In the ongoing war for customers, transactions and revenues, profitability seems a distant goal for almost all the E-commerce players. Not that they are unduly worried about profits as of now – simply because no one is really pushing them to demonstrate a positive bottom line. It’s all about scaling up by signing on customers, brand building and revenue generation. But down the line, not so far off in the future - there is bound to be immense pressure on these hotshot companies to show investors the money. But then, how will it actually happen – is the billion dollar question – pun intended!

In business, as in life, it always boils down to the fundamentals. So what are the fundamentals in E-commerce that will determine the ultimate winners from the also rans? It would be excellent revenue generation models on one hand and ensuring effective and efficient operations on the other. The former is being focused upon very well currently by the e- commerce companies. It’s the lack of – and in some cases - absence of any focus on the latter.

This brings us to the fundamental for success in any product-driven industry – a well-integrated, streamlined and superlative supply chain. As we have seen since time immemorial, the supply chain determined the sustenance of an enterprise and in many cases the entire industry ecosystem. Numerous successful examples abound - Toyota, GE, Zara and McDonald’s to name a few. There are examples of failure as well – such as the Boeing 787 Dreamliner wherein the multi-tiered supply chain was mismanaged. So what is that E-commerce companies can learn and implement to ensure differentiation, long term accomplishment and avoid the dreadful bubble burst that is being predicted?

Through Supply Chain Augmentation, an organization’s supply chain becomes highly visible, efficient and effective by employing faster and/or simpler processes and techniques. This is achievable if the organization develops a competence to prolifically supply, manufacture and distribute an extensive variety of low-priced, first-rate products and services with short lead times and variable quantities.

In a study of the advancement of Supply Chain Management models and performance at Hewlett-Packard (HP), it was noted that HP faced inventories mounting into the billions of dollars and startling customer discontent with its order fulfillment process. HP produces computation and measurement products whose supply chains include manufacturing integrated circuits, board assembly, final assembly, and delivery to customers. To trim down inventory and recover order fulfillment, HP called on an internal team of industrial engineers and management scientists augmented by academic collaboration. The team used an iterative process, enriched by the interface of model development and application.

HP reaped paybacks by streamlining of its manufacturing operations, extending to varied functions right through the organization. Likewise, the academic partners have infused their research with real-life experience. The supply-chain methodology is now well established, and HP is transferring the expertise into its various divisions.

As in the case of Toyota, adding to this was the significant component of flexibility which is the ability to respond quickly and efficiently to changing customer and consumer demands. Similarly, Zara became immensely successful because of their constant focus on responsiveness. By being able to respond in-time and effectively to fluctuating demand helped them to prevent lost sales and therefore contributed to high market share gains. On the other hand, a lack of speed or dexterity would have led to excess stock as trends and fashion change, ultimately resulting in obsolescence.

E-commerce businesses are increasingly relying on information technology (IT) to develop the supply chain process. Thus far, precedent evidence suggests that the investment in IT by itself does not promise superior organizational performance. By means of the resource-based view, IT-enabled supply chain capabilities are company specific and hard-to-copy across organizations. These capabilities can provide as a medium in transforming IT-related resources into superior value for a firm.

Currently, as the E-commerce market continues to grow at break neck pace, only an augmented, flexible and responsive supply chain can pave the way to a reliable competitive advantage for the companies involved. This includes not just the forward logistics from the e-tailer to the customer but the reverse logistics/returns as well. The organizations that understand this quickly - and have the capabilities to continue to improve their supply chain on an ongoing basis - are clearly on their way to ensure and sustain success. There are challenges that E-commerce companies will face in these aspects.

One is the near term responsiveness which determines how rapidly a supply chain can effectively respond in near real-time when something is unexpected or an opportunity arises (the shipment is late, an unanticipated order arrives, the assembly line breaks down etc.).

The other one is medium to long-term responsiveness which relates to how swift and efficient a company’s supply chain can act in response to expansive changes in strategy – both in the external and internal environments (catering to new geographies and demographics, finding new suppliers, changing customer needs etc.).

So E-commerce companies must delve into these attributes in detail. They already have made initial investments in IT infrastructure. Augmenting and well utilizing them to build highly visible, effective and efficient supply chains will ensure sustainable success – and determine the ultimate winners in this high stakes war. And do well to avoid a repeat of dotcom bubble burst 2.0!

Heggdeis Senior Associate Dean, Welingkar Institute of management, Bangalore

Shyamis an Assistant Professor, Welingkar Institute of Management, Bangalore

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