Friday, June 15, 2012

E-commerce India - Inventory Management, Warehousing and Order Fulfillment


T S Eliot quote about beginning and end
While e-commerce store front (website) provides customer interface on the Internet, good back-end operations lead to customer satisfaction. One of the important back-end operations of e-commerce is inventory management. When the customer browses the site, selects an item and makes payment, the item MUST be shipped to the customer in time. For that the item must be either produced by the e-commerce company itself or procured from a 3rd party.

If the procurement has to happen from a 3rd party, it can be arranged in different ways:
  1. Drop-shipping
Items can be bought from the 3rd party just in time and shipped to the end-customer. In this case there must be direct connection for the e-commerce company with the appropriate vendors, dealers or publishers. In cases like Sweets and Snacks this will be the modus operandi, unless the vendor himself manages the e-commerce store.
  1. Warehouse-based shipping
Certain quantity of items can be procured up-front, stored in a warehouse and shipped to the customer based on the order.

In the second case, the quantity of inventory that needs to be maintained in the warehouse has to be controlled appropriately. If there is less quantity of inventory then there would be inherent delay in procurement and shipping. If there is more than required quantity, the unnecessary occupancy of the warehouse would lead to financial disadvantage.

The inflow (from the suppliers) and outflow (to the end customers) of goods must be tightly controlled in the warehouse to restrict any damages and pilferage. The orders taken for delivery in a day must be reconciled at the end of the day to match shipments and pending orders.

If the e-commerce company has its own warehouses, the location and number of these should be carefully selected. Any shortages or excesses and wrong locations would drain all financial resources of the company in no time.

One can also outsource the warehouse and order fulfillment operations to a 3rd party. From zappos.com experience (as mentioned in the book by Tony Hsieh), one can understand that it is risky from different perspective to outsource such operations. Needless to say, one needs to be wary about outsourcing such operations.

The last part of order fulfillment involves delivery to the end customer at his premises. This is done by:
  1. e-commerce company's own courier service (like in case of Flipkart)
  1. Private delivery service center (the likes of DHL, Bluedart…)
  1. Government courier service from Post Office
  2. Hybrid of all the above modes (typical case)

With Cash-On-Delivery (CoD) becoming an important payment mechanism the delivery person not only has to ship the items, but also collect money from the end customer. There are companies like Gharpay, which specialized in cash collection.

Also, there are local companies which specialize in delivery of certain items and one such company is Delyver in Bangalore.

There is ample scope for companies operating in this domain to expand and increase the scope of their activities. There is also talk about Amazon and Walmart setting up their own courier operations in India and becoming successful Giants in the Indian e-commerce space. Let's wait and watch !