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E-Commerce Models and Web 2.0 in Supply Chain

Walmart,Flipkart,Amazon,E-Commerce Models SCM 2.0

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E-Commerce Models and Web 2.0 in Supply Chain

  1. 1. Analysis of Operations Models of E-Commerce Giants Group 8 26NMP03 - Abhijeet Singh Tomar 26NMP15 - Argha Ray 26NMP20 - Bankim Samaddar 26NMP28 - Khushal Malik 26NMP36 - Pravin Sharma 26NMP45 - Sanjay Prasad
  2. 2. 1995: Jeff Bezos launched Amazon as online bookstore 1999: Diversified into consumer electronics, furniture, music, software, etc 2001: Registered first ever profit of $5mn 2000-2013: Expanded into Canada, Japan, China, India • Currently more than 34 product categories • Active Amazon customers ◦ 2007: 66mn+ ◦ 2013: 200mn+ • Active Amazon sellers ◦ 2007: 1mn+ ◦ 2013: 2mn+ • Much of its success is due to  Order fulfillment capabilities  DC management  Local Customization
  3. 3. Business Model of • • As Seller • • • • As Intermediary • As Ecommerce Service Provider • • Customer browse products on website and place orders Order is fulfilled either by internal DC or drop-shipper Customer relationship is with Amazon Third parties list their products on Marketplace and Merchants program Sales made by 3rd parties add to Amazon’s Margin as incremental cost of each sale is close to zero Offers technology platform and web storefront experience to other companies Customer relationship and decision power stays with the company Amazon provides order fulfillment services
  4. 4. 3 – Tier Amazon Inventory Network Information Flow Tier-1 Vendor/ Supplier Tier-2 Wholesaler -DC Publisher /MFG Tier-3 Amazon Website and IT System AmazonDC Partner-DC Customer Indepen dentSupplier Physical Flow
  5. 5. China      Launched in 2004 through Delivers goods on its own Purchases on average within 2.5 days Cash on Delivery prominent (70%) Chinese are more concerned about time of arrival than lead time in delivery. So, states what time of day the items will arrive at your doorstep Japan  Launched in 2000  Same-day delivery: a key selling point  Existence of Saihan system prevents price competition in case of books retailing.  “Look inside" option to allow customers to read excerpts & passages from books before they purchase them.  Offered large selection of products than its competitors. Amazon in Asian countries
  6. 6. Amazon India  m         Entered Indian E-commerce space in 2012 as Customers can compare product prices but not purchase Customer redirected to existing seller website or physical store location for purchase launched in June 2013 Marketplace model only unlike Product Categories: Books, Kindle, Movies & TV and Consumer Electronics (Mobile, Camera and Media players) Services offered: Third-Party Selling, Fulfillment services, Product listing & promotion on website Free Shipping for orders above Rs 499 fulfilled by Amazon CoD services only for orders fulfilled by Amazon
  7. 7. Challenges for Amazon India Understanding of Market  Intense competition Place model among Indian   Inadequate infrastructure Sellers  Presence in tier-II and tier- facilities  III Cities: 60% revenue from tier-1, 40% from tier 2 Changing government policies  Creditors collection periods  Marketing efforts & 3 cities.  Credit card EMI payment not available to tier 2 & 3 cities
  8. 8. WALMART • Wal-Mart is the largest brick-and-mortar format retailer in the world • First store opened in 1962 in Kansas by founder Sam Walton • Principle was to be focussed on keeping costs low • Always a volume player, emphasized on using cost advantage to increase sales • Every day low prices promised to customers in order to manage demand fluctuations • Also operates a retail website, hence not a pure brick-andmortar retail player
  9. 9. Supply chain network components : Where is the focus in the retailing industry? 1 2 Sourcing and Procurement 3 Production Plant Location Capacity, Lead Time Flexibility 4 Planning and Distribution Warehouse, Inventory location 5 Logistics Transportation networks, Inventory management, Storage, Loss/damage Fulfilment and Customer Service Call centres Retailing Pricing Product delivery
  10. 10. Traditional retail supply chain structure Information Information Information Flow Vendor Carrier Retailer Distribution Centre Carrier Retail Outlets Customer Physical Flow Source: An Analysis of Current Supply Chain Best Practices in the Retail Industry with Case Studies of Wal-Mart and,Chiles and Dau, Georgia Tech
  11. 11. Internet retail supply chain structure Information Flow Vendor/Supplie r Website & IT systems Wholesale DC Internet Retailer DC Publisher/Mfg Customer Partner DC Independent supplier/3rd party Physical Flow Source: An Analysis of Current Supply Chain Best Practices in the Retail Industry with Case Studies of Wal-Mart and,Chiles and Dau, Georgia Tech
  12. 12. Sourcing and Procurement • EDLP makes it essential for sourcing costs to be • For customer service, responsiveness and low in order to make profits • choice as the goal, supply chain strategy is Variety and assortment helps to maintain low completely different from that of EDLP priced market basket • Supply chain innovations used to lower costs • Policy of purchasing no more than 25% of the • manufacturers • producer’s overall business • The price of the product is negotiated before the Focus on sourcing from local suppliers, large • Consolidated its global procurement functions • • • allowances and markdowns etc. High inventory turnover because of the business model • Receives consideration from suppliers for primarily volume incentives, warehouse Seek to increase direct sourcing, discount from suppliers, process efficiencies and lean culture and reduce the use of intermediaries in its global sourcing processes leading to savings Focus on reducing variable costs such as transaction, processing and packaging costs and long term contracts with suppliers selected • Procurement also for manufactured products like Kindle devices start of the growing season • Procurement of products for resale from High supplier risk: No long term contract agreements and guarantee of availability • Difficulty in procurement and fulfilment in case of unforeseen disasters
  13. 13. Production • Most of the stock in the Wal-Mart • stores are procured from different suppliers for resale • Amazon produces devices like Kindle; production is outsourced • Kindle being an electronic gadget is prone to the varying demand not manufactured by Wal-Mart • The private label products are also phase as seen with other The manufacturers package and electronic equipment label these products and provide it • With new releases and versions, to the store • older versions reach maturity and Lead time is due to placing orders decline phase and replenishment of stock from the suppliers and vendors • Lead time is due to the time taken to complete and fulfil orders either by the company or by the dropshippers
  14. 14. Planning and Distribution • 114 distribution centres only in the US • • Centralise distribution system using Hub-and-spoke model, led to significant the world • Heavy investment in IT and In 2011 and 2012, addition of 9 massive distribution centres cost savings • 90 distribution centres in 4 parts of • Initially densely populated states communication systems • were devoid of distribution centres Satellite communication system – allow due to state tax implications stores to manage own stock, reduce • Now, Amazon has moved to “Same pack sizes • Day Shipping Strategy” leading to Bar-code, use of computers and RFID heavy investments made management economical • • Real time supply chain Inventory Turnover at distribution communication which has centres is high minimised human intervention
  15. 15. 4. Logistics Transportation Networks Transportation Networks • • Owns a fleet of 6500 trucks and Doesn’t have a scale per order which 50,000 trailers • Fast and responsive in nature owing carriers economical as compared to to products • makes truckload and less than truckload parcel carriers Efficient routes followed to burn less • Transportation hubs called ‘injection fuel and minimize empty miles driven • points’ located in areas with high It has 158 distribution centres which demand support 90-100 retail stores each • within a 200 mile area • Trucks need to travel less and reduces DC to injection points • lead time • Lowers transportation cost as well as • Hydrogen powered fork lifters used for handling perishable material Drop shipping: Listed products but shipped and transported by partners • Material Handling • Last mile delivery made by UPS or FedEx the safety stock required at retail outlets Truckload and LTL carry inventory from Reduces the inventory and shipping costs for Amazon • Fulfilment service: products are offered by third party seller but are packed and
  16. 16. Logistics (contd.) Inventory Management Inventory Management • IT expertise + satellite communication system • • Keeps check on unproductive inventory by reducing cost to build new outlets to attract SKUs and timely markdowns. consumers • Order management & store replenishment carried • Owns no retail outlets -doesn’t incur Consolidate the inventory at DCs – out through Point-of-Sales (POS) system. • hence carry a much wider variety of Quick Replenishment- use IT to locate & products than the retail stores. replenish goods. • DCs operated in automatic mode- Voice-based Order Filling (VOF)- guide the person efficient inventory tracking, inventory responsible for order picking by voice to item • location monitoring,etc locations. • Drop shipment model solves Radio-Frequency Identification (RFID) problem of stock outs & allows Technology -Employees don’t have to physically Amazon to offer products which are scan the bar codes -saving of labor cost, reduces • not lying in its DC inventory. stock outs. • Direct sourcing from some publishers, manufacturers and thirdparty sellers- enable offering wide inventories. • Retail Link System- Retail suppliers can monitor the sales of their products and can replenish • variety, reduces dependence on Collaborative Planning, Forecasting and distributors and increases the markup. Replenishment with key suppliers-share forecasts • 3-ecehlon inventory management
  17. 17. Fulfilment and Customer Service Fulfilment Fulfilment • • Big Data to optimize fulfilment networks, to create powerful pricing tools and to build the right product assortment • of orders with no minimum requirement • Customer trends analysed via social media to optimise the fulfilment centre's • If not adequately predict customer demand –lead to excess or insufficient inventory or Customer Service Walmart has a 90-day return policy for Defects eliminated by Kaizen and streamlining inventory • Fulfilment centres can handle any number fulfilment capacity • Failure to optimize inventory will increase most of the goods sold with few exceptions • the net shipping cost by requiring longzone or partial shipments Customer Service be a market leader in Canada • Customer centric policies designed to • Customer service centres operated globally Tracking orders, placing return requests • Customers can track orders, shipment made easy by One-touch facility at details and also make changes to open stores and also reduced costs orders • Free super saver shipping and prime shipping
  18. 18. E-RETAILING & FLIPKART Demographic • Large internet usage • High mobile penetration • Young population Technological • More secure online monetary transaction • Broadband connection • Advancements in logistics Macro-economic Global • Rise in disposable income • Govt. committed to ease FDI norms • Successful amazon model • Rise in e-purchase among customers
  19. 19. PRODUCT CATEGORIES The matrix help in identification of product categories that are more profitable based on industry & competitor analysis
  20. 20. PRODUCT CATEGORIES Leather Goods and travel accessories Books & General Merchandise Camera and camera accessories CCC Lifestyle 21 different categories, 4 million+ registered users , 45000 shipments
  21. 21. VENDOR SELECTION A robust selection mechanism is put in place to ensure seamless backend supply chain Vendor Management • • • Benefits Price pass-through Demand responsiveness Defect Replacement • • Challenges Channel conflict Distributor vs manufacturer
  22. 22. WAREHOUSE LOCATIONS Hub & Spoke Model Delhi, Noida Kolkata Mumbai, Bhiwandi Bangalore Coimbatore Flipkart operates 5 mother hubs that are geographically dispersed . It helps in optimization of logistical expenses when demand arises from different
  23. 23. OVERALL SUPPLY CHAIN 1. 2. Stock Liquidation Negotiation with supplier/bland/reseller Internal liquidation The flow-chart depicts the manner in which a customer order is processed after the booking is made at the online portal
  24. 24. WAREHOUSE OPERATION Receiving Team Dispatch Team QC Team Putter Picker Standard operating procedures have been designed to aid decision making during warehouse operation
  25. 25. JUST IN TIME MODEL In previous model, Flipkart supplemented its own inventory from JIT vendors. This helped in meeting unexpected customer demands during potential stockouts at WS retail
  26. 26. Inventory management Parameters Desired Service Level 98.9% 93.1% 99.5% 91.3% Average sales/week 2.16 29 61 597 Average Loss of sales (per week) 1.37 1.7 6 80 Average Margin 20%-25% 40%-45% 15%-20% 10%-15% Actual service level 92.2% 95% 92% 89% Weeks of inventory 1.17 1.6 1.55 1.39 Average Reorder point 1 1.6 1.6 2 Cost of under stocking Rs 2362/- Rs 349/- Rs 4675/- Rs 270/- Flipkart has designed its reorder points based on the cost of under -
  27. 27. MARKETPLACE MODEL Flipkart launched this platform on April 6th,2013 Salient Points Product delivery and shipping done by Flipkart Flipkart now have large assortment of products Flipkart now act as a platform between buyers and sellers Guiding Logic After building a critical mass of online shoppers, Flipkart opened the platform for other vendors to leverage its customer base and brand
  28. 28. Marketplace model Operational flow in Market Place model Vendor Management  Vendors apply for listing and Flipkart sends out invitation after verification  All new sellers are categorized as Tier-2 sellers  A Tier-2 Seller can become Tier-1 seller after completion of one month on Marketplace and has a settlement defect rate of less than 5%  Trusted Seller- Defect rate < 5%  Preferred Seller- Considered best for particular product and is shown on the top of the seller’s list  Flipkart has its internal seller known as WS retail which supplies majority of the items  Seller Support: Dedicated team at Flipkart Marketplace to support sellers  Account Manager: Relationship manager for specific group of sellers
  29. 29. SELL OR RETURN     New policy being offered by Flipkart Chance for new vendors to showcase their capability Inventory in Flipkart’s warehouse with the pre-condition of buyback free of cost. Logistics and Inventory holding costs borne by Flipkart itself.
  30. 30. Comparative analysis Parameters Market Place Sell-or-Return Product Assortment High Moderate Inventory Holding Cost Incurred by Vendor Incurred by Flipkart Stock-out Fewer due to pool of vendor available Same as WS retail products as Flipkart holds inventory Delivery Time More because Flipkart depend on vendor shipping from its own warehouse Less as Flipkart ships from warehouse Vendor Relationship Stringent vendor selection Lesser stringent compared to MP Inference 1. Market Place has an inherent advantage in meeting high uncertainties in customer demand & competitive prices 2. Sell-or-Return mitigates the risk of Flipkart when introducing products with low brand awareness
  31. 31. Web 1.0      Static Web Pages Read Only One Way Communication Individual Participants Eg Encyclopedia Britannica
  32. 32. Web 2.0      Dynamic Web Pages Read Write Execute Networked Communication Community Eg Wikipedia
  33. 33. SCOR Model   Supply Chain Operations Reference Model Advocated by American Supply Chain Council Plan Source Make Deliver Return
  34. 34. Plan   Product Purchasing Plan Capacity Plan Dynamic Marketplace Location and Context Based Services • ShopSavvy • Purchase at least price • Delta Airlines • Reverse auction to control overbooking
  35. 35. Source   Group Buying Consumer Rating Social Networking User generated content • Groupon • Aggregation of orders to trigger purchase offers. • Flipkart • Consumer opinion influence choice of supplier
  36. 36. Make   Contract Research 3D Printing User generated content • Google Sketchup • 3D Modelling blueprinting and sharing User generated content • InnoCentive • Crowdsourcing
  37. 37. Deliver   GPS Tracking Content Delivery Location and context based services • Cemex • GPS to schedule and alter deliveries Social Networking • NowPublic • Local news uploaded at real time on Facebook profile
  38. 38. Return   Airline Ticket Cancellation Opinion Mining Smartphone User generated content • Airline Industry • Apps used to cancel reservation at real time • Customer centric firms • Polling generates data on customer satisfaction
  39. 39. Supply Chain 2.0  Supply Chain Reconfigured Focal Firm Supplier Customer Enterprise 2.0 SCM 2.0 CRM 2.0
  40. 40. Thanks! !!