Jolly's Volley: E-commerce Challenge No. 2 — Logistics

08 November, 2011

Let me start out by stating the obvious (learnt that from my former colleague Guy Kawasaki who has made a fabulous career of saying the common-sensical in a highly entertaining manner). E-commerce is a non-trivial business, especially in a non-trivial environment like India. I wrote about payments in the last submission. This one is also a doozy. But when you think about it, this is probably the most core function of e-commerce. At the end of the day, it’s all about getting suppliers to supply (hopefully on time) and getting the end product to the customer who is hopefully delighted with the experience and actually accepts the product and happily pays for it (in cash, kind or IOU).

Consequently, the challenge with the logistics system is several-fold. But the issue that interests me the most is the fact that the physical interface to the customer is the delivery person – either captive or outsourced to Blue Dart, Aramex, DTDC, etc., and often it is the least paid person in the entire company. So forget all the efforts spent on creating the stickiest website in the world, the coolest collateral, the most differentiated product selection and the best offers online. All that boils down to the experience the customer has when the product is physically delivered. Is the delivery on time; is it the product which was actually ordered; is the delivery person presentable; is there BO, etc. (it all matters because like it or not, that one minute interaction, in the customer’s mind, is reflective of the merchant/e-tailer, more than anything else). And the irony is that the merchant often has no partial, let alone total, control of that one minute interaction, which, by the way, could be the driver for the customer becoming a repeat customer or being completely disgruntled. To bring some control on this piece of the overall supply chain, many e-commerce companies are embarking on bringing the logistics/delivery piece of the business in-house, at least as far as delivery to the metros is concerned.

Incentive alignment: Often the incentives of the logistics provider are not at all aligned with those of the merchant. Often they may be completely bipolar. Logistics provider usually gets paid whether the item is delivered to the customer or not (the customer is not at home or returns a COD item, for example). The non-delivery and therefore, return, may actually create a strange incentive for the logistics company to be okay with not delivering, since they get paid during both the ingress and egress of the product. And often, it is hard to audit the company to find out if they actually followed agreed-to processes or not. For example, I have spoken with a few e-commerce players who indicate that a delivery is supposed to be attempted three times by the logistics provider, but often it’s not easy to audit whether the logistics provider complied with the process or service-level agreement that was executed. I am not saying that most or all logistics companies engage in the above practice, and even if they do, it’s not sustainable and will cause their customers to switch to someone else who is more professional.

The fact of the matter is that the providers themselves are suffering from scalability issues and given the amount of employee churn, they are not able to replace and train new staff fast enough. Then there is the issue of tiers 2, 3 and 4 towns where considerable demand is being generated (driven by cash/disposable income, bling/aspiration factor, etc.). Physical infrastructure (or lack thereof) makes it difficult to deliver on time. I am impressed, however, that given the infrastructural challenges, products like televisions, air conditioners, etc. actually arrive in one piece.

Also, leave it to the entrepreneurial spirit to detect a gap and fill it. Realising the need for e-commerce players to deliver in metros within 24 hours (which used to be a differentiated offering but now has become a more standard affair), there is a crop of metro-centric logistics companies that have now popped up to cater to that demand, giving the Blue Darts of the India a run for their money. Then there is FedEx which clearly smells a massive opportunity domestically and will bring its own systems and best practices to the country.

Let me now try and tie payments and logistics together, if I can. Given that COD is a key, and in many cases, the main payment mechanism, cash collection and management are also important for online merchants. Although a problem in some cases, pilferage is not as big an issue as it was anticipated to be. At least, if there is theft, the logistics provider takes the hit given that they either have to deliver the cash or the returned product to the merchant.

Bottom line: Logistics is an issue today with delayed deliveries, dissatisfied customers, reverse logistics nightmare and the like. But what is heartening to observe from the merchant’s standpoint is multi-fold – competition among logistics players will clearly lead to better quality control; existing global players like FedEx coming into the game; logistics start-ups popping up to fill the gap and the incumbents upgrading their systems and processes. I just hope that it is not like the Bangalore infrastructure upgrade – by the time the capacity upgrade is complete, it’s already obsolete, given the traffic growth. Also, rather than banging on the logistics providers too much, we must keep in mind that these are growing pains; a good problem to have, and all emerging and emerged economies either have gone through the same or are going through them alongside India.

 


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Jolly's Volley: E-commerce Challenge No. 2 — Logistics

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