Inventory Management

The e-commerce business has gained momentum in the Indian markets. The
popularity among the young generation to go for e-commerce has increased
over a period of time because of the wide variety of products available at a
very competitive price. Flipkart, Amazon, Snapdeal and many others have
come up in the market and are able to sustain the local retailers because of the
wide variety that they offer in the online stores. The biggest challenge of the
online stores is managing their supply at a distinct location and making it
available to the consumer within the committed period. All this requires a
strong supply chain management system in place. The research paper deals
with developing an understanding of the supply chain management system of
e- commerce business with special reference to Flipkart.
 Introduction
The concept of e-commerce is accepted very rapidly by the Indian consumer.
The biggest drivers for online shopping is shortage of time, availability of a
variety of products at very competitive prices and retailers facing challenges
in accommodating a variety of stock for the consumers, thus prompting them
to resort to e-retailers.

A quick overview of India's Internet penetration shows a user base of

approximately 462 million rounding nearly to 35% of the population. The
spread, and subsequent adoption of e-commerce, thus, only seems logical.
With several reputed brick-and-mortar retailers also offering online services,
it seems natural the trend of shopping remotely will scale up substantially. As
there is a competitive environment in this sector, online retailers try to
provide various services such as flexible payment methods, warranties for
electronic goods and free home delivery with very competitive prices.

The company structure of Flipkart is divided into three broad categories. First
is Product and Technology which is the core team of the company, second is
Business Development which is related to sales and third is Operations which
deals with the supply chain management of the company.

Product and Technology Team

The product and technology team is the core strength of the company. The
team manages the entire process right from listing of items to search engine
optimization to maintenance of the website.

Business Development Team

Business development team is responsible for all the activities related to sales
including vendor management to pricing and discount strategy.

Operations Team
Operations team deals with all the supply chain aspects of the company right
from procurement and warehouse management till customer support. The
team supports the customers both online via telephone as well as offline via
email.

Customer Support team

Flipkart has a strong focus on customer service with customer delight as the
top most priority. And to fulfill it the company guarantees a 24/7 full
customer support and to cater this facility it has a dedicated customer support
team which offers both inbound and outbound support. bn

Logistics
Logistics is one of the most important facets of any successful ecommerce
venture. Flipkart ships more than 100000 items a day which makes
management of the logistics a cumbersome task for the company.
Furthermore, the cost of the delivery is borne by the company itself making
logistics a financially complex issue also. Hence in order to successfully
manage logistics. Flipkart uses its in-house logistics known as „eKart‟
(EKL).

Reverse logistics / returns processing

The returns for Flipkart are 2.6%. If follows a 30 day return policy. This
policy which is primarily aimed to build trust with the consumers, has led to
many customers duping Flipkart. For example there have been several
incidents when a customer buys a book only to read it and then return it
within 30 days. Similar incidents have been observed with mobile phones as
well. Flipkart, through its data management systems, has tried to identify
such frauds.

Return of a product to Flipkart can happen if the 3rd party cannot deliver to
the address or the customer does not accept the product. Some orders are
canceled while the delivery is being processed by the courier company. Such
orders are not recalled but delivered to the address and then canceled.
Customers can call the customer support and courier back the product to
Flipkart. The delivery cost is borne by Flipkart.

When a customer requests return of a product, there are 3 paths this request
can take:
1. Replacement: Flipkart returns the product to the supplier and obtains a
replacement that is delivered to the customer.
2. Store credit: If the customer is not satisfied with the product, he or she is
given store credit of the same amount.
3. Actual cash-back: Given out as cash for cash-on-delivery payment or
refunded for online payment.

Procurement
When Flipkart started its operations, they had employed the consignment
model of procurement. In this model, the retailer (in this case Flipkart) holds
the inventory owned by the supplier, and buys it from the supplier only when
it is sold to the end consumer. Since the channel was new and unproven, this
was the most risk-free way to operate. Later this was discontinued and

inventory was purchased to ensure superior delivery times and customer

satisfaction. But with foreign direct investment (FDI) favoring the
marketplace model in April 2013, Flipkart changed its business model to
marketplace model.

With a marketplace model, Flipkart no longer has an inventory of its own,

rather buyers can deal with sellers directly and the delivery will be done by
Flipkart. The model is similar to eBay India and Amazon.in At present, the
entire inventory of Flipkart is being managed by WS Retail which is
flipkart‟s pet project. While WS Retail will continue to be one of the sellers,
Flipkart has added more than 50 sellers to its list.
Procurement of items could be for:
Inventory: These items are pre-ordered based on previous sales data to stock
as inventory. This category includes items with relatively low demand
elasticity, fast selling items and items with relatively long shelf life.
Just in-time: Items procured just-in-time are used to serve immediate
outstanding orders. Items with low or unpredictable demand are typically
procured on an order-to-order basis. Just-in-time procurement is also used for
expensive items or products that have seen slow sales growth.
As of now, the number of orders served from the inventory is roughly 75%,
with 25% orders being served by procuring just-in-time. Procuring
just-in-time is comparatively more expensive as the volumes for such orders
are low, and the supplier discount offered therefore is considerably lower.
However when ordering for inventory, bulk purchase is made and hence a
much better price is realized. Therefore the company would ideally like to
move to a ratio of 9:1 ratio of orders served through inventory to those
procured just-in-time.
As a caveat however, there is an inherent trade-off between the company‟s
long term objective of reducing just-in-time procurement, and its motto of
“Consumer Delight”. This is because in order to maximize consumer delight,
the company would have to strive to serve all types of consumer orders and
provide them with the maximum possible variety of products, which would
require just-in-time procurement since many products have limited demand
and cannot be stored as inventory. However, operational efficiency demands
rationalization of the product line and choosing one‟s customers.

Sourcing at Flipkart is conducted at two levels: Regional: By Regional

Procurement Teams Centre: By the Central Procurement Team

Each regional procurement team has a network of local suppliers for

made-to-stock as well as on on-demand (Just in-time) procurement. They also
have visibility of the stock for different SKUs with these suppliers, as last
updated on the procurement team‟s system by these suppliers. From
Flipkart‟s perspective:
Stock out: Defined as when the product is unavailable in the inventory (held
in warehouses) as well as Flipkart‟s suppliers (as last updated)
The central procurement team has visibility of all the regional procurement
teams‟ views, and therefore can monitor the stock levels for their suppliers
all over the country. The central team‟s focus is on bigger suppliers with a
country-wide reach.

Flipkart has 7 major warehouses spread across the country in Mumbai,

Kolkata, Delhi, Noida, Pune, Chennai and Bangalore. They have smaller
regional distribution centers at over 500 locations spread across Tier I and
high volume Tier II cities.
In Flipkart‟s Warehouse Management System (WMS), there are three major
segments namely, Inward Processing, Storage Management and Outward
Processing. Discussed below are some of the details regarding each of the
sub-processes involved in the WMS.
 Inward Processing
Physical inwarding: This is the area where physical delivery of goods from
suppliers to the warehouse is taken.
Quality Check + Scan: As soon as the goods are received, they go through an
initial quality check at this stage. After this, they are scanned to make an
electronic entry to record the input of goods into the warehouse on the IT
systems. This step of quality check is also undertaken at the supplier‟s
premises depending on the contract that Flipkart has with them.

Pre-packing of products: At this stage, an initial packing of each of the

products is done. This pre-packing varies according to product. For instance,
a book-mark and think transparent film packing will be done for a book.
Similarly, if there is a freebie attached to a product, then the two products
will be packed together.

Storage Management
Put-list generation: When the input of all products is done on the IT systems,
a system generated list of shelves corresponding to the products is generated
to facilitate placement of products on shelves. This is called Put-list
generation, which marks the place where the respective items need to be put.

Order pending check: As soon as the system gets the input of the incoming
products, the system checks if any of the orders for the incoming products are
pending or not. If orders are pending, the respective product is sent directly to
the Final Packaging Area for Outward Processing. Physical placement on
shelves: Based on the Put-list, the products are placed on the respective
shelves. If the marked shelves are not empty, the product is put on an empty
shelf, and the respective shelf number is updated on the Put-list.

Closing Put-list: Once the product placement is done, Put-list is updated with
the actual placement information and the list is Closed.
Outward Processing
Pick-list generation: Based on the orders to be delivered for the day, a
Pick-list is generated by the IT system.

Pick-up from shelves: The respective products from the Pick-list are picked
up from the shelves as per the IT system entries and gathered together to
move towards the Final Packaging Area.
Final packaging: The picked-up products are packed in Flipkart-branded
boxes. At this stage, packaging is done according to the Category of the
product, e.g., electronic items are packed differently from stationery.

Placement in respective delivery hubs’ bags: After the final packaging, a

product is placed in a specific bag which is dedicated for that destination area
delivery hub. These bags are dispatched to their respective delivery hubs on a
fixed timing during the day.
Issues at the Warehouse Management level:

All the scans while conducting inward processing for each of the products are
done manually. There is some scope of automation at this stage.
Due to packaging litter, there emerge chances of difficulty in mobility within
the warehouse. Disposal of packing material may be addressed for better
streamlining and ease of mobility. Currently, there are separate sections for
separate categories in the storage area, e.g., in the Bangalore warehouse, a
whole floor is dedicated to books, while the other floor is dedicated to other
categories. With the increase in the number of SKUs that Flipkart is
undertaking for sale, the Warehouse management system‟s complexity will
increase and its scalability in the current form might come under question.
Hence, pre-emptive efforts may be made to make sure that the systems and
processes are scalable based on increasing the variety and quantity of SKUs
handled. Order Processing

Flipkart uses its own ERP systems to process orders and track the details of
all the transactions that need to be carried out. A typical order at Flipkart
starts with the customer searching, selecting the required item and placing the
order. This on an average takes around 8-10 clicks to
get the order placed. The email Id is considered to be the unique
identification of a customer and all the records are maintained with reference
to this Id.
The payment can be made by using debit card, debit card, Netbanking or
COD (Cash on Delivery). Flipkart launched its payments brand called
PayZippy in July 2013 to provide safe and hassle free payment options to its
customers and online merchants.

Order Fulfillment
Customer orders are fulfilled either via Inventory or JIT procurement
depending upon the availability of the products.
As soon as the order is placed and approved, there is an inventory check done
at the local warehouse. If the item is not found at the local warehouse, then
the order goes to the nearest and then other warehouses. The product is then
packaged and delivered to the customer.If the item is not found in the
inventory it is forwarded to the Regional Procurement Team (RPT) for JIT
procurement from local vendors. If yet not possible, the order goes to the
central procurement team (CPT) for the last option of procurement. After
procuring from the vendor, the product is packaged and delivered to the
customer via the most convenient warehouse. They have an understanding
with their vendors for order tracking, reconciliation and MIS (Management
Information Systems).
 Inventory Management

The inventory stocks are replenished whenever it goes below Reorder point.
The company employs FIFO (First In First Out) method for its inventory
management, under which for any shipment request to a particular warehouse
the oldest inventory items are shipped first. This makes a lot of sense
especially for the electronics items since the technology becomes obsolete
very quickly.

With respect to determining what items to store in the warehouse and what
items to be procured from vendors, Flipkart uses Long Tail Concept, which is
nothing but selling a large number of unique items with relatively small
quantities. Flipkart orders such items on adhoc basis and usually don‟t keep
inventory of such items since the demand for such items is very less and
thereby minimizing overall distribution and inventory costs.
 Supplier Management
Flipkart has always operated on the philosophy of starting out small and then
scaling up as demand grows. It has been the same with selection of suppliers.
For a new category, they generally start off by sourcing from local suppliers
and distributors. Once there is enough demand

generated, they approach the larger wholesalers or manufacturers directly.

This serves two main purposes:

It helps them to get better deals from the bigger manufacturers if they can
order in larger quantities frequently enough.
It avoids the channel conflict dilemma that large suppliers face when they
agree to similar terms with a smaller volume online player like Flipkart as
compared to an established offline distributor.

An example of this strategy is that given that Flipkart is now India‟s largest
online retailer of books and they are larger than many offline stores as well –
most of Flipkart‟s books are sourced directly from publishers.
Across product categories, Flipkart works with over 500 suppliers including
several international suppliers as well. Flipkart‟s steady rate of growth has
allowed them to get the best credit lines from their suppliers. They signed
their first international supplier deal with Ingram Books in 2008 and they
prefer working with them due to their high level of predictability.

In fact, considering that customer delight is Flipkart‟s primary motto, any

delay in supply can lead to late deliveries to the end-customer. So Flipkart
follows a grading system of its suppliers based on their fill-rate performance.
Suppliers are grouped into A, B and C grades based on their past
performance.

There are several other secondary considerations while placing an order with
a supplier:
Price considerations – As mentioned before – credit lines and discount terms
play an important part in selecting suppliers.
Quality Check contract – Depends on whether QC will be done at supplier‟s
place and then product will be shipped to Flipkart‟s warehouses or if the QC
has to be done at Flipkart‟s warehouses.
Percentages of Returns Accepted – Higher the percentage of returns accepted
by a supplier, the better for Flipkart.

Conclusion
A credible rival can do wonders to an enterprise and Flipkart is no different.
The entry of Amazon in India has enabled Flipkart to develop a lot of
in-house innovation and organically developed best-practices - that have now
become the industry standard.
Flipkart began operations on the consignment model; goods were procured
from suppliers on demand, based on the orders received through the website.
Later, the books-to-electronics e-shop adopted the warehouse model. The
company had its own warehouses, and maintained its own inventory.
However in July 2013, Flipkart launched its model of marketplace just one
month after Amazon launched its marketplace in India.

It introduced payments brand PayZippy for online merchants and customers

seeking fast, hassle- free and safe payment options. Some 70 per cent of its
shipments are done by its own logistics company and about half of deliveries
are on a cash-on-delivery basis.
Flipkart has recently introduced the next day guarantee delivery service and
shopping from its own mobile application. Given the critical mass of
transactions Flipkart controls - about 100,000 a day - the company is betting
that it has the volumes to lay the foundation of what will be a profitable
business.

Last but not the least; Flipkart has very clearly prioritized customer delight as
its chief avenue for customer acquisition and retention. This causes them to
build a lot of slack into their existing systems causing higher costs at several
points in the supply chain. How they address this challenge is what will
determine their future success.

References:
1. “10 Best Supply Chain,” http://mhlnews.com, December 3,2003.
2. “Innovative Technique Supply Chain Management,” www.ehow.com,
March 6, 2011
3. Flipkart Supply Chain Management from Subscribed .com

4. www.wikepedia.com