Analysis of Operations Models of E-Commerce Giants

Group 826NMP03 - Abhijeet Singh Tomar

26NMP15 - Argha Ray26NMP20 - Bankim Samaddar

26NMP28 - Khushal Malik26NMP36 - Pravin Sharma26NMP45 - Sanjay Prasad

Amazon.com

1995: Jeff Bezos launched Amazon as online bookstore

1999: Diversified into consumer electronics, furniture, music, software, etc

2001:Registered first ever profit of $5mn

2000-2013: Expanded into Canada, Japan, China, India• Currently more than 34

product categories

• Active Amazon customers

◦ 2007: 66mn+

◦ 2013: 200mn+

• Active Amazon sellers

◦ 2007: 1mn+

◦ 2013: 2mn+

• Much of its success is due to Order fulfillment

capabilities DC management Local Customization

Business Model of Amazon.com

• Customer browse products on website and place orders

• Order is fulfilled either by internal DC or drop-shipper

• Customer relationship is with Amazon

• Third parties list their products on Amazon.com

• Marketplace and Merchants program• Sales made by 3rd parties add to

Amazon’s Margin as incremental cost of each sale is close to zero

• Offers technology platform and web storefront experience to other companies

• Customer relationship and decision power stays with the company

• Amazon provides order fulfillment services

As Seller

As Intermediary

As E-commerce Service Provider

  

Vendor/ Supplier

Publisher

/MFG

Wholesaler

-DC

Independent-

Supplier

Partner-DC

Amazon-

DC

Customer

Amazon Website and IT System

Tier-3

Tier-2

Tier-1 Information Flow

Physical Flow

3 – Tier Amazon Inventory Network

Amazon in Asian countries

China Japan

Launched in 2004 through Joyo.com

Delivers goods on its own

Purchases on average within 2.5 days

Cash on Delivery prominent (70%)

Chinese are more concerned about time of arrival than lead time in delivery. So Amazon.cn, states what time of day the items will arrive at your doorstep

Launched in 2000 Same-day delivery: a key

selling point Existence of Saihan

system prevents price competition in case of books retailing.

“Look inside" option to allow customers to read excerpts & passages from books before they purchase them.

Offered large selection of products than its competitors.

Amazon India

Entered Indian E-commerce space in 2012 as Junglee.com Customers can compare product prices but not purchase Customer redirected to existing seller website or physical

store location for purchase

Amazon.in launched in June 2013 Marketplace model only unlike Amazon.com Product Categories: Books, Kindle, Movies & TV and

Consumer Electronics (Mobile, Camera and Media players) Services offered: Third-Party Selling, Fulfillment services,

Product listing & promotion on website Free Shipping for orders above Rs 499 fulfilled by Amazon CoD services only for orders fulfilled by Amazon

Junglee.com

Amazon.in

Challenges for Amazon India

Understanding of

Market Place model

among Indian Sellers

Presence in tier-II and

tier-III Cities: 60%

revenue from tier-1,

40% from tier 2 & 3

cities.

Credit card EMI

payment not available

to tier 2 & 3 cities

CoD (Cash on Delivery)

Intense competition

Inadequate

infrastructure facilities

Changing government

policies

Creditors collection

periods

Marketing efforts

WALMART

• Wal-Mart is the largest brick-and-mortar format

retailer in the world

• First store opened in 1962 in Kansas by founder Sam

Walton

• Principle was to be focussed on keeping costs low

• Always a volume player, emphasized on using cost

advantage to increase sales

• Every day low prices promised to customers in order

to manage demand fluctuations

• Also operates a retail website, hence not a pure

brick-and-mortar retail player

Sourcing and

Procurement

Production

Planning and

Distribution

Logistics

Fulfilment and

Customer Service

Supply chain network components : Where is the focus in the retailing industry?

Plant LocationCapacity, Lead TimeFlexibility

Warehouse, Inventory location

Transportation networks,Inventory management,Storage,Loss/damage

Call centresRetailingPricingProduct delivery

1 2 3 4 5

Traditional retail supply chain structure

Source: An Analysis of Current Supply Chain Best Practices in the Retail Industry with Case Studies of Wal-Mart and Amazon.com,Chiles and Dau, Georgia Tech

VendorRetailer

Distribution Centre

Retail Outlets

CustomerCarrier

Carrier

Information

Information

Physical Flow

Information Flow

Internet retail supply chain structure

Source: An Analysis of Current Supply Chain Best Practices in the Retail Industry with Case Studies of Wal-Mart and Amazon.com,Chiles and Dau, Georgia Tech

Publisher/Mfg

Wholesale DC

Internet Retailer DC

Customer

Physical Flow

Information Flow

Vendor/Supplier

Independent supplier/3rd

party

Partner DC

Website & IT systems

Sourcing and Procurement

• EDLP makes it essential for sourcing costs

to be low in order to make profits

• Variety and assortment helps to maintain

low priced market basket

• Supply chain innovations used to lower

costs

• Policy of purchasing no more than 25% of

the producer’s overall business

• The price of the product is negotiated

before the start of the growing season

• Focus on sourcing from local suppliers,

large and long term contracts with

suppliers selected

• Consolidated its global procurement

functions and reduce the use of

intermediaries in its global sourcing

processes leading to savings

• Receives consideration from suppliers for

primarily volume incentives, warehouse

allowances and markdowns etc.

• For customer service, responsiveness

and choice as the goal, supply chain

strategy is completely different from that

of EDLP

• Procurement of products for resale from

manufacturers

• Procurement also for manufactured

products like Kindle devices

• Focus on reducing variable costs such as

transaction, processing and packaging

costs

• Seek to increase direct sourcing,

discount from suppliers, process

efficiencies and lean culture

• High inventory turnover because of the

business model

• High supplier risk: No long term

contract agreements and guarantee of

availability

• Difficulty in procurement and fulfilment

in case of unforeseen disasters

Production

• Most of the stock in the Wal-

Mart stores are procured from

different suppliers for resale

• The private label products are

also not manufactured by Wal-

Mart

• The manufacturers package

and label these products and

provide it to the store

• Lead time is due to placing

orders and replenishment of

stock from the suppliers and

vendors

• Amazon produces devices like

Kindle; production is

outsourced

• Kindle being an electronic

gadget is prone to the varying

demand phase as seen with

other electronic equipment

• With new releases and

versions, older versions reach

maturity and decline phase

• Lead time is due to the time

taken to complete and fulfil

orders either by the company

or by the drop-shippers

Planning and Distribution

• 114 distribution centres only in the

US

• Centralise distribution system

using Hub-and-spoke model, led to

significant cost savings

• Heavy investment in IT and

communication systems

• Satellite communication system –

allow stores to manage own stock,

reduce pack sizes

• Bar-code, use of computers and

RFID made management

economical

• Inventory Turnover at distribution

centres is high

• 90 distribution centres in 4

parts of the world

• In 2011 and 2012, addition of 9

massive distribution centres

• Initially densely populated

states were devoid of

distribution centres due to state

tax implications

• Now, Amazon has moved to

“Same Day Shipping

Strategy” leading to heavy

investments

• Real time supply chain

communication which has

minimised human intervention

4. Logistics

Transportation Networks

• Owns a fleet of 6500 trucks and

50,000 trailers

• Fast and responsive in nature

owing to products

• Efficient routes followed to burn

less fuel and minimize empty

miles driven

• It has 158 distribution centres

which support 90-100 retail

stores each within a 200 mile

area

• Trucks need to travel less and

reduces lead time

• Lowers transportation cost as

well as the safety stock required

at retail outlets

Material Handling

• Hydrogen powered fork lifters

used for handling perishable

material

Transportation Networks

• Doesn’t have a scale per order

which makes truckload and less

than truckload carriers economical

as compared to parcel carriers

• Transportation hubs called

‘injection points’ located in areas

with high demand

• Truckload and LTL carry inventory

from DC to injection points

• Last mile delivery made by UPS or

FedEx

• Drop shipping: Listed products but

shipped and transported by

partners

• Reduces the inventory and shipping

costs for Amazon

• Fulfilment service: products are

offered by third party seller but are

packed and shipped by Amazon

(36% of units sold by amazon are

via this service)

Logistics (contd.)

Inventory Management

• IT expertise + satellite communication system

• Keeps check on unproductive inventory by

reducing SKUs and timely markdowns.

• Order management & store replenishment

carried out through Point-of-Sales (POS)

system.

• Quick Replenishment- use IT to locate &

replenish goods.

• Voice-based Order Filling (VOF)- guide the

person responsible for order picking by voice

to item locations.

• Radio-Frequency Identification (RFID)

Technology -Employees don’t have to

physically scan the bar codes -saving of labor

cost, reduces stock outs.

• Retail Link System- Retail suppliers can

monitor the sales of their products and can

replenish inventories.

• Collaborative Planning, Forecasting and

Replenishment with key suppliers-share

forecasts data over internet with each other

and jointly determine the product forecasts.

Inventory Management

• Owns no retail outlets -doesn’t

incur cost to build new outlets to

attract consumers

• Consolidate the inventory at DCs

–hence carry a much wider

variety of products than the retail

stores.

• DCs operated in automatic mode-

efficient inventory tracking,

inventory location monitoring,etc

• Drop shipment model solves

problem of stock outs & allows

Amazon to offer products which

are not lying in its DC inventory.

• Direct sourcing from some

publishers, manufacturers and

third-party sellers- enable

offering wide variety, reduces

dependence on distributors and

increases the markup.

• 3-ecehlon inventory management

system

Fulfilment and Customer Service

Fulfilment

• Big Data to optimize fulfilment

networks, to create powerful

pricing tools and to build the right

product assortment

• Customer trends analysed via

social media to optimise the

fulfilment centre's inventory

Customer Service

• Walmart has a 90-day return policy

for most of the goods sold with few

exceptions

• Customer centric policies designed

to be a market leader in Canada

• Tracking orders, placing return

requests made easy by One-touch

facility at stores and also reduced

costs

Fulfilment

• Fulfilment centres can handle any

number of orders with no minimum

requirement

• Defects eliminated by Kaizen and

streamlining

• If not adequately predict customer

demand –lead to excess or

insufficient inventory or fulfilment

capacity

• Failure to optimize inventory will

increase the net shipping cost by

requiring long-zone or partial

shipments

Customer Service

• Customer service centres operated

globally

• Customers can track orders,

shipment details and also make

changes to open orders

• Free super saver shipping and prime

shipping

• Customer friendly return policy

E-RETAILING & FLIPKART

Demographic • Large internet usage• High mobile penetration• Young population

Technological

• More secure online monetary transaction

• Broadband connection• Advancements in logistics

Macro-economic • Rise in disposable income• Govt. committed to ease FDI

norms

Global • Successful amazon model• Rise in e-purchase among customers

PRODUCT CATEGORIES

The matrix help in identification of product categories that are more profitable based on industry & competitor analysis

PRODUCT CATEGORIES

Books & General

MerchandiseCCC Lifestyle

Leather Goods and travel accessories

Camera and camera

accessories

21 different categories, 4 million+ registered users , 45000 shipments per day

VENDOR SELECTION

Vendor Management

A robust selection mechanism is put in place to ensure seamless backend supply chain

Benefits• Price pass-

through• Demand

responsiveness• Defect

Replacement

Challenges• Channel conflict• Distributor vs manufacturer

A

B

C

CUSTOMER

CATEGORIES

SECONDARY FILTER

PRICE

QUALITYCHECKCONTRACT

RETURNS(%)

WAREHOUSE LOCATIONS

Bangalore

Delhi, Noida

Mumbai, Bhiwandi

Coimbatore

Kolkata

Flipkart operates 5 mother hubs that are geographically dispersed . It helps in optimization of logistical expenses when demand arises from different cities

Hub & Spoke Model

OVERALL SUPPLY CHAIN

The flow-chart depicts the manner in which a customer order is processed after the booking is made at the online portal

ORDERMANAGEMENT

COMMITTEE

FULFILLMENT ENGINE(INVENTORY/

JIT/MARKETPLACE/SOR)

VENDOR

ITEM PRESENT INOTHER MOTHER

HUBS

ITEM PRESENT INNEARBY MOTHER

HUBDELIVERY HUB

ORDERRECEIVED

CUSTOMERORDERS

EKART / 3PL

EKART/3PL

ORDERMANAGEMENT

SYSTEM

Stock Liquidation1. Negotiation with

supplier/bland/re-seller

2. Internal liquidation

PROCUREMENTFROM VENDOR

EKART / 3PL

QUALITY CHECK

ACCEPTANCE OFGOODS / OWNERSHIP

TRANSFER

IS THERE ORDERPENDING FORSAME ITEM

NO

STORE ININVENTORY

IS ORDERPLACED FOR

ITEM

NO

YES

YESFINAL PACKAGING

SHIPMENT

WAREHOUSE OPERATION

PROCUREMENTFROM VENDOR

EKART / 3PL

QUALITY CHECK

ACCEPTANCE OFGOODS / OWNERSHIP

TRANSFER

IS THERE ORDERPENDING FORSAME ITEM

NO

STORE ININVENTORY

IS ORDERPLACED FOR

ITEM

NO

YES

YESFINAL PACKAGING

SHIPMENT

WAREHOUSE OPERATION

Standard operating procedures have been designed to aid decision making during warehouse operation

PROCUREMENTFROM VENDOR

EKART / 3PL

QUALITY CHECK

ACCEPTANCE OFGOODS / OWNERSHIP

TRANSFER

IS THERE ORDERPENDING FORSAME ITEM

NO

STORE ININVENTORY

IS ORDERPLACED FOR

ITEM

NO

YES

YESFINAL PACKAGING

SHIPMENT

QC Team

Receiving Team

Putter

Picker

Dispatch Team

JUST IN TIME MODEL

In previous model, Flipkart supplemented its own inventory from JIT vendors. This helped in meeting unexpected customer demands during potential stock-outs at WS retail

ORDER ORIGINON WEB PORTAL

ITEM PRESENTIN WAREHOUSE

YES

NO

PROCURE FROMVENDOR

WAREHOUSE DELIVERY HUBORDER RECEIVEDBY CUSTOMER

EKART / 3PL

Inventory managementParameters

Desired Service Level

98.9% 93.1% 99.5% 91.3%

Average sales/week

2.16 29 61 597

Average Loss of sales (per

week)

1.37 1.7 6 80

Average Margin

20%-25% 40%-45% 15%-20% 10%-15%

Actual service level

92.2% 95% 92% 89%

Weeks of inventory

1.17 1.6 1.55 1.39

Average Reorder point

1 1.6 1.6 2

Cost of under stocking

Rs 2362/- Rs 349/- Rs 4675/- Rs 270/-

Flipkart has designed its reorder points based on the cost of under -stocking

MARKETPLACE MODELSELLER

SELLER

SELLER

SELLER

BUYER

BUYER

BUYER

BUYER

GOODS

INFORMATION

Guiding LogicAfter building a critical mass of online shoppers, Flipkart opened the platform for other vendors to leverage its customer base and brand

Flipkart now act as a platform between buyers and sellers

Salient Points Product delivery and

shipping done by Flipkart

Flipkart now have large assortment of products

Flipkart launched this platform on April 6th,2013

Marketplace model

Vendors apply for listing and Flipkart sends out invitation after verification All new sellers are categorized as Tier-2 sellers A Tier-2 Seller can become Tier-1 seller after completion of one month on

Marketplace and has a settlement defect rate of less than 5% Trusted Seller- Defect rate < 5% Preferred Seller- Considered best for particular product and is shown on the

top of the seller’s list Flipkart has its internal seller known as WS retail which supplies majority of the

items Seller Support: Dedicated team at Flipkart Marketplace to support sellers Account Manager: Relationship manager for specific group of sellers

MARKET PLACE

VENDORS WS RETAIL

ORDER RECEIVEDAT CUSTOMER

EKART / 3PL

NEARBYWAREHOUSE

DELIVERY HUBORDER ORIGINON WEB PORTAL

Operational flow in Market Place model

Vendor Management

SELL OR RETURN

New policy being offered by Flipkart Chance for new vendors to showcase their capability Inventory in Flipkart’s warehouse with the pre-condition of

buyback free of cost. Logistics and Inventory holding costs borne by Flipkart itself.

WAREHOUSE

VENDOR

WS RETAIL

NEARBYWAREHOUSE

DELIVERY HUBORDER RECEIVEDBY CUSTOMER

EKART / 3PL

ORDER ORIGINON WEB PORTAL

Comparative analysisParameters Market Place Sell-or-Return

Product Assortment High Moderate

Inventory Holding Cost Incurred by Vendor Incurred by Flipkart

Stock-out Fewer due to pool of vendor available

Same as WS retail products as Flipkart holds inventory

Delivery Time More because Flipkart depend on vendor shipping from its own warehouse

Less as Flipkart ships from warehouse

Vendor Relationship Stringent vendor selection

Lesser stringent compared to MPInference

1. Market Place has an inherent advantage in meeting high uncertainties in customer demand & competitive prices2. Sell-or-Return mitigates the risk of Flipkart when introducing products with low brand awareness

Web 1.0 Static Web Pages Read Only One Way Communication Individual Participants Eg Encyclopedia Britannica

Web 2.0 Dynamic Web Pages Read Write Execute Networked Communication Community Eg Wikipedia

SCOR Model Supply Chain Operations Reference Model Advocated by American Supply Chain Council

Plan

Source

Make

Deliver

Return

Plan Product Purchasing Plan Capacity Plan

• ShopSavvy• Purchase at least price

Dynamic Marketplace

• Delta Airlines• Reverse auction to control

overbooking

Location and Context Based

Services

Source Group Buying Consumer Rating

• Groupon• Aggregation of orders to trigger

purchase offers.

Social Networking

• Flipkart• Consumer opinion influence choice

of supplier

User generated

content

Make Contract Research 3D Printing

• Google Sketchup• 3D Modelling blueprinting and

sharing

User generated

content

• InnoCentive• Crowdsourcing

User generated

content

Deliver GPS Tracking Content Delivery

• Cemex• GPS to schedule and alter deliveries

Location and context based

services

• NowPublic• Local news uploaded at real time

on Facebook profile

Social Networking

Return Airline Ticket Cancellation Opinion Mining

• Airline Industry• Apps used to cancel reservation at

real timeSmartphone

• Customer centric firms• Polling generates data on customer

satisfaction

User generated

content

Supply Chain 2.0 Supply Chain Reconfigured

SupplierCustome

r

Enterprise 2.0

Focal Firm

CRM 2.0SCM 2.0

Thanks!!!