The whopping numbers and the facts about the success of the above-mentioned sales bamboozle us and make us believe that the E-Commerce is really doing good. Being in a Metro or even in Tier 1 or Tier 2 city we seem to relate to the success even much more. Is the business really so hot and happening? This industry has the most potential to outperform the other players in the segment. But it fails to do so at an alarming rate. The following image shows basic Supply Chain in three verticals:
From the raw materials to parts and products, everything needed to manufacture is procured, processed, converted to the final product and distributed (sold) to the customer. All other remaining functions and support functions would be a subset of this. The following model illustrates the flow in supply chain and is self-explanatory.
In a vast nation like India, Distribution is important and in Supply Chain among sectors, Distribution gives a competitive edge to the organizations. Around 20-40% spending on Channel Margins is prevalent among the Supply Chain Sectors. The Channel partners are CFA, Super Stockist, Stockist, Distributors and Retailers. Though each sector has its own complexity, the levels of distribution in the channel depend on the Sector. Direct distribution of products from the Manufacturer or Level 1 Distributor to the Customer is done by the E-commerce businesses as they chop off all the channel partners. Thus, E-Commerce has the capability of saving around 20-40% of the channel margins. Isn’t this is a ‘Golden Opportunity’?
Certain perils have crept into the system like- a) Going too much down the supply chain: They finally started to partner with small retail firms as they came down and down the supply chain due to unfocused expansion; this was an outcome of their leniency. Sourcing goods and materials from an Offline Retailer are the worst that can happen to the E-Commerce Industry because it actually defeats the actual opportunity of this Industry. b) No Accountability on Quality: Fake products always creep into the system and there looks no way possible to stop copyright design violations and trademark violations. Neither anyone ensures quality material in a drop ship model nor there is any way to find the defaulter for finding product damages. c) Retailers greed: The retailers are more profitable than the E-Commerce players as they make 100-300% margins on the whole portfolio products at the Cost of Quality. Indirectly the E-Commerce customers are funding these handsome margins.
It has been a long race to achieve more GMV, E-Commerce giants now should shift gears and start focussing on key issues and take up exciting hybrid Models like OMNI Channel, Drop Ship, Touch and E-Tail etc. E-Commerce is here to stay, and it’s on them to make it better.