The Edge Factor - Oct 2015

Written by CGN Team | Oct 15, 2015 12:10:00 PM

“Dramatic increase in smartphone users has led to spurt in online platforms. The new age of doing business through technology will transform consumer habits as well as way the suppliers work. Online channels are what companies are now looking out to serve their customers better and faster. This month we focus on service quality in an online platform and also draw a comparison between ecommerce supplier and traditional manufacturing supplier.”

(Contributions by: Rahul Ravi, Charvi Mittal, Mayank Kumar, Sahil Kapoor, Neha Uttam)

Recently, on the launch of Mahindra’s new SUV, Anand Mahindra expressed his concerns over “The age of access”. The convenience of radio taxis has questioned the need to own a car. This consumer shift from ownership to access is driving the growth of what is called the “on-demand economy”. With increasing business travel, people prefer ‘access’ to a gym over ‘monthly subscription’.

The trend of consumer instant gratification has created an atmosphere wherein, the customer is more demanding in terms of ‘When I want’ and ‘How I want’. “On-demand economy” breaks the monopoly of regional businesses, a shift from B2C engagement to “people to people” digital engagement. The ‘uber-ification’ of transportation facilities has made the stagnant ‘local taxi stand’ business a thing of past with more real-time and agile options. Low investments create low barriers of entry in this business model. Customers have a plethora of on-demand services to choose from. Hence, the key differentiator for on-demand businesses in such a scenario is the quality of service. How can ‘on-demand businesses’ provide quality assurance to its customers in order to enhance repeat customers?

A Click & A touch away!

India will exceed 200 million smartphone users, topping the US as the world’s second largest smartphone market by 2016. With increasing smartphone users, the shift is from everything at ‘a click away’ to everything at ‘a touch away’. Shorter service time has become a pre-requisite. These days, the customer is not satisfied with the response ‘Your ride is on its way’. The customer wants to see real-time where exactly the vehicle is.

Repeatability

Absence of mandatory membership and a strong word of mouth reinforces the importance of ‘quality assurance each time’. Few grams of rotten tomatoes delivered to a homemaker can make or break emerging companies like Big Basket and Grofers.

Further, quality and training of customer touch point is a very critical. It is a big challenge as the people delivering services are not employees of the company and hence do not cater to the employee code of conduct in its true sense.

Also, bypassing the digital ‘middle man’ led to the failure of homejoy.com (a SF based online platform for house cleaning). Homejoy.com was charging a fee of 25% on every transaction between the customer and the contractor. However, as the customer-contractor relationship grew stronger, there were leakages in the system, with both the parties bypassing the website route and interacting directly.

The underlying factors of success of ‘on-demand economy’ are varied and unexplored. With commoditization of ‘fast delivery’, companies need to have a value proposition beyond price. A quality service that is reliable, value for money, and consistent is essential. An End-to-End process check on service quality needs to be implemented. A business model enriched with principles of six sigma will ensure stable business and excellent customer satisfaction. Gaps in customer expectation, management perception, service specification, and service delivery are the key areas to work upon. Tools to measure and manage total service quality management, a 360 comprehensive process design analysis is needed to achieve a win-win situation.

REFERENCES:

Satish John (2015, September 12). Anand Mahindra is right when he says taxi apps like Uber will worry auto sector. The economic times. Retrieved from http://auto.economictimes.indiatimes.com/news/passenger-vehicle/cars/ana...

Sam Madden (2015, July 31). What the HomeJoy Failure Tells Us about the Future of the On-Demand Economy. Entrepreneur.com.
http://www.entrepreneur.com/article/248896

India in Business, Ministry of External Affairs, Govt. Of India. ‘India to overtake US in smartphones by 2016’.
http://indiainbusiness.nic.in/newdesign/index.php?param=newsdetail/10367

Challenges of suppliers of E-commerce vis-à-vis suppliers of Traditional Manufacturing companies

Less than 2% of Indian consumers own credit cards and 90% of all retail transactions are conducted in cash. As per one estimate 45% of all cash on delivery orders are rejected at the point of delivery by the customer. There has been a lot of research on the pain points, demographics, demands, etc. of online buyers in e-commerce. But the supplier side has been a bit neglected. On the other hand, numerous studies have focused on the challenges faced by the suppliers operating in manufacturing sectors. Are the challenges of the suppliers in these two sectors different? Can one industry adopt the best practices of other and gain efficiency?

Ecommerce Suppliers vis-à-vis Manufacturing Suppliers

People think that the only pain area for an online supplier is delivery time. That’s not true. Delivery is the most visible portion. Major challenges for an online supplier include:

Capital for inventory: E-commerce business is skewed one with the burden of inventory on the vendor. Once the business starts getting traction vendors face cash crunch for buying inventory. Traditionally, OEMs have helped manufacturing vendors via lending capital intensive dies, tools etc. and providing soft loans. Following similar approach, e-commerce players are engaging in tie-ups with financial institutions e. g. Snapdeal with Indiainfoline.
Returns Management: Cash on delivery (COD) has been a game changer for e-commerce industry in India, where credit card penetration is around 2%. But the model comes with challenge of handling returns as around 45% of all COD orders are returned. Though reverse logistics support is provided by the e-tailers but both ways logistics charges, commissions and taxes are sunk costs for vendors. The returned products are generally disposed at a fraction of original cost. Returns of shipments in manufacturing are in lots and thus returns management is not as big a challenge.
Knowledge transfer: In manufacturing a lot of technical knowledge and skill is passed to suppliers because of buyer’s expertise in the area of operations. In e-commerce the relationship is a pure commercial one.

Manufacturing Suppliers vis-à-vis Ecommerce Suppliers

On the other hand, the major challenges with traditional manufacturing suppliers include:

Lack of visibility: While manufacturing suppliers have access to large amount of supply chain data, still visibility continues to be a top challenge. As data isn’t being effectively captured, managed, or analyzed to drive strategic change, it resides in separate silos that are difficult to integrate, making it hard to obtain a complete picture of the supply chain. In contrast, e-commerce suppliers use data driven approach to demand forecasting, inventory management, pricing decisions, etc. These capabilities are generally provided by e-commerce platforms in lieu of nominal charges thus making the whole ecosystem more productive. Manufacturing OEMs can similarly support such initiatives and leverage the benefits of enhanced visibility.
Skilled Manpower: Despite high unemployment in the country, manufacturers are facing major skills shortage, it is estimated that only 50% of workforce at a manufacturing supplier can be considered of high quality. Now, it is necessary to create a vibrant eco-system that can continuously generate relevant skilled and employable people.
For details you can refer our earlier article “Make in India – Vision or Hypermetropia”.
REFERENCE: http://india.cgnglobal.com/TEF_article2_aug_15

From the above discussion it can be concluded that in spite of business model differences e-commerce vendors can learn working capital management from manufacturers whereas manufacturers can learn data driven approach to enhance visibility and drive operational efficiencies from online vendors. Other aspects of trade are somewhat unique to their business models and hence need to be tackled separately.

REFERENCES:

Internet and Mobile Association of India (IAMAI), CRISIL, Gartner, PwC analysis and industry experts
Fulfilling the promise of India’s manufacturing Sector, McKinsey & Company, March 2012
http://www.dnb.com/lc/supply-management-education/top-5-supply-chain-cha...
http://indianonlineseller.com/2015/09/seller-interview-achieving-rs-130-...
http://indianonlineseller.com/2015/09/snapdeal-extends-capital-assist-ti...
http://indianonlineseller.com/2015/08/ebay-to-extend-financial-assistanc...
Trends, Challenges & Innovations in Management: Volume III, edited by Dr. Ramesh Kumar Miryala
http://india.cgnglobal.com/TEF_article2_aug_15
http://indiaadvisoryboard.com/e-commerce-in-india-trends-opportunities-a...
http://articles.economictimes.indiatimes.com/2015-07-23/news/64772742_1_...

On demand economy is going to revolutionize the world we live, the choices we make and how we make those choices. Here is an interesting video of how things are changing with on demand economy.

Watch Full Video at: https://www.youtube.com/watch?v=rgTjKM4C9Dg

Please find link to an interesting video where a supplier is explaining how an e-commerce marketplace is helping them to take care of their core business area by taking off the burden of logistics, packaging and delivery. At the same time they are also providing the analytical inputs required to expand their business with less inventory.

Watch Full Video at: https://youtu.be/uRuXEvvxwqc?list=PLFWGFrPQNvDFKM1xAMimmiaAL67RiTYNb

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Regards

Alagu Balaraman

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