 "Matching virtual with real inventory")
As the race to dominate the e-commerce landscape in India hots up, companies are being compelled to focus on their products and efficiency of operations. Not surprisingly, Flipkart, India's leading e-commerce marketplace, has decided to merge departments and centralise its procurement process - earlier multiple vendors were hired by multiple teams - to help drive profitability.
When asked, a company spokesperson says, "It has always been our endeavour to improve organisational efficiencies to achieve our goal of making quality products affordable and accessible to all Indians. We continue to invest in automation and in driving efficiencies in our operations structure to improve performance and productivity." According to the company, renegotiation of contracts with vendors is meant to achieve benefits in terms of scale while centralised procurement helps it attract lower rates from its affiliates and dedicated partners. It stresses that such steps in operations are aimed to boost efficiency of costs, rather than cut costs.
In a sector riding on big investments, e-commerce companies cannot take valuation for granted and sooner than later profitability has to be their calling card. In this respect, product procurement is one of the key factors in ensuring operational efficiency and in turn profits.
Kaustabh Chakraborty, vice-president, operations, Urban Ladder, says the online furniture market player has evolved consistently in the last four years in terms of product and supply chain management. "Our supplier management strategy hasn't changed. We continue to work with suppliers and we have gotten into new product categories and hence the vendor base has grown. Having said that, our strategy is more product-based than supplier-based. We don't list anyone who has a product to sell, but we take the call based on what products we want sold on our website and then go back to the suppliers who can meet the design and quality requirements."
The company has worked on planning its inventory, recognising that, similar to offline retail businesses, "the availability of the next stock at the right place is the single biggest lever on revenue". Unlike many e-commerce companies, Urban Ladder has a significantly smaller catalogue, and being a single-category player it does not have a compelling business case to centralise its procurement process. Chakraborty explains, "For us, the procurement starts with the product team talking to customers and doing research to figure out what kind of products you want to take to the market. Then, the product design team works with suppliers to do the prototyping and come out with the final product in the market and at the price points that make sense for us."
The company uses a standard process management software that works across procurement and order fulfilment - Microsoft Navision - and is implemented for procurement and inventory management in the warehouses and for fulfillment. It also has an in-house tool that manages inventory planning, and provides algorithm that suggests the kind and quantity of products the company needs to order and buy. "From a supplier identification standpoint, the first thing we look at is not around our logistics. What we look at are his manufacturing capabilities, and hence his ability to deliver quality products," says Chakraborty, adding that in furniture manufacturing in India there is a "serious lacuna in terms of good quality".
Though the online furniture market is really small, for customers, quality remains the biggest concern, more than speed of delivery of products. Chakraborty points out that among the products listed on Urban Ladder's website, few are made to order. "Most of the products are those that the sellers on our website carry in stock; as a result they are sold from inventory."
With a significant majority of manufacturers in India's furniture industry remaining unorganised, organising them opens up enormous business opportunity. Pepperfry, the leading player in the Rs 2,400-crore online furniture segment, accommodates small artisans and small and medium enterprises (SMEs). This has helped the company in creating a strong ecosystem of small manufacturers, skilled craftsmen and SMEs and merchants spread across traditional hubs, and in setting up a strong supply network. Co-founder Ashish Shah points out that nearly all the items sold on Pepperfry "first arrive at one of our mother hubs in Mumbai and Gurugram (right outside Delhi) where they are checked for quality before being packed and shipped through our own delivery network or third-party logistics partners".
He adds, "In order to get this done in a fool-proof manner we rely on a hub-and-spoke model to resolve logistical issues as well as save money. Our furniture moves from the points of origin to the fulfilment centres to the mother hubs via long-distance hauling contracts. We move full truckloads of 32-feet containers, carrying at least 80 items at a time, from our fulfilment centres to the two centralised locations." He says that for storage of large items and movement of goods as well as distributing them, especially in managing last-mile delivery network, technology plays an important role. "We have a seamless integration of technology with procurement to deliver the best in class end-to-end services from order placement to post-sales. We are able to track the movement of our trucks in transit while our network of 250-plus carpenters in various cities is connected with the customer's requirement for product assembly by means of technology support," he adds.
The home and furnishing business, like most others, thrives on variety in terms of offerings. Shah says, "A bulk of my furniture comes from Rajasthan-Jodhpur and Churu while we also work with small artisans and craftsmen across the country who can sell on our marketplace. More than 1,000 of these merchants have been a part of our platform and for many of them Pepperfry has become the primary source of income." A team of category managers does trend and supply gap analysis to help look out for unique products offerings.
ShopClues, which follows a zero inventory model, relies on its merchants to procure products. Vishal Sharma, VP, operations, ShopClues, says, "Merchants are responsible for procuring and maintaining inventory of the products. To ensure ease of supply (basis trends around demand) from locations, we encourage merchants to either stock in various key locations across India or we appoint other merchants across regions having similar product lines to meet demand in these regions. Regional focus ensures that supply is not restricted to any one national location. As the shipment of orders is at the regional level, products are moved through short distances via road or train resulting in shorter delivery timelines at lower cost as compared to moving the same across regions via air."
A chunk of the costs related to the procurement process that are incurred goes to identifying and on-boarding merchants with similar high demand or unique product lines across regions to meet demand, he says. "Similarly in some cases, we assist merchants by providing competitive logistics partners to transport material to other merchant locations across India; on the whole the objective is to make products available at a regional level at similar or less pricing for faster delivery at lower costs."
As a digital native, the e-tail major also provides technology-enabled services like catalogue, marketing and payment services to its sellers/merchants and buyers. Sharma says, "It would be practically impossible to forecast, plan and deliver products that are spread across merchants in India without effective use of technology."
Apart from state-of-the-art technology, ShopClues has a decision support system to help allocate the shipment to an optimum logistic partner based on serviceability (between seller and buyer), optimum cost, size of the shipment and past trends on delivery timelines. The company's merchant acquisition team also uses tech-enabled tools to identify suppliers in key locations and across regions for various categories.
