E commerce industry in India is growing at a phenomenal pace but are the services supporting it at the backend able to keep pace?
Logistics and fulfillment form one of the key backend supports for an eCommerce set-up. Although we have seen quite a bit of improvement over the years in these services but the kind of logistic challenges which companies faced during the build-up years of e-commerce industry in India forced the new entrants to move in the direction of creating their own infrastructure and build huge teams to manage warehousing and deliveries. One of the important things these e-commerce players are missing while building strong in-house warehousing capabilities is the issues arising out of scale. It is only possible to serve a certain maximum number of orders from your own warehouses beyond which all of it gets unrealistic to handle. Think of the kind of rental, inventories and people cost businesses would need to incur on running warehousing facilities of their own.
There are obvious advantages associated with having one’s own logistic and warehousing capabilities but it diverts the focus of the company. It is not just capital investment but also focus and business priorities that are keeping some of the players away from building their own logistics and delivery organizations. At the end of the day one can focus and build expertise in few areas; would logistics be one of them? I am not sure. According to me – In an ideal scenario, I would let the logistic experts manage the fulfillment for the orders generated online. I believe an eCommerce set-up need to have right systems and processes in place to be able to leverage the reach and scale of a professionally managed logistics network. That said I would also want to make one point – The existing logistic and courier companies were not built/ structured to deliver products but documents; though they have been innovating and adapting their processes very fast to be able to service the need of this sector which is growing at 100% year on year (YoY). I feel this is one area where there are huge opportunities available for entrepreneurs to take a dig. Sample this – the expected market size of non store retailing in India by 2015 (which includes eCommerce, TV shopping, print catalogues) would be around USD 2 billion. Now assuming that Logistics and warehousing cost would be about 6 to 8 percent of turnover – would mean the market size of about USD 150Million. A USD 150 million market with almost no one focusing on this particular sector provides with a great business opportunity.
At Tradus.in, we work with some of the top courier agencies in the country and we believe they have a decent network & reach to fulfill orders generated for online commerce businesses as of today. One needs to forge alliances with multi logistic players to be able to get good coverage at pan India levels. There are lots of regional players in South and East India which provide deeper coverage in these zones which is not available with national players. Currently we have tied-up with about half a dozen players which collectively are able to provide us with coverage to 8000 Pin Codes. Another point to note is that there are fulfillment challenges with certain product categories. For example – certain cities and certain carriers are not able to carry liquid (because of restrictions to carry the same by air). So sometimes we face issues with products like perfumes, shaving gels etc. Similarly there are challenges with perishable products like cakes, chocolates and other FMCG stuff. Products like LED TVs etc require special packaging – wooden cases; so as to avoid breakage in transit. But as one gets more and more seasoned – one is able to build processes to work around the specific requirements of categories to be able to have effective fulfillment for the same.
My advice to new start-ups in this space would be:
- If your products/ proposition and your customers are happy with a delivery time line of 48 to 72 hours; you are good to partner with some of the top domestic courier agencies like – Blue Dart, Aramex etc.
- However, if your requirement is to have delivery timelines of few hours then you will have to look at alternate arrangements.
- It would be rather viable to invest in building technology integrations and tighter processes to leverage the reach and network of the existing courier companies because I believe that is more scalable.