e-tailing & SCM Janat Shah

E-tailing : SCM Issues Relevant SCM Issues – Material Flow Inventory, Transportation Managing returns – Insourcing versus Outsourcing Unique Challenges in India – Internet Penetration – COD Model Higher returns

e-tailing & Retailing: Performance measures Inv. TurnsROA Amazon % Wal-Mart8.38.8% Dell %

Amazon(2011): Role of SCM Assets*: Inventory : 4992 Total assets : : Revenue & Costs*: Revenue : Income from Operations: 862 Shipping Revenue: 1552 Shipping Cost: 3989 *In Millions US$

Amazon: Relevance of Shipping Cost Net Sales48,07734,20424,50919,16614,83510,711 Income from Ops Shipping Revenue Shipping Cost Net shipping cost/Net Sales 5.1%4.1%3.5% 3.1%3.0%

Standard Shipping ( 3-5 Days) Two-Day shippingOne-Day shipping Type of productPer shipmentPer ItemPer shipmentPer ItemPer shipmentPer Item Automotive items /lb /lb /lb Books CDs, DVDs Computers /lb /lb /lb Grocery /lb /lb /lb Clothing items Sport items /lb /lb /lb Source; Shipment charges in E-retailing for various category of products for differing shipping times* * Shipping within USA 6

Averag e Price Average Weight Value Density Shipmen t Transpor t Cost* Shipping Cost as % price Laptop**$15003 Kg.$500/kg1 laptop Book**$150.5 Kg.$30/kg.3 books Grocery**$51 Kg.$5/Kg.10 kg *Transportation cost is calculated using Amazon.com rates for standard shipping In US ** Typical order for Dell, Amazon & Webvan respectively Importance of transportation cost for different category of orders in e-retailing 7

Evolution of e-tailing Phase –I – Drop Shipping Phase – II – Inventory stocked at e-tailer & Logistics function insourced Amazon has 79 warehouses Flipkart has 7 warehouses Phase III - ?

Supply Chain Evolution First Revolution.: Ford Motor Co – Single Product. – Vertical Integration Second Revolution: Toyota Motor Co – Wide Variety – Long term relationship with suppliers. Third Revolution: – Dell Computers Customisation. Medium term relationship with suppliers Suppliers have to maintain technology and cost leadership. – Bharti-Airtel Strategic Outsourcing : Network Management with Nokia & Ericsson & IT Management with IBM

E-tailing: Critical activities Technology – Web design Call Center Order Fulfillment – Warehousing & Transportation Analytics

Key supply chain challenges for e- tailers Understanding & Managing logistics cost and service Outsourcing of logistics function

Questions?

Table 1. The Gartner Supply Chain Top 25 for 2012 RankCompany Peer Opinion 1 (173 voters) (25%) Gartner Opinion 1 (37 voters) (25%) Three- Year Weighted ROA 2 (25%) Inventory Turns 3 (15%) Three- Year Weighted Revenue Growth 4 (10%) Composit e Score 5 1Apple % %9.69 2Amazon % % McDonald 's % %5.37 4Dell % %5.30 5P&G %5.52.5% The Coca- Cola Company % %4.85 7Intel % % Cisco Systems % % Wal-Mart Stores %8.34.2% Unilever %6.05.5%4.21 Source:

E-Retailing: Provides the convenience of shopping from home but Physical delivery takes longer time E-retailer can provide higher variety compared to Brick and Mortar store and still mange higher inventory turns – Centralisation versus decentralisation of inventory Transportation cost is higher for e-retailer – Small shipment size – Last-mile transportation Product/market Characteristic – Value density, Nature of demand uncertainty, Volume of demand 14

Eretail challenges in India Lower internet penetration Significant number of customers using COD model for payment – Higher returns Logistics infrastructure a challenge