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Title: Strategic Analysis of the Operating Models

Course: PGCHRM – 17

Name of the faculty: Prof Atanu Ghosh

Subject: Operations and Production Strategy

______________________________________________________________

Submitted by: Ms. Harshada Pathare


RH- 14051
Thane Centre

(assigned by VIL office)


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Analysis of the Operating Models: Ecommerce

(BIGBASKET.COM, AARAMSHOP.COM, SALTNSOAP.COM)

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ACKNOWLEDGEMENT
On the outset of this report, I would like to extend my sincere thanks to Prof. Atanu Ghosh for his
guidance and encouragement to accomplish the completion of project.

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INDEX

Introduction of E-Commerce operating Model Pg 5


Why Webvan Failed? Pg 5
Overview of Business Operating Model Pg 7
Operating Model Diagram and Pointers Pg 7
E-Tailing Pg 8
Overview of Bigbasket Pg 8
Bigbasket Operating Model Pg 8
Overview of Salt N Sugar Pg 8
Salt n Sugar Operating model Pg 9
Overview of AaramShop Pg 9
Aaramshop Operating model Pg 9
Comparison of the Operating Models Pg 11
SWOT Analysis of the Operating Models Pg 12
Recommendations Pg 13
Bibliography Pg 14

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INTRODUCTION

OVERVIEW OF E-COMMERCE OPERATING MODEL:

Companies plan their strategic business model to design the set of planned processes that are used to generate
sales and produce profits in the market. Business model is result of strategy planning done to face the fierce
competition. A business model is the heart of organization’s strategic business plan.

Electronic commerce comprises of buying, selling, and exchanging of products, services, and information
through the medium of computer or telecommunications networks, primarily Internet source.

Emerged in 1970’s, E-commerce are the most efficient and successful global market in today’s generation. The
effectiveness of E-commerce Business Model is the major factor that determines its performance in the
various types of E-commerce market few are mentioned below for reference.

Each of the E-commerce market has their own Business operating model projected to reach new customers,
achieve productivity, share information to leverage the use of internet, develop effective operations, build
profitable results, and global expansion. A well-planned E-commerce business model can be the thrust of
success; also a weak E-commerce business model definitely is majorly responsible for the failure of business.

Webvan, an online credit and grocery shop failure was the result of an ineffective Business operating model.

In June 2000, Webvan bought HomeGrocer.com in an all-stock deal valued at about $1.2 billion. While the two
companies struggled to decide on which business model would survive, Webvan went ahead and replaced
HomeGrocer’s web site with its own. Webvan expected this change to be highly transparent and purely
cosmetic to the customers; however, the customers did not identify with the new website. As a result, there
was a one-third drop in demand for Webvan’s products. In addition, the switching cost of learning a new web
site and the change in delivery policy, plus other technical difficulties was more than customers wanted to bear.
By the end of 2000, Webvan was operating at more than 25 percent below its breakeven point (Hayes).The saga
ended for Webvan when they finally realized that their customer base was just not big enough to consume all
of the product capacity they had created. Demand was dropping intermittently to the point where they were
suffering tremendous losses. Upon filing for Chapter 11 bankruptcy protection, Webvan was forced to sell all of
their high-tech information systems and infrastructure for much less than it was worth.

Why did Webvan fail so spectacularly?

 From the supply chain management perspective the six performance drivers, namely facilities,
inventory, transportation, information, sourcing, and pricing. Among these, Webvan’s costs of
facilities, inventory, transportation, and information (including software) were much higher in
comparison with traditional supermarket supply chains.
 For sourcing, Webvan needed its employees to pick items for orders instead of customers doing this at
a bricks-and-mortar store. So, it added extra labor costs for handling customer orders. All of these
higher or extra costs were applied to the grocery industry, where margins were only 1% to 1.5%.
Webvan advertised that its prices were 5% lower than conventional stores. All of these resulted from
its hope that the number of customer accounts would be high enough to make profits after three or
four quarters. In reality, the number was far below the forecasts and the company kept losing money.
Clearly, Webvan’s supply chain design was too expensive to be profitable and too elaborate to operate
efficiently and effectively.
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 From statistics and forecasting perspective, Webvan came out during the heyday of Internet
companies when there were not enough stories of failures from history to tell and learn from. Thus,
timing also played a role here with overly optimistic numbers and forecasts such as 5% of US
households would buy groceries online in a few years and online grocery market would be worth $3.5
billion in 2000 and $6.5 billion by 2003. In this high spirit, Shaheen saw the market as $1.5 trillion, an
IDC projection for 2003, which encompassed all web-based purchases. Based on these fantastic
numbers, Webvan CFO insisted that Webvan would be “highly cash generative” and that the DCs were
likely to operate at breakeven capacity within five quarters of being launched. In reality, it had not hit
this target after six quarters since the launch.
 From strategy perspective, the management team was too confident and ambitious. They wanted to
do everything everywhere in a huge scale. Consequently, they went against their original strategy of
providing a more cost-effective solution. They acted hastily in building huge, expensive, and
complicated DCs. At the same time, they invested money for plans to expand into various US regions
at the same time.
 They also announced projections that were almost impossible to be realized such that if everything
went according plan, Oakland DC would be profitable within 6 to 12 months and other DCs might
break even in 60 days. Even a tiny company never has everything going according plan, let alone
company with complicated information systems and huge infrastructures as Webvan. Naturally, they
should have been prepared to get several unexpected problems and thus, that statement should have
never been made. They hoped to get 8,000 orders a day from Bay Area DC to make operating margin
target of 10% to 12%. In reality, after six quarters, the averaged number of orders was only 2,160, too
far below the projection.
 All the changes later, including partnerships and Homegrocer acquisition, could not save Webvan due
to either ineffective and inefficient designs and implementations or being done too little too late.

And the second part, here are some major reasons why Webvan failed spectacularly.

Revenue Perspective:
First, its funding happened so fast and spectacularly. In 1999, it was the most funded for an Internet company
with $400 million. Its first day of trading, at one point, it mounted to $15 billion capitalization. It raised a total
$800 million. All of this funding and market valuation happened for a company with only $4 million in revenue
at that time.

Second, its dream team was included so many senior executives experienced in a broad range of industries
with well-established companies such as Borders Books, Goldman Sachs, Oracle, and FedEx. With these diverse
experts, Webvan’s failure was not imagined.

Third, for the three straight quarters in 2000, it had been voted the best online grocer of 12 in a survey. This
means, customer satisfaction was achieved well.

Fourth, in the last quarter of 2000, only 6 months before it closed for good, it posted a gross margin of 27%,
highly competitive with large conventional grocers. Finally, the time it took to fail was also dramatic. It closed
its doors less than two years since its heyday on November 5, 1999.

On basis of Webvan’s failure, we recommend an operating model to cover some aspects shown below –
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OVERVIEW OF BUSINESS OPERATING MODEL

The effective Business model should include EIGHT KEY COMPONENTS of standard model. These components
are responsible for the failure or success of the operations. Some components are identified as very critical
areas to deal within; while some balance the other components with their support. Some organizations include
additional components in their ecommerce operating model to sustain competitions. The model can be a
combination of two or more components, depending on the nature of e-commerce business. Each setup
features unique variations within the respective e-commerce business model.

The illustrative outline of the model will provide a better understanding for our learning purpose.

DIAGRAMMATIC REPRESENTATION OF BUSINESS OPERATING MODEL

There are multiple operating models in the market limited by human imagination. It is important to identify the
essential operating model or specific componential matrix for certain industries. In E-commerce, there are
various markets like B2C who use store frontline model, C2C prefer to use auction model, and G2C use the
informational delivery model or brick and mortar business model.
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E-tailing: refers to the selling of retail goods electronically over the Internet. E-tailing provides the consumers
huge amounts of information in the form of web portals with useful links to similar sites that allows consumers
to compare products by looking at individual items. The challenge of the business operating model is to
leverage the assets, capabilities and resources to deliver the benchmarked performance and move into another
higher level of operational model.

We would be able to interpret the business operating model in detail through the below report. Let us
understand the operating model for three best e-commerce organizations – Bigbasket.com, Aaramshop.com
and Saltnsoap.com with detailed analysis and recommendations.

OVERVIEW OF BIGBASKET.COM

In December 2011, V S Sudhakar, Hari Menon, Vipul Parekh and V S Ramesh launched BigBasket in Bangalore.
BigBasket.com (Innovative Retail Concepts Private Limited) is India’s largest online food and grocery store. With
over 10,000 products and over a 1000 brands in our catalogue you will find everything you are looking for.
Right from fresh fruits and vegetables, rice and dals, spices and seasonings to packaged products, beverages,
personal care products. Being green is part of the culture at Big Basket as CSR initiative.
The website is user-friendly with nicely organized product catalogues right from fruits & vegetables to Meat
section without any delay / latency in accessing any of the pages. They have convenience to quickly add of the
listed items to the shopping cart and guarantee delivery in customer slot. Payment is accepted in vouchers /
cash / cards for ease.
OPERATING MODEL - JUST IN TIME MODEL (LEAN MANUFACTURING PRINCIPLE)
 Operating on Just-in time perspective model of Lean Manufacturing.
 To order right quantity, at right time, of right quality on signals of Kanban Pull systems and
eliminate waste by reducing in-process inventory.
 BigBasket now buys products directly from suppliers - HUL, P&G, farmers and mills - and stocks
these in warehouses. It sets initial inventory levels and later, re-ordering levels. The entire process
is automated. Big Basket has a warehouse each in Bangalore, Hyderabad and Mumbai, as well as
hubs (where delivery vehicles wait). Goods are sent to hubs and from there, to customers. The
routing is done automatically and the vehicles are GPS-tracked. Each city is split into zones and
each zone has a hub and using analytics to predict weekly demand, the company optimizes
logistics and supply volumes to drive better margins.
 To achieve continuous improvement key areas of focus could be flow, employee involvement and
quality as in the 4P Model of Toyota Principle.

OVER VIEW OF SALTNSOAP.com


Salt n Soap intends to provide its consumers a convenient, social, enjoyable and rewarding experience of
shopping their daily grocery needs online from the comfort of their homes and offices.
Though the services of booking daily grocery needs online and receiving timely delivery at the convenience of
home or office are the basic foundations of Salt n Soap, Salt n Soap is more than just another online version of
a hyper mart, supermarket or a local kirana store.
Salt n Soap has a unique web store which allows shopping groceries out of a single window without having
to navigate to multiple screens. If you know your shopping list, you can also use Salt n Soap's Quick Grocery
feature to "shop groceries in 5 mins"!
Salt n Soap, understands that shopping online, especially groceries, also require physical assistance in shopping
in many areas. Accordingly, they have a "Personalized Shopping Assistant" for each of our registered users.
These PSAs (Personal Shopping Assistants) are qualified and experienced retail industry professionals who
would assist in shopping efficiently by suggesting you the right products and substitutes, making one aware of
new arrivals, benefits or demerits of particular products, etc. The PSAs will help you get a "near real time" feel
of the actual products. All your deliveries have an assigned delivery person whose photograph is displayed to
you and whose credentials are verified by us. In this way we try to assure you of any security concerns that you
might be genuinely having for allowing delivery persons in your premises.
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While shopping, one would have felt many times the need to have certain information about the products, e.g.
how is a particular product doing via the competition, what have been the reviews for the product, what has
been the purchase trend of the product, etc. Salt n Soap's unique Open Analytics features help one get these
information real time so that they can make a smarter purchase decision.
Salt n Soap also assists one to manage and monitor the household budget and purchase and compare that with
average budget and purchases of people belonging to your socio economic class (SEC). Salt n Soap's algorithm
also alerts one with reasonable accuracy on how many days of inventory you are left you, what has been your
total purchase in a particular month, what is the last date of your purchase of products in a particular category
or subcategory.
OPERATING MODEL
Salt n Soap seem to operate efficiently with very low capital investment. Provide a lot of innovative value added
features to consumers which are typically not available in a brick and mortar store. The model is yet in a modern
tech-savvy platform with GPS and other systems enabled. A Blue Beaks initiative, Salt n Soap believes and
practices Blue Beaks' core philosophy - "Innovate, Execute, Innovate". Salt n Soap is constantly innovating on
the features to ensure a more enriching and meaningful experience for the users.
OVERVIEW OF AARAMSHOP.COM

Aaramshop is an Indian start-up, which has pioneered the concept of hybrid commerce, which allows
customers to shop at local neighborhood stores via the internet. AaramShop does not make any monies from
either fee or commissions from retailers for transactions. The retailers are given not just access to AaramShop
absolutely free of costs, but they also get an embedded permanent presence free of charge. The usage is also
completely free for the consumers.

AaramShop revenue models are based on brands that are interested in using the multiple advertising and
marketing options, which are available on the site in order to ensure that their brands sell better online.
Analytics and targeted marketing would be large revenue options for AaramShop.

Business model

The brilliance of the AaramShop business model lies in the fact that it leverages smart technology and the
already existing inventory and delivery mechanism of the kiranawalas

Customers create a shopping list for groceries. Via Aaramshop website or Facebook, and the company then use
SMS and e-mail to direct the order to the customer's local store. It has provided many small retail outlets with
an online presence for the first time. The company's focus is on low value, high turnover consumer goods such
as daily groceries. The service follows a freemium model. Unlike competitors such as BigBasket.com,
Aaramshop's reliance on local stores to provide and deliver orders to its customers allows for low staffing costs
(it has only 12 employees) and overheads.

Aaramshop has started with a fresh model - neighborhood-based business model it is unique, it is untested, it
home grown and hence it is going be a tough ride with not too many existing benchmarks . The major
strength of AaramShop lies in its ability to reach consumers through neighborhood retailers and its seamless
integration with digital media.

AaramShop’s business model is as per the expectations of Indian online consumers. According to the Internet
and Mobile Association of India, e-tailing constitutes only 8 percent of the Indian e-commerce market.
Consumer’s distrust of e-commerce is because it concerns goods that need shipping, or whose quality can be
questioned or payment transaction issues over pay seal.

By ensuring that customers can pay kiranawalas directly—and after they have checked their purchase—
AaramShop gets around that online hesitancy. Importantly, it’s a payment model that works primarily because
of the proximity of kiranawalas to their customers, making it fairly easy to get an item replaced or exchanged.
That’s an advantage that few large retailers can match.

The future challenge is to develop an effective model solution on Economic Order Quantity principle that can
elevate analytics to a level where the AaramShop systems can warn an FMCG company—in real-time—when a
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retailer is stocked out of a certain item. Companies can then immediately alert their distributors in the area to
replenish stock at a given store.

FACTORS Bigbasket.com Aaramshop.com Saltnsoap.com Webvan


Founded 2011 2011 2011 1999
Unique “Same day delivery” of All Branded FMCG Salt n Soap's Quick It delivered
Selling products such as frozen Products. Aaramshop's Grocery feature to products to
Proposition and chilled items from its reliance on local stores to "shop groceries in 5 customers' homes
own cold storages and provide and deliver orders mins"!.Plan and monitor within a 30-minute
warehouses. to its customers allows for your household budget, window of their
low staffing costs (it has purchase and inventory choosing.
only 12 employees) and with SnS's unique tools
overheads

Operating Company has chosen to The company's focus is on Salt n Soap stands on 4 The company
Model own the last delivery mile. low value, high turnover innovative business offered customers
They have their own fleet consumer goods such as principles - Provide access to 24-hour-
of GPS enabled vans and daily groceries. The service Personalized Shopping a-day, seven-days-a
are working on a hub-and- follows a freemium model. Assistance to customers week online
spoke model where all the Freemium is a pricing - Provide Social grocery ordering.
goods will be bought and strategy by which a Shopping Experience to Webvan promised
stocked in a warehouse product or service customers - Provide to deliver orders
which further supplies to (typically a digital offering Open Analytics to within a 30- minute
the hubs. In Bangalore for such as software, media, customers - Operate on window, allowing
instance they have 3 hubs– games or web services) is Lean Logistics Model customers to pick a
in Whitefield, Kanakpura provided free of charge, Salt n Soap has sourcing convenient time to
and Yeshwantpur – which but money (premium) is partnership with Metro receive groceries.
covers the entire city. From charged for proprietary Cash & Carry, a German Very High
there, the delivery features, functionality, or wholesale giant Infrastructure
executives (called customer virtual goods Costs.
experience managers)
deliver the goods in four
time slots – 7 am-9 am, 11
am-1:30 pm, 3 pm-5 pm
and 7 pm-10 pm.

Below herewith is the Comparison of the Operating Models of bigbasket.com, aaramshop.com, saltnsoap.com and webvan
based on the below parameters

- Payment Options
- USP
- Products
- Value Added Services
- Geographical Spread
- Business Operations etc
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COMPARISON OF THE OPERATING MODELS

Product Portfolio Diverse products of


No Products - Tie up with
Home and Personal Home supplies
Kiranas
Diverse products use
User Interface Website & Aaramshop -
(Strength) Website Website Online and Telephone
Mobile App
Funding (Strength) Louis Borders , Benchmark
Capital, Sequoia Capital,
$10 million VC funding Self - Funded Funded by Blue Beaks.
Softbank Capital, Goldman
Sachs, and Yahoo!
Payment Options
Depends on the Preferred
Cash / Credit cards / Coupons Cash on Delivery Credit and delivery
Aaramshop

Value Added Services Shopping list Analytics to assist the


(Strength) 30 mins Customer satisfaction
Quick Shop Value @ Home Vouchers customers
model
requirements
USP (Strength)
to provide premium shopping
experience by offering a
Supermarket-like breadth of Online shopping from your Plan and monitor complete, single source
products favourite kirana your monthly budget package from product selection
through fulfillment, delivery
and customer service.

Geographic Spread Mumbai, Hyderabad, Pan India


Kolkata 10 Major USA markets
Bangalore (30 cities)
Business Structure
to build “massive”, state of the
(Strengths) Horizontal Integration:
art distribution centers (DC’s)
Hub and Spoke Model One to many
from which the home deliveries
Tie ups with local kirana would be centered
Infrastructure
3 hubs and one warehouse Not applicable Not Applicable Warehouses and logistics fleet

Inventory No inventory. Orders fulfilled


Mix of self and third party No inventory Massive storage of inventory
by kirana stores
Operations (Front
to provide on-line purchase of
End)
25 GPS installed vehicles and Goods dispatched by local groceries and goods, then
Motorbike or Car
motorbikes kirana deliver at a prescheduled time
within a 30 minute window
Operations (Back End) Procure directly from
Purchase from Metro
manufacturers, wholesalers
Cash n Carry based on Direct procurement
and strategic alliances (Rei Six
the order
Ten Retail Ltd)
Delivery Time Within 48 hrs from the time of Same day: Order
before 12pm or 30 minutes without customer's
order (or Pay Rs.79 for delivery Customer’s preference
preference
within 24hrs) Next day
Delivery Status
Track on the website with your Contact the respective Call before
Immediate delivery
order number and email id retailer dispatching order

Rs. 20/- If amount less than


Delivery Charges Depends on the retail outlet 25 NIL
1000/- only

Min. Order Value Rs. 1000/- NA Rs. 500 Nil


Advertisement
$422/day $21/day
Revenue
Type of Service provided Premium services to brand Product Promotion on
for ‘other income’ Nil
owners behalf of the brand
Competitors Peapod, Walmart, 11
Malls, other online stores Malls , local banya.com , Other online stores
(THREATS) competitors
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Recommendations

 Online grocery stores must follow differentiation as a strategy rather than cost-leadership
 A very broad product portfolio of food and lifestyle (fashion, home, entertainment) brands, with a special
emphasis and brands and quality
 Competitive as well as discounting pricing methods to be adopted
 Keep Up pace with Customer Mindset: The customer mindset is gradually shifting from low price to better
convenience, high value and a better shopping experience. There is high brand consciousness among the youth;
60% of India’s population is below the age of 30 leading to popularization of brands and products.
 Better IT infrastructure, more net savvy customers and leaner warehousing and logistics
 Online grocery stores need to go beyond being a web front of a physical store and provide more value added
services which a consumer does not normally get in a brick and mortar grocery store.
 Innovation in the e-commerce business model and the continuing business model innovation process is required
to achieve competitive advantage
 Expansion through large format stores across the country and internationally.
 Sustainable business models for services, digital contents, mobile commerce, collaborative commerce, and peer-
to-peer architecture should be the way forward.
 The models should take advantage of the Internet network effects and other unique attributes to achieve and
sustain a critical mass of installed base of customers.
 Companies must also build and maintain a large set of digital assets and leverage them to provide a scope of
offerings or value across many different and disparate markets to satisfy customers’ demands. That is, companies
must identify customers’ latent needs and transform their business models from a product- or component-based
model to a knowledge- or solution-based model.

What was started by dot.com as an e-commerce venture would achieve its mission and success through modern day e-
tailing ventures soon.

BIBLIOGRAPHY –
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1. MIT Research paper on Strategic Analysis of Online grocery stores and it’s outlook.

2. www.bigbasket.com

3. www.saltnsugar.com

4. www.aaramshop.com

5. Notes of Prof. Atanu Ghosh – Operations Management