2014

Logistics & Supply Chain Management (SCM): Amazon vs Flipkart

Group-7
EBEC
9/27/2014

Abstract:

Innovation brings with itself a new set of challenges. The E-Retailing form of market was fairly
something unheard few years back. Flipkart & amazon which have carved a niche for them self
in terms of market share, goodwill and popularity in the online market to the extent that
retailers are coming under threat because of their discounts and smooth operations.

This paper talks about the supply chain management of Amazon and Flipkart and how they are
different from each other in terms of operations , business model and strategies they came up
to compete in e-retailing market. It aims to understand the functioning of Flipkart and Amazon
and their

methods of operations, distribution, warehousing and delivery systems. The

strategies implemented by it to create online business, its ability to stand out among numerous
E-Retailsites

Amazon
Introduction:
Amazon is an American international e-commerce company with headquarters in Seattle,
Washington, US. Amazon started as an online bookstore, but son it diversified as selling DVDs,
VHSs, CDs, Videos and MP3, software, Video games, electronics, apparels, furniture, toys and
jewelry.It operates 7 websites that support their business operation globally and offers 20
million items for sale. The company also produces consumer electronics- notably the amazon
kindle e-book reader and the Kindle Fire tablet computer. Amazon is considered the fourth
most successful startup company of all time by market capitalization, revenue, growth and
cultural impact.

Jeff Bezos incorporated the company (as Caldara) on July 5, 1994 and the site went online as
Amazon.com in 1995. Bezos changed the name cadabra.com to amazon.com because it
sounded too much like cadaver. Additionally, a name beginning with "A" was preferential due
to the probability it would occur at the top of any list that was alphabetized.

Amazon has separate retail websites for United States, United Kingdom, France, Canada,
Germany, Italy, Spain, Australia, Brazil, Japan, and China, India and Mexico, with sites for Sri
Lanka and other South East Asian countries comingsoon.

Business model:

Mission: To be worlds largest customer centric company

(Amazon supply chain)

Three options considered:

Keep three locations using them as backup alternativeswhen the primary country
location cannot fulfill an order.

Selectively group inventory by categories at certain locations, reducing inventory costs.

Fully integrate all locations with a centrally managed European Distribution Network.

Wholesalers
Amazon.com (US Division) has choices for suppliers and only uses wholesalers as a backupin
Europe: Lack of wholesalers demands relationships with hundreds of publishers and
distributors Expensive direct contracts
Difficult and limited EDI penetration (Difficult to maintain low costs for customers)

Three Independent Distribution Centers

They have unified many of the operations of the subsidiaries, including marketing, and
customer service, and yet still keep three independent operations

Each country has access to different kinds of products

Repetitive Inventory at different locations.

Excellent postal services for local shipping but unreliable cross-border logistics Future
expansion will amplify these problems

Geographically centralized and reduced inventories: most effective for low volume, hard
to forecast books, least effective for high volume best seller
Outbound transportation cost and handling cost- increases
Intermediary (distributors) reduces margin
Longer response time than bookstore
24 hours access for order placement
Uses a hybrid approach in stocking and pricing:
a. high vol. books for local storage
b. low vol. books for browsing & purchase online
c. pricing varies by delivery & pickup

Amazon Technology:

It has worlds largest Linux Database, with a total capacity of 7.8 terabytes, 18.5 TB and
24.7 TB respectively.

The Central Amazon Data warehouse is made up of 28 Hewlett Packard server, with four
CPUs per node, running Oracle 9i database software.

The architecture handles millions of back-end operations and third party seller queries.

Five international stores of Amazon.com

Amazon Canada, Amazon-France, Amazon-UK, Amazon-Japan, Amazon-Germany.

Reasons:
The Mother-Tongue Issue
The Shipping Issue

The Currency Issue

The Local Product Issue
The National Pride Issue- Proper inventory control

Flipkart
Introduction:

Flipkart went live in 2007 with the objective of making books easily available to anyone who
had internet access. Today, they're present across various categories including movies, music,
games, mobiles, cameras, computers, healthcare and personal products, home appliances and
electronics, stationery, perfumes, toys, apparels, shoes and still counting Be it their pathbreaking services like Cash on Delivery, a 30-day replacement policy, EMI options, free shipping
- and of course the great prices that they offer, everything they do revolves around their
obsession with providing their customers a memorable online shopping experience. Then
there's their dedicated Flipkart delivery partners who work round the clock to personally make
sure the packages reach on time. So it's no surprise that they're a favorite online shopping
destination.

Flipkart is an e-commerce company. It operates exclusively in India, where it is headquartered

in Bangalore and Karnataka. It is registered in Singapore, and owned by a Singapore-based
holding company. Itwas established by Sachin Bansal and Binny Bansal in 2007. Now it is among
Indias largest online retailers with reported sales of Rs 60.8 billion for year 2013-14. Founded
by Sachin Bansal and Binny Bansal both are alumni of Indian Institute of Technology Delhi after
quieting their jobs in Amazon.com.

Initially Flipkart started with selling books online. Latter it diversified into a generic e-commerce
site, selling CDs/DVDs of music, movies, games and software, as well mobile phones and
electronics.

The role of logistics in the successful functioning of an e-commerce venture is essential. All
these innovative services will be ineffective if the products do not reach the consumer on time.

(User Interface)

Business model:
Here are some Best Practices of the Supply Chain of Flipkart:

(Product purchase & procurement)

Building the Suppliers base:

The Company has established a network of more than 500 distributors and only stocks
frequently ordered items. Items like the Long tail are almost always sourced from suppliers in
real time and as and when the customer places an order.

Building Infrastructure for Operations

The Company has 4 offices in 4 metros cities with more than 500 employees. Warehouses of
the company are located in 7 cities including the metros. Company has tie-ups with more than
15 courier companies like Blue Dart, First Flight etc. to deliver their products and Indian post for
areas where courier do not reach.

(Flipkart supply chain)

The Process of Supply Chain
The first step in buying the products like books online from the Filpkart.com site by making
payments using payments options like credit/debit card, cash-on-delivery, net banking,
cheque/DD and money order and enter the phone number and address where the items need
to be delivered.
Depending on items purchased they are packed and shipped accordingly for example mobile
phones and books are packed differently as per requirement and also all items have transit
insurance against theft and damages that may be caused while they are in transit. Flipkart bears
the cost of delivery and this make them give a reason/motivator for improving efficiency at
every point of supply chain. This also makes them differentiate from their competitors.
Now for delivering the items depending upon the area where the item need to be delivered
either courier, Indian post or own internal logistics arm is used. The delivery time varies
between less than 24 hours and 3 weeks depending on the location and availability of the

product like the products which are imported take 3 weeks-time to get delivered to the
customers.
The inter-city, trans-zone deliveries are made using air cargo. For satellite cities and others in
close proximity, products are transported overnight by train or truck.
For the local parts of the cities where the warehouses of the company exist products are
delivered using two-wheelers, bicycles, or on foot depending upon the proximity of the place
and because of this many of the deliveries are made within a day of the order being made. All
the Team Members have been trained to work efficiently to meet customer expectations.

Order Lifecycle

Attract users to the site - Family, Friends, SEO, SEM,WoM, Brand Building
Provide selection- Make it easy to Find & Discover products
Provide details to evaluate- a product Description, Specifications, UGC.
Price well- Have to be competitive to the most obvious options

Provide convenient payment options- Online, COD

Confirm payment
Get the item
Procure from Supplier (Just-in-time) (Supplier selection) Keep Inventory
(Inventory Prediction, Planning)
Pack the item- Tamper proof, weather proof, breakage proof
Select courierand hand over- performances vary across regions a LOT
Get tracking id and communicate to customer -Follow-up for timely delivery
Take care of returns (faulty product/user changes their mind) Minimize
returns

(Inventory Management)

(Payment Options)

(After sales service)

Comparison of Amazon and Flipkart Logistics & Supply Chain Management (SCM):
Both the retailers have advantages over each other, with Flipkart enjoying a much bigger
market share of Indian E-commerce and Amazon having better international presence and
more investment power. Amazon investment power was shown when it announced that it will
be investing 2 billion USD in Indian market to strengthen its operations. But our desiFlipkart is
not far behind, with its announcement of fund raiser equal to 1 billion USD which it will use to
diversify its product range and strengthen its operations and people.
With both the online tycoons investing equally on their infrastructure and product lines, the
edge will be gained by the one who also invests on its talent and people training.

Factors
Consumer base

Shipping

Value-added differentiation

Price control

Delivery

Sellers

Amazon
It ranks 13 on India Alexa.
Approx. 33.3 million visits per
month. On an average, a
person spends 6 minutes on
website.
Amazon Fulfilled service is
free with no minimum cart
value.
Same day delivery at Rs. 149
and 1 day delivery at Rs 99
also available.

Flipkart
It ranks 8 on India Alexa.
Approx. 69.3 million visits per
month. On an average, a
person spends 8 minutes on
website.
Minimum shopping value is
Rs200 for free shipping
through WS retail. Next day
delivery available at Rs 90.
Premium membership under
Flipkart first service also
available.
Amazon works hard to Whereas Flipkart has less
achieve
value
added strong than Amazon in value
differentiation
through added differentiation.
customer
focused
information services. Amazon
retains customer preferences
and provides automated
customization for the users.
It still manage to get a hold But with flipkartthey are still
on its price differentiation not getting it. Customers still
when compared to other find a wide gap in prices
physical or online stores.
between Flipkart and other
online stores.
Amazon innovated both on Flipkart
pioneered
and
the consumer side and the pushed Cash On Delivery
seller side. For consumers, (COD)
they launched next day
delivery for nearly 50% of
their usual demand (Flipkart
launched it 5 days later) and
also tied up with kirana
stores for delivery of
packages when the recipient
is not at home
For sellers, they have
Whereas flipkart takes a

Competition

Consumers behavior

eased the registration

process in 1 day and
are reportedly charging
less
commission
compared
to
the
competition. Further,
for sellers who do not
have the fulfilment
capability they are
experimenting with a
tie up with BPCLs
convenience stores in
petrol pumps so that
sellers can drop their
products there and
Amazon will pick it up
There are other players
coming up into the market,
so it is very tough for both
the players over price war.
(Example: Ebay, Snapdeal)

week.

Providing so many leverage

to the customers is making
the business worry for
Flipkart. Cash on delivery is
one of them. As it provides
cash on delivery, some
consumers
return
the
products and taking back
these products to the store
makes more chargeable to
the business so it sells these
products to other nearby
customers in a very less
price.
These
kind
of
situations
making
the
business risker.
According to the recent So for Flipkart it is very tough
statistics says that many time to retain its customers.
customers shifted to Amazon
from Flipkart because of the
same features and facilities
available at Amazon.

Economy

Although price is same some

segment of customers prefer
Flipkart. Its more beyond
trusting supply chain. These
customers want to spend to
grow the Indian economy.

Profitability

Some other players coming

up not for profitability.So
Amazon already has a major
market share so it can handle
this issue better than
Flipkart.
Amazon already know the
consumers very well as it
diversified into different
countries and targeted a
huge consumer base.
Amazon: Customer-Centric
Flipkart: Lead categories

Supply chain model

Some customers says that

they prefer Flipkart to keep
the Indian rupee inside the
country instead spending it
on dollars. So flipkart should
make more efficiency of its
supply chain to targeting
these segment and should
apply some innovative ideas
to make these customers
loyal.
Whereas for Flipkart, it has to
make the profit. Its business
model changed. For short
term it was not for
profitability. So for the
Flipkart its very challenging
to sustain its supply chain
model.

Recommendations

Adopt Centralized Operations Management

Implement European Distribution Network (EDN)

Centralize management office in the United Kingdom where most operations take
place.

Use strategic order fulfillment to minimize lead time

Use strategic inventory distribution to reduce cost

Create Cross-Docking enabled warehousesPreferably in Southern Europe where

Amazon faces higher demand Amazons Infrastructure is already established for
communication between the DCs Using the existing DC would be more cost efficient

Leverage some Amazon.com techniques

Drop shipping: May increase price but customer service level will remain high

Pick profiles: Multi item orders may need to be fulfilled by more than one location
Technology investments: virtually centralized inventory in a single system, EDI
internally and externally

Manage Shipping Costs

Continue free shipping for local products, extending the use of Postal Injection for
some high demand products

Full truck loads from DCs to major cities

Reduce postal service charges, maintain low shipping cost and offer free shipping
in some new places

FlipKart should take the following 10 steps:

Increase market reach

 Target the young. Connect with the young generation through a robust social media
presence
Enter the untapped market of tier II & iii cities
Enhance mCommerce capabilities
Build applications and/or website for mobile platform
Develop and include mobile payment as one of the payment options
Tie up with traditional retail stores to leverage their trust and collective reach in the market
Increase the switching cost for the buyers by offering them heavy discounts and exclusive
offers through online wallet facilities
Use predictive analytics to predict a products demand in the future. This is important as
Flipkart follows an inventory-based business model and they need to keep their inventory in
line with the future demand
Treat suppliers as partners but make only short term contracts, as the customer behavior
towards a product can be very transitory
Acquire small players operating in niche areas
Price high value products more competitively to encourage its purchase, which would
increase the average transaction value
Educate people to make a safe online payment. Tie up with banks to simplify the payment
procedures and make them more trustworthy
Do away with 35% dependence on courier services and build an independent logistic/ delivery
network as it is one of Flipkarts competitive advantages