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Indias e-commerce retail logistics growth story

August 2016

KPMG.com/in
2016 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
Table of contents
Introduction- Overview of the Indian
1 market

Current state of Indian e-commerce


2 retail logistics

Trends shaping the Indian


3 e-commerce retail logistics sector

Way forward
4
Conclusion
5

2016 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
2016 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
Foreword
Indias interest and curiosity in the e-commerce retail logistics is on a
rise. The e-commerce retail market is among Indias fastest-growing
markets and growth continues to be driven by various supply and
demand side factors. The increasing penetration of internet and
smartphones across the country, increase in the number of urban
households, ease of payment and compelling commercials and
discounts combined with the convenience, access and variety that
online shopping offers, act as market drivers.

E-commerce retail companies continuously work to introduce innovative


business models and technology-driven approaches. Convenient
payment options, customer-friendly policies, speedy deliveries and easy
returns drive customers to online channels. Further, concepts such
as online and application (app) only sales, by invite only discounts,
special discount coupons, cash-back policies and special online festivals
continue to drive customers to shop online.

Retail e-commerce drives significant investment and value for the


Indian logistics sector and has emerged as an important segment in
this spectrum. Growth in this industry has resulted in the emergence of
new service requirements and hence, a new class/section of logistics
operators. Several e-commerce retail companies have also invested in
building their logistics networks and capability, recognising logistics as a
key variable to drive customer experience and reach.

The logistic needs of the industry are evolving rapidly with the changing
business requirements. The industry has been witnessing a rapid
scale-up in service orientation and complexity with an ever-increasing
emphasis on service levels, increased penetration in tier-II and tier-III
cities, surged Cash on Delivery (COD) services, geographic penetration
and supply chain security requirements. This evolution takes place while
coping with the legacy of infrastructure and regulatory woes, which
have long hampered logistics efficiency.

Logistics is thus a key enabler for growth of the e-commerce retail


sector and is increasingly emerging as a differentiator in terms
of customer service and satisfaction. To build-up their scale while
sustaining business margins, e-commerce companies and logistics
providers need to work in collaboration to drive the industry forward.

2016 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
Introduction-
Overview of the
Indian market

2016 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
Fulfilled! Indias e-commerce retail logistics growth story 2

Overview of the Indian e-commerce industry


The e-commerce market in India was E-commerce retailing is the second
estimated at USD27.5 billion in 2016, largest and fastest-growing segment.
and is expected to grow at a CAGR of This is followed by the financial services The state-owned Indian
31 per cent to touch USD80 billion by and classified segments, job searches Railway Catering and Tourism
2020.1 and online matrimony which contribute Corporation (IRCTC) has
to about 15 per cent of the market by
The online travel segment comprises
value.
emerged as one of the largest
about 61 per cent of the e-commerce online sites, with the website
industry in India, including travel and itself, attracting about 45 per
e-ticketing websites. Ticketing accounts
for the largest share of the online travel
cent of all visitors to travel
market, with domestic air ticketing websites in India and 19 per
driving growth.2 cent of the total internet
audience.3

Market size and growth by category (2015)

100% =USD27.5 billion

Travel E-commerce retail


USD16.8 billion 30% USD6.7 billion 50%
25%
61%
Financial services
6% USD1.7billion 25%
4% Classifieds
5% USD1.1 billion 25%

Others
USD1.4 billion

Source: KPMG in India analysis, based on industry observations and discussions, 2016
Note: Growth rate for categories, upto 2020

01. Impact of e-commerce on SMEs in India, KPMG-Snapdeal Report


02. KPMG in India analysis, based on industry observations and discussions, 2015
03. http://www.iamwire.com/2011/11/irctc-face-of-e-ticket-in-india/1862, accessed on 19 November 2015

2016 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
3 Fulfilled! Indias e-commerce retail logistics growth story

E-commerce retailing in India


The e-commerce retail market is Indian market is driven by factors such
among Indias exciting and fastest- as increased penetration of internet
growing markets. In terms of GMV and smartphones, focus on advertising,
(Gross Merchandise Value), the market ease of shopping for customers,
is estimated to be worth USD12 billion innovative payment options, deals and
in 20164. discounts and the rapidly changing
lifestyle needs.5
This industry has come a long way
since its inception and is continuously
gaining momentum and value. The

Large players are diversified across The share of electronics in online retail
categories and are building their is, however, expected to decline with
capabilities to service several of these higher growth in other segments such
categories. as apparel (CAGR approximately 50
per cent) and home furnishings (CAGR
In the coming years, the e-commerce
approximately 68 per cent) in the
The top three to four players retailing industry is expected to
coming next four to five years.5
witness the consolidation and
in the market currently emergence of few big players. Further, At present, the e-commerce retailing
command over 80 per changes in the FDI regulations could industry is witnessing approximately
cent of the market share also boost the penetration of major 1 to 1.2 million transactions per day,
in the overall domestic players and help them gain higher led by categories including apparel
e-commerce retailing space.5 market share by FY20. (approximately 43 per cent), electronics
(approximately 24 per cent), and books
Electronics is currently the largest
(approximately 22 per cent).5 The
segment in e-commerce retail,
number of transactions may however
projected to grow at a CAGR of
fluctuate with seasonal variations,
approximately 43 per cent till 2020.4
including holiday season and discounts.

04. KPMG in India analysis, 2015, based on industry observations and sector progress in 2016
05. KPMG in India analysis, based on industry observations and discussions, 2015

2016 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
Fulfilled! Indias e-commerce retail logistics growth story 4

E-commerce retail market by value (2016)

Others
3% 100% = USD12 billion
Beauty and personal care
2% Electronics
Baby products 47%
2%
Books
7%

Home and furnishing


8%

Apparel
31%

Source: KPMG in India analysis, 2016, based on industry observations and sector progress in 2016

Online retail in India as a percentage of total retail


Indian retailers are yet to capitalise The penetration of online retail in the
upon the power of the online space total retail market is expected to rise
due to lack of internet penetration, from 2.5 per cent in 2016 to 5 per cent
along with a much smaller population by 2020. Of the total organised retail
While India has an internet of online shoppers and low transaction market, online retail penetration is likely
user base second only to sizes7. to increase from 6 per cent in 2014 to
China, only 14 per cent of 25% in 20208.

the total internet users shop


online in India, as compared
to 30 to 35 per cent in Brazil Online retail vs. total retail in India
and Russia, and 55 per cent in
China.6 2016
5%

2.5%

100%=USD37 billion

100%=USD3 billion

Source: http://www.emarketer.com/Article/Indias-Retail-Ecommerce-Sector-Small-Still-Growing/1014342, accessed 22


August 2016

06. http://articles.economictimes.indiatimes.com/2015-09-16/news/66604722_1_indian-internet-e-commerce- 08. http://www.thehindu.com/business/Industry/digital-retail-2020-report-by-google-and-at-kearney-online-


market-user-base, accessed on 19 November 2015 retail-will-drive-25-of-organised-retail-sales-by-2020/article8671796.ece, accessed 22 August 2016
07. KPMG in India analysis, 2015, based on industry observations and sector progress in 2014

2016 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
5 Fulfilled! Indias e-commerce retail logistics growth story

Sector drivers and trends


Increasing online consumer base: million. The top four metros have a 23
Internet penetration is rapidly growing per cent penetration, while the other
in India. The total number of web four metros have gained 11 per cent
users in the country is over 243 internet penetration.

Internet users in metro cities in India (in millions)

Source: http://articles.economictimes.indiatimes.com/2014-11-04/news/55757553_1_internet-and-mobile-association-iamai-
user-base, accessed on 19 November 2015

Despite the growth, only 19 per cent of which may not be the case with retail
the total Indian population has access store shopping.
to the internet compared to more than
Increase in internet-enabled
40 per cent in other peer countries,
devices: The rapid growth in affordable
such as Brazil, Russia and China.
electronic devices to access the
Moreover, out of this 19 per cent,
internet, including personal computers/
only 14 per cent of the population has
laptops, mobile phones (particularly
indulged in online shopping, compared
smartphones), internet television
to more than 30 per cent in other peer
and tablets are driving growth for
countries.9 While the numbers are
e-commerce retailing in the country.
currently low, there is a steady increase
Mobile phones (including smartphones)
in internet and mobile penetration,
internet users are likely to grow 2.5
presenting an attractive opportunity for
times by 2019, to touch 457 million10
e-commerce retailers.
thereby enabling a corresponding
Changing lifestyle of the Indian growth trend for the online shopping
consumer seeking convenience, industry in India. More than 50 per cent
comfort and variety: Online shopping of the orders for e-commerce retail
in metro cities is often associated with giants are generated via mobile apps.
ease and convenience, saving time In terms of traffic, bigger e-commerce
and a hassle-free options. Besides, retail companies draw as high as 50 to
products are delivered to customers 70 per cent of their total traffic through
either on the same or the following mobile.11
day of placing an order. For medium to In the coming years, potentially 40
small towns, online shopping stores million shoppers in the age group of 19
provide a wide range of domestic and to 24 years are expected to spend time
international brands, which may not and money online.12 This trend is rapidly
otherwise be easily accessible. Also, aligning with e-commerce retailing, to
e-commerce retailing sites offer better facilitate the sectors growth.
deals and discounts round the year,

09. KPMG in India analysis, 2015, based on industry observations and sector progress in 2014 11. #shooting for the stars, FICCI-KPMG in India report on Media and Entertainment, 2015
10. Impact of e-commerce on SMEs in India, KPMG-Snapdeal Report 12. http://www.consumerconexion.org/pdf/ACQ_OCTOBER_ISSUE.pdf, accessed on 19 November, 2015

2016 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
Fulfilled! Indias e-commerce retail logistics growth story 6

Role of logistics in e-commerce retail


Logistics is a key enabler for growth share (as much as 50 per cent) of
of the e-commerce retail industry the e-commerce logistics market is
and is increasingly emerging as a commanded by in-house logistics
differentiator in terms of customer players, the other 50 per cent is
service and satisfaction. Logistics in controlled by third-party logistics
e-commerce retail is evolving with (3PLs) service providers including
growing business requirements, and traditional Logistics Service Providers
is acting as an important lever for (LSPs), e-commerce focussed logistics
business growth. The logistics sector providers and India Post.13
specific to e-commerce retailing in
However, apart from increasing
India was valued at USD0.46 billion
competition and the rising demand
in 2016 and is projected to witness a
from tier-III and remote locations,
CAGR of ~48 per cent in the up coming
an addressable market is expected
five years to reach USD2.2 billion by
to be about 45 per cent of the total,
202011.
which could be close to USD1 billion
While many e-commerce retailers in 2020. Also, the focus is now
have partnered with logistic service shifting from standard to specialised
providers to fulfil their business deliveries, which requires 3PLs to
requirements, some players have invest in new capabilities and building
also invested in building in-house infrastructure.13
logistics capabilities. While a large

E-commerce retail logistics market

CAGR 48%
USD0.46 billion USD2.2 billion

2016 2020
Others
1%
Books
Beauty and 3%
Apparels
personal care 1% 38% Baby products Apparels
Others 6% 36%
1%
Books
7%
Electronics
Baby products 29% Home furnishing
9% 23%

Home furnishing Electronics


15% 31%

Logistics as a percentage of e-commerce retail sector in India ~7 per cent

Source: KPMG in India analysis, 2015, based on industry observations and sector progress in 2016

13. KPMG in India analysis, based on industry observations and discussions, 2015

2016 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
7

Current state
of Indian
e-commerce retail
logistics

2016 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
Fulfilled! Indias e-commerce retail logistics growth story 8

Overview of e-commerce retail logistics


Products bought online undergo a range Processing/sorting: After fulfilment, Returns: Another important aspect of
of processes before they finally reach the products are sorted based on the e-commerce retail is higher returns,
the end customers. These processes delivery location at the processing which can be customer initiated or
have been outlined below: centre of 3PLs and are connected due to a logistics failure. The returned
further in the supply chain through line- goods are cycled back into the inventory,
First mile logistics: This involves
haul depending upon the final delivery restocked and relisted. These can
picking up of goods from the sellers
location. however lead to complications like
and transporting it to the e-commerce
refund, exchange and replacement,
retailers fulfilment centre or directly Line-haul: This stage involves
which increases the overall cost
to the mother warehouse, depending connecting the main supply centre with
of the supply chain. E-commerce
on the type of fulfilment model i.e. the main demand centre, via land or air
retailers are introducing innovative
inventory-led or marketplace. depending on the transit time and cost
mechanisms to reduce returns such
matrix.
In the inventory-led model, products as size-recommendation features to
are sent to the fulfilment centre Airline haul is three to four times costlier help shoppers make informed choices,
without packaging/labelling whereas than surface line-haul, however it has reconfirmation via an email as well as an
in the marketplace model, products a lower transit time1. Recently 3PLs option of cancelling the order before the
are completely packed and sent to started off surface express movements shipment is processed.
the warehouse for storage.1 After the for dedicated movement between two
Returns comprise about 15 to 20 per
stock arrives at the fulfilment centre, a points, with shorter transit times than
cent of forward shipments; four to six
physical check is carried out against the the normal surface line-haul movement.
per cent being attributed to logistics
Advance ship notice (ASN)/transport
Long distance line haul (more than failure.1 The rest are customer initiated
challan, followed by a quality check,
500 km) comprised 100 per cent by air returns, either before or after the
before the product is put away on the
earlier, the share of surface line haul delivery.
racks. The inventory is updated in the
in the long distance line haul has been
Warehouse Management System The returns of delivery could be an
increasing. Short distance line haul (less
(WMS) and a stock report is generated. expensive affair for an e-commerce
than 500 km) are predominantly done by
retailer, as it pushes up the average cost
In the marketplace model, products surface with airline haul forming around
of delivery by nearly 50 per cent due
are checked against the arrival list sent five to10 per cent of the short distance
to two-way courier charges. The return
from the seller and stored in the mother line haul.
charges are usually INR35 to 50 higher
warehouse, before the products are
Last mile logistics: This phase involves than forward logistics.1
sent for the last mile delivery.
the dispatch and shipping of products
Fulfilment: Post first mile logistics, its from the mother hubs and to the
fulfilment, which involves picking and delivery hubs, from where they are
packaging of products once an order is shipped out to the customers.
placed on the website. After the order
This leg of the entire logistics chain
is placed, a pick list is generated and
is dependent on manpower and
the product is picked and accordingly
infrastructure in terms of the number
updated into the system. Then, the
of delivery hubs, delivery vans and
products are packed, labeled and moved
bikes. Most of the 3PLs face difficulty
to the mother warehouse, from where
in maintaining their manpower due to
they are sent for last mile delivery.
high attrition rate and therefore, face
challenges in reliable deliveries.

01. KPMG in India analysis, based on industry observations and discussions, 2015

2016 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
9 Fulfilled! Indias e-commerce retail logistics growth story

Cash on Delivery (COD): The adoption change in the future, with increasing
of electronic payments as well as penetration of wallets and increase in
credit card penetration is low in India as credit card penetration.
compared to global averages.2 This has
COD also adds to the complexity of
E-commerce retail returns
led to the adoption of COD services to
cash handling and leakages. The current are as high as 20 per cent.
increase the number of transactions Though COD has helped
remittance cycle of once in two weeks
and acquire first-time customers
rapidly. This also gives the consumer
is seeing a shift towards a 48-hour e-commerce retailing grow,
the choice to touch and feel the
remittance. On-time COD remittance is the chances of returns
crucial to reduce the lockup of working are higher in categories
product before paying for it. This option
capital. Usually, COD is a chargeable
is expected to remain a prominent
service and the charges can range from
with higher number of COD
mode of payment and could hold as
a fixed amount of INR21 to 35, to a 1.5 orders.2
much as 50-55 per cent share in total
to two per cent of the product value2.
shipments currently, with the growth
of e-commerce retail in tier-II and tier-III
cities2. The scenario may however

Overview of the e-commerce retail supply chain

Source: KPMG in India analysis, based on industry observations and discussions, 2015

02. KPMG in India analysis, based on industry observations and discussions, 2015

2016 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
Fulfilled! Indias e-commerce retail logistics growth story 10

Cost structure: E-commerce retail linked logistics


The logistics cost for e-commerce such as misrouting and lost shipments
retailers can be split across the add to the logistics costs.3 Logistics cost as a
components of consolidation, sorting,
line-haul and last mile delivery (this
Also, other special deliveries such percentage of revenue for
comprises a major chunk of the
as time-bound and slotted delivery e-commerce retailers may
commitments along with the vary from five to 15 per cent
fulfilment costs). Return charges are
prevalence of the COD model increase
additional to forward charges and
the logistics costs.
depending on the category of
therefore, may be in the range of 1.5 products being offered.3
to two times of the forward charges3. Generally, all the standard delivery
Logistics cost are further a function costs including COD and returns are
of being local, regional or national borne by the e-commerce retailers.
deliveries. These cost functions may However, the cost for special deliveries
however vary by scale and the use of or value-added services are borne by
technology. the customers.

Further, a high percentage of returns


(as high as 15 to 20 per cent) in the
industry, and other incidental expenses

Components of logistics cost

Source: https://mettl.com/resources/media/IndiaInternet_Time_to_login.pdf?33.0.6, accessed on 19 November 2015

03. KPMG in India analysis, based on industry observations and discussions, 2015

2016 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
11 Fulfilled! Indias e-commerce retail logistics growth story

E-commerce retail logistics: Business models


With the rapidly rising scale of Under this model, the inventory is
operations, e-commerce retailing owned and maintained by online
players have been strategically opting retailers. The model helps ensure better
for viable operating models depending quality control and service level for the
on the nature of products and customers, since the online retailers
operations. have control and visibility on almost
all the processes, from inventory
Broadly categorised, there are three
management order till its fulfilment.
kinds of models prevalent among
e-commerce retailers: While this is a capital intensive model,
with high overheads and substantial
Inventory-led - Inventory is purchased
inventory risks, it is nonetheless helpful
by the in-house buying arm of an
in creating trust and service credibility
e-commerce retailer and stored by
among users, leading to a better brand
them in their fulfilment centres. This
value and recall. This model is more
model is becoming less prevalent
popular for fast-moving, low-value multi
because it is capital intensive and
range products.
allows less scalability. However, it
provides additional control on quality
checks.

Inventory-led model

Source: KPMG in India analysis, based on industry observations and discussions, 2015

Fulfilled by an e-commerce retailer- and stored in the fulfilment centres of


This is a variant of the inventory-led e-commerce retailers. Quality checks,
model, wherein inventory is not packaging and labelling are carried out
purchased by e-commerce retailer; by e-commerce retailers.
rather it is purchased by the sellers

Fulfilled by e-commerce retailer

Source: KPMG in India analysis, based on industry observations and discussions, 2015

2016 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
Fulfilled! Indias e-commerce retail logistics growth story 12

The marketplace model has two carried out by the sellers, and the items
variants - storage/warehousing by an are then sent for storage in the mother
e-commerce retailer and drop ship. In warehouse of the e-commerce retailer,
the marketplace model, inventory is or directly shipped to the customers The marketplace model
not stored by an e-commerce retailer. from the sellers warehouses. is being adopted for high-
Packaging and quality checks are value products, while the
inventory model is adopted
for relatively lower-value,
fast-moving products.4

Drop ship

Source: KPMG in India analysis, based on industry observations and discussions, 2015

Marketplace

Source: KPMG in India analysis, based on industry observations and discussions, 2015

E-commerce retailing companies, in these are still considered to be slow


some of the smaller segments like growth categories on the internet,
home furnishing and baby products, and as a result have limited sellers/
own the inventory primarily because merchants focussing on them.

04. KPMG in India analysis, based on industry observations and discussions, 2015

2016 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
13 Fulfilled! Indias e-commerce retail logistics growth story

The click and mortar share is relatively efforts of established players, and limit
smaller across categories primarily their expenses to publicise their own
because these companies strategically website/shopping pages.
plan to capitalise on the marketing Currently, 75 to 80 per cent of
e-commerce retail deliveries
E-commerce retail models by category take place within 7 to15 days,
while express and holiday
deliveries comprise of only
20 to 25 per cent of the
deliveries.5

Source: KPMG in India analysis, 2015, based on industry observations and sector progress in 2014

Delivery services in e-commerce retail: Express and holiday


deliveries
Logistics service providers offer a variety Express deliveries help in building
of delivery options in terms of a delivery customer confidence and bridge the
time window. These include express time gap between the offline and online
deliveries time-definite deliveries, buying experience; thus leading to higher
same-day delivery, next-day delivery and number of repeat customers. These
holiday deliveries. fall under premium services and are
chargeable to customers, making it an
With the evolution of customer needs,
attractive category for LSPs.
the demand for occasion-led gifting and
last-minute shopping have increased,
leading to the emergence of same-day/
next-day deliveries.

05. KPMG in India analysis, based on industry observations and discussions, 2015

2016 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
Fulfilled! Indias e-commerce retail logistics growth story 14

E-commerce retail logistics: Sector landscape


The e-commerce retail logistics sector processes, IT systems and people
in India is evolving, with three distinct practices to meet the requirements of
3PL categories serving the sector - the sector.
captive logistics arms, traditional
Traditional logistics service
logistics service providers and
providers: These 3PLs have forayed
e-commerce retail focussed logistics
into deliveries for the e-commerce
service providers.
retail sector. These LSPs have an
Some big e-commerce retailers have advantage due to their established
set-up their in-house logistics arms network and reach, along with their
while others have made strategic experience and expertise in providing
investments in e-commerce logistics logistics services pan-India.
companies. In-house logistics arms
E-commerce retail focussed logistics
help e-commerce retailers to run
service providers: In view of the rapid
the logistics as per their business
growth in the e-commerce retail sector,
requirements, thus providing better
dedicated LSPs for e-commerce retail
control on the complete supply chain
have been established over the past
and resulting in better performance and
three to four years, and have been
customer experience.
able to capture approximately 50 per
The three categories of players are cent of the sector. This has primarily
described as follows: been due to better service, investment
in technology infrastructure, wider
Captive logistics arms: The captive
range of product offerings, competitive
arms of e-commerce retailers are
pricing and their ability to reimburse
assured of large captive volumes and
cash quickly.
some have also opened up to service
other e-commerce retailers. They have
a first-hand understanding of the sector
requirements and have evolved their

Share of LSPs in e-commerce logistics

Source: KPMG in India analysis, based on industry observations and discussions, 2015

2016 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
15 Fulfilled! Indias e-commerce retail logistics growth story

Now, 3PLs are coming up with Selection criteria for a cost of COD offerings, e-commerce
innovative logistics models such as retail companies also select a logistics
outsourcing last mile deliveries to
logistics service provider partner that offers a quicker cash
hyperlocal e-commerce logistics Reach is the primary step of filtration remittance cycle.
providers. There is also a growing trend used by e-commerce retail companies
Along with the reach and spread
of managing special services such in India. Currently, many logistics
of operations, the cost of delivery,
as time-bound deliveries, card swipe companies have an average reach
discounts offered and the cost of value-
at delivery and other in-house value of 4,000-5,000 pin codes, out of the
added services also play a major role in
added services, while outsourcing the 26,000 pin codes in India. A large
selection of a LSP. Players serving the
standard deliveries to the 3PLs. number of logistics companies are well
same locations at competitive rates due
penetrated in the metro and tier-I cities;
With the growing demand from to higher scale of operations could be
however, their reach is limited to smaller
customers and the need to attain preferred by both e-commerce retailers
cities and rural areas.6
a competitive advantage, quantum and vendors.
specialised services may increase in Value-added service offerings like COD,
E-commerce retailers also use certain
the near future, which could result in open and buy are critical in certain
performance parameters like on
outsourcing of these services to the deliveries and is generally the next step
time delivery, returns percentage,
3PLs as well. in shortlisting the logistics providers.
deliveries per million, success rates,
A few logistics companies offer this
etc. to profile and rank logistics
service in locations where they have
partners. The service quality of partners
their own branch and are not dependent
is measured by conducting random
on franchisees. These offerings are
customer surveys and accounting of
critical especially for segments like
complaint rates.
apparel and electronics. Beyond the

06. KPMG in India analysis, based on industry observations and discussions, 2015

2016 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
Trends shaping
the Indian
e-commerce retail
logistics sector

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17 Fulfilled! Indias e-commerce retail logistics growth story

Technology in e-commerce
The boom in the Indian e-commerce e-commerce along with low credit and the food-delivery apps are charging
sector could be attributed to the debit card penetration has also led to an customers for delivery or reverse
enhanced use of technology, which increased usage of mobile wallets in the logistics. Some food tech-apps are also
has helped improve e-commerce in country. One of the largest player in the linked via GPS which allow the app to
areas across the supply chain, inventory mobile wallets market in India has more automoatically pick up delivery location
management, improved customer than 104 million users who carry out instead of manual entry by customer.
experience and loss prevention. From an over 75 million transactions per month2.
Integration of systems in case of
increased usage of mobiles and tablets,
Application Programme Interface a reverse supply chain: Returns
the availability of COD services, superior
(API) integration of e-commerce management is a key challenge
technology platforms, inventory tracking
retailers system with the 3PLs specially with e-commerce retailers
and automated fulfilment centres, etc.
system: The success of the providing options of try and buy, and a
have all been driving growth in this
e-commerce retail business is return policy of seven to 10 days and
sector.
dependent on the speed of the supply upto 30 days in categories such as
The increased penetration of internet chain. Data transfer for 3PLs is currently white goods. No 3PLs currently offer
services and faster internet services manual via e-mails, with little to no real-time visibility or updates on the
like 3G and 4G have contributed to the integration in the supply chain. In the status of reverse shipments. Now,
ease of selling and buying/purchasing near future, we can expect to witness 3PLs are moving towards dedicated
products online. Additionally, with an increase in usage of API and system returns management centres which
increasing smartphone penetration, the integration between the e-commerce carry out quality checks, relabelling
e-commerce retailers are also focusing retailer and 3PL for real-time and an and handover of cargo for return to
on mobile apps as against websites. uninterrupted exchange of data and warehouses of sellers or e-commerce
The use of digital marketing including information, for immediate action and retailers. The future is expected to
mailers, digital billboards, mobile query resolution. This is likely to help witness investment in technology by
messaging and e-mails also help to improve the visibility of shipments and e-commerce retailers and 3PLs for their
target specific potential customers with also ascertain reasons for delay, in case reverse logistics supply chain, along
special offers. of any. with a robust control environment
to tackle fraud and tampering during
Online advertisements and electronic Launch of Card Swipe on Delivery:
reverse logistics.
word-of-mouth via social networking The sector is expected to move towards
sites further entice people to buy Card Swipe on Delivery (CSoD) and At present, e-commerce retailers opt
products. For instance, certain mobile Point of Sale (PoS) machines for for superior technology platforms and
companies exclusively sell via websites payments at the customers end. integrated order management systems
and mobile applications. Transactions on CSoD are expected to for offering automated fulfilment
also increase due to a higher average centres. The sector is witnessing a shift
More than 50 per cent of the orders for
selling price of products. This could help with fast-moving mobile and social
e-commerce retail giants are generated
in ease of cash management required technologies. E-commerce channels are
via mobile applications. In this context,
in case of COD orders and help to drive integrating their customer relationship
the COD option has been instrumental
growth in the sector. management software, social
in driving retail e-commerce growth
media marketing and search engine
in a developing market like India, with Focus on tech-enabled logistics:
enhancement practices for better supply
low penetration of debit or credit cards Large retailers are now investing in tech-
chain management.
or even bank accounts to make online enabled start-ups. Several food-delivery
purchases1. Features such as online apps are now linked to the Google Maps
only discounts, online coupons and free app as well as to the taxi-apps, thereby
shipping facilities could further help in allowing users to track and monitor
expansion of this sector. The growth in deliveries from the restaurants. Also,

01. KPMG in India analysis, based on industry observations and discussions, 2015
02. Alibaba, Ant Financial invest about $680 million in Paytm, up stake to 40%, The Economic Times, accessed 6 Nov, 2015

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Fulfilled! Indias e-commerce retail logistics growth story 18

At present, e-commerce retailers opt retailers, the sector seems to be Novel parcel delivery
for superior technology platforms and undergoing a modular shift toward
integrated order management systems outsourcing the fulfilment process.
models Parcel lockers
for offering automated fulfilment and PUDO (pick-up and
A shift to the marketplace model and
centres. The sector is witnessing a shift
convenience to vendors are expected drop-off) locations
with fast-moving mobile and social
to drive the demand for outsourced Similar to European markets, the Indian
technologies. E-commerce channels are
fulfilment centres. Category-specific e-commerce logistics market is now
integrating their customer relationship
focus and concerns further drive implementing the concept of PUDO
management software, social
e-commerce retailers towards (pick-up and drop-off) centres that
media marketing and search engine
outsourcing fulfilment. allow buyers to collect or return goods
enhancement practices for better
supply chain management. Further, large e-commerce retailers ordered online.
could manage their own fulfilment, For instance, existing outlets of
Shift towards outsourced but players who need the last mile some large logistics players are being
fulfilment, such as in case of furniture, converted into PUDO outlets, which
fulfilment models need to look at external fulfilment as will give online shoppers the option to
The Indian e-commerce retail sector they require hubs for the same near collect their orders from offline centres
continues to grow and evolve. In its their markets. located in convenient locations around
initial years, e-commerce retailers homes and offices. Indian e-commerce
Sustained growth in the e-commerce
dealt with low product volumes, with companies are also experimenting
retailing sector in India is expected
limited geographic reach, and hence with parcel pick-up from local grocery
to drive the requirement for higher
managing operations in-house was stores and petrol pumps to increase
warehousing space. Beyond a certain
relatively less complex. Higher costs convenience and reduce the cost of last-
scale, e-commerce retailers may find it
and limited external capability in case mile delivery.
difficult to manage multiple warehouses
of outsourcing fulfilment also drove
and move towards outsourcing. Below
several e-commerce retailers to manage
are the key drivers which help move/
their fulfilment in-house. However, with
enable outsourced fulfilment centres.
an increase in the scale of business and
the emergence of mid-tier e-commerce

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19 Fulfilled! Indias e-commerce retail logistics growth story

E-commerce retailers are also testing Seller driven logistics up with innovative logistic models such
click & collect or automated parcel as outsourcing last mile deliveries to
delivery terminals, which will be used There is also an increasing number of hyperlocal e-commerce logistic service
to deliver and store parcels purchased instances wherein the sellers manage providers.
online. Customers can operate these packing as well as dispatch, depending
on the number of sellers, volume of There is also an increasing trend of
boxes using mobile phone apps or
transactions and geographical footprint e-commerce retailers managing special
one-time passwords that are generated
of the seller base. services such as time-bound deliveries,
on entering the airway bill number, to
card swipe at delivery and other
collect or return parcels at convenience. This program is however available to value-added services in-house, while
The services are aimed at offering sellers who have been associated with outsourcing the standard deliveries to
delivery security, flexibility and the marketplaces for a considerable 3PLs.
confidence to costumers, in addition to time and have been consistent in terms
of sales as well as customer feedback. However, with the growing demand
reducing missed/ failed deliveries which
from customers and the need to attain
push up the delivery costs significantly
for e-commerce retailers. All these
Differentiating loyalty a competitive advantage, specialised
programs services might increase in the near
ideas underlie the common theme of
future and thereby, result in outsourcing
addressing last mile delivery concerns Leading e-commerce retailers are these services to 3PLs as well.
that continue to the plague the rapidly also launching loyalty programs for
growing e-commerce retail industry. customers, with subscription policies Regulatory environment for
offering several benefits at a nominal
Faster delivery models annual charge. Some of the benefits e-commerce retail
There is an increasing trends of same- include free shipping and returns, The regulatory environment for
day, 1-day or 2-day deliveries in the discounts on same day deliveries along e-commerce retail sector in India is
Indian e-commerce retail market for with priority customer care. constantly evolving and being liberalised
most product categories. given the huge potential to attract
The loyalty programs as a differentiating
Additionally, international as well factor may be helpful in in tying back foreign investment and benefits to
domestic retailers are offering deliveries users to the site for purchases and consumers.
not only within a day or two but also increasing customer stickiness. In terms of the extant Foreign Direct
within a specific time-frame, 90 minutes Investment (FDI) Policy3, 100 per cent
The e-commerce retail market if also
to two hours, at an additional charge. FDI is allowed under the automatic
witnessing a host of experience stores
This model has been particularly gaining route in Business-to-Business (B2B)
focusing exclusively on specialised
popularities for grocery products. trading activities including through
categories, such as make-up, lingerie,
baby-products, furniture, eye-wear, e-commerce, which refer to buying and
Focus on rural distribution selling of goods and services including
etc. The increasing variety of products
Some of the largest e-commerce available online also have varied digital products over digital and
retailers in the country are now logistics requirements with increased electronic network. Such companies
focusing on rural distribution models opportunities for logistics service are only permitted to engage in B2B
to cater to tier 3 and 4 town customers. providers. trading through e-commerce and
Companies are building pick-up & drop not in Business-to-Consumer (B2C)
points by tying up with local shops The expectations of the customer e-commerce activities.
in rural areas and also employing base in India are now evolving. There
is an enhanced focus on delivery costs Until last year, there were ambiguities in
local youth to smoothen the delivery foreign investment in B2C e-commerce
process and also cut down on long than delivery time alone. The market is
witnessing a shift towards customers segment4 . The Department of Industrial
delivery times as well as keep Policy and Promotion (DIPP), Ministry of
delivery costs under check. Specialist willing to pay for logistics for speed,
reliability and convenience. Commerce and Industry, in November
skill development and employment 2015, permitted companies with
companies are helping to run these
centres in rural India and involve rural
Increased outsourcing of foreign investment engaged in Single
Brand Retail Trading (SBRT) activities
folks in the e-commerce growth story. logistics functions to undertake B2C sales through
Logistic service providers in e-commerce upon satisfaction of
e-commerce retail industry are coming prescribed conditions5.

03. Consolidated FDI Policy,2016 issued by the Department of Industrial Policy and Promotion dated June 07, 2016
04. Govt turns down FDI in retail e-commerce, Business Standard, 10 June 2015
05. Press Note No. 12 (2015 series) dated November 24, 2015

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Fulfilled! Indias e-commerce retail logistics growth story 20

The key condition for carrying out online it has been further provided that the
SBRT sales is to setup at least one Indian brands should be owned and
physical brick-and-mortar store (offline controlled by resident Indian citizens
sales) in India. In addition to above, inter- and/or companies, which are owned and The market potential
alia, FDI in SBRT activities (including via controlled by resident Indian citizens. for fulfilment centres is
e-commerce portal) is subject to certain estimated to increase from
The above liberalisations in the FDI
stipulations including compliance with
the 30 per cent local sourcing clause
regime, especially in the context of retail about USD34 million in FY14
(for FDI beyond 51 per cent), sale of
trade, have significantly contributed to to approximately USD430
revival of the foreign investor confidence million by FY20, depending
products branded during manufacturing,
in India. This is evident from the fact that
execution of a legally tenable brand
up to March 31, 2016, the government
upon a commodity-wise
licensing agreement in India etc.
cleared 89 proposals for foreign preference to outsource and
Over the last couple of year(s), the investment in retail trade resulting into a vendor preferences.5
Indian government has also relaxed the significant FDI inflow into the country7.
sourcing norm in a calibrated manner.
Another significant development in the The rules governing sales tax for
Under the extant FDI guidelines6,
e-commerce space from a regulatory commercial and e-commerce retail
initially, the companies engaged
standpoint is the introduction of shipments also vary across regions
in SBRT activities were required to
guidelines [vide Press Note No. 3 (2016 with regards to the required forms,
comply with the 30 per cent sourcing
series) dated March 29, 2016] governing their validity, exemption levels,
norm as an average of five years of
FDI in marketplace e-commerce models. treatment of promotional schemes/
total value of goods purchased from
The new guidelines clearly lay down the discounts etc. Also, recently many
the opening of the first store in India,
definition of inventory based model of states (such as Bihar, Uttarakhand,
subject to adherence to certain other
e-commerce [inventory of goods and Gujarat etc.) have amended their
procedural conditions. However, for
services is owned by the e-commerce entry tax laws to levy entry tax on
the foreign retailers employing state
entity and is sold to consumers directly] e-commerce transactions. Some of
of art and cutting edge technology in
and market place model of e-commerce the e-commerce players have even
manufacturing of their products and
[provision of information technology challenged such entry tax provisions
unable to source locally from India,
platform by an e-commerce entity on a before High Court as regards their
the Indian government has recently
digital and electronic network to act as constitutional validity. Ambiguity and
introduced [vide Press Note No. 5 dated
a facilitator between buyer and seller], grey areas of interpretation of indirect
June 24, 2016] an option to seek a
thereby permitting 100 per cent FDI in tax laws are hampering the growth of
complete exemption from local sourcing
a marketplace model of e-commerce e-commerce retail sector. The Goods
for a period of three years, subject
under automatic route, subject to certain and Services Tax (GST) is however
to prior government approval. After
prescribed conditions. FDI in inventory expected to alleviate these concerns to
completion of the exemption period, the
based model of e-commerce on B2C a large extent.
SBRT retailer in the next five years will
basis is prohibited.
have to meet the 30 per cent sourcing Further, from a corporate tax
norm at an annualized average rate of The prescribed stipulations entail standpoint, it has always been a
the total value of the goods. Thereafter, prohibition on offering of discounts challenge to ring-fence the digital
they need to comply with the norm on or exercising ownership on inventory, economy and bring to tax the
an annual basis. no direct role in influencing pricing transactions in India. The Organisation
decisions of vendors, ceiling on each for Economic Cooperation and
It is important to note here that the
vendor/group company account to Development (OECD)s Action Plans9
Indian brands are equally eligible for
not exceed 25 per cent of total sales on Base Erosion Profit Shifting (BEPS)
undertaking SBRT. It has also been
effected through marketplace model have suggested some measures
provided that certain conditions of the
etc8. to adopt global taxation principles
FDI policy, such as products to be sold
for e-commerce viz. modification
under the same brand internationally In terms of indirect taxation, the excise
of PE concept, progressive tax on
and investment by non-resident entity/ tax is levied at the central level, while
the bandwidth usage of websites,
entities as brand owner or under legally sales tax at the state levels, along with
withholding tax by financial institutions
tenable agreement with the brand octroi/entry taxes in select jurisdictions.
while making payments for digital
owner, shall not be made applicable in
goods/services.
case of FDI in Indian brands. Further,

06. Para No 5.2.15.3 of the Consolidated FDI Policy, 2016 09. BEPS Action Plan 1: Address the tax challenges of the digital economy
07. Government clears 89 single-brand retail, 1 multi-brand proposals, Economic Times, August 01, 2016
08. Para No. 5.2.15.2.4 of the Consolidated FDI Policy, 2016

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19 Fulfilled! Indias e-commerce retail logistics growth story

In light of the recommendations of Currently, the specified services for such goods and different target
the OECD BEPS Action Plans, the have been defined to include online consumer profiles.
government recently introduced in the advertisement, any provision for digital
Against the above backdrop, certain
Finance Act, 201610, an Equalisation advertising space or any other facility
questions still remain unanswered while
Levy (EL) for taxation of digital or service for the purpose of online
new questions have been raised with
transactions. The EL is form of tax advertisement. However, the Indian
respect to the changes in the FDI norms
(although enacted through a separate Government may notify additional
with respect to e-commerce. The FDI
code in the Finance Act and does not transactions to fall within the purview of
norms fail to elaborate the meaning
form part of the Income Tax Law) to EL in times to come.
of maintaining level playing field
tax the e-commerce transaction/digital
A favourable regulatory environment and influencing price with respect to
business. The rate of EL is 6 per cent11
would be key towards unleashing the marketplace e-commerce activities.
payable on the amount of consideration
potential of e-commerce. The real Further capping the amount of sales
for specified services received or
and perceived benefits of allowing by a particular vendor creates distress
receivable by a non-resident not
FDI in the Indian retail sector such with big e-commerce companies who
having Permanent Establishment (PE)
as efficiency in operations, creation have merchants that account for large
in India, from a resident in India who
of jobs, investments in the back-end chunk of sales. The much-needed
carries out business or profession, or
infrastructure and its overall contribution capital infusion, however, needs to be
from a non-resident having permanent
to economy also hold true for the facilitated either by further relaxing the
establishment in India. The levy is
e-commerce sector. In the unorganised existing FDI norms applicable to multi
currently applicable only on business
retail sector in India, e-commerce is brand retail trading through e-commerce
to business (B2B) transactions, if
not a threat, considering factors such or by encouraging domestic sources of
the aggregate value of consideration
as a minimal product category overlap, funding.
in a year exceeds INR1,00,000
the perishable nature of goods sold at
(approximately USD1,500)12.
grocery stores, small transaction size 10. Chapter VIII, Finance Act, 2016
11. Section 165 of the Finance Act, 2016
12. USD1= INR 66.66

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Fulfilled! Indias e-commerce retail logistics growth story 20

The implementation and roll-out of The government, regulatory agencies,


GST could simplify indirect tax and logistics service providers, payment
jurisdictional laws for e-commerce. Also processing gateways, other supporting
from a GST standpoint, the model GST parties and e-commerce players are
legislation includes an entire chapter beginning to step-up and address these
on e-commerce and has prescribed challenges. The GST is a positive step
information-disclosure requirements toward simplifying the tax structure on
plus a tax collection at source model for the sales of goods and services.
both goods and services. A distinction
The varied interpretation of intricate tax
in the model GST legislation between
norms and complex inter-state taxation
assessees actually supplying goods
rules make e-commerce operations
and services (whether through their
difficult to manage and to stay compliant
own electronic platform or otherwise),
to the Indian tax code. The government
and assessees merely providing the
would require to study the taxation and
electronic platform to facilitate such
jurisdictional laws to address the multi-
suppliers is welcomed. This is also
jurisdictional nature of e-commerce
in parity with Press Note 3 by DIPP
transactions.
for e-commerce marketplace players.
Further, finer aspects (including Taking a holistic view of the above
requirement of forms for movement of developments, coupled with
goods, determining place of supply for progressive liberalisations in the
goods etc.) are expected to get clear FDI Policy and evolution of tax laws
once the final GST legislation along with governing digital channels, e-commerce
rules are rolled out. is poised for an exciting period of growth
and investment, with simpler and legally
compliant business structures.

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Way forward

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Fulfilled! Indias e-commerce retail logistics growth story 22

The e-commerce logistics sector increase in the future1. A growing trend warehouses of sellers or e-commerce
continues to evolve rapidly with changes towards the marketplace model has also retailers. The sector is thus expected
in the business environment. prompted e-commerce retailers to open to witness consolidation for better
fulfilment centres near the sellers, with services and profits.
With an expansion in reach and service
fulfilment centres in tier-I cities. This has
levels, LSPs need to evolve to offer a The e-commerce retail sector is also
led to outsourcing of fulfilment centres
portfolio of a range of services, as well witnessing new kinds of services
to 3PLs who have better presence at
as consistently innovate to keep pace such as slotted deliveries and evening/
these locations.
with the rapidly changing dynamics of morning deliveries to increase customer
the sector. In terms of mode of transport, air satisfaction. This is expected to add
transport has traditionally been the more responsibility on 3PLs and hence,
The sector is expected to witness
preferred mode for long distance they need to step-up their capabilities
increased penetration in tier-I and
movements.1 However, it increases to provide customers a better service
tier-II cities. More than 50 per cent of
the logistics cost per unit. However, experience.
e-commerce shipments are destined
with the prevalence of the marketplace
for cities/towns outside the regular E-commerce logistic service providers
model, long distance movements are
metropolis; with focussed local need to keep pace with the changing
expected to reduce, thereby leading to
campaigns being undertaken to increase needs of the business, whether launch
express surface movements becoming
buyers and sellers from smaller cities1. of value added services to match
the preferred choice of transport.
The increase in purchase through mobile growing customer expectations or
applications is one of the reasons for The sector is also expected to expanding reach into the semi-urban/
a shift in the customers base from witness increased focus on returns rural areas to enable new customer
metros to tier-I/II cities. management. Some 3PLs operate acquisition. In a nutshell, logistic service
dedicated returns management centres providers need to be flexible as per the
The share of COD transactions by
for end-to-end returns management, demands from the customers.
volume currently is between 60 to 70
including a quality check, relabelling and
per cent, but the volume is expected to
handover of the cargo for return to the

01. KPMG in India analysis, based on industry observations and discussions, 2015

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23 Fulfilled! Indias e-commerce retail logistics growth story

E-commerce logistics: Risks and challenges

Procurement/inventory management

Absence of a defined process for vendor selection/quality checks


Price variances across multiple on-boarded vendors for the same product
Ineffective inventory planning/monitoring of open purchase orders
Challenges associated with warehousing/monitoring of stock levels.

Customer order management

Multiple tax rates across geographies - compliance of sale invoices to tax laws
Monitoring delivery related service level agreements/pending orders
Products sold at higher than maximum retail price/negative margins
Promotion codes used after expiry/beyond the defined criteria.

Logistics and shipping

Non-compliance with agreements - cash collection/reconciliation/on-time delivery


Selection of a cost effective and efficient third party logistics vendor for select pin codes
Challenges associated with route planning/consolidation of shipments
Vendor payments based on shipment.

Returns, replacement and refunds

Incorrect/delays in processing of customer refunds (online and COD)


Replacements/refunds processed to customers without a receipt of goods/adequate quality
checks
Absence of a robust process to monitor compensation provided to customers
Non-monitoring of customers with significant number of returns.

Customer support

Categorisation of customer complaints and response mechanisms


Customer dispute resolution
Monitoring delivery-related service level agreements (customer and seller management)
Review and monitoring of access controls (order cancellations, refunds, etc.).

Reconciliations

Goods reconciliations: order quantity vs shipped quantity vs. delivered quantity


Amount received from payment gateway vs value of prepaid orders vs payment gateway charges
Purchase order vs invoice vs physical goods
Logistic vendor invoice vs quantity, weight and area code of deliveries assigned.
Source: KPMG in India analysis, based on industry observations and discussions, 2015

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2016 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
Conclusion

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Fulfilled! Indias e-commerce retail logistics growth story 26

The sustained growth of over 50 per support function, logistics here enables swipe at delivery and other value
cent in the Indian e-commerce retail growth in e-commerce retail with added services could be managed
sector underlines the need for efficient respect to strategy and execution. in-house, while standard deliveries
and sustainable logistics operations for could be outsourced to 3PLs. However,
Time-definite deliveries including same-
various sizes of e-commerce retailers in the long-term, with an increase in
day and next-day deliveries as well as
in India. The growing prominence of the specialised services, these could also
delivery with in a particular time window
marketplace model and the increasing be outsourced to 3PL providers.
could continue to gain prominence in
penetration of e-commerce are likely
the future. The service reliability for The governments plan to implement
to alter the way e-commerce logistics
these segments is expected to remain GST is a positive step toward simplifying
functions in India.
critical for the success of e-commerce the tax structure on sale of goods and
A combination of delivery speed, retailers and logistics providers. services. The government would require
upgraded warehousing infrastructure, The ability to handle cash for COD to study the taxation and jurisdictional
better service capabilities, technological transactions and timely cash remittance laws to address the multi jurisdictional
advancements and innovations could could be imperative for servicing the nature of e-commerce transactions
be some of the must haves for the sector. and provide a clarity on tax laws for
e-commerce LSPs in the longer run. transactions involving information
The increasing network of e-commerce-
products.
The growth in e-commerce in coming focussed retail logistics providers and
times shall be driven by rural and tier increasing emphasis of full-fledged The emerging trend of outsourcing
II III cites. These cities are expected to LSPs on the e-commerce retail sector e-commerce retail fulfilment centres
account for approximately 55 per cent are expected to lead to intensified to logistics providers could depend
of the orders1. E-commerce retailers competition in the market, putting on a commodity-wise preference to
are expected to continue to shift pressure on costs and margins. The outsource and vendor preferences.
towards the marketplace model, with concept of captive logistics arms The scale of operations could play an
multiple merchants across categories might be hived off since it is not a core important role in maintaining cost
from various parts of the country. business for e-commerce retailers. efficiency, and at the same time
Warehouses are being planned across Also, while the e-commerce logistics addressing delivery-related challenges
the country to serve a dispersed sector is expanding at a rapid level, it for e-commerce retailers. Henceforth,
set of vendors and customers. This might be difficult to scale the logistics logistics providers could expand
decentralisation of demand and supply infrastructure and capabilities at a strategically and functionally to capture
could also help improve the market corresponding pace; thus leading to an the opportunities emerging out of an
share of surface movement. increase in outsourcing as opposed to e-commerce proposition.
building in-house services.
Technology and logistics are key to the
success of e-commerce businesses. In the short-term, specialised services
Unlike other sectors where logistics is a such as time bound deliveries, card

Acknowledgement
We take this opportunity to thank our authors, Prahlad Tanwar and Kirtika Doger for helping us develop an insightful
publication. We also extend a word of gratitude to Jaideep Ghosh, Shreedhar Prasad, Anujesh Singh and Angad
Singh for providing strategic direction to the report and the initiative at large. We hereby acknowledge the efforts put
in by our Brand Management and Marketing Compliance team- Hussain Rahat, Priyanka Agarwal, Sharon Dsilva and
Sanjeev Bhar. We thank CII for their continued guidance and support.

01. KPMG in India analysis, based on industry observations and discussions, 2015

2016 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
Contact us
Nitin Atroley
Partner and Head
Sales and Markets
T: +91 124 307 4887
E: nitinatroley@kpmg.com

Jaideep Ghosh
Partner and Head
Transport, Leisure and Sports
T: +91 124 307 4152
E: jaideepghosh@kpmg.com

Prahlad Tanwar
Director
Transport and Logistics
T: +91 22 3091 3417
E: prahladtanwar@kpmg.com

KPMG.com/in

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The views and opinions expressed by the interviewees are their own, and do not represent the views and opinions of KPMG in India.

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