DEVISING VENDOR RATING SYSTEM FOR FLIPKART

By Abhisek Rathi11P062

PGPM 2011-13MDI Gurgaon

About Flipkart Flipkart went live in 2007. Objective : To make books easily available to anyone with

internet access. Plans to expand both in terms of product categories and

geographical locations in India One of the leading e-commerce players in India. Services like Cash on Delivery, a 30-day replacement policy, EMI

options, free shipping and great prices.  Companies like Amazon.com and ebay.com have been doing

good business in developed countries for quite some time now but not many such companies have made a mark in the Indian context.

Low internet penetration does not enable to take advantage of ease of shopping online

Challenge :Try to emulate the success stories of these companies in India.

Company Background Pioneer of e-commerce in India. Currently, Flipkart has registered sales of nearly 2.5 million items

across all categories and sells more than 35,000 units per day. Known for superior customer experience Flipkart already had a proven model execution with books and

extending to other verticals required few infrastructural changes. Because of the rapid expansion there were talks about possible

brand dilution and investor pressure. Flipkart is rapidly expanding its network of warehouses,

distribution centers, procurement operations and 24/7 customer support teams. The company even has its own delivery network in 13 cities and is set to expand this to 25 cities by next year. With a team of around 2500 members, the company operates from offices in Bangalore, Chennai, Delhi, Kolkata, Mumbai, Noida, Pune and Kochi.

Acquired WeRead, Mime360.com, Chakpak.com and Letsbuy.com Launched new Electronic Wallet feature, and Flyte Digital Music

Store

Why Vendor Rating System To devise a quantitative system for

comparing vendors of Flipkart To find the suppliers important for us in

each category To find where we can suggest them to

improve so as to get overall benefit for both Flipkart and the vendor

How? Identify various parameters on which vendors can

be rated and the method of rating them Make the list of data required and their sources Gather the data and compile it into a generic form Compute individual vendor’s rating for each

parameter specific to each sub-category Assign weights to each parameter Compute the vendor score for Business Parameters

& Service Parameters Present the scores in graphical format such that

the shortcomings can be traced and vendor performances can be improved

What to Rate Vendors On?Vendors can be rated on following parameters: Sales Contribution Potential Sales Credit Duration Delivery Terms (FOR) Returns Stock Update B2B Fill Rate Inventory Fill Rate Relative Procurement SLA

What to Rate Vendors On?These parameters can be classified into two

categories: Business Parameters – Those parameters

which affect out Top/Bottom Line Service Parameters – Those parameters

which affect our service to the end customer

Business ParametersFollowing parameters can be classified as Business

Parameters: Sales Contribution – How much is Flipkart buying

from the vendor Potential Sales – How much can the vendor

provide to Flipkart given the FSNs it offers Credit Duration – What is the credit duration

offered to Flipkart Delivery Terms (FOR) – Whether the vendor

delivers to Flipkart’s warehouse Returns – How many returns are we receiving for

the items purchased from the vendorService Parameters

Sales Contribution Data Required – For Last 60 Days (Or N

Number of Days) Data Source – Invoice Dump Grouping – Category wise, Vendor wise Calculation – Category-wise Percentile

Rank of the Vendor; Only for N Number of Days Specified

Sales Contribution Basket Data Required – For Last 60 Days (Or N

Number of Days) Data Source – Sales Contribution

Compiled Data Grouping – Category wise, Vendor wise Calculation – Basket division based on

Category-wise Percentile Rank of the Vendor; Only for N Number of Days Specified

Business Parameters

Potential Sales Data Required – Details of FSN Offered by

Vendors and FSN’s Total Sales on FK Website

Data Source – Pricing seed file for various vendors of FK; FK Website Sales Data

Grouping – Vendor wise, Category wise Calculation 1 – Potential of the supplier =

Sales of all the FSNs offered by the vendor Calculation 2 – Potential Sales Points =

Percentile Rank * Maximum ScoreBusiness Parameters

Credit Duration Data Required – Credit Policy of all the

Vendors Data Source – Vendor Compiled Details Grouping – Vendor wise Calculation – Points based on Credit Days

Specified; Credit Score = (Number of Credit Days/3) rounded off to next Integer

Business Parameters

Delivery Terms (FOR) Data Required – Delivery Policy of all the

Vendors Data Source – Vendor Compiled Details Grouping – Vendor wise Calculation – In each Basket, 10 if FOR =

Y, 5 if FOR = N

Business Parameters

Returns Data Required – Details of FSN sold by Vendors

to different warehouses; Returns based on FSN shipped from different warehouses

Data Source – Returns Data; Invoice Data for Given Time period

Grouping – Warehouse wise, Category wise, Vendor wise

Calculation 1 – Return Cost per FSN = [Total returns of given FSN * % share of supply for vendor / Total units supplied by Vendor *Total Value of items] (warehouse wise)

Calculation 2 – Vendor Return % = Total Return Cost / Total Value of Items shipped

Calculation 3 – Return Points based on Return %:

% From % To Points

0 0.3 10

0.3 0.625 9

0.625 0.975 8

0.975 1.35 7

1.35 1.75 6

1.75 2.175 5

2.175 2.625 4

2.625 3.1 3

3.1 3.6 2

3.6 4.125 1

4.125   0

Business Parameters

Service ParametersFollowing parameters can be classified as

Service Parameters: Stock Update – How frequently does the

vendor gives the Stock Update B2B Fill Rate – What is the Fill Rate by the

vendor for Back to Back orders Inventory Fill Rate– What is the Fill Rate by

the vendor for Inventory orders Relative Procurement SLA – What is the

comparative SLA offered by the vendor wrt other vendors offering same FSNsParameters Not

Considered

Stock Update Frequency Data Required – For Last 60 Days (Or N Number of

Days) Data Source – Stock Update Tracker Grouping - Category wise, Vendor wise Calculation – Points based on Average Updates for

the Vendor’s Seed Files of the particular category in N Number of Days Specified:Av. Update per 7 days Points

4 or more updates 103-4 updates 7.52-3 updates 51-2 update 2.5Less than 1 update 0

Service Parameters

B2B Fill Rate Data Required – B2B Sales on FK Website Data Source – Input Data File of Supplier

Performance Grouping – Category wise, Vendor wise Calculation – Fill Rate Points = ((Quantity

wise Overall Fill Rate – Quantity wise Post SLA Fill Rate)*1 + (100 – Quantity wise Overall Fill Rate)*-1)* Maximum Points to be allocated

Service Parameters

Inventory Fill Rate Data Required –Inventory PO Data Data Source – Input Data File of Open PO Files (High Manual

Compilation required as currently no compiled data available) Grouping - Category wise, Vendor wise Calculation 1 – Inventory Procurement Score = {Case Based

on Fulfillment Days [Less than 5 -> 1; 6-7 -> 0; More than 7 -> -1]}*Quantity supplied + Quantity Cancelled*-1

Calculation 2 – Inventory Fill Rate Points – (5 + Inventory Fill Rate Score/Maximum Score*5): (To Normalize Score between -(Maximum Score) & (Maximum Score) to 1 and 10)

Assumption – Inventory PO filled after Day 7 are assumed cancelled; Inventory PO filled after Day 5 considered Post SLA filled

Service Parameters

Relative Procurement SLA Data Required – Details of FSN Offered by Vendors and their

SLAs Data Source – Data extracted from Seed files for Potential

Sales Calculation Grouping – FSN wise Average followed by Vendor wise,

Category wise average of Relative SLA Lead Calculation 1 – SLA Lead = Average SLA Offered by all

vendors for that FSN - SLA Offered by the Vendor for an FSN Calculation 2 – Average SLA Lead = Average of all SLA Leads

for all Vendor & Category pairs Calculation 3 - SLA Lead Point (Relative SLA Offered) =

(Average SLA Lead by Vendor in the category – Minimum SLA Lead in the Category) / (Maximum SLA Lead in the Category – Minimum SLA Lead in the Category) * Maximum Points to be allocated

Service Parameters

Parameters not consideredFollowing parameters were not considered,

even though important, due to unavailability of data/other reasons:

Growth Pattern – How the sales of each vendor is growing as compared to overall growth of the category/vertical

Return Terms – What are the terms for returned products with various vendors

Return Term Adherence – How much does the vendor adhere to the its committed terms

Compilation of PointsIn Business Rating, the parameters were

given following weightage: Sales Contribution – 27.5% Potential Sales – 12.5% Credit Duration – 25% Delivery Terms (FOR) – 15% Returns – 20%

Compilation of PointsIn Service Rating, the parameters were

given following weightage: Stock Update – 28% B2B Fill Rate – 28% Inventory Fill Rate– 24% Relative Procurement SLA – 20%

ResultsResults were compiled and graphs plotted

for various verticals: Computer Accessories Network Components All In One Desktops Computer Components Laptops Computer Peripherals

Go To Scorecard

Thank You