1. e-tailing & SCM Janat Shah janat@iimu.ac.in

2. 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

3. e-tailing & Retailing: Performance measures Inv. TurnsROA Amazon10.04.4% Wal-Mart8.38.8% Dell35.66.8%

4. Amazon(2011): Role of SCM Assets*: Inventory : 4992 Total assets : 25278 : Revenue & Costs*: Revenue : 48077 Income from Operations: 862 Shipping Revenue: 1552 Shipping Cost: 3989 *In Millions US$

5. Amazon: Relevance of Shipping Cost 201120102009200820072006 Net Sales48,07734,20424,50919,16614,83510,711 Income from Ops 86214061129842655389 Shipping Revenue 15521193924835740567 Shipping Cost 39892579177315001200884 Net shipping cost/Net Sales 5.1%4.1%3.5% 3.1%3.0%

6. Standard Shipping ( 3-5 Days) Two-Day shippingOne-Day shipping Type of productPer shipmentPer ItemPer shipmentPer ItemPer shipmentPer Item Automotive items 4.500.50/lb9.000.99/lb12.503.99/lb Books 3.000.997.491.9912.493.99 CDs, DVDs 1.990.995.490.998.992.99 Computers 7.990.65/lb9.991.25/lb16.991.99/lb Grocery 4.990.59/lb8.990.99/lb14.991.99/lb Clothing items 3.990.996.991.9911.992.99 Sport items 4.990.49/lb8.990.99/lb14.991.99/lb Source; WWW.Amazon.comWWW.Amazon.com Shipment charges in E-retailing for various category of products for differing shipping times* * Shipping within USA 6

7. Averag e Price Average Weight Value Density Shipmen t Transpor t Cost* Shipping Cost as % price Laptop**$15003 Kg.$500/kg1 laptop 12.40.8 Book**$150.5 Kg.$30/kg.3 books 6.013.3 Grocery**$51 Kg.$5/Kg.10 kg. 18.236.4 *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

8. 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 - ?

9. Supply Chain Evolution First Revolution.: Ford Motor Co. 1910-1920. – Single Product. – Vertical Integration Second Revolution: Toyota Motor Co. 1960-1970 – 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

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

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

12. Questions?

13. 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 1Apple324165120.2%74.151.5%9.69 2Amazon27134354.4%10.037.7%5.40 3 McDonald 's 112128316.0%142.47.2%5.37 4Dell21315466.8%35.62.7%5.30 5P&G19406229.2%5.52.5%5.05 6 The Coca- Cola Company 181837213.0%5.819.7%4.85 7Intel100640616.2%5.017.8%4.63 8 Cisco Systems 12435828.4%11.05.5%4.46 9 Wal-Mart Stores 18744108.8%8.34.2%4.24 10Unilever104353410.2%6.05.5%4.21 Source: http://www.gartner.com/technology/supply-chain/top25.jsphttp://www.gartner.com/technology/supply-chain/top25.jsp

14. 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

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