2010 Anil Vashisht 63

© Amity Management Analyst

2010 Vol V, No 1, 63-74

A Study on Supply Chain Management in Organized

Retailing
*Anil Vashisht

Introduction with the organized retail increasing its presence

Customer is considered king in the market who in the country where the relationship is directly
dictates the market and makes the enterprise run. with the manufacturer. This new model has been
Today, what customer wants is better products, affecting the relationships that the manufacturer
lower prices and faster supplies of goods and enjoys with the traditional system which is still the
services. These enhance the customer delight and most dominant in the entire retail sector.
enterprise plight. Meeting customer’s wants have The Indian consumer is changing rapidly. The
never been simple especially in a competitive average consumer today is richer, younger and
market. Marketers have been engaged in evolving more inspirational in his/her needs than ever before.
devices to gain competitive advantage that enables Consumers now value convenience and choice
them to satisfy the customer’s wants and stay and at par with getting value for their hard-earned
survive in market. In fact, innovate and invent money. A range of modern retailers are attempting
have become, of late, the new mantras in modern to serve the needs of the ‘new’ Indian consumer.
marketing to possess competitive advantage The last few years have witnessed an explosion
especially in a highly competitive market. Earlier of organized retail formats like supermarkets and
logistics was used as one of the devices to gain hypermarkets in an otherwise fragmented Indian
competitive advantage in the market. Of late, there retail market. To tap this growth opportunity,
has been a paradigm shift from logistics to its Indian retail organizations need to be prepared
modem day avatar, better known as Supply Chain for a quick scale up across dimensions of people,
Management (SCM) which has been discovered as processes and technology in addition to identifying
a source of competitive advantage. the right formats and value proposition for the
Changing social trends in India are fueling the Indian consumer.
growth of retailing in the country. The Information Retail is India’s largest industry accounting for
and Comunnication Technology (ICT) revolutions, over 10 percent of the country’s GDP and around
double income families where husband and wife eight percent of the employment. The $200 billion
both are working and more and more Indian Indian retail market has been growing at 5 percent
women are now moving into education and jobs, annually in real terms. This growth is expected to
packaged food, ready to cook food and shopping continue. A combination of increased consumer
convenience in organized retail ambience under one demand, improved sourcing options and larger
roof would be the increasingly replacing the corner availability of real estate are creating the foundation
kirana shop / traditional grocery shop shopping. for a significant growth in the organized retail
All this has increasingly affected the shopping sector. It has emerged as one of the most dynamic
pattern that is moving towards fulfilling the need of and fast paced industries with several players
convenience shopping in the form of Supermarkets entering the market. In order to reap the benefit
(now graduating to Hyper format) home deliveries. of growing economy more and more, corporate
Indian consumer is quality and price conscious and houses including large real estate companies are
this awareness would drive the retailers to rework coming into the retail business, directly or indirectly,
their supply chain relationships which traditionally in the form of mall and shopping center builders
comprised several layers such as the national and managers. Large organized and professional
distributor, the regional C&F, wholesaler and the Department stores, Supermarkets and discount
end retailer. However this scenario is fast changing superstores -- are set to take over the retail scene
*Asstt. Professor, IILM Institute of Higher Learning, New Delhi.


64 Amity Management Analyst Jan - June

and have already made an appearance and are place in India’s urban areas while 66 percent
slowly changing the face of retailing in the country. of it taking place in India’s 6 main cities alone.
The growth is much faster in south India than in
The urban Indian retail sector has traditionally been northern states. The total retail market in south
structured around three small retail entities -- the India is $94 billion and of this organized retail is
grocer, the general store and the chemist. The grocer $8.5 billion. In southern part of India, the organized
stocks non-packaged, unbranded commodities retail market growth is estimated at 35 percent per
such as rice, flour, and pulses, as well as branded annum. In Chennai the growth rate is 12 percent
fast-moving consumer goods (FMCGs); the general while in Hyderabad it is 7 percent and in Kerala
store stocks only branded, packaged FMCGs. The it is 3-4 percent per annum. As per Technopak
chemist, apart from dispensing pharmaceutical study the sales in the organized sector for food,
products, sells branded FMCGs such as personal beverage and tobacco is $195 billion which cover
care products, and health foods. Alongside the 65 percent. Sale of personal care product is $15
three retail outfits, exists a large segment of billion (5 percent) and apparel at 7 percent around
smaller, unorganized players -- paan-beedi stores $21 billion.
(or cigarette kiosks) which stock products in
sachets, batteries, confectionery and soaps; bakeries
Rationale of Study
and confectioners; fruit juice/tea stalls; ice-cream
There are many theories and empirical studies on
parlors; electrical and hardware stores; and non-
competitive advantage. However, the empirical
food boutiques. These retail outfits stock branded
studies in retail management using mathematical
FMCGs. These apart, there are the hawkers, carts
models, tend to be limited in scope and do not
and stalls that dot sidewalks and street corners,
include supply chain management parameters and
and several door-to-door sellers such as vegetable
practices. While there has been much research on
vendors. According to the global consulting group,
activities that can provide competitive advantage,
A. T. Kearney India Ltd, there are over five million
there is little knowledge on the process of selection
such small retail outlets in India. Paanwalas and
and impact of supply chain management on the
kiranawallas, street hawkers present everywhere
competitive position and business performance
are the various firms operating hither and thither;
in retailing firms. Firms need to understand how
and meeting the basic needs of the general public
supply chain management can help them achieve
and earning livelihood. They account for nearly 95
competitive advantage.
percent of the total retail turnover in the country
and their number continues to grow.
Why Supply Chain Management in
The international consulting firm, A.T. Kearney,
annually ranks emerging market economies based
Organized Retailing?
on more than 25 macroeconomic and retail-specific In the organized retail market in India the role
variables through their Global Retail Development of supply chain is very important as the Indian
Index (GRDI). For the last three years (2005, 2006, customer demands affordable prices and a variety
and 2007) India has been ranked as number one of product mix. It is the supply chain that ensures
indicating that the country is the most attractive to the customer in all the various offerings that
market for global retailers to enter. The high a company decides for its customers, be it cost,
economic growth during the last few years raising service, or the quickness in responding to ever
disposable incomes rapidly, favorable demographics changing tastes of the customer.
placing incomes on younger population with less
One of the most important challenge in organized
dependency, and urbanization are some of the major
retail in India is faced by poor supply chain
factors fueling the Indian retail market. Most of the
and logistics management. The importance can
organized retailing in India had recently started
be understood by the fact that the logistics
and was mainly concentrated in metropolitan cities.
management cost component in India is as high
Eighty five percent of organized retailing is taking as 7% -10% against the global average of 4% - 5%
2010 Anil Vashisht 65

of the total retail price. Therefore, the margins The challenges that a retail organization faces
in the retail sector can be improved by 3% - 5% are many like: huge stock-keeping units (SKUs),
by just improving the supply chain and logistics seasonal variations of product lines necessitating
management. the introduction of new SKUs, complex tax
structures, the sheer geographic spread of the
The efficiency and effectiveness of supply chain
country, changing consumer demands, etc. This
and logistics management can also be understood
level of efficiency calls for retail automation and
by the fact that modern retail stores maintain
integrated supply chain management on the part
lower inventories than traditional retail. In India,
of retailer and a retail organization has to plan to
generally in the traditional kirana stores, three
make this system work properly and try to satisfy
weeks inventories are kept; while in a modern retail
the needs of every customer without fail.
store like Hyper city, it’s nine days and it’s under
two weeks for Food Bazaar. Now, it is beneficial A retail supply chain consists of vendors that supply
for both the manufacturer as well as the retailer. various products (Exhibit 1.1).
If we go through the food supply chain in India,
we find that a lot can be improved by maintaining Vendors supply products to their retail customer’s
the supply chain and logistics. distribution centers as well as operate their own
network of distribution centers. Retail supply chains
As Supply Chain Management involves procuring vary in complexity, and this structure can include
the right inputs (raw materials, components and any number of manufacturers, vendors, distribution
capital equipments); converting them efficiently centers, and retail locations.
into finished products and dispatching them to the
final destinations; there is a need to study as to In between each entity, various carriers are used to
how the company’s suppliers obtain their inputs. transport these goods. Depending on the agreement
The supply chain perspective can help the retailers between the different partners in the supply chain,
identify superior suppliers and distributors and the inventory ownership and ownership transfer
help them improve productivity, which ultimately varies. For most traditional supplier and retailer
brings down the costs. At the same time, Market relationships, the suppliers relinquish ownership
logistics helps planning the infrastructure to meet once the supplies reach the retailer’s distribution
demand, then implementing and controlling the center.
physical flows of material and final goods from Along with the physical product flow, there is also
point of origin to points of use, to meet customer an information flow between supply chain partners.
requirements at a profit. Depending on the technology and collaboration
The nature of retail sector in India is different from Exhibit 1.1 Traditional Retail Supply Chain
other countries around the world. The organized Structure
retail sector in India is highly fragmented and
there are huge inefficiencies in the supply chain.
The most important part of retailing business is
to find a balance between investing in front-end
and back-end operations. The channel dynamics is
going to change over next couple of years as the
retailers start growing in size and their bargaining
power is likely to increase. Probably that would
bring some kind of mutual understanding between efforts between partners, information flow can be
manufactures and retailers to develop strong supply extensive or limited. The type of information shared
chain network. In such a scenario, both the existing between partners could include point of sale data or
operators and new operators must put collaborative forecasts over a certain period of time. Suppliers and
efforts to phase out inefficiencies in the supply retailers that collaborate extensively share inventory
chain network. status data as well.
66 Amity Management Analyst Jan - June

(Source: Modified from Ellram, La Londe and Weber, 1999) any one organization especially in retailing can
be part of numerous supply chains. Wal-Mart, for
In a real world supply chain, the structure becomes
example, can be part of the supply chain for candy,
more complex, and more parties’ involvement
for clothing, for hardware, and for many other
significantly increases the difficulty of managing
products. This multiple supply chain phenomenon
the supply chain.
begins to explain the network nature that many
Encompassed with these definitions, we can identify supply chains possess. For example, AT&T might
three degrees of supply chain complexity: a “direct find Motorola to be a customer in one supply chain,
supply chain,” an “extended supply chain,” and a partner in another, a supplier in a third, and a
an “ultimate supply chain.” A direct supply chain competitor in still a fourth supply chain.
consists of a company, a supplier, and a customer
Despite the popularity of the term Supply Chain
involved in the upstream and/or downstream flows
Management, both in academia and practice, there
of products, services, finances, and/or information
remains considerable confusion as to its meaning.
(Exhibit 1.3-A). An extended supply chain includes
Some authors define SCM in operational terms
suppliers of the immediate supplier and customers
involving the flow of materials and products, some
of the immediate customer, all involved in the
view it as a management philosophy, and some
upstream and/or downstream flows of products,
view it in terms of a management process (Tyndall
services, finances, and/or information (Exhibit
et al. 1998). Authors have even conceptualized
1.3-B). An ultimate supply chain includes all the
SCM differently within the same article: as a form
of integrated system between vertical integration
and separate identities on one hand, and as a
management philosophy on the other hand (Cooper
and Ellram 1993).

Supply chain management involves coordinating

and integrating flows both within and among
companies. It is said that the ultimate goal of any
effective supply chain management system is to
reduce inventory (with the assumption that products
are available when needed). The central aim of
organizations involved in all the upstream and supply chain management is thus is to have the right
downstream flows of products, services, finances, products in the right quantities (at the right place)
and information from the ultimate supplier to the at the right moment at minimal cost circumventing
ultimate customer. upon the interrelated issues of customer satisfaction,
Exhibit 1.2 A Real World Supply Chain Structure inventory management, and flexibility.

Exhibit 1.3-C illustrates the complexity that ultimate The Retail Industry in India
supply chains can reach. In this example, a third
The emergence of organized retail has been a
party financial provider may be providing financing,
recent phenomenon in the country, starting in the
assuming some of the risk, and offering financial
late 1990s. Its growth till 2006-07 was reasonably
advice; a third party logistics (3PL) provider is
fast, at nearly 20 per cent per annum during the
performing the logistics activities between two
past three years. Unorganized retail also grew but
of the companies; and a market research firm is
at a slower pace of nearly 11 per cent per annum.
providing information about the ultimate customer
There are signs that the growth of organized retail
to a company well back up the supply chain. This
has accelerated in 2007-08 and is expected to gather
very briefly illustrates some of the many functions
further momentum during the coming years.
that complex supply chains can and do perform.

Given the potential for countless alternative supply The NCAER, based on its Market Information
chain configurations, it is important to note that Survey of Households (MISH), has projected that
2010 Anil Vashisht 67

Exhibit 1.3 Types of Channel Relationships

the consuming class consisting of the “aspirers”, the is very small even compared with most of the
middle class and the rich with annual household emerging market economies. However, during
income of above Rs. 90,000 will rise from about 336 the coming years, it is projected to grow at a
million in 2005-06 to 505 million in 2009-10. This compound rate of about 45-50 per cent per annum
implies a huge growth potential of retail in the and is estimated to contribute 16 per cent to the
country. The sales of the Indian retail industry have total Indian retail by 2011-12.
been about US$ 322 billion (Rs. 14,574 billion) in
Projection of the Share of Organized Retail
2006-07, amounting to about 35 per cent of India’s
GDP. It is the seventh largest retail market in the Year
Organized Unorganized Total
world. Indian retail industry is projected to grow Retail Retail Retail (in
to about US$ 590 billion by 2011-12 and further to US $ billions)
over US$ 1 trillion by 2016-17.
2006-07 4% 16% 322
Size of Indian Retail (in US$ bn)
2011-12 96% 84% 590
Year Revenue (in US$ billions)
Source: Technopak Analysis
2006-07 322
Interestingly, this huge growth in organized retail
2011-12 590 does not involve a decline in the business of
2016-17 1011 unorganized retail; the sales of the unorganized
sector is envisaged to grow by about 10 per cent
Source: Technopak Analysis per annum, from US$ 308.8 billion in 2006-07 to
US$ 495.6 billion in 2011-12.
This works out to an annual compound growth rate
of about 13 per cent during 2007-12 and a slower
11 per cent during 2012-17. Organized Retail Investment
Until a couple of years ago, the Indian organized
In India, organized retail contributed roughly 4 retail market was either dominated by the apparel
per cent of the total Indian retail in 2006-07, which
68 Amity Management Analyst Jan - June

brands or regional retail chains. However, the world with one retail outlet for approximately 90
scenario has changed dramatically. The sector has persons. No wonder India is the ninth largest retail
attracted not only the large Indian corporates, but market in the world with annual retail sales of
also, received the attention of large global players. approximately USD 215 billion in 2005. However,
the share of organized trade in India is currently
As per the estimate made by Technopak Advisers very low estimated at just Rs. 35,000 Crores in 2008
Pvt. Ltd. investments amounting to approximately (Rs. 28,000 in 2004). This accounts for less than 4%
US$ 35 billion are being planned for the next five of the total retail trade in the country.
years in the organized retail sector. Of this, about
70 per cent is expected to come from top players Growing consumerism would be a key driver for
including Reliance Industries, Aditya Birla Group, organized retail in India. Several demographic
Bharti-Wal-Mart, Future Group and others. Also, trends are favorable for the growth of organized
it is estimated that about 40 per cent of the total trade.
investments will be contributed by foreign players  Rapid income growth: Consumers have greater
including Wal-Mart, Metro, Auchan, Tesco and ability to spend.
many others, signifying the importance that the  Increasing Urbanization : Larger urban
international community is attaching to the Indian population which values convenience coupled
retail opportunity. In short, India is attempting to with higher propensity of the urban consumer
do in 10 years what took 25-30 years in other major to spend
markets in the world and shall bypass many stages
 Growing young population : Growth of post
of “evolution” of modern retail. India is likely to
liberalization maturing population with the
see the emergence of several “innovative” India-
willingness to spend (attitude)
specific retail business models and retail formats
during the coming years.  Tendency to spend now v/s save earlier.
Consumers willing to borrow for current
Urban investments are slated to be across all modern consumption
formats although the majority share will be taken The organized retail market is expected to grow
by supermarkets and hypermarkets. The share of much faster at a CAGR of 21.8% (at constant prices)
hypermarkets is expected to increase in the lower- to Rs. 246,000 Cr by 2015 thereby constituting
tier cities, as a single hypermarket would be able approximately 15% of the overall retail sales.
to cater to a significant proportion of the demand Based on the projections, the top 5 organized retail
in smaller cities. categories by 2015 would be food, grocery and
Investment Estimates by Retail Format (%) general merchandise, apparel, durables, food service
and home improvement.
Retail Format Investment Estimates
Retailers inspired by the Wal-Mart story of growth
Supermarkets 34% in small town America are tempted to focus on
Hypermarkets 32% smaller towns and villages in India. However, a
careful analysis of the town strata-wise population,
Departmental stores 2% population growth, migration trends and consumer
spend analysis reveals a very different picture for
Warehouse 9%
India. As per the estimates, the share of the 35
Other formats (includes towns with current population greater than 1 mn in
apparel, watches, furniture the overall population of India would grow much
and furnishing, toys, etc.) 23% faster from 10.2% today to reach 14.4% by 2025.
Simultaneously, the share of these towns in the
Source: Technopak Analysis
overall retail market would grow from 21% today
India, like Britain, is also a nation of shopkeepers. to 40% by 2025.
With over 12 million retail outlets, India has one Within these top 35 towns, an estimated 70-80%
of the highest densities of retail outlets in the of trade could be in the organized sector. Hence,
2010 Anil Vashisht 69

Indian Retail Market: Population Estimates and Retail Proportion

City Category Population Proportion of Total Retail

(in Rs. Cr.) Market (in %)
2001 2025(E) 2004 2010 2015 2025
Metros and Mini Metros - 8 cities 6.7 13 15 18 20 28
Top cities (population >1mn) - 27 cities 3.7 7.2 6 6 7 10
Large cities (population 0.5-1mn) - 32 cities 2.4 4.5 2 3 3 4
Rest of India - 5500 towns + 6 lakh villages 87.4 115.3 77 73 69 57
Source: NCAER, CSSO, TSMG analysis

retailers should focus on the top 37 towns in the the consumer value proposition of convenience
next decade. The opportunity in smaller towns and stores and hypermarkets.
rural India would be smaller and fragmented as
compared to the larger towns. Trend 3: Private label products become increasingly
important
Private labels today account for 17% of global retail
Key Treds in Organized Retailing sales with the highest share of 23% in Europe and
There are a few key trends that one observes in Asia the least at 4%. As per M&M Planet Retail
international markets that have a bearing on India. data, private label penetration varies from 25%-95%
among some of the largest retailers in the world.
Trend 1: Consolidation of market share - The big
getting bigger Growing acceptance among consumers, increasing
In the early stages of development in retail markets, price competition and need for differentiation
there is a proliferation of players. For example in among retailers and lastly the ability to offer
USA in 2003 the top 100 players accounted for higher margins are the key factors contributing to
only 8% of the total retail market with the top ten the growth of private labels. Private labels provide
accounting for 3.2% of the market. However, when the retailer an ability to offer a significant price
retail markets develop there is a consolidation of advantage to consumers with private label prices
players with fewer large players dominating the being 16-32% lower as compared to manufacturer
market. This trend is starkly visible in the developed brands.
economies of US and Europe.
As per data from M&M Planet Retail, in 1990, 30 Implications for Indian Retailers
retailers accounted for 20% share of the US retail The global trends have important implications
market. By 2005, only 8 retailers accounted for the for Indian retailers. The Indian consumer remains
same 20% share of the market. Similarly, in 1990 37 value conscious. The consumer in most cases is
retailers accounted for 20% share of the European willing to spend money, but remains cost conscious,
retail market. By 2005, only 10 retailers accounted evaluating every rupee spent. It is therefore
for the same share of the market. imperative for retailers to offer price advantage via
sourcing and operational efficiency and a strong
Trend 2: Convenience stores and hypermarket
private label program to attract customers. Existing
formats are gaining prominence
and new entrants need to achieve scale quickly for
These are driven by consumer need for convenience
driving efficiencies in procurement, supply chain
and lower price / higher value in mass categories
and marketing. Else they risk being marginalized
while big box category killer stores are gaining
by larger players.
importance in the specialty retail categories. While
supermarkets may emerge at the initial stages of Real estate and human resources will be the critical
retail market development, they are unable to match drivers to build scale. While there are a few hundred
malls under various stages of development across
70 Amity Management Analyst Jan - June

the country, retailers will need to think out of the analyze how the retailer company is positioned
box as well to ensure availability of real estate. relative to leading practices of other companies both
This may include acquiring and developing the within and outside of the retail industry.
real estate themselves rather than wait for mall As a retail company matures through the various
development. Given the rising demand for retail stages of a static enterprise model - functional
real estate, retailers will need to take a long term optimization, horizontal process integration, external
view on rentals and look at alternative options like collaboration, on-demand supply chain - certain
ownership or very long term leases. Retailers that characteristics are evident. A diagnostic assessment
invest in training will be able to ensure availability will help determine where you are on the maturity
of quality manpower in the rapidly growing market. model and help prioritize initiatives that will have
In summary, the retail market is the next growth the greatest impact on shareholder value and ROI.
frontier for corporate India. It offers an opportunity Based on this assessment of supply chain maturity
for a large player to build a Rs. 40,000 Cr retail in terms of processes, organizational aptitude and
business spanning multiple categories by 2015 enabling technologies, one can begin to formulate
(at current prices). Compared to this, the revenue a supply chain vision and strategy.
of the largest Indian retailer Pantaloon was only
Rs 1085 Cr in 2005. No wonder large domestic 2. Develop a strategy for making change
business houses and international retailers have The strategy should include the following key steps:
expressed keen interest to enter the retail sector in  Identify the company’s core supply chain
India. However, to capitalize on the opportunity, differentiators and capabilities, and assess
a player needs to be aggressive in its outlook and current performance.
build scale quickly.
 Determine which functions could be better
performed by a partner, and begin to identify
Supply Chain Performance these partners.
The balancing act of maintaining a high level of  Define the supply chain process components
service and low costs is becoming harder for retail and needs for organizational reconstruction.
supply chain directors as businesses try to meet the
 Define the measurement framework, which is
growing customer mantra of “more for less.” This
aligned with business objectives and goals. Set
pressure comes at a time when business is becoming
targets and thresholds for the key supply chain
more global, supply chains are lengthening, and performance indicators.
competition is on the rise.
 Evaluate the financial and operational value to
Although this challenge is not new, the outlook
be achieved in terms of financial performance
is that it will intensify as a number of factors
and operational performance characteristics
- economic, regulatory and market-driven - such as cycle time, quality and service level
become more acute. Consequently, supply chain attainment. Use modeling tools to simulate
performance will have increasingly significant end-state financial statements and operational
impact on overall business success. performance criteria.
Conclusively after research one must know the  Define the real-time information and connectivity
answer to question - What steps should retailers be vision, including an open and services-based
taking now to improve their Supply Chain? technology architecture, required to support the
vision.
1. Assess where you are now
Transformation of the retail supply chain is a  Prioritize which initiatives will have the greatest
journey and requires a roadmap, or structured impact on growth, operational excellence, ROI
approach, on how to get there. The journey should and shareholder value.
begin with a diagnostic assessment of company’s
3. Create a roadmap to achieve transformation
current supply chain performance, and comparing
Transformation requires a roadmap that establishes
it to a future end state. The assessment should also
the steps required to achieve the vision. Each supply
2010 Anil Vashisht 71

chain component has associated performance criteria retailing companies becomes even more worrying
- both financial (e.g., costs, revenue influence) when considering empirical investigations that
and operational (e.g., cycle time, quality, service acknowledge a direct linkage between SCM and
level attainment). The initiatives with the greatest company performance. The recognition of the
business impact, both financially and operationally, importance of logistics and SCM issues from a
can be prioritized and implemented with speed to company strategy perspective has been made in a
bring value to the organization. A transformation number of articles in the last years.
portfolio should be created which focuses on these
prioritized initiatives. 2. There are differences in attitude and behaviour
between customer and supplier collaborations
4. Achieve the benefits of a new approach Apart from a low rate of strategic issues in the
A new mindset is required for implementing the collaborations, the differences identified between
strategy. The old model of fixed strategy and supplier and customer collaborations also indicate
long implementation times is dead. In its place, that SCM based collaboration is more of an utopia
companies are demanding either rapid ROI or an than a reality. From a SCM theoretical point of
ROI that is self-funding, with a modular approach view, this recognized pattern can have serious
to implementation, often involving pilots followed consequences for the collaboration performance in
by a scale-up. the supply chains.
More scrutiny is now being placed on the delivery 3. Companies with more intensive SCM at an
and tracking of benefits, helping to ensure that operational level achieve better effects from their
benefits flow through to the bottom line and that collaborations
multiple supply chain initiatives do not “double Existing collaborations can, however, despite the
account” for benefits and overstate the business case, obvious advantages not always be considered as
especially in inventory and process cost reductions. intensive. The process approach in the collaborations
On-demand implementation approaches (e.g., gain is perhaps the area with the greatest potential
sharing, pay-as-you-use) can provide the impetus for improvements in order to bring about more
to kick-start major transformation programs and intensive collaboration.
generate the change momentum required to build
a longer-term vision. 4. Top management involvement is an important
driver for increased intensity in logistics
The description of logistics collaboration given collaboration
here shows that retailing companies involved in
collaboration are concerned with operational issues
and that their collaboration is seldom brought to
Current supply chain initiatives by the
a strategic level. In addition to this, the results retailers
indicate that there are serious differences in attitude Retailing Companies today should emphasis more
and behaviour between supplier and customer on the supply chain to transform their business
collaborations. The study shows that it is more model. They should radically change the way an
intensive collaboration at an operational level that organization senses, thinks, interprets and reacts.
contributes to the achievement of better results, More and more, successful companies are organizing
and that top management involvement has shown their supply chains horizontally (as opposed
to be an important driver for such collaboration. to the traditional vertical functional silos) and
orchestrating end-to-end extended supply chains,
or value chain networks.
Some major findings concerning supply
Retailers should review their supply chain practices
chain among retailing companies. and defining visions for the future; but at the
1. Supply chain management as practiced today is same time, they are fixing the basics - cleansing
concerned with operational issues, and is seldom data, defining improved metrics, standardizing
brought to a strategic level business processes and practices, training staff, and
The poor SCM practice by most of today’s integrating technology - all in hopes of developing
72 Amity Management Analyst Jan - June

a low-cost supply chain that competitively positions ways to synchronize their data with that of their
the organization for the future. trading partners. It has been shown that inaccuracies
Collaborative Planning, Forecasting and in the supply chain contribute to approximately
Replenishment (CPFR). Retailers are interested in 10 to 15 per cent of total out-of-stocks. Data
finding ways to reduce inventories and improve synchronization enables rapid purchase order and
their ability to both anticipate and fulfill consumer invoice reconciliation, eliminates data re-entry and
demand. They are improving their forecasting reduces catalogue errors.
and merchandise planning activities and finding Reviewing supply chain network infrastructure.
ways to work with manufacturers and suppliers Revisiting the supply chain network is no small
to reduce cycle times and inventories throughout feat. Few retailers are interested in reviewing
the entire supply chain. They are also looking at the cost-effectiveness and service levels supplied
ways to replenish inventory rapidly through auto- by distribution centers to retailers across India.
replenishment tools and ways to improve working This process normally involves utilization of
capital such as Scan-Based Trading. sophisticated algorithms that take large amounts of
data and determine costs and benefits of alternative
Radio Frequency Identification (RFID) assessment. network designs. There are other retailers who are
Indian retailers are assessing, and in some cases constructing new distribution centers to support
piloting RFID technology. They are closely watching their growth and productivity objectives.
Wal-Mart and other key retailers, including Metro
AG, to determine the readiness of the technology Outsourcing non-core functions. At a macro
and the success of rollout efforts. More importantly, level, the retail industry has not yet, unlike other
they are developing their own business cases to link industries, outsourced core business processes
the use of RFID technology to business benefits and such as human resources. However, retailers have
implementation costs. Metro AG’s “Future Store outsourced supply chain functions and continue
Initiative” has delivered very strong results to date - to outsource application management services (not
results that will increase the visibility and popularity complete outsourcing of information technology, but
of retail technologies such as RFID. Concerns, while rather outsourcing of selected application support
minor, are mostly associated with privacy issues functions, such as help desk).
- for example, the extent to which retailers have Legacy application replacement. Some Indian
knowledge about the products consumers have in retailers are running portions of their supply chain
their homes. with custom-developed applications, but more and
Buying optimization. Retail organizations are more of these custom applications are being replaced
performing strategic sourcing reviews, streamlining with packaged software applications. For example, a
their buying practices and policies and investigating number of Indian retailers are replacing their legacy
the potential for e-procurement technologies, warehouse management solutions with off-the-shelf
particularly for non-merchandise spend. These packaged software. These projects tend not to focus
projects tend to be low-risk but are associated on the technology alone but involve changes to
with high returns: reduction in uncontrolled, business processes, people, the organization, and
unapproved spending from 5 per cent to 30 per metrics in order to improve service levels from
cent; bulk discount savings of up to 20 per cent; and, the distribution centre and/or lower service costs.
significant reduction in administrative costs. They Supply chain visibility / information flow. Indian
are also continuing to review their merchandise retailers are looking for ways to improve supply
buying practices and looking for ways to reduce chain visibility across the entire pipeline. Supply
costs, improve inventory levels and better manage chain event management tools have provided the
their base of suppliers. This is particularly important capability to view end-to-end processes across
for Indian retailers who are sourcing products from the supply chain. This end-to-end view can help
around the globe. identify bottlenecks for product and information
Data synchronization. Retailers are also looking at flow, allowing appropriate resolutions to take place.
2010 Anil Vashisht 73

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