Ankita Rai, Business Standard
New Delhi, January 20, 2014
Here’s a small quiz on online versus brick and mortar retailers:
Think about it. For an average consumer, the choice between an offline and an online retailer was a matter of trade-offs. Till now. Even as we write this article many online retailers are moving in to occupy the space that was seen as the exclusive preserve for brick and mortar.
The fact is, e-retailers like Jabong, Myntra and Yebhi have been offering same-day delivery in their home locations for quite some time now. But none of these e-retailers offer a guarantee on such service. So when Amazon shook up the market with its ‘One-Day Delivery’ guarantee for a small additional cost of Rs 99 per order in December 2013, followed by Flipkart’s ‘In-a-Day Guarantee’ at Rs 90 per item, it became clear that the e-commerce battle has moved to last-mile delivery. Just recently, Snapdeal threw its hat into the ring with its ‘Same-Day Express Delivery’ at select locations with Tradus in tow in Delhi/NCR. While Snapdeal offers the service for free, Tradus charges anything between Rs 5 and Rs 25 depending on the distance between the buyer and seller. (For the record, under same-day delivery the product is delivered on the same date. One-day or 24-hour delivery means getting it the next business day.)
Evidently, with increasing competition in e-commerce space, delivery has become an essential factor after price and assortment. That said, charging for services like express delivery, while prevalent in many mature markets, is new in the Indian context. The fact that Amazon and Flipkart are putting a price tag to their delivery promise shows they are confident the service will find takers.
Admittedly, 24-hour-delivery is easier said than done. "The whole promise of e-commerce is convenience and a big part of convenience is fast and reliable delivery," says Amit Agarwal, vice-president and country manager, Amazon India. "The challenge is to provide fast delivery across wide range of stock keeping units across country, not just in select locations," he adds. Here the problem is, to quote Agarwal again, "an e-retailer cannot simply stock all the products as it can lead to redundancy of inventory."
But more of that later; first the disclaimer: In-a-day guarantee on delivery is currently restricted to select products, to the home-locations of the e-tailers and, in most cases, only on products delivered by their in-house logistics arms. The good news is, all these players are working to expand the service with a wide variety of products and by covering as many pincodes as possible.
Sounds ambitious and begs a few questions: How should an e-tailer plan inventory and move it across the pipeline so that it is delivered to the customer within 24 hours of the order being placed? What are the typical bottlenecks in the process? And last but not the least, can smaller online players afford that sort of investment?
To begin with, there are three key stakeholders in the e-commerce ecosystem: the merchants/vendors, the fulfilment centres/warehouses, and finally the logistics/shipment. E-retailers need to fully integrate each of these elements to keep the delivery promise. Now understand that the first two elements – the merchants/vendors and the fulfilment centres/warehouses – are inextricably linked. How you manage one determines your relationship with the other.
To cut the fulfilment time, e-tailers need to have their inventory close to the customer location. Given that a majority of the e-retailers are moving towards an inventory-less model, this is a tough call. So what Amazon, Flipkart or Snapdeal are doing is shipping products from company-fulfilled sellers. A company-fulfilled seller is a merchant who keeps his products in the e-retailer’s warehouse and takes advantage of the latter’s fulfilment services such as quality checks, packaging and logistics services. But that also means someone in the chain is holding the inventory, which adds to the cost. According to various estimates, warehousing and inventory can add about 20 per cent to the e-retailer’s supply chain.
Again, inventory ageing is a critical issue e-tailers have to grapple with. Many e-commerce companies try to reduce their inventory exposure by opting for the sales-on-return or SOR method. Under SOR, an e-commerce company buys an item from a supplier with the understanding that if the product is not sold within a stipulated time, the supplier will take the item back. "To enable express delivery, e-retailers are exploring the opportunity to work on an SOR basis. This is the essence of a just-in-time production strategy that strives to improve a business’ return on investment by reducing in-process inventory and carrying costs," explains Priyesh Jain, founder, Shopuli.com, a Mumbai-based multi-retail online store.
To minimise inventory holdings, but at the same time retain control of shipment of products, some e-retailers are also stocking products in the vendors’ warehouses. However, most retailers that follow the inventory-led model buy stock in advance. While this ensures higher margins it can also push the e-tailer into the unsold inventory trap – one reason why many e-tailers have moved to the marketplace model over time.
Whatever the business model-be it a managed marketplace, an inventory-led model, or a mix of both-the fulfilment centre has to be structured in such a way that the product is handled to the courier partners with a few hours of the order.
Flipkart, which moved to marketplace last year, mapped the supply-chain extensively to help the delivery partners and sellers pin down the exact location from where a product is shipped and the amount of time it takes for each item to move from one stage of the order process to the next. "We have worked with merchants, vendors and courier partners on optimisation of these processes to reduce timelines, keeping in mind the reliability and overall lead times," says Ravi Vora, senior vice-president, marketing, Flipkart.
Snapdeal, a managed marketplace, is able to offer same-day delivery in Delhi/NCR by training its merchants on the importance of keeping the right stock. "We have to cut significant time at the merchant and the courier level," says Saurabh Goyal, vice-president, supply chain operations, Snapdeal. "Currently we are able to ship 90 per cent of the products in 24 hours, but that 24 hours had to be cut down to fulfilling orders in two hours to enable same-day delivery. Courier boys also need four hours to deliver. That means cutting 50 per cent time at the courier and merchant partner."
"Fast shipping service in a marketplace requires merchants with deep SKUs, which means tying-up with merchant who stock similar products in large quantities," says Sanjay Sethi, co-founder and CEO of Gurgaon-based online marketplace ShopClues, which currently delivers 10 per cent of the order volume the same day in Delhi and NCR.
Gurgaon-based Jabong, which started same-day delivery in July 2012, is able to deliver the product at its home location the same day if order is placed before noon. For cities like Mumbai and Bangalore the cut-off time is 5:00 pm to get the delivery the next day. The service is only for products serviced by JaVas, its logistics arm, which also services other e-commerce companies. Jabong, which operates two models – marketplace and own-inventory – does not provide express shipping for products sold through its marketplace. "We mention on each product if it is provided by a partner or by Jabong. Though Jabong doesn’t gurantee, 70 per cent of the orders are delivered the same day," says Praveen Sinha, co-founder and managing director, Jabong.
Sinha says the biggest pain point for Jabong was the customer verification process. "We realised it was the most time consuming. It was important to arrest fraudulent transactions. So we worked on a system to enable faster telephone and credit card verification. We are able to do it in 10 minutes of the order placement," he adds.
Tradus, on the other hand, leverages the ready stock at traditional offline retailers to offer same-day delivery. Says Mudit Khosla, CEO, Tradus, "To launch our express service, we went on a drive to enroll real world sellers/retailers who have ready stock. Hundreds of such sellers have been trained to deliver nearly a lakh different products the same day." Orders received by sellers from select markets in New Delhi like Chandni Chowk, Nehru Place etc are picked up by delivery teams by afternoon and delivered to buyers the same day. Tradus has also invested in technology to ascertain the location of the buyer and calculate the distance between each buyer and the seller to arrive at an accurate delivery fee and time required for delivery.
Bangalore-based e-retailer Myntra, which has two warehouses in Bangalore and Delhi, delivers half of its shipment within 24 hours in these cities. To enable this, Myntra uses advanced queuing algorithms, which reduces the time an order comes and the time it goes to the shipment company. It has also invested in remote handheld devices at the warehouse level. "Nobody moves around with papers to pick up goods these days," says Ganesh Subramanian, chief operating officer, Myntra. "Everybody in the warehouse receives orders on their remote handheld devices, which automatically tells the location and the availability of the product in the warehouse. On an average, there is a 50 per cent reduction in fulfilment time at the warehouse and in shipment. So we can process an order in two hours against the average of four hours," he adds.
Many e-commerce-focused logistics players are also offering inventory management and warehousing solutions to enable express shipping. For instance, some merchants and marketplace players use the warehouses of delivery company Delhivery to stock products. The logistics company currently has three fulfilment centres in Delhi, Bangalore and Mumbai. "Delhivery provides a unique solution to clients to enable 24-hour delivery," says Nikhil Agarwal, vice-president, fulfilment at Delhivery. "There is full integration with the seller – the product is already in our warehouse before the customer buys it. We use tablets and mobile apps to help quick pick-up if the stock is not in our warehouses. For cash on delivery we are able to return the cash to the client (the e-tailer) within 24 hours."
Inbound and outbound logistics alone can add 40-50 per cent to the e-tailer’s total supply chain cost. So getting it right figures high on their agenda. Most e-retailers offering in-a-day or same-day delivery service – such as, Amazon, Flipkart, Jabong and Myntra – do it through their in-house logistics arms, while some others like Snapdeal and ShopClues have roped in third-party courier partners (3PLs).
Everyone agrees the easiest way to handle this is to have your own logistic arm. Jabong’s same-day deliveries are handled by its logistics arm JaVas. Myntra uses its own logistics arm Vector E-commerce to handle two-thirds of its product shipping. Amazon says it is able to cover slightly less than 50 per cent of the customer demand under its ‘One-Day Delivery’ guarantee because it has been able to replicate its global logistics solutions in India. Marketplace major Snapdeal uses services of 3PLs for all its deliveries, including the same-day ones.
While routine shipments are typically done on a first-in-first-out basis, in the case of urgent shipments e-retailers often have to press additional resources into service. "This additional cost should be seen as a customer acquisition cost," says Devangshu Dutta, CEO, Third Eyesight. "Till year before last, crores of rupees were spent on advertising; if you look at the last six months e-commerce firms haven’t spent very much. Some of that cost is getting shifted to alternative means of customer acquisition like in-a-day delivery," Dutta adds.
As you can see, the advantages are blurring between online and offline retail. Same-day delivery is certainly the Holy Grail, though it involves an awful lot of homework and investments.
To make it a sustainable business strategy and put down the costs, the key point is to invest in robotics and technology. Take the Amazon’s model in the US. In March 2012 Amazon purchased Kiva Systems, a specialised maker of robots that services warehouses. We can already imagine Amazon’s warehouses: robots going from bin to bin picking out and picking up products to the shipping department. This process should bring down Amazon’s cost of shipping in a noticeable way and speed it up as well. By using automation at the e-retailers’ fulfilment centers, you can improve how you pick, pack and stow.
Analysts also say, it is still not viable for the smaller online retailers who probably can’t compete with the big dogs on speed. What should they do? Work on their overall value proposition perhaps and look out for services that can add to the shipping experience. Not easy, but must-do.
5 STEPS TO SAME-DAY DELIVERY
To execute same-day-delivery e-retailers need to take a cross-functional
approach that involves thoughtful planning, IT investments and
close ties with transportation partners.
HERE ARE SOME KEY STEPS:
(Sourced from Business Standard.)