Supply Chain Management in Sri Lanka Retail

1.0 Abstract

With the cost of living going higher and higher in Sri Lanka retail consumers struggle to keep up with their expenses low as possible through spending less and less. Food is a very basic need of a man and therefore people cannot survive without it. At this point of time what consumers are expecting from retailers are high quality products at the lowest possible price. Therefore companies in the retail business should be able to address this point within the market.

Thus in order to provide the best quality and the lowest price goods to the consumer companies in the retail business should be able to collect the groceries at their lowest cost and the best quality. For this to happen there has to be a very effective supply chain for the particular retailers as well as convenience for customers to reach the retail stores. Supply chain can be defined as a network of connected and interdependent organizations mutually and co-operatively working together to control manage and improve the flow of materials and information from suppliers to end users.

In the retail industry in Sri Lanka there are many competitors. But the market leader in the industry should be able to manage the supply chain effectively and efficiently. Supply chain management is the management of upstream and downstream relationship with suppliers and customers to deliver superior customer value at less cost to the supply chain as a whole.

Cargills Food City can be defined as the largest retailer in the island in all categories. In other words it can be defined as the market leader in Sri Lanka for the retail industry, offering a slogan “on your way home” to the everyday consumer in market. Therefore in order to provide the convenience of buying retail products it has expanded its business over the island comprising of more than 144 outlets. Also to add to that Cargills has won many awards indicating its presence as the market leader in the retail industry in Sri Lanka.

2.0 Introduction

Cargills (Ceylon) PLC is a Sri Lankan corporate established in 1844 and built on a strong foundation of values and ethics. Guided by trusted leadership it spearheads the sustainable development of the food industry in Sri Lanka. Pursuing innovation and food safety its manufacturing brands Cargills Supremo and Cargills Finest (processed meats) Cargills Kist (processed fruits and vegetables) and Cargills Magic (ice cream and dairy products) lead sectoral growth. Through its marketing and distribution arm spread across the island Cargills distributes its manufactured brands as well as internationally renowned food and non-food brands. The Cargills agribusiness model has gained global recognition for linking farmers and entrepreneurs to the market through a sustainable and inclusive value creation process.

Customers with regard to the retail chain would be everyday shoppers who are in need of grocery items for everyday consumption. Customers are expecting higher quality products at a lower cost to them. Therefore the main items customers are going to buy are fresh products from the supermarket. Customers nowadays are busy people so they go to one place to do all the shopping. Therefore if they do not get the fresh products they will not bother to visit the supermarket again and the customer loyalty will be lost. Company has to have a good supply chain to obtain the fruits and vegetables quickly from the farm to the outlets so that they reach the customers at the same level of quality. Also the company should have a very reliable set of suppliers who are able to provide the goods at their utmost capability.

Although Cargills is the current market leader competitors are closing in on the leader. Therefore Cargills should be able to keep on innovating new things and providing at the lowest cost to retain the customers. Cargills is also manufacturing some products which will help them in reducing the costs if they try to obtain it from outside farmers. All of Cargill’s multiple manufacturing sites are equipped with state of the art R&D facilities which constantly generate product innovations to delight their customers. Their strength is people and R&D scientists have ensured that they delight their consumers every day everywhere with new and innovative product offerings.

Therefore bottom line would be to be in the lead the company should have an effective and efficient supply chain.

3.0 Supply Chain of Cargills Food City

FARM

CONSUMER Material Flow

Fund Flow

Information Flow

CARGILLS FOOD CITY

WAREHOUSES

FOOD CITY OUTLETS

PROCESSOR

MANUFACTURER

AGENTS

Tier 03 Tier 02 Tier 01 Tire 01 Tier 02

Up Stream Down Stream

4.0 Supply Chain Issues in Design and Management at Cargills

Supply chains in the modern world go through various difficult phases. Therefore organizations should be able to overcome these difficulties and move forward with new developments in the supply chain. In recent years supply chains have developed in to more faster and reliable management systems. Agility can be defined as a new developed concept with regard to the supply chain. Agility is the ability to change and respond quickly and effectively to market demand. To do this supply chain must be un-encumbered with time consuming processes.

Another issue regarding supply chain would be synchronization. This is used to minimize inventory and time in the pursuit of competitive advantage. Synchronized network acts as one distinct organization and for some companies where ownership is extended vertically up and down the chain that is what happens already. Co-ordination in supply chain management can be defined as involving suppliers within the supply chain design phase of the organization. These are some of the design issues of the supply chain that the management should look into.

Creating highly integrated supply chains requires a unified managerial approach throughout the chain and this demands very high level of collaboration and trust. Therefore when the management chooses suppliers they must focus on the trust and the reliability of the suppliers. Supply chains are particularly susceptible to risk because of the length of the network of participants in the chain and the variety of supply chain tasks involved. Therefore management should manage these risks with causing minimum disruptions to the supply chain. Organizing refers to what kind of a structure is required within the business to effectively tackle the issues within the supply chain and to make the new developments within the chain.

Main competitive advantage with regard to Cargills would be the cost advantage. At the moment Cargills is enjoying both learning curve effect and economies of scale in their supply chain.

Real cost per unit

Cumulative Volume

Therefore in my view the main issues with regard to supply chain would be competitive strategy of the organization, agility, flexibility responsiveness and risk management issues. Therefore these three are further explained with regard to the Cargills Food City supply chain.

5.0 Supply Chain Competitive Strategy of Cargills

5.1 Concept

It is clear that we are now entering into a new era of supply chain competition. Therefore a need arises to create value delivery systems that are more responsive to fast changing markets and are more consistent and reliable in the delivery of that value requires that the supply chain as a whole be focused on the achievement of these goals.

5.2 Current Situation

The current strategy used by Cargills is the business strategy alignment. This is regarding to aligning supply chain strategy with the core strategic direction of the company. Therefore Cargills has adopted this strategy for many years. It has worked well for them but it needs to change to an amore customer centric strategy. Cargills is competing on the fundamental bases of cost, innovation, quality and services.

5.3 Recommendation

Cargills should now look at the customer’s perspective. This is practicing a high level of marketing identifying customer needs and building profitable business around different market segments. Therefore business should transform its strategies as follows.

From Supplier centric to customer centric

From push to pull

From inventory to information

From transaction to relationships

From functions to processes

6.0 Supply Chain Agility Flexibility and Responsiveness of Cargills

6.1 Concept

One of the biggest challenges facing organizations today is the need to respond to ever increasing levels of volatility in demand. Therefore agility, flexibility and responsiveness all deals with how fast a supply chain can react to the change in demand.

6.2 Current Status

Currently Cargills is doing a somewhat fair job in responding to the changes in the market. But since some of the products the supermarket sell are manufactured by the Cargills Company itself they should be more agile and flexible towards demand. Agility and leanness can be best shown as below.

Agile

High

Variety/Variability

Lean

Low

Low High

Volume

Lean – works best in high volume, low variety and predictable environments

Agile – is needed in less predictable environment where the demand for variety is high.

6.3 Recommendation

Cargills can make the supply chain more agile by using the factors given below. Cargills also need to adjust its strategy to changing demand also.

Long Lead

Times

Supply Characteristic

Hybrid de-couple through postponement

Lean Plan and Optimize

Short Lead

Times

Agile quick response

Unpredictable

Kan-ban continuous replenishment

Predictable

Demand Characteristic

Therefore to achieve agility in the supply chain company should establish the following foundations.

Basic Principals of Agility Managing Agility

-Synchronize activities through shared information Up stream and down stream

-Partner with suppliers to reduce inbound lead time Up stream

-Seek to reduce complexity Up stream and down stream

-Manage process not just functions Up stream

-Utilize appropriate performance functions Up stream and down stream

7.0 Supply Chain Risk Management at Cargills

7.1 Concept

Today’s market place is characterized by turbulence and uncertainty. Therefore considerable chaos exists in supply chains. Many companies have experienced a change in their supply chain risk profile as a result of changes in business models. As a result of heightened risk organizations will need to develop appropriate programs to mitigate and manage that risk.

7.2 Current Status

Risks with regard to Cargills lies within perishable items they sell to the customer. Also the demand for the products, processing the products, managing the controls and the general weather conditions can also be a risk to Cargills. Therefore mainly there are five types of risks which have been shown in the below diagram.

Environmental Risk

Demand Risk

Process Risk

Supply Risk

Control Risk

7.3 Recommendation

Understand the Supply ChainCargills should be able to try and identify the risks within each of the above given areas. After that the organization as a whole should try to minimize the impact of risks by managing it. Managing risks in a supply chain can be done as a process given below.

Improve the Supply Chain

Identify the Critical Path

Manage the Critical Paths

Improve Network Visibility

Establish Supply Chain Continuity Team

Work with Suppliers and Customers to Improve Supply Chain Risk Management Procedures

8.0 Conclusion

Cargills at the moment is concentrating on the cost advantage side of the competition. Although this is important to the company the supply chain strategies and its performances should change according to the changes of the environment. Therefore the company can be ahead of the competition and increase its market segment within the country.

Therefore the company should be able to achieve this status as shown above through competitive strategy, agility flexibility and responsiveness, risk management of supply chain.