E-commerce Business-to-Business (e-B2B) Distribution Strategy and Network Design for Nanostores
Author(s)Ahmed, Syed Tanveer; Saragih, Austin Iglesias
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With 50 million nanostores globally, nanoretailing is the most important retail channel in developing countries. In India, these stores are called kiranas, and they are the backbone of India's retail market. Unfortunately, the distribution to this massive retail segment is fragmented. Current fragmented channels of exclusive distributors, wholesalers, and stockists are costing kiranas more than 50% of their potential margins and impacting their business viability. A non-exclusive e-commerce business- to-business (e-B2B) distribution strategy can serve as a promising solution to reduce fragmentation, cost-to-serve, and increase potential margins in the industry. This research formulated a non- exclusive e-B2B distribution strategy at the lowest cost-to-serve and identified the essential urban network design factors for e-commerce platforms to consider. We extended the Two-Echelon Capacitated Location-Routing Problem (2E-CLRP) with the augmented route-cost estimation to consider wallet share, market penetration, frequency, drop size, and urban circuity factors. We also computed the Road Network Circuity Factor (RCF) values of several Indian cities. Our results indicate that, through e-B2B distribution, companies can achieve most of their cost savings and profitability when they reach certain threshold of wallet share and market penetration. Furthermore, geographical circuity constraints and increasing frequency of deliveries do not significantly increase logistics costs. In summary, we recommend that companies reach their threshold of wallet share and penetration to reduce costs optimally. Key initiatives to reach this target include sharing cost savings back to the nanostores, develop free shipping options and loyalty programs, increasing delivery frequency, and expanding to new service regions. Moreover, companies should not be afraid to increase their delivery frequency or open service in promising regions as these factors only slightly increase cost to serve. Although this project focuses on India, our findings are also applicable to other developing countries. A non-exclusive e-B2B distributor improves adaptability and affordability of nanostore supply chain operations and provides ample opportunities to for further research.
Network Design, Supply Chain Strategy, Urban Logistics
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