SIX DRIVERS OF

RETAIL SUPPLY
CHAIN
 
 
 
 
 
 
 
 
Vibhuti Sagar, PGPABM 2007-09/32
  (Email: sagarsavvy@gmail.com , Mobile: 09848036874
 
 
 
   

National Institute of Agricultural Extension and Management

(MANAGE),
Hyderabad
 
 

SIX DRIVERS OF RETAIL SUPPLY CHAIN

There are six drivers of supply chain in retail.

1. FACILITY:

In case of fruits and vegetables retail the facilities play vital role. It comprises of location, capacity,
product variety etc. The location of the stores is in the premier residential areas like Lokhandwala
complex, Seven Bunglow, Hiranandani, Mulund etc. where the customer base is strong and footfall is
more.

The capacity of store and its facilities like storage area, cold facility, area of F & Vs section etc.
depends on the demand and sales in that store.

Matrix:

• Capacity of the chillers and the storage section of store

• Utilized capacity of the chillers, gondolas etc
• Flow of F & Vs during peak hours and lean hours
• Efficiency in the terms of daily dumps
• Variety of F & Vs offered at different stores according to demand

2. INVENTORY:

The inventory of these retail store are the distribution centres and the collection centres.

Distribution centres : Bhiwandi and Turbhe

At the D.C. the supply inventory for the stores are maintained. It receives materials both from mandi
as well as the collction centres. It maintains the cycle inventory of two days, while the safety inventory
of one day. For seasonal produce like potatoes and onions the one to two months inventory is
maintained.

Collection centres : Pune, Sangli, Kolhapur and Pimprouli

The C.C. acts as the direct supply of material from farm fields. It is strategically located in the green
belt area where the production of different F & Vs is more at optimum distance. It maintains only the
cyclic inventory of two to three days.

3. TRANSPORTATION:

The transport is required at various stages like from C.C. to D.C. and then to the various stores. The
mode of transport from C.C. to D.C is covered truck and from D.C. to the store is small covered
trucks.

The facilities of transport is outsourced by third party on agreement basis. At the mandi the
commission agent arranges the transport from mandi to D.C.

MATRIX:

• Average inbound cost:

In case of mandi purchase the commission
agents takes care of material delivery at D.C.
the cost of transportation is included in his
margin.
• Average outbound cost:
The outbound cost is Rs. 0.30 per kg of
material transported from D.C. to the store.
• Fraction of material transported by mode:
The entire material from C.C. to D.C. is
transported into large trucks, while from D.C.

Vibhuti Sagar, PGPABM 2007-09/32   Page 2 

 
 

to store small trucks are used due to less quantity and traffic problems.

Cost in Processing Transportation Infrastructure

Rs. Vendor cost cost Labour Losses cost cost

Spinach 1.00 0.90 0.30 0.50 0.30 0.50

4. INFORMATION:

The company follows mix of push and pull strategy for the consumers. It distributes the leaflets in the
news paper and gives offers on Wednesday.

The central coordination place is D.C. where order of all the stores in advance of two days comes
everyday by 6 PM and this information is compiled SKU wise then circulated to the C.C. where the
availability of material with the farmer is checked and procured next day by 2 pm and the rest
material is ordered to the commission agent and procured from mandi.

Matrix:

• Forecast horizon: the forecast horizon is in advance of two days.

• Frequency of update: the indenting is updated by the company for every store weekly.
• Seasonal factor: depending upon previous experience of demand the indenting is done by
increasing the order upto 20%.
• Variance from plan: in case of increased demand it is fulfilled by the stcks at D.C.

5. SOURCING:

The sourcing of material at reasonable price and of good quality is the key. Depending upon the
availability and price, the quantity of purchase of material from different sources is determined. If the
material is available at C.C. then it is preffered rather than mandi purchase.

Matrix:

• Days payable outstanding: for the farmers of C.C. the duration

of payment is 2- 3 days. But in case of commission agent it is
15 days.
• Average purchase price: the C.C. purchase price is always
30- 35 % less than the mandi price. For mandi purchase the
commission agent gets a margin of Rs. 0.50 to 2.00 per kg
above market price depending upon the price.
• Average purchase quantity: the 60% of the material is
procured from C.C. and rest 40% from mandi.
• Supply lead time: the lead time for C.C is 2 days while for
mandi it is one day.

6. PRICING:

Mainly there are three types of pricing strategy:

¾ Fixed Margin Pricing ( cost plus )

¾ Benchmarking Pricing
¾ Promotional Pricing ( cost minus )

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Fixed Margin Pricing ( cost plus )

It is an indepent type of pricing. In this method different type of costs are calculated and then
a fixed margin is added to that cost. The organised retailers of Mumbai play generally at margins of
20 – 22 %.

Purchase price + Hamali charges + Mandi tax + Transportation cost + Handling charges + Labour
charges + Losses = COST PRICE

+ MARGIN (20% – 22%)

SELLING PRICE

Benchmarking Pricing

In the competitive market, it is very difficult to follow the fixed margin price, hence most of the
retailers follow the benchmarking price.

Benchmarked price is the comparable price to the competitors of the location. It maintains the
foot fall and the quality of the materials can also be compared. In this process the margins are always
squeezed to maintain the comparable prices.

Promotional Pricing ( cost minus )

In this pricing model the cost of purchase of material is recovered from the customer while the
other logistics costs are recovered by the sale of other products by increasing foot fall.

For example: Potato Rs. 6 per kg

Onion Rs. 5 per kg

Matrix:

• Profit margin: the average profit margin is 20-25 %.

• Days sales outstanding:
• Average order size: the order size is almost fixed for every retail store but it varies during the
festive season upto 30-40%.

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OBSTACLES TO ACHIEVE STRATEGIC FIT:

¾ INCREASING VARIETY OF PRODUCT:

There are many variety of seasonal and exotic F & Vs. Meeting the demand in off season
requires much infrastructure and procurement cost which increases the price and makes it
unaffordable by consumers.

¾ DECREASING PRODUCT LIFE CYCLE:

The non seasonal and exotic F & Vs should be kept in congenial environment otherwise the
shelf life of product is decreased.

¾ INCREASING DEMANDING CUSTOMER:

The customer awareness and need has been increased and meeting those expectations of
quality at a affordable price is a real challenge.

¾ FRAGMENTATION OF OWNERSHIP:
The ownership at the different levels like in mandi and transporter and the commission agent
is difficult to align in a sustainable manner.

¾ RESPONSIVENESS AND EFFECTIVENESS:

The trade-off between these two is must for the success of the retail business so that the cost
and service component cab be optimised.

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