Supply Chain Challenges for E-Commerce Businesses in Bangladesh
MOHAMMAD ASHRAFUL ISLAM KHAN |
March 26, 2022 4:43:30 p.m.
Mar 27, 2022 11:11:16 a.m.
As the global pandemic has shaken the world, some sectors are booming as the imposition of lockdowns has led to a significant shift in consumer behavior. People have started buying products online and this pattern of behavior seems to last for a long time as there is no going back to the same old practice.
Although the potential of the e-commerce sector is vast in theory, the lack of technological advancements and internet penetration, along with bureaucratic entanglement and resource challenges, have impeded its growth in Bangladesh.
However, the pandemic has forced customers to rely on the e-commerce sector out of necessity and today most people are highly dependent on the smooth functioning of this sector.
According to the Asian Development Bank (ADB) report, the e-commerce sector in Bangladesh is expected to triple by 2023. The local e-commerce sector is expected to be worth around US$3.0 billion (Tk260 billion) l next year from the current $1.0 billion (Tk 85 billion).
Today, there are around 2,500 e-commerce businesses in Bangladesh and 50,000 business pages on Facebook. The President of Electronic Commerce Association of Bangladesh (e-CAB), Mr. Shahab Uddin, said that the huge potential of e-commerce in Bangladesh has been proven during the pandemic and through this sector, around 200,000 new jobs have been created. . By 2024, the total number of jobs is expected to increase by another 300,000.
Daraz Bangladesh is one of the leading e-commerce platforms, with around 10.09 million users interacting every month, making it the most visited e-commerce site. Moreover, Sindabad is the first and one of the largest business-to-business (B2B) online platforms in the country, which mainly caters to small and medium enterprises.
On the other hand, Chaldal was the first and leading online grocery store and implemented various innovative ideas such as Chaldal Vegetable Network and GO-GO Bangla to deal with the critical challenges of e-commerce platforms.
Even in the midst of such growth, various limitations can hinder further growth.
One of the biggest challenges that e-commerce platforms face is the lack of technological advancements and scalability issues in rural areas of the country. According to a 2019 survey, internet usage in rural Bangladesh was only 34.8%. About 65.2% of people do not use the Internet mainly because of the lack of necessary technical skills (65%) or because they simply think it is not necessary (54%).
In addition, most rural areas fall into the low income segment or live in poverty. Therefore, the use of the smartphone is also limited. According to a GSMA report, only about 41% of mobile users use smartphones in Bangladesh.
Apart from this, there is insufficient demand for deliveries in these rural areas. First, grocery stores number in the hundreds and are located nearby in every small town, so it’s quicker to go buy direct instead of waiting for deliveries.
Second, people often get credit when buying from local stores, something they won’t get with online stores. It is therefore extremely difficult for e-commerce platforms to serve outside metropolitan areas.
Therefore, e-commerce businesses are mainly locating in urban areas, but to really unlock the potential of the sector, rural areas need to be developed.
Poor logistics infrastructure is another challenge for these companies. Whether it’s maintaining proper distribution channels, storing perishables, or delivering products to the end consumer in a timely manner, the deficiency in the logistics infrastructure is deeply felt. These companies need to have the right distribution channel to collect the right product in the right amount at the right time to be the most efficient.
However, e-commerce platforms are struggling to keep up with the large number of orders due to poor infrastructure and scarcity of labor and supplies. One of the biggest problems regarding logistics is the storage of perishable goods such as fruits and vegetables. Today’s vegetable and grocery supply chain is full of inefficiencies. Farmers suffer from wastage while customers suffer from poor quality fresh produce and fluctuating prices. By the time fruits and vegetables are sold to consumers after collection from farmers, the quality of fresh produce is lost. Thus, to reduce costs, malpractices such as the use of chemicals to artificially maintain the freshness of the crop are committed. This is where a lack of a cold chain network hurts the entire supply chain.
Moreover, making deliveries on time is an essential factor that e-commerce platforms must take into account. Fast and safe deliveries are necessary to satisfy customers, a difficult task for many platforms because their warehouses and storage units are far from customers. On the other hand, if a sole proprietor or a small business wants to sell their fresh produce from Barishal to another district, the lack of e-commerce logistics service will hinder their opportunity to expand.
Therefore, investing in proper logistics infrastructure will be the key to the growth of this industry.
The path to follow
The severe challenges in Bangladesh’s logistics infrastructure must be overcome to improve the e-commerce sector and the economy as a whole. The country lacks an adequate cold chain network, leading to poor practices and food waste.
However, Golden Harvest Food Limited has entered into a joint venture with the International Finance Corporation to form an integrated cold chain and temperature-controlled logistics service company, which is expected to serve 12 different locations across the country. If many more initiatives like this are taken in the future, the problem of perishables can be alleviated.
The lack of traceability in the vegetable market supply chain shows why there are so many inefficiencies in logistics. Chaldal’s initiative, Chaldal Vegetable Network (CDVN) is an excellent traceability solution. CDVN helps connect farmers directly to retailers. This way, farmers can have a better chance of getting fair prices while small retailers can buy fresh produce daily and deliver it right to their doorstep. It also guarantees customers high quality products, helping the entire supply chain.
In addition, maintaining micro-warehouses also helps improve delivery times and logistics efficiency. Chaldal has such warehouses spread all over the city so that customers can have their orders delivered from the nearest warehouse. Similar initiatives are also being taken by lesser-known platforms, improving the overall logistics infrastructure of the e-commerce industry.
On the other hand, the growth of the mobile financial services (MFS) industry has also been a huge boost for the e-commerce industry as it has made it easier for consumers to purchase products online. Thus, the AfDB recommends adopting a special policy for small factories and businesses that allows them to use digital platforms to further digitize the country and so that they are not confused in the future in the event of a crisis like the Covid-19 pandemic.
Moreover, the penetration of smartphones in rural areas is very low. Even if they could afford it, the lack of technical skills makes them less likely to use smartphones. Thus, policy makers need to ensure proper training and education to foster the success of the e-commerce sector and the economy as a whole. The AfDB report found that businesses increased their use of information technology after the pandemic, which helped pave the way for a booming e-commerce sector.
Thus, the authorities must ensure that proper guidelines are created to help the sector continue to grow and ensure that such an opportunity is well managed so that Bangladesh can have a highly developed e-commerce sector in a foreseeable future.
Mohammad Ashraful Islam Khan is a Management Consultant and Head of Supply Chain Advisory Services, KPMG Bangladesh