Supply chain network design, network optimization and business strategy for net distribution, Mumbai

Abstract

E-Commerce is one of the fastest growing industries in India which will have an expected CAGR of 57% over the next 3 years. Some of the very successful brands in this industry such as Flipkart, Amazon & JABONG are riding this wave and are expecting to make long term profits. Foreseeing a significant growth potential in this industry, Mr. Ajay Miglani founded Net Distribution Pvt. Ltd. (NDSL) in 2009 as an e-Commerce service provider to single brands. India’s internet user base currently stands at 137mn out of which 80% of online users are expected to shop online. The staggering growth in e-Commerce can be attributed to rising disposable incomes of middle class, shrinking idle time from the busy lives of such people due to work pressures and/or traffic, growing broadband penetration and lucrative discounts and offers from e-tailing websites. The significant amount of capital injected by the VCs in some of the e-tailing websites points to the fact that there is substantial growth potential in the near future. As of today, e-Commerce widely exists as B2C, B2B & C2C context. Our study on consumer behavior revealed that about 96% students shopped online and around 67% of them bought materials worth INR1000 per order. The reasons for buying online were availability of free delivery, time saving on commute and a wide variety of options available in an online store. One primary reason for not buying online was found to be the lack of reputation of a seller. Majority of the consumers preferred Cash-on-Delivery (COD) over other payment options and chose quality of packaging as a determinant for recurrent online shopping. NDSL is a small company with less than 25 people managing a host of e-Commerce services for a variety of clients. Their core expertise lies in Search Engine Optimization (SEO) and Content Management. They have outsourced rest of their services to various partners such as Aramex, BlueDart, TigerPug, Kankei and others. Currently they have about 18 clients from which they seek their retail margins which is the primary source of their revenue. Their mantra is to be an entity which can e-commercialize as many single brands as possible. This poses a risk of maintaining control over their partners when they expand their client-base. We see several key success factors which could potentially drive this industry’s future growth like solving payment issues, entering Tier2-3 markets, use of local language in the merchant websites and adding a personal touch to delivery. We see immense potential in NDSL provided it mitigates its risks and addresses its challenges by choosing the right customers and ensuring that end-consumer perceptions are molded to prefer brand over discounts through aggressive marketing strategies. As mentioned by the CEO himself, they do not expect to beat Flipkart or any other e-commerce website but to be an alternate sales channel for their clients. As a backend provider NDSL can’t enjoy the advantages of scale in marketing as Flipkart does but its separate marketing campaigns with the brands should hope to educate customers on the existence and reliability of their branded web-stores.