A logistics perspective on the virtual marketplace

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Internet improves the information flow across the supply chain. But for an enterprise to succeed in Internet Grocery Retail business, SEAMLESS INTEGRATION of internal / external entities through STREAMLINED physical distribution of products and cash management is more important.

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  • Good afternoon ladies and gentlemen. Welcome to the fascinating world of fruit and vegetable retail. World over F&V is the most promising but also most difficult retail category. Why most difficult? Well, this is a food category along with milk and meat which comprise of highly perishable products. You can sell a coke bottle tomorrow or day after or next week or even next month but not a Radish. You have to sell a radish now. You have to extract value from a radish before it dies a natural death in couple of hours. You can’t prevent its death. You can just delay the death with refrigeration but that cost money. If there is any category that requires Toyota’s famous “Just in Time” inventory management – It is radish – sorry fruit and vegetables. If someone can crack the electronic retail for fruit / vegetables, rest of the grocery items shall be cake walk. Sorry this presentation is not about Webvan or mandi.com com either. This presentation is also not about Indian Internet grocery retailer over either. In this presentation I’ll walk you through an academic exploration of logistics perspective for a virtual subji mandi.
  • Just digest the presented information. For Grocery retail - it can’t be more latest than this. Amazon plans to roll out AmazonTote, a grocery delivery service which they’ve been experimenting with their staff in Seattle for last 6 month. Salient features of the service are – one in week free grocery delivery in a Tote bag directly to your home. It is interesting to note two random comments out of 30 odd on the mashable blogs by two Steves. Grocery retail’s potential over internet is visible but words of caution are also evident.
  • Lets forget Amazon for a while and dig some history to arrive at rationale of retail logistics
  • Major shifts in food buying behavior has been result of tech change. This chart will take through the eas, its enabling technologies, media that has affected the food retailing.
  • The companies that recognized and adapted these changes have prospered.
  • Let’s illustrate this point with a quiz.
  • Look at the Sear’s Growth history – particularly the blue rectangles
  • More history
  • Between1905 and 1915 three tech and infrastructural changes happened. – King Road Drag, Parcel Post and Warehouse – Growth because of these three changes is evident
  • SharpGrowth spikes in this graph is because of opening of brick and mortar Sear’s stores
  • Use of Internet improves the information flow – but about parallel product flow.
  • Lets understand rationale of FNV retail logistics
  • Leave information flow inside…a typical fnv chain has to address these issues. Mostly global few India specific
  • A housewife want all these from humble fruit and vegetables
  • Lets forget Amazon for a while and dig some history to arrive at rationale of FNV retail logistics
  • A logistics perspective on the virtual marketplace

    1. 1. IfWebvanfailed in USA can mandi.com’s DTH F&V delivery succeed in Gurgaon?A Logistics Perspective for a Virtual Subji Mandi<br /> An academic exploration by: <br /> Anil Chopra<br /> +91-98118-14559<br /> www.agrisolutions.in<br />
    2. 2. Breaking News - 25th January 2010<br />Dubbed AmazonTote<br />Comment 1 - Steven Lomele - Amazon's success with grocery delivery is about market timing, not about bringing an original idea to fruition. Hopefully, AmazonTote can avoid being the next Webvan 2.0 considering Webvan is "part of the Amazon.com" <br />Comment 2 - Steven Laurel - Proof we are in another dot com bubble. This has been done before and failed every time.<br />
    3. 3. Lets start with a some HISTORY<br />
    4. 4. Revolutions based on technological change CAN and HAVEoccurred in grocery retailing<br />Major shifts in food buying behavior have been a result of technological change<br />The companies that have recognized and adapted to these changes have prospered<br />Successful concepts have shown massive and rapid growth<br />The supermarket has already proved to be an irresistible proposition for most shoppers<br />
    5. 5. Major shifts in food buying behavior have been a result of technological change<br />
    6. 6. The companies that recognized and adapted to these changes have prospered <br />
    7. 7. eGrocery<br />Lets now pick specific bits of HISTORY to build our case and illustrate the evolution. or Revolution or hELLUCINATION!<br />
    8. 8. 4 lessons that emerged<br />from the dot.com crash...<br />
    9. 9. Lesson 1:<br />History shows that innovative business success depends on a solid technological infrastructure<br /> .… this takes time.<br />Those who fail to learn from history are doomed to repeat it.<br />
    10. 10. History Quiz: Who said it and when?<br />“You may go to an average store, spend valuable time and select from a limited stock at retail prices…or have our Big Store of World Wide Stocks come to you.”<br />a) Jeff Bezos - business plan of Amazon.com 1995. <br />b) Bill Gates - on retail plans for Microsoft 2000.<br />c) Vice President of Wal-Mart e-tailing 1998.<br />d) none of the above.<br />
    11. 11. History Quiz: Who said it and when?<br />Answer: d) none of the above<br />Statement comes From Sears-Roebuck Catalog 1915<br />Catalog has been regarded by economists as a… <br />“radical transformation in the marketing and <br />distribution of consumer goods.”<br />
    12. 12. Sales Growth History of Sears Roebuck<br />Richard Sears <br />begins to sell<br />watches to <br />railroad station <br />agents.<br />High Growth<br />First large<br />general Sears<br />catalog.<br />What happened here?<br />What happened here?<br />
    13. 13. Tough to deliver goods prior to 1900<br />
    14. 14. The King Road Drag<br />This 1905 Invention leveled and packed muddy roads. Made auto transportation possible.<br />Road before King Road Drag<br />King Road Drag in Action<br />Road after King Road Drag<br />
    15. 15. Sales Growth History of Sears Roebuck<br />D. Ward King<br />invents the “King<br />Road Drag”<br />Richard Sears <br />begins to sell<br />watches to <br />railroad station <br />agents.<br />High Growth<br />Sears installs<br />pick and ship<br />warehouse<br />(10x productivity<br />increase)<br />First large<br />general Sears<br />Catalog – 532 pages <br />Revenues - $750,000<br />Congress mandates<br />“Parcel Post” as long as you have good roads<br />So what was the greatest innovation the catalog? <br />or the King Road Drag?<br />
    16. 16. Technological change happened in 3 phases:<br />Creation of infrastructure (Warehouse)<br />Arrival of enabling technologies (Drag / Parcel post)<br />Business growth built on the previous 2<br />“A lot of people jumped the Gun…<br />They tried to skip the first two phases.”<br />
    17. 17. Question Time again:<br />Identify the key Technological Infrastructure for F&V eTailing?<br />Mandi.com<br />Sears<br />Stage of Development<br />Business Construct Catalog Sales Home Delivery<br />Products Durables Perishables<br />Creation of Infrastructure Roads ???<br />Enabling technologiesPick System ???<br />Postal Service<br />
    18. 18. Lesson 2:<br />Because infrastructure changes slowly<br /> old companies still hold power.<br />Even when WE Indians are most angry with mainstream traders and middlemen, WE buy 96% of our F&V from Traditional retail <br />(read pushcart or squatters or corner shops) not Organized Retail (read Safal, Reliance Retail or others)<br />Vital Statistics of F&V Trade in Delhi / NCR<br />
    19. 19. Incumbent power comes from existing infrastructure.<br />Examples of incumbent power:<br />Commission Agents and Mandi system in India has created huge entry barriers for new entrants.<br />It has been estimated that it is 3 times as expensive to acquire a customer “on-line” as it is to acquire a customer with physical stores.<br />Over 90% of all supermarkets have data processing and customer service capabilities before going on-line.<br />In 1925 Sears opened retail stores by 1930 retail store sales had outpaced catalog sales.<br />
    20. 20. Sales Growth History of Sears Roebuck<br />D. Ward King<br />invents the “King<br />Road Drag”<br />Richard Sears <br />begins to sell<br />watches to <br />railroad station <br />agents.<br />Sears opens<br />first retail <br />stores<br />Congress mandates<br />“Parcel Post” as long<br />as you have good roads<br />First large<br />general Sears<br />catalog.<br />Sears installs<br />pick and ship<br />plant <br />(10x productivity<br />increase)<br />
    21. 21. Lesson 3:<br />The parameter estimates in e-business plans<br />are so far off, even worst case sensitivity <br />analysis isn’t bad enough….<br /> Incorrect estimates lead to adoption of<br /> the unprofitable business models.<br />No need to dwell on this – you all know better than me, a subjiwallah<br />
    22. 22. Lesson 4:<br />In many cases it is hard to sell the value<br />of improved information flow without the<br />accompanying product flow.<br />Internet has a tremendous potential to improve <br />information flow….No doubts, but what about seamless Supply Chain Management <br />
    23. 23. Money Flow<br /> Product Flow<br /> Information Flow<br />Products<br />End Customer<br />Supply Chain<br />Supply Chain Management Concept<br />
    24. 24. Lessons from the dot.com crash<br /><ul><li>Successful businesses built on new technology take time.
    25. 25. Incumbents may be more successful using technology.
    26. 26. Carefully consider the estimates in your business models.
    27. 27. Carefully evaluate the value attached to information flows.</li></li></ul><li>Can we spot New Propositions?<br />Use technology to make old infrastructure more efficient.<br />Enhance existing products and services with internet technology.<br />Use technology to reduce costs of coordination within companies.<br />Use technology to reduce transaction costs between business partners.<br />
    28. 28. What’s so special about F&V Supply chain?<br />FSC?<br />fFRESH<br />sIMPLE<br />cLOSER<br />
    29. 29. F&V product flow has to address following specific issues – Mostly Global F&V Supply Chain issues but few are India specific <br /><ul><li>High price variability
    30. 30. High losses and shrinkage
    31. 31. Long order response time
    32. 32. Insufficient quality control throughout the chain including shortage of refrigerated transport and storage
    33. 33. A general lack of production planning and rigid or outdated production methods
    34. 34. Insufficient ability to fulfill product specifications
    35. 35. Lack of information flow into the whole chain
    36. 36. No value added from specific trade mark strategies
    37. 37. Lack of trust between stakeholders in the supply chain
    38. 38. Coordination difficulties between many small suppliers</li></ul>Look – Above list don’t yet include any service requirement from a housewife’s perspective<br />
    39. 39. Customers look beyond HOME DELIVERY – which is generally thought to be major USP of eTailing<br />Customers specific requirements for Perishables product flow includes:<br /><ul><li>high quality (read freshness),
    40. 40. Right size,
    41. 41. a broad assortment,
    42. 42. high availability,
    43. 43. Right packing,
    44. 44. food safety,
    45. 45. right delivery at right place at right time,
    46. 46. and last but not least, an acceptable price</li></li></ul><li>Back to the original ????<br />Can mandi.com SURVIVE? <br />Can it meet customer and supply chain expectations while managing Growth and Profitability for its shareholders?<br />Does mandi.com have the INFRASTRUCTURE to support a supply chain that if not eliminate but minimize listed supply chain issues<br />Or it has to invent a different value and hitherto not known demand aggregation, inventory & delivery models<br />
    47. 47. Cash Flow<br />Physical Distribution Flow<br />Information Flow<br />Supply Chain<br />Products<br />End Customer<br />(External + Internal Units)<br />Can improved information flow supports or replace or generate enough savings to meet requirements spelled out in last two slides?<br />
    48. 48. What’s needed..<br />SEAMLESS INTEGRATION of internal / external entities of an enterprise through STREAMLINED information, physical distribution and cash management.<br />
    49. 49. Seamless integration…… <br />How????? <br />the swim, sink or float factor<br />
    50. 50. Supply chain and Customer expectation has led to emergence of two major business model for eGrocery retailing<br />the intermediary model, where the e-Grocer offer consumers home delivery from local supermarkets<br />the channel model, where the e-Grocer creates a new channel that replaces the local supermarket with home-delivery from a distribution center<br />
    51. 51. How these two models differ<br />
    52. 52. Choosing a business model for Grocery retailing lessons since 2000<br /><ul><li>Until recently - eGrocery shops have offered extra value only by home deliveries.
    53. 53. But this is not enough if eGrocery want to reach the critical mass of consumers.
    54. 54. Critical mass of consumers is looking for cheaper prices as well as better service.
    55. 55. Furthermore, the word “service” does not mean only home deliveries
    56. 56. Customer service is still important, but low expenses have taken a more important role.
    57. 57. There are a lot more aspects of service than home delivery in the electronic grocery.
    58. 58. Customers require high quality, food safety, a broad assortment, high availability, right delivery place and time and an acceptable price.
    59. 59. Customers appreciate things such as delivery window, easy way of receiving, impeccable quality and wide product range.
    60. 60. So eGrocery shops have to reevaluate and reinvent their roles.</li></li></ul><li>Winners and losers!!!<br />Two quick cases…<br />
    61. 61. Why did Tesco.com become a success while Webvan failed? <br />Webvan tried to reinvent the whole infrastructure. <br />Build 26 warehouses costing USD 35 Mn each. <br />The warehouses served large areas with high order volume to cover costs. Also had to spend on brand building. <br />Fast expansion<br />Revolutionary customer (innovators and technolgy enthusiasts)<br />Free delivery<br />Tesco extend its supermarkets with online grocery orders. <br />They have brand, suppliers, advertising, a database of 10 Mn. Loyality Card members. <br />They use the store-picking model. <br />They can serve an area of 100,000 people and break even on small volumes. <br />Slow expansion of infrastructure<br />Obtain traditional customers (mainstream market)<br />Charge a delivery fee (covers cost of vans and drivers).<br />
    62. 62. Can mandi.com win?<br />
    63. 63. Given online grocers in World over are struggling, will mandi.com in Gurgaon ever turn a profit? <br />Yes – but it must focus on:<br />high-end markets, <br />limit delivery schedules <br />make partnerships with bricks-and-mortar grocers <br />or completely reinvents a yet untried new business model<br />Instead of maintaining expensive inventory and warehouses use someone else’s warehouse for its inventory. <br />Have low entry and customer acquisition costs <br />build customer base<br />Tesco uses local supermarkets to fill orders and not central warehouses. <br />The model that has been working is an existing popular grocery chain building it’s own online ordering system and uses it’s own stores as the warehouse. Opportunity for Safal and Food Bazar?<br />
    64. 64. Given online grocers in World over are struggling, will mandifresh.co.in in Gurgaon ever turn a profit? <br />No – Studies have shown that:<br />people do not like going to the pushcarts / squatters, <br />but they also do not want someone else picking their tomatoes. <br />the mass-market home delivery model will not work because few people are home in the day when the people who deliver want to work<br />You should not try to use the Internet..to compete in an industry where the existing competitors are giants with highly efficient distribution systems.<br />
    65. 65. thank you<br />Anil Chopra<br />cell. +91-98118-14559<br />email: anil.chopra@agrisolutions.in<br />MD – Competent AgriSolutions Pvt Ltd and founder VEGFRU<br />www.agrisolutions.in<br />www.vegfru.com<br />www.anilchopra.com<br />

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