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Propelr: E-Commerce Knowledge Series - Supply Chain

Tarun Mangal
By Tarun Mangal

2024-08-06

Supply chain is a fairly complex domain. It essentially deals in storage and movement of physical goods.  While the academic generalisation of the domain exists, often, a serious e-commerce company has to build a tailored solution for itself to ensure optimal efficiency and optimal cost of operations. Before I explain this any further it will be useful to understand fundamental concepts that constitute any supply chain.

Building Blocks

Let me start by introducing basic set of entities and concepts. It may seem overwhelming but once you understand how these entities and concepts come together it will feel very natural.

Warehouse

A warehouse is a long term storage of products and goods. A warehouse is an ecosystem in itself. For simplicity sake we can consider it as a big black box. This box has two gates, one for moving material into the box.  This is called inwarding. The inwarded material is then stored inside this box. The second gate is for moving material out of this box. This is called outwarding or dispatch.

warehouse

At any point in time we can query this box and understand what all products are there and how much quantity is lying exactly where. The material that is moving out of the second gate can have multiple destinations. It can be going to the customer, or it can be going to another warehouse, or it can be going back to the producer as it is expired or broken etc etc.

Hub or Sortation Centres

A Hub is a temporary destination for goods in transit. They are also called sortation centre. The hub receives goods from multiple sources. These goods are then sorted based on their next destination. Once sortation is done, these sorted goods are then loaded on to different vehicles towards multiple destinations. In short a Hub is like a multiplexer, with multiple sources and multiple destinations.

hub

Transport

The main purpose of transportation is to move products physically between source and destination. All kinds of transportations like 2-wheelers, trucks, goods train, airplanes, ships etc are part of this. What means of transportation is used depends on multiple factors like --

  • Distance to be covered and physical viability of a given transport option
  • Nature of products to be delivered
  • Cost of transport
  • Average speed with which the transport can move
  • Laws of the city, country etc.

Capacity

This means that it is constrained by the physical laws. First constraint is the volume and dead weight of the product. Second constraint is the time it takes to move this product from point A to point B. Together these two constraints form the idea of capacity. Every entity in supply chain is bound by this concept. Like a warehouse has a storage capacity, its man power and other automations have a capacity of moving certain tonnage per hour within a warehouse. A lane has a capacity w.r.t the size and tonnage capacity of a truck and average speed of the truck in a given lane. Capacity has a direct implication on availability (whether the required quantity is available) and serviceability (will I be able to get the product and if yes, by when) of a product that a customer wants to order. For an e-commerce website's ability to take an order within a given delivery SLA (like next-day-delivery)it is important to know what is the current capacity of the system.

Network

A network is a logical manifestation of how material will move from point A to point B across a large geography. You can think of it as a Directed Acyclic Graph (DAG). The nodes can represent; supplier location, warehouse, hubs, sortation centres. Edges (also called lanes) represent connection between the nodes, direction of movement of goods and the kind of goods that can be moved between these nodes. Multiple parameters come into play when deciding the network -  like SLA within which goods need to be delivery, cost of transportation, overall carrying capacity of transportation through the lane.

Lets look at some simple network patterns --

Single pickup followed by Single Drop

p2p

This is the most straightforward use-case. A truck driver pickups material from the source which can be a manufacturer warehouse, wholesaler etc and drops it at a single destination. Example, a service like Dunzo doing point-to-point pick and delivery of documents.

Multiple pickups followed by a single drop

m2s

This is where the driver is picking up different products from multiple suppliers and dropping it at a single customer. This is how a typical shopkeeper buy goods. They will order from multiple wholesalers and then a single vehicle will pick material from all these wholesalers and deliver it to the shopkeeper.

Single pickup followed my multiple drops

m2s

This is a distribution model wherein the pickup happens from a single source location and then gets distributed across multiple customers. Any last mile in a typical e-commerce supply chain or hyperlocal delivery works in this manner. The picker will pick material from a local hub or a dark-store and deliver it to one or more customers.


Now lets combine these entities and concepts and look how supply chain for an intercity e-commerce marketplace look like.

m2s

The above figures shows a typical network design of an intercity e-commerce company. Lets go through it

  • The story starts where the suppliers send their material to their nearest hub. The goods can either be dropped directly by the supplier at the hub or the hub can arrage a pickup from one or more suppliers. This leg of the network is called -  First Mile.
  • Once this material has reached the hub, it is sent to a city level large sortation centre. These sortation centres are very close to transport centres for a given city. 
  • At the sortation center, the products are sorted based on their next leg of their journey.
  • These products are then sent to different inter-city sortation centres (sometimes called mother hub or transport centers). This leg of the network is referred to as Line Haul.
  • Here the incoming bagged products are resorted based on the next leg of their journey.
  • Once these products reach sortation centre of a given city they are then forwarded to hub based on the geography covered by that hub.
  • From the hub, the trucks then take the products and deliver them to the customers. This leg of the network is called Last Mile.

Network Design

The network design is one of the most critical components of any supply chain. It is a challenging problem as through the design is required to achieve multiple business goals like,

  • Maximise speed of delivery
  • Maximise tonnage or packages delivered
  • High reliability of delivery
  • Value added services like payments, returns

while keeping the following constraints in check - 

  • Cost of delivery
  • Availability of resources like man-power, electricity, land etc
  • Connectivity through land, air or water

This concludes the basics of supply chain. The Supply chain domain is really vast but the fundamentals that we covered here are not very different. The scale of operations, size of geography to be covered, local or international laws, nature of goods being transported etc adds additional layers of complexity, making this field really challenging and interesting. In future articles I will follow-up in depth details on each of these concepts.  Stay Tuned!

The Plug 🙂

Drawing from our experience at 2 of the largest e-commerce (b2b + b2c) in India, we at propelr.tech are uniquely equipped to help you navigate the complexities of Supply Chain management. Whether your challenges lie in logistics, Warehousing, Procurement, RVP management, or comprehensive process optimization, we can tailor solutions that fits your specific business needs with optimal technology that delivers right operational efficiency and costs.

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