November 20, 2014

Role of Indian Railways and Indian Post – Smart Logistics in Retail e-commerce

          E-commerce works on making retail operations online by eliminating distributor/wholesaler and retailer network. E-commerce adapts technologies such as mobile commerce, electronic funds transfer, supply chain management, Internet marketing, online transaction processing, electronic data interchange ( EDI ), inventory management systems, and automated data collection systems. By the use of smart logistics with ease of payments, this business model has achieved forte in recent years.

Info-graphic Depicting Various Stages and Stakeholders in E-Commerce Transactions

Retail E-Commerce in India
       Retail e-commerce in India is one of the fastest growing businesses with a steady growth of nearly 60-70% [1]. It is forecasted to follow the same trend in the coming years. Increasing penetration of internet in India, gives a hope to many start-ups in this segment [2]. Growing demand from the customers fosters tough competition among the players like FlipKart, Amazon, eBay, SnapDeal, Jabong, Myntra and ShopClues etc. The profit making of the firms, hence, highly depends on cost-minimization of supply chain and logistics.

The Challenge
       Some of the leading e-commerce players use indigenous logistics for delivery of products without outsourcing like FlipKart, Jabong, and SnapDeal etc. And most of the other players deliver the orders through private logistics companies like BlueDart etc. Here comes a challenge – in delivering orders to Sub-urban and rural areas.  Considering the number of orders placed from Tier II, Tier III cities and rural places, rarely the delivery options are available. In case of availability, the delivery service cost is too expensive through private logistic companies. Most of the orders placed by consumers from rural segment constitute low priced products (Rs.500-Rs.1000), which are assumed to be non-fragile and non-luxury products. The figure below illustrates availability of delivery options in Amazon vis-à-vis FlipKart. 

     Figure shows comparison between Flipkart and Amazon.The availability of its  products
 in Rural areas or Tier-3 cities.

The Amazon Way
      And here’s Amazon’s way of catching up the competition soon after entering India against its rival. Amazon delivers most of the low-priced non-time-priority orders through Indian Postal Service. With over 1.6 lakhs post offices throughout the country, with lion’s share of 1.4 lakh in rural areas, India Post claims to have largest postal network in the world. On an average, an area of 21.2 sq km and a population of 7175 are served by a single post office. Indian Post relies upon Indian Railways which is accessible to almost every town and village in India. And Amazon is successful in delivering products to the rural segment through low cost means. Being partnered with Indian Post, Amazon will certainly form a synergy.

       By outsourcing it to the Indian Post, significant cost cutting is done as the cost of postal service is far economical than courier service [3]. Through the unprecedented network of Indian Railways, Amazon makes it more profitable. Indian Railways is considered as one of the world's largest railway networks containing 115000 km of track over a route of 65000 km with 7172 railway stations with around 2.8 million tons (1050.18 million tons per year) of freight transported daily [4].

                                       Figure Shows supply chain of goods in Amazon

       Recently, Amazon has also insisted Indian Post to allow the use of new technologies such as real-time tracking and monitoring devices to develop a delivery mechanism based on smart logistics. Thereby, Amazon wants to leverage Indian Post network to ramp up its delivery mechanism to within 24 hours anywhere in the country [5]

A Similar
        World’s leading B2B e-commerce giant, has also implemented the similar strategy of tying up with China Post. Alibaba was the first e-commerce company to tie-up with a government postal agency (in China).  The firm tied up with postal department to share warehouses, processing centers and delivery resources forming a network of smart logistics providing easier, economical and faster delivery services to users.

[1] Internet penetration in India 17.4%, on a growth of 28.9% (Source: The Hindu)
[2] India’s fastest growing country in APAC – e-commerce (Source: ET)
[3] No match between Rail and Road Freight (Source TOI)
[4] Indian Railways – Freight Cars (Source – Wikipedia)
[5] Amazon to ramp up Delivery Mechanism (Source - ET)

The article is Submitted by Bharadwaj Sista .He is currently studying PGP 1st Year at IIM Raipur. He has 3 years of work experience at Tata Consultancy Services.

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