The Hindu Business Line : Supply chain and retail: The means to the end

A retail revolution is happening in the country. For global giants looking at newer markets, India presents exciting opportunities on account of its vast middle-class and a virtually untapped retail industry.

The Indian retail sector has seen unprecedented growth in the last few years. The KPMG report, `Consumer Markets in India: the next big thing?, has predicted that the organised retail sector is expected to grow at rate higher than GDP growth in the next five years. The AT Kearney's 2006 Global Retail Development Index positions India as a leading destination for retail investment.

The success in this competitive and dynamic sector depends on achieving an efficient logistics and supply chain, which can be provided by professionals, as they combine the best systems and expertise to manage a ready flow of goods and services.

The retail boom promises to give an impetus to a host of allied sectors and the logistics industry, as the backbone of the retail sector, stands to gain the maximum.

In India, the logistics market is mainly thought to mean transportation. But the major elements of logistics cost for industries include transportation, warehousing, inventory management, courier and other valued-added services such as packaging.

The logistics costs account for 13 per cent of GDP. The industry is currently on an upswing and is poised for a growth of 20 per cent in the coming years.

With the expansion of retail, supply chain will take on an increasingly important role. With the end consumer becoming more demanding and time conscious, the need for just-in-time services is increasing. In retail, where competition is intense and stakes are high, customer satisfaction is paramount.

Network critical

Industry experts opine that in India too the large retail chains will follow the global model of outsourcing their logistics so as to better manage complex supply chains and focus on their core business.

For the retail chains in agri-produce, efficiency of logistics is critical and can indeed leverage the brand to a great extent.

The main asset

Retailers realise that knowing what is selling and what is not can improve the inventory processes. Inventory is the biggest cost factor, and if not managed well, it can also be the biggest drain. That's why retailers and their trading partners today set store by the inventory process and its impact. Effective SCM enables:

Realistic ordering lead-times: Suppliers are not surprised by the next order. Retailers respond better to demand spikes, minimise forced markdowns and avoid obsolete-inventory costs.

Averting problems: Stores easily identify potential stock-outs and request replenishment before the inventory drops to zero. Deciding to de-list or replace a product is easier.

Facilitating resource planning and allocation: Product forecasts and supply schedules are easily converted to perform space planning, establish staffing needs and organise inbound/outbound shipments. Financial experts can plan cash flow and analyse margins into the future.

Four `Rs'

Follow the 4 `R's of SCM — Right time, Right place, Right price, Right quantity — to reap the advantages of:

Sustained inventory reduction by as much as 60 per cent for both the buyer and seller.

Improved forecast accuracy by as much as 30 per cent.

Enhanced store shelf stock rates by as much as 8 per cent.

Increased sales by as much as 20 per cent.

Reduced logistics costs by as much as 4 per cent.

The key players in the logistics industry are gearing up to meet the challenges by initiating both organic and inorganic growth to leverage the retail opportunity. Logistics firms have also started focusing on related services such as Customs clearing and forwarding, inbound warehousing, labelling and packaging, fleet management, order picking and inventory management.

Cold Chain

The booming retail sector has set off growth in the cold chain segment as well. It is a highly specialised service and caters to time sensitive and perishable items. The cold chain industry is growing at 20-25 per cent. However, there is an urgent need to establish the necessary infrastructure for an effective cold chain.

(The author is Executive Director, Transport Corporation of India Ltd.)

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