Heralding the e-renaissance

With e-commerce booming, there is a need to assess its implications on the Indian logistics scenario as it has led to a veritable change in the core dynamics of how logistics is approached and has opened up a plethora of opportunities. Lionel Alva...

We have come to live in an increasingly wired world. Technology has become largely ubiquitous. Commerce, once relegated solely to the confines of retail shops and stores, has now moved to online mediums. No longer do consumers have to be constricted to brick and mortar outlets and can seek wares of their choosing online, at the mere click of a button. And while currently, the penetration of e-commerce in India is low in comparison to markets like the US and UK, it is growing at an expeditious pace. In terms of highlights, the growth depicted by homegrown players such as Flipkart and Snapdeal coupled with that of the tremendous investor interest around these companies is indicative of the immense potential that the market depicts The competition has only further intensified with the foray of e-commerce giants such as Amazon and Alibaba. Since both companies are international players with deep pockets and the disposition to drive India’s ecommerce market. This has led to a renewed focus on digital strategies in order to gain the obvious benefits of online platforms – wider reach, always on, personalisation to name a few. The e-commerce companies are concentrating their efforts on increasing the penetration of their mobile apps for higher growth. Big players in this space claim to have more than 50 percent of their revenue coming from mobile apps.

Seizing a multi-billion dollar opportunity India is on the cusp of an e-commerce revolution. Although e-commerce has been making rounds in the country for over a decade, it is in the recent years that the appropriate ecosystem has started to fall in place. Factors like accelerating internet access, staggering penetration of mobile phones and robust investment have driven the growth of this industry and if current projections are anything to go by, India is on route to becoming the world’s fastest growing e-commerce market. “Growing internet and smart phone penetration has revolutionised the way of doing business globally. E-commerce is one such sector which is driven by rising internet and smart phone penetration. The proposition of e-commerce to offer an almost infinite variety of choices spread over an enormous geographical area creates enormous challenge for the logistics sector. This has been further complicated by ever-shortening delivery timeliness, doorstep delivery, traceability solutions and reverse logistics, etc.,“ observes Chander Agarwal, joint managing director, Transport Corporation of India. While still at a nascent stage, e-commerce market in India has started to become crowded and complex with several players fighting for a fair share of customers’ mind and wallet. As the competition in the e-commerce heats up, the companies are using multiple business models from the traditional inventory-led model to the now popular market place model in order to get customer attention. To survive and sustain operations in the competitive market, companies are also taking advantage of one or multiple business models. However, it is the e-market place model that has been predominantly being used by key players. “As part of our integrated e-commerce ecosystem, we operate Infibeam.com, one of India’s leading multi-category e-retail website. Our integrated business model enables us to provide comprehensive, multi-channel and multi-screen value added services to merchants,” asserts Karthik Jain, VP –corporate development, Infibeam. A KPMG report on the opportunities for e-commerce highlights that the e-commerce industry is expected to contribute around four percent to the GDP by 2020. The revenue for logistics industry from inventory based consumer e-commerce alone may grow by 70 times to $2.6 billion by 2020. While currently, e-commerce accounts for 15–20 percent of total revenues for some companies. However, the revenue for the logistics industry from consumer e-commerce alone may grow by 70 times to $2.6 billion by 2020. Thus as India moves towards being a consumption driven economy, this consumer centric model presents a large and transformative opportunity. “The Indian e-commerce space is still at a very nascent stage with significant potential for innovation and growth. We believe growth is at an inflection point and there is a tremendous opportunity. We believe there is room for multiple formats, players and most importantly, for innovation. For Amazon in India, it’s still ‘Day 1’. We have just got started,” highlights Samuel Thomas, director transportation, Amazon India. According to a PwC report on e-commerce in India, the Indian government’s ambitious Digital India project and the modernisation of India Post will also affect the e-commerce sector. The Digital India project aims to offer a one-stop shop for government services that will have the mobile phone as the backbone of its delivery mechanism. The programme will give a strong boost to the e-commerce market as bringing the internet and broadband to remote corners of the country will give rise to an increase in trade and efficient warehousing and will also present a potentially huge market for goods to be sold. For India Post, the government is keen to develop its distribution channel and other e-commerce related services as a major revenue model going ahead, especially when India Post transacted business worth Rs 280 crore in the cash-on-delivery (CoD) segment for firms such as Flipkart, Snapdeal and Amazon. Both projects will have a significant impact on increasing the reach of e-commerce players to generally non-serviceable areas, thereby boosting growth. India’s overall retail opportunity is substantial, and coupled with a demographic dividend (young population, rising standards of living and upwardly mobile middle-class) and rising internet penetration, strong growth in e-commerce is expected. From an investment perspective, the market is a primarily minority stake market, with maximum traction in early-stage deals. “The e-commerce boom has led to a dynamic logistics set-up where orders are unpredictable and not stable, order cycle time is hourly/daily and not weekly, the shipments are smaller and not bulk, and destinations are more widespread. E-commerce has carved out a broader base of B2C for the logistics service providers,” assesses Varun Bhutani, head - logistics, AskmeBazaar. With such strong market prospects and an equally upbeat investor community, it is expected that many more e-commerce companies from India shall enter the coveted billion-dollar club. Since early stage funding will help companies develop a strong foundation to start from. On the other hand, e-commerce providers that operate through either inventory-led or marketplace models, enter an entirely different world of operations, where management of the supply chain forms the crux of the business. With real-time demand and tight delivery expectations, the supply chain needs to be built from the customer-end, with the fundamental difference being the proliferation of delivery points and the need to move large number of orders of small parcels (one or two goods) across the length and breadth of the country at an affordable cost.

Teething problems As per Morgan Stanley estimates, Indian online sales will touch $500 billion a year by 2020. Although many factors support the growth of e-commerce in India, the fledgling industry is faced with significant hurdles with respect to infrastructure, governance and regulation. Low internet penetration of 11 percent as compared to world average of 34 percent impedes the growth of e-commerce by limiting the internet access to a broader segment of the population. Poor ‘last
mile connectivity’ due to missing links in supply chain infrastructure is limiting the access to far-flung areas where a significant portion of the population resides at. “The marketplace model has the need to transport items from vendors to a central hub for shipping, further increasing the need for a well-run Transportation Management Systems (TMS) to ensure customers get the delivery on the promised date. Making it more complex is the last mile delivery that includes the highest number of touch points, increasing all the associated risks in the system like data errors in handoffs, damage to goods, fluctuation in delivery schedules, theft, etc.,” asserts Mahesh Madiyala, director, Product Management Group, JDA Software India. If we further consider the reverse logistics that e-commerce companies need to provide, and often at free-of-cost, it will not be a far cry to state that an effective TMS is probably the underlying engine that will keep an e-commerce company running. High drop-out rates (25-30 percent) on payment gateways, consumer trust deficit and slow adoption of online payments are compelling e-commerce companies to rely on costlier payment methods such as COD. Shedding insight on how last mile delivery players cope with these challenges, Albinder Dhindsa, co-founder, Grofers says,“Consumer demand is growing at a much faster pace than the supply. Our best hope is always to maintain transparency with the customer and make sure that estimated and delivered expectations match consistently. The supply side constraints are usually related to predicting how much capacity do we need to build in advance as that requires a significant period of ramp up. Over building can lead to losses that have to be absorbed in the short term while the demand catches up while you risk affecting consumer experience by lagging on capacity building.” In this context, leading express logistics players are working with clients to develop methods for intelligent segmentation of products and developing strong replenishment logic, processes, and systems to ensure faster and constant availability of fast moving products on shelves besides cutting cost and time. Companies like TCI XPS and Amazon among others are investing in technology, manpower training to address challenges posed by the sector. Thomas informs, “With respect to our carrier partners, the biggest goal is to integrate them with Amazon very closely so that together we are successful. We ensure that the delivery promise is not missed by processing the customer’s order in our world-class fulfillment centres in a timely manner and demonstrating it to the right courier partner. We look at performance of the courier partners on a regular basis and work with them to take corrective actions in case of any issues.” He further highlights that Amazon was among the first companies in India to introduce premium guaranteed delivery services including the ‘Two-Day Delivery’ & ‘One-Day Delivery’ services for items fulfilled by Amazon. The company launched its ‘One-Day Delivery’ in December 2013 with 100,000 products and today over 800,000 products are eligible for next-day guaranteed delivery across hundreds of pin codes in India. Amazon has also taken certain novel steps by opening a dedicated ‘rural’ e-commerce distribution centre manned by local youth in Tumkur in Karnataka and has now crunched the delivery time from over a week to 2-3 days. Commenting on the role played by third part logistics providers, Amit Dhingra, director India operations, Menlo Logistics says, “A 3PL can help its customers navigate the complex world of omnichannel supply chain network. Manufacturers now have the opportunity to engage a 3PL to provide value added services that complement and improve on existing warehousing, distribution and fulfillment operations.” The complexity has been further amplified with transactions happening across borders for online selling of goods and services. This has impelled a need for implementing automated solutions to enhance efficiency, reduce down time and make the supply chain as efficacious as possible. “There has been spurt of interest from these companies in our automation solutions in this industry as more and more companies are accepting it for providing the efficiencies and scalability. Technology is a productivity enabler and directly impacts the bottom line growth, as companies look to scale profitably freezing the cashburn of the past they are adapting automation,” says Samay Kohli, CEO and Co Founder, Grey Orange, a firm that designs, manufactures and deploys advanced robotics systems for automation at distribution and fulfillment centres. Companies like Amazon and DHL have already incorporated automated solutions in their warehouses for sorting and picking. E-commerce giants like Flipkart and Amazon are banking on their pilot projects and racing towards small towns and rural areas to build customer base. Citing an example on the integration of automated solutions for a client, Kohli says, “A Middle East based logistics company whose Indian operations wanted to try out the Sorter product at one of their sortation hubs. Initially there was a lot of resistance from the company’s operational staff citing the complexity of an automated solution which was basically stemming out of resistance to change. However, once the sorter was fully operational the value proposition was evident to all - the management realised the ROI within six months and ordered the systems in several hubs and are also exploring options at international centres while the operations staff has adapted to the systems really well given the boost in productivity and quality of work.” Newer technologies that could significantly bring a paradigm shift in the online businesses are analytics, autonomous vehicles, social commerce, and 3D printing. Companies have started to invest in data analytics to gain real-time insights into customer buying behavior and thus, offer personalised user experience. The e-commerce companies are building communities on social media networks to better understand customer needs and to drive effective marketing strategies. The future of e-commerce indicates strong growth from mobile platforms, social media analytics, omni-channel services and sharing economy models. The e-commerce industry is an exciting place with the interplay of social, mobility, analytics, cloud (SMAC), digital, 3D, automation and, virtualisation. The current high valuations, in spite of losses, perhaps, are indicative of future potential.