A Project on Sales and Distribution Management

Topic: - Amazon Seller Services: - Last Mile Delivery Challenges for MFN Sellers

By
Name: - Nimish Mohanan
Roll No: - EPGCMM-07-15

Amazon Seller Services Last Mile Delivery Challenges for MFN Sellers

The India 3P Sales head Mr. George received an email from the Head- Customer Service Mr.
Patil. The email has the reports explaining, the no. of times the sellers has complained the issue
with regards to order management and fulfillment challenges they face every day. The overview
of the report says the following:Around 20,000 MFN Sellers face challenges in terms of fulfillment with respect to Cost, pin
code coverage and serviceability, Customer initiated returns and its pick up, business lost due to
unavailability of cash on delivery. It says that around 65% to 70% of the MFN sellers selling on
amazon is unsatisfied due to the above mentioned reasons.
Company Background and India Business Model
Amazon India is an Indian venture of the US based Amazon.com Inc. the worlds largest online
retailer. Amazon Services offers services to retailers in multiple countries to sell on Amazon
websites globally and grow multi-channel commerce.
The value proposition it offers:-

No
Upfront
Cost
Adition
al Sales
Channe
ls

Robust
Payemt
System
s

Variabl
e Cost
Structu
re

Ease of
Use

Amazon Current Offerings in India

Sell on Amazon
Merchant Fulfilled Network (MFN): - List and sell your products on amazon.in. The logistics
need to be taken care by the seller.

Seller
registers

Uploads
inventory
and digital
catalog on
Amazon.in
via Seller
Central

Customer
buys the
sellers
product on
Amazon.in
making
payment to
Amazon via
CC/DC/Net
Banking

Amazon
receives the
payment
and
intimates
seller to
ship the
product

Post
shipping,
seller
confirms
shipment to
Amazon
through
Seller
central

Amazon
deducts
SOA fees
and pays
balance
amount to
seller in 714 days

Fulfillment by Amazon (FBA):- With FBA model, the seller lists the products and stocks the
product with amazon in their fulfillment centres. Order management, fulfillment and delivery is
owned by amazon. Whenever an order flows, amazon pack, ship and provide customer service
on behalf of the seller.

Seller
registers
for FBA

Uploads
inventory
and digital
catalog on
Amazon.in
via Seller
Central

Creates a
shipment in
Seller
Central and
shipsgoods
to Amazon
Fullfillment
centre

Customer
buys the
sellers
product on
Amazon.in
making
payment to
Amazon via
CC/DC/Net
Banking/CO
D

Amazon
receives the
payment.
Picks, Packs
and
dispatches
the product
to the buyer

Payment Structure
To sell on Amazon.in sellers pay the following fees (all fees are exclusive of 14% Service Tax)
Monthly Subscription fee - Sellers pay a fixed closing fee based on item price that is paid by
buyer (including the any shipping or gift-wrap charges) for Books, Movies, Music, Software,
Video Games, Baby Products, Beauty, Health and personal care, Personal care appliances,
Gourmet, Pet Foods, and Pet Accessories categories

Amazon
deducts SOA
+ FBA fees,
pays
balance to
the seller in
7-14 days

Referral fee
For all products, a percentage of the total sales price that is paid by buyer (including the item
price and any shipping or gift-wrap charges) is deducted as referral fee.
Table 1.1
Category
Apparel, Beauty, Baby,
Accessories, Watches, Toys,
Personal Care Appliances.
Office Products, Luggage
Books
Electronics Devices
Electronics PC
Eyewear
Video Game and Accessories
Fashion Jewellery

Standard Rate
15%

12%
8%
5%
11%
12%
15%

For Sellers who Opt for Fulfillment by Amazon Model

Storage fees INR 500 per cu.mt. per month. Free storage for first 3 months.
Free FBA for units sold at prices greater than INR 20,000 except storage costs
Packing material weight will be at 75 gms for media, 100 gms for non-media 500 gms for
oversize shipments
Removals per unit: Media: INR 10; Non Media: INR 25; Oversize: INR 50

Difference between MFN and FBA Sellers

Merchant Fulfilled Network (MFN)

The logistics need to be taken care by you.

Shipping rates are high.

Cash on delivery option is unavailable
Customer care issues to be handled directly
by the seller in this model

Fulfilled by Amazon (FBA)

Logistics is taken care by Amazon. All you
need to do is stock your product with amazon
at their warehouse and all orders will be
fulfilled by Amazon.
Very low shipping rates
Cash on Delivery option available
Customer care to be managed by Amazon on
sellers behalf

Limited pin code coverage

Packaging a huge challenge leading to bad
customer experience
No reverse logistics capability in case of
customer initiated returns

High coverage of pin codes across India

Customers will enjoy hassle free packaging,
amazon insured and traceable shipping
Amazon ensures customer delight for sellers
via returns management & customer service

Challenges faced for Last Mile Delivery by MFN Sellers:Cost:Online vendors face a tough time for fulfillment of orders. Costing and pricing plays the major
factor as the sellers cant match the cost which indirectly affects their margin.
Table 1.2

Definitions
of Major
Courier
Major
Major
Major
Major
Major
Major
Major
Major
Regional
Player
Regional
Player
Regional
Player
Regional

Courier Company
BLUEDART
GOJAVAS
FEDEX
FIRST FLIGHT
DTDC
DELHIVERY
ZOTDOT
OVERNITE

Pincode Cost
Efficiency
Coverag Per KG Level in
e
in Rs.
%age
4320
82
90
3030
79
87
6188
78
82
7243
69
73
8130
80
82
2790
62
85
4392
65
75
6083
62
80

Cost
per
100
Per
Packet Shipmen
s
t cost
7380
82
6873
79
6396
78
5037
69
6560
80
5270
62
4875
65
4960
62

SHREE MARUTI

1292

50

75

3750

50

UNIFIED EXPRESS

1826

48

68

3264

48

TANVI LOGISTICS
PROFESSIONAL

547
2312

40
45

67
70

2680
3150

40
45

Player
Regional
Player

COURIER
L S ENTERPRISES

328

42

73

3066

42

For regional players, the return ratio is very high which impacts the seller ratings plus adds a cost
of return shipping. Also, many of the service providers do not offer reverse logistics.
Higher the Volume, More Options:For sellers with less volumes, the logistic partners does not provide priority services. Due to
which the sellers face challenges with the delivery timelines. Since the LPs (Logistic Partners)
picks the products and place it in a hub, these orders will then be pushed once the volumes are
sufficient since it has a direct cost impact to the LPs. Since most LPs work on a hub and spoke
model, the last mile to first mile takes a longer route than most hyperlocal LPs. In case of
hyperlocal LPs, they are mostly region based and do not cater to larger geographies.
LPs are unequipped to handle customer absenteeism or delivery to customers nominee. They
also do not have advanced technologies to register signatures/identities in such deliveries.
Cash on Delivery
Low credit card penetration and low trust in online transactions has led to cash on delivery being
the preferred payment option in India. Unlike electronic payments, manual cash collection is
laborious, risky, and expensive.
Spread of customers
Table 1.3
Spread of shipments for large e-retailers across cities
Tier of City

% of pincodes Ebay.in

Jabong.com

Amazon

Metro

100%

46%

57%

58%

Tier 1

72%-78%

22%

23%

21%

Tier 2

48%-55%

10%

11%

13%

Tier 3

47% - 55%

20%

10%

8%

Top Cities for each player

Delhi, Mumbai,
Delhi, Bangalore, Delhi, Mumbai,
Bangalore, Chennai, Mumbai,
Bangalore, Hyd.,
Hyd, Pune
Hyderabad, Pune Delhi, Chennai, Pune

Out of 26000 pin codes, 2600 pin codes are eating up the share of 80% of ecommerce volumes.
Table 2.0

Pin code as per Indian Govt

Pin code serve by India Post
Courier Company (Major Player +Local
Player) Coverage
Overall Pin code coverage by Major Player
Pin code Coverage by Local Players
Metro Pin code
Tier-1
Tier-2
Tier- 3
Tier-4

Ecommerc
Pin
Coverag e
Prepai
code
e%
Vol %
d
Cod
26000 100.00%
100.00%
19200
73.85%
100.00%
100%
14130
11788
2342
910
1667
2332
3182
4912

54.35%
45.34%
9.01%
3.50%
6.41%
8.97%
12.24%
18.89%

95.00%
88.00%
7.00%
55.00%
23.50%
9.27%
6.20%
3.28%

14130
11788
2342
910
1667
2332
3182
4912

5633
5245
388
910
1590
1623
1482
938

65% of the volumes are from the COD option. Amazon does not provide COD options for MFN
sellers.
Diverse Locations and Scattered addresses. GPS/Location tracking is at a nascent stage in
India.
If you place an online order in India, you will quite likely get a call from the logistics company
to ask you about your exact location. Clearly your address is not enough. This is because there is
little standardization in the way postal addresses are written. Last mile issues add to ecommerce
logistics problems.
The logistics challenge in India is not just about the lack of standardization in postal addresses.
Given the large size of the country, there are thousands of towns that are not easily accessible.
Metropolitan cities and other major urban centers have a fairly robust logistics infrastructure. But
since the real charm of the Indian market lies in its large population, absence of seamless access
to a significant proportion of prospective customers is a dampener. The problem with logistics is
compounded by the fact that cash on delivery is the preferred payment option in India.
International logistics providers, private Indian companies, and the government-owned postal
services are making a valiant effort to solve the logistics problem. If someone could convert the
sheer size of the problem into an opportunity, we might soon hear of a great success story
coming out of the Indian logistics industry.
Packaging
There were a lot packaging related issues with the sellers. Some important ones are listed below:1.
2.
3.
4.
5.

Loss in transit due to poor packaging and hence results in frauds

Damage material to customers
Bad buyer Experience
Extra freight due to bad packing
High packing cost due to less number of packets

6. Non standardized shipping and invoicing formats as per markets standard which increase
seized in sales taxes
Other Challenges:1. Buyer defect rate, also defined as Bad Buyer Experience on Amazon India was all time
high at 7%-8%
2. Amazon India had zero visibility into actual shipping performances of MFN sellers
3. Buyer complaints about fake tracking information and increase in Seller fraud for
entering invalid tracking information. Sellers would enter the same tracking for multiple
products, since the system was unable to validate the tracking for MFN Sellers
Reverse Logistics Capability
Ecommerce in India has many first time buyers. This means that they have not yet made up their
mind about what to expect from ecommerce websites. As a result, buyers sometimes fall prey to
hard sell. But by the time the product is delivered, they demonstrate remorse and return the
goods. Though consumer remorse is a global problem, it is all the more prevalent in a country
like India, where much of the growth comes from new buyers.
Returns are expensive for ecommerce players, as reverse logistics presents unique challenges.
Reverse pick up of products for customer initiated returns are a big challenge in the ecommerce
industry. The major concerns related to these are mentioned below:1.
2.
3.
4.

High cost involved

Dispute in case of product not received
Damage in transit due to improper packaging
Difficulty in arranging a reverse pick up

Customer Needs vs Logistics Services

Table 2.1
3 PL
Customer Requirements

FedEx

Blue Dart

Delhivery

Accurate real time tracking of

packages

Shipment status via text messages

India Post

DTDC

Full scale FC / Depot Pickup

Cash on Delivery (COD)

Open box deliveries

Scheduled Delivery

Specialized Return service experience

7 Days a week delivery operations
Late evening and early morning
delivery operations
Card-on-Delivery Payment
Same Day Delivery#

Conclusion
Every MFN seller has the following problems:
1. Low volumes due to lack of COD option
2. Fewer logistical solutions due to which they face a lot of order cancellations, Order
defect rate and low customer satisfaction rate
3. Aspiration for COD payments/reverse pick up
4. Inability to pack which in turn leads to bad experience and bad rating
5. Inability to fulfill last mile which leads to lack of business
A comprehensive solution to these problems means-they can sell and compete on par with
their FBA counterparts.
There are two options to solve:1. Try and ask all the sellers struggling with the logistics issue to do FBA. However, even
there are challenges pertaining to this.
i) Going FBA means they have to register themselves with the tax authorities to show
Amazon fulfillment centre as an Additional Place of Business which involves cost
ii) The sellers will have to pay rent for the space they use to stock their products in
amazon warehouse
iii) There are removal costs to remove the unsold inventory out of the warehouse
Though this is the most feasible option for all MFN seller, however the sellers still face a
challenge to be price competitive and maintain margins with the above costs involved

2. Facilitating a 3P services to the MFN Sellers, by offering subsidized rates. This can be
done by:i) By helping them with a pick-up service and delivery on behalf of the sellers at a
subsidized rate
ii) Giving them a COD option under this fulfillment model will help boost more sales
iii) Efficient tracking of shipments
iv) Better customer satisfaction rate
v) High level pin code serviceability coverage
As Flipkart has started their own logistic service E-kart, the seller satisfaction ratio is very high
and this means loss of business. The decision needs to be taken on high priority to sustain the
competitive advantage in this booming e-commerce industry of India.