Vibhuti Sagar Retail Assignment

SIX DRIVERS OF RETAIL SUPPLY CHAIN              

           

Vibhuti Sagar, PGPABM 2007-09/32 (Email: [email protected] , 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.

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

Cost Rs.

in

Spinach

Vendor cost

Processing cost

Labour

Losses

Transportation cost

Infrastructure cost

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 ¾ ¾

Fixed Margin Pricing ( cost plus ) Benchmarking Pricing 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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