What makes last mile delivery a critical backend for the India e-commerce sector

The Indian e-commerce sector is growing exponentially being driven by a young demographic profile armed with smart phones and a country-wide internet penetration. According to a joint ASSOCHAM-Forrester study paper, India's E-Commerce revenue is expected to increase from USD 30 billion in 2016 to USD 120 billion in 2020, growing at an annual rate of 51%.

E-commerce sector in India has come a long way since its initial days and is continuously gaining momentum and value. The E-commerce sector is driven by factors such as an increased penetration of internet connectivity and smartphones even in rural, tier 1 and tier 2 cities, focus on advertising, digital payment options and the rapidly changing aspirational needs of the population. At present more than 50 per cent of e-commerce shipments are destined for cities/towns outside the regular metros. With this increase in transactions, logistics is no longer a supporting function, but an integral differentiator in customer service.

Logistics in e-commerce retail is evolving with growing business requirements, and is acting as an important lever for business growth. Unlike other sectors where logistics is a support function, logistics in the e-commerce sector is an important lever in enriching customer satisfaction and a key enabler for growth of the e-commerce retail industry. According to a KPMG report; ‘India’s e-commerce retail logistics growth story’ the logistics sector specific to e-commerce retailing in India was valued at USD0.46 billion in 2016 and is projected to witness a CAGR of 48 per cent in the forthcoming  five years to reach USD2.2 billion by 2020.

The Logistics Cycle in ecommerce can be broken down into 5 major components, first mile delivery, fulfillment, processing/sorting, line haul and last mile delivery. 

First mile delivery: This involves picking up of goods from the sellers and transporting it to the e-commerce retailer’s fulfilment centre or directly to the mother warehouse. Fulfilment: Post first mile logistics, the next phase that follows is fulfilment, which involves picking and packaging of products once an order is placed on the website and then moving it to the mother warehouse. Processing/sorting:  After fulfilment, the products are sorted on the basis of the final delivery location. Line-haul: This stage involves connecting the main supply centre with the main demand centre, via land or air. Last mile delivery: This is the last however the most important phase of the logistics cycle involving the dispatch and shipping of products from the mother hubs and to the delivery hubs, from where they are delivered  to the end-customers.

Challenges faced by e-commerce retailers
Last mile delivery, workforce management, no-real time coordination and late deliveries are some of the real challenges faced by the Indian e-commerce players. Customer returns and the ability of a retailer to quickly process the returns to enrich customer experience is another major challenge faced by e-commerce retailers.

Outsourcing the Last Mile Delivery
In the present day ecommerce set-up an organization can either own or outsource the last mile delivery. Though self-fulfillment, coming at a cost can be managed with economies of scale as then the average fulfillment cost per customer is reduced.

Outsourcing the fulfillment services from third party logistics service providers is economical for ecommerce players looking to focus on strengthening their core focus areas of customer acquisition, cross-selling and upselling and customer retention. Since the initial days of ecommerce in India, the sector players have been experimenting with various supply chain initiatives to improve last mile performance and reduce cost, while enriching consumer experience in the process.

Road Ahead
Increasing penetration of e-commerce to rural, tier 1 and tier 2 cities with gradual prominence of the marketplace model is altering the way e-commerce logistics functions in India.The increasing network of e-commerce focused retail logistics providers and increasing emphasis of full-fledged LSPs on the e-commerce retail sector are expected to intensify competition in the current. Also, while the e-commerce sector is exponentially expanding, ecommerce players face challenges to scale their logistics and capabilities at a corresponding pace; thus leading to outsourcing of the last mile delivery to competent logistics service providers.

The logistics industry is witnessing a transition from a traditional setup to a model with an integration of IT and technology in their operations, to automate route-planning by analyzing location, time, traffic and carrying capacity of logistics providers and real time packaging. Technology today is an integral component of every step of the logistics process as ecommerce shipment delivery is far more different and complex while compared to traditional B2B logistics. Ecommerce players would continue to lean more on logistics service providers integrating technology to keep its operations functioning smoothly. Technology will also drive consolidation with smaller regional players making way for larger Pan India Last Mile Logistics Experts capable of investing in technology and scaling up rapidly.

This article is authored by Jolly Jose, Vice President, Dependo