How is E-Commerce driving Logistics 4.0? On March 8, 2019, the alumni gathering themed with “Logistics 4.0 – The Digital Transformation of the Supply Chain” was hosted by emlyon business school and co-hosted by EDHEC, ESCP, GCC, Science Po and AFEA (Afterwork of Franced Elite Alumni) in Campanile Hotel Jing’an, Shanghai.

In her welcome speech, Ms. Jessica Li, Senior Manager of Marketing and Communication of emlyon business school Asia, highlighted that emlyon business school Asia will organize offline alumni activities on a regularly basis to build an open platform and provide more cross-industry and cross-college exchange opportunities for alumni. Every event will focus on a topic inspired by the latest developments and trends in science and technology research and alumni are invited to share their opinions and discuss.This time, the two alumni Dominique Vinet (emlyon MBA, 2003), Managing Director of North/East China DSV Solutions, and Johannes Kern (emlyon European Triple Degree, 2013), Senior Research Associate from Tongji University, were invited to share trends and new directions in the logistics industry to the attending alumni from leading French universities.

E-fulfilment accelerates the fast growth of E-commerce market

Termed one of the most important inventions in the 21st century, E-commerce is indeed changing the consumer market and affects our daily life.

“China’s E-commerce industry definitely tops the world in terms of overall development and is still developing at a high speed”, said Dominique Vinet, a 2003 MBA graduate from emlyon business school who has worked in the logistics industry for over 15 years and witnessed the rapid development of E-commerce in China.

Dominique Vinet

MBA, 2003
Managing Director
North/East China DSV Solutions

As illustrated by Dominique, an example for this incredible development is Alibaba’s “FRESHIPPO”. With its mature Omni-channel retail approach it has become already the benchmark for “new retail”. According to Dominique, already over 50% of orders of FRESHIPPO are placed online which increases floor space efficiency by 300-500%. This might also be due to the guaranteed 30-minutes delivery service for customers within a 3 kilometer radius of the store.

“Increasingly popular Omni-channel retailers accelerate the development of the supply chain by raising new requirements and challenges for E-fulfilment.” Omni-channel creates supply complexity and poses challenges on systems and organization (Pressure on last mile delivery, complexity on returns, real time information to end customers and stores, high scalability and flexibility of warehousing operations)

Is Digitalization changing the whole market?

Of course, E-commerce could not develop without technological innovation and sophisticated E-fulfillment systems, the supply chain management processes behind the online web shop to ensure consumer orders are processed, products are delivered on time and that returned orders are managed efficiently.

Johannes Kern

European Triple Degree, 2013
Senior Research Associate
Tongji University

“E-commerce is just the tip of the iceberg of a supply chain. Underlying are lots of planning, sourcing, making and delivering processes” Johannes, another graduate from emlyon business school, stressed. “A simple example: flash memory chips of Huawei’s cell phones could be supplied by Samsung in South Korea. To bring them to Huawei in Shenzhen, a wide variety of logistics tasks from order-placing to packing, storing, transporting and tracking are needed. As a typical smartphone consists of more than 900 components delivered by suppliers from all around the world, a sophisticated coordination of the supply chain is needed.” Logistics 4.0 could help here to decrease costs, improve service levels and increase agility.

However, logistics digitalization and automation is happening much slower than one might expect. Dominique gave an example. Ten years ago, when he worked as Manager of Logistics Operations for an automotive carmaker, the whereabouts of missing parts were tracked through phone instead of IT systems. The shutdown of an automotive production line causes losses of RMB 7,000 every minute, so the visibility about missing components is crucial. But nevertheless, even today car manufacturers track and trace their missing parts mainly via telephone and not by geolocalisation system.

Why is the adoption of logistics 4.0 so slow?

While the focus of the "E-Commerce logistics system" is to be responsive and flexible, the focus of the "manufacturing logistics system" is to be productive and efficient (i.e. reduce costs). Therefore we can sometimes see overloaded trucks, dirty warehouses, lots of manual labor or insufficient packaging. Objectively, the overall state of digitalization in the supply chain is rather low.

According to a survey among 337 executives from some of the largest global manufacturing and retail organizations, only 15% agree that the majority of supply chain data is accessible in their organization and only 23% of those confirm that the majority of data is analyzed and used for decision making. Many large enterprises prefer that their logistics providers invest into Logistics automation and digitalization instead of themselves.

“Logistics providers have small profit margins which makes it impossible for them to invest into automated systems in big scale.” Dominique gave another example, the new model of “storage tower” has been applied by some warehouses in Shanghai, which not only saves space, but also improves the degree of automation. However, this alternative warehouse storage model requires a large capital investment and has an ROI of about 3-5 years. “ In the current market, some players improve their efficiency by using UAVs, visual glasses and other high-tech means, and some enterprises may apply this model just for an eye-touching marketing, so they may not apply it for all warehouse and logistics systems.”

As a matter of fact, the degree of automation of most traditional industries except the E-commerce and medical sectors is relatively low attributing to three factors. First, immature technologies. For example, endurance of UAV is still a great challenge.Second, suitable manufacturers. Most logistics companies only place their focus on a specific technology due to shortage of funds. Third, nature of the enterprise. E-commerce companies can quickly establish more advanced digital supply chain management, as their primary purpose is not to seek profits in early period of establishment in the eyes of their investors. The typical example is Amazon that just achieved profitability a few years ago. However, profitability is priority among priorities for traditional industries, so it is difficult for them to invest in large amount of funds for upgrading.

Dominque and Johannes believe that automation and digitalization will be the future, especially as government regulations, staff shortages and increasing complexity gain importance. Digitalization is not always a success and requires the right competencies, takes time and comes with a substantial price tag. It might not make commercial sense to have everything automated, so companies need to make smart decisions based on actual circumstances. However, as logistics is very complex, and digitalization can and will transform it, companies have to become disruptors, or they will be disrupted. The Chinese E-Commerce as worldwide benchmark leads the way!

——Jason Wang, emlyon iMBA, 2011
Saleen Auto Operation Manager

——Claire Chen, Sciences Po, 2014