1

Page

INTRODUCTION

Fabindia (or Fabindia Overseas Pvt. Ltd.) is an Indian chain

store retailing

garments,

products handmade by

furnishings,

craftspeople

fabrics
across

and

ethnic

rural

India.

Established in 1960 by John Bissell, an American working for

the Ford

Foundation,

New

Delhi,

Fabindia

started

out

exporting home furnishings, before stepping into domestic retail

in 1976, when it opened its first Fabindia retail store in Greater
Kailash, New Delhi. Today it has over 170 stores across India and
abroad, and is managed by his son, William Bissell.
In 2008, Fabindia had revenue of $65 million, marking an increase
of 30% from the previous year. Fabindia sources its product from
across India through 17 community-owned-companies; a certain
percentage of the shares of which are held by artisans and craft
persons.
Fabindia is India's largest private platform for products that are
made

from

traditional

techniques,

skills

and

hand-based

processes. Fabindia links over 80,000 craft based rural producers

to modern urban markets, thereby creating a base for skilled,
sustainable rural employment, and preserving India's traditional
handicrafts in the process. Fabindia promotes inclusive capitalism,
through its unique COC (community owned companies) model.
The COC model consists of companies, which act as value adding
intermediaries, between rural producers and Fabindia. These are

Page

owned, as the name suggests, by the communities they operate

from; a minimum 26% shareholding of these companies is that of
craft persons. Fabindia's products are natural, craft based,
contemporary, and affordable. The Fabindia Head Office is located
in New Delhi.
LITERATURE REVIEW

BRIEF HISTORY

Founded by John Bissell to develop market for hand-woven

products and to provide rural employment

Incorporated in 1960 in Delhi to export upholstery fabric

By 1965,

revenues of Rs. 2 million due to A S Khera,

supplierof hand-woven rugs etc from Panipat and Habitat,

major UK buyerof Fabindia Panipat products

1974

saw Fabindia's first retail store in Greater Kailash

with ad-hoc merchandising

1977-Featured

contemporary

designs

to

attract

consumers and designers

Garments were introduced in 1980s after John Bissell got

khadi shirts made for himself

Habitat was acquired by Ikeain 1992 and Fabindia could

no longer continue selling to it

John Bissell died in 1998, passing the baton to son William

Bissell who became MD in 1999

William's vision included expansion, depending less on

Page

exports and setting up retail operations

Today Fabindia is considered one of the most profitable retailers
in the country. It earns a net margin of 8 percent, nearly three
times more than the industry average.
Philosophy
Fabindia was founded with the strong belief that there was a need
for a vehicle for marketing the vast and diverse craft traditions of
India and thereby help fulfill the need to provide and sustain
employment.

We

blend

indigenous

craft

techniques

with

contemporary designs to bring aesthetic and affordable products

to todays consumers.
Our endeavor is to provide customers with hand crafted products
which help support and encourage good craftsmanship.
Our products are sourced from all over India. Fabindia works
closely with artisans by providing various inputs including design,
quality

control,

access

to

raw

materials

and

production

coordination. The vision continues to be to maximize the

handmade element in our products, whether it is hand woven
textiles, hand block printing, hand embroidery or handcrafting
home products.
Fabindia Products
The major portion of Fabindias product range is textile based.
Non- textile introductions to this range are Home Products

Page

(introduced in October 2000), Organic Food Products (introduced

in July 2004) & Fabindia Sana Fabindias range of authentic
bodycare products (introduced in March 2006).
The textile-based product range includes ready-to-wear garments
and accessories for men, women, teenagers and children; bed,
bath, table and kitchen linen; floor coverings, upholstery fabric
and curtains. Cotton, silk, wool, grass, linen and jute are the basic
fibers used.
The Home Products range carries furniture, lighting, stationery,
tableware, cane baskets and a selection of handcrafted utility
items.
Fabindia Organics carries several types of cereals, grains,
pulses, spices, sugar, tea, coffee, honey, fruit preserves and
herbs.
Fabindia Sana, Fabindias range of authentic bodycare products
includes soaps, shampoos, hair oils, pure oils, moisturizers, body
scrubs, face packs, hair conditioners & special skin care products.
Holding these major product lines together is the companys
commitment to the rural and crafts sectors of India.

5
Page

Garments

Accessories

Home linen

Home furnishings

Home products

Floor coverings

Personal products Organics

GLOBAL SYNERGIES THROUGH ACQUISITIONS

Louis Vuitton: As recently as March 2012, Fabindia endured a
partial French takeover: Louis Vuitton Moet Hennessy (LVMH)
acquired an 8% stake in Fabindia.
EAST: Fabindia also acquired a 25% stake in UK's bohemian
womens wear retailer EAST. EAST has 77 outlets, which includes
selling through 18 John Lewis stores. These networks will help
Fabindia sell its garments in UK. Fabindia a l rea d y has a
presence in Gulf with stores in Dubai, Bahrain and Qatar.
THE FABINDIA ECOSYSTEM

6
Page

Product Selection
Committee (PSC)

Designers

Business Experts

Artisans Microfinance
(AFML)

Employees

10%

49%

15%Social Venture

Supplier Regional Company

(SRC)

26%

Craftsmen

Artisans

Weaver

Fabindia enjoys a Network of 167 stores across India's 35 top

towns.
Its supply chain is based on Supply chain based on inclusive
capitalism: co-option of 22,000 artisans and making them into
shareholders through an elaborate community-owned model
Designers and business experts are directly employed by
Fabindia.

Few of the designers work with the artisans while

others form the product selection committee.

The key

Page

responsibility of this committee is to select new artisans and

weavers and ensure that the quality standards are met before
ordering the products

FABINDIA SUPPLY CHAIN

Fabindia's suppliers are predominantly from rural India.

The

supply chain has 2 suppliers, the artisans and the fabricators.

The artisans are the weavers or painters from a rural background
so the

designers are the ones who are responsible

for

aware of

Page

communicating with the artisans and making them

urban needs and trends. The designers have a deep knowledge

of textiles as well as the urban sensibilities.
Since most of the fabindia artisans are poor and illiterate there
are few written contracts that exist
behavior.

and govern supplier

Each potential supplier comes through a reference

from an existing

supplier. Initially the supplier is given a trial

order and based on the performance of the supplier,

they get

regular orders.
The Fabindia supply chain has moved on from a centralized
warehouse model to a more

decentralized model. To shorten

the supply chain and incorporate the artisans within the process
in a greater way, fabindia introduced the concept of community
owned companies. The weaver

approaches the Supply regional

company i.e. SRC with. At the SRC level the designer steps in to
help artisans produce something relevant to the target market.
The design is then approved by the PSC or the product selection
committee.

Here the fabrics and the quality of factors like

colorfastness are determine and compared to the company set

benchmarks. One the product is selected by the PSC the order is
placed after price negotiation with the weaver.
The orders are completed by the weaver and brought to the
company warehouse.

The fabric is

delivered in the form of

thaans. However there is no uniformity in terms of the length of

fabric incorporate in each of the thaan.
50m.

It varies from 20m to

The stock then moves from the SRC warehouse to the

Page

regional warehouse. The issue that fabindia faced in the initial

stages was orchestrating the supply chain which would cater to
the large volume of supplies as well as maintain quality. To
resolve this the model of SRC s was introduced. The SRC are in
direct contact with the artisans and serve as interfaces to the
urban markets.

The SRCs are also responsible

the

artisans

credit and capital that they require. 17 SRCs have been setup in
different parts of the country to deal with suppliers across the
length and breadth of the country. The artisans have a 26% stake
in the SRCs and the rest is owned by the investors and the
fabindia.
Once the order has been received at the SRC warehouses it
becomes a part of the fabindia online

inventory system. The

levels of stock and orders for a particular product can thus be

monitored online by the retailer. As and when the retailers place
their orders the products are moved from the SRC warehouses to
the regional warehouses and distributor points. At each regional
warehouse a continuous review model for inventory of products
is followed. On the retailer side, each retailer orders as a single
entrepreneurial entity.

For various kinds of products bins or

wallet sizes are defined and the retailer is allowed to stock up

only upto a given wallet size.
SRCs have evolved the supply chain of Fabindia
centralized model to a regional supplier
this novel approach.
USE OF TECHNOLOGY IN FABINDIAS SUPPLY CHAIN

from a

companies. Benefits of

10

In 2005, FabIndia decided to transform and strengthen its Supply

Page

Chain with the goal to increase monthly revenues from 8 crores

per month to 20 crores per month. A major step in this effort was
to automate a major portion of the ordering process. As a result
two distinct modules were created
B2C MODULE
This was nothing but the website www.fabindia.com which was
transformed to an online shopping website where the entire
range of products in Fabindia was contained. This website was
linked with domestic and international courier companies who
would pick up the ordered item from the

warehouse in Delhi

and deliver it to the e-customer. The B2C module served

domestic 'click'

customers and international customers, who

wanted Fabindia products but did not have access to a store.

B2B MODULE
This was the software developed to connect Fabindia stores to
the

SRC

warehouse.

This

allowed

store

managers

to

independently order from each of the SRCs. This would allow for
streamlining of

order and delivery. The B2B module would also

help to project future growth by also acting as a forecasting

tool.
SUPPLY CHAIN OPTIMIZATION:

The integrated supply chain has been proven to be superior

capabilities as opposed to standalone supplier and retail entities.
AS we already know, some of this has been already built in
through FabIndia's stakes in Cs. A complete integration of the
Cs will lead a greater degree of control over the supply chain

11

and better align the motives of FabIndia with those of the

Page

artisans. This will lead overall greater order quantities and hence
a greater amount of profits

Ease of expansion: Bringing the SRCs under its gamut brings

with it the advantage of ease of access to company capital and
also helps artisans raise money much more easily. This leads to
an easier expansion of capacity
Quality Control: The integration of the supply chain results in
controlling

delivery

times

more

easily

through

centralized

processes using technology and also helps in a greater degree of

standardization and defects in the raw material procured and
used. It also helps ensure a benchmark quality which ensures that
a problem of non-repeat of purchases does not occur.
KEY CHALLENGES IN CURRENT SUPPLY CHAIN

The main problem for Fabindia is to maintain consistency of

products since the suppliers and manufacturing locations are
scattered over a large geographical area on a small scale. As
these products are made in interior, rural locations in various
locations, it has been difficult to maintain same level of quality
due to lack of knowledge on urban customers and also cultural,
behavioral differences in suppliers across different locations.
In case of organic products, Market in not matured. So it targets
customer with prior knowledge on this product. The major
problem there is fickle delivery and product availability, which
does lead to customer dissatisfaction. But this is a very small part
of the customer base.

12
Page

INFLUENCING FACTORS ON MARKET SELECTION:

Market selection is primarily done after analyzing three main
factors:
Indian population in the place Large number of settlers from the
source country increases the influence. It also leaves an
impact on affinity and acceptability in the foreign country.
Per capita income of the place Fabindia tries to makes its
product affordable to as many people as it can and hence even
a medium level per capita income is sufficient to determine
the extent of market.
Consumer beliefs and attitudes of the place
For cotton fabrics, some soft variables like ethnicity, nationalism,
weather, regional demographics, etc. also play an important
role.
Political factors and economic factors of the country
The

parameters

were

self-explanatory

from

the

revenue

generated in Canada, which is by far the maximum that has

been generated overseas.

NEED FOR INTERNATIONAL EXPANSION

Although the domestic expansion story for Fabindia is exuberant,
the need for international expansion is rising because of budding
competition from other organized players in the Indian market.

13

Certain initiatives from Government like "Delhi Haat" in the hub of

Page

Delhi aims at similar target audience with a similar pitch of

enhancing craftsmanship of our country. Similarly, in Ahmedabad
Government initiatives have provided an organized platform for
unorganized hawkers to showcase their art. Although these govt.
initiatives are at a much smaller scale and highly diverse, they
offer goods at a very nominal price hence pose a growing threat
to Fabindia.
Moreover, being a lucrative market, Fabindia is also facing
competition from established retail chains such as Shoppers Stop,
Westside, and Reliance Trends etc. who are operating at a
comparable scale.
CHANNELS TO INTERNATIONAL MARKETS

Sales

Retail

Wholesale

Institutional Sales

Fabindia has already created its presence in international markets

via own retail stores, other retailers and institutional sales. The
complete product range is exported from India. Fabindia does a
special collection twice every year to include in exports. To lure
potential international customers, they show case these special
collection in Indian handicraft and gift collection fair

14

INVENTORY MANAGEMENT

Page

Effective inventory management is all about knowing what

is on hand, where it is in use, and how much finished
product results.
Inventory management is the process of efficiently overseeing the
constant flow of units into and out of an existing inventory. This
process usually involves controlling the transfer in of units in
order to prevent the inventory from becoming too high, or
dwindling to levels that could put the operation of the company
into jeopardy. Competent inventory management also seeks to
control the costs associated with the inventory, both from the
perspective of the total value of the goods included and the tax
burden generated by the cumulative value of the inventory.
Balancing the various tasks of inventory management means
paying attention to three key aspects of any inventory. The first
aspect has to do with time. In terms of materials acquired for
inclusion in the total inventory, this means understanding how
long it takes for a supplier to process an order and execute a
delivery. Inventory management also demands that a solid
understanding of how long it will take for those materials to
transfer out of the inventory be established. Knowing these two
important lead times makes it possible to know when to place an
order and how many units must be ordered to keep production
running smoothly.
Calculating what is known as buffer stock is also key to effective
inventory management. Essentially, buffer stock is additional

15

units above and beyond the minimum number required to

Page

maintain production levels. For example, the manager may

determine that it would be a good idea to keep one or two extra
units of a given machine part on hand, just in case an emergency
situation arises or one of the units proves to be defective once
installed. Creating this cushion or buffer helps to minimize the
chance for production to be interrupted due to a lack of essential
parts in the operation supply inventory.
Inventory management is not limited to documenting the delivery
of raw materials and the movement of those materials into
operational process. The movement of those materials as they go
through the various stages of the operation is also important.
Typically known as a goods or work in progress inventory, tracking
materials as they are used to create finished goods also helps to
identify the need to adjust ordering amounts before the raw
materials inventory gets dangerously low or is inflated to an
unfavorable level.
Finally, inventory management has to do with keeping accurate
records of finished goods that are ready for shipment. This often
means posting the production of newly completed goods to the
inventory totals as well as subtracting the most recent shipments
of finished goods to buyers. When the company has a return
policy in place, there is usually a sub-category contained in the
finished goods inventory to account for any returned goods that
are reclassified as refurbished or second grade quality. Accurately
maintaining figures on the finished goods inventory makes it

16

possible to quickly convey information to sales personnel as to

Page

what is available and ready for shipment at any given time.

In addition to maintaining control of the volume and movement of
various inventories, inventory management also makes it possible
to prepare accurate records that are used for accessing any taxes
due on each inventory type. Without precise data regarding unit
volumes within each phase of the overall operation, the company
cannot accurately calculate the tax amounts.
This could lead to underpaying the taxes due and possibly
incurring stiff penalties in the event of an independent audit.
Management of inventory assumes importance due to the fact
that investment in inventory constitutes one of the major
investments in current assets.
The term inventory refers to the stockpile of the products a firm is
offering for sale and the components that make up the
product. The

assets

which

firms store

as

inventory

in

anticipation of need are:

(i) Raw Materials
These represent inputs purchased and store to be converted into
finished

products

in

future by

making

certain

manufacturing process on the same.

(ii) Work in Process
These represent semi-manufactured products which need further
processing before they can be treated as finished products.

17

(iii) Finished Goods

Page

These represent the finished products ready for sale in the

market.
(iv) Stores and Suppliers
These represent that part of the inventory, which does not
become

part

of

final

product but are required for production process. They may be in t

he form of cotton waste, oil and lubricants, soaps, brooms, light
bulbs etc. Normally, they form a very minor part of total inventory
and do not involve significant investment.
Let

us

have

look

on

Different

Inventory

Management

Views. Means emphasis role of Inventory Management in different

Sectors.

Inventory
Managemen
t

Physical
Inventory
Management

Logistic
Inventory
Management

18
Page

Financial
Inventory
Management
PHYSICAL INVENTORY MANAGEMENT

Meaning:
Keeping of goods is also a type of management. Whenever
requirements comes from the production department, providing of
those required materials in a proper manner & providing those at
the specified period, is the main motto of Physical Inventory
Management.

Benefits
Benefits
Benefits
Benefits

in
in
in
in

Purchasing
Production
Work-in-Process
Sales

OBJECTS OF INVENTORY MANAGEMENT:

Usually, the company is faced with the following conflicting
objectives in the area of inventory management:
1. To carry maximum inventory in order to facilitate efficient and
s m o o t h production and sales operations.
2.

To minimize investment in inventory for maximize the

profitability. Both over-investment and under investment in

inventories is undesirable as both involve the consequences.

Page

19

The over-investment involves the consequences like:

I ) Unnecessary blocking of funds in inventory and hence loss of
profit.
ii) Excessive storage and Insurance Cost.
iii) Risk of liquidity. The inventories once purchased and stored
are normally difficult to dispose of at the same value.
The under-investment involves the consequences like:
1). If sufficient stock of raw material and work in process is not
available, it may result into frequent interruptions in production.
2). If sufficient stock of finished goods is not available it may not
be possible for the company to serve the customers properly and
they may shift to the competitors.
Thus, it can be said that the objective of inventory management
is to minimize the investment in inventory without affecting
production or sales operations. Inventory, as a current asset,
differs from the other current assets because only financial
managers are not involved. Rather, all the functional areas,
fi nance, Marketing, Product &Purchasing are involved. The job
of the financial manager is to reconcile the conflicting viewpoints
of

the

various

functional

areas

regarding

the

appropriate

inventory levels in order to fulfill the overall objective of

maximizing of owners wealth.
Two-Bin System:

20

Under this system, the inventory items are grouped into two
Page

categories. In one group or bin, sufficient quantity is kept to meet

the current requirements over a designated period of item
FINANCIAL INVENTORY MANAGEMENT

Meaning:
Recording, maintaining and evaluating of stocks in a value terms
is known as Financial Inventory Management. In other words
valuation of stocks, and controlling of ordering and holding costs
and also maintaining of sufficient valued stocks in Inventory is
known as Financial Inventory Management.Financial Inventory
Management is again divided into three different categories.
1)Based on Valuation
2)Based on Cost Analysis
3)Based on Financial Statement
1) Based on Valuation
There are number of generally accepted methods of determining
the cost of inventories at the close of the accounting period. The
selection of a suitable method assumes significance in view of the
fact that it has a direct bearing on the cost of goods sold and
consequently on profit.
Therefore, the method should be selected in the light of probable
effects on profits over a period of years.
First in First Out (FIFO) Method:

21

The FIFO method of valuation of inventory is based on the

Page

assumption that the inventory is consumed in chronological order,

that is, those received first are issued/consumed first and value
fixed accordingly. The merit of FIFO method is that the physical
flow of materials matches the flow of cost.
Last in First Out (LIFO) Method:
Under the LIFO method, the cost of goods sold and the value of
closing inventory can be determined only after the final lot of the
year has been received. This is because of the assumption
underlying

the

valuation

of

inventory,

according

to

this

method. As the name LIFO suggests, the use of inventory is

valued on the basis of the inverse sequence of receipts.
Since the LIFO method assumes that the latest item in is the first
item out, the current cost of materials are matched with the
current

selling

price/current

revenues. This

matching

of

current costs with current revenues is the essence of the

argument for the LIFO method.

Average Cost Method:

According to average cost method, each purchase is added to
inventory and an average cost determined. Materials are charged
into cost of sales at this average until another lot is received,
when a new average unit inventory cost is calculated.
2) Based on Cost Analysis Cost of Holding Inventory:

22

One operating objective of inventory management is to minimize

inventory

fall

into

two

Page

cost. Excluding the cost of merchandise, the costs associated with

basic

categories:

(i)

Ordering

or Acquisition or Set-up Costs, and (ii) Carrying Costs. These

costs are an important element of the optimum level of
inventory decisions.
3) Based on Financial Statement
For having assistance by banks, bankers should first evaluate the
followings:
1. Collateral Strength.
2. Inventory Position
3. Some Financial Ratios
4. Payment of all requirements like Income Tax, Wealth
Tax, Interests on debt etc.
5. Agreement papers of all authorized persons like Debenture
holders, Shareholders etc.
6. All required documents.
7. Who is the Buyer and his Countrys relationship etc.?
LOGISTICS INVENTORY MANAGEMENT

Page

23

Meaning of Logistics:

Logistics is the Organization of Services and Supplies. In other

words,

logistics is

making

and

taking

the

permission

for

sell/exporting the companys products in foreign countries. In fully

export-oriented business this is one of the main department,
where this department gets an approval to sell their goods in
foreign countries. And

also

their

main

intention

is to

maintain all documents of those that are related to the exporting

of their products.
Logistics Inventory Management:
Yes, already we have observed about the meaning of Inventory M
anagement in the
business;

Organization. But

Inventory

in

Management

fully
is

export

oriented

very important

concept. Because every exporter or importer, they do not know

about

each

other

who

are staying

in

other

countries.So every company, which are exporting or importing of

materials, they shouldcommunicate each other through

banks

only.
These

banks

are

of that Nation. In our Country

listed by
RBI is lists

Central

Bank

some banks

for intermediating purpose and every year RBI declare some listed
Banks as a mediator.

INVENTORY MANAGEMENT OF FABINDIA

Page

24

PHYSICAL INVENTORY MANAGEMENT

Each unit of Fabindia has its own store department that we can
call it as Work-in-process inventory.
The percentage of
Business
extracted
Apparel

from
and

Home in FabIndia

Percentage of
Business
extracted
from Women,
kids and
Mens in
Garment
Product Line in
FabIndia
Core Apparel Category It includes Printed and Woven Cotton.
It forms 80% of buying.
This inventory process is fully computerized and here paper work
is very less. Only maintaining of documents, which were sent by
suppliers as like challans etc., are only here to maintain as paper
documents.

Otherwise

it is

fully

computerized. Through

25

computers only Store Department receives Purchase Order and by

store.

Page

computer only they send documents of issuing of products to

For easy to communicate and distribution of products, Fabindia

has having only one Go down in Procedures involved in receiving
and issuing of products are as follows:
1) Go down will first get Purchase Order No.
Purchase Order Number:
This PO is comes from Purchase Department. This Purchase
Department gives a number for the each order made by Purchase
Department only. Before placing any order to suppliers they first
check the products in inventory as to know about whether
products are available in Inventory or not. If not available in
Inventory then only they will place an order according to the
requirement. So, normally it does not have any stocks in its
inventory.
For every demand they make a fresh Purchase Order for
purchasing of. It means products whatever the products are
requiring for present orders, those products are only they kept as
stocks in Inventory. In some cases, products may be in Go down,
which they call it as Buffer Stock.
If these old stock is matches the requirements of product which
has ordered now by its customers, then purchase Department will
sent a notice to Inventory for issuing of those products.

26
Page

2) Receiving of Products

Any products comes-in or goes-out from the Go down it should be

enter in the Gate that is they call it as Gate Entry, which is
maintained by security Guard. Guard is not an employee of an
organization. He is a contact-based employee. When Inventory
receives products it first inspects some samples, so for it, they
call up as Spot Inspection. Here they inspect the following
points:
Is it our supplier only and is this parcel is for us only?
Are t h e s e r e c e i v e d products according to the Purchase
Order? Like
1. Quantity
2. Date, etc.
Is it having all required Challans or Invoices and
also does it approved by authorized person?
Is it having all required documents?
Is that Challan consisting the correct information of
products?
After approval of products by sample inspection, inventory
department

put

these

details

in

manual

book, this

documentation is called as Day Book T h i s d a y b o o k i s

c o n s i s t i n g o f information like Challan No., P.O. No., Style No.,
Description of products, Suppliers Name, transporters Name,
and Quantity. After completing of these processes, products will
send to inspection department. In this inspection department they
inspect in details of products. After approval by department, this

27

inventory department makes one document, which are

Page

they calling it as Goods Received Document

3). Issuing of Products
Merchandising Department will send one card called Job Card
which it consisting of all details of Products requires for a
store. According to that Card Inventory department should send
the products to store. After receiving of products from inventory
department they issue one document about received of products,
quantity, description of products e t c . In this process sometimes
it may happens like some products get damages and some are
not fully matches with requirements. Then those products will
be return to inventory.
After utilizing of all these products by inventory department
they will send one document called Order Completion Report
(OCR). This report consists the information of Percentage of
Utilized products for particular order and percentage of wastage
of products. This report will send to inventory and also to
Merchandising Department.
4). Return Back Products from Merchandising Units
Inventory takes those products, which are return back from
merchandising units because of excess or surplus occurs. This
excess or surplus exists because of purchase department, they
always orders 20% more than its requirement to meet the
requirement

of next

month. So

these

products

are kept

in

Inventory as name it as Buffer stock. These Buffer Stocks will be

utilize when company get the same type of Order. Inventory

28

issues these products (Buffer Stock) only when it receives

Page

instruction from Merchandising and purchasing Department.

5). Rejected Products
Inspection department make the rejection of products, when
products are not as per requirements and not as per the
order. These rejected products are kept in separate section by
Inventory Department. Inventory department inform to Purchase
Department

and

also

of products. That

notice

is called

to

Suppliers

Rejection

about

Card. In

rejection

this

card it

involves Name of Supplier, Description of products, Challan No.,

Challan Date, Gate Entry No. & Date, No. of Quantity rejected,
Reason for rejection etc., Some times supplier may issue new
products in place of rejected products. Or he may give some
compensation for wrong supply and that is after paying of full
payment of products.
6).Purchasing Procedure of Products
In

Fabindia

they

Suppliers. There

purchase
is a reason

products

from multiple

for purchase

products

from multiple suppliers. The reason is if one supplier delays to

fulfill the supply then there must be alternative supplier for it to
fulfill the requirement. So there must be no stock outs in the
distribution process. Fabindia always purchases at bulk but
by schedule wise. In other words they purchase products at
a time for specific order.

once. And

the

they

agreement
negotiate

of supplying

29

make

the

Page

They

price

products

only at

once

only

at

that

is

before supplying of products and once their agreement is over

then they provide schedule to supplier to supply the products at a
specific time and at a specified quantity.
LOGISTICS INVENTORY MANAGEMENT

There is a department called Logistic Department in Fabindia,

which is concerning about selling of goods and maintaining of all
documents related to distribution of products and also taking
the permission from banks to

sell

specific products in

specific

countries. So Logistic Department is one of the important frontoffice

Departments,

like

Marketing

Department

.Marketing

Department is one, which takes the orders from its stores. And
this

is

entirely

different

from

Logistic

Department. Logistic

Department is one, which sells its products and maintains all

documents.
FINANCIAL INVENTORY MANAGEMENT

Already we saw about Logistic Inventory Management. Let us see

the old and rejected stocks in financial terms and also have a look
on the inventory ratios.
Valuation method for Old and Rejected Stocks:
Old Stock:
This old stock means excess of products from specific order. As
already

viewed

in

Physical

Inventory Process that

always

30

purchase department purchases 20% more than its order. So that

Page

remained or excess materials are said to be Buffer Stock .

Rejected Stocks:
Again these are divides into three parts. Rejection of Products
i.e., before sending to store. Rejection of products is valuating on
Purchase value of those Products.
Holding or Ordering Cost
These costs are very important in manufacturing companies to
minimize the cost. This is not applicable to Fabindia by virtue of
its Business activities. Because, let us have a broad view on
statement by following points:
In Fabindia, they purchase the Products from multiple
suppliers.
Because to fulfill the requirements in required time limit.
Fabindia orders the products to suppliers only at once
and according

to the

schedule

supplier will

supply

the

Products.
Yes, Depending on Shorter order cycle Fabindia can hold entire
stock well before order starts and also it can have a full stock at a
time before starting process of selling.
EOQ:
EOQ applicability due to the nature of Business as above said is
not possible but there maximum stock level is 3 months in
advance. Buying is done after each week after checking the

31

inventory for replenishing the stock.Each Garment style has a

Page

code called style no. and to replenish that style the style no. and
quantity is fed into their systems.
Reorder Point:
When only the buffer stock is remaining in the stock, the reorder
take place.
Lead Time:
Fabindia purchases Products from multiple supplier and by
on schedule Products basis to supply. So this is also not
applicable in this type of business.
INVENTORY MANAGEMENT FOR AN INDIVIDUAL FABINDIA STORE

WALLET
To understand how an individual store manages its inventory, it is
vital to understand the concept of the 'Wallet' which is unique for
each store. This is the maximum amount of inventory a store is
allowed to own at any given time. The maximum value of the
Wallet is a function of the monthly sales. For example N-14 in New
Delhi, which is FabIndia's largest store, has a wallet size of
1.5 crores (monthly sales) * 3 months = 4.5 crores. That is
N-14 is allowed to hold only 3 months' worth of inventory.
When the store manager places an order to the SRC through the
B2B module the wallet decreases by that amount. As the stock is
sold and invoiced by the store, the wallet opens up and more
stock can be ordered. Seasonal items need to be ordered 3

32

months in advance because of large volumes that are required

Page

whereas perennial items need only a month's lead time.

DUAL ORDER PROCESS FLOW FOR PERENNIAL ITEMS
The distinction between FabIndia and other garment retail chains
is that FabIndia does not return excess inventory to its supplier.
This is due to their philosophy of uplifting rural craftsmen and
artisans. To prevent overage, FabIndia stores follow a dual order
strategy Bulk Order and Backup Order.
Bulk Order
Between the 1st and 5th of a month the store manager prepares
an excel sheet with expected demand for each item. This is
calculated form previous sales. This excel sheet represents
70% of the next month sales. The store manager then mails
this sheet to the SRC. (supplier region companies)
By the 20th of the month, the SRC returns this sheet with the
available products highlighted as per the order. It also
mentions alternatives for items which are stocked out.
On the 21st the store manager specifies his/her final order on the
B2B depending on product demand and availability. The store's
wallet then decreases by this amount.
The order is delivered by the SRC from the SRC warehouse to the
market region ware house. From there it is transported to the
store by the 1st of the next month
Backup Order
Meanwhile on the 15th of the same ordering month after selling a
percentage of the month's stock, the store manager calculates

33

how much inventory is required for the rest of the month. He/she
Page

uses the remaining 30% of the wallet to place the back-up order
on the B2B after checking the availability with the SRC. As the
order is a much smaller one, it is delivered to the Store by the
25th of the same month. The back-up order is only placed in
times when the demand is high and cannot be served by the
initial bulk order.
The dual order system allows for a greater accuracy in ordering as
the demand for the first 15 days is noted and is used to place the
backup order. This system allows the store to reduce overage and
decrease inventory holding costs especially since individual stores
do not have large storage space.
Fabindia has 9 Market Region and each region has a regional
merchandiser, whose basic job is to see the store inventory level
and maintain the minimum level of his/her region. If a store feels
they can sell more of an Item either they can order it through
Fabconnect ERP software or tell the regional merchandiser to
order the same.
If a store has ordered more stock than their wallet they have to
immediately look for other Fabindia stores which require this stock
or can take their excess stock.
Perishable Items are ordered once in a month and always the
expiry date is checked, discounts are put on them when they are
nearing expiry date.

34

Any damage item received is immediately reported to the SRC

Page

and transferred out of the store. Fabindia uses abc analysis, 20%
to 30 % of its stock are high value items like Furniture made of
Teak Bed, Sofa Sets. In apparel it carries silk range and sarees in
High value item. In Jewelry also it has 3 segment Anusuya caters
to High value items. A twice a week counting is done foe High
value items.
PREVENTING LOSS OF INVENTORY
Employees working at the store might get tempted to steal the
merchandise.
Let us go through some tips which help to prevent loss of
inventory:
Check the bags of the employees before they leave the store.
Raise an alarm whenever you find someone stealing something.

Supporting a wrong deed is also a crime.

Make sure that all the employees leave from one common door.
Avoid multiple exits.
Check garbage before dumping.
Keep proper record of the inventory(Stock coming in and going
out)
SWOT ANALYSIS

STRENGHTS

WEAKNESSES

OPPORTUNITIES

In store merchandising & navigation

Promoting e-business channel
Organic foods market
Customer acquisition strategies

35

Differentiable products
Brand recognition and loyalty
Diverse product mix
Partnering with suppliers
In-house manufacturing
Price Trends Setter
Different categories of stores
Customer Loyalty

Page

No specific promotions strategy

Limited channels of business
Sourcing strategy skewed towards

suppliers
Inconsistent quality of products
Inconsistent service in stores

THREATS

Substitute producing competitors

Not in touch with Fashion Trends

STRENGTHS
The product mix available at Fabindia can be easily differentiated
by the customer. The uniqueness of the fabric or styling has
created a new category as identified by the customer as ethnic
wear. This leads to a very high brand recognition and connects
with the customer value. It has an enviable presence in diverse
product lines as garments, furniture, furnishing and upholstery,
body care, organic foods and the very recently introduced
jewellery line. Due to its variety of stores, it can reach to different
categories of customers.
WEAKNESS

36

This absence of promotions strategy is believed to be resulting in

Page

sales below its potential levels. The sourcing strategy followed for
accepting raw materials is heavily supplier centric. In the past
there have been incidences when due to delay in sending supplies
for winter garments manufacture, inventory was carried over to
the next year and suppliers were not made to share the damage.
It operates through its own stores and that too fed by a
centralized hub model of supply chain management.

OPPORTUNITIES
Merchandising within stores is still in a rudimentary stage. The
shopper navigation can be greatly enhanced by focusing on the
store layout and appropriate merchandising techniques which
succinctly

create

individual

product

areas.

There

is

great

opportunity to grow along with the fast growing organic foods

department. Out of the total customer base for Fabindia, a high
percentage comprises repeat customers. This leads to an
inference that Fabindia can focus on customer acquisition
strategies.
THREATS
Already many firms have tried to recreate the model of Fabindia.
Hence, .Fabindia needs to innovate and diversify into different
product categories. It should be nimble and responsive to
changing tastes of its customers. Also as it is suppliers are mostly
artisans and manufacturing is labour driven, controlling costs can

37

be a challenge. Also it needs to ensure that the customer service

Page

provided and the quality of products is consistent.

www.linkedin.com/title/buyer/at-fabindia-overseas-pvt-ltd
http://books.google.co.in/books
www.fabindia.com
www.desai.com/innovationPage

38

REFERENCES

applied/research/...FabIndia/.../Default.aspx
Ms. Alpana Pillai Store Manager , TVM Fabindia
Mr. Sandeep Kumar- Store Manager , Koramangala Fabindia

39
Page

CONTENTS

INTRODUCTION...........................................................................1
LITERATURE REVIEW...................................................................2
PHILOSOPHY.............................................................................. 3
FABINDIA PRODUCTS..................................................................3
GLOBAL SYNERGIES THROUGH ACQUISITIONS...........................4
THE FABINDIA ECOSYSTEM.........................................................5
FABINDIA SUPPLY CHAIN.............................................................7
USE OF TECHNOLOGY IN FABINDIAS SUPPLY CHAIN...................9
SUPPLY CHAIN OPTIMIZATION:...................................................10
KEY CHALLENGES IN CURRENT SUPPLY CHAIN..........................10
CHANNELS TO INTERNATIONAL MARKETS.................................12
INVENTORY MANAGEMENT........................................................13
PHYSICAL INVENTORY MANAGEMENT........................................16
FINANCIAL INVENTORY MANAGEMENT......................................18
LOGISTICS INVENTORY MANAGEMENT......................................21
INVENTORY MANAGEMENT OF FABINDIA...................................22
LOGISTICS INVENTORY MANAGEMENT......................................26
FINANCIAL INVENTORY MANAGEMENT......................................27
INVENTORY MANAGEMENT FOR AN INDIVIDUAL FABINDIA STORE
................................................................................................. 28

40

SWOT ANALYSIS........................................................................31
Page

REFERENCES............................................................................. 34