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Case Study: Pandemic gives hyperlocal model a new lease of life Supply Chain Management Case study solution
Case study source: https://tech.economictimes.indiatimes.com/news/internet/pandemic-gives-hyperlocal-model-a-new-lease-of-life/75072580
1. “Everyone is jumping onto it right now, but the underlying supply hasn’t changed. We’re staying away from it,” said Albinder Dhindsa, co-founder and CEO of grocery retailer, Grofers. What do you think are the complexities associated with hyperlocal grocery delivery business model? Discuss in detail.
2. “Pandemic gives hyperlocal model a new lease of life”. Do you think this boost in business will be short lived or will it create an everlasting impact on the hyperlocal ecommerce business scenario?
3. Compare Bigbasket and Grofers supply chain capabilities. Which do you think is superior in meeting market requirements and is more sustainable? Justify your answer with suitable reasoning.
4. COVID-19 is a black swan event but supply chain disruptions around the world are a common phenomenon. Produce a detailed discussion on how businesses can prepare themselves to minimize the impact of future supply chain disruptions. Compare the advantages and disadvantages of local vs global sourcing.
1.“Everyone is jumping onto it right now, but the underlying supply hasn’t changed. We’re staying away from it,” said Albinder Dhindsa, co-founder and CEO of grocery retailer, Grofers. What do you think are the complexities associated with hyper local grocery delivery business model? Discuss in detail.
Hyper Local grocery
business in India is an active move by new generation entrepreneurs for Indian
market where all types of retail business including grocery is unorganized and
unstructured and there is a huge potential of growth into it. There is a growth
of 80 % in startups of hyper local delivery business since 2014 in India1.
More than twenty such start ups came into existence during 2018-19 but many of
them have shut down their business with eight to ten months of operations due
to under weighing complexities associated with this business model and to it2.
The major complexities and challenges related to hyper local grocery business
includes3-
Partnering with local retailers as suppliers
Convincing local retailers to become supplier is very difficult to attain
as most of retail outlets care for life time value of customers and repeat
purchase that takes place due to good conduct with customers, selling goods on
credit, socializing with them and treating customers as friends and relatives
benefits of which is ripped over a period of time which is lagging in hyper
local delivery business. Most of famous grocery stores are not present due to
absence of peculiar showcasing of such stores on these apps. Many retailers are
uneducated and technophobic which also creates complexities in conduct of
business4. This has led to set up of own warehouse of grocery items
for many hyper local grocery delivery company insisting them to invest huge
chunk of money in inventory of grocery items.
Local merchants are not
well organized and structured. Most of them do not follow any inventory
management system. Keeping a record of inventory without knowing availability
of such inventory with partner merchants puts the company on risk of
mismanagement of inventory and making a particular inventory available and
delivering it on a particular location for customers within a specified time
frame becomes difficult in real time scenario4. Setting up own
warehouse and inventory puts extra cost of handling such inventories to the
company narrowing down profit margins.
Delivering groceries
with in promised time frame is the major focus of hyper local business but due
to poor infrastructure such as heavy traffic on roads and delay in searching
address of delivery makes last mile delivery delay making customers unsatisfied
with service of company leading to switching of customers either to other such
app or mostly local grocers as most of local grocers are availing free delivery
of grocery directly to customers where delivery time is very less and urgent
delivery facility is also provided by such local grocers5.
Issues faced by delivery persons
Due to unavailability
of all products ordered by customers in a single partner store, these delivery
executives have to move from one store to other store to collect inventory and
reaching to customers within same stipulated time period of delivery seems
impractical and creates chaos in case they have to collect goods from store
which is quite far from other store and customer delivery address is also in
different direction5.
Shortage of skilled
delivery executives and absence of large fleet to manage delivery system
efficiently may ruin success of this business model. Even if they are present,
they are very irregular and unreliable posing threat to efficiently manage
delivery service on time.
Quality
issues related to Perishable & Non branded items
Perishable nature
products if not reached to customers in fresh conditions and non branded
products if not up to the mark of customers will lead to return of such
products thus increasing operational cost of company and moving of customers
away from the company to other such business apps.
Issues related to return and refund of products
In case customers
return goods, many partner stores are not willing to take it on return and
refund money creating an issue to company to keep them convincing that this is
policy of company to take goods on return and refund money in case buyer
returns the product. Due to it, many partners do not hesitate to even break
contract of collaboration.
Irregular
surge or decline in orders
Many times company
suddenly gets sure or decline in orders creating problems in managing
operational efficiency during such period and such time they need to adjust
delivery boys, fleets and other operational capabilities to meet such
requirement which creates problem for the company6.
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2. “Pandemic gives hyper local model a new lease of life”. Do you think this boost in business will be short lived or will it create an everlasting impact on the hyper local ecommerce business scenario?
Covid 19 outbreak has changed the mindset of buyer and seller and
popularity of hyper local business model has been witnessed during this
pandemic. In initial period of lockdown, hyper local deliver companies have
seen three to five times surge in demand of hyper local delivery than pre covid
(Praharsh
Chandra, co-Founder and COO, Shadowfax). Companies like Grofers, Big basket and Amazon Fresh have seen a surge
of approximately 45 % in its orders during lockdown and 18 % in its order value.
Flipkart has launched its own hyper delivery service called Flipkart quick and
Paytm Mall is in process of partnering with 1000 local merchants to cater needs
of hyper local service. Swiggy too in the race has opened Instamart with 2500
products in August 2020.7
This pandemic has paved a new way of convergence of offline and online
in a fast and positive fashion which was taking placing since last few years.
This boost in business will create long lasting impact on Hyper local E Commerce business and
facilitate not only survival but tremendous scope and opportunities in terms of
huge revenue potential, growth and success in long run once pandemic will be
over. Entry of big giants such as Flipkart, Amazon, Paytm, Swiggy and others
assures huge potential of success of this model in future.
In a report of EY – Sentiments of
India; 40 % local stores are willing to partner with hyper local delivery
business to assist them in their growth post Covid. 20 % of retail outlets in
metro as well as non metro cities are using online mechanism for supply and
delivery of goods. Consumers will be moving to be dependent on hyper local
deliveries as it will help them to avoid long queues and will assist them to
have convenience of shopping daily based goods requirement online. As a
precaution of safety measures, customers will prefer to buy online instead of
roaming in crowded areas where chance of spread of this virus is very high.
Adoption of
technologies by both consumers and local retailers in near future, seamless
coverage of geographical locations all around country, convenience and
comfortability of exchange process sitting at home, strong warehouse presence
in all localities, simple and fast transportation facility, presence of
efficient and experienced delivery partners (local retailers can become delivery
partner), and presence of 700 million internet users in India which will grow
in future are key crucial factors that will help companies to survive, grow and
generate profit for them in future using this business model.( Shadowfax’s
Chandra).
This business model has helped local retailers to meet demands of customers in a period of surge and panic and deliver essential and non essential stuffs to their customers with ease and convenience. Adequate predictive logistics management platform, real time visibility of stocks and delivery process, specific and fast routing to speed up delivery will help to effectively and efficiently manage growth of hyper local business.
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3. Compare Bigbasket and Grofers supply chain capabilities. Which do you think is superior in meeting market requirements and is more sustainable? Justify your answer with suitable reasoning.
With its operations in
more than 25 cities and 5000 plus products on its platform, Big Basket
currently follows an inventory based model in which it buy goods in bulk
directly from manufacturers of products
such as P&G, Unilever, Patanjali, farmers, mills etc, thus getting a huge
discount on its purchase. Company has also its own private brands of products
from where it generates most of its revenue such as Fresho, Royal Organic, Chef Gourmet. It also distributes its private label products among 3000 Kirana
stores. It buys unbranded products and puts its label and avail it for sales on
its platform. The company keeps an inventory of 10 days in stock as against
industry policy of one month. For perishable products, it follows JIT system.
Keeping fewer inventories and wastage of perishable products to 5 % (which fits
to global standard) help company to save cost up to 3 % which is much fruitful
to survive and increase profit in such a low margin business and attains a
competitive advantage against its competitors.10 The company has
partnered with more than 1800 retail outlets to deliver products on time. The
company is currently following delivery of goods within four hours to its
customers.11 In order to manage delivery without delay, it has
revamped its warehouse operation and invested almost three times more than its
earlier investment in warehousing. All products bought in bulk are
brought to major ware warehouses located in major cities of country and then
supplied to small warehouse centers from where goods are packed and dispatched
to customers as per the orders received on Big basket platform. For perishable
products, products are picked from delivery agents from farms or partners’
location directly and brought to nearest collection centers. The company
currently has 25 collection centers for organic (seven) and perishable
products.12 it manages its own fleets for collection and delivery of
goods which gives an added advantage of delivery goods on time. The whole
system of supply chain from order taking to delivery, collection of products
from vendors, distribution, payment and processing of returns are well equipped
with artificial intelligence and machine learning models which also helps in
adequately forecasting demand of products within a city.
Supply
chain model of big basket (Image 1)
Old and New Supply Chain model of Grofers (Image 2)
Looking into supply chain capabilities of Grofers and Big basket; Big basket uses artificial
intelligence to estimate demand and supply of products with in a city to
procure and manage inventory in warehouses, thus reducing risk of stock outs or
surplus of inventory. Products are first procured from manufacturers, farm houses
and local merchants (perishable products), stored in warehouse, segregated to
different small warehouse from where products are packed ande delivered to
customers within four hours of placement of order. Earlier, Grofers followed
hyper local delivery model where after getting order, it collects products from
partner shops and then deliver it customers. But now it moved to mixed model (inventory
based plus hyper local delivery) where it has launched its own products under
its brand name and parallely procures inventory from its vendors, stores in its
warehouse, packs order in warehouse and then delivery boy picks it up for
delivery to customers’ location using Geo location software. By purchasing
goods directly from producers and farmers, big basket saves huge chunk of money
on its purchase, thus passing a small part of this benefit to its customers.
Grofers has tied with local merchants to procure products rather buying it
directly from producers and farmers. However, company is targeting to sell 100
% private label products by 2025 in which it will buy products from producers
and put its own brand in market where pricing is 20 to 30 % lower than national
brand and offering benefits of such pricing to its customers directly. Big
basket too has its private label brands which it offers to its customers
through its platform and selling it to more than 2000 local grocery stores
directly.
Big basket appears to
be more capable in supply chain management process than Grofers as company is
one step ahead in strategy formulation and implementation of management of
inventory, demand and supply estimation of products, delivery process,
visibility of products on its app, fleet and delivery management process and
tackling customers’ issues. With technological upgradation and sound
implementation of AI and learning models, company is in a position to adopt JITsystem for perishable products thus minimizing wastage on perishable products
to an extent of 5 % and maintain inventory of 10 days thus saving cost on
inventory storage and quality control and reducing wastage to an extent of 3 %.
Grofers’ supply chain model is still evolving and they are taking necessary
steps to make it most efficient to match market standards and save cost on
inventory management, delivery process and warehouse management to reduce cost
and increase savings for company.
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4. COVID-19 is a black swan event but supply chain disruptions around the world are a common phenomenon. Produce a detailed discussion on how businesses can prepare themselves to minimize the impact of future supply chain disruptions. Compare the advantages and disadvantages of local vs global sourcing.
In order to minimize
impact of future supply chain disruption keeping in view the current pandemic
and past disruption instances, companies can adopt following steps and
strategies to develop resilient supply chain-
Company must focus on
assessing supply chain risks and identify key focus areas to be worked upon
such as change in demand and inventory level to locate and deploy necessary
changes in supply gaps, warehousing, transportation and production and align
with key performance indicators to reprioritize strategies and plans so as to
efficiently eliminate risks surrounding supply chain. Mapping of supply chain
from network from end customers to suppliers and development of a sound method
to measure risk in each process of supply chain is essential to counter
disruptions in future.17
Companies must adopt
sound technologies and automated manufacturing process and capabilities to
standardize routine work, reduce dependency on labours in case of emergencies
and maintain relevant database of supply chain capabilities to make decisions
at any point of time. Adoption of digital procurement tool backed up with
priority categorization across supply chain variables and implementation of
social network for suppliers will help companies to empower collaboration with
suppliers and increase sourcing capabilities in tough times.17
Companies must develop
a contingency plan to be put into picture to be implemented in case of supply
chain disruptions and set aside an emergency budget to be used to face
challenges caused due to such disruptions. It must also maintain sufficient
amount of inventory to let company going in case supply chain system has been
temporarily interrupted. A regular audit of supply chain process is must to
identify potential weak areas that can negatively impact supply chain and
search for alternatives to strengthen supply networks and make it resilient
against disruptions in future.18
Companies must also
search for alternate suppliers, production process and transportation system in
different geographical locations so as to use them as and when required in case
current system fails and keep its supply chain functioning. It is better to
adopt different / diversified suppliers in different geographical locations in
order to get supply of raw material or goods from one or other in case of
disruption and keep on working in situations like Covid 19.18
Partnering with logistics experts so as to get
assistance to alter routes and supply chain mechanism in case of disruptions
can help companies to safeguard its business suffering losses during disruption
and counter problems encountered during disruptions. It is good to make use of
artificial intelligence mapping tools to examine potential threats in supply
chain and getting AI based solutions to avoid disruptions in emergencies.18
Comparison
of Pros and Cons of Local sourcing and Global sourcing
Lead time of delivery
of goods is usually shorter in local sourcing than global sourcing thus saving
time as well as money of company stuck in inventory stuck in transit if opted
global sourcing.19
Customers prefer to buy
goods in case goods are manufactured locally thus favoring local sourcing a
better proposition over global sourcing.19
Local sourcing helps in
making strong and healthy relationship with local suppliers which can help companies
in case of emergencies. However in global sourcing due to language barriers,
cultural differences and physical distance it is difficult to create
straightforward strong and healthy relations with them.20
It is easy to supervise
quality of products at the manufacturing of goods while dealing with local
suppliers as compared to global suppliers. Due to availability of suppliers in
vicinity companies can easily approach to production center and inspect quality
of products and make necessary changes with little efforts which is difficult
to take place while opting global suppliers.20
Communicating with
local suppliers is always easy as there is no hindrance of language and
cultural barrier. Travelling to suppliers’ location is less costly and time
saving as compared to physically visiting global suppliers and interacting with
them as one needs to deploy procurement officer who can speak in their language
which is a costly affair. 21
Risk of political
instability is prevalent in global sourcing which can disrupt entire supply of
goods and companies can suffer huge financial loss which is not in case of
local sourcing.21
Cost of shipping, taxes and tariffs and exchange rate risk
Cost of shipping from
other country is generally higher than local shipping cost. Shipping goods from
aircrafts are even costlier affair and add extra burden to purchasing
companies. Change in import and export tariffs, change in exchange rate of
currencies of two countries and other taxes on goods further raise cost of
goods favoring local sourcing a better alternative.22
Resources which are
scarce in a particular nation and available in plenty in other nation, sourcing
of such goods from international market rather than depending on domestic
market will be wise and profitable for companies.23
Production capacity, efficiency and quality of products
Many suppliers outside
the ambit of local have huge production capacity and rest upon advanced
technological manufacturing systems thus maintaining and availing global
standard of quality at cheaper cost due to attainment of economies of scale in
production than local suppliers. Local suppliers in most cases work with
limited production capacity and limited technological capabilities thus unable
to maintain quality of goods as per global standard and compete with them
either in quality or pricing. In such case global sourcing is better bet.23
Innovation and R &
D for future products
Global suppliers continuously focus on innovation and invest huge chunk of money in development of future products which is not valued by local suppliers due to inefficient capability and fund limitations. Global suppliers keep on upgrading quality of products and bringing new innovative products thus imposing a huge influence on companies to partner with international suppliers rather than tie up with local suppliers.24
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References
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(2020). Retrieved From
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Big Basket)
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radhika Nair (2017) As Flipkart and Amazon join the search for the elusive
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Anurag Jain (2020). How Grofers Work?
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Grofers to invest $15 million in
private labels as demand grows retrieved from https://www.livemint.com/industry/retail/grofers-to-invest-15-million-in-private-labels-as-demand-grows-11587390770481.html
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EY Global (2020). COVID-19: how to build supply chains resilient to disruption
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Susan Meyer (2020). Combatting Ecommerce Supply Chain Disruptions and Steps You
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24. Bir Cevap Yazın. Global or Local Sourcing
retrieved from http://blog.lccsupplier s.com/global-or-local-sourcing/
Image
1 Source:
Http://Ijariie.Com/Adminuploadpdf/Online_Grocery_Retail_Business_Model__Supply_Chain_Strategies_And_Growth_Drivers_For_Online_Groceries__Catering_To_Big__Basket__Ijariie10837.Pdf
Image
2 Source: https://oyelabs.com/grofers-business-and-revenue-models/
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