Why we must optimize supply chains for the sharing economy

In our developed economies, most consumers have now played some part in the so-called ‘sharing economy.’ Perhaps they have sold vintage books on eBay or given away a used armchair on Freecycle. The rise of these collaborative exchanges and the digital platforms that enable them has been meteoritic in recent years.

While some platforms, such as Airbnb and Uber, specialize in services, others facilitate consumer-to-consumer (C2C) exchanges of goods, such as Craigslist in the US and blocket.se spinoffs all over the world.

In a recent research article on this topic, Christine Roussat, Aurélien Rouquet, and I explain that they enable ‘social strangers’ to swap, sell, rent or lend goods to each other, amplifying the scale of the physical exchanges between individuals that have always existed in human society.

There is a huge lack of research on C2C product platforms. These have been widely studied in the marketing, strategic management and economic literature, but the supply chain perspective is missing.

There are two reasons why this limited research is a concern. Firstly, C2C product exchanges are a key component of redistribution markets, which may help the development of a circular economy, thus reducing resource extraction and waste production, two important aspects in our finite world.

Secondly, these platforms give a central place to consumers who are both suppliers and final customers, meaning the exchanges will have certain specifics that require dedicated operational models.

After all, the value proposition of these platforms is centred on the physical exchanges of goods (mostly second-hand or self-made craft products in the case of Etsy) and these need to be moved and, therefore, physically organized. Hence, a need for a supply-chain perspective to gain a more refined understanding of their distinctive mechanisms and to improve their operational performance and societal impact.

While supply chains of C2C product exchange platforms may share certain characteristics and goals with traditional ones (they are composed of several actors, seek flow optimization, etc.) they have several specific needs: the network is composed of a potentially infinite number of actors and ownership is transferred from one consumer to another.

To explore the distinctive characteristics of such platforms' logistics, we chose an ‘extreme case’ for our study - that of the Vestiaire Collective, a platform specializing in second-hand luxury goods. Established in France in 2009, this unicorn achieved global success in just over a decade, with 11 million customers in 50 countries and 400 employees.

One particular reason for this success is the fact that the founders realized early on that they had to physically monitor the second-hand luxury products sold through the platform, and over the years, they have developed an operational model in line with this requirement.

To ensure individuals would entrust them with $500 handbags and $2,000 watches, the founders hired and trained professionals to check the authenticity and quality of the products in their warehouses and gradually included small repairs and cleaning operations – a very different process from its competitors.

Over the years, the Vestiaire Collective has continued to grow and, according to its founders, one of the key factors of its success is its ability to control its supply chain, which reassures customers, as well as investors, and is at the heart of its value proposition. For example, to facilitate shipments to the warehouses and between users, the company provides prepaid shipping labels and has outsourced transport of the most expensive items to major couriers, instead of national postal services.

This case study illustrates that Vestiaire Collective intermediates C2C product exchanges through a supply chain (as per its canonical definition) since the firm physically transfers goods from their point of origin to the end customers.

In contrast to ‘forward’ (either manufacturing or service) and ‘reverse’ supply chains, sharing supply chains involve no manufacturers, since consumers play the role of seller and/or customers, with the platform in a matchmaking role. The peer-to-peer flow orientation means that sellers can be considered as logisticians.

Why, in addition to its traditional role as a digital intermediary, has Vestiaire Collective added a logistical intermediation dimension by setting up its own warehouses for the transit of most of the goods exchanged between sellers and buyers? The cost of this type of infrastructure, particularly the company's latest 55,000m2 automated warehouse in Europe, must be substantial.

To answer this question, we have to go back to the origins of the company, when its founders were inspired by the second-hand car market and analyzed its parameters of trust. “People prefer to buy from a dealer, rather than from a private individual because the car has been checked. That was the starting point: we decided to put a trusted third-party between the buyer and the seller,” we were told.

However, the Vestiaire Collective model, which centralizes flows in a warehouse where goods are inspected and repackaged, is not typical of C2C product exchanges, but a response to the specifics of the products exchanged.

Sharing supply chains may take different forms. An alternative model is exemplified by eBay, which assists its customers by tracking deliveries and guaranteeing payments, but without physical intermediation. The Vestiaire Collective has diversified its model and introduced direct shipping between individuals for products with low market value. Other platforms, such as blocket.se or Craigslist, allow in-person local exchanges, especially for bulky products.

The question of the physical intermediation of platforms thus seems to vary along a continuum where the extremes would be, at one end, physical intermediation played by the matchmaking platform and, at the other, physical disintermediation, where two individuals meet and the product is handed over in person. We propose that the factors influencing the intermediation include the market value of the product, the complexity of product evaluation on the one hand and the number of transactions and positive ratings by a determined seller on the other hand.

The different forms that sharing supply chains can take highlight the importance of alignment and coherence between an organization’s overall strategy and its operational deployment. Future matchmaking platforms may learn from our insights to design and implement their own sharing supply chains in the most effective manner.