Logistics costs are one of the largest drivers of profitability for online retailers

Delhivery is one of India's fastest growing start-ups in the e-commerce ecosystem and is an end-to-end supply chain company focused on the specific needs of non-contact retail. The company's vision is to enable sellers to create successful online businesses through modular e-commerce technologies and core logistics. To understand more about this, Dataquest spoke to Sahil Barua, CEO, Delhivery. Excerpts

How did you get the idea of starting the business and why only this?

We started Delhivery in 2011 after experimenting for a while with hyper-local delivery for restaurants. In 3 months we realized that the e-commerce logistics space in India was facing huge challenges around delivery timelines, cash management and returns management, and their early clients were keen for them to expand the business. On further research, we realized that parcel-delivery for e-commerce was a nascent segment within the logistics space and there was a clear lack of a specialized player. The large incumbent players all operated on models designed fundamentally for different verticals or industries, and were stuck with legacy systems and the inability to truly understand the nature of a consumer-driven rapid parcel-delivery and offline payments model. We believed that with our backgrounds, our ability to conceptualize a completely new logistics network design and our understanding of technology, we would be able to quickly build a clearly differentiated company. Today, in two and a half years, we have become the second largest company in the e-commerce fulfillment and logistics space and handle over 35,000 transactions daily. As we see it, this space has only just begun to grow, and several challenges around delivery, payments, customer engagement, drop shipping, vendor management, and returns have just begun to manifest. As we grow further we continuously think of new products and services to add to our existing lines of business and have expanded in this manner to offer commerce technologies, seller integration services, omni-channel fulfillment services, express logistics and reverse logistics to e-commerce players across over 70 cities.

What are the challenges and how do you plan to overcome?

The big challenges for sellers in India today are threefold-visibility, cost, and scale.

• In terms of visibility, our fulfilment management and transportation management systems are completely real-time and provide both sellers and their customers real-time views of their orders. Today, using our omni-channel solution, a seller could use our fulfilment services across a network of hundreds of stores and fulfilment centers across the country and have a unified view of his/her inventory and order fulfilment. In addition, customers can walk into any store or shop on the seller's website or mobile platform and access inventory anywhere in the country irrespective of its presence in the specific store or fulfilment center nearest to them.

• We also realize that logistics costs are one of the largest drivers of profitability for online retailers and are continuously working on ways to identify lower cost ways of fulfilment. Our distributed fulfilment network (4 locations across the country currently)coupled with our inventory management toolkit allows sellers to stock across the country and lower transportation costs while maintaining same-day/next-day service levels. In addition, our completely automated COD reconciliation and remittance process reduces working capital constraints on sellers-we have the capability today to return capital collected in as little as 24 hours to our sellers.

• Finally, for sellers to be able to make the best use of their logistics partners, we believe technology is critical. We have invested heavily behind building omni-channel technology capabilities, our in-house fulfilment management system and transportation management system, routing algorithms, address verification and correction systems, fraud detection systems, non-delivery management and returns management systems, all of which can be integrated within a day with any seller ERP. Through us, sellers can schedule orders and pick-ups, provide specialized services like time-defined shipping or special packaging, choose fulfilment locations, identify optimal stocking and replenishment plans, schedule and manage customer returns - all from one single IT platform.

How do you enable sellers to create successful online businesses?

Our operational capabilities are designed to meet the needs of any business looking to go online. We provide sellers a modular suite of e-commerce technologies coupled with pan-India logistics operations, helping them achieve fast, reliable, and flexible customer fulfillment.

Our proprietary commerce technologies toolkit provides sellers a way to develop and manage their entire online channel-including setting up a web-store and order management system, catalogue management, studio services, integration with marketplaces, managing payments, SEO/SEM, selling on social media platforms, user verification and fraud detection, inventory management. All our IT is built in-house and is completely customized to the unique needs of each of our clients.

We also own and operate over 80,000 sq ft of fulfillment space across 4 cities with a dedicated call center, along with an in-house express shipping network across 70+ cities with over 100 distribution stations. By March 2014, we will have over 250,000 sq ft of fulfillment space across 10 cities with express shipping in over 125 cities and dedicated/owned line haul to further boost our express capabilities.

How do you handle the management of the vast array of products?

We offer a range of technology as well as logistics products and services to our clients. Our management of these products and services is made easy by the fact that they are all on a unified custom built IT platform. This gives us the ability to track an order flow directly from front-end or fulfillment center into our express shipping network and map all our operational processes accordingly. Internally we are aligned into various business lines to meet specific client needs and with experts in each team to handle the unit's clients' specific requirements.

What is the strategy of your in-house expansion?

We will be expanding our fulfillment and express logistics capabilities significantly in the next two years. Broadly put, we are looking at a network of at least 15-20 mega-fulfillment centers and express logistics services in over 200 cities with self-owned line haul as well. This is a significant jump from our current network of 4 fulfillment centers and express logistics operations in over 70 cities. We will also continue to invest in technology. We build all our technology in-house including our fulfillment management systems and transportation management systems. We are launching a full suite of seller services focused on store front technology, channel integration, SEO/SEA, catalogue management, social media selling, studio services and consumer and inventory analytics.

How easy or difficult is business through an online model as compared to the traditional business model?

Online retail in India is still at a very nascent stage. As a result, customer acquisition and retention dependent primarily on discounts has been the major challenge thus far, compared to traditional offline retail business models. However, online retail in the long run is far more suited to a country like India where offline retail faces extremely high fixed costs and relatively poorer sales. In addition, online has a fundamentally stronger value proposition for consumers-convenience, range of products available, ability to compare across sellers, ability to see full product information and ratings, etc. The challenge in the future for online retailers will mainly revolve around increasing the depth of the market-bringing more and more sellers and consumers online, managing operations at lowest costs possible to ensure profitability, and ultimately, to maintain a consistently high standard of customer service. The challenge for offline retailers will be to use the backbone of retail distribution operations and couple online with this to build flexible omni-channel operations.