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 Model-Alibaba.com

        World’s leading B2B e-commerce giant, Alibaba.com 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.

References

[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.

Future Trends & Challenges in Supply Chain Management

         A supply chain is a system of organizations, people, activities, information, and resources involved in moving a product or service from supplier to customer. Supply chain activities transform natural resources, raw materials, and components into a finished product that is delivered to the end customer. Supply chain management (SCM) is the management of the flow of goods. It includes the movement and storage of raw materials, work-in-process inventory, and finished goods from point of origin to point of consumption.The primary objective of SCM is to fulfill customer demands through the most efficient use of resources, including distribution capacity, inventory, and labor.

Future Trends & Challenges in Supply Chain Management:

Impact of E-commerce

          E-commerce industry has become prominent in the last three years.This will create an impact on supply chains of many retailers.Statistics of 2013 show that customers preferred online shopping even during holidays.In fact online sales are high during holidays.So retailers are providing special offers during holidays to attract customers.E-commerce players are trying innovative techniques to increase customer reach.One such technique is "click & collect" service,where people order products online for pick-up at store or any other preferred location.This service is popular with busy internet-savvy buyers of groceries and electronic gadgets.These people cannot wait at home during daytime for deliveries but pick up at a convenient location and time.This service has altered the supply chain and inventory management systems of many firms and they need to be ready to face challenges.

Emergence of 3D printing

        3D printing  is the processes of making a three-dimensional object of almost any shape from a 3D model or any other electronic data source.A 3D printer is a type of industrial robot. 3D printing is one of the technology that has potential to revolutionize manufacturing and supply chain systems in future. 3D printing is already being used in health care services (in dentistry for artificial implantation).Manufacturers see the potential for 3D printing to change the way they source various spare parts.At present,this technology is ideal for creating customized parts and reduces inventory and storage costs.If the speed at which 3D printing produces items increases,it will change the structure of supply chains. Right now 3D printing is not that useful in mass production as it takes a long time to print a single item;2 hours for a smartphone and longer periods for complex items.But if,for example it takes 16 hours to print a spare part,and normally that part is shipped from a factory in Europe to India,printing the part is less costlier than sourcing it.

Big Role of Big Data

      It is very easy to get data related to customer behavior and purchasing trends using Big data and a proper analysis and thorough number crunching can give significant inputs to understand customer requirements regarding online and in-store shopping.Accordingly changes in Supply chains have to be incorporated.The challenge is in using the information from big data and getting a particular buying pattern of consumers, as enormous amount of data is generated using big data.

Increasing Use of cloud computing

       Logistics and warehouse operators are increasing usage of cloud computing to host their IT supply chain on a centralized cloud,rather than on different physical computers located at many locations.Cloud computing is used to set up warehouse and logistics operations quickly in areas where there is paucity of established infrastructure.A warehouse is created in the cloud.As long as a physical site is present,data present in the cloud can be accessed.Cloud computing helps in improving  a supply chain's long-term efficiency.

Urban deliveries are becoming more complex

       There is increasing complexity of logistics in urban areas.One important factor contributing to this trend:higher environmental standards set in cities.Cities such as Mumbai are getting bigger and more congested and are struggling to cope with the volume of people and traffic.So there is a pressure on users to be more ecologically responsible.Therefore  Retailers and logistics companies need to work on making their deliveries more environmentally friendly by using innovative solutions.

Integrated Supply chain management

      The ISCM not only means integrated logistics  but also demands that the SCM must look into the ramifications of these arrangements on the cost of transportation  of products within a trade zone and outside it.It also includes developing logistics strategies. The field of ISCM has developed in the last few years for bridging the gap between demand and supply using efficiency and cost trade-offs. The SCM now not only involves the "management of logistics", as was done in the past  but, includes the management and co-ordination of activities, upstream and downstream links in the supply chain. The integrated supply chain management include but not limited to: Planning and Managing supply and demand; Warehouse Management;Inventory control;Efficient Transportation and Distribution;Timely Delivery and customer's delight and customer's satisfaction.

Tough competition among major E-commerce players

        Last two months have seen major ts investments in various E-commerce companies by venture capitalists.There is an investment of 1 billion dollars in Flipkart by some foreign VCs.Amazon has announced an astronomical 2 billion investment in India.India. Jabong and some companies formed as global fashion group.As all these companies have attracted lot of investment,there would be huge competition among them.In such highly competitive scenario, the simple pursuit of market share is no longer sufficient to ensure profitability.companies must focus on redefining their competitive space and have unique strategies.For E-commerce companies supply chain is main differentiator.A company that has an efficient and better supply chain can have edge over others in getting good revenues.

HOW E-MARKETPLACES HAVE HELPED IMPROVE SUPPLY CHAIN

Supply chain is the term used to define the system of organizations, assets and activities involved in the conversion of raw materials into finished products and moving the product or service from the supplier to the customer. Supply Chain Management (SCM) is defined as the efficient integration of warehousing, manufacturing, logistics and distribution. In lay mans’ terms, SCM is ensuring that materials are available at the correct point in the correct amount at the correct time.

The primary objective of SCM is to minimize the costs involved the sourcing, warehousing, logistics and distribution.

The major obstacles in SCM are:

• Purchasing
• Unstable volume requirements.
• Delivery schedule.
• Large volumes.
• Manufacturing
• Production cost.
• Quality requirements.
• High productivity.
• Warehousing
• Optimized inventory management.
• Transportation management.
• Quick replenishment capability.
• Customer delivery
• Diverse product portfolio.
• Reduced backorders and lead time.
• Bullwhip effect.

As understandable, traditional methods of demand forecasting, vendor rating, procurement ordering takes a lot of time and effort. In today’s proactive and competitive world and delay in demand orders are inventory management can add to the bullwhip effect resulting in loss of money and efficiency. In a cost sensitive market this difference can result in the final product cost thus making the product dearer to the customer and can therefore influence the profit margins.

One of the major advancements in terms of SCM is Enterprise Resource Planning (ERP). This automated software which helps in streamlining the supply chain operations and also holds the records and data at a central repository so as to ease retrieving the data. The limitation of ERP is the requirement of the software and the compatibility and hence it is used largely within an organization and does not link suppliers to the customers.

Operations in E-commerce Environment

E-commerce is one of the fastest growing markets globally and nationally. Indian e-commerce market was approximately worth $2.5 billion back in 2009 and it went up to $14 billion in 2014. Business Travel (airline tickets, railway tickets, hotel bookings) is a major part in Indian e-commerce market, holding 75% of the market whereas online retailing (e-tailing) contributes only 12.5%. In Indian Retail Market, online contribution is only 0.47% whereas the global Industry average is 4%, which shows that there is huge potential in this market. Online shoppers in India are growing at a rate of 30% every year as compared to the global growth rate which is 8-10%.

With such a high growth rate and the kind of massive potential there is, a number of new e-commerce stores are entering into the market and expanding quite rapidly. With increasing competition most of the e-commerce stores are using discounted prices and attractive coupons as a tool to attract customers which thereby creates a price war and hence shrinks the margins for business. In a situation of reduced margins where the objective is to provide high level of Customer satisfaction through improved services and to run a sustainable business, proper Operations Management plays a vital role in the success of the business.

Different tasks for Operations Management in e-commerce are

• Product / Service Quality
• Forecasting demand
• Inventory Management
• Scheduling Management
• Purchasing Management
• Supply-Chain Management
• Human Resource Management
• Reengineering and Consulting

IIM Raipur Launches Special Issue of Strive on Retail

On 11^th March 2012, the Operations and Supply Chain Club of IIM Raipur, OPEP, launched the second issue of its magazine Strive. This issue of Strive focuses on the Retail Sector, an area which has been in the headlines for quite some time and needs immediate attention. The Magazine was launched by Prof. B S Sahay, the Director of IIM Raipur, along with Mr. Satyan Mishra, Co-Founder & MD, Drishtee Foundation and Mr. Bahadur Ali, MD, IB Group. Prof. Sahay lauded the efforts of the club in bringing together the various aspects of and challenges in the retail sector in a special issue of the magazine.



From Left : Akshay Aggarwal, Rohit Bhagat (Editor, Strive) , Mr. Bahadur Ali (MD, IBGroup), Mr. Satyan Mishra (MD, Drishtee Foundation) , Prof. B.S. Sahay (Director, IIM Raipur) , Anshu Katiyar and Nitin Kuraien at the Launch.



Just as the inaugural issue, this issue of Strive has also been launched in a Tablet Friendly version which helps it to be viewed easily on smartphones and tablets. The magazine was launched on the second day of Enspirit 2012, the inaugural edition of the Entrepreneurship Summit of IIM Raipur. Other eminent personalities who graced the occasion were Mr. Abhishek Sinha, CEO, EKO India Financial Services, Mr. Nirmal Kumar, Founder, Nirmal Group, Mr. Snehanand Sinha, Advisor to Social Businesses, Mr. Phanindra Sama, CEO, Redbus, Mr. Rustam Sengupta, CEO, BOOND and Mrs. Rashmi Bansal, the well-known Author & Entrepreneur.

Speaking on this occasion the Editor of Magazine and a Second year student, Rohit Bhagat, highlighted the salient features of the magazine. The second issue of Strive contains articles from both academia and the industry with Companies like Jubilant Foodworks (formerly Domino’s

Pizza India Ltd.) and Technopak contributing articles for the magazine. The magazine features an exclusive interview of Mr Arvind Singhal, CMD, Technopak. Other noted contributors include Mr Ajay Kaul, CEO, Jubilant Foodworks, Prof. Bhalender Singh, Prof. Omkar Prasad Vaidya and Prof. Naval Bajpai.

Students have written articles on the role played by Farmers and Middle-Men in the Supply Chain, emergence of E-Tailing in India, Retail in China, Book Review of “It Happened in India” and Success stories of Amul and Walmart. The local challenge discussed in this issue is the upcoming Logistics Hub in Raipur. In addition to the earlier column on Summer Internship Experience, two more columns have been added. Through the column of Gurumantra, some relevant technical terms would be explained. In this issue, the RFID technology has been explained in details. The other column is a debate, where students have presented contrasting views on “Should India allow FDI in Retail?”

Rohit thanked his team for the successful release of the special issue of Strive. The magazine will now be available for students of all B-schools across India and abroad and also for Retail Professionals in the industry. To access the magazine, please click here.

Best Practices at Flipkart

 Flipkart an electronic commerce company was established by Sachin Bansal and Binny Bansal in 2007 and now it is among India’s largest online retailers with reported sales of Rs 75 crore for year 2011-11. Sachin Bansal and Binny Bansal both are alumni of Indian Institute of Technology Delhi who started this company after quieting their jobs in Amazon.com with a vision To be one of the largest multi-category e-commerce destinations in India, with a strong focus on customer service.

  
Initially Flipkart started with selling books online and has since diversified into a generic e-commerce site, selling CDs/DVDs of music, movies, games and software, as well mobile phones and electronics. According to the co-founder Sachin Bansal, “We started with books because they are a comparatively easy category  products to sell online. They do not require huge inventory maintenance, are easier to negotiate  supplier  terms and profit margins are high.” Also since books are low value items, inducing  customer trial was easy. It  was a safe option to start off with books, given their appreciation in e-commerce the world over. Now Flipkart have about 11.5 million book titles, 11 different categories, more than 2 million registered users and sale of 30000 items a day which makes it India's answer to Amazon. All this was possible because of the major goal of the company is to provide a memorable online shopping experience to their customers so that they come back again and again using innovative services like Cash on Delivery, a 30-day replacement policy, EMI options, free shipping , discounted price and very importantly on time delivery of the products.

Mr. Sachin Bansal

The role of logistics in the successful functioning of an e-commerce venture is indispensable. All these innovative services will be ineffective if the products do not reach the customers on time. Here are some Best Practices of the Supply Chain of Flipkart:

Building the Suppliers base- The Company has established a network of more than 500 distributors and only stocks frequently ordered items. Items like the 'Long tail' are almost always sourced from suppliers in real time and as and when the customer places an order.

Building Infrastructure for Operations- The Company has 4 offices in 4 metros cities with more than 500 employees. Warehouses of the company are located in 7 cities including the metros. Company has tie-ups with more than 15 courier companies like Blue Dart, First Flight etc. to deliver their products and Indian post for areas where courier do not reach.

The Process of Supply Chain- The first step in buying the products like books online from the Filpkart.com site by making payments using payments options like credit/debit card, cash-on-delivery, net banking, cheque/DD and money order and enter the phone number and address where the items need to be delivered.

Depending on items purchased they are packed and shipped accordingly for example mobile phones and books are packed differently as per requirement and also all items have transit insurance against theft and damages that may be caused while they are in transit. Flipkart bears the cost of delivery and this make them give a reason/motivator for improving efficiency at every point of supply chain. This also makes them differentiate from their competitors.

Now for delivering the items depending upon the area where the item need to be delivered either courier, Indian post or own internal logistics arm is used. The delivery time varies between less than 24 hours and 3 weeks depending on the location and availability of the product like the products which are imported take 3 weeks time to get delivered to the customers.

The inter-city, trans-zone deliveries are made using air cargo. For satellite cities and others in close proximity, products are transported overnight by train or truck.

For the local parts of the cities where the warehouses of the company exist products are delivered using two-wheelers, bicycles, or on foot depending upon the proximity of the place and because of this many of the deliveries are made within a day of the order being made. All the Team Members have been trained to work efficiently to meet customer expectations.

Use of Information system: The Company use sales to predict the inventory levels. The warehouses are split into multiple areas — inventory, packing, shipping and so on. The stocks are replenished every 24-48 hours. In the Back End, Flipkart stores details of all the transactions that need to be carried out. They have an understanding with their associates for order tracking, reconciliation and MIS (Management Information Systems) reports. The private courier companies in turn have their own ways of tracking every package. The customer is also updated about the status of his shipment via message, email or through the website.

When the product needs to be returned then due to the companies understanding with the courier companies it happens without any disputes or problems efficiently. “Flipkart takes care of the after-sales needs of its customers with regard to delivery of an item or addressing grievances including delayed delivery by the logistics partner, or addressing issues when an incorrect product is delivered. In the case of electronics, warranty and after-sales service is largely the responsibility of the manufacturer. Flipkart does however facilitate interaction between the customer and manufacturer/service center as and when the need arises.”[1]

Future for E-Commerce: India has 11 million online customers now which will increase to 30 million by 2015 which shows that the e-commerce industry with the increased internet penetration will be the service sector's growth engine in India. The industry's size is expected to increase to $11.8 b. Among the challenges faced by the industry is its dependency on the service providers like suppliers, logistics service providers, etc. whose service in not up to the expectation and are affecting the service of the online companies. To solve this issue efforts are to be made to educate these service providers the importance of using technology and provide them incentives to use these technology and shift their focus on to the customers. Seeing the prospects of growth a lot of new online retailers have come up and there is a price war going on to attract more and more customers which is putting pressure on the profitability of the companies so it has become extremely important to manage cost to increase profits which is only possible by building an efficient backend- a nationwide delivery network, warehouses , inventory management , logistics, efficient teams to manage all this therefore supply chain management becomes an important factor on which companies depend to sustain in this industry. Flipkart obtained funding from Tiger global management in 2010 which is being utilized by the company for strengthening supply chain capacity and upgrading technology platforms, including automation at warehouses.

References:

[1] http://logisticsweek.com/news/2011/03/not-only-words/

[2] http://www.flipkart.com/about-us

[3] http://www.livemint.com/2011/06/16233030/Flipkart-raises-20-mn-from-Ti.html

[4] Articles from Economic Times

Vishal Singh is a PGP student of Indian Institute of Management Raipur. He has done his B.Tech in Chemical Engineering from BITS-Pilani, Pilani (Rajasthan) and can be reached at pgp11047.vishal@iimraipur.ac.in or at +91-7587208647.