In a move directly linked to the rolling out of GST in India, Flipkart is setting up a large logistics park near Bengaluru. The company said it will acquire around 100 acres of land for this park, which will become the linchpin of the company's supply chain in the country.
This will be Flipkart's single largest investment for the foreseeable future," says Amitesh Jha, Head of Flipkart's logistics arm eKart.
While declining to reveal the amount set aside for building the logistics park, Amitesh said it will run into "hundreds of millions."
Flipkart is yet to begin work on the park, or acquire land, but will start the land acquisition process immediately.
The park has been conceived as a fully-integrated one with fulfillment, sortation, and transportation centres. It will house multiple mega warehouses that will be dedicated for specific categories. "We could have one just for mobiles, another for fashion and another for appliances," says Amitesh, a Flipkart old-timer who has been with the company since 2010.
The GST effect
In the pre-GST era, companies set up multiple warehouses in states across the country to reduce the state VAT burden. With GST doing away with the multiple state-level taxes, there was hope companies would be able to create a more efficient and less expensive supply chain network with fewer but larger warehouses.
Gazal Kalra, Co-founder of logistics company Rivigo, in a conversation with YourStory on GST's impact on the sector says GST is pushing the country to a more efficient supply chain.
Border check posts are gone, so border waiting time has come down. Transit time has come down. GST, cashless payment at tolls, introduction of e-way bill etc are all big steps to make transport simpler," says Gazal, who adds that Rivigo's clients are all figuring out means of consolidating their warehouse and supply chain network.
This is exactly what's at play with Flipkart's logistics park.
Amitesh says Flipkart started working on the new supply chain philosophy about a year and a half ago, when it realised that GST would become a reality soon. GST was launched last July.
"Supply needs to be ahead of demand. You need to look at what kind of network you want to build. We knew GST was coming and we thought through what changes that would bring. We realised we need consolidated fulfillment and sortation centres," says Amitesh. However, large warehouses are not easily available and companies have to custom build such facilities. "Also, additional costs of transport etc are incurred when you have a distributed warehouse network. Consolidation brings benefits of scale," says Amitesh.
Amitesh says Flipkart is taking a long term view, of 10 to 15 years, with this logistics park. All warehouses in and around Bengaluru will get consolidated into this facility and this will become the main logistics hub of the company in the country. Since Bengaluru region is Flipkart's single largest demand and supply location, it made sense for the company to decide to start a park here.
At the moment Flipkart has planned such a park only in Bengaluru.
The park will house only Flipkart's facilities. But, the hope is that a logistics ecosystem will get created around the park, with service providers setting up factories and offices nearby.
For instance, Amitesh says, Flipkart procures packaging material from third-party service providers who need to transport the material from their factories. Flipkart too incurs storage costs. If a factory is nearby, the service provider sees a reduction in transportation cost and Flipkart can reduce storage cost.
The logistics park will be developed in a phased manner, with Flipkart working on finalising location and starting the land acquisition process. The company plans to launch operations of the first phase next year.
The plan is to build a high-tech facility that is heavily mechanised and automated. Amitesh says the company intends to work with Indian and global logistics tech providers. Flipkart will help localise global solutions.
While we will primarily work on a partnership basis, we will look at acquisitions if required," says Amitesh.
Despite the automation, Flipkart is projecting high employment potential through the park. It intends to create 5,000 direct jobs and 15,000 indirect jobs by 2020.
A different path
Flipkart's approach is now very different from that of its rival Amazon. The global ecommerce major has opted for a large network of warehouses across the country with the intention of getting closer to the customer.
Amazon India claims it offers the largest storage infrastructure for sellers in the ecommerce industry across India with 56 fulfillment centres in over 13 states, which translates to close to 13.5 million cubic feet of storage space. Of these nine are dedicated to large appliances and furniture categories and 15 are only for the hyperlocal Amazon Now business.
With investors pumping in around $4 billion into Flipkart last year, the company has the cash to invest heavily into infrastructure and plan long term. Improved logistics will have a direct impact on customer experience, an area where Amazon is perceived to be better.
Of course, Flipkart needs to first acquire the land. This has never been an easy exercise for corporates in India.