Analysis of risk management in shopees logistics activities in vietnam

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

Instructor : Dr Hoang Thi Doan Trang

Subject : Risk management and insurance

Group:

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 Shopee's 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 Shopee's 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

In the present unstable economic growth, business and risk are two parallelcategories that coexist Although risk is an incidence that might cause harm, it is also aphenomenon that occurs as a result of business operations in a competitiveenvironment It establishes a foundation for business pleasure, resulting in a steady andsuccessful economic development trend All of these present jobs require improvement

in combination with the advancement of technology 4.0 Port logistics activities havebecome increasingly important, particularly in the current period, resulting in severerivalry among delivery companies Profit from market share opportunities This is achance for e-commerce products to expand and reach many prospective customersaround 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 tobetter understand the risks of enterprises in the industry This report also offers somesolutions to improve the management capacity of Shopee in particular and the e-commerce system in general

However, with Shopee's e-commerce model in the duration of the researchreport, we choose 4 typical stages: order processing, inventory control, shipping andreturn processing

The report consists of 3 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

1. 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 withoutbeing 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 replacemachinery, 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 toprofit 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 customerneeds

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

2 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 affectthe supply chain; for example, natural disasters, changes in legislation, loss ofsuppliers, financial solvency issues, strikes, and events in certain locations andhours

 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 mitigateand 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 accidentrisks 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 andbusiness environment, unexpected disruptions in logistics will affect businessesand 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.

1 Overview about Shopee

1.1 History and development

- In February 2015, Shopee is launched in Singapore as a social-first, mobile-centricmarketplace where users can browse, shop and sell products The asset-light platform

is integrated with logistical and payment support, and claims to make online shoppingeasy and secure for both buyers and sellers

- As of 2017, the platform has recorded 80 million app downloads The platform iscurrently working with over four million vendors with over 180 million products Inthe 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 SEAalso increased dramatically The group recorded a 252 million net loss in the quarter4/2017, 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 nowavailable in a total of seven countries in Asia: Singapore, Malaysia, Thailand, Taiwan,Indonesia, Vietnam and the Philippines The platform currently has over 160 millionactive listings with approximately 6 million sellers, including more than 7,000 brandsand leading distributors

- Shopee has yet to turn profitable despite increasing its gross profit margin year in the first half of 2022, attributed to faster growth in transaction-based fees andadvertising income Coupled with rising inflation and interest rates as well as setbacks

year-on-on its internatiyear-on-onalizatiyear-on-on plans, the firm laid off staff across multiple markets,restricted business expenses, and temporarily forwent compensation

- Shopee matches supply (sellers) with demand (customers) It then builds out thenecessary infrastructure (e.g., payment, logistics, product discovery, and more) tofacilitate these transactions.

- Marketplace Commission: The bulk of the revenue that Shopee generates comesfrom 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 hasintroduced many features that entice customers to conduct their shopping online

- Transaction Fees: the company also charges a transaction fee to cover paymentgateway fees by the service providers (such as Mastercard or Visa) The transactionfee is not only applied to regular purchases but also when opting into one of itsinstallment plans

- Advertising: Before starting to promote their products, sellers can set an ad budgetthat helps them to keep their costs in check They then pay Shopee whenever a userclicks 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 onShopee’s platform Furthermore, they can buy goods and services at merchants thataccept ShopeePay as a payment method

- Delivery & Restaurant Commission Fees: the enterprise has launched a food deliveryarm 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 logisticsstartup Ninja Van for item pickup and delivery Other delivery partners in the regioninclude Pos Malaysia and Pos Indonesia Shopee also partnered with Delhivery andEcom Express for deliveries in India before it exited the domestic market

- The business model of Shopee Vietnam is the hybrid model It has built platforms such as:

sub-+ Shopee Mall: a special booth with products from reputable brands and retailers onthe market The products have many attractive promotions and policies such as:

7-Day Return/refund policy: Compared to regular products only 24h to sendreturn/refund requests, products purchased from Shopee Mall will have time to requestfor returns/refunds up to 7 days.

Genuine Goods Guarantee Policy: If fake/counterfeit goods are detected, Shopee willcarry a refund of 100% of the product value

Free Shipping Policy: All Shopee Mall products will be free for shipping up to 40.000VND 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 themoment the buyer searches the products on the Shopee catalog to the time they receivethe item In addition, this department also analyzes and monitors KPIs in the entireregion, learns and evaluates the causes when this operating system has problems Sub-branches of this block include Customer Service, Accounting, Listings, Warehousing,Logistics, Seller Support System and Fraud Handling (Fraud) These departmentsalong with its own traffic infrastructure are highly invested and is considered to be thecompany’s long term competitive advantage

- Fulfilled by Shopee (FBS) is the platform’s end-to-end logistic solution which allowssellers to have their goods stored and shipped directly by Shopee The company eitherworks together with local logistics providers or offers its own fleet of drivers andvehicles to conduct deliveries Sellers then pay a fee for each item that they want to bestored and delivered

- However, even with its own independent in-house logistics network andinfrastructure, Shopee still has to rely on 3PLs (Third-party logistics) partners in order

to fulfill orders, such as Express delivery, Economical delivery, Besides, Vietnam ismainly a cash- based economy, which forces e-commerce companies to rely on cashwhen deliver; and 75% of daily e-commercial orders are transacted in Hanoi and HoChi Minh City, which have high traffic count; resulting in higher operating costs.Moreover, the legal framework and regulations related to logistics are stillcomplicating and causing much difficulties Solving final-stage problems anddelivering goods to rural areas are still challenges

2 Reality of risk in Shopee logistics activities

Logistics activities in E-commerce include the main activities of orderprocessing, inventory management, shipping and return processing All four of thesestages have certain risks for each floor participant and of course Shopee - acting as anintermediary, will also be responsible for as well as losses associated to some extentwith the risks that ro Therefore, in order to retain old customers, attract newcustomers and minimize losses, Shopee needs to clearly identify these risks

2.1 Risk of order processing

2.1.1 Risks from the seller

a) Risk of seller packing wrong goods/entering wrong customer information

After 30 minutes from the time the Buyer places an order and does not cancelthe order, Shopee system will confirm and transfer the order to the Waiting for pick upsection After packing the order to be delivered to the post office in accordance withthe standards, the seller needs to confirm the order by following the steps in turn toselect "Prepare goods", choose a delivery method for shipping (there are 2 forms: theseller brings the goods to the post office or arranges for a postman to pick up thegoods), fill in the necessary information, confirm, print the consignment notecontaining the Buyer's bill of lading and consignment information affixed to the boxand deliver the goods to the carrier

During order processing, the seller may paste the wrong bill of lading code ofthe order, leading to the wrong product delivery to the customer This risk leads to theseller receiving a negative review and having to process the returned order, and at thesame time, the customer is also frustrated and very annoyed Shopee will not beresponsible for losses caused by the seller's wrong delivery of the goods to theshipping staff

b) The risk of the seller intentionally defrauding customers with information from the order:

In the order processing stage, sellers on Shopee can completely cancel the order

if they encounter a force majeure cause, but in fact, many shop owners havedeliberately canceled orders to cheat customers in a sophisticated way Specifically,after receiving the order, the shop owner on Shopee immediately canceled the order

and the customers,

seeing the confirmation system, assumed it had been successful and waited fordelivery without question The shop will claim to be the "order confirmation system ofthe e- commerce platform" to call the phone number used to register the customer'spurchase, confirm that there is a system error, and ask if it still wants to buy Whenreceiving goods, “Shopee side” will ship in the form of COD (collect money ondelivery) They then use the customer information available on the Shopee system toship the product through a shipping unit outside of Shopee However, what customersreceive is not the product they ordered but can be anything of the same weight toeasily pass the customer's eyes Once the order has been canceled, the buyer will notreceive any form of after- sales service from refunds, warranties to store reviews.

This risk partly stems from a loophole in the post-audit, Shopee's supervisiondoes not control that the shop actively cancels orders, uses this information to scam,and delivers goods to customers

c) Risk of the seller preparing the order with the wrong quantity/quality as advertised:

This is a risk for the buyer stemming from the seller's intentional processing oforders The measure of product quality is measured by the number of people who havepurchased the product (statistics of the shop) and the comments and reviews of peoplewho have used the product, but the above indicators are often tricks of the Shop whenthere are many units selling 5 * comment and rating packages The fact that with alarge number of business participants and a large number of items and Shopee is not

an authoritative / functional / professional organization nor does it have sufficientprofessional capacity to evaluate the quality of products listed for sale, must befake/fake goods or not, it is very difficult to distinguish what is fake, poor qualityimitation when being posted for sale This leads to a direct loss to the buyer as it costs

a fortune to get the item that doesn't match the price

d) The seller's risk of not holding the correct amount of inventory:

During the running of the discount program, the shop did not notice the quantity ofgoods, causing them to run out of stock, so it was forced to cancel the customer'sorder Many shops even deal with it by trying to send another item that is not the same

as the one listed for sale, or inserting extra money as a way to compensatecustomers This

affects the satisfaction of customers as well as sellers because if detected, shopee willdeduct points or have their accounts locked.

2.1.2 Risks related to technology platforms

The Shopee website and application may fail during the big sale because thenumber of orders to be processed is overloaded, resulting in users not being able toaccess / cannot apply voucher / cannot click to pay This reduces the satisfaction level

of the customer's service experience

Along with the strong development of technology, e-commerce platforms alsoface many risks in privacy security, disclosing customer information, leading to thesituation that some organizations and individuals take advantage of the resources suchinformation for unauthorized transactions, fraud This error can be caused by theshipping company or by the shop itself intentionally selling customer data to anotherparty, but because it is an intermediary, the customer will complain to Shopee first.This affects reputation, this is a very sensitive and serious issue, so customers canswitch to another e-commerce platform that they consider safer

Risks in direct payment via e-wallet/credit card This is prepayment on Shopeethrough a credit link to the bank However, because it is an affiliate wallet, e-walletsare still heavily dependent on banks It is not uncommon to come across a situationwhere the bank's app system is under maintenance, leading to a delay in Shopee orderpayment when customers cannot top up money from the bank via payment e-wallet

2.2 Risks during storage

Currently, depending on the shipping method (express, fast, economical) thatShopee chooses a delivery platform, the warehouse will be from Shopee (ShopeeExpress) or partner shipping units (Viettel Post, Fast Delivery, Economical Delivery,J&T Express, Ninja Van, Best Express) However, regardless of the warehouse, thesame risks still exist

2.2.1 Risk of damaged goods during storage

Causes of this risk can be:

• Due to the inherent characteristics of goods, when stored for too long, it will lead to damage and when delivered to consumers will no longer be as expected