FOREIN TRADE UNIVERSITY SCHOOL OF ECONOMICS AND INTERNATIONAL BUSINESS GROUP ASSIGNMENT ANALYSIS RISK MANAGEMENT OF SHOPEE LOGISTICS ACTIVITIES Instructor Dr Hoang Thi Doan Trang Subject Risk mana.INTRODUCTION 3 Chapter I: Theorical basis about risk management 4 1. Theoretical basis about risk 4 1.1. Definition 4 1.2. Risks in logistics activities 4 2. Theoretical basis about risk management 5 2.1 Definition: 5 2.2 Content of risk management. 6 2.3 The role of risk management in logistics activities 6 Chapter II: Overview and Actual situation of risks in Shopees logistics activities 8 1. Overview about Shopee 8 1.1. History and development 8 1.2. Business model 8 1.3. Logistics activities in Vietnam 10 2. Reality of risk in Shopee logistics activities 11 2.1 Risk of order processing 11 2.2 Risks during storage 13 2.3 Risks during transportation 15 Chapter III: Risk management solutions in Shopees logistics activities 17 1. Risk measurement 17 2. Risk control 19 2.1 Risk control in order processing 19 2.2 Risk control in inventory control. 20 2.3 Risk control in Transportation. 21 3. Risk financing 21 4. Evaluation (SWOT) 21 5. Recommendation 23 CONCLUSION 25 REFERENCE 26
FOREIN TRADE UNIVERSITY SCHOOL OF ECONOMICS AND INTERNATIONAL BUSINESS *** - GROUP ASSIGNMENT ANALYSIS RISK MANAGEMENT OF SHOPEE LOGISTICS ACTIVITIES Instructor : Dr Hoang Thi Doan Trang Subject : Risk management and insurance Class: : KDOE307.2 Group: INTRODUCTION .3 Chapter I: Theorical basis about risk management Theoretical basis about risk 1.1 Definition 1.2 Risks in logistics activities Theoretical basis about risk management .5 2.1 Definition: 2.2 Content of risk management 2.3 The role of risk management in logistics activities Chapter II: Overview and Actual situation of risks in Shopee's logistics activities Overview about Shopee 1.1 History and development 1.2 Business model 1.3 Logistics activities in Vietnam 10 Reality of risk in Shopee logistics activities 11 2.1 Risk of order processing 11 2.2 Risks during storage 13 2.3 Risks during transportation 15 Chapter III: Risk management solutions in Shopee's logistics activities .17 Risk measurement 17 Risk control 19 2.1 Risk control in order processing 19 2.2 Risk control in inventory control 20 2.3 Risk control in Transportation 21 Risk financing .21 Evaluation (SWOT) 21 Recommendation 23 CONCLUSION 25 REFERENCE 26 INTRODUCTION In the present unstable economic growth, business and risk are two parallel categories that coexist Although risk is an incidence that might cause harm, it is also a phenomenon that occurs as a result of business operations in a competitive environment It establishes a foundation for business pleasure, resulting in a steady and successful economic development trend All of these present jobs require improvement in combination with the advancement of technology 4.0 Port logistics activities have become increasingly important, particularly in the current period, resulting in severe rivalry among delivery companies Profit from market share opportunities This is a chance for e-commerce products to expand and reach many prospective customers around the country Furthermore, if firms have not anticipated the risks in their logistics activities, this is a significant obstacle As a result, our group decided to research the topic "Analysis of risk management in Shopee's logistics activities in Vietnam" in order to better understand the risks of enterprises in the industry This report also offers some solutions to improve the management capacity of Shopee in particular and the ecommerce system in general However, with Shopee's e-commerce model in the duration of the research report, we choose typical stages: order processing, inventory control, shipping and return processing The report consists of chapters Chapter l: Theorical basis about risk management Chapter 2: Overview and Actual situation of risks in Shopee's logistics activities Chapter 3: Risk management solutions in Shopee's logistics activities Chapter I: Theorical basis about risk management Theoretical basis about risk 1.1 Definition Risk is the uncertainty concerning the occurrence of a loss Example: the risk of being killed in an auto accident is present because uncertainty is present In economics terms, the risk of an activity is represented by the probability density defined over possible consequence In insurance economics, the probability of occurrence and the severity of the consequence are distinguished in the definition of risk Objective risk Subjective risk Objective risk is defined as the relative variation of actual loss from expected loss Objective risk can be calculated by statistical techniques like standard deviation, coefficient of variation Ex: among 10000 houses insured, insurers expect 1% ( 100 houses) to burn each year But some years, 90 houses burned, some years 110 houses burned => a variation of 10 houses from the expected number of 100 (a variation of 10%) is an objective risk Subjective risk is defined as uncertainty based on a person’s mental condition or state of mind Ex: a drunk is uncertain whether he will arrive home safely without being arrested by the police for drunk driving 1.2 Risks in logistics activities 1.2.1 Transport risks: During logistics activities, the following transportation risks will often arise: Damage and accidents to vehicles and working machinery Having problems when looking for working means, spare parts to replace machinery, equipment is not suitable when repairing and maintaining Many routes are blocked from transportation due to external conditions Unplanned use of raw materials Documentation used in shipping, improperly installed or not shipped according to product specifications When transporting, loading and unloading, there is a problem of theft 1.2.2 Inventory risks In the inventory management process, there are risks encountered such as: Excessive investment in inventory Inadequate in customer service Incorrect inventory management according to profit and loss plan There is no match between storage and storage capacity The software is out of date 1.2.3 Customer management at risk Inaccuracies in orders and sales Minimize security issues, information systems or errors Competitors are transferring information about customers Customer service staff has not changed or staff is not trained to meet customer needs Budget deficit Not done exactly on actual survey research Customer service does not maintain continuity Due to not being able to show a special relationship with loyal customers, they lose customers 1.2.4 Risk in reverse logistics management High in only shipping costs During the operation there are quality problems Not suitable in-service activities and failed to perform financial resource issues, cost analysis Storage problems, disruptions in the supply chain Insufficient human resources and returned products with quality problems 1.2.5 Handling customer orders at risk Product characteristics give rise to many problems Diversity of products faces management problems The need for change, problem solving Theoretical basis about risk management 2.1 Definition: Logistics risk management, which relates to the movement and operation of products, is a component of the supply chain that also includes approaches for managing risks on a daily basis as well as the effective planning, execution, and control of transportation After that, choices to lower risk and maintain supply chain continuity will be made based on these evaluations 2.2 Content of risk management More companies every day understand the importance of measuring, monitoring, and controlling the failures, contingencies, and deficiencies in logistics using a system that considers the following points: Identifying potential risks: in other words, find out any factors that may affect the supply chain; for example, natural disasters, changes in legislation, loss of suppliers, financial solvency issues, strikes, and events in certain locations and hours Assessing and assigning priority to risks: Sort risks according to these criteria: Type: quantitative (based on historical information, measurable and predictable) or qualitative (based on expert opinion.) Severity: insignificant, moderate, and serious Frequency: null, rare, probable, or almost certain Speed: ability to detect it in time Preventing and solving risks: it consists of posting possible solutions to mitigate and avoid risks; for example, improving the quality systems, hiring insurance against risks, having safety equipment, and implementing traceability and control systems throughout the supply chain This plan must be updated according to social and financial conditions Controlling: constant revision to validate if the criteria for risks has changed; in other words, the level of severity, frequency, or speed This control is based on operational risk indicators, activity statistics, data from events, and control reports, among other information 2.3 The role of risk management in logistics activities It is not a coincidence that businesses need risk management strategies in Logistics The purposes of these are as follows: Identify possible risks – including identifying and measuring loss and accident risks through audits, review of contracts, compilation of claims and review of risks in the process past to find holes Risk reduction – includes reducing the frequency and severity of risks Provide a sound basis for decision-making to address risk Avoid business loss due to logistics disruption: Due to the complex market and business environment, unexpected disruptions in logistics will affect businesses and weaken their business strength Risk management has become the key to avoiding serious business losses Risk management planning involves estimating the impact of different risks and outlining possible responses if the hazard occurs In addition, risk management will ensure prioritization of high-risk risks and ensure that risk resolution will take a low cost but bring the highest efficiency In short, risk assessment and management is the best weapon against disasters for your project, plan, or business What's more, you need to develop a long-term strategy to prevent them, which will be more effective Chapter II: Overview and Actual situation of risks in Shopee's logistics activities Overview about Shopee 1.1 History and development - In February 2015, Shopee is launched in Singapore as a social-first, mobile-centric marketplace where users can browse, shop and sell products The asset-light platform is integrated with logistical and payment support, and claims to make online shopping easy and secure for both buyers and sellers - As of 2017, the platform has recorded 80 million app downloads The platform is currently working with over four million vendors with over 180 million products In the 4th quarter, the total cargo value of Shopee was reported at US $1.6 billion, which is 206% higher than the previous year However, the losses of the mother group SEA also increased dramatically The group recorded a 252 million net loss in the quarter 4/2017, an increase of 306% compared to the 62 million USD net hole level of 4/2016 - Shopee is now the leading e-commerce platform in Southeast Asia, and is now available in a total of seven countries in Asia: Singapore, Malaysia, Thailand, Taiwan, Indonesia, Vietnam and the Philippines The platform currently has over 160 million active listings with approximately million sellers, including more than 7,000 brands and leading distributors - Shopee has yet to turn profitable despite increasing its gross profit margin year-onyear in the first half of 2022, attributed to faster growth in transaction-based fees and advertising income Coupled with rising inflation and interest rates as well as setbacks on its internationalization plans, the firm laid off staff across multiple markets, restricted business expenses, and temporarily forwent compensation 1.2 Business model - Shopee started as a consumer-to-consumer (C2C) marketplace but it pivoted into a C2C and business-to-consumer (B2C) hybrid model - In its early phases of growth, the enterprise offered subsidies and free shipping to its users while delivery services were still expensive in the areas it serves - Shopee matches supply (sellers) with demand (customers) It then builds out the necessary infrastructure (e.g., payment, logistics, product discovery, and more) to facilitate these transactions - Marketplace Commission: The bulk of the revenue that Shopee generates comes from the commissions that sellers pay whenever they sell something on the platform Shopee takes care of the payment as well as logistics of an order On top of that, it has introduced many features that entice customers to conduct their shopping online - Transaction Fees: the company also charges a transaction fee to cover payment gateway fees by the service providers (such as Mastercard or Visa) The transaction fee is not only applied to regular purchases but also when opting into one of its installment plans - Advertising: Before starting to promote their products, sellers can set an ad budget that helps them to keep their costs in check They then pay Shopee whenever a user clicks on the advert – a concept that is commonly referred to as cost per click (CPC) - Payment Fees: In 2019, the firm has introduced its own electronic wallet (or e-wallet) called ShopeePay Customers can use the wallet as a means to pay for their items on Shopee’s platform Furthermore, they can buy goods and services at merchants that accept ShopeePay as a payment method - Delivery & Restaurant Commission Fees: the enterprise has launched a food delivery arm Restaurants will pay Shopee a commission for every order On top of that, customers will also have to pay delivery fees to have the food brought to them - The company partners with over 70 courier service providers across markets it serves to provide logistical support for users In Singapore, Shopee collaborates with logistics startup Ninja Van for item pickup and delivery Other delivery partners in the region include Pos Malaysia and Pos Indonesia Shopee also partnered with Delhivery and Ecom Express for deliveries in India before it exited the domestic market - The business model of Shopee Vietnam is the hybrid model It has built subplatforms such as: + Shopee Mall: a special booth with products from reputable brands and retailers on the market The products have many attractive promotions and policies such as: 7-Day Return/refund policy: Compared to regular products only 24h to send return/refund requests, products purchased from Shopee Mall will have time to request for returns/refunds up to days Genuine Goods Guarantee Policy: If fake/counterfeit goods are detected, Shopee will carry a refund of 100% of the product value Free Shipping Policy: All Shopee Mall products will be free for shipping up to 40.000 VND for Shopee Mall orders from 150.000 VND nationwide + Shopee 4H: a 4-hours delivery service for orders placed and delivered in a number of Hanoi City and HCM City districts 1.3 Logistics activities in Vietnam - The operating block at Shopee is responsible for running the entire process from the moment the buyer searches the products on the Shopee catalog to the time they receive the item In addition, this department also analyzes and monitors KPIs in the entire region, learns and evaluates the causes when this operating system has problems Subbranches of this block include Customer Service, Accounting, Listings, Warehousing, Logistics, Seller Support System and Fraud Handling (Fraud) These departments along with its own traffic infrastructure are highly invested and is considered to be the company’s long term competitive advantage - Fulfilled by Shopee (FBS) is the platform’s end-to-end logistic solution which allows sellers to have their goods stored and shipped directly by Shopee The company either works together with local logistics providers or offers its own fleet of drivers and vehicles to conduct deliveries Sellers then pay a fee for each item that they want to be stored and delivered - However, even with its own independent in-house logistics network and infrastructure, Shopee still has to rely on 3PLs (Third-party logistics) partners in order to fulfill orders, such as Express delivery, Economical delivery, Besides, Vietnam is mainly a cash- based economy, which forces e-commerce companies to rely on cash when deliver; and 75% of daily e-commercial orders are transacted in Hanoi and Ho Chi Minh City, which have high traffic count; resulting in higher operating costs Moreover, the legal framework and regulations related to logistics are still complicating and causing much difficulties Solving final-stage problems and delivering goods to rural areas are still challenges • It is possible that the transport unit has not ensured the hygiene of the warehouse/yard, the warehouse is not neatly arranged, making the goods easily damaged, especially for goods that are food 2.2.2 Risk of overloading inventory This risk can be caused by: • The storage is not suitable for the storage capacity • The problem caused by the management software leads to data errors in the import and export of warehouse goods, leading to many lost orders, so they stay in the warehouse • Preserve uneven product input and output • Insufficient means of transportation • Management staff, warehouse keeper are not properly trained, employee turnover rate is too high • Force majeure causes such as epidemics and natural disasters lead to many orders being overdue for the delivery time specified by Shopee, so they are stuck in the warehouse and those orders will be responsible by the shipping unit how to buy back 2.2.3 Risk of goods in the warehouse being stolen The main causes are human, environmental factors and uncontrolled: • The human factor group includes internal and external people (other department employees, delivery drivers, freight forwarders from suppliers, warehouse visitors, ) • Group of environmental and uncontrolled factors: warehouses without protective walls, warehouses in deserted places, goods in warehouses are not arranged scientifically, warehouses not have operation monitoring system | All risks arising during the storage process may cause losses such as backlog, lost, delayed delivery to customers, goods in stock for a long time may be damaged, incurring many costs later exchange and compensate later The first to suffer is the seller, although the seller will be compensated for the time spent waiting to be compensated if the goods are lost, the handling costs if the order is returned, the biggest is still the loss of reputation in the customer's eyes In addition, risks during storage also affect the reputation and reputation of the shipping company and Shopee 2.2.3 Other risks related to fire and explosion, natural disasters, epidemics… Fires and explosions, natural disasters and epidemics are both risks and causes leading to the above risks Such force majeure events will disrupt warehouse operations as well as cause damage to goods in the warehouse 2.3 Risks during transportation The feature of e-commerce platforms is that shopping takes place online, goods are delivered to customers' hands Therefore, strict management of transportation not only helps Shopee to limit risks but also increases competitiveness and strengthens brand reputation in the hearts of consumers With shipping journeys ranging from long to short, from countless carriers, Shopee faces a multitude of risks The shipping process from supplier to buyer can be divided into stages: a) Stage 1: Transport from the seller to the freight center: Possible risks are: The seller delivers the wrong order to the shipping unit: This risk comes from errors in the seller's order processing The shipping unit is slow to receive the goods: This risk can be caused by the inefficient work of the transport unit or by force majeure such as the epidemic leading to a lack of manpower Poor storage of goods: Most of the staff transport goods from the store to the post office by motorbike, so in the process, they can let the goods get wet in the rain / the boxes are bumped into each other causing distortion Damage and accidents to machines or working vehicles Risks from force majeure events such as epidemics, natural disasters: The shop has an address in an area where the force majeure occurs, for example, after confirming the order, but that store area is blocked, The store owner has to go into isolation so there is no way to deliver the goods to the shipping unit Goods may be stolen or exchanged during transportation b) Stage 2: Transport from the hub to the buyer Possible risks are The carrier is slow to deliver to the customer Lack of delivery personnel Goods may be exchanged or stolen during transportation Goods are not transported properly resulting in damage Delivering the wrong order to the customer: This risk can be caused by the delivery person to be confused or because the shop owner has wrongly pasted customer information at the order processing stage The attitude of the delivery staff is not good, so the goods will be judged badly even if it is not their fault Buyers not receive goods, boom: Because Shopee does not have regulations that force buyers to receive goods when orders have been made and delivered, there is still a situation where buyers not receive goods, not pay for orders the item I ordered Especially the status of dealing with complaints or returns of the floor is quite complicated and takes a long time Risk of only high shipping costs If the Buyer requests a Return/Refund with the 'Refund Now' option and the shop agrees to refund all the money and shipping fees paid by the Buyer Shipping costs will be agreed upon by the seller and the buyer Returns are still annoying and time consuming for customers This can make customers unhappy prefer and specialize in using better quality inspection units The returned item is not in the same condition as it was Maybe the time to wait for the product to be returned is too long, the buyer does not know how to repack the goods, the shipping process to the seller is isolated, leading to the quality of the goods being worn out, damaged, the original shape is no longer the same This causes loss to the seller because then the product can hardly be sold at the original price anymore Chapter III: Risk management solutions in Shopee's logistics activities Risk measurement Through identifying and identifying risks in Shopee's logistics operations, we classify and evaluate them by a qualitative method according to the formula Level of risk = Possibility x Level of harmful impact Based on the rating score, it can be divided into levels: Low: - Average: 5-7 Height: - 10 Very high: above 10 Type of risk Possibility Level of harmful impact Risk level Risk of seller packing wrong goods/entering wrong customer 12 32 35 15 24 information Risk of the seller deliberately defrauding customers from the order Risk of order processing The seller prepares the order with the wrong quantity/quality as advertised Seller does not know the exact amount of inventory Technology platform risks (website error, e-wallet payment error, customer information leak) Risk of seller packing wrong goods/entering wrong customer 30 30 21 16 Goods damaged during storage 35 Errors in storing warehouse data 15 Shipping unit delay in delivery 30 35 14 16 18 21 Buyer boom, cancel order 35 Risks in Risk of high shipping costs 30 reverse The quality of the returned logistics goods is not the same as the 28 information Overloaded inventory Risk of goods being stolen Risks during storage during storage Risk of fire, explosion, natural disaster, epidemic Goods are wrongly delivered, exchanged, damaged during transportation Damage or accident to the means Risks during transportation of transport Risks from force majeure events such as epidemics, natural disasters Lack of delivery personnel Employees' bad attitude affects the business original According to the risk measurement tables above, it can be seen that the risks in Shopee's logistics activities are quite diverse with different severity and frequency of occurrence