How Tech-Enabled Logistics Would be at Center of E-Commerce Growth

 

In a warehouse on the outskirts of Indonesia’s capital, supervisors at e-commerce company Lazada use bikes or electric scooters to zip around a floor the size of four soccer fields, where up to 3,000 staff pack and dispatch goods around the clock. The warehouse is one of five that Lazada has opened across Indonesia to cut costs and expand its reach in an archipelago whose 17,000 islands are sprinkled across an area bigger than the European Union.

 

Chinese tech firms, including Lazada’s top investor, Alibaba Group Holding, have poured at least $6 billion into nearly every aspect of Indonesian e-commerce.

 

Lazada uses Alibaba’s inventory management systems and has tied up with ride-hailing companies, often using their motorbikes to deliver goods in a country with creaking infrastructure and traffic-clogged cities.

 

The payoff could be huge. It is a market forecast to grow from about $7 billion last year to $63 billion by 2027, according to Morgan Stanley.

 

“Indonesia, both in terms of the customers and behavior, is a very unique challenge and we need to adapt,” Florian Holm, co-chief executive at Lazada Indonesia, told Reuters.

 

Alibaba doubled its investment in Lazada to $4 billion in April, underscoring its global ambition to secure a bigger share of the e-commerce market.

How to Overcome Logistics Hassles with Technology

Between the investment and the rewards, however, lie enormous complexities.

 

The World Bank has said logistical costs swallow up around a quarter of Indonesia’s gross domestic product, citing bottlenecks in supply chains, long dwelling times in ports and lengthy trade clearances.

 

Cloud-based route planning for vehicle movement, with live traffic analysis, building tight delivery schedules while using all available resources (vehicle capacity and delivery associate time) optimally for best results, is driving these businesses ahead. It is bridging the ambition and execution. LogiNext is a key player, renowned in North America, South and Southeast Asia for logistics and field workforce optimization using machine learning-backed algorithms and planning engines.

 

LogiNext also helps companies create efficient distribution networks balancing travel distances between hubs and customer locations with the cost of resource movement. Such optimization (and automated allocation of orders to the right delivery associates) leads to quicker turnaround times and higher order processes per day (at lower cost and delays).

 

Enterprises Partner with LogiNext

 

Lazada has opened warehouses in places like Balikpapan, on the coast of Borneo, to avoid hauling everything from Jakarta. Holm said that had in some cases reduced shipping costs by 90 percent.

 

Competitive pressure is growing. Another Chinese heavyweight, JD.com, arrived in Indonesia in 2016. And the U.S. giant Amazon, which opened a warehouse in Singapore last year, may be prepared to dip a toe into the Indonesian market soon.

 

Indonesia’s e-commerce sales are set to rise from 3 percent of retail activity now to 19 percent by 2027, Morgan Stanley estimates. The same report said there were 159 million smartphones in Indonesia at the end of 2016, a number that could rise to 275 million by 2021.

 

Indonesia’s young population and room for improvement in transportation and communications add to the prospects for growth, the bank said.

 

Caterine, a 30-year-old housewife who lives west of Jakarta, used to shop in conventional stores once a week, but after her baby was born six months ago, she has been shopping online two to three times a week for convenience.

 

“I prefer online shopping because it is quick. I can just click and click and the goods will arrive,” she said, adding she mostly used Shopee and Tokopedia for goods such as diapers and clothing.

 

Morgan Stanley said delivery times of all types across Indonesia are down to about 3 days from 10 days, while deliveries in big cities can take 24 hours or less.

 

While in urban areas delivery times have greatly improved, other parts of Indonesia’s e-commerce supply chain are still inefficient, said Willson Cuaca, co-founder of East Ventures, a tech investment fund.

 

“To send goods from point A to B, the logistics company needs at least two modes of transport,” he said, referring to the complications of operating across so many islands.

 

Amazon, by contrast, prefers to control its own supply chains from start to finish. But entering a market like Indonesia could require it to revisit that strategy.

 

Zhang Li, who heads JD.com’s Indonesian joint venture with Provident Capital JD.ID, was not overly concerned about competition from the likes of Amazon.

 

“E-commerce is a global and borderless business, so we have to prepare and do continuous improvement to make our customers happy,” Zhang said.

 

{Parts of the article previously published on Reuters}

 

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