Logistics – A Key Lever in E-Commerce Marketplace

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Logistics – A Key Lever in E-Commerce Marketplace
By
ZUBIN POONAWALLA
Before we discuss about the Logistics in E-Commerce market place, let’s see a basic supply
chain & the scope of logistics within the supply chain & then move onto the main subject.
“All the movement of product in raw material, semi finished & finished goods form from point
A to point B is the scope of logistics.”
E-Commerce is a part of the overall supply chain & it’s just another distribution model to
receive orders & distribute the products to the customers. All that is between the order from
the customer & the order completion is the ‘Logistics’ That explains the criticality of logistics &
certainly logistics is the key lever with the overall E-Commerce model.
E-Commerce Transaction Types:
Electronic Commerce (E-Commerce) is a platform in which buying & selling of goods is done
& for this internet is needed. Based on the Buyer & Seller, there are 3 types of E-Commerce:
 C2C (Consumer to Consumer)
C2C transactions happen between customers. The E-Commerce players provide the platform
& the processes, through which the transaction takes place. A commission on the transaction
value will be the gain for the E-Commerce player. Example of C2C businesses are – Online
auction (E-Bay), Online Classifieds, Online Real estate esp. Rent (Commonfloor.com,
Magicbricks.com)
 B2B (Business to Business)
B2B are the transactions between businesses. Examples of this model are – Indiamart.com,
TradeIndia.com, & Sulekha.com.
 B2C (Business to Consumer)
B2C is the most common form of E-Commerce in which a variety of goods are available. Few
categories to name are Electronics, Apparels, White goods, Footwear, Stationery, & services
like Online Travel Booking & Online Matrimonial websites. Few key players at different
categories of B2C are Flipkart, Snapdeal, Amazon, Cleartrip, Expedia, Ibibo, IRCTC,
MakeMyTrip, Yatra, Jabong, Myntra, Yepme, Zovi, FabFurnish, PepperFry, UrbanLadder,
Zansaar, BigBasket, EkStop, LocalBanya & ZopNow.
Main Flows in E-Commerce:
There are 4 key flows in E-Commerce and they are (1) Product Flow, (2) Cash Flow, (3)
Information Flow, & (4) Reverse Product Flow.
Product Flow: This is the movement of the goods from the suppliers till the customers.
Logistics players play a key role in moving products through this chain.
Cash Flow: Cash flow is from the customers back to Suppliers through the multiple stake-
holders in the E-Commerce model i.e. from Customer to E-Commerce players & Supplier
through intermediaries.

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Information Flow: This information flow happens in both the directions & a key flow which is
vital for the proper functioning of the end to end activities in the E-Commerce model.
Reverse Product Flow: This specifically means the product returns & damages which has to
be picked from the customer & returned to the supplier through the E-Commerce player.
E-Commerce Operating Models
Depending on the mode of operations, there are two types of E-Commerce models. They are
(1) Inventory Model (Buy & Sell Model)
(2) Marketplace model.
In the former E-Commerce model, products are procured, stored & delivered after the order is
received & in the latter, products are displayed in the portal & once the order is received the
products are picked & delivered to the customer.
1. Market Place Model
In Marketplace model, products from multiple vendors are displayed in the online platform
(Website) & the products could be from Brand, Shops or even Individual person. The
marketplace provider takes care of the marketing & attracting customers, ensuring track of
transactions & the user interface, whereas the vendor who is displaying his product will take
care of availability of product & shipping. Marketplace provider takes a percentage of the sale
as his revenue from the vendor. Marketplace doesn’t hold any physical inventory & thereby
avoiding holding costs. Hence, Marketplace can offer a wide variety of products but the major
concern for this model is the real time data & information flow between vendor & market place
systems & product quality.
2. Inventory Model (Buy & Sell)
In Buy & Sell model, the products are purchased by the E-Commerce organization & stocked
at their warehouses. Those procured products are displayed on the website & once the
customer purchases the product, the product is delivered to the customer at his/her doorstep.
In this model, huge inventory holding cost is a major setback but the benefit is the product
can be delivered quickly to the customer & also highest level of customer experience can be
provided since the E-Commerce provider manages & accountable for the delivery & quality of
the product.
E-Commerce Logistics (Last Mile)
There are a lot of ways the Last Mile delivery is planned & few time slot based deliveries are
explained below:
 Scheduled delivery
In scheduled delivery, Customers can select any specific date for delivery within a specified
time period after placing an order. For example, Flipkart offers a window of 7 days within
which customer can select a delivery date.
 Same-day / Next-day delivery
If customers do not prefer a scheduled delivery, they can opt for SDD (Same Day Delivery) or
NDD (Next Day Delivery). E-Commerce players offer this option for most tier 1 & tier 2 cities.
Though it is the most preferred option of the customer & they need the ordered products
immediately, this needs a well-coordinated logistics planning & execution. To achieve
optimum logistics cost in this model, substantial volumes are needed every day on all the
lanes where this SDD/NDD options are offered.

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 Slotted Delivery
Customer can pick a preferred delivery slot and the slot timing can vary from 2-4 hours.
BigBasket.com offers 2 hours slot & offers around 4 slots in a day. After the order is placed by
the customer, they display the available slots for the same day & the next day for the
customer to choose from.
 Open Box Delivery
One of the major challenges faced by the E-Commerce players is ‘Product Returns’. These
returns could not be questioned or argued with customer since the product is not seen during
delivery & it can badly impact the customer experience & may end up in losing market share.
Around 30-40% of the return reasons are product damages & the solution to this is ‘Open
Delivery’. In this model, the product is unpacked & displayed to the customer. Also the
customer signatory would be received in an online form using a tab or a hard copy of a form.
This can be a valid proof & means to solve most of the post-sale issues coming out of product
damages.
Though ‘Open Box Delivery’ is not going to solve all the issues, it will certainly solve most of
them. For example, a customer who signed off on a form after receiving his brand new laptop
as open delivery can’t come back & complain that the laptop screen is fully broken. Another
great advantage of this model is – Any genuine intact shortages or damages found out during
Open Box Delivery, can be taken back in the same delivery vehicle avoiding extra reverse
logistics cost & we can avoid customer waiting time significantly since the replacement
product can be initiated immediately. Open Box Delivery will increase your delivery time a bit
& may negatively impact the number of deliveries per vehicle/trip. Currently, this model is not
used by any E-Commerce players but definitely this is in pipeline.
 Plug & Play
The final model is the ‘Plug & Play’. As the name implies, the product is plugged & played
during the forward flow itself. This would not only sort out the product damage claim during
post sales but also ensures that the product is in working condition during the time of delivery.
Though it sounds great, effective implementation of this is a big challenge. The reason is –
this model expects the field executives (FE) to actually set up a product & shows it working
condition which demands high quality people & training for the FE(s). Hence, Plug & Play has
to be evaluated sector-wise & can be switched-on on segments where it will be effective.
Even this model is not in practice but we can experience them soon.
Snapshot of Logistics Industry in India
Logistics in India is highly un-organized & the unorganized pie is close to 80% of the $150+
Billion logistics industry. There are close to 35,000+ pincodes in India & even the big names
of Indian logistics industry have access only upto 14,000+ pincodes. But, even within that
smoother operations happen only at around 6,000+ pincodes. That tells the story of the long
way ahead of the logistics industry. Logistics Infra, Indirect Taxation & the documentation
protocols are the three main bottlenecks on this Industry.
E-Commerce Logistics Unit Performance Data
E-Commerce players use either home grown logistics operations else rely on 3PL or a mix of
both. Delivery lead time varies from same day delivery to a max of 5-7 days. Higher
lead times are typically for north east distribution & for ODA (Outside Delivery Areas)
locations.
Delivery cost per parcel considering most of them are within 1-1.5 kgs, costs between INR 40
to INR 175. Also COD (Cash On Delivery) adds additional INR 40 to INR 100. This is the
base logistics cost & there are many variations like voluminous products, express vs non
express, special packaging etc.

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In general, E-Commerce players operate at a total logistics cost (TLC) of around 10-15% of
sale which is so high compared to the traditional retail logistics costs of 2-5% of sale value.
The major reasons are air shipments, higher customer returns & also higher importance to
service levels which hits you at the load optimization & thereby on the cost.
Market Place Logistics
Market Place Logistics have two parts to it – First Mile Logistics (Consolidation | Pick Up) &
Last Mile Logistics (De-Consolidation | Delivery).
We have two options to handle the market place logistics – (1) Direct delivery by Seller & (2)
Delivery by E-Commerce player. There are a lot of pros & cons. Though by the outlook it
seems that direct delivery is preferred option, I stand the other way since the ecommerce
players totally exposes the most crucial customer experience & loses control over it. This will
actually open up a lot of other logistics issues & will hit our bottom-line. Hence the suggested
option is for the E-Commerce players to manage the logistics with a mix of in-house &
outsourced 3PL.
“In Nutshell, there are a lot of logistics start-ups budding up keeping the focus on E-
Commerce organizations & all of them are doing pretty well. But from the E-Commerce
organization standpoint, Market place logistics impacts all the key value propositions –
Right Product, On Time delivery & Customer Experience & more importantly have a
lion’ share on the bottom-line.”
Hence, logistics is one function which has to be in cent percent control for the organization to
spear-head & also break even in the long run.