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368 11 Electronic Commerce Payment Systems and Order Fulfillment

Integrated Global Logistics Program ducers and sold online in one electronic marketplace. For
sources on intelligent factories and mass customization, see
An increase in global trading created a need for an effective the International Journal of Mass Customization and Smart
global logistics system. Order fulfillment problems described Factory KL (smartfactory.eu).
earlier tend to be even larger in longer supply chains that
cross country borders. The number of partners in such situa-
tions is usually larger than in domestic logistics (e.g., customs Handling Returns (Reverse Logistics)
brokers, global carriers), and so is the need for coordination,
communication, and collaboration. Furthermore, such sys- Allowing for the return of defective or unsatisfactory mer-
tems require a high level of security, especially when the chandise and providing for product exchanges or refunds
Internet is the centric technology platform. Integrating sepa- are necessary to maintaining customers’ trust and loyalty.
rate segments of the supply chain can be very beneficial for Some time ago, it was found that the absence of a good
minimizing problems in long global chains. return mechanism was the number two reason for shopper
reluctance to buy online. A good return policy is a must
in EC.
Order Fulfillment in Make-to- Order (MTO) Dealing with returns is a major logistics problem for EC
and Mass Customization merchants. Several options for handling returns are:

As you may recall from Chapter 1, one of the advantages of
EC is the ability to easily customize products and personal-
ize services. Although taking customized orders is easily • Return the item to the place of purchase. This is
done online, the fulfillment of such orders may not be sim- easy to do with a purchase from a brick-and-mortar
ple. Mass production enabled companies to reduce the price store, but not a virtual one. To return a product to a
per unit. Customization is usually expensive, since each item virtual store, a customer needs to get authorization,
must be handled separately. Customization also requires pack everything up, pay to ship it back, insure it,
time, especially for large products like cars. However, con- and wait up to two billing cycles for a credit to show
sumers usually want customized products to be delivered in up on his or her credit card statement. The buyer is
a timely fashion at price points that are not much higher than not happy and neither is the seller, who must
those of a similar product that is mass produced. So, the unpack, check the paperwork, and resell the item,
question is: how does a supplier, manufacturer or retailer do usually at a loss. This solution is workable only if
this at a reasonable cost to themselves and in a reasonable the number of returns is small or the merchandise is
time for their customers? expensive (e.g., Blue Nile). Some vendors (e.g.,
Dell was a pioneer in providing customized products to Amazon.com) enable customers to print prepaid
end consumers in a timely and cost-effective fashion. They UPS or USPS shipping labels that make returns
were able to do this using mass produced components that easier for the customers.
were assembled to meet the customized orders of their cus- • Separate the logistics of returns from the logis-
tomers. This approach has been adopted by many other man- tics of delivery. With this option, returns are shipped
ufacturers. Most customized cars, shoes, toys, textbooks, and to an independent returns unit and are handled sepa-
wedding rings are made this way. Of course, when you talk rately. This solution may be more efficient from the
about millions of computers at Dell, the supply chain, the seller’s point of view, but it does not ease the return
logistics, and the delivery of components were critical to its process for the buyer.
success and survival. For a detailed description of Dell’s • Completely outsource returns. Several outsourc-
MTO system, see Online File W11.2. ers, including UPS and FedEx, provide logistics
With MTO you also need to closely collaborate with your services for returns. The services deal not only with
suppliers. In addition, you need to have flexible production delivery and returns but also with the entire logis-
lines where changes are made quickly and inexpensively tics process. FedEx, for example, offers several
(e.g., painting cars at Toyota), and you need tools that enable options for returning goods.
quick and not-so-expensive changes (usually driven by com- • Allow the customer to physically drop the returned
puterized systems). This is usually a part of an intelligent item at a collection station or at a physical store
factory or production line like those at Siemans AG, IBM, of the same vendor. Offer customers locations
and General Electric. It’s also like the distributed mass cus- (such as a convenience store or the UPS Store) where
tomization approach used at Etsy (etsy.com). Etsy is an they can drop off returns. In Asia and Australia,
online market for goods that are custom made by small pro-