Disrupting Distribution

Chitra Narayanan, The Hindu Businessline
Bengaluru, 18 August 2016 

When Harry Potter and the Cursed Child was launched globally, Snapdeal arranged deliveries of the book within two hours of the order being placed. It could do so thanks to its predictive demand management system fuelled by big data, and its 69 ‘fulfilment’ centres across the country.

In the age of instant gratification, it’s getting harder and harder for companies — especially e-commerce retailers — to meet customer expectations as shoppers want stuff here and now. Drones may help in the future. But today, as Samay Kohli, CEO and co-founder of Grey Orange, a logistics start-up that builds robotic solutions, says, “The only way you can do two-hour deliveries is if you set up automated warehouses which are closer to market.”

Snapdeal’s chief Customer Experience Officer Jayant Sood says the company is focusing on leveraging cutting-edge technologies — from big data and predictive analytics to IoT technologies — to bring previously unexplored operational and business efficiencies at each leg of customer engagement.

He describes how the e-commerce major is now operating closer to customer clusters, reducing last-mile delivery gaps, and has introduced six new one-touch fulfilment centres which combine warehousing, quality control and transportation in one complex.

It has also piloted a plug-and-play model in Delhi-NCR, which, he says, “allows our partners to integrate with our supply chain management system on their own and work towards better resource allocation.” This will be scaled up nationally soon.

Devangshu Dutta, chief executive of retail consultancy Third Eyesight, says that across India, you will still find old-style godowns “where workers clamber over sacks like monkeys” and where no digital inventory is maintained. Yet, you are also seeing highly automated warehouses with intelligent tracking software that tells you exactly where a consignment is, he says.

He feels e-commerce is leading the change. “E-commerce is mostly run on cash on delivery. The faster you can move products through by reducing shipping times and holding times, the quicker you can get your cash,” says Dutta, pointing out that such considerations are driving companies to improve their supply chain.

Another key concern is to reduce fraud. Says Kohli of Grey Orange, “Our focus is to fight inefficiencies in the system, add scale and flexibility to supply chain.”

Remember the time somebody ordered a laptop on Flipkart and got three stones instead? Or when somebody ordered a mobile phone on an e-commerce site and got a Vim bar?

Kohli describes how a lot of fraud happens within the supply chain. He cites, for instance, a case where laptops were being shipped out of a warehouse but were being billed as toys.

“Somebody was going online and ordering toys and these laptops were being shipped out,” says Kohli. The solution: sorters with X-ray machines which can catch these pilferages.

Kohli also talks of how once a warehouse is automated, it allows the e-commerce company to actually create demand and service it instantly. It can also be geared for unpredictability. For instance, a tweet with a picture of red shoes got an apparel company a whopping 160 orders for the pair. In normal circumstances it would not have been able to service the order quickly. But thanks to the demand management software, very quickly the company caught on that something strange was happening.

“They spotted that order gap time was reducing — earlier it was a week, now orders were coming in every five minutes. By the time the fourth order came up, the message had been communicated and, at the warehouse, robots moved the rack with red shoes right up front,” says Kohli.

“Through automation we can take care of all the spikes — both predictable and unpredictable,” says Kohli.

It’s not just e-commerce companies. FMCG behemoth ITC, with brands such as Sunfeast, Bingo and Yippee noodles, has also done formidable work on its distribution chain, putting in place an IT backbone to power it. In terms of scale, ITC has about 50 distributors, 2,800 stockists, and 8,000-plus salesforce on ground and reaches out to two million retailers directly.

The IT backbone created by ITC’s Infotech division links the entire chain from head office down to every single outlet.

Advanced back-end individualised analytics capture outlet-level sales. Once the sales data is captured, and a pattern emerges, the company uses an algorithm called the Schemulator to develop promotional schemes for each outlet.

If, say, a particular biscuit variety is doing well at a kirana storeoutlet, then very quickly the Schemulator formulates a discount incentive for that outlet — perhaps a pack of four biscuits for the price of three, which is offered at the shop in next to no time. Given that ITC owns the packaging business, it can very quickly change packaging for individual outlets to match the scheme.

ITC is already moving towards a distributed manufacturing and an integrated warehouse strategy. Once GST happens, a lot more companies will change their warehousing strategy. Currently, taxes determine where companies set up distribution centres. “But once GST kicks in, distribution centres will come up based on where your market is,” predicts Dutta .

He, however, rues that despite being such an important cog in a company’s operational wheel, most companies still do not give supply chain management the importance it deserves.

“For most companies it is not a board-level issue. You won’t find the supply chain head sitting in the board. You will have a marketing guy, a finance guy on the board, but the GM Logistics will be reporting to the finance guy,” he says.

However, a recent high-profile announcement from ITC headquarters is the appointment of its trade and marketing distribution head B Sumant as the President of its FMCG business. Shows which way the wind is blowing?

(Published in The Hindu Businessline)