services
• Rising fuel and transportation costs, which are driving companies toward more regional supply chains
• Customers' desire for free services (such as shipping), which require an investment without any associated revenue
• Customers' desire for shipment-tracking information and accurate transit-time information that is "pushed" to them through various devices

Some of the current e-commerce capabilities that supply chain organizations are developing or leveraging in response to these trends include: expanded distribution facilities that support both online and in-store needs, outsourced facilities in markets where carriers and service providers can offer lower costs, and partnerships with parcel carriers that leverage postal networks for last-mile delivery at a reduced cost.

To meet evolving customer needs, companies are also building interfaces with their customers that provide visibility to orders, the ability to route orders for delivery either to stores or to homes, and tracking systems to monitor order delivery.

To further expand their offerings internationally, they are using shipping, brokerage, and customs management capabilities offered by carriers, customs brokers, and other supply chain partners. In these situations, the carrier supports bulk shipment from the domestic market and disbursement of parcels in the international markets (along with associated customs brokerage and related services). This allows companies to serve international markets where they do not currently have a distribution or fulfillment infrastructure.

What's your maturity level?
Before they can consider what capabilities to deploy, companies must first define the "maturity level" of their e-commerce organization. This maturity level—typically defined by their desired geographic reach and their willingness to invest in e-commerce assets, as well as by customer demands—determines the capabilities required to meet their e-commerce needs. By aligning their supply chain capabilities with these factors, they can maximize return on investment as they grow their online presence.

In working with online retailers, we have noticed four stages of maturity (see Figure 1) that most organizations move through. These include:

Initiation: This is the stage for companies that are just launching their e-commerce services and capabilities. This typically should be done through a limited product offering in a regional or domestic market. This offering is supported through a patchwork of existing distribution facilities and partnerships (for example, with warehouses or third-party logistics service providers). At this stage, the company makes limited or no investment in dedicated e-commerce infrastructure.

Product expansion: In the next stage, companies leverage existing capabilities and assets to offer a larger product portfolio to existing markets. This is accomplished through the use of dedicated e-commerce distribution assets as part of a greater investment in facilities. Companies may, for example, use dedicated e-commerce warehouses or retail-focused racking and picking solutions. At this point, they also begin to increase their focus on developing interfaces and capabilities that provide customers with order visibility, tracking, and the ability to select store or home delivery.

Market expansion: At this level, companies launch a limited product portfolio in a small number of international markets. To accomplish this, they use alternative solutions, such as bulk shipping through carriers that allow them to make shipments and accept international payment methods without having to develop their own distribution assets or capabilities.

Globalization: For the final stage, companies need to establish a global e-commerce platform and distribution assets that support their requirements worldwide. These assets can be regionally centralized (for example, one distribution facility for the European Union) or country-specific (which is sometimes necessary in regions such as Asia). Facilities may be owned or outsourced.

By identifying their companies' current level of organizational maturity, along with their near-term and long-term e-commerce goals, supply chain organizations will be able to establish the infrastructure and capabilities required to support growth and ensure the greatest return on their investments. Companies that do not align their goals with their maturity level risk overinvesting in e-commerce assets as well as failing to realize the return necessary to maintain their initiatives' momentum. Others may overextend their international growth expectations without establishing the facilities and partnerships required for success.