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Winning the Last Mile of E-Commerce

Which e-businesses will prevail? New research on e-fulfillment may hold the key. After all, getting a customer’s online order is not enough: E-businesses also must show that they can deliver products quickly and efficiently. Hau L. Lee and Seungjin Whang, professors of operations, information and technology at Stanford University’s Graduate School of Business, have studied a few successful online companies and their innovative ways of applying order-fulfillment strategies. Although the principles are not new, Internet technologies enable them to be applied in new and expanded ways.

The two core concepts for improving e-fulfillment efficiency are making more use of information flows instead of physical product flows and capitalizing on existing pipelines and infrastructures. Those concepts underlie five key e-fulfillment strategies: logistics postponement, dematerialization, resource exchange, leveraged shipments and clicks-and-mortar. Whether the strategy expands on time-tested models or is a breakthrough, the trick is to determine the best one for a given situation.

A computer company might use logistics postponement. By capturing more-accurate information, it could assemble final goods on demand and thereby save money by postponing delivery decisions until after receiving the final word on what the customer wants. Other companies might use dematerialization, converting physical products into information flows, just as a music CD can be converted to MP3 format or substitutes digital flows for paper greeting cards sent by regular mail.

With resource exchange, an e-company that needs to move a load from Hong Kong to San Francisco might borrow a ship from another company that needs a cost-effective way to return its empty vessel to California. Webvan uses the leveraged-shipment strategy, making the most of existing networks. With its clicks-and-mortar model, CVS covers the last mile by having customers pick up their online orders. Some online purchasers in Japan do the same: utilizes the ubiquitous 7-Eleven stores to enable a group of Japanese companies to do bulk deliveries.

Pointing out ways that companies are extending e-fulfillment value beyond cost containment, the authors also demonstrate how secondary opportunities are taking companies beyond the last mile.

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