What the phenomenal success of Alibaba’s Singles’ Day can teach us about supply chain management efficiency

What the phenomenal success of Alibaba’s Singles’ Day can teach us about supply chain management efficiency

In e-commerce, minimising storage time and maximising labour usage helps companies save more money


Goods need to be moved quickly from warehouses to boost profits.
Photo: Reuters

This article was triggered by an incident on November 11, 2017. That day, known as the double 11 online festival, a sudden increase in online parcel postage created a major logistical headache for warehouses. Sales peaked at 168.2 billion yuan (HK$205 billion). Although China made huge global profits, the reputation and efficiency of its e-commerce were sacrificed.

It began when Manybo provided a discount of HK$8 on products delivered from its warehouses within 48 hours. This kind of deal is usually used to reduce inventory costs in a warehouse, when it is necessary to remove stocks as soon as possible.

However, the transport industry has been suffering from a shortage of labour. It is difficult for trucking companies to hire drivers within a short period of time and ensure that the goods are delivered on time. As such, the proper management of human resources is crucial in the logistics industry.

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In supply chain management in e-commerce, improved efficiency means bigger profits. This is evident when we look at how efficiency reduces the time spent in a particular place and how costs vary according to storage duration.

For example, supply chain typically involves: from supplier to manufacturer; to wholesaler; to retailer; and then to the customer. In e-commerce, the retail shops are online, which means all the products are stored in warehouses.

But labour and storage are expensive. So minimising storage time and maximising labour usage at each stage of the supply chain will create a greater financial return. This can be done by aggregating the demand and resources, i.e. grouping items together to avoid sporadic ordering. This is because the cost is normally divided into two parts: fixed and variable costs.

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For example, the cost of hiring a driver is a fixed cost, i.e. a one-time payment with no deduction if we increase utilisation; fuel, on the other hand, is a variable cost, i.e. it will be lower if we transport more goods at one time. Basically, the fixed cost is much higher than the variable cost for transportation. Therefore, it is essential to aggregate the demand for resources management for cutting transportation costs.

Economic resources are limited, particularly for storage. If the whole process is made faster, more products are processed, so the inventory costs will be reduced. But we need to consider the capacity of the transportation equipment. So it comes to a trade-off between these two factors. It is all about management decisions to avoid wasting limited resources.

In conclusion, efficiency in supply chain management can reduce the usage and storage of resources. Money is saved by sharing the cost with a greater quantity of goods.

Edited by M. J. Premaratne

This article appeared in the Young Post print edition as
Improved efficiency means bigger profits


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