Oct 24, 2016

Emerging E-commerce Businesses and Supply Chains

R Jayaraman

E-commerce is e-tailing its way into the retail business at great speed. The impact of e-commerce on the retail revolution can be seen in different ways. In short e-commerce is likely to become the e-way for retail soon, if not already so in many places.

For one, if the e-commerce is attached only to the retail business then the effect is that of providing a platform for aggregating demand from multiple customers, from multiple geographies, in one place. This aggregation is the main driver of the low prices which Walmart and others of their ilk promise. Just imagine, the local kirana store can stock some five dozen toothpaste tubes, as he caters to a demand of 50 per day in the locality. Hence his ability to offer low prices is limited. If this same seller goes the e-commerce way, his demand for the toothpaste could go up to 500 or 1,000 per day. Then he can really look at discounted prices. Now you are talking.

The second benefit is the speed with which the sale can be closed. The culture of e-commerce fits in well with the overall “quick” culture of the times. We need quick responses, so we use WhatsApp, never mind that much of WhatsApp is Multiple Forwards and the authenticity is up for questioning. It is like a lie, if repeated several times, becomes truth-like. In an e-commerce transaction, the customer has implicitly accepted that the goods that he will view will be the ones that he will get – something like WYSIWYG of yore. This predilection of the customer to get what he wants in double quick time, works well for e-commerce. Abracadabra.

The third benefit is that sales resources need not be deployed to close out a sale. In a big retail store, the other day I saw at non peak times, it is difficult to make out who is the customer and who is the sales person waiting to attend to them. Such confusion can be avoided with e-commerce with the concomitant benefit in transaction costs. This may sound harsh in a country where population is considered as an asset, but such is the lure of e-commerce.

The fourth is the savings in the non-manpower resources to be used for the sale. For example, for every customer who buys from an e-commerce platform and who doesn’t step into the store, the fuel for the car is saved, the parking lot is available to others, the roads are less subjected to wear and tear, the lights and air-conditioning required to service the store footfalls can be avoided.

The fifth benefit is in the overall lessening of the Supply Chain resources, especially the transport. Consider if the customers were to come to the store to buy, then the goods have to be transported to the warehouse, thence to the store, from where the customer will cart it to the home. In the e-commerce scheme of things, the goods are either in the warehouse or in the kirana stores who partner with the big chains as the fronting delivery teams. In either case one trip is avoided. This is a huge benefit.

Another benefit is that e-commerce companies which tend to aggregate demand and sell in large volumes also place large orders with suppliers, who are typically manufacturers. In view of these large orders, goods are sold by the manufacturer at lower prices. Barring seasonal goods, others are sold through the year and hence this large demand will lead to regular supplies, resulting in stable production runs and the consequent cost and quality benefits. The pull system can be pushed by both buyer and supplier. Warehouses will stock goods in large quantities which then will be handled in bulk, thus speeding up and streamlining unloading and stacking operations. Thus the overall cost situation is likely to be held in leash and could be one of the reasons why many countries like the USA where such e-commerce and retails stores are selling in bulk, inflation remains low.

So it appears that e-commerce is the many splendoured thing – like love. Let’s enjoy it.

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