Opstrat

Club Kaizens Monthly Bulletin Jul13

Management Practices in e commerce business
Contributed by Chinmay Nahar

Vol 03

Issue no - 01

Electronic commerce, commonly known as e-commerce, is a type of industry where buying and selling of product or service is conducted over electronic systems such as the Internet and other computer networks. Two kinds of models are most common:
Inventory Model Wherein inventory of goods is stored and orders are dispatched from that inventory Marketplace Model Wherein the orders are taken and transferred to the suppliers who are responsible for dispatching the goods

An organization can use a mix of both these models. Which model to choose? If you are starting up an ecommerce business, one of the major challenges relates to inventory. When you think through the process, you realize that you cannot afford to keep the kind of inventory you need in order to do the business you want. In the initial stages, it might be better to set up an ecommerce website with the products you sell, and have someone else manage inventory, shipping, and returns. That is where the supply chain strategy becomes important. Opstrat Jul13 Page 1

Basic Supply Chain Management Terms Product sourcing is locating a source of products to sell that you do not manufacture yourself. Drop shipping involves transferring customer orders to another company, who fulfils the orders by shipping the items directly to the customer on your behalf. Wholesale suppliers are simply providing you items at wholesale prices from the manufacturers. Ask Yourself These Questions First There is no one-size-fits-all strategy in any aspect of business, certainly not in supply chain management. To come up with something that works for you, begin by asking yourself the following: Inventory Yes Yes High No High Marketplace No No Low Yes Low

Contact Trade Magazines and Associations to Develop Suppliers If you are setting up an ecommerce business, you probably have some thoughts on sourcing. Even if that is not the case, you could start by reading trade magazines to find companies manufacturing products you are interested in. You could also attend the relevant trade shows. You could also contact trade organizations that are associated with the products you want to deal in, making valuable contact with their members. In fact, these organizations aim to connect manufacturers and retailers, even if they are from different countries. It is not difficult to locate relevant associations. You could simply look up a directory of trade associations. Evaluate Local Retailers As a Source

Will you manufacture or resell items? Will you keep an inventory or not? How much control do you want over the packaging and shipping? How critical is price control to your business model at this stage? What volumes will you be dealing in?

Do not rule out local retailers with limited resources as product sources. They are successful in their own town, but might have an interest in someone selling their products elsewhere. Sourcing Directly From Manufacturers Is Desirable But Difficult for Small Players A manufacturer usually does not want to fuss with small retailers. Wholesalers have a sales force, and resources, in place specifically for distributing the products to ecommerce businesses that will retail the products. Also, the manufacturer wants to sell very large quantities that are usually beyond the reach of smaller ecommerce players. If a manufacturer is willing to work directly with you, it is most likely because they are too small of a fish to catch the attention of wholesale distributors. They cannot keep up with volume demands and need to live Page 2

With these questions answered you can determine what your supply chain management model will look like. Once you select the model you want to go ahead with, these are certain things which you would want to do Opstrat Jul13

life in the slow lane. The risk is that they will not be able to provide you with product every time you need it. Drop Shipping for Ecommerce Drop shipping is the real revolution of ecommerce. There are many benefits and few risks in drop shipping. Benefits of Drop Shipping Keeping stock no longer necessary Lower wholesale prices No upfront investment in stock Range of products extended without investment or risk Less time devoted to inventory and delivery

Warehouse Management Watch this video for Warehouse management https://www.youtube.com/watch?v=i6H7nfHjHtY Effective Ecommerce Fulfillment For fulfilment to be effective, an ecommerce business must pay attention to all of these: Speed The goods must not just get there. They must get there in time, every time. Accuracy The goods must get there, but not just any goods. The exact goods that were ordered must get there. Scalability Sure you can get the goods there now, but as you grow will your ability to fulfil grow with you? Surge The holiday season and other occasions cause surges in shopper traffic. You have probably ensured that your website withstands the surge, but does your fulfilment? Or will the Christmas gift be delivered after Christmas?

Risks of Drop Shipping Some drop shippers can raise their prices after getting an ecommerce player dependent on them. There might be fixed overheads and other costs that are not directly related to the fulfillment of orders. Some drop shippers may require a membership fee. I do not have a problem with the very idea of a membership fee, as it could be a tool to weed out frivolous players. But make sure that you find the fee to be reasonable. The drop shipper might cut corners by using an unreliable shipping company. Situations that require reverse logistics could turn out to be sticky. The billing policies of the drop shipper might be unsuitable.
New drop shippers take birth every day and crowd the marketplace. As a result some drop shippers might go out of business.

Reverse Logistics Reverse logistics is the collection of all processes that come into play for goods that move in the reverse direction, i.e., from the customer to the

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business. Here are the most important processes that are covered under reverse logistics: Customer Support

making this decision, reverse logistics includes the important step of triage. Repair

This could be in the form of a call centre, support by email, or an online chat. Often it is a combination of all of these methods. The ecommerce business needs to make itself available for a conversation with the customer, who may want to return or repair the goods purchased. Physical Movement of Goods

There are a wide variety of methods by which an ecommerce business can receive the goods from the customer. The customer could be required to mail in the goods, or drop them off at designated locations. Some merchants will organize for a pickup of the goods from the customer's location. Warehousing

Repairs are an important process in the reverse logistics supply chain -either for returning to the repaired goods to the customer or for reselling the returned goods. Cost effective repairs can enable the reverse logistics centre to actually become a profit centre. In fact, the business model of several third party reverse logistics providers depends upon selling refurbished products at high markups. Some go so far as to actually provide warranties on the refurbished goods. After Sales Support

The physical goods that are collected need to be tagged, tracked, and stored. This is the purpose of the warehousing process. A warehouse is typically a large storage space on the outskirts of major towns or cities. In addition to storage space, large warehouses have many devices and automated processes to tag and track the stored goods. Triage

Assume that the returned goods are refurbished and sold to a new customer. Now the reverse logistics provider has become the new seller. All aspects of after sales support, such as: servicing the product and supporting it with an annual maintenance contract (AMC) are required even in the case of goods sold second-hand. Using a Third Party Reverse Logistics Provider Just like the logistics of an ecommerce merchant can be outsourced to a third party logistics provider, there are specialist third party providers of reverse logistics too. These are organizations that specialize in receiving goods from customers, refurbishing them, and selling them at steep discounts.

Triage means sorting of goods based on their condition or quality. Some of the goods need to be repaired and sent back. Others have to be sold off as used / defective goods. Still others need to be sold as scrap. For

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INTERNSHIP EXPERIENCE SHARING This interview is intended to help our PGP1s so as to help them out with their summers preparation as well as to give a brief idea on what to expect out of an Operations Internship. An Interview with Arjun Nayak, Summer Intern (Operations Profile) at Fipkart. Arjun has a prior experience with Mahindra Navistar for 4 years. 2. Give us a brief about the various stages involved in the selection process for Flipkart? After the initial shortlist, GD was conducted for the shortlisted candidates. There were about 10 people per GD. My GD topic was FDI in Multi-brand retail. The topics for other groups in the GD round were like Dominos vs Pizza hut, etc. After that there was a telephonic interview. It lasted for about 30 35 minutes. Some questions were on my previous experience with Mahindra. And the remaining questions were designed to test my knowledge in E-commerce sector. I was asked about the key success factors in that industry and about the various logistics and accessibility issues existing in that sector. 3. Tell us a brief overview about the projects offered? 1. What made you to develop interest to opt for an internship in the Operations stream? I am basically a Mechanical engineer. I also have a prior experience with Mahindra Navistar. During that time I was exposed to the various manufacturing plants and techniques. I was fascinated by the whole process of how a product is converted from the raw material stages and delivered to the customer and the various nuances involved in that. I wanted to learn that entire process and that is what I have been working upon. All these helped me in nurturing myself towards a career in Operations stream. Opstrat Jul13 The internship location was in Bangalore and it lasted for 10 weeks. I was given 3 projects. The first project was with the Organizational Process Development team. This team is involved in standardizing the entire set of processes and initiating cost reduction efforts wherever possible. I had to work on developing a performance management system for the processes. This was necessary as Flipkart was in the growth phase and to bring accountability in the entire organization. The second project was closely related to the first one. I was asked to develop a dashboard for the performance management metrics for various departments. This will help the top management in easy monitoring. The third project was on process management Page 5

system. This was aimed at bringing in a common set of process maps across the entire organization. The various processes targeted were Inbound and Outbound logistics and warehousing. Getting approval from the various stakeholders and publishing it in a portal were the final steps. 4. What is the major learning you gained out of this experience? As you know, E-commerce is a booming sector. To observe the entire operations of that industry closely was a major learning. The amount of research, data collection and number crunching was really fascinating. Also I had to interact with all the departments which gave me a holistic view of how an organization runs. It helped me to match the theory of operations with practice. 5. What makes Flipkart different from other E-commerce players? Flipkart stresses a lot on customer satisfaction and delight. At every point of decision making, the impact on the end customer is taken into account. Efficient supply chain management is one of the strengths of Flipkart. 6. In what areas the PGP1s must accustom themselves before their summers? They must be thorough with the basics of operations, the concepts, the jargons used as well as the current trends and best practices in various industries. Opstrat Jul13

7. What are the qualities expected by a company coming for summers? They expect you to learn quickly and provide a solution to the given project. Spoon feeding cannot be expected and also a heavy expectation comes with the IIM tag. Also they expect you to come up with new ideas. Be apprised of unique factors of that particular industry. Also knowing advanced functionalities in excel will help 8. You had a technical experience before. How is this management oriented project different from that? When you were an engineer, the focus is more on the functionality part. But now the focus is on other issues like resource requirement, the marketability of a product, the cost impact of doing a business and also the decision making based on the data analysis.

Arjun can be contacted through mail at: p12arjunn@iimidr.ac.in

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E commerce in India
Contributed by Kannan R

The e-Commerce market in India has enjoyed phenomenal growth of almost 50% in the last five years. Although the trend of e-Commerce has been making rounds in India for 15 years, the appropriate ecosystem has now started to fall in place. The considerable rise in the number of internet users, growing acceptability of online payments, the proliferation of internet-enabled devices and favourable demographics are the key factors driving the growth story of e-Commerce in the country. The number of users making online transactions has been on a rapid growth trajectory, and it is expected to grow from 11 million in 2011 to 38 million in 2015. In the second half of 2013, as Indias 125 millionth internet user logged on and the number of mobile phone users crossed 850 million, it became clear that the foundation for an ecommerce revolution had been laid. The internet is already changing the way connected Indians shop. Not only has it opened up a new world of lower prices and choices, it has also emerged as a wealth-creating tool for entrepreneurs. Given the size of the Indian market and growing consumerism, industry sources arent surprised that ecommerce companies are reporting double-digit growth. Online travel has traditionally been the largest e-Commerce sub-sector (by revenue) in India. Nevertheless, online retail is catching up fast and is expected to match online travel revenues by 2015. To improve margins, online travel players are diversifying their offerings to include hotel reservations, along with the regular ticketing services. To make the most of this move, players will need to develop skill sets that are different from the ones required in the ticketing segment. They will have to manage challenges associated with a diverse supplier base, technological constraints, customer experience, authenticity of information and grievance redressal. Opstrat Jul13

The online retail segment has evolved and grown significantly over the past few years. Cash-on-delivery has been one of the key growth drivers and is touted to have accounted for 50% to 80% of online retail sales. Players have adopted new business models including stock-and-sell, consignment and group buying; however, concerns surrounding inventory management, location of warehouses and in-house logistics capabilities are posing teething issues. Global online growth trend Internet usage globally has been on the rise with most of the growth has come from markets in Asia Pacific and Latin America. The chart below shows the growth in online population across regions from July 2011 to July 2012. The global online population as of July 2012 stands close to 1.5 billion users, growing at a rate of 7% Y-o-Y.

Among the BRIC Nations, India has been the fastest growing market adding over 18 million internet users and growing at an annual rate of 41%. India is also among the top 3 fastest growing markets worldwide in the last 12 months.

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Travel A closer look Online travel has seen growth across all subcategories including car rentals, Online Travel Agents, Airlines as well as hotels and travel information sites. As the inter city migration has increased, a proportional upward trend is seen in usage of transport including Train, Air. The top 10 sites among the travel category show a good mix of travel options as well as information sites showing online users seeking information on travel options on a regular basis. 1 out of 5 online users in India visit the Indian Railways site. Trends in E commerce E-commerce globally has been on the rise. Both travel and retail have grown faster than several other categories in India. Travel visitation has an overall reach of close to 40% worldwide and has grown over 12% Y-o-Y. Retail visitation has an overall reach of close to 72% worldwide and has grown over 13% Y-o-Y. More than a billion people worldwide visit retail sites every month. In India, Travel has always been ahead of the curve in terms of visitation and transactions compared to world averages and is at 44% penetration and has grown over 41% from last year. Retail has grown 43% and reaches 60% penetration among online users, but is still below world averages. This shows the immense potential that the retail category holds in India with online retail filling the distribution and convenience gap. The ecosystem to support growth in online retail has also evolved including improvement in logistics and awareness among brands in making the products available online.

Indian Railways is also among the most visited sites in India with over 12 million unique visitors a month. MakeMyTrip, Yatra and Cleartrip individually reach over 11.6%, 8.3% and 3% of total online users respectively.

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The average transaction sizes among travel sites show a gradation as below:

Amazon is the most visited retail site with most of the traffic slipt among Amazon.com, ImDB and Junglee.com. Flipkart leads the way among the online retailers in India with 7.4 million unique visitors a month, growing at 431% annually. Snapdeal has been close second with 6.9 million uniques. Jabong and Myntra have been competing closely in the lifestlye category with over 5.3 million uniques each. HomeShop18 has over 4 million uniques a month. Apparel has been the fastest growing subcategory in retail and reaches 13.4% online users in India. Comparison shopping, as research of retail online grows continue to dominate. Most of the comparison shopping sites show a growth over 75% Y-o-Y and will continue to grow as more categories of retail come online. Consumer goods, sports/outdoor products and retail food sub categories have also shown early growth signs. Consumer goods being a popular category among horizontal retailers are still way below global averages. Flowers/gifts/greetings is the only subcategory which has shown degrowth of over 33% in the last 12 months. Vertical e-Commerce categories including baby products, apparel, shoes and other lifestyle categories have also shown tremendous growth. Wider assortment and product availability have helped these retailers in growing business online. More retailers online have heavily depended on online marketing to scale. The online marketing spends across all content categories and effective marketing campaigns reaching out the right target audience have increased visitation and hence conversion among retailers.

Retail A closer look Retail category penetration has increased to 60% reach and has grown to 37.5 million unique visitors a month, an overall growth of 43% annually. The growth has come across all retail categories and most of them show promising transactions and conversion rates along with growth in visitors. The top retail sites shown above in India have each seen a growth of over 100% in the last 12 months.

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The average transaction sizes among some of the top retailers are as below:

options for many consumers in the coming months. Car rentals and bus booking online have shows very high growth especially among urban consumers. With further penetration of the internet, these two categories will have a great amplified reach and conversion rates. Retail category has seen peculiar growth with a lot of retailers pushing for trials among consumers through discounts and freebies. This is a changing trend as consumers having tried online shopping, the credibility of these sites will further bolster the transaction volume on retail sites. Among all retail sites apparel and lifestyle goods have seen an early adoption among consumers. This again is a growing trend and we see a good amount of contribution in dollar share and transaction share coming from lifestyle categories along with home furnishing and lifestyle goods. Comparison shopping has been on a growth but is still underserved compared to global averages. The need to compare and consume in India across other online categories like travel, shows a similar consumer behaviour in retail category. In the coming months, expect more and more consumers relying on online research of products for features and prices. Online retail has seen a heavy overlap with social networking and search due to aggressive marketing and strong inclination towards social commerce. We expect a larger portion of online retail from social commerce with India positioning itself as one of the fastest growing social networked user base and also larger size of social groups. To conclude, e-Commerce has seen tremendous growth in the last 12 months. Models like Cash on Delivery and other consumer centric payment options and improved service quality will boost overall sales. It is definitely the most exciting phase among online retailers and consumers as this learning curve will put India on the global map as one of the largest e-commerce markets in the coming months.

Payment type classification Direct debit is the most commonly used payment type contributing to over 58% of the overall payments in India. Cash on Delivery which has been a popular mode of payment method in retail category and form close to 7% of the total transactions. COD has a much higher contribution among retail category with more and more online retailers using this option to increase trials among customers. Future Trends E-Commerce in India has grown rapidly across both travel and retail in the last 12 months and has shown an above average growth compared to many categories online. Retail growth has been fuelled by several players getting funded, aggressive marketing and the consumer need and convenience to buy these products online. Travel e-commerce has been above global averages and continues to soar in terms of visitation and transactions. IRCTC has led the category with the largest transaction share and dollar share contribution. Airline, OTAs and hotels have seen steady growth and will remain as standard travel Opstrat Jul13

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Trivia
Contributed by Hemanta Pramanick

11. India is home to the fastest growing ecommerce market, and France is home to the slowest ecommerce growth. 12. Ecommerce sales are expected to surpass $250 billion in 2013. 13. Consumers spend between $1,200 and $1,300 on online shopping per year. 14. E-retail will grow to 9% in 2016, up from 7% today.

1.By connecting a modified domestic television with a phone line, Michael Aldrich invented online shopping in 1979. 2. Although Amazon launched in 1995, the first yearly profit wasn't until 2003, and as of June 2012, the average order value was $47.31. 3. Because of forced account registration, online users abandon their shopping carts 26% of the time. 4. Netflix wasn't the first online DVD subscription service Blockbuster announced Blockbuster.com in 2004, but it's unclear whether services such as Netflix and Redbox led to its ultimate bankruptcy. 5. During the third quarter of 2012, $4,423 was transacted per second via PayPal. 6. Zappos' referrals from social media per order yield $0.75 from Pinterest, $2.08 from Facebook and $33.66 from Twitter. 7. Approximately 46% of online users count on social media when making a purchase decision. 8. 71% of shoppers believe they'll get a better deal online than in stores. 9. In 2010, Groupon turned down Google's $6 billion offer and became an IPO the following year. 10. Pizza Hut began offering online ordering on its website in 1994.

15. Online sales from social networks will grow 93% percent per year within the next four years, according to consulting firm Booz & Company. 16. Differentiation is the new motto in Indian ecommerce. The way some are doing it is simply picking a Niche 1. SocialHeart.in: Exclusive handicrafts made by NGOs. 2. YellowLeg.com: The Travel Only Book store. 3. Bewakoof.com: Cool Tshirts with great rib-tickling one liners. 4. Bajaao.com: Musical Instruments and Select Albums 5. Induna.com: Great collection of Movies, Films and TV serials 6. WilliamPenn.net: Pens from popular bands such as Faber Castell, Parker etc. 7. OnlinePrasad.com: Pooja items and temple offerings from popular temples. 8. GiftBig.com: Gift Vouchers from top retailers. 9. BulbTiger.com: Indoor lighting fittings and chandeliers.

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