India is a large, fragmented country with an absence of strong infrastructure and logistics. This makes it difficult to reach consumers in urban, semi-urban and rural India leading to product costs increase due to the diverse location of suppliers and the presence of several large intermediaries. This results in decreased margins for retailers. The majority of retailers lack the ability to effectively manage less than truck load (LTL) sized shipments.
In the current scenario, efficient management of logistics and the supply chain is not just important for survival, but a necessity for retailers to gain a competitive advantage. The following five strategies will enable Indian retailers to develop robust supply chains, cut costs, create better customer value propositions and provide fresh/better product assortments to customers.
1. Integrating Vendor Managed Inventory (VMI) with planning and forecasting systems:
With sub optimal forecasting, factors like seasonality, promotions and sudden increase in demand are not taken into account leading to either high inventory levels or stock-outs. In case of VMI, the vendor takes complete responsibility of maintaining the inventory at the retailer’s premises which also helps the vendor gather important information regarding market trends. VMI and auto replenishment programmes enhance planning efficiency and enable retailers in maintaining appropriate levels of inventory. VMI also helps reduce the problems of stock-outs and excess inventory. This collaborative planning, forecasting and replenishment (CPFR) approach, where retailers synchronise their demand forecasts into a single one, reduces the risk of unsold inventory and increases profits.
India’s large geographical distances and fragmented nature of transporters are one of the main reasons for high lead times and transportation costs. The absence of long-term relationships with transporters and the advance agreement on spot rates during peak season also increase costs. Currently, a majority of goods in India are transported through the extensive road network. A multi-modal transportation network involving a combination of road, rail, air and water needs to be explored. This could help overcome some of the bottlenecks experienced during road transportation.
Indian retailers need to exploit the benefits of aggregation and appropriate route planning. By consolidating the goods to be distributed to various distribution centres, retailers can limit the number of times the goods are handled, thereby reducing the damage to the goods. ‘Cross docking’ or direct transfers from inbound or outbound trailers without extra storage and ‘back-hauling’, which allows transportation of unsold merchandise from the stores to the distribution centres on trucks that have just dropped the inventory, are a few other techniques retailers could use to gain efficiencies and cut costs.
3. Technology Deployment:
Modern logistics and supply chain management are not limited to the flow of merchandise in packed boxes and packets, but are dependent on the flow of information. Monitoring and controlling appropriate and authentic information can enable retailers to match demand and supply. Companies should invest in technology to store and retrieve key data for successful forecasting. The need of the hour is to adopt best-in-class IT systems across the retail value chain such as merchandise; financial planning and forecasting systems; vendor and merchandise management systems; warehouse management systems; logistics and channel management systems; customer relationship managements systems; RFID, etc. These are also essential in generating efficiencies for retailers.
4. Integration of IT systems:
IT optimisation and effectiveness is another area most retailers need to focus on. As the retail market evolves and becomes more crowded, supply chain systems and IT optimisation will be critical to remaining agile, reducing costs and being successful in the long term. According to Cisco India, of the total investments made by Indian retail companies, approximately 4 to 10% is invested in IT and within this, approximately 30 to 40% is meant for networking infrastructure. Most Indian retailers need to use advanced IT products and solutions like replenishment planning; world-class supply chain and logistics management system; business intelligence and analytics systems; warehouse management systems, etc. The growth of the Indian economy is bringing about several changes in consumer demand and purchase patterns. The Indian retail market is difficult to predict; consumers are evolving and retailers are expanding operations, further driving the need for IT adoption.
5. Integrating components of the value chain:
It is also important for participants in the value chain to integrate activities and work together. Manufacturers should work in close association with service providers, distributors, wholesalers and retailers. Indian retailers can follow examples set by global retailers like Wal-Mart, who have embarked upon backward integration and have developed captive logistics, transport and warehouse capabilities.
In my opinion, to succeed in Indian retail, retailers not only need the right business strategy, but also the mastery of supply chain as illustrated. what do you think? Please feel free to give your insights and opinions in the comments box below….