December 16,

SIMSR GLOBAL SCM CONFERENCE

2016

Challenges and Constraint in Supply Chain

Management for Hyperlocal Delivery Business in India
*Rupesh Siyodia1, Dr. Ramkishen Yelamanchili2,

1
Operations, K.J. Somaiya Institute of Management Studies and Research, Mumbai, India
2
Marketing, K.J. Somaiya Institute of Management Studies and Research, Mumbai, India

Abstract: Increasing internet and mobile penetration, growing acceptability of online payments and favorable
demographics has provided the opportunity to e-commerce players to connect with their customers. Aggressive online
discounts, wider and abundant choices given by e-commerce companies, changing life style, rising fuel price are the
main cause of significant upward movement of the online buying trend. Currently e-commerce spend in India is less
than 2% of the total retail spending.

E-commerce is divided in to following verticals

Vertical Example
B2B E-commerce Alibaba
Pure Play Retailer Amazon
Market Aggregators Flipkart, Snapdeal
Hyperlocal (Region Specific E-Commerce
Grofers, Ola
place)

The main objective of the research paper is to study the end-to-end Supply Chain practices followed by hyperlocal
companies, because in the case of hyperlocal purchase, the stress is on faster response rate and the supply chain has to
be agile to aggregate the service e.g. Ola cabs, Uber. It also throws the light on what is the scope of the sector in the
long run.

Key words: Hyperlocal Companies, Agile Supply Chain, ECR (Effective Consumer Response)

Introduction
E-commerce industry right now is valued at USD17 billion and expected to reach USD 300 billion by 2025, as per Mr.
Amitabh Kant, Niti Ayog. This sector is growing by leaps and bounds, challenging traditional retailers and Brick and
Mortar stores (Organized retail). Generating lots of employment opportunities for people in countries like India
(e.g.Flipkart, Snapdeal) and China (e.g. Alibaba). It has potential to grow in developing nations like India and China
because of massive population, which provides largest consumer base.

Thanks to E-commerce! now house hold can buy grocery, apparel, furniture, bank transactions, movie tickets, train –
flight tickets, even one can book cab conveniently sitting at home, while business can procure the raw material as well

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book consultancy online, therefore E-commerce is nothing but the capability of exchanging the value electronically, it
has history of nearby two decades.

E-commerce is well represented by 4C diagram

E-Commerce

Cost More
Convenience Collaboration
Advantage Categories

Vendors/Sellers

SCM

Customer

4C of E-Commerce can be describe as below

 Cost Advantage:- Provides product or service at low cost

 Convenience:- Provides product or service at your doorstep
 More Categories:- Provides diversified product /service portfolio
 Collaboration:- Collaboration with vendors/sellers, SCM partner and Customers

In today’s fast-paced world, a person does not want to wait for many days to receive a product and expects the product
to reach him at the earliest possible time. This is the reason for introduction of services such as Two-Day Delivery,
One-Day Delivery and Even Same Day Delivery by many major E-commerce players. A customer does not mind
paying a premium to receive a product in a shorter period. Delivery time has become one of the most important aspects
of Ecommerce, ranking just after the price of the product.
Next phase of E-commerce ecosystem is Hyperlocal startups that emphasize on the faster delivery (within hour or two)
and major E-commerce players in India are already feeling heat from these startups.

Hyperlocal companies operates in one or more than one states with more specific regional focus (Housejoy.com
operates only in Maharashtra), the main objective of the business to cater wider market within certain geographical
boundaries so as to become strong player (Big basket is very famous in Bengaluru). Demand for instant delivery due to
changing lifestyle, easy access to internet, Increase in geo-location aware devices and easy payment option have paved
the way for hyperlocal businesses in India.

Although, hyperlocal seemed the next emerging market in 2015, merging the online and offline platforms in order to
bring massive scale demand and deliver the goods in the shortest possible time, proved an uphill task.

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Literature Review
Indian E-commerce market is at an early stage with barely adequate logistics and technological infrastructure in place
leading to operational inefficiencies make high volume E-commerce business very challenging.

India’s e-commerce market was worth about USD 3.8 billion in 2009, it went up to USD 17 billion in 2016 expected to
touch whopping USD 300 billion mark by 2025, as per Mr. Amitabh Kant, Niti Ayog and Industry body Assocham.

Retail sector in India is one of the largest sectors in the economy with estimated market size of US$600 billion and is
expected to grow to 1.3 trillion by 2020; still it is at the nascent stage as 92% of players are unorganized. In India there
are around 15 million mom-and-pops stores, by 2020 the percentage of organized retail is expected to be 24%.
Currently e-commerce spend in India is less than 2% of the total retail spending, B to C e-commerce i.e. E-retailing in
India is likely to reach US$60 billion 2017 and expected to cross 10% of overall retail sale by 2018.

The E-commerce companies are transforming form Inventory laid model to Market place model which gives customer,
never ending choices with best prices, also provides great platform to seller to sale their products, as the marketing and
advertising cost are saved. Most of the E-retailers have tied up with the banks and financial institution to finance their
supply chain, all this factor leads to lower transactional cost for buyers.

The concept of Hyperlocal in business emerged after 2010 when startups like Zomato, Ola, Meru realized the potential
of on demand service. Although the concept of hyperlocal service emerged with these startups, the recognition as a
market came with entrepreneurs recognizing the consumer goods and service market. Startups like Grofers, Faasos and
TinyOwl received million dollar fundings in February 2015 this facilitated the rise of what we would call in 2016 a
Hyperlocal Bubble.

The concept of Hyperlocal is not a new concept for mankind, at its broadest level, as the term suggests, it refers to a
very specific area or community, centering around where you live.

A committee of citizens formed in a specific locality to police the local streets, or keep them clean, is a hyperlocal
concept. E.g. in Mumbai, ALM (Advance Local Management) is a manifestation of hyperlocal, Mohalla Committees;
Panchayats are an example of hyperlocal governance in villages, with fairly wide reaching powers, and when it comes
to business, Hyperlocal refers to all businesses in your vicinity, the nearby General merchant, Restaurant, Market, Mall
and other products and service providers.

Definition: - Hyperlocal businesses (be it online services for groceries, household care, food & beverages,
housekeeping services etc.) are designed to leverage the existing resources intensively within a certain local geography
(usually proximity of a few Kms), and provide services to the end-consumer with the help of an online portal / mobile
app as interface.

The business essentially acts as a service provider with the technology platform serving as an interface with the
consumers while there is limited or no investments required producing products or rendering services. Existing retail
stores, pop & mom stores, home kitchens are leveraged within the local geography for procuring the product or service
and the last mile delivery is managed.

Largely the Hyperlocal e-commerce provides two types of services

 Hyperlocal Delivery
The Delivery sector is comprised Hyperlocal who provides tangible products such as food (ready to eat),
grocery, health care product (medicines), electronics items and other tangible products.
E.g. PaperTap, Grofers, BigBasket, TinyOwl, Fasso’s, Swiggy.
 Hyperlocal Service
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The Service sector is comprised Hyperlocal who provides services such as concierge services, home services,
laundry, logistics, medical service etc.
E.g. Taskbob, Housejoy, UrbanClap, Vyomo, MyGlamm.

Following table describes the Percentage share segment wise.

Product /Service % Share Examples

Foodtech 26 Zomato, Tinyowl
Grocery 18 Bigbasket, Grofers
Concierge 9 Dunzo
Automobile 3 Jugnoo, mGadi, Autowale
Laundry 6 Wassupondemand.com, DoorMint.in,
LaundryWala.co.in
Home service 6 Facilitydoor
Logistics 6 TruckSuvidha.com, TruckMandi.in, The Karrier.com,
Fortigo.com
Health care 4 Portea.com, Healthkart.com
Beauty 3 Vyomo, GetLook
Others 19 ---

In hyperlocal segment more than 400 startups were active till last year, but due to financial crisis and supply chain
incompatibility and lack of demand, more than 100 startups have closed their business, while 30 of them underwent
merger and acquisition. Most of the shutdown happened in hyperlocal delivery sector.

Macroeconomic factors facilitating the trend are:

 Regularization of e-commerce in India facilitating entry of MNC’s

 Indian consumers are recognizing the e-commerce and m-commerce business models and the buyer spend
capacity has increased over time.
 Indian urban population spends less time in food and grocery purchase.
 Increase in mobile traffic in e-commerce to be at appx 75% of the e-commerce traffic.
 Adoption of aggregators in mainstream retail businesses
 International successes of aggregator business
 Aggregators are providing competitive pricing and convenience shopping at home.
 Fresh funding available instigating new business development and expansions
 Major CPG businesses like Amul, Reliance, ITC are setting up in new locations extending consumer reach.
 Financial institutions have facilitated digital payment options and safe online transactions.

Supply Chain Models of Hyperlocal Business:

Hyperlocal business follows mainly three different types of supply chain models depending on their business plan,
product or service, the geographical area they are serving and behavior patterns of consumers in that locality. These
models are as following

 Inventory-led model
 Aggregator
 Hybrid model (Mixed of Inventory-led model and Aggregator)

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As for the e.g. different companies in the grocery space have experimented with different models for order fulfilment.
BigBasket has an inventory-led model with its own logistics and supply chain network, Grofers and Peppertap have tied
up with local stores in cities for enabling hyperlocal deliveries, Aaramshop has a hybrid model where consumers can
order online and receive from one of its nearby stores.

Hyperlocal supply chain is consisting of following

 Supplier (Local Business/Retailers)

 Aggregator (Hyperlocal Player)
 Consumers

In Hyperlocal model simply assimilating all possible service providers from the local vicinity onto the available
platforms and giving customers instant access to the ones in their vicinity, as and when required. Whether you want to
order milk, vegetables, grocery, stationery, or get your laptop repaired, laundry dry cleaned, suit altered or microwave
laundry dry cleaned, suit altered or microwave repaired, you can easily get it done with a tap on your phone.

Following is the diagrammatic representation of the Hyperlocal supply chain.

Source:[ CITATION Sou15 \l 1033 ]

Technologies used in functioning of Hyperlocal Supply Chain are as follows

 GPS (Global Positioning System)

Hyperlocal Business uses this kind of GPS functionality to locate local stores where it has tie ups and give options
to the customer to choose from it. It helps customers to find retailers in their nearby area and retailers to find the
correct location of their customer. It also helps in the tracking of the order places by the customer so that Delivery
is ensured to customer.

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 Online Payment

The common aspect of every E-commerce model is use of E-wallets or online payment. It helps in seamless
exchange and purchase of goods. It is fast, reliable and easiest means to consumer

 E-Commerce and M-Commerce Platform (App or Online portal)

This provides the online platform to the consumer to choose the appropriate product from the available diversified
product line.

 SRM System (Supplier Relationship Management)

SRM System provides the online platform to the suppliers, to sign up and go online, and make available their
products to online consumers. Also provides assistance update their real-time inventory level. Also system assists
the supplier to what are the highest selling, lowest selling product in their vicinity so that supplier can replenish the
stock accordingly.

 CRM System (Customer Relationship Management)

CRM System meant for the solving the queries of the consumer during the online shopping, product quality issues,
Rescheduling of delivery etc.

 Shipping and Logistics Support

The Shipping and Logistics system enables the last mile delivery; they pick up the relevant order from the Supplier
(Local Business/Retailers) and ship it to the end consumer. In some cases, where consumer has opted for the Cash
on delivery service the pickup person collects the payment. It also enables the reverse logistics of the return goods.

Objectives of the Study:

 Overview of Hyperlocal business in India
 Challenges faced by Hyperlocal business in India
 Constraint to the Hyperlocal business in India
 To study and understand, weather Hyperlocal businesses have future in India?

Research Methodology:
 All the data is gather from Secondary Sources such as various Research paper in the field, Peered reviewed
journals, specialized magazines online news websites, blogs and information encyclopedias.

 At the end of the study, analysis will be done and suggestions will be stated regarding how to bridge the gap
between the expectation by customers and services provided by the E-commerce retail logistics service
provider.

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Constraints:
 Poor Infrastructure:

Last mile is loaded with challenges like city traffic in the urban areas and longer journeys in the remote areas. Poor
infrastructure in the developing countries adds to the distress involving more time and cost, thus impacting the unit
economics.

 Higher Cost of Deliveries:

The problem for the consumer delivery is further compounded as B2C deliveries often involve a single package per
delivery whereas there are large volumes for B2B deliveries. Driving around in an urban area doing B2C
deliveries translate into higher fuel costs..

 Type of Goods:

In addition to these, other key variable is the type of items being carried. Perishable or non-perishable, toxic
substance or flammable items all add to the challenges.

 Customer Nuances:

E-commerce industry faces another set of problems with last-mile delivery as their online sales have increased
substantially over the past few years. Factors like incorrect address, difficult to find locations, no parking
availability, no one available at home to receive order, change in mind – no longer requires the order, likelihood of
returns and many other issues, all add up to the cost and time involved in an already competitive exercise.

Challenges:

 To motivate a local retailer to come online:-

The greatest challenge faced by the Hyperlocal retailers is to convince the local merchants to serve as supplier, if
we take look at the app we will find only handful of local merchants are available on the app and many of the
famous local stores may be absent from a hyperlocal app.

Local Merchants look at Life Time Value of a customer – the repeat business that they get through loyalty, not just
through one person shopping but also through referral and word of mouth. On a hyperlocal app, a local merchant
does not get any particular showcasing. More than just earning revenue, retailers have to see how their business can
change by being on a hyperlocal app.

When hyperlocal businesses tie up with a broad and efficient network of local partners, only then, seamless
services can be provided to the users.

 Tech enabling the Local Merchants:-

Hyperlocal businesses have to deal with different kind of Merchant, which are not organized, they do not follow
any inventory management system they may have their conventional inventory management system, a result of
which they may not have the SKU count on real time basis, which is not suitable to the hyperlocal business.

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If these local businesses collaborate with the hyperlocal business their shelves may get empty frequently, therefore
to make them follow, the inventory management system, which is suitable for the Hyperlocal businesses, is tough
task.

 Poor last-mile delivery process

Hyperlocal Business’s primary focus is to deliver the order within the stipulated time range i.e. 30 -90 minutes,
generally, last-mile delivery process takes time and is cumbersome and costly leg of the supply chain. Because of
this, hyperlocal businesses have to rely upon logistics companies in order to provide much-needed delivery services
in short time. Crowded streets, huge traffic snarls and difficulty in locating addresses to this mix, last mile delivery
indeed becomes a significant challenge for e-commerce players.

 Operational issues at delivery boy level

All products are not available at a single store, and this makes a delivery boy run around to find another store
which perhaps sells just one time in the list. Of course, returns are a big issue – and sellers are not often willing to
take back products once sold.

 Erratic delivery service

The major problem facing by the hyper local companies is that dearth of skilled delivery boys. For the success of
this model a large fleet of trained and skilled delivery persons are required but currently there is shortage of them.
If they are even present they are highly erratic or irregular. Apart from this, there is no regulation of their payment.

 Quality of product (Perishable & Non branded items)

Quality is biggest concern for the hyperlocal businesses as they can’t keep check on the each order they deliver. If
product quality is below the expectation, the customer will return the order and in future customer may not come
back to the app to buy.

Limitations of Study
 Not many consumers are aware of the hyperlocal companies; necessary education needs to be done on
explaining the benefits of the hyperlocla companies.

 Not many hyperlocals are willing to share their information, as they are startups.

Managerial Implication
Hyperlocal is at nascent stage in India, therefore no detailed literature is available on hyperlocal, this paper
give the insight of the sector, which will helps the managers to kwon how the hyperlocal sector is operating.
Which are the challenges and constraints are there to operate the business. This literature can used as study
material to facilitate the students on hyperlocal operations.

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Conclusion
There is no denying that the rapidly growing industry of hyperlocal E-commerce has exponential scope. Given the
immense number of players emerging in this space, it is predicted that consolidation will happen over the next few
years. Thus, phenomenon of ‘survival of the fittest’ will be the dominant force in the industry that will finally determine
the leaders in the hyperlocal commerce space.

As the whole purpose is local or in a close vicinity to the customer, customer knows where from the products he/she
orders is coming from. This helps to gain the confidence and trust of the customer, which in return makes this model
easier to feasible, and promote.

With e-commerce arrival, many thought local stores would have difficulty in existence but as the world moves again
towards local this thing has been sorted out. Hyperlocal’s collaboration with local stores and connecting them with
their customer in a digital way has made everyone winner as all three of them are now connected to supply chain
model.

As the Hyperlocal industry is maturing, the stress is given upon the faster response rate and not on the discounts, due to
diverse demographics in different region; it is difficult to match the consumer expectations in every region. The supply
chain has to be agile to aggregate the service/product they deliver, though the Hyperlocal startups are utilizing the latest
technologies to deliver the product/service but they are unable to meet the customer’s expectations due to constraints
and challenges depicted above. To meet the customer expectation they can follow the different model such as
inventory-led model, aggregator model or hybrid model depends on the consumer behavior pattern.

References
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3. Anant Computing. (15, Dec 12). What are the challenges of a Hyperlocal business? India.

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6. Computing, A. (2016, Jan 23). Hyperlocal: Building the ideal Hyperlocal solution. India.

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10. Grofers, V. K. (2015, Aug 28). Solving supply chain management- Grofers. (yourstorytv, Interviewer)

11. Mazumder, S. (2015, Sep 15). Can the 'Hyperlocal' supply chain model scale up? India.

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14. Sharma, R. (2016, Jan 27). Why it is Critical for Hyperlocal and eCommerce Companies in India to Get Last
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