The Logistics Model of SooBest

Aug 19, 2012 (09:08 AM EDT)

GUANGZHOU, China, Aug. 19, 2012 /PRNewswire-Asia/ -- As the cornerstone and assurance of e-commerce, logistics is in turn modernized by e-commerce with its technologies enhanced. Therefore we have seen the quiet emergence of professional logistics industry, which plays an important role in e-commerce. B2C e-commerce requires a logistic system that is capable of distribution to wide scattered customers, which will bring higher set-up and management costs of the distribution center, as well as some other costs. For example, the costs of returning or repairing of unqualified products, the duplicated packaging costs etc.

Currently, SooBest has got two logistics models according to its logistics system and business mode:

1. Self-logistics Model

SooBest has been in operation for many years within China, with their own distribution channels all set up, which means self-logistics and distribution system has more cost advantages. First of all, fewer funds are taken up. The self-logistics system can enhance the liquidity and reduce the cost of capital. If the outsourced third party logistics companies fails to complete the checkout that day, the funds occupied will bring a great deal of pressure. Secondly, the logistics costs become more controllable. For example, the deliveryman will be trained to know more about the products, and thus will be able to do not only deliveries, but also cover some simple product introductions, and distribute the latest product catalogs, and even help customers to install the products. And the third advantage will be that the costs are reduced. Self-logistics system can help effectively establish a brand, by uniforms, the specification of language, the improvement of efficiency and user experience, reduction in the time needed, and the diminution in the returns caused by logistics services.

2. Third-party Logistics Model

Generally speaking, most B2C businesses are run in small scales, with limited economic strength, and thus not able to build a self-logistics system. Besides, usually dealing with small and scattered markets, these B2C enterprises can hardly bear the generally high costs of self-distribution. It is difficult even to those B2C companies who already own a self-logistics system. When their business involves a larger area, working with a third-party logistics company will be necessary, due to the following cost advantages:

First, storage costs are decreased. The cooperation with a third-party logistics entity enables the B2C enterprise to minimize inventory and even achieve zero inventory, and meanwhile ensures the security of supply. Thus the storage costs will be reduced.

Second, it leads to economies of scale and economies of scope. As a professional social logistics organization, the third-party logistics company has a highly systematic, integrated and informatized management system, the strong ability to gather and accumulate its own capital, a huge logistics network, which results in strong economies of scale, and cut the costs on services.

Third, transaction costs are reduced. Many B2C businesses work with more than one logistics service providers. Yet, with the expansion of the scale of logistics required, the transmission of messages and the coordination among members within that logistics system become more difficult, which means higher inter-firm transaction costs. By cooperating with third-party logistics companies, the enterprises don't need to face a one-to-many relationship with their customers, but simply deal with a one-to-one relationship with the third-party logistics company. The transaction costs will thereby be reduced.

From the analysis of the logistics models above, we now know how to make the choice:

(1)    If the enterprise is not able to build its self-logistics system, and meanwhile weak in bargaining with third-party logistics companies, it should consider establishing a union with many other B2C enterprises to cooperate with one third-party logistics company at more favorable prices. Also, with the help of the ERP system, these allied B2C enterprises can share the rent of warehouses provided by the logistics company, thus to reduce logistics costs and warehousing costs. Currently, SooBest has been working well with many domestic manufacturers, which guarantees a complete product supply chain. The categories include wedding dresses, evening party dresses, women's sexy clothing, charm jewelry, chic watches, and electronic products, etc. Furthermore, by the end of the year 2012, SooBest will have set up branches in New York, London, and Hong Kong, respectively for warehousing, logistics, and e-marketing. And the priority will be given to logistics.

(2)    When the B2C enterprises develop to a certain scale, a self-logistics system can be established based on the demand for cost control and the enhancement of customer satisfaction. And the model of "self-logistics plus third-party logistics" can be possible. In this case, the self-logistics is responsible for distributions to First-tier cities; and the third-party logistics for second-tier and third-tier cities, and EMS responsible for all places beside areas mentioned above. The enterprises can also use their own logistics system to assume the logistics and distribution business of other companies, thereby making use of the idle resources to get the benefits of a distribution network and achieve low-cost and efficient distributions.

However, as for cooperating with third-party logistics companies, the enterprise should build a long-term strategic partnership with professional logistics companies, on the basis of economical viability. Efforts should be put in strengthening inventory control, tracking goods in transit, and integrating sales information, services, and the information system. Then a higher level of sharing of business flow and logistics information can be accomplished. In addition, a performance evaluation system should be set up for the third-party logistics, to enhance quality of service.