Market News


Logistics Management and E-Commerce Competitive Advantage in Online Commerce

The long non-profitable run at the markets in 2013 forced e-commerce portals to rethink their strategies. Indian E-tailers realized that profitability was closely linked to not only their product strategies but the bottom lines namely, logistical infrastructure as well. As a result, the e-commerce majors in India have been effecting upheavals in their logistics systems in a bid to tackle competition and sustain investor confidence.

One of the most noteworthy change trends in the logistics management of Indian e-commerce majors has been the switch from the capital intensive inventory model to a hybrid model that encompasses the features of both the inventory and market place model.

E-commerce portals that employ a marketplace model do not stock on inventory but link buyers with sellers on their portal, thus eliminating the costs related to inventory management that forms a substantial portion of the overall cash burn. Further, the marketplace model enables e-tailers to attract investments from foreign investors which is otherwise banned in direct online retail. On the other hand in the inventory model, cash flow which is crucial for e-commerce companies gets stuck in inventory instead of being utilized for operations.

One of the first Indian e-commerce firms to adopt the hybrid model was Flipkart that added the market place concept to its operations in 2012. Today the company has 1,000 merchants operating from its site. Other Indian e-commerce retailers are following suit following the entry of Amazon into India’s online marketplace. For instance, Myntra recently raised $50 million from Investors (Wipro Invest) in order to fund the incorporation of the marketplace concept into its existing business model. Further, Snapdeal, that has been a pure marketplace from its inception, is planning to scale up the number of merchants on its portal to 50,000. Snapdeal’s move is possibly suggestive of its ambitious designs of catering to almost every product category along the lines of Flipkart.

Further, backed by capital investments and technology, India’s leading e-commerce portals are changing the way logistics have been traditionally managed by Indian e-tailers. For instance, Flipkart delivers 70% of its shipments through its own logistics chain. A self-owned logistics company forms Flipkart’s core strength that has enabled the firm to respond to the strategies of its rivals. For instance, Flipkart announced its one day service delivery plan just 5 days after Amazon announced the same.

Not just limiting itself to delivery chains, FlipKart has taken active control of its payment systems. By launching Payzippy, a payment management services for online customers and merchants, the firm seems to be building on its resource capabilities to take on Amazon and ebay backed Snapdeal. Though self -managed payment systems are a first for Indian e-commerce firms, they have been fairly common in the international arena. For instance, ebay acquired the payment management system Paypal long back in 2002.
On the other hand, Snapdeal that is currently targeting sales of $1 billion in the next fiscal has introduced tools such as Safeship, a platform that automatically chooses the appropriate logistic provider for the seller of a particular shipment.

The dynamics of competition within the e-retail industry is expected to intensify with the entry of international e-commerce site Amazon that has relatively larger resources to support its business model in India. Given the intensifying competition and pressures to reconfigure or improve delivery and payment services against the backdrop of narrowing margins, the future of India’s e-commerce portals will depend on how proactive they are in speculating and adapting their logistics chain to meet the future needs of their targeted consumers.