Supply Chain Management In Indian Retail Industry

Retail, one of India’s largest industries, has presently emerged as one of the most dynamic and fast paced industries of our times with several players entering the market. Accounting for over 10 per cent of the country’s GDP and around eight per cent of the employment retailing in India is gradually inching its way toward becoming the next boom industry. As the contemporary retail sector in India is reflected in sprawling shopping centers, multiplex malls and huge complexes offer shopping, entertainment and food all under one roof, the concept of shopping has altered in terms of format and consumer buying behavior, ushering in a revolution in shopping in India. This has also contributed to large scale investments in the real estate sector with major national and global players investing in developing the infrastructure and construction of the retailing business.

The trends that are driving the growth of the retail sector in India are

• Low share of organized retailing

• Falling real estate prices

• Increase in disposable income and customer aspiration

• Increase in expenditure for luxury items

Another credible factor in the prospects of the retail sector in India is the increase in the young working population. In India, hefty pay-packets, nuclear families in urban areas, along with increasing working-women population are emerging opportunities in the services sector. These key factors have been the growth drivers of the organized retail sector in India which now boast of retailing almost all the preferences of life – Apparel & Accessories, Appliances, Electronics, Cosmetics and Toiletries, Home & Office Products, Travel and Leisure and many more. With this the retail sector in India is witnessing a rejuvenation as traditional markets make way for new formats such as departmental stores, hypermarkets, supermarkets and specialty stores. The retailing configuration in India is fast developing as shopping malls are increasingly becoming familiar in large cities. When it comes to development of retail space specially the malls, the Tier II cities are no longer behind in the race. If development plans till 2007 is studied it shows the projection of 220 shopping malls, with 139 malls in metros and the remaining 81 in the Tier II cities. The government of states like Delhi and National Capital Region (NCR) are very upbeat about permitting the use of land for commercial development thus increasing the availability of land for retail space; thus making NCR render to 50% of the malls

in India.

India is being seen as a potential goldmine for retail investors from over the world and latest research has rated India as the top destination for retailers for an attractive emerging retail market. India’s vast middle class and its almost untapped retail industry are key attractions for global retail giants wanting to enter newer markets. Even though India has well over 5 million retail outlets, the country sorely lacks anything that can resemble a retailing industry in the modern sense of the term. This presents international retailing specialists with a great opportunity. The organized retail sector is expected to grow stronger than GDP growth in the next five years driven by changing lifestyles, burgeoning income and favorable demographic outline.

Another cap to the retailing industry in India is allowing 51% FDI in single brand outlet. The government is now set to initiate a second wave of reforms in the segment by liberalizing investment norms further. This will not only favor the retail sector develop in terms of design concept, construction quality and providing modern amenities but will also help in creating a consumer-friendly environment. Retail industry in India is at the crossroads but the future of the consumer markets is promising as the market is growing, government policies are becoming more favorable and emerging technologies are facilitating operations in India. And this upsurge in the retail industry has made India a promising destination for retail investors and at the same time has impelled investments in the real estate sector. As foreign investors cautiously test the Indian Markets for investments in the retail sector, local companies and joint ventures are expected to be more advantageously positioned than the purely foreign ones in the evolving India’s organized retailing industry.

Objective of the Study

To understand the Importance of Supply Chain Decisions and Supply Chain Modeling Approaches in the retail majors, and try to understand the significant role played by the logistics and the supply chain system of the retailers on the economies of scale of the organization

Literature Review

Importance of Logistics & SCM

A supply chain is a network of facilities and distribution options that performs the functions of procurement of materials, transformation of these materials into intermediate and finished products, and the distribution of these finished products to customers. Supply chains exist in both service and manufacturing organizations, although the complexity of the chain may vary greatly from industry to industry and firm to firm. Below is an example of a very simple supply chain for a single product, where raw material is procured from vendors, transformed into finished goods in a single step, and then transported to distribution centers, and ultimately, customers. Realistic supply chains have multiple end products with shared components, facilities and capacities. The flow of materials is not always along an arbores cent network, various modes of transportation may be considered, and the bill of materials for the end items may be both deep and large. Traditionally, marketing, distribution, planning, manufacturing, and the purchasing organizations along the supply chain operated independently. These organizations have their own objectives and these are often conflicting. Marketing’s objectives of high customer service and maximum sales dollars, conflict with manufacturing and distribution goals. Many manufacturing operations are designed to maximize throughput and lower costs with little consideration for the impact on inventory levels and distribution capabilities. Purchasing contracts are often negotiated with very little information beyond historical buying patterns. The result of these factors is that there is not a single, integrated plan for the organization—there were as many plans as businesses. Clearly, there is need for a mechanism through which these different functions can be integrated together. Supply chain management is a strategy through which such integration can be achieved.

Supply chain management is typically viewed to lie between fully vertically integrated firms, where the entire material flow is owned by a single firm and those where each channel member operates independently. Therefore coordination between the various players in the chain is key in its effective management. Cooper and Ellram [1993] compare supply chain management to a well-balanced and well-practiced relay team. Such a team is more competitive when each player knows how to be positioned for the hand-off. The relationships are the strongest between players who directly pass the baton, but the entire team needs to make a coordinated effort to win the race.

Research Problem

To understand the intricacies involved with the following aspect of supply chain management

Supply Chain Decisions

We classify the decisions for supply chain management into two broad categories — strategic and operational. As the term implies, strategic decisions are made typically over a longer time horizon. These are closely linked to the corporate strategy (they sometimes {it are} the corporate strategy), and guide supply chain policies from a design perspective. On the other hand, operational decisions are short term, and focus on activities over a day-to-day basis. The effort in these type of decisions is to effectively and efficiently manage the product flow in the “strategically” planned supply chain. There are four major decision areas in supply chain management: 1) location, 2) production, 3) inventory, and 4) transportation (distribution), and there are both strategic and operational elements in each of these decision areas.

Location Decisions

The geographic placement of production facilities, stocking points, and sourcing points is the natural first step in creating a supply chain. The location of facilities involves a commitment of resources to a long-term plan. Once the size, number, and location of these are determined, so are the possible paths by which the product flows through to the final customer. These decisions are of great significance to a firm since they represent the basic strategy for accessing customer markets, and will have a considerable impact on revenue, cost, and level of service. These decisions should be determined by an optimization routine that considers production costs, taxes, duties and duty drawback, tariffs, local content, distribution costs, production limitations, etc. (See Arntzen, Brown, Harrison and Trafton [1995] for a thorough discussion of these aspects.) Although location decisions are primarily strategic, they also have implications on an operational level.

Production Decisions

The strategic decisions include what products to produce, and which plants to produce them in, allocation of suppliers to plants, plants to DC’s, and DC’s to customer markets. As before, these decisions have a big impact on the revenues, costs and customer service levels of the firm. These decisions assume the existence of the facilities, but determine the exact path(s) through which a product flows to and from these facilities. Another critical issue is the capacity of the manufacturing facilities–and this largely depends on the degree of vertical integration within the firm. Operational decisions focus on detailed production scheduling. These decisions include the construction of the master production schedules, scheduling production on machines, and equipment maintenance. Other considerations include workload balancing, and quality control measures at a production facility.

Supply Chain Modeling Approaches

Clearly, each of the above two levels of decisions require a different perspective. The strategic decisions are, for the most part, global or “all encompassing” in that they try to integrate various aspects of the supply chain. Consequently, the models that describe these decisions are huge, and require a considerable amount of data. Often due to the enormity of data requirements, and the broad scope of decisions, these models provide approximate solutions to the decisions they describe. The operational decisions, meanwhile, address the day to day operation of the supply chain. Therefore the models that describe them are often very specific in nature. Due to their narrow perspective, these models often consider great detail and provide very good, if not optimal, solutions to the operational decisions.

To facilitate a concise review of the literature, and at the same time attempting to accommodate the above polarity in modeling, we divide the modeling approaches into three areas — Network Design, “Rough Cut” methods, and simulation based methods. The network design methods, for the most part, provide normative models for the more strategic decisions. These models typically cover the four major decision areas described earlier, and focus more on the design aspect of the supply chain; the establishment of the network and the associated flows on them. “Rough cut” methods, on the other hand, give guiding policies for the operational decisions. These models typically assume a “single site” (i.e., ignore the network) and add supply chain characteristics to it, such as explicitly considering the site’s relation to the others in the network. Simulation methods are a method by which a comprehensive supply chain model can be analyzed, considering both strategic and operational elements however, as with all simulation models; one can only evaluate the effectiveness of a pre specified policy rather than develop new policy. It is the traditional question of “What If?” versus “What’s Best?

Network Design Methods

As the very name suggests, these methods determine the location of production, stocking, and sourcing facilities, and paths the product(s) take through them. Such methods tend to be large scale, and used generally at the inception of the supply chain. The earliest work in this area, although the term “supply chain” was not in vogue, was by Geoffrion and Graves [1974]. They introduce a multi-commodity logistics network design model for optimizing annualized finished product flows from plants to the DC’s to the final customers. Geoffrion and Powers [1993] later give a review of the evolution of distribution strategies over the past twenty years, describing how the descendants of the above model can accommodate more echelons and cross commodity detail. Breitman and Lucas [1987] attempt to provide a framework for a comprehensive model of a production-distribution system, “PLANETS”, that is used to decide what products to produce, where and how to produce it, which markets to pursue and what resources to use. Parts of this ambitious project were successfully implemented at General Motors. Cohen and Lee [1985] develop a conceptual framework for manufacturing strategy analysis, where they describe a series of stochastic sub- models, that considers annualized product flows from raw material vendors via intermediate plants and distribution echelons to the final customers.

They use heuristic methods to link and optimize these sub- models. They later give an integrated and readable exposition of their models and methods in Cohen and Lee [1988].

Cohen and Lee [1989] present a normative model for resource deployment in a global manufacturing and distribution network. Global after-tax profit (profit-local taxes) is maximized through the design of facility network and control of material flows within the network. The cost structure consists of variable and fixed costs for material procurement, production, distribution and transportation. They validate the model by applying it to analyze the global manufacturing strategies of a personal computer manufacturer.

Finally, Arntzen, Brown, Harrison, and Trafton [1995] provide the most comprehensive deterministic model for supply chain management. The objective function minimizes a combination of cost and time elements. Examples of cost elements include purchasing, manufacturing, pipeline inventory, transportation costs between various sites, duties, and taxes. Time elements include manufacturing lead times and transit times. Unique to this model was the explicit consideration of duty and their recovery as the product flowed through different countries. Implementation of this model at the Digital Equipment Corporation has produced spectacular results — savings in the order of $100 million dollars.

Rough Cut Methods

These models form the bulk of the supply chain literature, and typically deal with the more operational or tactical decisions. Most of the integrative research (from a supply chain context) in the literature seems to take on an inventory management perspective. In fact, the term “Supply Chain” first appears in the literature as an inventory management approach. The thrust of the rough cut models is the development of inventory control policies, considering several levels or echelons together. These models have come to be known as “multi-level” or “multi-echelon” inventory control models. For a review the reader is directed to Vollman et al. [1992]. Multi-echelon inventory theory has been very successfully used in industry. Cohen et al. [1990] describe “OPTIMIZER”, one of the most complex models to date — to manage IBM’s spare parts inventory. They develop efficient algorithms and sophisticated data structures to achieve large scale systems integration.

Significance of the Study

The key aspects of retail marketing are an attitude of mind.

The 2004 NRF Foundation/American Express 2004 Customer Service survey showed 99 percent of shoppers report customer service being important when deciding to make a purchase, NRF reported. The most important elements of good customer service to traditional shoppers revolve around retail employees and the store environment, according to the survey, with nearly two thirds of shoppers finding it extremely important for retail employees to be courteous (67 percent) and treat shoppers like valued customers (65 percent). The report also stated consumers dislike being pressured to buy merchandise (69 percent) and find it extremely important that employees are available to ask for help (61 percent). Environmental factor for them is a neat and clean store, which 60 percent of shoppers said is extremely important.

Retail marketing decisions are driven by what the shoppers need and want.

Consumers are individuals who purchase products or services for personal consumption and in the retail context it is critical to realize that management can not be effective unless it has an understanding of the process of how retail consumers make decisions and act in relation to retail products. Blackwell, Miniard and Engel (2000) define the initial step of this decision-making process as need recognition in terms of emotional and psychological needs recognition. However the extent to which the consumer intends to resolve the problem depends on the relative perceived importance of the problem to them and the degree of difference between the current and desired situation. If the problem recognition is of a sufficiently strong degree then information search and evaluation of alternatives stages will occur.

What the customers regard as value and what they buy is decisive.

It can therefore be seen that potential customers go through a series of stages before they choose a brand or product to purchase. Hence branding strategies used by retailers need to be aware of elements in these first stages which might have an effect on later choices. Additionally a determinant of the degree to which customers evaluate a brand is their level of involvement, i.e. high levels of involvement mean extensive evaluation processes, (Hawkins, Best and Coney, 1989). Price is often seen as an indicator of involvement level because people spend more time searching and comparing prices.

The essential elements

While many elements may make up a firm’s retail marketing mix, the essential elements may include

·€ Store location,

·€ merchandise assortments

·€ Store ambience,

·€ customer service,

·€ price,

·€ Communication with customers

Research Methodology

Research methodologies play a vital role in defining the effectiveness and success of the research carried out. I have used Case study approach in understanding the difficulties that have occurred. Methodology in the process of research can be defined as a framework which helps us in understanding the research process or they can be defined as the mechanisms utilized for collecting the data for interpretation to deliver the best outcomes. Cohen, Manion and Morrison

(2007) states thatâ€- the design of the research is covered by the notion of fitness for purposeâ€- which help in determining the methodology and research design. The process of research is an urge of searching for the facts that leads to a path of initiating a new technology/knowledge.

Paradigm of Research

Research paradigm may be defined as the assumptions made by an individual in order to guide him to deliver the best outcomes. The paradigm of the research can be understood based on the three levels

The research methodology is well understood by the following assumptions:

The three research paradigms which are considered important to conduct the research effectively by (Oates, 2006) are stated below:

Positivism

Constructivism and

Critical Theory.

Research Methodologies used:

Qualitative Vs Quantitative A research can be either of the forms of the inquiry I, e Qualitative or Quantitative. Qualitative research method is the one that concentrates on identifying the complexity in the nature and ate also attempts in answering the questions WHY? And HOW? This kind of researches can be done only by the humans participating in the real world context mainly because of the ability of the humans to understand, confine and then co-relate them in real practice. Quantitative research method follows a very organized approach. Quantitative methods are basically utilized to understand the depth of the problem which answers the questions like HOW MANY?

Inductive and Deductive: Inductive way of research is the one that comprises of the assumptions made previously about a topic and theories are build later taking this assumption as the base which means a solution is developed based on the assumption made rather than testing to prove whether or not the assumption made is correct or wrong, where as the deductive approach comprises of the established hypothesis which is chosen initially and tested to verify the truth in it. Oates (2006) and Hyde (2000) state that both the inductive and deductive approaches make use of qualitative and quantitative process and several methods of collecting data during their research.

The research approach that has been chosen for my dissertation concentrates on getting the inputs from various participants/victims (such as students, a technical consultant and a) in order to deliver a solution from the improvements that have generated from the previous problems. The current research makes use of the inductive way of approach for proposing an effective solution for the difficulties in the research depending on the observations, action and the practice. It utilizes not just quantitative but also qualitative inquiry modes.

Suitable methodologies for this research

· Action research:

(Elliott, 1978) has stated that action research ―combines the diagnosis with reflection and focuses on the issues that are practical identified by the participants which are complex and at the same time which are capable of being changedâ€-. A new concept has emerged about how the action research can find out several ways of integrating themselves to obtain the sustainable organizational development (Mc Niff and Whitehead 2000).

Case study approach:

This kind of research methodology is mainly used for building the theories to analyze the complex problems. Case study approach gives a clear understanding of the possible events like the organization, people and the social movement. Case study is defined as the ―the study of a complexity of a specific instance for understanding the activities in the context of the real worldâ€- (Helen Simons, 2009). A case study approach focuses on the real world context in a much detailed way. It takes a specific case in the firm or an institution rather than testing the generalized theory.

The four stages involved in this approach:

Design

Conduct

Analyze and

Developing the conclusions and implications. (Yin.R,1994)

Data collection:

There are several ways of collecting the data as stated by (Cohen,Manion and Morrison, 2007) and supported by (Elliot, 1991) are as follows:

Questionnaires

Conducting tests

Interviews

Role play

Accounts

This type of data collecting methods are mainly used when the researcher needs the following aspects (Oates, 2006)

Necessity to acquire the clear view

When asking the complex questions using open-ended method or whose logic should be expressed differently to different individuals.

To express the feelings, emotions and experiences which cannot be observed easily when using predefined questionnaire method.

Conclusion

At present most retailers in India comprise invested majorly into the front end, but comparatively little on the back end and supply chain. Still in countries like the USA, Germany and England, where organized retail is highly developed; supply chain efficiency is a major unease. The trend of retail sector in India is different from other countries around the world. The organized retail sector in India is highly fragmented and there are huge inefficiencies in the supply chain.

In India, Future group derives significant economies of scale in managing their supply chain. With more than 170000 products, the company maintains a strong supplier relationship in a partnership mode, avoiding the exploitative supplier – buyer transactional philosophy. The IT enabled back-end operations and supply chain management increases the reliability and efficiency of the business.

As part of the operation, Future Group is also undertaking to reduce its warehousing costs through a consolidation process. In a country like India, where most retail stores are located in the heart of the city-where rents are high and storage space is scarce-supply chain management has even more serious business implications. Future Logistics now handles two-and-a-half million SKUs (or stock keeping units) a day across the Future Group’s various retail formats around the country. By 2010, this number is expected to increase to more than 30 million SKUs a day. Even with 98% accuracy, some 600,000 pieces will not be delivered correctly, resulting in an estimated sales loss of more than Rs 4 crore a day.

The biggest driver in consumer logistics is going to be zero defect in managing the supply chain. While infrastructure, technology, automation, processes and people will all play an important role, zero defect can only be achieved through vertical integration across the entire supply chain-from raw material supply, production, wholesale and retail. The different parts of the supply chain will no longer be able to work in silos as they do today.

Need for efficient logistics

Before heading for transformation in-depth of logistics, let us first have a fleeting look through the need of good logistics system in India:

Ensure coordination: To ensure perfect coordination with in various units of a retail venture like suppliers, manufacturers, and vendors.

Perfect timings: To ensure that consumers get the right product at the right time and at the right place.

Continuous supply: To ensure resourceful supply to retail stores across various geographic areas is seamless and consistent.

Continuous growth: To achieve profitable and sustainable growth of retail operations in the long run.

Optimum inventory: To achieve optimal inventory levels and reduce wastage of products.