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Title: Strategic Analysis of the Operating Models

Course: PGCHRM – 17

Name of the faculty: Prof Atanu Ghosh

Subject: Operations and Production Strategy


Submitted by: Ms. Harshada Pathare
RH- 14051
Thane Centre

(assigned by VIL office)

COM.Analysis of the Operating Models: Ecommerce (BIGBASKET.COM) 3 .COM. AARAMSHOP. SALTNSOAP.

3 . ACKNOWLEDGEMENT On the outset of this report. Atanu Ghosh for his guidance and encouragement to accomplish the completion of project. I would like to extend my sincere thanks to Prof.

INDEX Introduction of E-Commerce operating Model Pg 5 Why Webvan Failed? Pg 5 Overview of Business Operating Model Pg 7 Operating Model Diagram and Pointers Pg 7 E-Tailing Pg 8 Overview of Bigbasket Pg 8 Bigbasket Operating Model Pg 8 Overview of Salt N Sugar Pg 8 Salt n Sugar Operating model Pg 9 Overview of AaramShop Pg 9 Aaramshop Operating model Pg 9 Comparison of the Operating Models Pg 11 SWOT Analysis of the Operating Models Pg 12 Recommendations Pg 13 Bibliography Pg 14 3 .

however. services. Upon filing for Chapter 11 bankruptcy protection.The saga ended for Webvan when they finally realized that their customer base was just not big enough to consume all of the product capacity they had created. and global expansion. share information to leverage the use of internet. In June 2000. Why did Webvan fail so spectacularly?  From the supply chain management perspective the six performance drivers. Business model is result of strategy planning done to face the fierce competition. Webvan’s supply chain design was too expensive to be profitable and too elaborate to operate efficiently and effectively. sourcing. Webvan’s costs of facilities. plus other technical difficulties was more than customers wanted to bear. and information (including software) were much higher in comparison with traditional supermarket supply chains. Webvan needed its employees to pick items for orders instead of customers doing this at a bricks-and-mortar store. By the end of 2000. Webvan went ahead and replaced HomeGrocer’s web site with its own. Webvan was operating at more than 25 percent below its breakeven point (Hayes). and exchanging of products. So. All of these resulted from its hope that the number of customer accounts would be high enough to make profits after three or four quarters. it added extra labor costs for handling customer orders. All of these higher or extra costs were applied to the grocery industry. transportation. selling. build profitable results. In addition. information. and pricing. Webvan bought HomeGrocer. Webvan expected this change to be highly transparent and purely cosmetic to the customers. the customers did not identify with the new website. the switching cost of learning a new web site and the change in delivery policy. inventory. While the two companies struggled to decide on which business model would survive. Electronic commerce comprises of buying. achieve productivity. 3 .2 billion. The effectiveness of E-commerce Business Model is the major factor that determines its performance in the various types of E-commerce market few are mentioned below for reference. Each of the E-commerce market has their own Business operating model projected to reach new customers. As a result. Webvan was forced to sell all of their high-tech information systems and infrastructure for much less than it was worth. Webvan advertised that its prices were 5% lower than conventional stores. where margins were only 1% to 1. namely facilities. transportation. Demand was dropping intermittently to the point where they were suffering tremendous losses. Emerged in 1970’ in an all-stock deal valued at about $1. A well-planned E-commerce business model can be the thrust of success. A business model is the heart of organization’s strategic business plan. inventory. the number was far below the forecasts and the company kept losing money. In reality. and information through the medium of computer or telecommunications networks. develop effective operations. Among these.INTRODUCTION OVERVIEW OF E-COMMERCE OPERATING MODEL: Companies plan their strategic business model to design the set of planned processes that are used to generate sales and produce profits in the market. there was a one-third drop in demand for Webvan’s products. E-commerce are the most efficient and successful global market in today’s generation. primarily Internet source.5%.  For sourcing. also a weak E-commerce business model definitely is majorly responsible for the failure of business. Webvan. Clearly. an online credit and grocery shop failure was the result of an ineffective Business operating model.

let alone company with complicated information systems and huge infrastructures as Webvan. Finally. Based on these fantastic numbers. Webvan came out during the heyday of Internet companies when there were not enough stories of failures from history to tell and learn from. it mounted to $15 billion capitalization. 1999. Goldman Sachs. Consequently.000 orders a day from Bay Area DC to make operating margin target of 10% to 12%. In reality. they should have been prepared to get several unexpected problems and thus. On basis of Webvan’s failure. its dream team was included so many senior executives experienced in a broad range of industries with well-established companies such as Borders Books. Webvan CFO insisted that Webvan would be “highly cash generative” and that the DCs were likely to operate at breakeven capacity within five quarters of being launched. It closed its doors less than two years since its heyday on November 5. could not save Webvan due to either ineffective and inefficient designs and implementations or being done too little too late. for the three straight quarters in 2000. and FedEx. they went against their original strategy of providing a more cost-effective solution. Its first day of trading. they invested money for plans to expand into various US regions at the same time. Second. Naturally. They acted hastily in building huge. With these diverse experts. They hoped to get 8. the averaged number of orders was only 2. It raised a total $800 million. They wanted to do everything everywhere in a huge scale. an IDC projection for 2003. This means. that statement should have never been made. Shaheen saw the market as $1. In 1999. And the second part. its funding happened so fast and spectacularly. customer satisfaction was achieved well.5 billion by 2003. it had not hit this target after six quarters since the launch. in the last quarter of 2000. All of this funding and market valuation happened for a company with only $4 million in revenue at that time. Thus. and complicated DCs. too far below the projection.160. At the same time.  They also announced projections that were almost impossible to be realized such that if everything went according plan. Third. Fourth. In reality.  From statistics and forecasting perspective. we recommend an operating model to cover some aspects shown below – 3 . the time it took to fail was also dramatic. highly competitive with large conventional grocers. here are some major reasons why Webvan failed spectacularly. after six quarters. which encompassed all web-based purchases. Even a tiny company never has everything going according plan. timing also played a role here with overly optimistic numbers and forecasts such as 5% of US households would buy groceries online in a few years and online grocery market would be worth $3.  All the changes later. expensive. it had been voted the best online grocer of 12 in a survey. only 6 months before it closed for good. Webvan’s failure was not imagined.  From strategy perspective. it was the most funded for an Internet company with $400 million. the management team was too confident and ambitious. at one point. Oracle. Oakland DC would be profitable within 6 to 12 months and other DCs might break even in 60 days.5 billion in 2000 and $6. it posted a gross margin of 27%. Revenue Perspective: First.5 trillion. including partnerships and Homegrocer acquisition. In this high spirit.

The illustrative outline of the model will provide a better understanding for our learning purpose. while some balance the other components with their support. Each setup features unique variations within the respective e-commerce business model. In E-commerce. Some organizations include additional components in their ecommerce operating model to sustain competitions.OVERVIEW OF BUSINESS OPERATING MODEL The effective Business model should include EIGHT KEY COMPONENTS of standard model. there are various markets like B2C who use store frontline model. DIAGRAMMATIC REPRESENTATION OF BUSINESS OPERATING MODEL There are multiple operating models in the market limited by human imagination. The model can be a combination of two or more components. and G2C use the informational delivery model or brick and mortar business model. 3 . It is important to identify the essential operating model or specific componential matrix for certain industries. C2C prefer to use auction model. These components are responsible for the failure or success of the operations. depending on the nature of e-commerce business. Some components are identified as very critical areas to deal within.

COM In December Salt n Soap intends to provide its consumers a convenient.  To order right quantity. employee involvement and quality as in the 4P Model of Toyota Principle. at right time. In this way we try to assure you of any security concerns that you might be genuinely having for allowing delivery persons in your premises. OPERATING MODEL . personal care products.000 products and over a 1000 brands in our catalogue you will find everything you are looking for. Let us understand the operating model for three best e-commerce organizations – Bigbasket. Salt n Soap is more than just another online version of a hyper mart. capabilities and resources to deliver the benchmarked performance and move into another higher level of operational model. OVERVIEW OF BIGBASKET. especially groceries. to customers. Big Basket has a warehouse each in Bangalore. V S Sudhakar. It sets initial inventory levels and and Saltnsoap. BigBasket. Salt n Soap has a unique web store which allows shopping groceries out of a single window without having to navigate to multiple (Innovative Retail Concepts Private Limited) is India’s largest online food and grocery store. With over 10. social. you can also use Salt n Soap's Quick Grocery feature to "shop groceries in 5 mins"! Salt n Soap. re-ordering levels. of right quality on signals of Kanban Pull systems and eliminate waste by reducing in-process inventory. beverages. Though the services of booking daily grocery needs online and receiving timely delivery at the convenience of home or office are the basic foundations of Salt n Soap. The PSAs will help you get a "near real time" feel of the actual products. etc. Payment is accepted in vouchers / cash / cards for ease. Each city is split into zones and each zone has a hub and using analytics to predict weekly demand. the company optimizes logistics and supply volumes to drive better margins. enjoyable and rewarding experience of shopping their daily grocery needs online from the comfort of their homes and offices.  BigBasket now buys products directly from suppliers . We would be able to interpret the business operating model in detail through the below report. If you know your shopping list. E-tailing provides the consumers huge amounts of information in the form of web portals with useful links to similar sites that allows consumers to compare products by looking at individual supermarket or a local kirana store.HUL. benefits or demerits of particular products. They have convenience to quickly add of the listed items to the shopping cart and guarantee delivery in customer slot. All your deliveries have an assigned delivery person whose photograph is displayed to you and whose credentials are verified by us.JUST IN TIME MODEL (LEAN MANUFACTURING PRINCIPLE)  Operating on Just-in time perspective model of Lean Manufacturing.  To achieve continuous improvement key areas of focus could be flow.and stocks these in warehouses. 3 . Vipul Parekh and V S Ramesh launched BigBasket in Bangalore. spices and seasonings to packaged products. P&G. as well as hubs (where delivery vehicles wait). understands that shopping online. Hari Menon. The website is user-friendly with nicely organized product catalogues right from fruits & vegetables to Meat section without any delay / latency in accessing any of the pages.E-tailing: refers to the selling of retail goods electronically over the Internet. farmers and mills . rice and dals. also require physical assistance in shopping in many areas. These PSAs (Personal Shopping Assistants) are qualified and experienced retail industry professionals who would assist in shopping efficiently by suggesting you the right products and substitutes. Accordingly. Hyderabad and Mumbai. The routing is done automatically and the vehicles are GPS-tracked. Right from fresh fruits and vegetables. The entire process is automated. they have a "Personalized Shopping Assistant" for each of our registered users. Goods are sent to hubs and from with detailed analysis and recommendations. Aaramshop. making one aware of new arrivals. Being green is part of the culture at Big Basket as CSR initiative. The challenge of the business operating model is to leverage the assets. OVER VIEW OF SALTNSOAP.

Via Aaramshop website or Facebook. The usage is also completely free for the consumers. The model is yet in a modern tech-savvy platform with GPS and other systems enabled. Aaramshop has started with a fresh model . AaramShop does not make any monies from either fee or commissions from retailers for transactions. which allows customers to shop at local neighborhood stores via the internet. By ensuring that customers can pay kiranawalas directly—and after they have checked their purchase— AaramShop gets around that online hesitancy. it’s a payment model that works primarily because of the proximity of kiranawalas to their customers. high turnover consumer goods such as daily groceries. or whose quality can be questioned or payment transaction issues over pay seal. but they also get an embedded permanent presence free of charge. e-tailing constitutes only 8 percent of the Indian e-commerce market. Importantly. Analytics and targeted marketing would be large revenue options for AaramShop. how is a particular product doing via the competition. and the company then use SMS and e-mail to direct the order to the customer's local store.While shopping. Salt n Soap's algorithm also alerts one with reasonable accuracy on how many days of inventory you are left you. The service follows a freemium model. what has been your total purchase in a particular month. Salt n Soap also assists one to manage and monitor the household budget and purchase and compare that with average budget and purchases of people belonging to your socio economic class (SEC). it home grown and hence it is going be a tough ride with not too many existing benchmarks .neighborhood-based business model it is AaramShop’s business model is as per the expectations of Indian online consumers. etc. it is untested. what is the last date of your purchase of products in a particular category or subcategory. Salt n Soap's unique Open Analytics features help one get these information real time so that they can make a smarter purchase decision. The retailers are given not just access to AaramShop absolutely free of costs. OVERVIEW OF AARAMSHOP. Salt n Soap believes and practices Blue Beaks' core philosophy . It has provided many small retail outlets with an online presence for the first time. what have been the reviews for the product. The major strength of AaramShop lies in its ability to reach consumers through neighborhood retailers and its seamless integration with digital media. OPERATING MODEL Salt n Soap seem to operate efficiently with very low capital investment. According to the Internet and Mobile Association of India. Innovate". which has pioneered the concept of hybrid commerce.COM Aaramshop is an Indian start-up. A Blue Beaks initiative.g. one would have felt many times the need to have certain information about the products. what has been the purchase trend of the product. Provide a lot of innovative value added features to consumers which are typically not available in a brick and mortar store. Business model The brilliance of the AaramShop business model lies in the fact that it leverages smart technology and the already existing inventory and delivery mechanism of the kiranawalas Customers create a shopping list for groceries. making it fairly easy to get an item replaced or exchanged. which are available on the site in order to ensure that their brands sell better online. That’s an advantage that few large retailers can match. The future challenge is to develop an effective model solution on Economic Order Quantity principle that can elevate analytics to a level where the AaramShop systems can warn an FMCG company—in real-time—when a 3 ."Innovate. Execute. e. Consumer’s distrust of e-commerce is because it concerns goods that need shipping. Salt n Soap is constantly innovating on the features to ensure a more enriching and meaningful experience for the users. The company's focus is on low value. Unlike competitors such as BigBasket. Aaramshop's reliance on local stores to provide and deliver orders to its customers allows for low staffing costs (it has only 12 employees) and overheads. AaramShop revenue models are based on brands that are interested in using the multiple advertising and marketing options.

seven-days-a are working on a hub-and. From charged for proprietary Cash & Carry. customers . saltnsoap. media.Operate on window. aaramshop.Plan and monitor within a 30-minute warehouses.Geographical Spread .com and webvan based on the below parameters . Below herewith is the Comparison of the Operating Models of bigbasket. In Bangalore for such as Saltnsoap. Aaramshop's Grocery feature to products to Proposition and chilled items from its reliance on local stores to "shop groceries in 5 customers' homes own cold storages and provide and deliver orders mins"!.com. to its customers allows for your household budget. the delivery features. The service Personalized Shopping a-day. Companies can then immediately alert their distributors in the area to replenish stock at a given store. Salt n Soap has sourcing convenient time to and Yeshwantpur – which but money (premium) is partnership with Metro receive groceries. FACTORS Bigbasket.minute the hubs. low value. only 12 employees) and with SnS's unique tools overheads Operating Company has chosen to The company's focus is on Salt n Soap stands on 4 The company Model own the last delivery mile. follows a freemium model.USP .com Aaramshop. 3 pm-5 pm and 7 pm-10 pm. a German Very High there. goods will be bought and strategy by which a Shopping Experience to Webvan promised stocked in a warehouse product or service customers .Provide access to 24-hour- of GPS enabled vans and daily groceries. or wholesale giant Infrastructure executives (called customer virtual goods Costs. 11 am-1:30 pm.Payment Options . window of their low staffing costs (it has purchase and inventory choosing.Business Operations etc 3 .Value Added Services . Assistance to customers week online spoke model where all the Freemium is a pricing .com Webvan Founded 2011 2011 2011 1999 Unique “Same day delivery” of All Branded FMCG Salt n Soap's Quick It delivered Selling products such as frozen Products. high turnover innovative business offered customers They have their own fleet consumer goods such as principles .Products .Provide Social grocery ordering. experience managers) deliver the goods in four time slots – 7 am-9 am. Kanakpura provided free of charge.retailer is stocked out of a certain item. allowing instance they have 3 hubs– games or web services) is Lean Logistics Model customers to pick a in Whitefield.Provide to deliver orders which further supplies to (typically a digital offering Open Analytics to within a 30. covers the entire city.

Order Value Rs.Tie up with Home and Personal Home supplies Kiranas Diverse products use User Interface Website & Aaramshop - (Strength) Website Website Online and Telephone Mobile App Funding (Strength) Louis Borders . other online stores Malls . then Motorbike or Car motorbikes kirana deliver at a prescheduled time within a 30 minute window Operations (Back End) Procure directly from Purchase from Metro manufacturers. Pan India Kolkata 10 Major USA markets Bangalore (30 cities) Business Structure to build “massive”. and Yahoo! Payment Options Depends on the Preferred Cash / Credit cards / Coupons Cash on Delivery Credit and delivery Aaramshop Value Added Services Shopping list Analytics to assist the (Strength) 30 mins Customer satisfaction Quick Shop Value @ Home Vouchers customers model requirements USP (Strength) to provide premium shopping experience by offering a Supermarket-like breadth of Online shopping from your Plan and monitor complete. NA Rs.79 for delivery Customer’s preference preference within 24hrs) Next day Delivery Status Track on the website with your Contact the respective Call before Immediate delivery order number and email id retailer dispatching order . Sequoia Capital. Goldman Sachs. wholesalers Cash n Carry based on Direct procurement and strategic alliances (Rei Six the order Ten Retail Ltd) Delivery Time Within 48 hrs from the time of Same day: Order before 12pm or 30 minutes without customer's order (or Pay Rs.Funded Funded by Blue Beaks. Orders fulfilled Mix of self and third party No inventory Massive storage of inventory by kirana stores Operations (Front to provide on-line purchase of End) 25 GPS installed vehicles and Goods dispatched by local groceries and goods. Walmart.If amount less than Delivery Charges Depends on the retail outlet 25 NIL 1000/.only Min. 500 Nil Advertisement $422/day $21/day Revenue Type of Service provided Premium services to brand Product Promotion on for ‘other income’ Nil owners behalf of the brand Competitors Peapod. Geographic Spread Mumbai. $10 million VC funding Self . COMPARISON OF THE OPERATING MODELS Product Portfolio Diverse products of No Products . Other online stores (THREATS) competitors 3 . Hyderabad. local banya. Softbank Capital. Benchmark Capital. delivery and customer service. 11 Malls. state of the (Strengths) Horizontal Integration: art distribution centers (DC’s) Hub and Spoke Model One to many from which the home deliveries Tie ups with local kirana would be centered Infrastructure 3 hubs and one warehouse Not applicable Not Applicable Warehouses and logistics fleet Inventory No inventory. single source products favourite kirana your monthly budget package from product selection through fulfillment. 1000/. 20/.

digital contents.  Sustainable business models for services. collaborative commerce. mobile commerce. with a special emphasis and brands and quality  Competitive as well as discounting pricing methods to be adopted  Keep Up pace with Customer Mindset: The customer mindset is gradually shifting from low price to better convenience. 60% of India’s population is below the age of 30 leading to popularization of brands and products.or component-based model to a as an e-commerce venture would achieve its mission and success through modern day e- tailing ventures soon. high value and a better shopping experience. There is high brand consciousness among the youth. home.  The models should take advantage of the Internet network effects and other unique attributes to achieve and sustain a critical mass of installed base of customers. companies must identify customers’ latent needs and transform their business models from a product.Recommendations  Online grocery stores must follow differentiation as a strategy rather than cost-leadership  A very broad product portfolio of food and lifestyle (fashion.  Innovation in the e-commerce business model and the continuing business model innovation process is required to achieve competitive advantage  Expansion through large format stores across the country and internationally.or solution-based model. What was started by dot. entertainment) brands. more net savvy customers and leaner warehousing and logistics  Online grocery stores need to go beyond being a web front of a physical store and provide more value added services which a consumer does not normally get in a brick and mortar grocery store.  Better IT infrastructure.  Companies must also build and maintain a large set of digital assets and leverage them to provide a scope of offerings or value across many different and disparate markets to satisfy customers’ demands. and peer- to-peer architecture should be the way forward. That is. BIBLIOGRAPHY – 3 .

com 4. www. MIT Research paper on Strategic Analysis of Online grocery stores and it’s outlook. www.bigbasket. Atanu Ghosh – Operations Management 3 5.aaramshop. 3. www. Notes of Prof.