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Forget flash sales—Flipkart and Snapdeal have a new obsession

Quartz india
Quartz india

Flash sales and discounts are passé. Two of India’s largest e-commerce companies are now obsessing over an entirely different challenge: Putting their supply chain and logistics in order.

Flipkart and its closest rival, Snapdeal, are looking to strengthen their supply chain to help deliver products with speed and accuracy as an increasing number of Indians get online to do their shopping.

India’s rickety infrastructure, vast geographical area and taxation regulations make logistics a particularly troublesome area of operation (pdf). So, several online retailers have partnered with specialist logistics firms, since they have a better reach.

Many of these companies, however, don’t have the required expertise in customer interaction (pdf), or countrywide delivery networks. So, if an item has to be delivered in smaller cities, typically individual couriers pick up the packages, and deliver those to the customer—a process that is not always reliable.

But things must change as India’s online retail boom continues, and that’s beginning now with the biggest players sorting out their backend operations.

Roaming robots

Bangalore-based Flipkart, which is valued at about $11 billion, is looking at robotics to improve the efficiency of its 13 warehouses in India.

It is currently experimenting with robots that would move packages around its warehouses—similar to what the US online retail giant Amazon already has.

These robots will bring the items to the dispatch area of the warehouse faster than human operators, helping to cut down on the time taken to dispatch and deliver, Rahul Chari, Flipkart’s vice president of engineering, told Quartz. But “predicting the time it is going to take to package and dispatch continues to remain a challenge,” he admitted.

With its current infrastructure and processes, Flipkart struggles to meet its delivery deadlines for about 1-2% of orders every month—and Chari is optimistic that robotics will bring this number down. Still, it will take at least a year for the retailer to deploy robots in its warehouses.

In the meantime, Flipkart is testing out some other things.

In 2014, for instance, the company had introduced a laser-based system to measure the weight and the dimension of the packages meant for delivery. The readings of these packages are then matched with the weight and dimensions of the products ordered by the customers before they are finally dispatched.

The objective is to ensure that customers don’t get a wrong item delivered to them.

In the past, both Flipkart and Snapdeal have come under fire for delivering wrong products—and people have been quick to slam them on social media.

Flipkart didn’t disclose how much it intends to spend on supply chain. But typically, companies end up spending 8-10% of their revenues on supply chain management and logistics, Arvind Singhal, chairman of retail consultancy firm Technopak, estimated. And that number can go up to 15% if a product is returned and has to be shipped again.

Partnering with pros

Meanwhile, Snapdeal, which secured funding worth $627 million led by Japan’s SoftBank in late 2014, is out looking for logistic firms to help improve its delivery systems.

This year, the New Delhi-based startup has plans to spend a staggering $1 billion on acquiring companies straddling everything from backend operations to big data and mobile, Rohit Bansal, Snapdeal’s co-founder said. Alongside, $200 million will be spent on just beefing up its logistics and supply chain.

The process is already underway. In March, Snapdeal made its first-ever investment in a logistics company when it picked up a 20% stake in GoJavas for $19 million. The Gurgaon-based delivery company has operations in 85 cities, servicing 30,000 customers every day. Some of its clients include Jabong, Healthkart, Fabfurnish, Yepme and Lenskart.

Unlike Flipkart, Snapdeal doesn’t have its own delivery system and is dependent on other logistics firms for delivering its products to the customers—and it is keen on expanding the range of companies it works with. And these partnerships (or acquisitions) will be critical as the retailer expands.

In the next two to three years, Bansal expects Snapdeal’s business to grow ten times, which also means a significant increase in the quantum of orders it will have to process and deliver. At the same time, partly to differentiate itself in an increasingly crowded marketplace, Snapdeal will roll out express delivery services where products will reach customers within four hours of placing the order. This, too, will require greater backend bandwidth.

“As e-commerce matures in the country, if we know that it is going to be 15 to 20 times its present size over the next four or five years, then the capacity needs to get built today,” said Bansal referring to Snapdeal’s wherewithal to service orders.

Clearly, it is critical for Indian e-commerce giants to figure out how to stay ahead of the curve.

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