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Logistics: e-Retail
A CUSTOMER PERSPECTIVE
Submitted to Prof. Rajesh Aithal
Submitted by Group 7A Pgp 27186 Sunil K Pgp27287 Amit Deshpande Pgp27305 Partha Chakrabarty Pgp27060 Suvam Roy Pgp27203 Ankit Negi Pgp26098 Mritunjay Hansda
12/27/2012
Contents
Executive Summary ........................................................................................................................... 3 Introduction ...................................................................................................................................... 4 E-commerce penetration in India ....................................................................................................... 5 Some key stats................................................................................................................................... 6 Basic e commerce model ................................................................................................................... 7 Present scenario of Logistics in India .................................................................................................. 8 Model: Flipkart .................................................................................................................................. 9 Model: Fetise .................................................................................................................................. 10 Model: Styletag ............................................................................................................................... 10 Survey: Demographics: Large presence from Metros ....................................................................... 11 Survey: Buying Patterns: Mix of users and non-users ....................................................................... 12 Factors driving e-Retail in India: Convenience is King ....................................................................... 14 Preferred payment modes ............................................................................................................... 14 Logistics issues faced by customers .................................................................................................. 15 Factors preventing from making online purchases ........................................................................... 16 Online purchase convincing factors .................................................................................................. 17 Findings and Recommendations ...................................................................................................... 18
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Executive Summary
E-commerce has changed not only the way in which goods are sold but also the way in which the goods are delivered. Gone are the days in which the delivery used to be done in eight - ten weeks. Logistics is a high operational cost component for an e-commerce business and hence also dictates the profitability of one venture against the other. India lags behind in many aspect of the major logistic factors compared to other developed and developing countries of the world. Even in the warehousing sector India lags behind many other developed and developing countries, India needs significant growth in this segment. The current tax structure of differential state-level taxes also needs to be addressed to overcome these logistic challenges. The 3PL industry is at very nascent stage in India. And hence the reach and integration is also very limited. We have limited our study to the following companies Fetise, Styletag & Flipkart. The following methodology was used in our report: Interviews with Company Representatives Identification of concerns of companies and design of survey based on these concerns Survey design for customers followed by analysis of data gathered
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Introduction
E-commerce - Electronic commerce is sharing business information, maintaining business relationships and conducting business transactions by means of telecommunications networks (Zwass, 2001). The usage of Internet around the world has increased drastically. This is one of the key driving factors of E-commerce growth. One of the reasons for companies adopting e-commerce is to cut costs while improving the quality of goods and services and the speed of service. E-commerce businesses provide an unlimited shelf life place for products and services. In the customer front, it enables 24/7 access to shop online; compare choices and prices and helps to customize products and services. E-businesses implement enterprise model, that allows the entire value chain to share actions that were once isolated within each individual enterprise. A single business action triggers crossenterprise transactions and changes in market demand can be communicated directly to the supply chain allowing suppliers to respond appropriately to minimize inventory build-up, sustain quality levels, and operate profitably. (Reynolds, 2001). Logistics cost is one of the major cost component of most of the E-businesses supply chains. Due to these reasons, managing supply chain effectively specially logistics becomes very critical in success of E-business. The purpose of the project is to investigate the prevalent issues in the Indian E-commerce industry. Our focus shall be on understanding the present logistics models of E-Businesses in India and identifying the issues.
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Source: - A T Kearny According to the AT Kearney report on e commerce (Mike & ben, 2012) India is in the infrastructure impediment category because it lacks technological and logistical infrastructure for high volume ecommerce and also lack the technology to connect to the internet, prevents reliable delivery and returns. But still this segment is currently growing.
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An article in The Economic Times (The Economic Times, 2012) reports domestic e-commerce market has the potential to grow between $ 125 billion and $ 260 billion by 2024-25. Rau B.A. (Rau, 2011) says Indian customers are now more willing to make online purchases of up to Rs 25,000, from Rs 2,000- 5,000 in the past. He also mentions in his report that out of the potential 150 million internet users, only 10 million internet users make purchases online. According to the report, currently the eight metros account for 43% of e-commerce sales, while the rest 57% of e-commerce sales comes from small towns. Infact towns having population less than 2 lakh contribute highest number of internet users from the rest of India. IAMAI, reports that the current e-commerce market segment is around $10 billion, while the e-commerce market of US will reach $ 200 billion in 2013. Searching and buying non-travel products in India is ranked second most popular activity. (Sangoi, Duvvuri, & Hadkar, 2011). This is an indicator showings preparedness of online user for e-commerce
Internet in India (I-Cube) 2011 reports that the number of claimed internet users in India crossed the 100 million mark in September. Currently there are 112 million users (88 million from urban + 24 million from rural villages). Mumbai contributes the most number of active users amongst the metro with 6.2 Mn users till the time the study was conducted by I-Cube in 2011.
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Consumer electronics continued to witness fast growth in Internet retailing in 2011, recording current value growth of 35% in 2011 (Euromonitor, Internet Retailing in India, 2012). Dell was the main contributor towards this growth. The option of providing warranty increased the consumer confidence in purchasing electronic items online. Internet retailing is expected to increase by a CAGR of 20% in constant value terms over the forecast period (Euromonitor, Internet Retailing in India, 2012). Currently consumer electronics, consumer appliances, and books are the main focus for internet retailing. Though grocery retailing was introduced in internet retailing, its contribution to the overall internet retailing was less, owing to the non development of infrastructure. Data from the 2011 census in India shows that 20% of urban households and 5% of rural households own personal computers or laptops with 8% of urban households having internet access compared to 1% of rural households. The penetration of internet is India is not so great with only Delhi, Chandigarh, and Goa being the only states with household internet penetration rates above 10% and states such as Bihar has below 1% penetration (Euromonitor, Internet Retailing in India, 2012). Discounted prices, efficient delivery, warranty and cash on delivery features are attractive to Indian customers. The safe and secure online payments option also attracts the consumers to purchase more online products. Maximum purchases were in the consumer electronics and appliances category.Flipkart.com, Infibeam.com, Myntra.com are some of the popular internet retailers that consumers in India often visit. Other multi-product retailers include Future Bazaar, India times, Rediff, Ferns n Petals, etc.
Source: ResearchonIndia.com
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Consumer places orders for products to e-commerce websites using the internet enabled devices. For payment of the order, the consumer uses the services provided by the financial services provider. The payment is channelized and passed to the e-commerce vendor. E-commerce vendor uses the logistical services to transfer the ordered good to regional warehouse from the central warehouse. The regional logistics support then collects the good from the regional warehouse and delivers it to the consumers.
As we see in the above chart, India is at a nascent stage in almost every aspect of the major logistics factors compared to other developed and developing countries of the world.
Model: Flipkart
FLIPKART Flipkart was found in 2007. Today, it sells many types of products like books, electronics, stationary, music etc. Flipkart is a classic E-tailer, who sells other brands online. Operating model: The below figure (figure 19) explains how Flipkart operates, with the distribution centres catering to the nearby regions following Hub and spoke network. Procurement: Flipkart stocks up inventory for products with high demand and also for low cost products to reduce the transportation cost. But for expensive products like laptops, Flipkart adopts Just In Time inventory model, as the logistics cost compared to the cost of the product is less. Logistics: Flipkart started its own logistics arm called Flipkart Logistics, operating in 37 major cities. It distributes from five major distribution centers in Bangalore, Delhi, Pune, Mumbai and Kolkata. Quality checking, warehousing and packaging is also done at these distribution centres. For other towns and cities Flipkart uses the services of various 3PL players depending on their strength in that area. Flipkart sends packaging material with the product if the customer wishes to return the product. These returned goods are couriered to distribution centres, and customer is paid back in the form of vouchers or cash if there is a quality issue with the product.
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Model: Fetise
Fetise was recently started in 2011. It primarily sells branded apparels and accessories especially for men. Fetise is a classic E-Tailer, selling various brands online. Operating Model: The below figure 20 explains how Fetise operates, with the distribution centres catering to the nearby regions. Procurement: Fetise procures from their suppliers only after they receive orders online. It adapts a pure Just in Time inventory model. Logistics: The suppliers as per the order request send the products to one of the three distribution centres located at Bangalore, Delhi and Mumbai. These products are tested for quality inspection and then packaged to forward it to 3PL logistic player to deliver it to customer. The 3PL company is selected based on the geographical strength of the company. Fetise sends packaging material with the product if the customer wishes to return the product. These returned goods are couriered to distribution centres, and customer is paid back in the form of vouchers or cash if there is a quality issue with the product.
Model: Styletag
StyleTag.com also follows a similar logistics model as fetise, however, it sells both its own in-house produced fashion wear apparel and other fashion brands online. They primarily sell fashion apparel and accessories for women. The below figure depicts how StyleTag operates. 10 | P a g e
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Buying pattern
A lot of small e-commerce companies has been emerging in India, however from the survey results it can seen that mostly the respondents prefer to buy from established companies which have created a name for themselves in this front. 72% of the respondents have expressed their preference to buy from Flipkart, while 58% of the respondent prefers Snapdeal and 41% prefer eBay.
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of the customer.
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Compared to the other regions in India, a majority of respondents from the eastern part of India have rated highly in favour of factors preventing them from making an online purchase. Delay in delivery and low faith in online retailer are the major factors for eastern, while payment security reasons is for southern region and low faith in online retailer for the western and northern region.
80% of the respondents rated improvement in consumer protection factors such as low quality products, improper delivery, refund of money etc. as driving force for buying online.
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