The document discusses the e-commerce supply chain challenges in India. It provides an overview of the e-commerce industry trends, key drivers and challenges. Some of the major challenges discussed include lack of logistics infrastructure, issues with last mile delivery, return orders, cash on delivery, and integrating with multiple logistics partners. The document also analyzes Porter's five forces of the industry and discusses factors affecting the bargaining power of suppliers and customers. Lastly, it evaluates different business models and strategies companies could adopt from 2015-2019 to succeed in this competitive environment.
2. Supply Chain Next (SCNext)-----The Youth of Supply Chain
The Ptak Prize Challenge
Round 2 : Ecommerce Supply Chain Challenges
Team Inquisitive, SIOM
Snehal Rathi
Nikhil Nagdeote
Sri Harsha
3. A business model that
strikes a right balances
the tradeoff between
customer satisfaction
and investor profits can
only sustain in this
highly competitive
industry….
With no entry barrier
any business model
can be easily
replicated. Continuous
Innovation and
operational efficiency
is the key to success..
Else many existing
players will perish
soon…!!
The major challenge is
customer stickiness,
which in the current
scenario is lost due to
too many players having
similar business models
and raging price wars,
leading to a downward
spiral…
Vicious Cycle: Pressure
from investors may lead
to rising prices and
once again customers
turning to offline store
leading to drop in
orders..
The offline players
shifting online have a
competitive advantage
over the online players
trying to go offline…
Logistics
infrastructure, last mile
delivery, COD, frauds,
return orders, multiple
logistics partners, and
huge cost of acquiring
and serving a customer
have been major
challenges for the
industry…
Executive Summary
There are no hidden figures about the growth of E-commerce
industry in India. The online retail market is only 7.9% of the
organized retail (Rs 1767 Billion) and a mere 0.5% of the overall
retail ( Rs 25286 Billion) as of 2013.
The industry is at its nascent stage as compared to developed
countries and is surrounded by major technology and logistics
challenges.
With huge influx of venture capital there is no entry barrier,
supplier and customers have higher bargaining power and the
industry is highly competitive.
With talks of liberalizing the e-commerce in India and tax
restructuring, the current market players may face even more
competition from the foreign players.
To start an ecommerce business in 2015, in the industry which is
yet to see profits, which lacks customer loyalty, companies need a
robust business model which allows efficient technology integration
with product/category focus.
With more that 50% online sales being from tier 2 and tier 3
cities, the focus should shift to connecting cities and smaller places.
Strategic partnerships with offline players, bulk deliveries, value
added services and seller sustainability should be the focus for these
companies.
In this highly competitive environment, the one who provides
Value to customers at the required Velocity with sufficient product
Variability and Visibility and takes care of all Vulnerabilities will be
the last man standing and will win the game.
4. Industry Overview
Market Size and Segmentation (2013)
3.85
5.26
7.03
US $ Bn
9.48
12.6
15
20
2009 2010 2011 2012 2013 2016 2020
Online
Travel
Industry
73%
Financial
Services
6%
E-Tailing
14%
Classifieds
5%
Other
Services
2%
Analysis of
SC and Logistics
Industry Overview
In the last 5 years the industry has seen
exponential growth marking a CAGR of 59%
from the year 2009 to 2013.
Online travel, as of last year they have a
lion’s share of 73% out of the total E-Commerce
market.
Electronics and fashion are close second
with a share of about 14%, followed by
financial and other services.
With rise in internet penetration the e-commerce
market is expected to grow to
about $ 20 Billion by 2020.
Currently works with two main models:
Inventory based (buy and sel) and market
place models.
More than 70% transactions are based on
cash on delivery model to gain the trust of
consumers.
*Source: McKinsey, Online and upcoming : The internet impact on India, Dec 2012
Google Report, Economic Times.
Internet and mobile association of India, April 2013
Porter’s Five
Forces
Strategy
2015-2019
Who Will Win
Estimated Y-o-Y
growth ~ 33%
5. Key Drivers of E-commerce
Busy lifestyles, urban traffic congestion and
lack of time for offline shopping
Low cost products available online with heavy
discounts
Rise in the standard of living and burgeoning
upwardly mobile middle class with high
disposable income
Increasing broadband internet services and
growing 3G penetration in India.
The emergence of M-commerce and
Smartphone penetration.
Last mile delivery of not only products but
also services.
Rising capital influx from venture capitalists
and Private Equity
Rise in the literacy levels enabling consumers
to buy online.
Online payment systems.
By 2019 the internet users in India are
expected to grow to 420 million with 32%
penetration.
*Source: McKinsey, Online and upcoming : The internet impact on India, Dec 2012;
Dinodia Capital Advisory Report; Research by Alvis Lazarus;
Internet and mobile association of India, April 2013
2300
Internet Users and Penetration
480
245
120 102
34.00%
38.00%
77.00%
10.00%
80.00%
90.00%
80.00%
70.00%
60.00%
50.00%
40.00%
30.00%
20.00%
10.00%
0.00%
2500
2000
1500
1000
500
0
Global China US India Japan
Internet Users % Penetration
2662
583
279 350
105
43.00%
43.00%
86.00%
28.00%
84.00%
100.00%
90.00%
80.00%
70.00%
60.00%
50.00%
40.00%
30.00%
20.00%
10.00%
0.00%
3000
2500
2000
1500
1000
500
0
Global China US India Japan
InduInstdruy sOtvrye rOviveewrview Analysis of
SC and Logistics
Porter’s Five
Forces
Strategy
2015-2019
Who Will Win
2011
2015
6. 1
2
3
4
5
Procurement
Inventory
Warehouse
Operations
Transportation
& Logistics
Payment and
Post sale
support
Analysis of
SC and Logistics
Traditional Brick and Mortar E-commerce Supply Chain Challenges in e-commerce
SKU limited by limited shelf space;
Items procured in bulk
Virtually unlimited shelf space;
Items may or may not be procured
by company ( marketplace model)
Direct shipment from supplier does not allow bulk
shipments; lack of coordination ; lack of technology
integration; Longer Procure to Pay cycle
Inventory exists at distribution
centers ( National; regional; stores)
Inventory exists either at
distribution centers or at highly
distributed supplier location
(sellers)
Huge inventory in case of buy and sell model; High
probability of stock out; No specific product
location as unsold products are returned to sellers
by e-commerce companies
Lower number of orders ;
Limited need for small order size
picking and packing;
Machinery needed due to larger
sizes
Large number of orders ;
Significant need for small order size
picking and packing;
Manual labor needed due to smaller
sizes
No stacks of similar products exist; Locating a
product requires quality tracing system; Every
product requires different packing and dunning
making pick and pack more complicated
Often company owned fleet drivers
between DCs and to store;
Low need for door to door delivery;
Low logistics cost per item
End item picked by consumer from
stores
Delivery picked from DC or directly
from seller
Direct shipment or indirect (from
seller to DC and DC to customer)
Needs door to door delivery of end
items;
High logistics cost per item;
Risk of theft and fraud; Tracing and tracking of
individual items become difficult;
Less connectivity to end consumers; Less
connectivity between cities and rural India; Return
order consolidation required; Full truck load is a
major concern; Multiple consolidation points
Payment at point of service;
Return to store
Payment online or at point of delivery;
Need for secure online payment system
Return to DC or seller;
Value added services crucial for
differentiation;
Last mile delivery person responsible for customer
experience;
Risk of theft and fraud; Customer expectation for
service guarantee; Longer order to cash cycle
reducing the working capital
The bottlenecks and complexities in E-commerce logistics are caused not only because of difference in transportation needs but
because of a different business model altogether. Every stage in the e-commerce supply chain causes different challenges for
logistics arm of the company.
Industry
Overview
Porter’s Five
Forces
Strategy
2015-2019
Who Will Win
7. Lack of connectivity between cities, and rural India Underdeveloped Infrastructure
VAT Regulations Reverse Logistics ( Consolidation centers)
Lack of Skilled Labor Inefficient Technology integration
Inefficient trace and track Pin code reach and COD ( Non standardization of Postal Address )
Its not only the bidirectional flow of material but also that of information and cash which affects the efficient
operations
Reason for Bottlenecks
No one size fits all. The supply chain and especially the
logistics need to be fit for a product category.
Glossary, fruits and vegetables, furniture other consumer
goods and electronics all demand different network capability.
There has to be balance of trade off between efficiency on
one end and responsiveness on the other. Companies are
adopting the same strategy for all categories due to broad
range of offerings.
More than 50% of the demand for online products has been
from tier 2 and tier 3 cities. Reach to tier 3 places along with
rural India is still a major barrier to growth of ecommerce.
But there is lack of warehousing infrastructure here at the
same time lack of connectivity between cities and these places.
Of the six drivers of supply chain, neither of the drivers are
completely utilized nor completely integrated.
State owned transport is not customer centric and private
owned transportation lack funds for expansion.
Drivers of Supply Chain for Ecommerce Industry
Competitive Strategy
Supply Chain Strategy
Efficiency Responsiveness
Logistical Drivers
Facilities Inventory
Transportation
IT systems Sourcing Pricing
Cross Functional Drivers
Critical Bottleneck Factors in a nutshell
Industry
Overview
Porter’s Five
Forces
Strategy
2015-2019
Who Will Win
Analysis of
SC and Logistics
8. Industry Overview
Factors that cause Last mile network planning and scheduling a nightmare
Less than Truck load and Empty backhaul Package cost due to separate delivery for same order
Outsourced vs Owned logistics (Multiple Logistics Partners) Trust on 3rd party vendors
Product Availability Ship to delivery time ( slots)
Cost per Kg and collection cost for COD orders Size of product (Weight and Volume)
Flexible return policies Unitization and Palletization not possible
Last Mile Delivery cost for owned and outsourced
service
Last Mile
53%
Collection
4%
Line Haul
37%
Sorting
6%
Reason for Last Mile Network Planning and Scheduling
Nightmare
There is a clear gap in the market with no logistics player
offering the breadth of services needed at a competitive price
across a broad network demanded by ecommerce companies.
Large networks offering basic services or Small networks
offering more complex services. No one service provider to
handle everything.
E-commerce in certain segments like baby products, consumer
electronics, telecommunications, computer products and furniture
are struggling with logistics supplier’s inability to handle large or
irregularly shaped shipments at lower costs.
Companies have to rely on multiple logistic partners (DTDC,
Blue Dart, owned logistics, etc) making the technology integration
more complicated.
Empty back hauling by delivery personal and double trips to
collect return goods.
Consolidating the forward and backward movement of items
from a particular area in single trip is complex.
This leads to network planning and scheduling a nightmare.
40
35
30
25
20
15
10
5
0
1
500
1000
1500
2000
2500
3000
3500
4000
4500
5000
Owned
Outsourced
Last Mile Delivery
( average cost per parcel)
X Axis: Total
parcels
delivered (per
city per day)
Estimated cost structure per parcel for logistics
Industry
Overview
Porter’s Five
Forces
Strategy
2015-2019
Who Will Win
Analysis of
SC and Logistics
9. Threat of New Entrants
Easy access to distribution channels
Low initial capital investment
No entry barriers and lot of funding
options available
Low consumer switching costs
Huge growth opportunities in India
Contract Qualifiers
Threat from Substitutes
Negligible Product Differentiation
Lot of substitutes are available
The product performance of substitute
products is same or better
Low switching costs make the industry
price sensitive
Bargaining Power - Buyer
Multiple options and variety to choose
from
Low switching costs
Can easily compare product prices and
features across platforms
With increasing competition the
bargaining power is shifting towards
consumers
Bargaining Power - Supplier
Huge scope for forward integration by
supplier to sell their own products and
increase their margins
Multiple selling platforms provide high
bargaining power
Low to medium switching costs for e-commerce
companies
Low entry barriers make the
industry very competitive and
decreases the scope for potential
profits
Companies have to compete
with brick and mortar as well as
other ecommerce companies
High exit cost for inventory
based models
Internal Rivalry
Tough competition makes it
difficult to increase the market
share
Companies competing only on
prices with very low
differentiation
Consumers always look for better
deals and thus there is no brand
loyalt amongst the consumers
Minimum product differentiation
and low switching cost give a lot of
power to buyers
Suppliers have high bargaining
power as they sell via multiple
platforms and channels
Industry
Analysis Porter’s of 5 SC
Forces Overview
and Logistics
Strategy
2015-2019
Porter’s Five Forces Who Will Win
10. Negatives
Positives
Analysis of SC
and Logistics
Porter’s 5 Forces
Porter’s Five Forces Who Will Win
Will you start your own
E-commerce business in 2015??
Bridging the Internal and
External Environmental
Gap with…
Industry
Overview
Strategy
2015-2019
…..Supporting Environment ....Right Operations Model
Probable implementation of GST by 2016
Make in India to help build infrastructure
Funding available from angel investors and VCs
E-commerce logistics growing at a very fast pace
A lot of technology start up are changing the way
businesses work
Shifting trend from cost leadership to
product/service differentiation
Sustainable Business Model
Distribution strategy to reduce cost
Track customer experience but at the same time
reduce cost. Differentiate with Value Added
Services.
Focus on niche segment with huge
Analyze all risk and exit strategy.
Strategic Partnerships with offline players
+
1. Attractiveness of Industry in terms
of scope and growth
2. Huge untapped market
3. Internet and Mobile Penetration
1. Profitability
2. Customer Loyalty
3. Government Policies
We would not start our Ecommerce Business with a broad segment category competing on cost with no entry barriers.
Right product for right market with huge growth potential supported and equipped with right business model is what we
would look to start with. A niche market segment ( Eg: Influenced by Women buying decisions with CAGR of about 40% in the
near future) with first mover advantage would be our preference to start with.
11. Where Are Companies losing/spending/overspending? Customer Expectations
Customers
Operations
Investments
Customers do expect the lowest prices for products
but it is not the only criteria. The trend has been
shifting towards quality and differentiation.
Value added services : Product trials, fast and
efficient and scheduled, delivery, Cash on Delivery,
Easy pick up for return orders, online assistance,
combo offers
Customer wants to experience the feel of offline
market at every touch point like marketing, presales,
purchase experience, and post sale service.
Customer wants efficient delivery, minimum hassle
of product return and cash in hand for returned
products.
Everything come at an extra cost to the companies.
Industry Overview
Companies are investing around Rupees 1200 to
1500 to get a customer with an average order of
Rs.500 ( one time)
Huge discounts from investors hard earned money.
Reinvesting the money earned to provide more
discount and services to customers.
Huge investments in expansion, acquisitions,
category expansion, logistics and technology.
Despite very low (negative) Cash Conversion Cycle
( Amazon CCC = -30 days), cash remittance take very
long due to COD facility.
Very recently the cash remittances have been
reduced from 15 days to a week.
Capital is essential to run
the operations, provide
service and fulfill customer
expectations.
If there is no investment
then there would be no
customers and if you don’t
win customers then you
don’t need capital. ….
Industry
Overview
Analysis of SC
and Logistics
Porter’s Five
forces
Strategy 2015-2019 Who Will Win
12. The Goal of the Business is to make money..!!
Increase Throughput...!! Reduce Inventory…!! Reduce Operating expenses…!! (All the same
Industry
Overview
time)
Analysis of SC
and Logistics
Porter’s Five
Forces
Strategy 2015-2019 Who Will Win
2015* 2016*
Strategic Partnership with offline players and
Government ( training and educating people and
promoting specific industry segments)
Service Partnerships/ Service Acquisitions
Focus on the tier 3 and 4 cities which contribute to
more than 50% of the online sales. (Revenue / Cost
per sq feet is bound to be low)
Starting offline operations in the form of Return
consolidation centers in metros.
Initiate education and training of offline retailers to
integrate virtually and adapt to technology.
Invest in building partnership with logistics solution
providers or develop own logistics network.
Tie ups with corporate for bulk deliveries at office
locations.
2017* 2018*
Shift to a single logistics solution provider in every
state / region.
Integrate technology between the partners.
(Vendors/sellers, warehouse and Logistics partners).
Align penetration strategy with that of logistics
partner
Expand product category only by acquisition and
diversion of all orders by technology integration
With increasing use of debit card shift to 50% COD
model.
Smaller Fulfillment centers near to customers and
multiple delivery options ( Home delivery, Parcel
Pickup)
2019*
Completely personalized services
Personalized Billion Day offers rather than mass offers
Complete penetration to rural India
*End of Year Targets
13. Industry Overview
While the trend to go online is inevitable, there are delicate issues that brands need to balance between their online and
offline operations:
(1) Price difference between the two channels leads to traffic loss offline, so SKU differentiation maybe the only option.
(2) Organizational level: Reconciling differences between online and offline management
(3) Customer synergy needs to be carefully examined.
Online to Offline: Pros and Cons Offline to Online: Pros and Cons
Have strong distribution networks in the form of
distributors and retailers.
Strong technology system and training to the traditional
retailers to adopt to changing environment will favor this
group.
Can have products listed on multiple platforms including
its own web portal. ( Multi channel sale)
Major challenge is to maintain same cost across all
platforms and channels
Have advantage of customer touch experience and
capability to provide all value added services including home
delivery and product return.
High proportion of in-house logistics capabilities and
prior experience Needs little upgradation. A area or regional
store accessible to limited consumers.
Have to work all the way on distribution networks.
Sound technology and can reach internet and mobile
penetration.
Customer touch and feel experience will make them take
the offline way.
Virtually no limit to inventory and variety. Huge number of
sellers. Available to provide competitive costs to consumers.
Offline stores would be the face for the customers.
Offline store will help provide post sale customer service
and experience which is currently missing.
Strategic partnerships with existing offline players will
strengthen the entire system.
Offline stores will can act as return consolidation centers
thereby reducing return costs.
With both the groups having different set of advantages and challenges….The one who provides Value to customers at the
required Velocity with sufficient product Variability and Visibility and takes care of all Vulnerabilities will be the last man
standing
and will Win the game.
Industry
Overview
Analysis of SC
and Logistics
Porter’s Five
Forces
Strategy
2015-2019
Who will Win
14. Consumer will choose shopping channel of preference
Choice, Availability and Price will decide shopping habits as compared to shopping experience
Shopping will be treated more as a chore than recreation due to work pressures.
As attitudes change, consumers will buy high value items and brands online.
Having discussed this, following factors make offline players moving online more probable to win with right strategy
implementation at the right time…
Why online cannot..!! Why offline can..!!
Online players trying to go offline could not
provide the same variety as its online portal.
If they go offline it has to be for specific
categories like fashion and apparels, electronics.
Huge investment at this point of time to set up a
shopping mall type of a center in cities in order to
accommodate maximum number of categories.
Lack of variety would take away its one of its
existing advantages.
The cost of products would increase due to the
extra cost of inventory and operations.
This could make the consumers more dissatisfied
and companies even less profitable.
Offline players need to set up enough stores to
be accessible which is not foreseen in near future.
Offline players need to work on their operational
efficiency with respect to reducing customers
shopping time by providing what they want.
Services like home delivery, store specific
inventory applications will help customers to make
good choices.
More over they have all the advantages of being
online via multiple online platforms.
Strategic partnerships with online market places
to sell products and act as service partners.
They can have their own brands listed online and
offline for display and trials.
Talking about products from brands ( Sony,
Toshiba); they have a strong distribution network in
the form of distributors and retailers.
Last mile delivery is more easier given the reach.
Industry
Overview
Analysis of SC
and Logistics
Porter’s Five
Forces
Strategy
2015-2019
Who will Win