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Wanted: E-distribution

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PCQ Bureau
New Update

New e-commerce ventures are

being announced everyday. I estimate that the survival rate of such ventures

will be less than 10 percent. Nine out of every 10 e-commerce ventures will

fold up. That’s because most promoters have simply no idea of the

complexities involved in the ventures they’re setting up. Most business

plans oversimplify the complexities of the marketplace, overestimate the

technological capability of promoters, and hope that the subsequent IPO

(Initial Public Offer) will be oversubscribed.

One of the key areas that’s

being under-rated is the setting up of distribution networks. Present-day

distribution networks have evolved to their current state over the last

seven decades. Many B2C companies underestimate the amount of work that’ll

go into distributing their products. Instead, they focus their energies on

setting up a site and luring eyeballs. We’re already witnessing customer

dissatisfaction over deliveries. Such dissatisfaction will most probably

increase over time.

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Let’s start by examining

conventional distribution networks.

Conventional distribution

networks attempt to minimize transportation costs. So, you have one or more

factories, the output of which is sent to one or more regional warehouses.

Bulk transport is used to move goods to regional warehouses. Goods then move

from the regional warehouse to warehouses of distributors. Once again, bulk

transport is used. Distributors use smaller means of transportation to move

goods to retailers, and retailers sell to the end user.

As can be seen, the

conventional distribution process is hierarchical. You can almost imagine

the entire structure as a tree, with the point of production being the root

and retail outlets being the leaves. The most cost-efficient mechanisms are

sought to move products between the nodes of this tree. The attempt is to

minimize the total cost of moving products from the root to the leaves.

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Now let’s turn to

Web-enabled B2C ventures. Where do they fit into this structure? There are

three possible places where they could fit in. They could attempt to

distribute goods locally, that is, take over the retailer-consumer link. Or,

they could attempt to fit into the distributor’s space–dispatching goods

in both B2B (to retailers) and B2C fashion. Finally, they could attempt to

set up a nation-wide network.

Setting up nation- or

region-wide distribution networks is a tough job and requires lots of time

and money. It also requires experienced people–the typical techie would

find it tough to argue with unionized truckers. Setting up a local network

too has its own problems–for example, it’s terribly cost-inefficient to

deliver one package at a time. You need volumes to be able to spread the

cost of each trip over multiple deliveries. Tying up with courier companies

is an option, but courier companies are not cheap.

Then there are other issues

involved. Many e-businesses will soon be in direct competition with

conventional distribution channels. And most corporates would not like to

spoil long-standing relationships with existing distributors, since most of

them have spent lots of time and effort promoting the business of the

company.

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I would sum up the situation

as follows–distribution will prove to be the most critical part of B2C

ventures. The only exceptions to this rule are:

  • Businesses dealing in

    high-value products, where transportation cost is a very small part of

    total product cost



  • Businesses that center

    around products for which there are no conventional distribution

    channels available–for example, online auctions, and



  • Service-oriented

    businesses, like insurance or software

Finally, India is not known

for possessing world-class distribution infrastructure. Couriers lose

packages, truckers are known to steal from consignments, and transport

unions jack up rates at will. So, potential entrepreneurs should do their

homework well.

The bottom line

The real stars of the B2C universe will be those who’ve mastered the art

of distribution. Companies like HLL or Colgate could lead the pack in

e-commerce. 

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