India is an attractive market for retail investment. The sector is witnessing dominance of large domestic players, like Reliance, Bharti, AV Birla Group and international conglomerates such as Wal-Mart, Marks & Spencer, Tesco etc. Current Indian retail scenario looks gamut because of poor supply chain, infrastructure, policy barriers, untrained workforce and inconsistent sourcing systems. In the Indian retail huge investments, government policies, third party intervention, and changing consumer preferences will distinguish supply chain revolution.
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Operational inefficiencies in terms of stock out percentage, shrinkage, wastage, inventory turns, storage cost and logistics as a percentage of costs is very high compared to global norms. Hence, Supply chain will be a differentiating factor that gives the competitive advantage to firms.
Thus planning and investing in field of supply chain in the areas of sourcing (contract farming), distribution centers (warehouse, cold storage), transportation networks (3PL), inventory (both store level and warehouse) (VMI), supply chain information systems such as warehouse management systems, planning, forecasting, inventory management, backward integration, quality management systems, service monitoring and control will improve the network and the business.
On a long term basis, there would be a need to build a flexible supply chain which would be capable of responding to changes, intrinsic or extrinsic changes, drastic or slow changes, in demand, supply and technology.
SCOPE OF THE ANALYSIS:
CURRENT INDIAN RETAIL MARKET SCENARIO
Source: Technopak Advisors Report
FACTORS DRIVING GROWTH
STONE-BROKE INDIAN RETAIL
COMPETITON:
Retail market performance |
|||
Financial Year-2011 |
Sales |
Net Profit |
Total Reserves/Losses |
Pantaloons |
12,366 |
142 |
2799 |
Reliance Fresh |
2514 |
-160 |
-572 |
Avenue Super Mart (Dmart) |
1595 |
41 |
79 |
Bharti Wal-Mart (Dec 10) |
772 |
-168 |
-522 |
Aditya Birla (More) |
688 |
-423 |
-1975 |
Reliance Retail |
592 |
-24 |
-38 |
Easy Day (Bharti Retail) |
470 |
-267 |
-590 |
Nature’s Basket (Godrej) |
55 |
-10 |
-25 |
Foodworld |
204 |
-22 |
-190 |
All figures in Rs. Crores. Source: Ace Equity and annual reports |
Source: Planet Retail 2008; Nielsen 2010; PwC
VALUE CHAIN ANALYSIS:
OPERATIONAL GAPS IN INDIAN RETAIL:
Logistics cost as % of price |
Inventory turns |
Stock-out percent |
Shrinkage percent |
|
Indian Retailers |
Approximately 10 |
3 to 14 |
5 to 15 |
3.1 |
Global Retailers |
5 |
Average 18 |
Below 5 |
Average 1 |
SUPPLY CHAIN COSTS IN INDIA:
|
Current |
Possible |
|
Wastage Volume |
Percent |
40 |
10.5 |
Wastage Value |
Percent of retail price |
15 |
3 |
Rs billion |
713 |
120 |
|
Storage and Commissions |
Percent of retail price |
47 |
38 |
Rs billion |
2227 |
1804 |
|
SOURCE: Deloitte |
RECOMMENDATIONS:
Succeeding in India’s retail sector is a combination of choosing the right retail real estate, localizing products and mastering the supply chain.
Research: PWC-Winning in India’s retail sector.
a) Correct mix of Private Labels (PL) in the stores:
Merchandizing, local advertising and other core functions should be done by company itself instead of outsourcing.
b) Store location selection based on proper research: Catchment area analysis has to be done extensively. Potential demand, supply of merchandise and store image-related factors in locating the retail outlet is important. Layout should suit both impulsive and situational needs.
c) Localisation of stores: Getting the merchandise mix right. Collect past data to understand the customer buying behaviour. Equip category managers or select category captains to improve assortments.
d) Sound Supply Chain system
e) Contract Manufacturing will reduce any further capital expenditure. 100% sourcing networks is viable.
f) Integrate backwards to procure directly from farmer where APMC (Agriculture Produce Marketing Committee) acts have been amended to facilitate this process.
g) Technology is the differentiator:
h) Regional Warehouse: Lead time for stock replenishment will be low
i) Demand Forecasting: Weekly or Daily basis
j) Operational strategy to mitigate challenges
i) Service monitoring and control:
j) Quality - Quality Management System comprising Quality Control and Quality Assurance departments to ensure end-to-end quality control-from raw material procurement to manufacturing, packaging and delivery at the doorstep of the customer.
k) Outsourced transportation – 3PL: Parts of the value chain may be outsourced to a 3PL while a company can look into backward integration for critical areas.
l) Average levels of stock, order levels and the retailer has to keep a tight control on costs associated with each transaction in the selling process.
m) Maintain essential inventory.
n) Setting the right price point.
o) Focus on profit instead of volume (be ready to lose an occasional sale).
p) Provide extraordinary service and after sales support.
q) Employ the best possible staff.
r) Better shopping environment.
This article has been authored by Senthilkumar Pazhamalai, SCMHRD.
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