Warning: Don't snub logistics - Brief Article

Business Asia, Dec 13, 1999

Companies wanting a slice of the ballooning electronic commerce market cannot ignore logistics, according to industry giant United Parcel Service.

Ross McCullogh, UPS e-commerce vice-president, told the Internet World Asia@Hong Kong '99 conference recently that many new companies failed to take into account how to move goods to customers.

"Every single day we move 12.4 million packages, and inside those packages are the commerce transactions, many of which occurred across the web ... Every day we link 1.6 million people selling something to seven million people buying something," McCullogh said.

Over the past four years, he had read around 1000 business plans from companies planning to launch new businesses, of which more than 95 per cent failed to consider logistics.

Many businesses also failed to take into account issues such as taking and processing customer orders.

"The bottom line is you cannot separate e-commerce from the logistics/supply chain. They are two sides of the same coin," McCullough added.

Companies hoping to cash in on the e-commerce boom had to understand how to minimise their inventories and how to track orders to ensure they had complete control of their supply chain.

McCullogh said companies could do worse than emulate Dell Computer Corp's model. Dell had tight relationships with suppliers, was good at marketing on the web and had created a new business model.

McCullogh said Dell had also tackled the inventory problem, slashing its inventory to just eight days, compared with an average of 26 for its competitors.

"Right now sitting around the globe is a bunch of inventory (worth an estimated) US$1 trillion -- US$1 trillion of boxes of stuff is just sitting around a warehouse somewhere," he said.

That inventory represented about 60 per cent of the average company's working capital, forcing its prices higher.