Panorama

Upping the ante

Upping the ante

In the wake of competition with global brands such as Walmart and IKEA entering India, e-commerce companies are constantly trying to revamp their strategies as the battle to gain the market share becomes fierce. The success of online business now depends entirely on how the companies are fulfilling demands of the new age consumer through bouquet of delivery options, time taken for delivery and quality of the delivery service. In a nutshell, it boils down to a strong logistics and supply chain, and online players cannot undermine its importance. 
Indian e-commerce retail logistics industry is expected grow 36 per cent in the next five years, according to a joint report by KPMG and CII. The projection is on the back of the strong growth of e-commerce industry in India. With the spurt in e-commerce, the online retail start-ups have started to witness the need of specialised logistics providers to support their growth as traditional courier partners were not able to meet their targets.
The sector is largely serviced by traditional logistics service providers, e-commerce retail focused logistics service providers and captive logistics arms. 
The market is largely a captive market (49 per cent share), however, a sizeable share is still dominated by new age players catering especially to e-commerce retail, according to the report. The study further revealed that return shipments constitute 18-20 per cent of total shipments in the e-commerce industry.  In e-commerce, the two levers, supply chain and logistics, are at the core of any business and e-tailers have been trying to strengthen this aspect including new ways to bring down the cost. Last mile delivery is one of the biggest challenges for every traditional e-tailer in the country. “Low efficiency of resources and route planning problems are core issues that magnify and make the whole system inefficient and expensive. This coupled with the challenges in delivery infrastructure bring additional challenges to the state of last mile. It will be interesting to see how customer order density increases and whether that will allow e-tailers a lower last mile cost structure,” says Ebrahim Akbari, Co-Founder, Doodhwala.
For instance Pepperfry, an online furniture company, initially relied on third party vendors for shipping but realised that the logistics infrastructure in India for large item delivery was significantly under developed and shipping bulky items such as furniture was either prohibitively expensive or took too long. 
The company faced challenges like lack of readiness on the part of vendors to go beyond stipulated practices to deliver to the doorstep of consumers, or the absence of the brand ethos that Pepperfry stands for. “We therefore implemented a proprietary hub-and-spoke large item distribution model that significantly reduced per unit shipping costs, increased scale and operating efficiencies and achieved unprecedented service levels at negligible damage rates,” says Vikas Sharma, AVP, Supply Chain, Pepperfry.
Now, consider the case of adult products portal, ThatsPersonal, which has to face a major challenge because of discreet delivery model because customers don’t feel comfortable receiving certain parcels at their door due to many reasons. The company then partnered with EcomExpress and Aramex to launch a concept for discreet delivery called customer self pick-up. The products are packaged in a standard box without any branding to ensure complete privacy and delivered in Aramex Pick up centre selected by customer.
While online rental company The Clothing Rental has partnered with smaller logistics companies for shipping their merchandise. 
“We find that smaller logistics companies are not only economical but also manage shipping in remote areas where most established companies wouldn’t deliver,” says Shilpa Bhatia, founder, The Clothing Rental. 
Another area of concern for e-commerce companies is reverse logistics. Saraf Furniture, an online platform for home decor and home furnishing, which also does overseas shipping has partnered with Safe Express to manage its delivery and returns. E-tailers might face a situation when items don’t meet the needs of the customer or fit décor or may even reach in a damaged condition. In those times, customers go for exchange or return. “The entire process becomes a challenge considering a lot of time is consumed in disassembling the product and the possibility of damage in transit. Reverse logistics are a pain for heavy commodities like furniture and it will somehow continue to be a challenge faced by players in this category,” says Raghunandan Saraf, Founder & CEO, Saraf Furniture. E-tailers have figured out that the only way to garner the customer share is to increase delivery networks which has prompted etailers such as Flipkart, Amazon, FirstCry and others to invest heavily in their logistics arm. Last year Amazon Transportation Services, (ATS) the logistics arm of e-tailer Amazon India received `130 crore ($20 million) investment from its US-based global giant.
The company is focused on building an independent logistic service that can compete against Flipkart’s Ekart and other independent logistics services such as Blue Dart and FedEx.

 


Finding right partners
Even as owning the delivery fleet can help the company retain complete control over delivery, there are high delivery costs that could lead to cash burn. 
Owning delivery fleet makes sense for businesses, which are steady and predictable. But this isn’t the case with the e-commerce industry as e-commerce sale graphs are spiky. “Owning a fleet of vehicles is moving the e-commerce players away from utilisation. In such cases, it makes sense for e-commerce players to collaborate with specialists to do this job. This can help curb spends on logistics which will help them add value to their business through utilisation,” said Mithun Srivatsa, Co-Founder & CEO, Blowhorn, an intracity logistics firm.
Third party logistics companies (TPL) also help e-tailers to achieve cost efficiencies. Siddharth Jain, co-founder of Vaahika, a freight logistics start-up says, “Around 84 per cent of fleet is with small and medium size fleet owners, which inherently come with the edge of lower freight prices and offers cost efficiency. The owner driven model, where the driver owns the vehicle is one of the most cost optimised solution.”  
As a fleet and shipment aggregator, the company helps suppliers of e-commerce companies connect directly with fleet owners which help in reducing cost markups, besides filtering multiple layers of brokers. Better visibility in the movement of goods is also critical to reduce wastages at each leg of the supply chain. The online grocery retailer Grofers has built technologically advanced solutions to ensure minimum wastages in the entire supply chain. “Our supply chain technology integration starts with the manufacturer and we track every single product movement till the customer’s doorsteps,” said Saurabh Kumar, 
Founder, Grofers. 
Technology is the key to create a robust supply chain mechanism. In order to make the system more efficient, it needs to be more predictable too. All this could be achieved by integration of new technologies such as artificial intelligence and machine learning. E-commerce companies are partnering with tech-based logistics companies who offer such solutions for better planning. “Our technology assists in pre-booking the return loads bringing in advantage of faster availability of vehicles for loading. It also enables pre-notification for scheduled deliveries which in turn saves unloading time. This effectively saves a lot of time in shipment delivery by enabling well planned and faster loading as well as unloading activity,” says Jain.
Mostly e-tailers are trying to create robust supply chains around two elements visibility and flexibility. The visibility is in terms of the status of the goods help to take efficient decisions in real time and manage crises during goods transportation making the supply chain stronger while flexibility mean that the company is not dependent on a particular mode.
TPL companies are offering technology and infrastructure for full-stack logistics solutions to traditional and new age businesses. “Keeping margins in mind and building operations through asset light model will help their customers move from fixed cost models to variable cost models which could be scaled up if the demand rises,” added Srivatsa.


Last mile efficiency 
The final mile in e-commerce commonly accounts for more than 50 
per cent of total logistics costs. The companies can achieve final mile efficiency by optimising demand distribution, vehicle travel and per km cost for travel. 
“Practices like night-time delivery in urban areas, consolidation and delivery point aggregation, shift to cleaner and more efficient fuels, parking and charging provision management can enhance the efficiency,” says Akshima Ghate, Principal, Rocky Mountain Institute (India Programme), a non-profit organisation, which has partnered with Niti Aayog on freight and logistics roadmap for India.
E-commerce companies can deploy right-sized vehicles, bespoke delivery duty cycles for final mile delivery that minimises per-km costs of operation and reduce external costs to urban residents. Besides this they can explore operational models such as fleet-as-a-service to facilitate the process of procuring and maintaining that bespoke fleet.
Companies can also check options to aggregate final deliveries, such as pack stations which allow for secure consumer pickup and avoid missed deliveries for items which require signatures. Experts in the logistics domain point out that e-commerce duty cycles are ideal for electrification. Some of India’s most innovative players in urban delivery and e-commerce, such as Gati and FlipKart, are planning to move on the opportunity with solutions customised for the needs of Indian cities. Rocky Mountain Institute has supported those firms in their efforts to turn those plans into reality by working with the Urban Mobility Lab recently hosted in Pune, informs Ghate.
“The industry and policymakers will need to work together to ensure that e-commerce fulfills its potential without adversely affecting urban mobility systems. That means unprecedented levels of coordination and collaboration on infrastructure deployment and policy coordination,” Ghate says. 

Sonali Chowdhury
Assistant Editor
Velvex