Time to hit reset and accept the new normal. Our series of in-depth stories and analysis on the changing dynamics of India’s tech landscape in a post-Covid19 world — from how industries and sectors are transforming to new opportunities, evolving consumer behaviour, the new rules of venture capital, M&A and more.
If nothing else, the pandemic has certainly brought supply chain, logistics and transport networks into mainstream discussion. Along with debates on availability of essentials, Indian social media and internet forums were rife with talk about supply chain bottlenecks and hurdles, and as the lockdown extended from 14 days to more than a month, even startups and businesses at large realised how the traditional supply chain model needs to be set aside for this new reality.
With lockdown now about to enter the fourth phase in India, non-essentials like electronics, fashion apparels, accessories, furniture and other categories have still not received government’s approval to go on sale across the country, but only in a few select zones. Such restrictions have made logistics tech and intelligence all the more indispensable for businesses, particularly in hyperlocal, retail and distribution sub-sectors.
In fact, experts believe that one of the most critical operations for any business going forward will be supply chain planning and spending to improve logistics tech, visibility and transparency. This has become increasingly complex for brands due to the formation of containment zones and various other restrictions imposed on movements of goods in different geographies.
“The whole situation is very dynamic as many of these restrictions are changing on a daily basis, making it very difficult to plan for the distribution of goods,” LetsTransport CEO and cofounder Pushkar Singh told Inc42.
There’s a bigger picture at play when it comes to supply chain, and this actually has repercussions across the entire journey of a product from manufacturers to distributor to reseller to retailers and finally the consumers. With Covid-19, every link in this chain has become more complicated and while earlier, one or two links might not have visibility, the pandemic-induced lockdown measures have added more opacity in the process, whereas the market is calling for visibility.
Logistics Hampered Under Lockdown
“Logistics, as a function, is heavily dependent on consumption. However, Covid-19 has boxed it just for essentials. The convenience and safety provided by online purchasing is definitely changing buying habits in the long run. Therefore the pressure on logistics and transportation will also continue to surge in the times to come,” said FarEye CEO and founder Kushal Nahata.
After the initial panic buying in the retail market, those who had opted for online orders were stuck with delays in delivery as the lockdown was imposed. Several orders were cancelled, with money stuck in wallets, and complaints rising. From a macro perspective, the challenge was for the entire supply chain— from factories to wholesalers— to retailers— to customers.
The challenge for retailers was in maintaining stocks for the increased demand. This pressure of demand caused an effect across the chain. It was especially complicated by the dependency on procuring goods from wholesalers. In an ideal scenario, retailers stock up for multiple weeks, but that is usually not done in India due to issues with storage. Sourcing from wholesalers was further restricted due to restrictions on intracity travel.
Finally, the delivery of goods from wholesalers or warehouses to consumers and kirana stores was also hampered due to on-ground issues. Meeting the demand surge without continuous production was a massive challenge due to lockdown rules. In short, the entire supply chain has been disrupted badly.
Once the lockdown opens and the government gives a go-ahead for the delivery of non-essential items through online services, the immediate demand will change the growth curve for different logistics intermediaries altogether.
For one, the demand for international cross-border transportation will rise again and will perhaps be the first big revival to fulfil immediate demands and backlogs, once air and naval transport resume.
As backlogs get cleared, cross-border logistics demand will flatten as several global manufacturers will look to derisk and move parts of their supply chains out of foreign countries. Most recently, Japan has designated funds to shift manufacturing operations parts from China and start production domestically. Apple has also decided to shift up to 20% of its manufacturing to India. In addition to electronics, pharmaceutical ingredients, medical devices, textiles and component manufacturing is also expected to move out of China as companies look to shore up supply using domestic partners to avoid a repeat of the situation.
While domestic manufacturing and consumption are bound to increase slightly in the days immediately following the lockdown, the big pressure on companies will be in managing last-mile deliveries and transportation of goods to warehouses or hubs. The increase in online orders in categories like food, groceries, furniture is quite evident and is only going to go higher.
Businesses that were looking to open an online supply or sales channel within the next 3-4 years are likely to bring up their deadlines to a more immediate future. The direct to consumer model will also gain momentum replacing brick & mortar stores and distributors with dark warehouses. This will further fuel the adoption of digital tools and automation within logistics operations. As the majority of sales are expected to occur online, businesses would be looking for ways to enhance and improve the delivery experience for consumers, which will be a key differentiator going forward.
Derisking Supply Chain By Going Local
In the traditional international supply chain model, the routes from supplier to the manufacturer are fixed. The availability of raw material at low cost is seen as a prime advantage. For most industries, China has been a go-to choice for raw material supply for many years. But during Covid-19 people learned that this reliance is a double-edged sword. While the cost might be low, the actual toll on business from any future lockdowns will be catastrophic.
Which is why in the post-Covid-19 era, there will be a clarion call for higher adoption of domestic manufacturing. This is also seen the government’s stance, as Prime Minister Narendra Modi announced the vision to make manufacturing and supply chain a primary focus for India. Calling demand and supply chain the fifth pillar of a self-reliant India, Modi said, “The cycle of demand and supply chain in our economy, is the strength that needs to be harnessed to its full potential. In order to increase demand in the country and to meet this demand, every stake-holder in our supply chain needs to be empowered. We will strengthen our supply chain, our supply system built up with the smell of the soil and the sweat of our labourers.”
As businesses pay heed to the losses that come from over-reliance on foreign partners and manufacturers, a wave of localisation and nationalism in business and manufacturing is expected in the Indian market. As a result, logistics and transportation within the country will be huge in comparison to the cross-border movement, even though the latter will see a demand surge in the weeks immediately following the lockdown.
From Haphazard To Tech-Enabled Logistics
“In its ultimate stress test, the national supply chain of India came tumbling down which shows the width of overhaul and need for getting organised in this industry,” said Samarth Agrawal, Founder & CEO, MaxWholesale, which dist
At present organised players account for approximately 10% of the total market share, as per IBEF research. The industry leaders Inc42 talked to support the fact that post-Covid-19, the logistics and supply chain industry will be pushed to operate in a more organised and tech-enabled manner.
A significant change here will be seen in the MSME and small and medium business segment. Due to the continuing workforce and delivery challenges, self-fulfilment of orders will continue to be a hurdle, even going forward. Thus, warehousing and fulfilment services which were earlier availed of only by mid-sized to large sellers will now also become relevant for small sellers.
“We also believe that more sellers will be looking for an end-to-end integrated shipping and warehousing solution along with integrated technology support,” said ShipRocket cofounder Akshay Ghulati.
According to Prasad Sreeram, CEO and cofounder, Cogos Technologies, the logistics industry is expected to evolve towards more organised play with digital adoption as customers and transporters both would need very efficient workflows to stay competitive now, hence digital transformation is imperative in the industry.
“If a small business using a local courier service wants to know where his parcels are, all he has in hand is a simple handwritten or printed slip. After 5 weeks into lockdown, he has no means to check where in the supply chain the parcels are stuck,” Sreeram said about the reality on the ground.
“These learnings have forced people to look for digital and tech-enabled solutions for increased visibility in the entire supply chain. People who are using local couriers earlier will get inclined more towards formal courier companies like Delhivery, DHL Express and more in the near future,” added Ghulati.
Direct-To-Consumer Model Will Shrink Middlemen Layer
In the traditional distributor-retailer model, the basic problem is that a manufacturer or the retail giant at one end of the spectrum does not get the visibility of how much stock middlemen are holding and whether they have fulfilled the orders or not.
As per DataLabs analysis, the average revenue surge of the top 11 D2C brands in India between 2018 and 2019 was 213%, whereas the expense surge during the same period was 151%. The demand for essential goods is quite high in the direct-to-consumer space.
“You cannot take direct orders from the end customer. Logistics is tough. So you don’t want it to be there in multiple hands. Post Covid-19 will see the companies looking to take this control back,” said FarEye’s Nahata.
Due to this, there will again be a shift in the ways products have to move as logistics operations move towards a warehousing model rather than a distributor-dealer model.
Brands are now going to go directly to the customer and skip this entire channel of going to a distributor or retailer, they just want to have one clean chain communication, the customer to the brand, and brand delivering to the customer.
Dark Stores Come Into The Picture
With social distancing and contactless delivery gaining massive traction in the post-Covid-19 era, the restricted movement between intercity and interstate borders will push the industry to devise solutions for faster and efficient supply chains.
With the manpower crunch in many warehouses, there will be a drop in physically moving goods between hubs and retailers. Instead, companies are likely to move goods in bulk from one warehouse to several fulfilment centres and then manage the last-mile distribution from there.
The lack of footfalls in retail stores means that a large portion of orders will now be fulfilled through online delivery partners and ecommerce platforms, which will again force companies to reevaluate retail presence and prioritise warehousing instead of retail points of sale.
“We have already started seeing this shift with many new-age online ordering and delivery players like Swiggy, Zomato, BigBasket etc., entering into the grocery segment,” said LetsTransport’s Singh.
BigBasket rejigged its operational model last year to make all deliveries under four hours through multiple warehouses or godowns. “We have moved from smaller, ‘dark’ stores to opening warehouses that are three times larger and also re-hauled its supply chain across cities to fulfil the majority of customer orders faster,” BigBasket CEO, Hari Menon, said last year.
These factors will push the manufacturers and retail giants such as ITC, Hindustan Unilever to look beyond the traditional partner-distribution model and opt for dark stores model instead. Dark stores are traditional retail stores that have been converted to local fulfilment centres and can be used to fulfil the demand from online orders. Dark stores, which are simply departmental stores or supermarkets that are closed for the customers, are what cloud kitchens are to restaurants. As these stores function as mini-warehouses that are closer to customer locations, pick up orders are executed faster, and automating pickups within these stores makes inventory even more efficient. It also involves less capital for maintenance and upkeep than retail outlets.
Beyond this, the majority of warehouses in India are non-tech enabled and in the near future, this will definitely change. Currently, if an order is received in the morning, it’s not necessary to dispatch it by afternoon. Even if it takes two days to ship it out, it is fine. The traditional supply chain of the distributor to the wholesaler has no concept of deep storage for late dispatches or quick storage for priority deliveries, which is seen in tech-enabled warehouses.
Secondly, product extraction time is high. In a traditional B2B warehouse, pallets are taken by warehouse vehicles, marked and stored. This makes it difficult to immediately find a product. This will change in the next 3-4 years. In a tech-enabled ecommerce warehouse, the products or the SKUs which are selling the most quickly are stored in the front of the warehouse and the bulky SKUs and SKUs which have low turnover, actually stored in the mid and back of the warehouse.
“The post Covid-19 era is expected to be an era of ecommerce and hyperlocal. To serve the needs of a fast and robust supply chain in this segment, the existing warehousing mechanisms will have to evolve as well,” Ghulati said.
With inputs from Nikhil Subramaniam