e-tailing & SCM

Janat Shahjanat@iimu.ac.in

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. Turns ROA

Amazon 10.0 4.4%

Wal-Mart 8.3 8.8%

Dell 35.6 6.8%

Amazon(2011): Role of SCM• Assets*:

Inventory : 4992Total assets : 25278

: Revenue & Costs*:Revenue : 48077Income from Operations: 862Shipping Revenue: 1552Shipping Cost: 3989

*In Millions US$

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%

Standard Shipping ( 3-5 Days)

Two-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

Source; WWW.Amazon.com

Shipment charges in E-retailing for various category of products for differing shipping times*

* Shipping within USA6

Averag

e Price

Average

Weight

Value

Density

Shipmen

t

Transpor

t 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

Importance of transportation cost for different category of orders in e-retailing

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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 - ?

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

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

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

3McDonald's

1121 283 16.0% 142.4 7.2% 5.37

4 Dell 2131 546 6.8% 35.6 2.7% 5.30

5 P&G 1940 622 9.2% 5.5 2.5% 5.05

6The 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

8Cisco Systems

1243 582 8.4% 11.0 5.5% 4.46

9Wal-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-chain/top25.jsp

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