In today’s retail world, every business–to one extent or another–is an e-commerce business. But, in the quest to deliver orders to a growing and demanding online customer base, it’s surprisingly easy to increase omnichannel delivery costs to an unsustainable level. Some analysis and research can help brands satisfy their customers while keeping distribution costs in check.
An e-commerce delivery leads to a deep-dive into one brand’s omnichannel efforts
The doorbell chime went unanswered. Reluctantly, I left my comfortable perch in front of the Australian Open finals match and answered the door. There I found an increasingly common sight: an e-commerce delivery for my daughter – this time a detangling comb.
These deliveries have become a regular part of life around our house. E-commerce purchases are widespread for so many in both urban and rural India today, thus receiving the package was nothing unusual. What got my attention was the choice of delivery partner. The courier was from one of India’s leading overnight delivery firms, and I knew their pricing was on the high end.
A quick search of Google maps revealed that the comb brand in question had four retail shops within a five-kilometer radius. The proximity made the fact that the package was shipped overnight from Ludhiana in Punjab state unusual. By the way, we live in Bangalore, Karnakata – nearly 2,000 kilometers away. The distance traveled was of particular interest because the comb’s brand is quite popular in eco-friendly, climate-conscious circles. The carbon footprint of this specific delivery was definitely at odds with the environmentally-conscious strategic differentiator for the brand.
Another fast web search on the courier’s website revealed that they would charge anywhere from INR 400 to 900 (US$5.37 to $12.08) to deliver a similar parcel between these two locations. This is the rate for their annual subscription-based premium delivery service, and the charge for this shipment was in that range. Given that the comb’s discounted retail price was INR 500 (US$ 6.71), it’s easy to see that these costs are not sustainable over even a brief period.
This example is one instance where better inventory visibility would have been ideal. The detangling comb in question was probably in stock at one of the four retail shops close to our home. A local courier could have cheaply and quickly delivered the item, resulting in both better service and a higher profit margin (instead of what was surely a net loss), and a much smaller carbon footprint.
When one’s building a loyal e-commerce customer base, costs can get out of hand
If your supply chain and channel strategy result in cost overruns of this magnitude, you have to take a very close look at your omnichannel efforts. Happy customers won’t save your business if revenues don’t sustain the costs. You have to ask some pointed questions like:
- Are our location choices the right ones? Are our warehouse-to-store and warehouse-to-customer mapping plans correct?
- Are we planning demand, supply, and inventory deployment correctly? Is our inventory deployed to maximize ROI?
- Are our operating processes appropriate for fulfilling orders at the desired rate?
- Do our systems support supply chain visibility across the entire network to aid operations in making timely and accurate decisions?
Some issues that make omnichannel in India particularly challenging
Some elements of a seamless, unified omnichannel retail experience have proven challenging to implement. A simple return process where customers have a choice of how to return or exchange a purchase has been one of these. Currently, most e-commerce customers can only return merchandise to the place – or in the way – purchased. The inability to return online purchases to brick-and-mortar locations creates cognitive dissonance for the consumer.
Difficulties also revolve around the visibility of inventory – making it difficult to ascertain the location of merchandise and, as a result, what most efficient method of fulfillment would be. Also at issue is delivery window variability. An ongoing concern has been the achievement of a standard delivery lead time for orders irrespective of the chosen fulfillment channel, despite efforts to mitigate the discrepancy. Currently, delivery times for a median order can range from two to seven days. (Deliveries to the growing rural market can take somewhat longer.)
Another matter has to do with the need for accommodating alternative payment methods for rural customers. Recently, the most significant e-commerce players have begun to see new growth from midsize-to-small cities and towns further afield. However, cash-on-delivery is still a favored payment method for those customers in the relative hinterland. The need to adequately serve that growing market – nearly 70 percent of the Indian population live outside of urban areas – will require new and modified modalities.
In the next generation or so, India is poised to become the world’s most populous country and the second-largest economy. E-commerce and other emerging, technology-based business models will play a crucial role in this transformation. According to the World Economic Forum, “India can transform itself in the next days if technology creates opportunity.” Optimized supply chains, analyzed by reliable data-driven simulations, will be critical enablers of the coming economic revolution.
Chainalytics’ combination of top supply chain talent, proven methodologies, and proprietary market intelligence delivers actionable insights and measurable outcomes. Reach out to us and see how Chainalytics can help transform the reliability and efficiency of your supply chain.
Milind Kanetkar is a Sr. Manager in Chainalytics’ Supply Chain Design practice and is based in Bangalore, India. Milind has a rich and diverse mix of experience in supply chain optimization, planning and operations across multiple industries.
