Big basket Supply Chain Management

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BigBasket is an online grocery retailer founded in 2011 that focuses on supply chain management. It started with an inventory-based model and now uses a mixed model. BigBasket faces challenges around capital needs, perishables, and city-specific operations. However, it has achieved growth through same-day delivery, private labels, and technology enabling an efficient supply chain network. While competitors have struggled or shut down, BigBasket's focus on quality, execution over expansion, and viewing technology as an enabler of its supply chain have helped it succeed in the online grocery market.

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Big basket Supply Chain Management

2. BigBasket (Case Overview) ● Founded in 2011 and by 2013 had a user base of 1 Lakh, increasing by 20% y-o-y through WOM ● Broke even in Bangalore in 2014 ● Target Group ○ Tech Savvy Men ○ Working Women ○ Women involved in weekly/party purchases ● Market Potential was $1 Bn in 2013 and expected to be $17 Bn in 2017 Issues faced by Online Grocery Businesses ● Capital Intensive ● Since perishables were supplied, a same day or next day delivery was required ● City-specific model had to be followed ● More investments were required in: ○ Warehouses & Distribution Centres ○ Logistics for Home Delivery Services ○ Managing Technology

3. Growth Drivers: E-commerce and Online Grocery Retail Advancements in technology adoption: the increasing proliferation of devices such as smartphones and tablets, and access to the internet through broadband, 3G/4G Growing use of credit/debit cards for cashless transactions Growth in purchasing power in cities beyond metros Growth of mobile e-commerce Growing investment in logistics and e-commerce; To invest nearly $2 billion in logistics and warehouses estimated by 2020

4. Growth Drivers: E-commerce and Online Grocery Retail Availability of much wider product range (including long tail and Direct Imports) compared to what is available at brick and mortar retailers Competitive prices compared to brick and mortar retail driven by disintermediation and reduced inventory and real estate costs Increased usage of online classified sites, with more consumers buying and selling second-hand goods Convenience factors- speed, easy transactions, variety and attractive pricing

5. Business Model of Big Basket Mixed Business Model: Inventory + Hyperlocal ● BigBasket started with an inventory based business model wherein the company has it's own inventory and manages it based on everyday demand. ● Recently, BigBasket has entered into the marketplace business, providing the delivery of orders placed with hyperlocal speciality stores such as bakeries and meat shops in less than an hour ● For this business, BigBasket will handle logistics only for stores within a 6-km radius. The company will launch this service in Bengaluru with about 400 stores and expand to other cities overtime. ● The team, to ensure customer stickiness, has built a ‘Cocaine’ model. The customers are classified under trial one, two and three, and silver, gold and platinum. Trial one refers to the first order, the second order moves to trial two and trial three is the third order. On the fourth order, the customer moves to silver, and this is when the team knows they have got a customer.

6. Supply Chain Strategy ● Minimising the Risk of Perishability: Fruits and Vegetables are procured only on order, except for those with a longer shelf life like onions and potatoes. This reduced their loss of stock by 3-4 %. ● In-house logistics: Bigbasket has its own fleet and warehouses, giving them better control and better margins ● Focussed on weekly purchasers rather than impulse buyers to combat wafer-thin margins so that the minimum order size exceeded a particular level. ● Apart from regular groceries, Big-Basket offered high-margin products to buyers, such as pet food; Focussed on private-label brands such as Fresho for vegetables, meat and Royal & Popular for staples, thereby earning higher profit-margins. The company has built a thriving business-to- business vertical with its private brands, selling to restaurants, hotels and caterers. The vertical is expected to account for about one-fourth of BigBasket’s annual revenue.

7. Supply Chain Strategy ● Use of technology for front-end customers and back-end operations: Uses a real-time analytics software that makes sourcing almost automatic; tracking of delivery vans using GPS; giving customers an option to pay by credit card. ● Gradual elimination of intermediaries: Use of a special sourcing route for perishables; obtaining vegetables and fruits just a few hours before the delivery was to be made directly from the farms called the “farm-to-home” philosophy. ● Hub and spoke model for efficient and fast delivery with warehouses in each city of operation; Has recently introduced a 60 minute express delivery targeting weekly purchase that typically revolves around items with a short shelf life such as milk, fruits and vegetables

8. Big Basket’s Supply Chain Model for each City Suppliers Warehouse Hub 1 Hub 2 Hub 3 Customers

9. Online Grocery Chains - General Business Models There are mainly 3 kinds of business models when it comes to online grocery: 1. Inventory based model: The company has it's own inventory and manages it based on everyday demand. Big basket started with this model. 1. Hyperlocal: In this model, the hyperlocal receives the order and buys items from store based retailers, collects them in one place and delivers it to the consumer. Companies like Grofers, ZopNow use this model. 1. Mixed Model: Companies use a bit of both of the above mentioned models. However, in order to maintain the costs, the inventory is generally relatively smaller in size as compared to companies that have adopted the inventory based model.

10. Pros and Cons of the online grocery models Model Pros Cons Inventory Based Model ● Consumers know which products are available ● More suitable for monthly orders ● Requires least manpower ● Capital Intensive Model. Cold storage is required ● Since the model is inventory based, unavailability of a certain product may lead to loss of customer Hyperlocal ● Similar to marketplace model, hence no extra cost of inventory management. ● No wastage of unsold inventory as purchase of products is purely demand driven ● The retailer can provide any brand or product as long as they can source it from another store-based retailer ● Not suitable for big orders as running around and curating all the items, packaging and delivering is a cumbersome task ● The retailer cannot confirm at the time of order placement if they can provide a certain product or not since they have to go and check post taking the order Mixed Model ● The retailer can provide any brand or product as long as they can source it from another store-based retailer ● Lower inventory management costs as size of inventory is small ● Procurement management is more costly as the retailer needs to invest in both, good inventory management and delivery staff who can buy and curate products based on demand

11. Big Basket v/s Others (Performance Comparison) Parameters (2013) BigBasket Zopnow LocalBanya User Base 1,00,000 25,000 17,000 Avg. Order Size $21.65 $21.20 $21.20 Business Model Inventory based Hyperlocal Mixed Delivery Type Same/ Next Day 3 Hours Same/ Next Day SKUs >10,000 >8,500 >7,000 Estimated Revenues $4 Million $2 Million (Closed now)

12. Competitive Scenario ● Ola and Paytm shut their grocery delivery businesses in March and June 2015, respectively. Flipkart followed suit in February this year. Amazon launched its own service in Bangalore in February through a separate app called Amazon Now. It hasn’t yet taken the industry by storm. Local Banya, one of the direct competitors, also discontinued operations. ● Grofers, arguably the closest rival to BigBasket, had to heavily scale back operations, while PepperTap shut down.

13. BigBasket’s USP ● A culture where employees think like grocers who have gone online and not just techies who happen to sell grocery ● The company considers technology as a key enabler but supply chain as the major area of focus in the online grocery business ● Single-minded focus on quality of fruits and vegetables helped BigBasket to earn a reputation. ● Despite funding, Bigbasket is capping its expansion to 25 cities to focus on backend execution and improve unit economics

Big basket Supply Chain Management

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