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.

The Significance of Procurement Category Management

In today’s competitive environment, every second of time matters and is worth its weight in gold. This fact is readily observed as there has been a lot of research in the development and introduction of various methods aimed at saving time in the industry.

One of the most important metrics that represent the extent of time utilization or loss in regards to suppliers is supplier lead time, i.e. the time between placing of order and receiving the goods. It usually includes purchase order processing time, in transit time, receiving, inspection, and any inventory processing/repackaging time.

Besides, according to a survey conducted by Accenture during the recent economic recession, most procurement officers admitted that the recession had an impact on the supplier relationships and augmented supplier risk. The main reason was that the suppliers were looking for increase in their prices.

Procurement category management involves strategic development, assessment and monitoring of procurement and supplier performance in specific supplier categories. So, the basic steps for implementation are:

1.      Categorize each supplier based on the needs served by the goods supplied by the supplier. So, in other words, the suppliers supplying similar or substitutable items are placed in one category. For example, in case of a retail business, toothpastes and hair oils can be two different categories.

2.      It is also advisable to assign a person, as category manager or owner, to each category, based on the knowledge and application of the goods being procured from it.

Apart from shorter supplier lead time, the following benefits can be derived from this methodology:

1.      Since each of the categories requires similar procurement strategies and supplier relationship programs, it is far easier to manage the categories than to manage the uncategorized suppliers.

2.      It facilitates better relationships with the suppliers, which in turn improves supplier performance.

3.      It also helps in managing the spend by providing better purchasing power.

4.      It reduces supplier risk, develops a better supplier portfolio and provides better control over procurements.

In terms of supplier lead time and turnaround time, very significant differences have been observed between the organizations that are employing procurement category management and those that aren’t. According to “APQC Open Standards Benchmarking” in procurement, the supplier lead time in the former case is found to be around one-fourth of that in the latter case. Similarly, the purchase order processing time is found to be around nine times lesser for the organizations implementing procurement category management.

Procurement is undoubtedly one of the most lucrative areas to look into for cost optimization, and category management represents a well-defined and proven technique to go about it.

References:

1.      http://www.apqc.org/knowledge-base/download/229883/a%3A1%3A%7Bi%3A1%3Bs%3A1%3A%222%22%3B%7D/Category%20Management.pdf?destination=node/229883

2.      http://www.accenture.com/SiteCollectionDocuments/PDF/Accenture_Leveraging_Category_Management_podcast_transcript.pdf

3.      http://www.driveyoursuccess.com/2011/08/using-pert-analysis-to-estimate-vendor-delivery-times.html

The writer of this article, Akshay Agarwal is a PGP student of Indian Institute of Management, Raipur and has done his B.Tech from Indian Institute of Technology, Guwahati.

Supply Chain Improvements in Wal-Mart

Wal-Mart the retail giant has been successful to attract customers through the unbelievably low prices it charges for its products. ‘Everyday Low prices’ is the atrocious slogan Wal-Mart dared to use for a long period and which it has displayed in action. Such an accomplishment could be achieved by Wal-Mart as it was successful in creating a great supply chain on which it had a high degree of command. The growth model which Wal-Mart followed was based on excelling in the logistics. The real power derived by Wal-Mart was due to the fact that it could put pressure on its suppliers on account of its huge purchasing power. Wal-Mart has an enormous control over its suppliers and dictates terms in what to produce, when to produce and the price of the produced goods.

Wal-Mart can exercise the power it does on its suppliers as it is the organization in the supply chain which is controlling the end sales. The sales information which is vital to all players of the supply chain can be provided only by the end retailer. Wal-Mart maintains a collection of last two years sales data which it shares with its suppliers. Thus, it saves the effort on Wal-Mart’s part in situations where they can do away with the purchase orders. The suppliers themselves analyze the sales data and determine how much to produce. Wal-Mart also uses this system to predict future sales data which is again very attractive to the suppliers. Thus, handling of such a huge volume of data has become a core competency of Wal-Mart. It just has to provide the adequate training to the suppliers to use this data effectively, and thereby minimize its own and its suppliers’ costs.

Another area of the supply Chain where Wal-Mart has shown innovative thinking is the area of transportation. The complex transportation network necessitates bringing all the supplies from different producers from different areas to one location which is highly complicated and requires sophistication. This is where the second core competency of Wal-Mart lies. Wal-Mart has also achieved high levels of Logistics Coordination by establishing buying offices around the world. It does not use intermediate warehouses and has abolished middle men from the chain. This has also led to lowering of costs resulting in higher revenues.

Wal-Mart has chosen to establish suppliers in countries which have lower costs of production to lower costs. It has thus utilized technology, invested creatively trained the members of its supply chain and used its purchasing power to create an effective supply chain which has been at the core of its success. It thus has established a pioneering position in the retail industry which is now being emulated worldwide.

References:

http://www.freepatentsonline.com/article/International-Journal-Business-Strategy/208534987.html

Supratik Saha is a PGP student of Indian Institute of Management, Raipur. He has done his B.Tech. in Computer Science & Engineering from Siliguri Institute of Technology, West Bengal and can be reached at totoslg @ gmail . com

Lean Manufacturing at Dell

 

Dell has also used Just in Time principles to make its manufacturing process a success.  They leverage their suppliers use JIT. Dell is about quickly assembling the part which are sourced from their suppliers and delivering to customers. They force their suppliers to carry inventory and Dell stays lean on inventory. Short lead times are provided to customers and thereby shorter lead times are demanded from their suppliers. Quick assembling and quick shipping is the USP of Dell. They have been able to do successfully implement JIT because of variety of reasons. It has had a Dependable supplier base. They have been able to meet Dell’s demanding lead time requirements. Also it has a seamless system that allows Dell to transport its system requirements. The systems are very efficient as they arrive in time to help Dell fulfill its lead times. Somehow Dell has been able to fore the suppliers to carry inventory and this willingness of suppliers to carry inventory on hand allows Dell to have low costs on inventory.

Because of JIT it has been able to successfully reduce the inventory related costs.  In 1993 it followed a practice of carrying over 10 weeks of inventory. Since 2001 it carries 1 week of inventory. This saves it majority of costs now. Inventory costs are even higher in computer industry as rate of depreciation is very high. By this rate Dell used to lose roughly 10% of the value of inventory per year.  After implementing JIT it loses roughly 1%. By this calculation dell has been able to save 9% costs in inventory management.

References : www.inventorymanagementreview.org/justintime/

The writer of this article, Naman Jain, a PGP student of Indian Institute of Management, Raipur has worked in GE Healthcare Labs. He has done his B.Tech in Computer Science & Engineering from Vellore Institute of Technology, Vellore and can be reached at namanvit @ gmail . com