China Will Struggle with E-Commerce Fulfillment

China’s rise in e-commerce is straining e-retailers’ distribution systems, according to Jim Tompkins, president & CEO of Tompkins International. In a Tompkins podcast pinpointing the hurdles for E-Commerce in China, he cites the numbers.

“In 2015, the world’s total e-commerce is expected to be $1.4 trillion; $380 billion will come from China, while only $260 billion will be from the U.S.,” he says.

Currently, about nine large online retailers in China are competing to maintain and grow their businesses. All offer the same low price but do not have distinct service differentiators, so they use delivery frequency as their competitive advantage. And with logistics in China extremely fragmented (the largest logistics provider has less than 1% of the market) e-retailers have been forced to develop their own distribution networks.

Generally, deliveries are made to small depots regularly throughout the day. “From the depot, the orders are taken by bicycle, motorcycle, three-wheeled cart, or whatever means are available for delivery to the customer,” says Jim Serstad, podcast guest speaker and principal of Tompkins International-Asia. “While these networks provide impressive delivery times measured in hours, much of the country is not serviced at all.”

With China looking at 200% growth of customer orders in the next couple of years, they will not be able to handle the throughput just by putting more operators in the warehouse.

“Adding more workers to the facility will be physically impossible. Meeting these growth challenges will require some major redesign that their home-grown warehouse management systems may not be able to accommodate,” adds Serstad.

Related Editorial:

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Labor Concerns, Sourcing Strategies Shifting

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