Case Study – Group Assignment

Bestseller is a e-retailer selling men’s formal shirts on Flipkart and Amazon. The proprietor is Mr. Kabir
Khan, who has more than 7 years of experience in many online marketplaces. The company operates
out of an office cum warehouse located near Chirag Delhi. This case analysis the supply chain of the
Flipkart business of Bestseller.

Supply Chain of Bestseller Online Stores

Damaged products
sold in wholesale

Lead Time -15 Days

TAT – 2 days
Tailors -
Prahladpur BestSeller Flipkart
Stores

Fabric -Raymonds, Forward

Morarjee Flow

Flipkart Logistics Customer

WNS Retail
Accessories -
Govindpuri
Reverse
Flow

3PL /
Flipkart

The various components of the Supply Chain are as follows:

a) Order Generation Cycle (Forward Flow) – The order is generated when the customer places an
order on the Flipkart site. The website is integrated with seller panel which instantly reflects the
new order. The details which reflect are Customer name, the address with pin code and the sku
which is being bought. The seller panel is a customized web page which is totally integrated with
the Flipkart server.
b) Order Fulfilment Cycle: Bestseller does not manufacture the products on his own but gets it
made from specialist tailors at Prahladpur. The order fulfilment cycle therefore has three steps:
1) Procurement cycle – The raw materials are procured from suppliers. The fabric is procured
from three suppliers – Cadini, Raymond and Morarjee. (Refer Annexure 1- Procurement).
The accessories (collars, buttons) are sourced from the wholesale market at Govindpuri.
 2) Manufacturing: The fabric and accessories are given to the Tailors to make shirts (brand
name Stratum) as per specifications. It takes the tailor 15 days to make a shirt as per the
quality norms.
3) Execution Cycle: Bestseller keeps 15 days inventory (equal to lead time). Once an order
comes from the website the ready shirt is picked from the Warehouse. This shirt has to be
packaged, labelled and handed over to the Logistics in a TAT (Turn Around Time) of 2 days.
While choosing the Logistics partner, Bestseller has the option of choosing Flipkart WS Retail
(a fully owned Logistics partner of Flipkart) or any other Logistic provider of its own choice. If
the pickup is scheduled with Flipkart, then the parcel is scanned by the Logistic provider and
the seller’s panel and the website is updated instantly. The customer also gets an SMS that
the parcel is ready for dispatch. On the other hand, if Bestseller chooses a Logistic provider
of his own choice, then he has to manually enter the AWB number (Airway Bill number) on
the seller panel. Otherwise, the order will continue as pending and the TAT will be breached.

Once the parcel gets delivered at the customer’s end, the seller panel gets updated to
reflect the same. On the other hand, if the customer refuses to take the parcel then the
panel is updated as RTO (Return to Origin). Currently, Bestseller has around 20% RTO rate.

4) The Return Cycle (Reverse Flow) – The Return Cycle refers to the case where the parcel is
not delivered at the Customer’s end. This happens because of two reasons:
 Customer Initiated Reasons - This can be because of reasons like Buyer’s remorse or
Quality issues.
 Logistics Initiated Returns – This is because of reasons like wrong pin code, buyer not
reachable etc.
 The seller is debited the return logistic cost where the reason for returns is customer
initiated (quality reasons).
 The seller is entitled to Insurance from Flipkart if the return parcel is damaged in transit
and the claim is made within 24 hours. This is made from Flipkart’s Seller Protection
Fund.
5) The Payment Cycle: Flipkart settles sellers once in every 15 days. Payment is made for all
complete transactions i.e., where delivery is made to customers and the customers has also
paid the amount (in case of COD orders)

E- Commerce Operations of Bestseller for Flipkart

- Bestseller is focused on the premium online shirt market (Rs 1100+) and markets the same
under the Stratum brand name.

1) Order Volume: Best seller gets on average 25 orders per day from Flipkart. The orders are
mostly for Blue, White shirts (60%). There is no trend for other skus. 80% of the orders are
COD (Cash on Delivery) orders.
2) Location: Bestseller operates out of a leased 650 sq ft office cum warehouse space in Chirag
Delhi. The location is advantageous and on road. Pickups from Flipkart can be scheduled
 easily. The office is also not very far from the suppliers (Chandni Chowk, Govindpuri) and
tailors (Prahladpur). The rent for the warehouse is Rs 10,000 per month.
3) Lead Time: Flipkart gives Best seller 2 days to execute a customer order. The tailors need a
lead time of 15 days to execute a job order.
4) Inventory: Bestseller needs to keep an inventory of 15 days to cover for the lead time.
However, on a sku level, BESTSELLER often runs into stock out as order flow can be erratic
for individual skus. In terms of value the average stock held by Bestseller is Rs 400,000 (app).
5) Procurement: Bestseller procures the raw material (Buttons, Collars etc.) from the wholesale
market in Govindpuri. Similarly, the fabric is procured from the distributors of Raymond and
Cadini. The fabric for Morarjee is sourced from the wholesale. Procuring from the
distributors ensures a reliable quality. All the procurement has to be done in cash.
6) Manufacturing: The shirt is stitched by tailors in Prahladpur. These tailors are also engaged
in similar operations for apparel brands like Blackberry and have a high level of expertise.
The tailors charge Rs 180 per shirt for stitching. The tailors need 15 days to execute an
order. Payment is done in cash once the job work gets completed.
7) Inward Transportation: Accessories are purchased in bulk and transported through public
transport. The cost is included in the cost of purchasing (Refer Table 1). The cost of
transportation of fabric to the tailors and transportation of stitched shirts to the warehouse
is paid by Best selller. It is approximately Rs 7000 per cycle. This cost is not included in the
purchase cost (Table 1)
8) Reverse Logistics: Around 20% of orders are in the RTO (Returned bucket). Of the returned
orders 60% are due to Logistic reasons. Bestseller reuses these logistic returned products
against fresh orders. A certain percentage of products are also damaged in transit (app
20%). BESTSELLER raises a claim from Flipkart for the damaged products. Flipkart has a claim
service of around 25%. Bestseller normally retails the damaged products at heavy discount
in the wholesale market (offline market). Typically, Bestseller is able to recover 50% of the
cost of the shirt in discount sales.
9) Quality: There is no mechanism in place for testing of quality at the current juncture. The
fabric is of a stable quality as it is being procured from authorized distributors of the brands.
However, there is a great deal of variability in the quality of the accessories.
- Other Expenses /overhead expenses are:
o Manpower Cost: Rs 20000 per month (2 people in packaging)
o Electricity and other overheads: Rs 8000 per month

The following tables give a breakup of the Procurement Cost (Table 1) and the Marketplace
Execution cost (Table 2).
Challenges Being Faced by Bestseller

1) High Channel Commissions: Flipkart charges a high commission of 18% from the
seller. There are also other charges like a collection fee of 2%, fixed charge of Rs 40
etc. 20% plus of the product price is typically being paid to the Marketplace. This
impacts the net margin. As can be seen from the Shirt Costing details, the net
margin ranges from 5.9% on a few sku to a maximum of 16% (on the cost price).
Please note this net margin does not factor other costs like warehousing costs,
overheads, inward transportation, inventory carrying costs, Reverse Logistics costs
etc.
2) No Collaboration with Suppliers: Bestseller has a transactional relationship with its
suppliers. For the accessories like buttons, collars etc. it buys from the wholesale
market. These purchases are mostly on cash. The fabric has three suppliers –
Raymond, Morarjee, Cadini Siyaram. The company has to buy in cash from these
suppliers. The tailors work on a consignment job work basis and take 15 days to
manufacture a shirt as per the specification of Bestseller. Due to supply chain
uncertainties, Bestseller has to keep an inventory of 15 days.
3) Managing Product Returns: There is a return rate of 20 -25% for the products that
are sold online. Products are returned mostly for logistic reasons like wrong pin
codes, Buyer not reachable, Location not being serviced etc. However, there are
also many returns from consumers because of adhoc reasons. Products also often
get damaged in transit on the return leg. Flipkart accepts a claim only in the first 24
hours. Also, the claim sanctioned is often only a fraction (15-20%). The returned
products are taken into fresh stock again (if there is no damage to the product in
transit) or sold in wholesale under heavy discount (if the products are damaged and
not worthy of being sold online).
4) Managing Order Fulfilment: Flipkart operates on a very strict TAT (Turn Around
Time) of 2 days. This means that the completed order has to be handed over to the
Logistics partner within 2 days. If the order TAT is breached, then the seller is
warned. On repeated warnings, the seller account is suspended and no fresh orders
are given to the seller. Bestseller faces a lot of challenges on this account. Customer
orders are very fluctuating. They average around 20 orders a day. However, during
special offers and schemes, the orders can easily go to twice as much. Best seller
keeps a stock of 15 days as the upstream supply chain has a lead time of 15 days.
However, the customer order is erratic in terms of sku mix. Best seller often has a
stockout of a few skus. This impacts the customer service and the TAT often gets
breached. In the last one year, the account of Bestseller has already been blocked
on three occasions by Flipkart.
5) Cash Flow Issues: Flipkart pays Bestseller on all completed transactions twice a
month. However, the suppliers have a much lesser payment cycle. The suppliers for
accessories and fabric have to be paid in cash. The tailors also have to be paid on
delivery (i.e. 15 days). This often creates a cash imbalance in Bestseller.
 6) High Logistic Costs: Since the final package is more than 1kg Bestseller is having to
pay a forward logistic cost of Rs 95 to Flipkart.
7) Product Quality: Bestseller also has to often deal with inconsistency in the product
quality. There is a big challenge in ensuring reliability in the supply of accessories.
These are purchased from the wholesale market and the variation in quality is seen
from one batch to another. Since Bestseller is catering to a niche segment in Men’s
shirting (Premium), it wants to give its customers a superior experience.

Questions:

1) The seller has presented his margin statement in Table 2. How accurate is this?
2) Which additional cost elements need to be captured to complete the supply chain analysis? 1
marks
3) Is the seller making a profit currently? Explain
4) How would you classify the supply chain – a responsive or an efficient supply chain?
5) How would you redesign the supply chain?

Penalty, TAT, Inventory management they need to work on

Return coast to be paid by best seller if return is because of quality issues

They need to rethink about sourcing raw material (fabric) as per their expected profit percentage

They should sell their shirt at a price near to MRP and they should also cost costing in other processes

They can shift their warehouse near tailor so that transportation can be reduced

Markup can done on all processes

Bestseller can launch their own marketplace to replace flipkart (B2C)