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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.
Grofers currently operating in 27 plus cities with 48 warehouses follows an inventory based model where company procures perishable as well as non perishable products from various vendors and stores it in its warehouse, thus managing quality of products and efficiency in overall business operations. When an order is placed on the app, the demand order goes to warehouse where employees pack the products. Once packaging is done, delivery executives can pick it up and deliver the products to customers’ location using smart device geo location assistance.13 Deliveries at Grofers are scheduled one day before delivery date to provide logical route planning and load balancing solutions. Company currently delivers products in slots of 2 hours such as between 8 am to 10 am. In order to provide visibility to track order, company keeps on updating expected time of delivery based on delivery agent’s location14. Quality checks of products are done at the time of delivery by delivery person. Grofers has also launched its own brands consisting of 1200 products like Mother’s choice, G- Fresh, G- Daily which is 25 to 30 % cheaper than national brand constituting 40 % of its sales and it helps it to generate 30 % of its total revenue. The company is targeting to become complete private label firm by 2021 and has launched more than 250 products in the segment. It has partnered with 7000 local retailers’ pre covid and added 2000 more in the wing post covid to expand its operations and meet its last mile delivery on time. The company is targeting middle class customers who are ready to accept delivery after one day of order placement.15This strategy has worked well for Grofers and company has been growing 25 % monthly in terms of revenue generation. It has put a cap on quantity of items one can buy at maximum to manage inventory properly and avoid shortage. The Company is also working with 800 MSMe under its Brand farm initiative to improve its profitability on such products. By focusing on segments where bulk buy has been exhibited by customers to avoid multiple deliveries.16
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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13. Anurag Jain (2020). How Grofers Work? Latest Business & Revenue Models Explained Retrieved from https://oyelabs.com/grofers-business-and-revenue-models/
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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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