Jagdeep Luthra

New Delhi, December 18, 2000

Logistics and Supply Chain Management have always had relevance for any enterprise but since the 1990s it has undergone a renaissance promising to become the most critical point of single leverage in times to come. Several parallel forces are re-shaping the world of global business with a shift in Supply Chain. It has moved from a position of being critical to cost and quality to one where it is offers greater and more differentiated value to customers.

With the onslaught of dotcoms, Internet opportunities promise to be the twenty first century’s answer to the Industrial Revolution. Given this environment, Logistics and Supply Chain Management will undergo further re-engineering, posing tough challenges for Express Service providers and creating opportunities where strategic supply chains will airlift troubled dotcoms operating in diverse markets into the realm of competitiveness.

A key factor for the growth is the tremendous long-term market potential of the Indian economy and the wave of e commerce this will generate. There is a large emerging middle class with a growing disposable income. The Indian market, though developed to a large extent, offers exciting, new opportunities for products and services, which may have reached near saturation levels in conventional markets but still have tremendous potential for growth through the e commerce route.

The e commerce revolution has the potential to significantly change the way companies operate. It provides a direct link to consumers, allowing companies to mine a wealth of information about their customers and then target their marketing efforts based on the information gathered. It also creates opportunities for 'disintermediation' in all sectors of industry. There is already enough hype about e commerce eliminating barriers to entry and allowing new entrants and smaller companies to reach customers worldwide, without building a global sales and distribution system.  It creates the classical mousetrap - a 'comfort zone paradigm' for many dotcoms as disintermediation tends to churn up Utopian pictures of simpler supply chains.

The point is, the entire Express Industry, is more geared to provide service to conventional channels compared to individual deliveries. Given this, the supply chain systems need to be redefined.  Even document courier companies, though accustomed to handling household deliveries, may need to arm their rank and file with inputs to handle commercial transactions.  It also needs to be borne in mind that the courier system may not be able to handle, for example, white goods, given the mother bag capacity constraints.

This is just the same way cargo companies would be unable to handle documents in a cost-effective manner, as operations run with the infrastructure of vehicles and not boys on bikes.  It is obvious then that there is a need for change and the need will not come up tomorrow, it came up yesterday!  Many portals have already run into problems pertaining to Supply Chain. It is like running on a conveyor belt in the opposite direction with equal speed.  In the end, one remains where one was!  The silver lining in the dark clouds is that there is evidence of change.  In addition, the added flexibility offered by e commerce linkages will promote more make-to-order, configure-to-order and postponement strategies.  Finally, as disintermediation becomes more common, shippers will face new transportation requirements that generally will mean shipping smaller, more frequent orders.  Logistics managers should become familiar with the Internet and begin to explore and think creatively about e commerce applications.

In India, dotcom ventures need to be proactive on various issues involving sales tax, octroi and other levies as applicable, title of goods, insurance, the need for revised pack profile, delivery to remote locations beyond the network of even widespread service providers and the freight component.  In a normal brick and mortar transaction, the channel margins are certainly there to stay, but the pre-defined supply chain has already addressed most of the above issues to be able to offer a retail price as a fixed landed cost to walk-in customer.  In the case of e commerce transaction, a dotcom company would like to desist from offering a basic price along with various add-ons, which are essentially subset components comprising of the subjects mentioned above.

What adds to the complexity is the fact that we have 32 states and union territories with a diverse tax regime for different states along with entry tax in a few states as well as octroi and basic levies.  The very fact that these differ from state to state and the fact that some levies, such as entry tax and octroi are commodity-specific, makes the task even more challenging. Many states require pre-defined forms and permits for goods to enter the state borders and as per the law, only valid CST\LST registration number holding buyers are allowed these – in advance in most cases.

Given this scenario, the question is, how would the end consumer, without any trade activity, organise these forms and documents? Would it not be more convenient to go for a hassle-free purchase to the good old brick and mortar? Also, many dotcoms in India driven by the Web-enabled wide reach to a portal are tempted to offer deliveries in multiple cities and townships. Given these models, it becomes a mind-boggling task to work with simulation modules, which plough in the tax elements, levies, insurance and the freight component to arrive at landed cost for the end consumer.  Even after such a pre-mapping, the landed cost would vary, depending upon the location of the alliance partner as the resourcement point and the address of the end-consumer.

Therefore, the role of the express service provider gets widened - from just a mere pickup and delivery mechanism to almost that of a content provider, guiding various portals on drop boxes etc., for variable landed cost and delivery schedules.

The other critical issue for the success of dotcom portals is linked to the quality of packing. While traditional channels have required the carriage of multiple pieces as a part-bulk or bulk, it goes without saying that the packaging has been designed accordingly.  For instance, if a consumer buys an electric iron from the traditional brick and mortar store, he or she just takes the same packed the way it was displayed brand on the box. Also, the carry bag is handled in a kid glove manner as the proud owner of a new commodity.  The same piece arrived at the retail outlet in multiples of 20 pieces per carton and that too, a five ply corrugated carton which could withstand the transit covering a long distance across the country.

Now comes the million-dollar question. Will the alliance partner supply the same in a five ply corrugated box from the manufacturing unit to the consumer as a single piece?  The answer is no and the reason is that the well branded tall leader from the field of consumer electronics will not be willing to give such customised packaging till volumes pick up and the dotcoms start attracting critical mass.  The other reason is that of margins.  The cost of such packaging will erode the water thin margins in such products despite disintermediation.

The next issue is linked to pick-up and delivery cycles that are followed in the Express Industry. The commercial world has formed a convention over the past several years whereby cargo is picked up or despatched late afternoon or towards evenings and the same is delivered the next upon pick-ups which peak up during late evenings, the deliveries start early mornings moving towards a lean pattern towards late evenings.  The cycle required for dotcoms is in the reverse order.  The pick-up required from alliance partners would be ideally late evening when customers are at home to receive the goods they have ordered.  Ready-made networks start to look like Plain Vanillas while each portal needs a different flavour of customised solutions.

It is obvious therefore that service providers who have experience and proven track record in handling outsourced Third Party Logistics models would tend to fare better in the customisation programmes, since the 3PL inherently involves customer driven solutions. It is also true that many discerning portals are going for a hybrid of the classical brick and mortar on the one end and the ideal disintermediation at the other end.  Yes, dotcom segment players are going to ensure fast deliveries instead of depending upon supplies from alliance partners covering long distances to reach the end-consumer.

Another significant application of the outsourced warehouse and distribution is linked to the clubbing of different commodities to service a single order.  Let’s look at a typical case. A diverse multi-product portal may be offering a wide range of products with alliance partners from the manufacturing point of origin.  Now, if a consumer clicks on the portal and orders four different products, the goods would come from different resourcement point under different Way-bills.

This means that the consumer will receive the order in four parts and possibly on four different days, depending upon the location of the resourcement points. This amounts to bad customer service, to say the least.  So, how is the problem solved? The first step is tying up with alliance partners who have a national presence.  In other words, the goods would be resourced from the depots of the suppliers on a local basis.  This may reduce the margins but would trade off on the freight component.  Next we need a warehouse where the goods are stocked not as a stock and sale model, but as a single place to aggregate different items and ensure good packing as a single order delivery.  The consumer is satisfied, as the items have been delivered as a single order at the same time.

The portal can plan supplies in such a way that there is virtually no stock and the resourcement is on a back-to-back basis with both inbound and outbound movement on an intra-city basis. Such models have the potential of building up huge volumes as the delivery aspect has been made the prime mover for the model. The only word of caution is that such models may not be workable in case a portal is promising deliveries in multiple cities and townships with an extremely wide product portfolio.  So, who says brick and mortar is dead?  It has simply changed to click and mortar!

Dotcoms need service at two ends to complete a transaction at the earliest, to ensure good customer care. One end is the pick-up from the vendor or alliance partner. This is a familiar sight for most Express Service providers as it is the beginning point of the channel. The other end is a not too familiar end, that of the consumer. A consumer   expects delivery at the stipulated time. He wants the delivery boy to be as polite as a customer service lady in a multinational bank. He expects the speed and efficiency of a fast food home delivery boy, along with the operational skills of a front-end operations person from the Express Industry.

Please bear in mind that the only time a consumer sees a human face in an e commerce transaction is at the time of delivery and the fact remains that Logistics and Supply Chain Service providers manage this human face. This would form the guiding spirit for the Express and e commerce industry. The future will evolve around this.  Welcome to the world of e-com @logistics !
 

(The author is Vice President, Safexpress Private Limited)

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