CR-1 REPORT SCM-X

SESSION-16 (04/12/2017)
Group Presentation: SCM in Textile and Apparel Industry

70 billion industry
26% unorganised sector in the industry poses a big opportunity
Working with smaller pack sizes one of the challenges in the industry SCM
Primary research work done on Bandhan Cloth Store, Biba Store (Pal Heights), Big
Bazaar
o Bandhan Cloth Store: margin of 30-35% of total inventory kept
o Biba, Pal Heights : margin of 45-55% on each product; 1 central QC for all
stores
o Big Bazaar: margin of 35%; reverse logistics
Zara:
o Short lead time, low inventory, high variety
o Vertically integrated supply chain
o Hub and spoke model

Class Discussion
Short Term Discounting: Trade Promotion

Basically a price discount for a limited period of time

Purpose for this is usually to move inventory out to distributor and further
Trade promotion may not necessarily result in increase in customer consumption
though
In return of offering a trade promotion, manufacturer may ask for shelf space or
display of banner to the distributor; manufacturer may also ask to give discount to
wholeseller and retailer
There is usually no limit on how much a distributor may buy at the time of trade
promotion. This thus results in buying and holding behaviour by the distributors for
the future
Cost of manufacturing thus increases to compensate for the higher demand during
the period of trade promotion
Demand in the subsequent months decreases once the promotion is withdrawn
This necessitates for the calculation of an economic order quantity for the trade
discounts, so as to curb the excess buying by the distributors.
EOQ for trade discount,

Submitted by: Shreya Sharda (UM16053)

 CR-1 REPORT SCM-X

dD CQ*
Qd = +
(C d).h Cd
Where

D - demand per year

D - discount in Rupee
C - original price
h - holding rate
Q*- average purchase quantity
Qd- restricting distributor to only buy this much quantity

Forward buying = Qd Q*

SAFETY STOCK

Average inventory = cycle inventory + safety stock

Increase in safety stock implies higher service level, i.e. easier availability of the
product/SKU. This also results in an increased holding cost
Average Demand During Lead Time (DDLT) = RoP Safety Stock
Objective of safety stock is to balance the customer service and inventory holding
cost
L = (D2 x LT + d2 x sLT2)0.5

Appropriate Cycle Service Level (CSL)

Cost of keeping extra safety stock = CSL x (H x Q/D)

Benefit of keeping appropriate CSL = (1 CSL) x Cu
Equating cost and benefit,
D x Cu
CSL =
H x Q + D x Cu

Cu = cost of under-stocking

Submitted by: Shreya Sharda (UM16053)