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.

IIM Raipur Faculty and Students contribute Articles for Pan IIM Operations Magazine

The second edition of the Pan IIM Operations Magazine, “Opsworld” was released by Prof. Janat Shah, Director, IIM Udaipur during the International Operations Conference organized by Society of Operations Management at IIM Calcutta on 18th December 2011. The theme of the magazine is Sustainable Operations Management. The magazine would be hosted on SOM website alongside the prestigious operations management journals.

The magazine contains two corporate articles – one from Flipkart and the other from Ernst & Young. The magazine contains faculty as well as student opinion on Sustainability through two different sections. Also included are the general operations management articles in the General section.

The magazine can be downloaded from the following address as well. (http://paniimoperations.com/magazine/)

In the Editorial, The Editor in Chief has thanked IIM Raipur for their valuable support throughout the process.

In his article, “Jack of All Trades, Master of… Two”, Prof. Omkarprasad S Vaidya, Faculty in Operations Management and Quantitative Techniques Group at IIM Raipur has discussed some of the Management Problems and their possible solutions as a result of an interface of other streams with ‘Operations’ Management.    

Rohit Bhagat, a PGP 2010-12 Student of IIM Raipur has written an article on “Unique Challenges in Humanitarian Logistics”. The article starts with a description of the Disaster Profile of India and emphasises the need for research in the field of Humanitarian Logistics keeping in mind India’s risk profile. The article brings out the challenges that need to be addressed while undertaking humanitarian logistics.

Aditya Kumar Konathala and Amit Sharan Singh, PGP 2010-12 Students of IIM Raipur have discussed the positive impact of Information and Communication Technology (ICT) on Paddy Procurement and Public Distribution System (PDS) in Chhattisgarh in their article “ICT and Supply Chain Practices in PDS (Chhattisgarh)” .

Tarang Singhal, a PGP 2011-13 Student of IIM Raipur was a part of the Layout and Design Team.

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.