Optimizing direct cost for higher margins in etail

2013 is the year of efficiency improvement programs. Only those, who understand to improve direct cost management without service failure, will have the opportunity to survive, create an environment of leadership to foster markets and customers and will ultimately will lead growth in a business driven Indian Ecommerce value chain.

What are the key different issues of the current players in the market ?

Which can be the key direct cost initiatives for specific ecommerce players in the Indian retail space?

How to lead and build leadership in cost management, truly servicing the Indian End consumer, with value creation for the growing retail demand in an international new Ecommerce dimension?

Segmentation of Ecommerce Players (Picture 1)

The Indian Ecommerce Space can be segmented into 4 key (Revenue-Costs) clusters of players based on a visual of performance and typical identity:

The Multi Brand Volume leader (Cluster HH)

The Bermuda Triangle companies (Cluster (LH)

The Brand and Category Leaders (Cluster HL)

The Startups (Cluster LL)

Direct Cost reduction program Cluster HH Cluster (Picture 2)

HH stands for companies like Flipkart, Myntra, Naaptol, HS 18 with high revenues and revenue hikes as well as typically high in-sourced direct operating costs. They, HH players, can survive and grow with strong market focus and tight cost control. But there are some doom scenarios possible. Here a summary of recommendations.

HH recommendations:

a. Never miss the effort to analyze your market position and demand growth planning. End consumer demand planning is essential for your survival and growth.

b. Be a supplier management expert in the value chain. Source in strategic long term partnerships 70% of your business.

c. Do not focus on in-sourcing “Me too” supply chain functions in times of market battle.

d. Outsource and leverage with Third parties your dominating services, building a Beyond Competition Customer Experience. Steer not manage or operate in bricks and mortar, vans or bikes your supply chain. Be open in mind and manage, grow your people.

Direct Cost reduction program Cluster LH (Picture 3)

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Reaching with your Ecommerce plane the Bermuda triangle of stagnating revenues and profits, increasing costs, are true experiences for all LH companies, who lost the market leadership battle. Many examples are already out there, Dealsandyou, Letsbuy, Fashionandyou. There are too many at the doom of the same, like potentially soon yebi, shop19, allschool, Freecultr, Myntra…? There is in many cases an immediate need for CRO(Chief Restructuring Officer) restructuring program:

LH Recommendations

a. Keep your market efforts, based on product profitability on highest alert status. Do not linger or postpone vital sales and marketing programs

b. Outsource Fulfillment with clear cost and service scope, cut intelligent

c. Partner with Ecommerce solution providers, exceeding the services of your competitors by innovation leadership

d. Create a speedy cost reduction management by 100% variable costing for all NON core functions like distribution, operations, warehousing, reverse logistics, supplier management, customer service.

f. Run CRO based restructuring program to save your business with weekly change management meetings, continuously driving the cost improvement based on actual market needs.

Direct Cost benchmark program HL cluster

The HL Cluster can be still seen at the rise in India, with Brands and Vertical retailers to play an important, maybe dominant role in the future. International examples are Esprit, H&M or C&A, Indian

leaders may be many in the current offline retail space, still with a true opportunity to set up a unique player in current subsidized E-retail structure.

HL Direct cost identities

a. Profitability based assortment management on SKU and order level

b. Performance based Outsourcing of Fulfillment in the growth phase towards 200.000 orders per day

c. Intelligence partnering with Ecommerce functional solution leaders (IT Back end, design, distribution excellence), like use the Arvato or functional specialist in the Indian market opportunity. Use 4PL brain solutions, to grow efficient and fast

d. Order costs in fulfillment at 4-6% on MRP/ MOP, target and implement below 100 INR per order at 1500 INR ASP.

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Direct Cost reduction Program LL cluster

LL can also stand for many to grow; the Indian Ecommerce Space gets daily new candidates. In this fast large and highly competitive area some key direct cost management requirements, learning’s make the difference:

Cluster LL learning’s, competitive advantages

a. Manage your assortment, with product profitability calculations from day 1

b. Minimize your inventory risk, by leading supplier strategies with international Far East benchmarks

c. Do not create insourced Fulfillment Cathedrals, but manage best in class partners

d. Do A-, B-, and C- costing for the value chain and continuously keep your costs 90% variable.

e. Implement fast to track cost KPI and target, implement, total fulfillment costs below 150 INR per order (at 1500 INR ASP).

The Indian Ecommerce space is on the move, the growth can be expected in multiple integrals of current size (Picture 5). Driving for the multiple of HL clusters is the recipe, which will define and enable leaders. The time of testing, losing or further burdening of investors, partners and consumers is over, in 2013+.

(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)

Join for the Session of Dietmer Jobst in Internet Retail Expo 2013