Presentation on Online retailing & its Implications on Supply chain practices.

1. ONLINE RETAILING:
IMPLICATIONS ON
SUPPLY CHAIN
PRESENTED BY: PRACTICES
ASHUTOSH SINGH
IIM CALCUTTA

2. Online Retail Categories
High Growth Categories
Online Retail market in India( in Rs.
Billions)
15 24 38 58 91
139
224
334
504
600
500
400
300
200
100
0
Online Consumers Age Profile
3%
13% 6%
14% 16%
20%
26%
39%
26% 36%
Global India
15-24 years 25-34 years 35-44 years 45-54 years 55+
Consumer Value Proposition

3. Demographic trends
E-commerce Industry in India
• Internet user base - about 250.2 million as of June 2014
• Online shoppers - 10 million ; growing at an estimated 30%
Socio-cultural Influence
• 75% of online users between the age group of 15-34 years, India is one of the youngest online
demographic globally
• This user group is more susceptible to changes in purchase/ consumption behavior
Technological Development
• Penetration of internet connection – approx. 21% and Availability of high speed connection
• Better security protocol for online transactions
• Advancement in packaging technology and logistics
Macroeconomic Impact
• Factors like spiraling inflation and slower economic growth failed to dampen the online shopping
frenzy as more and more companies opted for selling wares through the internet route, offering
innumerable options and discounts to buyers
• Demand-supply gap in physical retail category
Political-Legal Pressures
• 100% FDI in single and 51% FDI in multi-brand retail resulting in arrival of companies like Walmart
• 100% FDI allowed in B2B online retail business but restrictions on online B2C business

4. ONLINE
SHOPPING:
CONVENIENCE
IS A KEY
FACTOR
Source: pwc
Traditional retailing
on a decline
• Voluntary Conversion
• Losing Cost structure
• Free Delivery, Free
returns
• Subscription Commerce

5. ONLINE TRADITIONAL
RETAILING
• Unlimited assortment or Long tail is a
key value proposition
• Bulk negotiation of items and sold
through proper channel
• Assortment selection to fill limited
shelf, cut long tail
• Inventory only at one level: Distribution
centre
• Inventory value is mostly driven by scale
of assortment
• Inventory exists upto 3 levels:
Distribution center, region and store;
mostly driven by SKUs
• High number of orders, high throughput
growth
• Significant need for small order
size/packing
• Lower number of orders, stable
throughput
• Limited need for small order size/packing
• Freight carrier picks up large number of
shipments from distribution centers
• Logistic costs per item are high
• Often company-owned fleet that delivers
between distribution centers and to
stores
• Logistics costs per item are low
• Return by mail returns item faster to
sellable inventory
• Often extensive service levels and
generous policies
• Return to store can create reverse
logistics complexity
• Return to store creates additional touch
point to retain and up-sell

6. THE
COMPARATIVE
PICTURE
• India’s online retail industry is very small
compared with both organised and overall
(organised + unorganised) retail in the
country.
• Expectation in industry’s revenues to grow
to around 18 per cent of organised retail
by 2016 from around 8 per cent in 2013.
Still that be just 1% comparing with 9-10%
in the US and UK, and around 4-5% in
China.
• E-commerce has grown to become the second
largest website category in the list of top Indian
domains
• See the top 15 e-commerce sites in India in
order: quikr.com, amazon.com /
amazon.co.uk, flipkart.com, alibaba.com,
snapdeal.com, homeshop18.com,
naaptol.com, indiamart.com, infibeam.com,
ebay.com / ebay.in, jabong.com, myntra.com,
seventymm.com, inkfruit.com, tradus.com
(Source - http://techloy.com/2012/10/31/e-commerce-
sites-become-indias-second-most-popular-
destination-on-mobile-report/)

7. INDIAN ONLINE
RETAIL SCENARIO
• Low Internet Penetration.
• Mobile phone usage may bolster this rate, as more than 900 million
Indians have mobile phone subscriptions, but only 10 percent of mobile
subscriptions are for smartphones.
• India's poor logistics and transportation infrastructure outside of tier 1
cities.
• Low credit card penetration and complex tax laws
• 58 percent of online users make purchases, a figure that will increase as
retailers are able to improve consumer conditions.

8. GLOBAL ONLINE
RETAIL
CLASSIFYING
WORLD
ONLINE RETAIL

9. GLOBAL ONLINE RETAIL ENVIRONMENT
• U.S. Online share of overall
retail sales 2010–2015 forecast
key takeaways
• Online sales will grow at a
CAGR of 10%
• Multichannel customers have
significantly higher lifetime
values than bricks-and-mortar
or online-only customers

10. GLOBAL SCENARIO
US Market:
 The online retail market remains fragmented—more than 450 retailers
account for 70 percent of sales, led by online-only giants Amazon (17
percent market share) and eBay (6 percent).
 Online shoppers in the United States expect competitive prices, easy
payment options, quick delivery and free returns, and top-notch customer
service. They also value the option to purchase items and pick them up in
their channels of their choice.
 Americans are warming up to the idea of collaborative and
personalized online business models that offer shoppers a more engaging
retail experience.
 Retailers are making significant investments to integrate channels,
given the value Americans place on making purchases in the channel of
their choice.
 Retailers are making significant investments to integrate channels,
given the value Americans place on making purchases in the channel of
their choice.

11. China Market:
 China's $64 billion online retail, over the next five years reach to
$271 billion, due to infrastructure improvements, increased Internet
access for rural regions, rising wealth, and consumers' growing
predisposition to spend.
 A "race to the bottom" pricing mentality dominates in a competitive
market, as retailers lowering prices to increase sales and gain market
share.
 China is in the early stages of multichannel retail as retailers slowly
begin entering the online space. Multichannel crossover is rare as most
Chinese retailers operate their physical store and online businesses
separately.
 Logistical challenges, particularly outside of urban centers, have
kept China from its full online retail potential.
 More than 80 percent of Chinese consumers say they use social
media to learn about products before purchase, and 66 percent write
product reviews after making a purchase.

12. Brazil Market:
 The Brazilian market is $11 billion in size with it projected to grow at
a CAGR of 20 percent over the next five years.
 The country has 90 million Internet users, 57 percent of whom buy
online, and features the largest social networking base in Latin
America.
 Brazil's strong and growing middle class shops online to get more
"bang for the buck.“
 Brazilian consumers read online product reviews and solicit friends'
opinions, often through social media, before making purchase
decisions.
 Logistics and on-time delivery remain challenges for online retailers
in Brazil. -

13. Japan Market:
 Japan is an online retail powerhouse, with 100 million Internet users,
75 million online buyers, and $52 billion in online sales.
 Japan's advanced financial infrastructure allows consumers to make
online purchases efficiently, and its superior logistical infrastructure
enables same-day delivery for many online orders.
 Over the next five years, Japan's online retail market is expected to
reach $80 billion.
 Japan's "connected consumers" choose to buy online for
convenience. Many have more than one mobile device, connecting with
their computers, cell phones, and tablets.
 Retailers are investing in online capabilities to meet the needs of
Japanese consumers.
 To combat this aversion to debt, most retailers offer the konbini
payment option where consumers make purchases online, print out
receipts, and pay cash at local convenience stores.

14. TRADITIONAL RETAIL CHAIN V/S
ONLINE RETAIL CHAIN
Vendor
Information Flow
Retail
Distribution
Centre
Retail
Outlets
Customer
Physical
Flow
• Inventory Turnover ratio (On-shelf
availability)
• Reverse logistics complexity
Vendor/
supplie
r
Publish
er/Mfg
Independ
ent
Supplier
– 3rd
party
Information Flow
Wholes
aler DC
Partner
DC
Websit
e and
IT
System
s
Custom
er
Internet
Retailer
DC
Physical
Flow
The concept of Drop-Shipping
V/
S

15. AGILE SUPPLY
CHAIN
Urban Logistics
 Multi-Modality
 Hub and spoke model
 High Speed freight services

16. A DE-CENTRALIZED SUPPLY
CHAIN

17. URBAN DISTRIBUTION SYSTEM
• Improves product control
• Adds flexibility
• Effective Risk Management
• Fill rate maximization
Spoke
Hub
Distribution
Centre

18. THE EVOLUTION OF URBAN
LOGISTICS

19. LOGISTICS FACILITIES
FEATURES
Mega e-fulfillment
centers
• Vey Large area ( 1
million sq. feet)
• Cross dock
configuration and large
parking area
• Close to parcel hub
and large labor supply
• High bay(15m) for
mezzanine floors
Parcel hub/ sortation
center
• High length to width ratio
and low density
• Cross docking
configuration and
extensive loading for
lorries. 360 degree
circulation and
automated internal
system for sortation
• Center of gravity location
to feed local parcel
delivery
Parcel delivery centers
and urban logistics
depot
• 360 degree revolution
and cross docking for
vans. Generally
located at edge of
major cities
Return Processing
Centers
• Return items to e-fulfillment
center

20. VAT
Regulations
• Octroi and Entry
Taxes applicable in
many states and
municipal limits
• Completion of
tedious VAT
formalities and
paperwork before
actual delivery of
the product to an
individual.
Road
Distribution
Network
• Complications of
transactions at
various VAT check
posts.
• A robust and pan-
India road network
is critical to the
evolution of the e-commerce
E-COMMERCE companies.
NEEDS A STRONGER SUPPLY CHAIN
BACKBONE
Cash On
Delivery
• Huge hassles of
reconciliation
across various
delivery locations
and a risk of
banking errors,
fraud and a huge
wastage of human
effort.
• The issue of
change of title also
rises.
Reverse
Logistics
•Product defect,
customer
dissatisfaction or
simply a change of
heart within the ‘free
return’ period. The
customer faces a
major issue of how to
send this back.
•Proper guidelines
and transparency
throughout the
process a must.
Skilled
Manpower
• Shortage of
skilled
experience in
the supply
chain world.
E-COMMERCE NEEDS A STRONGER SUPPLY CHAIN
BACKBONE

21. ONLINE RETAILING GROWTH
IMPLICATIONS
Warehousing Requirements
• High growth in e-retailing will require several investments in logistics
infrastructure
• Investments in fulfillment centers and warehouses, downstream parcel and
sortation centers.
• Need to equip these nodes with state-of-the-art technology and modern
warehousing practices promoting visibility across the logistics chain
Warehousing Requirements( in million sq.
• Competition will force e-retailers to deliver products as quickly as possible
1.7
15
16
14
12
10
8
6
4
2
0
770
%
335
%
ft.)
2013 2017-20(Expected)
Source: pwc
Increasing warehouse locations
Source:
mckinsey

22. INCREASING PRODUCT CHOICE
• Online buying still limited to exclusive
categories such as consumer electronics,
apparels and lifestyle, books, music and
video
• Other categories such as food and
beverages, departmental store, home
furnishings, auto parts, healthcare and office
equipment will also see increased online
activity
• Each product category will demand its own
customized logistics requirements
Source: Mckinsey
Within Apparel and Lifestyle category localized suppliers or
warehouses is best suited. Predict buying patterns and ensure
seasonal inventory replenishment.
For books, music and video use of large centralized
inventory for a large region is needed
For consumer electronics and durables having lesser SKU
proliferation, higher product value and higher security and
handling needs, JIT and direct fulfillment model is suited
For hot and cold merchandising, localized sourcing and
continuous availability of temperature controlled infrastructure
throughout supply chain is critical

23. CASH ON DELIVERY
• India has been a vibrant cash economy
• Consumer’s purchasing behavior involves an
initial overall inspection of the product from
different perspectives and paying
subsequently.
• Low penetration of credit and debit cards
• Resulted in ‘cash-on -delivery’ (COD) as a
preferred payment option of majority of the
Indian consumers
Supply Chain Issues
• Extra layer of complexity on supply chain in terms of reverse logistics
• Higher Lead Time in supply chain. Result in obsolescence.
• Theft and fraud by collection agent in the delivery part
• With more and more Online Retailers have to efficiently design
supply chain for preventing theft and reducing overall cost of reverse
logistics. In-house vs. 3PL has to be taken into consideration
Source: IAMAI

24. SUPPLY CHAIN MANAGEMENT
@
Books & General
Merchandise
CCC Lifestyle

25. FLIPKART : SUPPLY CHAIN
Customer Places
order on Website
Inventory
Management Team
is notified
Order transmitted to
nearest warehouse
Order Management
System is reconciled
every morning
Order allocated from
inventory
New PO raised for
replenishment
Item sent for packing &
shipping preparation
Item Shipped
Item Received at
distribution Centre
Last mile delivery by
Courier cos / Flipkart
Internal Delivery arm /
Indian Postal Service /
DC personnel
Order
Management
System
Flipkart
Generated
Barcode
Shipping &
Tracking ID
Via courier
companies /
Flikart Self
Delivery/ IPS
Air Cargo /
Train /
Overnight Truck
2 Wheeler /
Small van /
Postal Service

26. INVENTORY POLICY
• Re-order point model, Target inventory service levels-95%
• Sales projections, volumetric size are parameters on which inventory
space is allocated
• Generally inventory planning is done on daily basis ( exception life style
products )
• Inventory management team studies parameters like fill rate, lead time
etc. to decide ROP
• Monthly check to ensure min amount of working capital is locked in
inventory
• Tracking order by barcode, order number, ID

27. LOGISTICS NETWORK

28. ANALYSIS
• Data collected for 9 weeks for below mentioned categories
• These categories are chosen because of variation in demand
pattern & margins
• Category 1: Leather & Travel accessories
• Category 2: camera & camera accessories
• Category 3: computer & computer accessories

29. LEATHER & TRAVEL ACCESSORIES-ANALYSIS
Stock keeping units: 394
Bag & Belts form biggest sub category
Fill rate is increasing & inventory level decreasing
Inventory management improving
100.0%
80.0%
60.0%
40.0%
20.0%
0.0%
2500
2000
1500
1000
500
0
1 2 3 4 5 6 7 8 9
Inventory
Fill rate
Inventory & Fill Rates for Leather &
Travel Accessories
1.00
0.80
0.60
0.40
0.20
0.00
Leather & Travel
Inventory Weeks
1 2 3 4 5 6 7 8 9
Weeks of
Inventory
Inventory for Leather & Travel Accessories

30. CONTINUED…
120.0%
100.0%
80.0%
60.0%
40.0%
20.0%
0.0%
1050
1000
950
900
850
800
750
1 2 3 4 5 6 7 8 9
Inventory
Fill Rate
Inventory and Fill Rates for Bags
1.90
1.70
1.50
1.30
1.10
0.90
0.70
0.50
1 2 3 4 5 6 7 8 9
Weeks of Inventory
Inventory Data for Bags Inventory
100.0%
90.0%
80.0%
70.0%
60.0%
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
780
760
740
720
700
680
660
640
620
600
580
1 2 3 4 5 6 7 8 9
Inventory
Fill Rate
1.65
1.60
1.55
1.50
1.45
1.40
1.35
1.30
1.25
1 2 3 4 5 6 7 8 9
Weeks of Inventory
Inventory and Fill Rates for Belts Inventory Data for Belts

31. CAMERA & CAMERA ACCESSORIES-ANALYSIS
Stock keeping units: 48 ( 06 camera & 42 accessories )
Inventory levels low but fill rate is also on the lower side
100.0%
80.0%
60.0%
40.0%
20.0%
0.0%
1200
1000
800
600
400
200
0
1 2 3 4 5 6 7 8 9
Inventor
y
Fill Rate
Inventory and Fill Rates for Camera &
Camera Accessories
3.00
2.50
2.00
1.50
1.00
0.50
0.00
Weeks of Inventory
1 2 3 4 5 6 7 8 9
Inventory Levels for Camera & Camera
Accessories

32. CONTINUED….
Inventory & Fill Rates for Cameras
2.00
1.80
1.60
1.40
1.20
1.00
0.80
0.60
0.40
0.20
0.00
Weeks of Inventory
1 2 3 4 5 6 7 8 9
Inventory Level for Cameras
Inventory and Fill Rates for Camera
Accessories
0.30
0.25
0.20
0.15
0.10
0.05
0.00
Weeks of Inventory
1 2 3 4 5 6 7 8 9
Inventory Levels for Camera Accessories

33. COMPUTER & IT’S ACCESSORIES-ANALYSIS
Stock keeping units: 200
1 week of inventory is kept still fluctuating fill rates
100.0%
95.0%
90.0%
85.0%
80.0%
75.0%
70.0%
65.0%
60.0%
55.0%
50.0%
8000
7000
6000
5000
4000
3000
2000
1000
0
1 2 3 4 5 6 7 8 9
1.60
1.40
1.20
1.00
0.80
Inventory
Fill Rate
Inventory & Fill Rates for Computer and
Computer Accessories
0.60
0.40
0.20
0.00
Weeks of Inventory
1 2 3 4 5 6 7 8 9
Inventory Levels for Computer & Computer
Accessories

34. CONTINUED…..
120.0%
100.0%
80.0%
60.0%
40.0%
20.0%
0.0%
160
140
120
100
80
60
40
20
0
1 2 3 4 5 6 7 8 9
Inventory
Fill Rate
Inventory & Fill Rates for Laptops
100.0%
95.0%
90.0%
85.0%
80.0%
75.0%
70.0%
65.0%
60.0%
55.0%
50.0%
7000
6000
5000
4000
3000
2000
1000
0
1 2 3 4 5 6 7 8 9
Inventory
Fill Rate
Inventory & Fill Rates for Laptop Accessories

35. RECOMMENDATIONS
• Inventory replenishment should be company
determined, not driven by market demand
• Increase weeks of inventory for items which are costly
to transport to reduce frequency of orders
• Large safety stock should be kept for subcategory
“camera” a high margin product