With the market expanding multi-dimensionally, the retail sector is expected to undergo a major revolution over the next few years. The emergence of super consumers, who are vulnerable to price points and fulfilment time, has shifted focus of top management on reducing and streamlining the cost of operation without tampering quality of service, while being in tune with the needs of the current generation.
In such an era of cut-throat competition, the challenge for retailers is to manage continuous supply of right products, at right time from various entities, while ensuring a hassle-free supply chain from manufacturing unit to the point-of-sales.
Labelled as end-to-end process in core retail, Supply Chain Management (SCM) comes into action right from planning the inventory to product delivery at point-of-sales. And if there is a problem with supply chain, retailers may not get products to stores and/or consumers, thereby risking business.
Challenges faced by retailers
According to a recent survey by the Retailers Association of India, one of the biggest challenges facing the CEOs of today, amidst mobile commerce revolution, is managing the transformation to Omni-channel retail. However, only 34 per cent of CEOs consider the rise of Omni-channel shopping to be an external threat, while only 22 per cent said it will have a direct impact on their organisation.
Underdeveloped supply chains, lack of strong cold chains, poor warehousing facilities and bad transportation are the factors which contribute to increased logistics costs for the retailers. Also, absence of a mature third-party logistics industry is beefing up the logistics and transportation related issues. Economies of scale for the procurement of goods is again a challenge faced by retailers as most of the retailers are not huge enough to really benefit from deep discounts on bulk purchases.
A large number of intermediaries are pressing the margins of parties involved, thereby adversely affecting the margins as well as increasing the cases of mishandling and instances of shrinkages.
SCM for retail these days differs from what it was a decade ago, and the main reason behind it is the orientation towards developing Omni-channel platforms. As retailers build their Omni-channel organisations, the pivotal issue is that going Omni-channel is not a one-size-fits-all approach as each retailer needs to develop clarity on its own positioning, define its vision of Omni-channel and design a blue print while focusing on its target audiences, given that Omni-channel is no more a choice but has become imperative. This has roped in numerous changes in SCM strategies in present times.
Why SCM is important for Omni-channel
Rajeev Chadha, Country Manager, JDA Software explains to us the contribution of SCM in going Omni-channel, “Supply Chain Management in retail these days is all about Omni-channel as companies are not only looking for consumers in store, but also online, which complicates the process.”
By developing new strategies, retailers are re-evaluating their current supply chain and distribution network to support the change in purchasing trends. “Companies are in dearth of a single view SCM requirement and hence, are opting order orchestrating solutions, wherein the SCM team at warehouse ensures smooth flow both to the retail sales points as well as homes (in case of online orders),” asserted Chadha.
“The importance of new SCM strategies can be understood by the fact that the logistics management cost component in India is as high as 7 per cent - 10 per cent against the global average of 4 per cent - 5 per cent of the total retail price. Therefore, the margins in the retail sector can be improved by 3 per cent to 5 per cent by just improving the supply chain and logistics management,” opined Akash Bansal, Business Head, Om Logistics Ltd.
The Omni-channel supply chain can also mean an infrastructure that enables retailers to monetise the latest trends more quickly and with lower risk, dramatically decreasing inventory carrying costs and being able to move merchandise out without having to resort to deep-discounting. Also, inventory ownership is gradually shifting from channel-specific to enterprise owned, with a clear visibility of inventory across all consumer touch points.
To beef up its online presence, and drive its strategy towards being a seamless Omni-channel retail store, Shoppers Stop has designated an investment of Rs 60 crore for the fiscal year. Govind Shrikhande, Managing Director of Shoppers Stop said, “In the second phase of its Omni-channel journey, the company plans to invest in warehouse management systems to strengthen supply chain, and subsequently in master data management.”
Also, going easy on opening new physical stores, the company will open only 18 stores in next three years, while 36 stores were launched in the last three years.
Technology plays a vital role
According to a report by Retailers Association of India, around 52 per cent of retailers use supply chain management software for more than 50 per cent of their stores and around 19 per cent of retailers use supply chain management software for less than 50 per cent of their stores. The adoption of this technology has seen reasonably good penetration as almost 71 per cent of retailers said that they use supply chain management technology either in less than 50 per cent of the firms or more than 50 per cent of the firms. Around 17 per cent of the retailers mentioned that they do not use any form of supply chain management software and 12 per cent said that they are planning to adopt this technology in the coming three years.
While ERP and planogram based technologies are extensively used by retailers, dilution of process is also being seen as an option. In 2006, Shoppers Stop Limited moved responsibility for barcode generation to its partners using the product codes provided by it, which resulted in significantly reduced time delays in supply of merchandise, cost of managing and monitoring process of barcode generation and their dispatch.
Later on, SSL adopted global best practices and standards in identification of its products using GS1 standards which are widely recognised and accepted in retail worldwide. With this, SSL receives GS1 barcode ready merchandise from each of its partners and requires scanning the same at their end and moving it directly to their retail shelves.
Earlier, a lot of productive time was wasted in reconciling product information due to proprietary product coding practices, which were followed resulting in disintegrated systems. Due to this, the product information in the ASNs would frequently be inaccurate, resulting in packing and dispatch of wrong items by partners from their warehouses.
Further, SSL joined hands with JDA software, which provides allocation solutions to major retailers including HyperCITY, Aditya Birla Group and many more. As revealed, a year after deployment of JDA's “allocation solution”, Shoppers Stop posted much higher sales compared with previous years.
HyperCITY, too gained from JDA software. In words of Yakeen Gazi, SVP – logistics, HyperCITY, “Our current model which is from warehouse to retail outlets has spared us from redesigning the entire strategy. Our SCM is all about effectively transporting products from warehouses, for which we have used ERP software provided by JDA to keep a check on input and output.”
To address the emerging needs of consumers, this retail giant has opted for a centralised distribution centre. In wake of the ongoing retail scenario, the retailers have taken numerous initiatives to reduce shrinkages in inward, outward and dispatch processes.
Warehousing and stock management
One of the biggest assets that retailers have is space, and one of the key performance metrics for them is sales per square foot. Such assortments can be crucial in achieving higher sales in apparel brands. If a logistics system works well, the retail reduces stock outs, hold down inventories and improve customer service – all at the same time. That is the reason retailers need customised services.
“We have more than 450+ centres pan-India which in turn allow us to deliver anywhere in India. We have all logistics and supply chain management services from air freight, train freight, surface and pipeline etc. By improving our technologies, best men for work, correct mode of transportation, right and fastest routes etc we can deliver any volume, any size and any type of consignments anywhere,” explained Bansal while briefing about the ways to ensure an effective supply chain.
“Traditional supply chain tools cannot keep pace with the modern age. And they certainly can’t keep retail competitive. Technology is the core platform on which an Omni-channel business can be built. Traditional retail ERP, supply chain systems and store management systems are too outdated to achieve any significant benefits. One of the fundamental requirements of an Omni-channel strategy is to have a single view of customers, inventory and orders,” he further explained.
Rethinking the supply chain isn’t just about harnessing data. Retailers are also expected to accommodate both physical and digital multi-channel experiences. Obsolete supply chains designed for a single channel world have no place in today’s market.