A Case Study Supply Chain Model of Flipkart

A Case Study on

Supply Chain Model of Flipkart By

Manas Tiwari 2018A4PS0971H Under the supervision of Dr. Phaneendra Kiran Chaganti

Birla Institute of Technology and Science, Pilani Hyderabad Campus Course: Supply Chain Management (ME F421) 1

Contents Acknowledgement ............................................................................................. 3 Introduction ....................................................................................................... 4 History of the company .................................................................................. 4 About the E-commerce business in India ........................................................ 4 Supply Chain of Flipkart ..................................................................................... 6 Logistics .......................................................................................................... 6 Procurement ................................................................................................... 8 Warehouses .................................................................................................... 9 Inventory Management ................................................................................ 11 Supplier Management .................................................................................. 11 Conclusion ....................................................................................................... 13 References ............................................................................................................................................ 14

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Acknowledgement I express my deep sense of gratitude to Dr. Phaneendra Kumar Chaganti for encouraging me to work on this important project under his supervision and also for the guidance and input provided to me during the course of this project. This project provided me with a chance to apply all the learnings in the course in the systematic way. His teachings and constructive criticism have immensely contributed immensely to the evolution of my ideas in project.

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Introduction History of the company Flipkart is an Indian e-commerce company, headquartered in Bangalore, Karnataka, India, and incorporated in Singapore as a private limited company. The company was founded by Sachin Bansal and Binny Bansal, and initially started by selling books online but today has diversified into a generic e-commerce website, selling a variety of products ranging from electronics, books, grocery, healthcare products, home essentials, fashion and lifestyle products. The two major competitors of Flipkart currently are Amazon’s Indian Subsidiary and domestic rival Snapdeal. As of October 2020, the market share of Flipkart is 31.9%. Flipkart has a leading hand in the apparel segment, which was further given a boost by its acquisition of the e-commerce site Myntra. In the consumer electronics and mobile phones segment, it was on equal terms with Amazon. Flipkart was acquired by a U.S based retail chain, Walmart, with the acquirer holding a 81% stake in the company and valuing the company at $ 20 billion.

About the E-commerce business in India The e-commerce business in India has been bolstered in the recent times by the increase in the smartphone penetration and availability of internet at very cheap rates. Due to these reasons the Indian online business is expected to rise to US$ 200 billion by the year 2026. The major leaders in the e-commerce sector are Flipkart and Amazon India. Another factor that could be seen as a booster for the growth of e-commerce business into India could be the various government initiatives like Digital India, Start-up India, Make in India 4

and others that are being offered by the government. The Indian ecommerce sector is said to overtake the US sector by 2034. This boon of the e-commerce sector in India could be attributed to newer technological innovations such as hyper-local logistics, digital payments and analytics. The growth would also provide employment opportunities, increase tax collection and increase revenue from exports. The cheaper prices offered by the online retailers in India as compared to the traditional retailers is also the reason that so many customers are shifting from store-based retail stores to online retail. These e-commerce sites also usually offer high discounts during certain periods like festivals in order to attract more customer base. They also offer convenient and fraud proof method of payments such as online payment and cash-on-delivery respectively. On top of these facilities the online retail stores also offer facilities such as warranties for electronic goods and free delivery or fast delivery at minimal costs. This all reasons are contributors to a lot of customers shifting from traditional store-based retailers to online retailers. There are also a lot of challenges faced by these e-commerce companies to provide these facilities. The online retailers have to hold up inventory of many months in order to get competitive prices from the suppliers. In order to provide competitive delivery costs some of the burden of the delivery costs have to be paid out of the company’s pocket.

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Supply Chain of Flipkart The entire Flipkart structure is subdivided into the three main broad categories as shown below: Product and Technology

Business Development

Website Management ERP system

Vendor management Sales management Pricing strategies

Operations Procurement Warehouse Logistics Inventory Management Supplier Management

We are mainly interested in discussing the operations part of the three categories, as it is more relevant to our discussion of the supply chain of Flipkart. The product and technology division of Flipkart is responsible for the management of the website and the ERP system of the company. Every process starting from listing of an item on the website to the optimization of the search engine is managed by this division of the company. The business development team is responsible for managing the sales aspect of the company from vendor management, sales management to pricing and discount strategies. The operations division of the company can be further classified into the following categories and are discussed below.

Logistics The way Flipkart handles their logistics in their supply chain are discussed below: • Flipkart uses its own, in-house branch of logistics called e-kart. The services offered by E-kart include delivery logistics, reverse 6

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logistics, and cash on delivery. It also has various technological measures to help the customers such as order tracking, billing, report and analysis etc. E-kart manages up to 85% of the total products that were shipped by Flipkart, and the rest are managed by other thirdparty logistic companies. Flipkart uses the facilities of these other third-party companies like Blue Dart, First Flight etc, to deliver the products to areas where courier doesn’t reach. Last mile delivery, which is usually the costliest and time consuming because it involves multiple stops with low drop sizes and also the highest human interaction out of all the legs of delivery. With the help of E-kart the process of last mile delivery is made easier for Flipkart because it is able to track the shipments more easily, and is also able to guarantee customer satisfaction by fast delivery because it is also able to control the routes of delivery. Other advantages of having an in-house logistic branch is that the company is able to save commissions, that would otherwise have been charged by the third-party companies of up to 2%, hence making the process of delivery less costly. The current modes of transport used by E-kart are surface and air transport, whereas rail transport is not used. The mode and speed of delivery are usually based on the quality of service the customer desires. The local (warehouse and delivery location in the same city) and zonal deliveries (warehouse and delivery location in the same zone) surface mode of transport is used, whereas for national deliveries (warehouse and delivery location located in different zones) air transport maybe used. In cases where zonal delivery required has high volume both surface as well as air mode of transport maybe used.

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• Recently, during the Big Billion Days, the festive season offered by Flipkart during which the demand is heightened, E-kart partnered with as many as 27,000 kirana stores in the country in order to be more responsive. • Flipkart also follows a 30-day return policy for its products in order the customer is not satisfied. The costs of returning the package are borne by Flipkart. The Flipkart return rates are about 2.6%. The customer could either replace the product, ask for a cash-back or get store credit by the company if they aren’t satisfied.

Procurement • When the company was just started and it started to expand into multiple product types, they followed the consignment model for procurement. This model involves, that the retailer (Flipkart) holds the inventory which is actually owned by the supplier, and only buys the inventory when the product is bought by the customer. This model was adopted by the company during its infancy because it was relatively risk-free as the online retail business was new in India. The disadvantage with this was slower delivery times. • In 2013, the consignment model was abandoned by the company in favor of a newer model called the Marketplace model. In this model, Flipkart doesn’t have to maintain any of its own inventory, rather Flipkart only ensures the delivery of the product, and the buyers and the sellers interact among themselves. • There are two levels of sourcing conducted at Flipkart: Regional procurement and Central procurement. The regional procurement team handles local supplier network for made-tostock (certain demand, low demand elasticity products) and 8

just-in-time products (uncertain demand, high demand elasticity products). They have the data of the stocks at various Stock Keeping Units (SKU). The central procurement team has control and visibility over the data available by the regional procurement units and larger suppliers that can distribute their products all around the country.

Warehouses • The Flipkart warehouses are also called Flipkart fulfillment centers, and are responsible for providing storage and shipping to the sellers in the Marketplace model adopted by Flipkart. • There are around 15 fulfillment centers of Flipkart around the country and they all combine to have a total space of around 2.5 cubic million feet. There are other smaller fulfillment centers located at tier II and tier III cities all across India. • The warehouse management system of Flipkart can be basically divided into three main segments: inward processing, storage management and outward processing. • In the inward processing segment of the WMS, activities such as physical delivery of goods from suppliers, quality checks and scans for products that don’t fulfill the quality requirements of Flipkart and pre-packing of the products takes place. A record of all the products from the supplier is also maintained at this segment. • In the storage management stage of WMS, a list is generated of all the products and their corresponding shelves are generated so that these products can be put at their respective shelves. Then the systems are checked for pending orders for any of these products and if there is any pending order that product is directly sent to the final packing area. Now based on these lists 9

the products are physically stocked on the shelves at these warehouses. Finally, the list is updated. • In the outward processing segment of the WMS, a list for all the orders is generated and then the products are picked up from their respective shelves, sent to the final packaging area and then sent out for delivery. • Since the size and number of fulfillment centers is bound to increase in order to meet the increasing demands of the customers, the company has to ensure that the systems and processes that are currently used at these warehouses are scalable for a larger scale.

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Inventory Management • The continuous review model is applied by Flipkart to manage their inventory. As soon as the reorder point is reached the inventory is replenished by Flipkart. • The FIFO method is used by the company in order to restock their inventory. In this case whenever there is a request for restocking, the older inventory items are shipped first. • Some products in Flipkart’s inventory are kept in the warehouse whereas some products are ordered directly from the vendor. In order to determine which of the product would be ordered directly from vendor and which product will be kept in the warehouse, the company uses the Long Tail Concept, which involves selling a large number of unique items in small quantities. • For items that are unique but are sold in smaller quantities, the company doesn’t maintain inventory at the warehouse, rather these items are directly ordered from the vendor because demand for these types of products is not as much. This helps Flipkart to keep the inventory and overall distribution costs in check. Supplier Management • Flipkart usually starts on a small scale with its suppliers of products under newer category, as in the initial stages the demand is low. As the demand for these newer products begins to increase Flipkart, then shifts its supplier from small scale local suppliers and distributors to large scale wholesalers and manufacturers. 11

• Flipkart’s strategy of shifting to larger scale wholesalers and manufacturers as the demand for the product category increases benefits them in receiving large discounts on products, because due to high demand they can order in bulk. • Flipkart works with more than 500 suppliers. Due to the growth seen by Flipkart in the recent years the company has purchasing power over their suppliers. • Flipkart’s image can be hampered by late deliveries to their customer because Flipkart is targeting responsiveness over efficiency. Hence, in order to avoid this the company rates its suppliers based on their fill-rate performances. • Apart from the grading other factors that influence the company in choosing its suppliers are the price at which the supplier is willing to offer its products – larger discounts with better credit lines are preferred, the quality of the product supplied by the manufacturer, and the percentages of product from a particular supplier that are returned by the customer.

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Conclusion Flipkart is one of the major players in the E-commerce industry in India, along with its competitor Amazon. Flipkart follows a policy of customer satisfaction and hence focuses on improving its responsiveness as compared to its efficiency. Hence, the company takes several measures to ensure that the customers get the best experience at the least cost as quickly as possible. The supply chain of Flipkart is thereby modeled accordingly, to improve responsiveness. The company has its own in-house branch of logistics, has several fulfillment centers in different parts of the country, has adopted the marketplace model and has taken many other steps to ensure responsiveness. Prioritizing customer satisfaction over efficiency also leads to many extra costs that are incurred by the company, such as the price of delivery when the customer returns an order, at various points in the supply chain. In order for the company to keep progressing ahead and grow it may need to adopt its supply chain to take reduce these costs and at the same time ensuring that their supply chain is responsive to the evergrowing demand created in the Indian market.

Link to Video Presentation: https://drive.google.com/drive/folders/14FsixCJUPcV-9r7Ta35HvZMdVX1-I6t?usp=sharing

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References https://exotel.com/case-studies/logistics/how-flipkart-connects-customers-and-delivery-agents/ https://www.livemint.com/companies/news/flipkart-onboards-27-000-kirana-shops-to-strengthenlast-mile-delivery-1568026845806.html https://www.businessinsider.com/last-mile-delivery-shipping-explained?IR=T https://inc42.com/buzz/flipkart-shifts-to-the-amazons-marketplace-model/ https://indianonlineseller.com/2015/09/flipkart-expands-fulfillment-capacity-opens-newwarehouse-near-chennai https://cmuscm.blogspot.com/2014/09/flipkarts-inventorymanagement.html#:~:text=Flipkart%20uses%20a%20Continuous%20review,method%20for%20its% 20inventory%20management.&text=Flipkart%20uses%20sales%20to%20predict%20the%20levels%2 0of%20inventory.

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