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Parcel Delivery for E-commerce is a Nascent Segment

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Sahil Barua, CEO of Delhivery, talks about the nitty-gritties involved in logistics of e-commerce business, how it is evolving, and where and how Delhivery fits in the bill.

Internet is going to be the marketplace for our future purchases. How true is this statement?

In the long run, online retail is far more suited to a country like India where offline retail faces extremely high fixed costs and uncertain sales. Online retail has a fundamentally stronger value proposition for consumers – convenience, range of products available, ability to compare across sellers, ability to see full product information and ratings, etc. There is absolutely no product that cannot be sold online with the right technology and logistics infrastructure backing it – be it groceries, medicines, electronics or apparel. The challenge in the future for online retailers will mainly revolve around increasing the depth of the market – bringing more and more sellers and consumers online, managing operations at lowest costs possible to ensure profitability, and ultimately, to maintain a consistently high standard of customer service.

Online retailing is estimated to grow from $600 mn $76 bn by 2021, according Technopak Advisors. What kind of opportunity you see with the rise in e-commerce business for players like you?

The growth in the online retailing model will h0ave to go hand in hand with the growth in ecosystem businesses like ours, which enable sellers to go online and provide platforms for them to sell through various channels and partners. The big challenges for sellers in India (and hence opportunities for us) today are threefold – scale, cost and visibility. Delhivery aims to solve all of the following:

1. For sellers to effectively scale e-commerce operations, they have to be able to make best use of their logistics partners. We believe technology is critical for this. We have invested heavily on building omni-channel technology capabilities, our in-house fulfilment management system and transportation management system, routing algorithms, address verification and correction systems, fraud detection systems, non-delivery management and returns management systems, all of which can be integrated within a day with any seller ERP. Through us, sellers can schedule orders and pick-ups, provide specialised services like time-defined shipping or special packaging, choose fulfilment locations, identify optimal stocking and replenishment plans, schedule and manage customer returns – all from one single IT platform.

2.  We also realise that logistics costs are one of the largest drivers of profitability for online retailers and are continuously working on ways to identify lower cost ways of fulfilment. Our distributed fulfilment network (four locations across the country currently) coupled with our inventory management toolkit allows sellers to stock across the country and lower transportation costs while maintaining same-day/next-day service levels. In addition, our completely automated COD reconciliation and remittance process reduces working capital constraints on sellers – we have the capability today to return capital collected in as little as 24 hours to our sellers.

3. In terms of visibility, our fulfilment and transportation management systems are completely real-time and provide both sellers and their customers real-time views of their orders. Today, using our omni-channel solution, a seller could use our fulfilment services across a network of hundreds of stores and fulfilment centres across the country and have a unified view of his/her inventory and order fulfilment. In addition, customers can walk into any store or shop on the seller’s website or mobile platform and access inventory anywhere in the country, irrespective of its presence in the specific store or fulfilment center nearest to them.

What is the modus operandi of Delhivery?

Parcel delivery for e-commerce is a nascent segment within the logistics industry and there is no clear specialised player. We are fundamentally different from the larger incumbent players who have all evolved models designed fundamentally for different verticals or industries. Our technology and operational processes are designed for a consumer-driven rapid parcel-delivery and offline payments model. For instance, we focus heavily on payments management, returns management, real-time tracking from a purely express shipping perspective. In a larger sense, we do not view ourselves merely as an express shipping company. We are an e-commerce fulfilment company, which means we get involved with all the processes of a seller from the point of customer check-out on a store-front.

We operate multiple commercial models with clients and design our pricing according to their requirements. Our fulfilment and express shipping services are provided to merchants on a per-shipment pricing basis. This allows merchants of all sizes to work with us without worrying about upfront investments or minimum guarantees. As of now, we do not charge for some of the technology services that we provide as these are critical enablers to our operations. Fundamentally, this makes us a complete e-commerce ecosystem enabler rather than a pure play.

Online stores ship a good proportion of their products to small cities where consumers don’t have brick-and-mortar stores selling those goods. What is the importance of logistics in this scenario?

Logistics is crucial to online retail irrespective of location. It is only the initial interaction that a customer has with a website that is a “virtual” experience. Beyond this, the customer experience is driven entirely by the strength of the seller’s supply chain. We help sellers procure faster, stock optimally and ship to any city in the country where we operate with express timelines, at the lowest costs. In addition, we provide their customers real-time tracking facilities to ensure complete visibility of an order flow, immediately post check-out on the website. We are also able to provide fulfilment through various modes apart from direct express delivery, such as in-store pick-ups or scheduled/time-defined deliveries for working couples, individuals, etc. Our model is completely flexible and designed to suit all kinds of consumer needs – whether in smaller cities or larger ones. Effectively what we are trying to do is providing a consistent online buying experience, whether you buy in Delhi or Tirupur.

Various online services are helping e-commerce entrepreneurs in tackling the logistics of starting a venture. How and where do you fit in the bill?

Most of these businesses help sellers get online quickly through front-end and order management solutions, which pertain to the “virtual” part of the online retail purchasing cycle. We partner with the likes of Shopify to ensure that all merchants going online using a Shopify front-end can immediately use Delhivery’s fulfilment and logistics services through a set of simple plugins. Our commerce technology toolkit covers a broader range of sellers’ requirements – from store-front development or store-front integration to complete order management including payments integration, catalogue management, fraud detection and sophisticated channel and consumer analytics. In effect we provide even the smallest sellers the kind of technology that much larger e-retailers would have at a fraction of the costs, and not just the sales front-end.

Setting up the system for online retailing – supply chain, logistics and payments, electronic as well as cash – can be outsourced to different companies by an e-commerce company. Do you think bringing in the third party player is healthy for the business viablility of an e-commerce firm?

The fundamental role of online retailers, especially in market-place models, is to acquire merchants and deepen the supply base of the industry, and simultaneously to act as demand engines for these products. Building a successful supply and demand engine is an extremely difficult task in itself. Outside of this, it is wise for online retailers to partner with high-quality, specialised third party service providers for logistics and payments, for instance. The specific role and mode of engagement with the third party is obviously dependent on the e-commerce client’s specific requirements and business model.

Today, Amazon’s FBA service is effectively a third party supply logistics and payments service for sellers of all sizes; eBay enterprise is a similar model that many of the US’s largest retailers have taken advantage of to build their online channel. A large third party partner can ensure a cost-effective way for e-commerce clients to scale while ensuring a quality of service which ensures that the efforts of the e-commerce company at market building are strengthened.

Some of the market places have their own fulfilment services. Does that affect your business?

Not at all. Our value proposition lies in providing a market-place neutral platform to sellers where they can sell across multiple market-places/channels and use a common fulfilment and logistics engine. By virtue of being a truly third-party player (instead of a captive fulfilment business), we are a broader, more efficient and even a more cost-effective solution to sellers.

Tell us about your clientele.

In two and a half years, we have grown from handling about 300 shipments per day to handling 35,000 shipments a day across over 90 cities. We service over 5,000 vendors and 200 e-commerce companies across the country through our technology, fulfilment and drop shipping services. This includes all of India’s largest online and offline retailers as well as niche players or those who have just started up. In terms of growth, we expect to double in size within the next three to six months in terms of fulfilment and shipment volumes, as well as sellers serviced.

What all services you give to e-commerce players?

Our operational capabilities are designed to meet the needs of any business looking to go online. We provide sellers a modular suite of e-commerce technologies coupled with pan-India logistics operations, helping them achieve fast, reliable and flexible customer fulfilment.

Our proprietary commerce technology toolkit provides sellers a way to develop and manage their entire online channel – including setting up a web-store and order management system, catalogue management, studio services, integration with marketplaces, managing payments, SEO/SEM, selling on social media platforms, user verification, fraud detection and inventory management. All our IT is built in-house and is completely customized to the unique needs of each of our clients.

We also own and operate over 80,000 sq.ft. of fulfilment space across four cities with a dedicated call centre, along with an in-house express shipping network across over 90 cities with more than 100 distribution stations. By March 2014, we will have over 2,50,000 sq.ft. of fulfilment space across 10 cities with express shipping in over 125 cities and dedicated/owned line haul to further boost our express capabilities. Our fulfilment and logistics solutions can be provided on a stand-alone basis or bundled together as part of a larger engagement.

Any new service you are planning to include in the near future?

We will be expanding our fulfilment and express logistics capabilities significantly in the next two years. Broadly put, we are looking at a network of at least 15-20 mega-fulfilment centres and express logistics services in over 200 cities with self-owned line haul as well. This is a significant jump from our current network of four fulfilment centres and express logistics operations in 60 odd cities. We will also continue to invest in technology. We build all our technology in-house including our fulfilment management systems and transportation management systems. We are launching a full suite of seller services focussed on store front technology, channel integration, SEO/SEA, catalogue management, social media selling, studio services and consumer and inventory analytics. In addition, we are launching a number of fulfilment and shipping products such as priority fulfilment/prime fulfilment, bulk shipping and returns collection and processing as well.

Do you have any plan to start your own e-commerce venture?

We don’t have any such plans. We are an e-commerce ecosystem business and we are the only company in India building a technology and logistics platform to enable sellers to create and make the most of their online channel. This is a huge challenge in itself that we are completely focussed on.

How cost intensive is e-commerce business and how long it takes to break-even?

Creating an online business from scratch like an Amazon or an eBay is a very investment-heavy proposition. It takes several years of spending to acquire both merchants and customers and can take 7-10 years to break-even.

E-commerce logistics is an investment-heavy business as well. Growing in this market is a challenge as it requires investment in building the base network and technology required to service e-commerce clients. For instance, we have invested heavily in building semi-automated fulfilment centres, processing centres and hubs, as well as in building our entire order management, fulfilment management and transportation management systems in-house. However, the break-even is faster than setting up an e-commerce company. We broke even at an operational level in FY2014 and expect to break-even at a net level in FY2015, or within three years of starting the company.

Which products are a hit and which are a complete miss in terms of online retailing?

The largest categories in e-commerce today are electronics and apparel. This is reflective of global trends as well. The encouraging thing about the Indian market is the breadth of products that people are already purchasing online – from consumer electronics such as mobiles and laptops to household appliances like televisions to apparel and personal care. Even niche segments like baby products and pet care are also picking up.

What message would you like to give to budding e-commerce players?

Think smart and scale fast. Learn how to use third party services to your advantage instead of attempting to build everything in-house. The fastest way for e-commerce players is to focus on customer acquisition and creating a compelling product proposition to consumers. Investing in logistics or logistics technology right from the start is rarely the right answer.

Always look at the numbers.Track costs carefully. Understand where your margins are in great detail and plan accordingly. For instance, running discount campaigns on baby products may not be an intelligent idea if it brings scale but no profitability. Learn how to understand all the hidden costs of logistics especially – several players quote extremely low base rates but add on a number of other charges. Ask for custom designed pricing.

Invest in technology. Integrate tightly with LSPs to provide your customers a seamless view into their orders. Never work with players who “get the job done” but provide no flexibility or visibility.

What is your vision of the future of e-commerce industry in India?

We believe that e-commerce has a solid consumer value proposition in India. Our vision for e-commerce is for every retailer of any size to create an online channel – be it a neighbourhood store or a large e-commerce company or an established brand.

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