DLF Brands bets big on global sourcing model

DLF Brands, a subsidiary of DLF Ltd, is a retailer in India for brands such as Pure Home+Living, Mothercare, Sunglass Hut, Alcott, Early Learning Centre and DKNY. The company sources thousands of products from 12 countries, and from many parts within India. The 90 stores, spread across India, could require replenishment twice to five times a week.

The company's Chief Financial Officer (CFO), Mr Dipak Agarwal, spoke to Business Line on supply chain issues for the retail sector and company. Excerpts:

What is the scope of work for a logistics service provider?

In the organised retail sector, the scope of work for logistics partner depends on the strategy of different organisations. Some firms give the entire job to one operator (entire supply chain including transportation); some divide into transportation, warehousing.

In warehousing, the expectation would be to understand the demand of the retail stores, adhere to the orders made by stores, respect timelines, understand urgency of timely deliveries, and stick to the basic parameters of business such as supply time and do it in a cost-effective manner.

You have several brands under your umbrella. How do you manage back-end supply for them?

We have a global sourcing model, with products sourced from different countries. Based on the product segment, we decide where to source it from. We identify the factory, develop vendors there. There is a whole team of people to do this activity. Then the logistics set-up takes over helping the product movement to the store.

What activities do you handover to your logistics partners and what do you do internally?

At present, most players in India are not outsourcing the entire supply chain work. Most of the labour intensive works like warehousing, labelling; and basic processes such as receiving, despatching the goods, are outsourced.

We have not reached that stage where we can trust the partner completely and share the entire business intelligence. The process and planning is still controlled by us. Most companies don't outsource vendor management.

The supply chain partners are expected to manage those functions which are not our core area of expertise such as handling people and facilities.

Who is responsible for maintaining the fill rate?

The responsibility is shared. Two key activities are required to maintain good fill rates. One is planning and identify a product is to be sent to which place – this part we do ourselves. Second part is actual physical movement, which the partner does.

What percentage of your logistics work is outsourced?

About 70 per cent of work outsourced and 30 per cent is self managed.

How many vendors do you have for supply chain? How are they selected?

Any company would have seven-ten vendors, we also have that much. For certain activities, we invite bids on a long-term basis. Certain activities require prompt decisions, where we do random bidding from time to time.

How is job divided between various vendors – geographically or based on product categories?

Divide is mostly regional as some vendors are strong in some regions. It is not based on products because as of now, this level of specialisation doesn't exist in India.

What is the cost of supply chain as a per cent of your topline?

For any good retail business, it is at least three per cent of the top-line. It is a function of how efficient your supply chain is it. Cost would include warehousing and transportation. We normally compute the cost on per unit basis -- what is the cost to bring one unit of product to the store shelves. It is a function of cubic capacity of the product, the value to volume ratio, amongst others.

It will range from 2.5 to four per cent for light goods, and go up to 10-15 per cent for bulky products.

In furniture, it could go up to 15 per cent, while for fashion retail it is about 3-5 per cent.

Have contracts with your logistics partners evolved over time? What are the deliverables that you build in the contracts?

Yes, they have. There are some objectives that you have as a retailer. You would want to mitigate your risks of inventory and abnormal losses.

You would want to hold you partner accountable for the risks and implement some KPI on your partners. People have learnt over time the risks one should cover if they get into such contracts. There is a reward and penalty system for the operator.

Suppose you design a warehouse for a certain stock capacity of a product. If the operator is able to process more units using the same resources, you can share the cost saving with the operator as a reward. This will be win-win for both.

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