Optimizing direct costs for online retail

Dietmer Jobst

India is booming since nearly half a decade in Ecommerce ventures and is growing fast with extraordinary top line results for companies like Flipkart, Jabong or Myntra. There are multiple dozens to follow who are trying to achieve revenue growth in multi category retail, specialist retail or niche markets.

Nearly all big and small E’s are subsidized, having double or triple funding’s, running after an insourced service story for order baskets of INR1500 or less. The cost structures are visible, planned for never reached forecasts. Last mile delivery companies are seeding all over the place. Mega-Warehouses are built, unutilized with double or triple inventory chains. Sourcing of changing 10.000 SKUs per month of partly liquidation stock is an innovative dream, without mentioning the very often poor not even truly calculated GM. Other mega costs are created in excessive BPO services to manage operational failures, uncontrolled reverse chains without customer satisfaction sensitivity.

It is time to work on 180 degrees change projects:

Potentials to optimize direct costs

Last Mile delivery costs can be optimized by consolidated, integrated Distribution services. Transport Management solutions running worldwide for 200 different DSP´s, can cut Pan India Distribution costs by 70%. There will be Cross company change requirements and out of the box innovation necessary.

Ecommerce warehousing will run into 60% more efficient multiuser hubs, there is a need to control inventory risk, storage costs, write offs and more efficient supplier management.

Indian Warehousing 2020?(Source Kiva Systems).
  1. Inbound Logistics solutions with strategic brand partnerships will revolutionize the Ecommerce Retail space, as 20 years back in the US and Europe for the retail industry.
  2. Product profitability management in conjunction to profitable assortment will sort the winners from losers, proving the intelligence in retailing.

It’s time of the outsourcers with specialized ecommerce logistics solutions, there will be multiple players but winners will be those who offer dominant solutions to cut direct costs below to 8% in ecommerce retailing and lead in competing in the service and brand marketing hike.

Change is underway for those who are ready for change; there are paradigm changes in professional cost management, strategic business development for Ecommerce solution business and fresh wind for professional outsourcing is required.

Ecommerce solution industries in India is expected to process 200.000 orders in 1 or multiple multi-customer hubs for 5-20 clients at 6% of total direct costs in 2020.

There are some Fast Moves possible, potentially urgently required.

Seven EXAMPLES for successful direct cost management

  1. Small and medium startups with limited capabilities have to concentrate on CORE business functions immediately for profitable growth. Core should be Assortment Management, Sourcing, Marketing and Shop/Store Management and non-core should be pitching for every synergy potential in Backend services.
  2. E-Retailers are starting to rely on integrated transport management solutions. Transport hikes are created already in very early steps of the value chain.
  3. E-commerce leaders are eliminating thoughts of additional storage and warehouse dreams and have to integrate backwards with suppliers, cross docking speed to their joint customers.
  4. Sourcing is in process of Lean Supply Chain education, easy and fast to implement. The true winners in E-Retailing will run partnership based supplier models, without snatching inventory or running a micro sourcing program.
  5. Cut direct operations cost every day with a new idea in a partnership model with innovative solution providers, utilizing economies of scale and get the outsourced service perfection supported in-house. Do not expect the supply chain to sell, but deliver your products.
  6. Run a Cost Improvement Program with a true restructuring spirit, open up for synergies with 3PL ecommerce specialists.
  7. Visibility restructuring: Be honest with your direct cost. Hiding and not controlling, not optimizing the truth will lead to extinction. Wrong forecasting requires the highest change management skills for Ecommerce leaders, same for the returns dilemma.

There are companies on the right track, but the understanding, fast implementation for those in the battle of markets, is yet to come. It will be the true opportunity in the coming time to optimize direct costs. There needs to be awareness among leaders for change not towards a Dinosaur epic drama but the evolution of the next stage Ecommerce India.

(Dietmar Jobst has a track record of 25 year senior supply chain experience, working for market leaders like DHL, Arvato and adidas. Since over 10 years he has been successfully managing Turn Key Projects, since 2 years he is operating in the Indian Supply Chain and Ecommerce space. Key achievements have been Build and Operate of the first Indian set up for Multi User Logistics services in Gurgaon for the Smile Group, servicing 20 internal and external clients, helping Ecommerce operators to quickly grow, efficiently control costs, to deliver better than 5000 orders per day. He now is setting up a new, cross retail 4 PL supply chain service, bundling 3 PL synergies and leveraging domestic and international customers to the next supply chain improvement level)

Meet Dietmer at Internet Retail Expo 2013

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