Creating Value to support e-commerce

growth in Asia
Dr. Albert Tan, CFPIM

MIT SCALES Network

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MIT Malaysia SCM
MISI - Objectives

MIT Global SCALE Network

• Deliver Supply Chain Graduate and Executive
Education Programs

• Conduct applied research that meets the

highest international standards of academic
rigor

• Actively engage industry in creating and

disseminating cutting edge supply chain
knowledge
 Agenda
• Supply Chain Trends
• E-commerce Growth and Trends
• Designing Fulfillment Center to support e-
commerce

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 Supply Chain Trends

1. Densification of Products
2. Diversification of Channels
3. Decentralization of Production
4. Digitization of Products

Based on research by MIT Center for Transportation and

Logistics

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 Trend #1 - Densification of Products
Anything that leads to smaller size product with equal or
higher value - miniaturization

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Trend #2 - Diversification of Channels

8x 1.5x
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Trend #2 - Diversification of Channels

Omni channels for customers to View, Order, Receive, & Pay

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Trend #3 - Decentralization of Production

Kiva Systems Baxter – Rethink Robots

Trend # 4 - Digitization of Products

1999-2009 – further 80% reduction in ton-miles

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 Key points in Supply Chain Trends
• Dominant designs exist for products & services - Ripe for
disruptions
• Potential technologies to support the disruptions. . .
– Densification of Products – Technology for Packaging design
– Diversification of Channels – e-commerce platform
– Decentralization of Production – Workflow integration with ERP
– Digitization of Products – e-commerce platform

The most disruptive trend is anything that moves

manufacturing closer to consumers

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 Growth of e-commerce in Asia
According to the World Bank, Asia Pacific will continue
to account for one-third of global growth, twice the
combined contribution of all other developing regions.

Growth in new market - Cosmetic in Korea, Baby products in China,

Transport services (Uber & Grab)
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A White paper by Mastercard Asia Pacific, 2015
 Global e-commerce Trends
• Internationalization
– Growth in new market
• Rise of e-commerce IPO
– Alibaba, Zalando, etc
• The need for Omni-channel
– Amazon setup a physical bookstore in Purdue
university
– Zalora setup its first store in a mall in Singapore
The 2015 Global Retail e-commerce Index by AT Kearney 13
 Problem with Omni-channel
• “You’ve got to make a concerted effort to make sure
that people fulfilling orders for customers online aren’t
disrupting the shopping experience for people that are
in the store to buy organically.”

The 2015 CSCO Report 14

Different Supply Chain Network

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 Traditional Versus E-commerce
Logistics activity Traditional Logistics E-logistics
Orders Predictable Variable/fluctuating
Order cycle time Weekly Daily, Hourly
Customer Strategic (B2B) Broader base (B2C)
Customer Service Reactive, rigid Responsive, flexible
Replenishment Scheduled Real-time
Distribution model Supply-driven (push) Demand-driven (pull)
Demand Stable, more consistent More cyclical (or seasonal)
Shipment type Bulk Smaller shipments
Destinations Concentrated More widespread
Warehouse configuration Weekly or monthly Continuously changing

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 How to design a Fulfillment Centre to
support e-commerce businesses?
Key considerations • 10 % of operating
• Small parcels Receive cost
• Few Order lines
• Picking takes the Put-away
• 15% of operating cost
longest time
• Fast respond and Store
• Non-value added
frequent delivery
expected • 55% of operating cost
• Cater for Reverse
Pick

Logistics
Pack, Ship
• 20% of operating cost
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 Fulfillment process and the associated
material flow
Replenishment Replenishment

Broken
Case
Case
Reserve Storage Picking
Picking
and
Pallet Picking

Accumulation, Sortation & Packing

Direct Direct
putaway putaway
to reserve to primary

Receiving Shipping
Cross-docking
Layout for Fulfillment center

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Can you justify using Kiva Systems where
labor costs is low in Asia?

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Major decisions for Designing Fulfillment
Center
• Organization of the material flow
– Unit Loads
– Establishment of a sorting and packing area
• items to be included in the sorting and packing area
• sizing of the sorting and packing area
– Zoning, Time Windows and Pick Waves
• Equipment selection and its sizing
– storage modes
– order picking and material handling equipment
– Warehouse management system and automatic
identification and communication equipment
• Layout: Allocation of Storage Capacity
• Personnel skills and sizing
 Lessons from Amazon
Amazon teaches us that a company can’t afford to
sentimentalize the icons of its past: it needs to be
disciplined about challenging and breaking its
existing business models.

From “Sell all, carry few” to “Sell all, carry more” by

building more warehouses.

Today “Sell all, automate more” using KIVA system

Harvard Business Review, November 2013

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 Dr. Albert Tan
atan@misi.edu.my
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