Opportunities & challenges in Supply Chain Management of Retail

-By Ketav Shah

Introduction

India is a second most populated country in the world and it has a 30 crores strong middle class with increasing disposable income and unmet needs.It is also 5th largest retail market in the world and is currently worth $ 500 Billion (6000 Cr) market growing at 20% annually (Organized retail 8%) . The country ranks fourth among the surveyed 30 countries in terms of global retail development.India is a promising demand market ,hence many multinational companies are eying to enter into Indian market .

Supply chain (SC) has grownvery rapidly since 1990s showing exponential growth. Generally SC consists of different functions: logistics, inventory, purchasing, and procurement, production, planning, intra-and inter-organizational relationships and performance measures. As an emerging economy, however, India presents many challenges to managing effective supply chains. Some of them are , a very complex system of taxes and restrictive government regulations ,Poor infrastructure, overstretched capacity, a highly fragmented supplier base, ineffective usage of information technologies and communication ,the lack of traditional retail channels and point-of-sales data,, are just some of the challenges that can make the sourcing and retailing opportunities in India seem unattainable. Some Indian companieshave started moving towards making their supply chain andlogistics efficient, most of them have done very littleor nothing. If companies want to compete in theglobal environment, they will have to balance cost & expenditures of their suppliers and channelpartners, logistics or distribution partners & to do so companies will have to improve their supplychains and also huge investment in technology will be needed, because IT techniques & tools plays very important role in the performance of the supply chain management.

Many logistics and distribution models that have proven their value in developed economies, will often not work when applied to India. This represents a major challenge for multinational firms, since they either have to adapt their existing strategies to the peculiarities of the Indian landscape or design new strategies from scratch, that are entirely adapted to the local conditions. On top of that, the concept of supply chain management is still nascent in India. Except for the industry leaders, many Indian corporations are still reluctant to sharing information and to engaging in collaborative relationships with suppliers, third-party logistics providers, distributors and retailers

Challenges in SCM

Inadequate supply chain infrastructure, complex taxation laws, high levels of intermediaries, product proliferation and lack of supply chain visibility are a fewsupply chain challengesfaced by theretail industryin India.

Though retail in India is making progress and is expected to grow more than $1.3 tn by 2018, at a CAGR of 10%,still the country loses $65 billion every year due to inefficientsupply chain systems, says a study report.According to the report published by industry body Confederation of Indian Industry (CII) and Amarthi Consulting, India is ranked 47th on logistics and is behind countries such as Japan, US, Germany and China. The report titled, 'Global competitiveness of retail supply chain-Challenges, Strategies and Recommendations', mentions that supply chain costs in India, which deal with the procurement, manufacture anddistributionof products and services, and drive the success of the retail sector, are about 12% to 13% of the gross domestic product (GDP) compared with 7% to 8% of GDP in developed countries.

According to the study report, "After Independence, there has been only 20% capacity addition to the Indian rail network, while traffic has grown tenfold. Besides, due to the complex taxation laws prevalent in the country, a product is taxed twice, once by the Central government and then by the respective state governments," the report said.

Improving supply chain infrastructure, implementation of goods and services tax (GST), reducing intermediaries, and adopting green supply chain practices are some of the recommendations of the report.

Thechallenges in the retail industryis in the form of inadequate supply chain infrastructure and the complex taxation laws prevalent in the country. Investments in road infrastructure have not kept pace with the growth in road traffic, the report states. Only 20% of the roads are in good condition. The rail network is congested as freight moves on the same line as the passenger line.

At the companylevel, retail in India is facing challenges like product proliferation, high levels of intermediaries,fragmentedand large number of retail outlets, suboptimal supply chains and lack of supply chain visibility..

To be precise , main challenges in SCM are,

Purchasing or merchandising

  • Lack of visibility from placement of a purchase order to receiving.
  • Inability to cost effectively manage less-than-truckload (LTL) sized Inbound purchase order shipments
  • Store replenishment
  • Imbalance of inventory when multiple distribution centers are stocking the same
  • High inventory levels due to the inability to predict customer demand by product
  • Store replenishment arriving from different distribution centers due to the stock imbalances.
  • Transportation damages
  • Beverage transportation - Leakages
  • Disruption in the Supply Chain
  • Recurring product damage when shipping less-than-truckload
  • Infrastructure
  • Number of check posts
  • Road condition and Km per day
  • Old vehicles
  • Rugged Landscape
  • Capacity Constraints
  • High Cost of Logistics
  • Storage facilities
  • Unavailability of Cold Storage
  • Expensive property

Manpower / Resources

  • Scarcity of manpower having relevant knowledge
  • Scarcity of Power

Opportunities in SCM

Supply chain in Indian organized retail has expanded over the years with the boom in Retail industry and is expected to grow . More business will grow for supply chain if international giant enter into India. A well supported Supply Chain will help reduce end product price for customers and also supply time .

Some Major Points for opportunities,

Players taking the “first-mover advantage”

  • More than 72 per cent of India’s population resides in small towns and rural areas
  • Big Players have aggressive plans to tap these emerging cities.
  • Players which have established their presence in the top metros are planning their establishments in these emerging cities to gain the first-mover advantage over other entrants.

Emergence of India as Retail Sourcing Hub

  • A strong manufacturing industry, India is fast emerging as an important global sourcing hub for top international brands
  • While Global Giants like Walmart , Ikea , Tesco are planning to enter into Indian market , Cold Storage facilities & infrastructure development will take retail industry to next level .

Increasing Technology Adoption

  • With modern retail store formats growing in size, players are increasingly deploying advanced information technology tools for managing their supply chain, warehousing and logistics requirements
  • Big league IT firms like IBM India, Oracle, SAP are developing solutions smaller retailers, such as merchandising solutions, solutions for store-level point of sale (POS) needs and hardware requirements, collaboration tools

Online Retailing

  • Increase in the number of broadband and dial-up internet connections, limited personal time, increased use of plastic money, and large young population that spends a considerable time online are facilitating growth of online shopping.
  • Players like Rediff.com, eBay.in, Indiatimes.com were the first entrants in the Indian online retail space, clocking impressive revenues through online transactions. Recent players to enter this niche market include the Pantaloons Retail India Ltd., through its Futurebazaar.com venture.

These are some of the opportunities in Supply chain management . With the retail Industry growing at 20 % annually there is no doubt that India is a Hot Spot for business for global retail companies in coming years and once they step in , Indian Retail Industry and its Supply Chain management will get a huge boost and facelift. Many more job opportunities will be created which will also help in the growth of economy . To achieve an improved performance, Indian organizations should focus on applying techniques which offer a strategicopportunity for companies to gain an increase inrevenue. This is possible by improving theinfrastructural development and refocusing onintegrating IT with supply chain management andLogistics. Organizations must realize that they mustharness the power of IT to collaborate with theirbusiness alliances.