A Term Paper on

Retail Supply Chain An Indian Context

By
A.KranthiKumar(10BM60001) DRK.Chaitanya(10BM60022) M.Chaitanya Kartheek(10BM60044)

Introduction:
Retail Sector is one of the main pillars of Indian economy and accounts for 22 percent of GDP. It is Indias second largest sector after agriculture. Indian retail industry is divided into organized and unorganized sector Indias retail sector is mostly unorganized (owner manned small shops) accounting to 90% of retail industry. Organized retail, currently accounting for 14% of mall space are expected to witness high growth Demographic dividend with over 50% of country population fewer than 25 years of age is a prime driving factor for modern retail sector According to report by McKinsey & Co., the organized retailmarket in India is expected to grow to 14-18% by 2015 and value is estimated to be around US$450 billion by 2015. The Food Retail Industry in India dominates the shopping basket. The Mobile phone Retail Industry in India is already a US$ 16.7 billion business, growing at over 20 per cent per year. Purchasing power of Indian urban consumer is growing and branded merchandise in categories like Apparels, Cosmetics, Shoes, Watches, Beverages, Food and even Jewellery, are slowly becoming lifestyle products that are widely accepted by the urban Indian consumer. Rural markets emerging as a huge opportunity for retailers reflected in the share of the rural market across most categories of consumption ITC is experimenting with retailing through its e-Choupal and ChoupalSagar rural hypermarkets. HLL is using its Project Shakti initiative leveraging women self-help groups to explore the rural market. Mahamaza is leveraging technology and network marketing concepts to act as an aggregator and serve the rural markets.

Retail is globally the largest private sector industry Many Retail companies are in the Fortune 500 list Retail industry is the touch point between manufacturers and the consumers

 In Developed economies penetration of organized retail is as high as 85 % Its a widely diversified sector At present, up to 100 per cent FDI is allowed in cash and carry segment and 100 per cent in single brand. No foreign investment is permitted in multi-brand retail. Type of retail goods Fresh produce (Fruits & Vegetables) FMCG / CPG (Fast Moving Consumer Goods / Consumer Packaged Goods) Staples Dairy products Consumer durables & Information Technology

Challenges in the Retail Industry

The following table illustrates the complexities of the retail industry and their supply chain implications. Complexities Incredibly complex due to the large number of SKUs Supply Chain Implications Forecasting will not be accurate with the increase in SKUs Higher inventory Levels due to lower chance for aggregation Multiple supply chains to be managed Storage pattern complexity increases Optimization of shelf space is difficult Efficiency is preferred over responsiveness in the supply chain due to low margins Low inventory levels are crucial for sustainability Higher volumes to cover the fixed costs Supply chain should establish the competitive advantage Forecasting error

Low margin industry selling mainly undifferentiated, commodity products with lower prices

Unpredictability & sensitivity of

demand

Bull whip effect increases because of the increased forecast errors moving backwards in the supply chain Cannot utilize the full truck load (FTL) because of the multiple products and their respective product lives Mode of transports ranging over a wide horizon and the products to be maintained at different temperatures Trade-off between efficiency vs responsiveness Need of the right product at the right time in the right place

Variety of formats handling multiple products

Reaching the consumer

The macro level analysis do bring in some insights but a more specific analysis on various categories like Fresh produce (Fruits & Vegetables) FMCG / CPG (Fast Moving Consumer Goods / Consumer Packaged Goods) Staples Dairy products Consumer durables & Information Technology

of the retail industry will help in a comprehensive way to identify the drawbacks and their critical success factors.

An Overview of Fresh produce

Most of the procurement s done locally i.e. close to the city(Mandis (Wholesale markets), from traders / agents (cold stores) or bulk importers) (to preserve freshness) As the stores need to be serviced / stocked prior to opening in the morning

 Requirement of a large number of vehicles that need to be loaded at & leave the CPC at night Manpower to be deployed accordingly Sales peak during weekends/ holidays / festivals Transport & storage capacity is also fragmented among 3 distinct temperature zones Packaged need to be optimized as per the vehicle internal dimensions so as to maximize utilization

Category Type Fresh Produce

Problem areas Short product life(Perishable) Most of the procurement s done locally High capital cost for establishing storage facilities Lead times should be very short Need to be more responsive and hence compromise on efficiency in terms of transportation, workforce and other resources Seasonal demand More number of intermediaries in the supply chain

Critical Success factors Product availability with very quick response time is crucial for this products Storage facilities along with robust distribution network are critical

An Overview of FMCG
Vendors are typically large and they have theirtheir own distribution networks Chain cuts out C & F agent, Reseller stockiest, distributor / wholesaler thus cutting down on costs Large number of SKUs Multiple brands of same product

 Major labour intensive activity involved is the picking & packing(as orders at unit level in retail stores) Category Type FMCG Problem areas Critical Success factors Large number Of SKUs An Integrated Leading to large number of information system inventories and also which links all the forecasting errors stages of the supply Shelf space management is chain is crucial for also very important the success Lead times vary for different Product assortment ( products same product at Confusion in supply chain as varied quantities and there will be many supply also to various chains for different products segments ) also Supply chain should be contributes to the efficient or responsive based success on the product

An Overview of Staples
Rice, sugar, pulses etc. Sold in retail stores under the stores own brand Major activity is Staples processing centre Large volumes involved necessitate automation Distribution centres are usually located close to supply

Category Type Problem areas Critical Success factors Staples Commodity product Automation at various cannot have stages of the supply differentiation chain( like sourcing, Cost is the determining processing, packaging) factor will improve the Efficient supply chain efficiency of supply preferred over chain responsive supply chain Entering into long Seasonal product leading term contracts like to price fluctuations options to get isolated Perishable but not as from the price short as fresh produce fluctuations. Focus on quality of the

product achieves differentiation to an extent

An overview of Dairy
Low volumes involved & pick up type low capacity vehicles are used both due to this reason as well as the ease of access on narrow & bad quality roads & the speedy delivery requirement to avoid spoilage Milk needs to be rushed to the chilling center within four hours Distributors / stores in ambient, cold or frozen condition depending on the nature of the product Supply chain is more complex as it requires variety of transport through out the process Category Type Dairy Problem areas Commodity product , cannot have differentiation Cost is the determining factor Efficient supply chain preferred over responsive supply chain Perishable as short as fresh produce Seasonal changes will result in non uniform supply(summers will have less supply) Demand of individual products will determine the intermediate stages of supply chain( like if the end product is butter it will follow a different supply chain which would be different if it is ghee) Critical Success factors Storage facilities along with robust distribution network are critical Processinnovation (like packaging) is more important than product innovation.

An Overview of Consumer Durables

Relatively simple as the respective manufacturers supply the retail DC Customers require product to be delivered at their door steps within a short period of purchase Needs payment collection against delivery, installation & reverse logistics services Problem areas Critical Success factors Highly differentiated product Innovation will Lead times will be high drive the success compared to other products of this category Customized products Customer service Multitude of factors are and satisfaction considered before buying, not an impulsive product Last mile delivery High costs given minimum scale of economies Cannot use FTL More expensive to provide more availability

Category Type Consumer durables

Conclusion
To focus on the critical factors that are responsible for the success of the retail in India, it is important for India to improve on many aspects. But the current system in India has many problems.

Problems with the current retail industry in India

Retail Fraud : Leading to many losses in the system creating inefficiency in the supply chain Policy hurdles : Policies like restrictions on FDI are hindering the development of back end and also the technology whaich are very critical for retail Price changes: Resulting due to cost fluctuations due to lack of proper infrastructure.

 Absence of developed supply chain and integrated IT management. Most Indian retailers are under serious pressure to make their supply chains more efficient in order to deliver the levels of quality and service that consumers are demanding. Lack of adequate infrastructure with respect to roads, electricity, cold chains and ports has further led to the impediment of a pan-India network of suppliers. Due to these constraints, retail chains have to resort to multiple vendors for their requirements thereby, Raising costs and prices. Even though the government is attempting to implement a uniform value added tax across states, the system is currently plagued with differential taxes for various states leading to increased costs and complexities in establishing an effective distribution networks. Intrinsic complexity of retailing rapid price changes, constant threat of product obsolescence and low margins. McKinsey study claims retail productivity in India is very low compared to international peer measures. For example, the labour productivity in Indian retail was just 6% of the labour productivity in United States in 2010. India's labour productivity in food retailing is about 5% compared to Brazil's 14%; while India's labour productivity in non-food retailing is about 8% compared to Poland's 25%