e-tailing

1
e-tailing SCM

• Janat Shah
• janat_at_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. Turns ROA
Amazon 10.0 4.4
Wal-Mart 8.3 8.8
Dell 35.6 6.8
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

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Amazon Relevance of Shipping Cost
2011 2010 2009 2008 2007 2006
Net Sales 48,077 34,204 24,509 19,166 14,835 10,711
Income from Ops 862 1406 1129 842 655 389
Shipping Revenue 1552 1193 924 835 740 567
Shipping Cost 3989 2579 1773 1500 1200 884
Net shipping cost/Net Sales 5.1 4.1 3.5 3.5 3.1 3.0
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Shipment charges in E-retailing for various
category of products for differing shipping times
Standard Shipping ( 3-5 Days) Standard Shipping ( 3-5 Days) Two-Day shipping Two-Day shipping One-Day shipping One-Day shipping
Type of product Per shipment Per Item Per shipment Per Item Per shipment Per Item
Automotive items 4.50 0.50/lb 9.00 0.99/lb 12.50 3.99/lb
Books 3.00 0.99 7.49 1.99 12.49 3.99
CDs, DVDs 1.99 0.99 5.49 0.99 8.99 2.99
Computers 7.99 0.65/lb 9.99 1.25/lb 16.99 1.99/lb
Grocery 4.99 0.59/lb 8.99 0.99/lb 14.99 1.99/lb
Clothing items 3.99 0.99 6.99 1.99 11.99 2.99
Sport items 4.99 0.49/lb 8.99 0.99/lb 14.99 1.99/lb
Shipping within USA
Source WWW.Amazon.com
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Importance of transportation cost for different
category of orders in e-retailing
Average Price Average Weight Value Density Shipment Transport Cost Shipping Cost as price
Laptop 1500 3 Kg. 500/kg 1 laptop 12.4 0.8
Book 15 0.5 Kg. 30/kg. 3 books 6.0 13.3
Grocery 5 1 Kg. 5/Kg. 10 kg. 18.2 36.4
Transportation cost is calculated using
Amazon.com rates for standard shipping In US
Typical order for Dell, Amazon Webvan
respectively
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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 - ?

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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

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E-tailing Critical activities

• Technology
• Web design
• Call Center
• Order Fulfillment
• Warehousing Transportation
• Analytics

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Key supply chain challenges for e-tailers

• Understanding Managing logistics cost and
  service
• Outsourcing of logistics function

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Questions?
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Table 1. The Gartner Supply Chain Top 25 for 2012 Table 1. The Gartner Supply Chain Top 25 for 2012 Table 1. The Gartner Supply Chain Top 25 for 2012 Table 1. The Gartner Supply Chain Top 25 for 2012 Table 1. The Gartner Supply Chain Top 25 for 2012 Table 1. The Gartner Supply Chain Top 25 for 2012 Table 1. The Gartner Supply Chain Top 25 for 2012 Table 1. The Gartner Supply Chain Top 25 for 2012
Rank Company Peer Opinion1(173 voters)(25) Gartner Opinion1(37 voters)(25) Three-Year Weighted ROA2(25) Inventory Turns3(15) Three-Year Weighted Revenue Growth4(10) Composite Score5
1 Apple 3241 651 20.2 74.1 51.5 9.69
2 Amazon 2713 435 4.4 10.0 37.7 5.40
3 McDonald's 1121 283 16.0 142.4 7.2 5.37
4 Dell 2131 546 6.8 35.6 2.7 5.30
5 PG 1940 622 9.2 5.5 2.5 5.05
6 The Coca-Cola Company 1818 372 13.0 5.8 19.7 4.85
7 Intel 1006 406 16.2 5.0 17.8 4.63
8 Cisco Systems 1243 582 8.4 11.0 5.5 4.46
9 Wal-Mart Stores 1874 410 8.8 8.3 4.2 4.24
10 Unilever 1043 534 10.2 6.0 5.5 4.21
Source http//www.gartner.com/technology/supply-c
hain/top25.jsp
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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

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Eretail challenges in India

• Lower internet penetration
• Significant number of customers using COD model
  for payment
• Higher returns
• Logistics infrastructure a challenge