This article will broadly cover information on different stages of supply chain management, reverse logistics and Indian eCommerce industry outlook. You would find key information regarding reverse logistics at a global level along with key statistics around various types of reverse logistics in retail channels and categories. Furthermore, you will also find specific focus on the Indian eCommerce industry highlighting key metrics, challenges faced by industry, potential opportunities and future priorities.
To put in simple language, supply chain is the process of ensuring raw material availability at different process stages till final product reaches the end-customer. The process of managing timely supply at all stages is called Supply Chain Management (SCM).
The broad process for supply chain management in a manufacturing set up include availability of ‘raw material’ in plant, supply of subcomponents till ‘final product’ is manufactured, product ‘distribution’ using different mode of transportations, product arrival at retail ‘channels’ and finally ‘sales’ to end-customer.
Reverse Logistics starts where supply chain process ends i.e it is the reverse process of supply chain management and thereby target the system of managing goods returned from end customer. Organizations having best practices and systems for handling returns are better positioned to compete with competitors and yield better long term sustainable results besides increased profitability. An effective return process can transform ‘trash’ into ‘cash’.
Returns are inevitable in any business operations and are major cost components in product pricing. As per study conducted by one of the global research firms, around US$ 650 billion worth of goods are returned each year globally. This constitutes around 4% of retail revenue which is sufficient to make or break the organization in the present cut-throat competitive environment.
Global Outlook – Classification of ‘Return’
Returns are broadly classified into two heads: Channels and Categories.
- Channels – More than 50% of the “channels” returns are from 3 heads namely eCommerce, Department Store and Brick & Mortar whereas eCommerce carries the highest return rate of 30%. It is important to note that 89% of the online shoppers take final buy decision based on the return policies. Department stores hold the second position with return rate of 14% followed by Brick & Mortar at 8%.
- Categories – 5 broadheads contribute more than 60% of return under Categories. Auto parts lead the race with 21% return followed by Electronics (12%), Home Improvements (11%), Apparel & Footwear (10%) and Sports goods (9%).
Till now we would have understood the significance of reverse logistics in retail business, return categories and its role in an organization’s growth trajectory. In following notes, we will focus our discussion around current India eCommerce industry, potential challenges to be fixed in order to create sustainable business model, key opportunities and future ahead.
India Outlook – eCommerce Industry
As per study conducted by one the leading research firm-
- Internet users in India will grow by 564.5 million in 2019 as compared to 259 million in 2015.
- India currently has over 300 million smart users which are second-largest smartphone market in the world.
The above data points show the potential growth coming to the Indian economy and it will help the eCommerce industry to reach estimated Gross Merchandise Value of USD 80 billion by 2020. As per survey conducted by a leading Indian business newspaper, ~ 70% of the total e-commerce business is led by 2 organizations. Flipkart (along with its independent run subsidiary Myntra) owned 38.5% while Amazon holds 29% market share.
Challenges faced by eCommerce Industry
While Indian business is on a growth path with anticipated annual GDP growth in excess of 7% but it requires few big rocks to be moved failing which it will not only challenge the industry growth path but also lead to other associated economic issues of unemployment, lower per capita income, etc. The two big challenges to be fixed by industry are Customer Experience and Logistics Network.
Customer Experience – Out of the multiple issues in this category, the top issues are pertaining to poor return procedures of goods, delayed refunds and improper value.
- Services like installation and product try-on which are widely acceptable in matured market worldwide.
Logistics Network – This is an ongoing issue due to lack of availability of cost-effective and professionally managed logistics service provider that is resulting in delayed delivery of goods including but not limited to lost parcels and thereby impacting the growth of business.
Opportunities for eCommerce Industry
One of the established known phenomena is that ‘where there is a challenge there lies a solution’. Below are the possible solutions to arrest the industry challenges.
Strategic partnership – eCommerce industry to work with the third-party logistics providers to create a strategic partnership by either taking their operations and manage them professionally or holding their hand by sharing their established best practices to run their business.
Industry has to break the notion of maintaining distance by ‘arm length’ and migrating to ‘arm around’ methodology by working with logistics service providers to ensure sustainable and cost-effective operating model and create win-win. For example, Alibaba invested money and best practices in third-party logistics firms namely ‘Star Express’ and ‘Best Logistics’ that helped improve their delivery and eventually contributed in increase customer experience index and sales.
Artificial Intelligence – Accepting Artificial Intelligence is going to be the fabric of any sustainable business model. This can be adopted in 3 ways:
- Robotic Process Automation (RPA) – This technology has quickly achieved industry-wide acceptance and maturing at a very fast pace. Anything ‘transactional by nature’ can be managed under this technology where work is managed by learned machines (also known as robots) that help in improving productivity and cost reductions for the organizations.
- Natural Language Processing (NLP) – This technology enables the understanding of ‘voice and free text’ commands. Most of the call centers are leveraging this technology by using ChatBots or virtual call center agents to handle customer queries and act as the first line of respondent to customer.
- Predictive Analysis (PA) – This is a form of machine learning that involves data mining and analysis of both structured and non-structured data. This technology can identify patterns and make predictions based on various factors and strengthened by self-improving algorithms. This is very useful in spend classification.
To summarize, customer is the king and accepting change as inevitable is the key as what made organizations successful today will not make them successful tomorrow. The sustenance lies with quicker turnaround on last-mile delivery with minimal cost and maximum value pass back to end customers. On the other hand, organizations will focus more on localizing their warehousing operations near customer demand locations, lower warehousing costs by increasingly improving ‘just in time’ methodology and leverage technology support for making informed decisions using big data analysis.