Building an online polymer trading company
When Arun Singhal and Shrinath Balakrishnan decided to set up Source.One in 2017, the duo was focused on solving a critical issue faced by most Micro, Small and Medium Enterprises, MSME players in the plastic processing industry, bringing parity between the procurement price of raw materials between smaller and bigger players.
The two observed that disparity existed because larger players had direct access to producers and importers and were also able to negotiate the best price and credit due to higher volumes.
Also, since they were cash-rich, bigger companies could buy polymers when the prices were low and hoarded them for future use, which was unthinkable for smaller players dealing with tight cash flow issues.
“We were clear that the price disparity due to lack of access was stopping the smaller players to grow beyond the point,” says Singhal, who is CEO of the company. His cofounder Balakrishnan is the CTO and drives all technology initiatives of Source.One.
The HSN-based GST intelligence application was a game-changer since it enabled Source.One to filter companies on the basis of relevant product codes.
Early in its journey, the idea of Source.One was to create a level-playing field in the market so that smaller player can procure goods at a cost similar to any larger player in the sector. And they started doing this by flattening the supply chain, buying directly from the seller and selling to the buyers; removing middlemen in between.
However, when the two eventually started working on the model, they realised that there was a bigger problem that was hindering the growth of MSME players in the industry.
“While we were trying to reduce the gap through the use of technology to bring transparency in the trade, we noted that the industry faced a much bigger problem of distribution,” he explains, adding that the problem – starting from the supply to demand side existed because of the inefficiencies in the traditional method of raw material distribution.
Solving the demand side issue
While the company had cracked the demand side problem by connecting smaller players directly with suppliers, there was another concern as well. Source.One team did not want to create a solution that would compel traditional players in the commodity and manufacturing space to adopt new technologies and require behavior change.
“We were clear that pushing for adoption of new technology or the new application might restrict the traditional business owners. Hence, we decided to use WhatsApp, the most downloaded application, as a communication tool for informing buyers and also for placing orders,” informs Singhal, adding that the need triggered a simple and easy-to-use solution using WhatsApp API for the frontend and Zoho platform for the backend.
He further disclosed that Source.One soon became India’s first B2B company to get API access of WhatsApp from Meta. In operational terms, it meant that the company could announce the specifications and the availability of stock through WhatsApp messages, and the buyers can place an order by replying to it.
The company identified micro and small transporters focussing on specific routes and mapped them across 738 districts using Google Map API.
The company also partnered with State Bank of Mauritius or SBM, formerly Chase Bank, which essentially forms the backbone of most fintech companies in India at present for facilitating credit and financial options for the buyers.
On the technology front, Source.One uses multiple solutions that are integrated using Node.js. “While the backend is built on Zoho platform, the frontend is on React.js and the entire solution is hosted on AWS,” elaborates Balakrishnan who drives the technology. He further added that the backend infrastructure uses auto scaling feature of AWS making it scalable to 15,000 users at a time, something that is less heard of in B2B.
This enabled Source.One to register significant growth in revenues; a jump of 865% from Rs 176 Million in FY 2018-19 to Rs 1.7 Billion in FY 2019-20 followed by a 300% growth to Rs 6.8 Billion in 2020-21. The company closed FY 2021-22 with revenues of Rs 16.22 Billion.
While the company had solved the demand side communication puzzle which was critical for a time-sensitive commodity such as polymer, the business was yet to take off in a big way. One, because the traditional players were wary of buying through the message mode, and two, because the company was still working on tools that could help qualify the buyers.
The game changer
It may sound like a fairy tale for a start-up to scale 100x in a year, but the organic growth happen for Source.One due to two factors. These were the GST intelligence system based on the Harmonized System of Nomenclature or HSN codes; and later the nationwide lockdown that brought all business to a standstill from March 2020 onwards.
Developed by the World Customs Organization, HSN code is a 6-digit uniform code that classifies 5,000+ products and is accepted worldwide. As a member of WCO India adopted the HSN code, which was originally used to classify commodities for Customs and Central Excise, and more recently integrated with GST as a unique identifier.
“The HSN-based application was actually a game changer for us since it enabled us to filter companies on the basis of relevant product codes. For example, if I want to know how many toothbrush manufacturers there are in India, it was easy to create a list using the HSN code of their invoices,” explains Singhal.
What this meant was that the company was soon able to identify the demand-side liquidity by filtering the companies that had HSN codes for products manufactured by using plastic as a raw material. The next step was to profile and create a qualified list of buyers, a process similar to KYC.
“Our tele-calling team reached out to nearly 15,000 manufacturers across 738 districts and got their profiles. This was a one-time activity and every year we only have to call and profile between 500 to 1,000 new manufacturers to update the list,” he says.
Once the profiling was done, the company knew the products each of these companies needed in which quantity and location. Now, it was just a matter of few clicks to share information about the product availability through customised messages matching the company’s needs.
Source.One decided to use WhatsApp as a communication tool for informing buyers who can place orders by clicking a link.
By the end of FY 2019-20, the company had nearly 12,000 registered opt-in buyers. However, the sales were still not picking up. And then the lockdown happened.
“While the buyers were aware of Source.One, they preferred the traditional way of in-person meetings to finalise deals and were not comfortable buying high-value products by just sending a message. The lockdown, however, forced them to try us out. Once the buyers realised we can deliver as per the commitment, the growth just happened,” elaborates Singhal.
Building an efficient distribution network
For Source.One, creating a strong distribution machine to handle the supply chain challenges on an auto-mode was a key component. The solution lay in mapping the inventory laying with the sellers and the buyer in a real time basis so that the seller can liquidate faster, and the buyer can purchase at the best price.
“Our day begins with the sellers updating their inventories on the Source.One system. Once the data is aggregated we push the information with product specifications to buyers through the WhatsApp messages and the mobile app.”
The buyers just need to click a link in the message to place their order. They can also avail the credit and various financing options by clicking another link. The prices are, however, non-negotiable and the financial options are subject to the company’s credit worthiness mapped using solution from a fintech partner.
The last part of creating a strong distribution channel was to set up a pan-India logistic network to ensure assured delivery at a lower cost. The company identified micro and small transporters focussing on specific routes, and mapped them across 738 districts, creating nearly 490,000 combinations using Google Map API, including details like per ton freight cost.
Overall, the company has footprints across almost all states, covering 97% of all PIN codes, and nearly 30% to 40% of business coming from smaller cities and odd routes that were never covered before.
At the backend, the communication with transporters also happen using WhatsApp chat, with the company broadcasting the quantity, pick up and drop points to qualified service providers who need to send their bids through reply to messages that can be tracked only through the integrated dashboard. Following the reverse bid, the system automatically detects the least cost transporters and confirms the shipment.
Recently, the company has also launched its mobile app built on Flutter stack, with nearly 20% of its customers already shifting to the new transaction mode.
Going ahead, Singhal and his team have chalked out plans to expand operations into other chemicals. The company which had started with the polymer distribution business and has now emerged as an end-to-end commodity distribution company in the country has also ventured into the packaging sector. It also aims to nearly double its revenues in the current fiscal to touch Rs 30 Billion by the end of March 2023.
- Set up in 2018, Source.One aimed to bring parity between the procurement price of plastic raw materials between smaller and bigger players.
- The company went on to streamline the $250 Billion chemicals distribution industry and become one of the largest online polymers trading company in India.
- Overall, it boasts of interacting with 15,000+ buyers on a daily basis and has 3,000+ active paying MSME manufacturers onboard.
- One closed FY 2021-22 with revenues of Rs 16.22 Billion, a 140% growth over the previous FY and aims to achieve Rs 30 Billion target during 2022-23.
The idea of Source.One was to create a level-playing field where smaller player can procure goods at a cost similar to larger players in the sector.
Shubhendu Parth is a contributor to Business Transformation Asia