Expert Column Shopping Festival of the Prepared, 'Logistics' that Maximizes Profit

From Singles Day in China (November 11th) to Black Friday and Cyber Monday in the US. November is the month when the largest scale of shopping festivals take place within the year one after another around the globe. The representative marketplace of each country such as Amazon of the US, Alibaba of China, and Shopee of Southeast Asia proceed with large-scale discount events in November, and sellers and consumers assemble who wish to experience the special demand of events.

According to the data from ‘Adobe Analytics’, a marketing data analysis solution, the scale of online sales in November last year including Thanksgiving and Black Friday reached 8.9 billion dollars (KRW 10.63 trillion following the exchange rate at that time). Even Alibaba created a transaction volume of the highest on record on the platform last year during the Singles Day event which was 540.3 billion Chinese yuan (KRW 99.907 trillion following the exchange rate at that time). Shopee, the biggest marketplace in Southeast Asia, sold 2 billion products during the total promotion period of 11.11 Big Sale last year.

In fact, sales of the sellers who already opened their stores in the marketplace skyrocketed from a few to as many as dozens of times during the shopping event period. This is the amount regular sellers felt on average, and the increase in the sales of top-selling brands actively supported by the marketplace is way greater. According to Shopee, sales of sellers who participated in the 11.11 Big Sale event for the first time increased 18-fold on average. Festival of the Prepared Not all e-commerce sellers fully enjoy the special demand of supersized shopping festivals. The orders of sellers during the event period shoot up as many as dozens of times depending on promotions and the large-scale influx of customers. Marketing for the inflow of more customers is of course important, but the preparation for ‘logistics’ to smoothly process the influx of orders is also as important as marketing. Sellers should predict the demand following large-sized events beforehand and prepare workers and means of transportation for the appropriate inventory and logistics.

If they do not prepare these in advance, they might encounter various problems. For example, if demand prediction fails, there could be excess inventory or shortage (out of stock) of products. Excess inventory decreases the inventory turnover ratio and causes costs following the disposal of products. Out of stock refers to the occurrence of ‘opportunity cost’ that rise when products are unsold during the event period. In addition, if workers of distribution centers and networks for means of transport are not well-prepared to process orders, the target delivery lead time to customers may crumble. The prolonged lead time is connected to customers’ complaints such as refunds and returns. These in turn may cause additional costs.

Especially, we have to take into consideration that global supply chain disruption became the daily routine after COVID-19. The situation of supply chain disruption became partially better starting from the second half of this year. However, disruptions in global affairs are continuing such as the conflict between labor and management in the US West Coast port and Russo-Ukrainian War. At this time, logistics is advancing in a shape that can quickly respond to new crises which can occur at any time by adopting digital technologies, etc. Global Sellers’ Operating Method of Logistics Global marketplace sellers are operating in two ways largely. First method is using B2C logistics which delivers products to local buyers from places where inventory is located such as Korea or overseas countries after local customers place orders. Because they need to satisfy each marketplace’s request for short delivery lead time, they generally use EMS(Express Mail Service) or express services such as DHL and FedEx.

Since the method of using B2C logistics utilizes the logistics network that already exists in each domestic country, overseas sales can be started with a relatively small asset investment. Moreover, additional profit can be gained following the refund if products are delivered cheaper than the standard price and are exempted from duty and VAT(Value-added Tax). However, due to the supply chain disruption which became the norm after COVID-19, there are limitations such as difficulty in controlling the delivery lead time and the burden of expenses following the increase of air freight rates.

Second is using the ‘fulfillment’ service offered by global marketplaces such as Amazon and Shopee. In this case, if a certain amount of inventory required by marketplaces are placed in the local fulfillment center at a specific point in time, all the logistics delivered to customers is done by the operator of the fulfillment service.

Fulfillment service is the method of global sellers making ‘fast logistics’ on the same level with local sellers. There is the disadvantage of difficulty in clearing dead inventory, but many global sellers judge that the increase of sales following the exposure to the platform offset this disadvantage. Because of this, most of the sellers with sales more than a certain amount use ‘fulfillment service’ provided by the local marketplace.

However, sellers have to consider the possibility of inventory shortage even in the local fulfillment center during the ‘event period’ when more orders are placed than usual. To minimize the sales loss following inventory replenishment of the fulfillment center during the event period, a strategy is also needed to place inventory for replenishment before consumers. Inventory can be replenished from Korea to the local area after an inventory shortage, but we recommend searching an operating company of local distribution center ahead of time considering the lead time and cost. Method of Predicting Demand ‘Demand prediction’ is necessary to operate by placing inventory beforehand. This is because sellers can prepare inventory based on how many goods will be sold and decide on finding local logistics networks to process inventory. Of course placing even poor-selling products beforehand only causes unnecessary costs. Therefore, ‘appropriate amount’ is essential, and the past sales data should be carefully analyzed to know the amount.

For instance, we would like to introduce a method of a seller who is targeting sales of KRW 20 billion on Amazon this year. While preparing for Black Friday, this seller categorized about 2,400 product SKUs (Stock Keeping Units) based on sales volume into 3 groups depending on sales.

The first group accounts for 1-2% of all products, which takes up 50% of total sales. Product inventory that fall into this group was pre-placed from last April to July by a 3PL (Third Party Logistics) company boldly contracted in the US. A large amount of inventory was arranged in the Amazon fulfillment center. However, considering the possibility that this may also be insufficient, the seller finished the preparation process for fast replenishment.

The second group refers to the products that belong to the bottom 20% based on product sales. These products were acknowledged as ‘out of stock’ that may traditionally occur during the event period. Practically, these products contribute less on the sales. Therefore, it is based on the fact that even when an out of stock occurs, the lost ‘opportunity cost’ during the replenishment period is not that high. Of course in this case, even when the inventory is not placed beforehand at the local area, the proportion of cost is minimized.

The last refers to the products that are in the ‘midpoint’ of sales. A lot of products that are growing, but are not guaranteed whether they will continuously be sold well in the future belong to this group. In the case of these products, demand for each product is predicted based on time series such as past sales, average sales, annual growth rate, and recent growth rate. Adding to this, the inventory is placed in the local area that could be cleared up within 120 days, the target inventory turnover period of the seller.

Nevertheless, the ‘prediction’ could of course be incorrect. This seller separately manages the inventory that is not depleted for more than 6 months as ‘dangerous inventory,’ and a discount promotion is done reducing the price almost to the level of the prime cost at the local area. This is because the cost lost for bringing the products back to Korea is bigger than having discounts at the site.

If an inventory is left even with this measure, the seller uses the Amazon Liquidation program at last. How expensive the product may be, it is sold at about 1 dollar, so the seller practically faces loss. Therefore, a strategy is necessary to quickly get rid of unsold inventory so that the seller does not have to use the program. Solution Found From ‘Digitalization’ Digitalization should be preceded for a more advanced demand prediction and logistics operation management. The supply chain is becoming more complex every single day and this is also applied to global sellers. In the past, ‘Amazon’ was the only one mentioned for global sales. However, nowadays, more and more companies are diversifying the sales network of products by being in various marketplaces around the globe such as Shopee, Alibaba, Wish, and Joom at the same time.

As demand areas are becoming diversified by nation, the supply network is starting to disperse by nation as well. To address November events occurring across the world at the same time, a logistics network should be prepared that can manage complex global multi-channels. As different bodies and diverse networks get involved in communication from B2C logistics to B2B2C, B2B, and local fulfillment, additional carrying may occur. At some point, the scope of work exceeds the level of manually using the existing excel.

For example, think about putting orders from different marketplaces such as Amazon from the US and Europe, Shopee from Southeast Asia, and Alibaba from China in an excel file manually, and transferring again to local 3PL companies. Consider a situation where excel work is required again for integration of inventory management because the WMS(Warehouse Management System) of each 3PL company is not connected to one another. People will definitely make mistakes while transferring the data manually, and the information in the system and that of the cargo will not match. Eventually, to integrate and manage the logistics network that is linked with orders from multiple global marketplaces, it is not a stretch to say adoption of digital logistics system is a must.

A mega-sized shopping festival of November is right around the corner. It is a precious opportunity for sellers who can increase their product sales and gather reviews. There is a common tendency where well-sold products during the event period continues to get sold even after the event period ends. High sales performance leads to high exposure on the platform.

However, successful sales during the shopping festival period is not just a matter of simple marketing. Data-based demand prediction and logistics optimization need to be supported. Furthermore, utilization of digital system should also be kept in mind for complex management of global logistics. The prepared sellers have already actively accepted and are using these.

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