Project Report Final

“SUPPLY CHAIN MANAGEMENT RETAIL INDUSTRY (APPAREL SECTOR)”

PATIL AMOL MANOHAR

ROLL NO: 94

MASTER OF MANAGEMENT STUDIES

YEAR: 2010-12

GUIDE: PROF. KIRIT VED

SUBMITTED TO:

MET INSTITUTE OF MANAGEMENT

MUMBAI-400050

AS A REQUIREMENT OF THE

UNIVERSITY OF MUMBAI

MET - MMS MET’s Institute of Management Page 1

A PROJECT REPORT

ON

“SUPPLY CHAIN MANAGEMENT RETAIL INDUSTRY (APPAREL SECTOR)”

SUBMITTED BY

PATIL AMOL MANOHAR

(OPERATIONS)

ROLL NO -94

BATCH 2010 – 2012

UNDER THE GUIDANCE OF

PROF. KIRIT VED

UNIVERSITY OF MUMBAI

MET INSTITUTE OF MANAGEMENT,

MUMBAI.


Declaration

I, Amol Patil hereby declare that the project entitled Supply Chain Management

Retail Industry (Apparel Sector) submitted to MET’s Institute of Management in partial

fulfillment of the requirements of the MMS Program is an original and bonafide work done by

me.

Also I hereby declare that I have not submitted the project report to any other university for the

award of any degree or diploma.

Amol Patil

30th March, 2012


MET IMET INSTITUTENSTITUTE OFOF M MANAGEMENTANAGEMENT

MMS – [Semester IV] [Batch 2010 – 2012]MMS – [Semester IV] [Batch 2010 – 2012]

OperationsOperations

CERTIFICATECERTIFICATE

This is to certify that the project entitled This is to certify that the project entitled “SUPPLY CHAIN MANAGEMENT RETAIL

INDUSTRY (APPAREL SECTOR)” has been successfully completed by has been successfully completed by PATIL AMOLPATIL AMOL

MANOHARMANOHAR, under my guidance during the Second year i.e. 2010 - 2012 in partial fulfillment of, under my guidance during the Second year i.e. 2010 - 2012 in partial fulfillment of

his/her course, MMS under the University of Mumbai through the his/her course, MMS under the University of Mumbai through the MET Institute ofMET Institute of

Management, General Arun Kumar Vaidya Chowk, Bandra Reclamation, Bandra (W.),Management, General Arun Kumar Vaidya Chowk, Bandra Reclamation, Bandra (W.),

Mumbai – 400 050. Mumbai – 400 050.

Name of Project GuideName of Project Guide: : PROF. KIRIT VEDPROF. KIRIT VED

Address of GuideAddress of Guide: __________________________________: __________________________________

__________________________________________________ __________________________________________________

__________________________________________________ __________________________________________________

Telephone No.Telephone No.: __________________________________________: __________________________________________

Signature of Project GuideSignature of Project Guide: ___________________________: ___________________________

DateDate: _______________________: _______________________


MET IMET INSTITUTENSTITUTE OFOF M MANAGEMENTANAGEMENT

MMS – [Semester IV] [Batch 2010 – 2012]MMS – [Semester IV] [Batch 2010 – 2012]

OperationsOperations

SYNOPSISSYNOPSIS

Name of the StudentName of the Student :: Patil Amol ManoharPatil Amol Manohar

Course and YearCourse and Year :: MMS – 2010-12MMS – 2010-12

Period of Project ResearchPeriod of Project Research :: Semester IVSemester IV

Area of Project ResearchArea of Project Research :: Supply Chain ManagementSupply Chain Management

Name of the GuideName of the Guide :: Prof. K. VedProf. K. Ved

Title of the ProjectTitle of the Project ::“Supply Chain Management Retail Industry“Supply Chain Management Retail Industry (ApparelApparel SectorSector)

Project DetailsProject Details

[A] Objective of Study[A] Objective of Study :: The objective of the research was toThe objective of the research was to study how retail brands manage theirstudy how retail brands manage their supply chain supply chain

[B] Research Methodology [B] Research Methodology :: The research methodology was based on collection ofThe research methodology was based on collection of

data from secondary sources. The sources were datadata from secondary sources. The sources were data

were books, published reports, journal articles andwere books, published reports, journal articles and

mainly the Internet. mainly the Internet.


[C] Expected results of the[C] Expected results of the studystudy ::

Supply Chain Management in Retail market in India isSupply Chain Management in Retail market in India is

relatively new and fragmented where few large playersrelatively new and fragmented where few large players

dominate the entire market. One of the most importantdominate the entire market. One of the most important

factors plaguing the scope of Supply Chain in India isfactors plaguing the scope of Supply Chain in India is

poor infrastructure, slow movement of cargo andpoor infrastructure, slow movement of cargo and

congestion at the seaports due to insufficientcongestion at the seaports due to insufficient

infrastructure, bureaucracy, and delay in governmentinfrastructure, bureaucracy, and delay in government

clearances.clearances.

Prof. K. VedProf. K. Ved

(Internal Guide)PATIL AMOL MANOHARPATIL AMOL MANOHAR

Dr. Sangeeta TandonDr. Sangeeta Tandon

(MMS Coordinator, METIM)

Prof. Vijay PageProf. Vijay Page

(Director General, METIM)



Acknowledgement

“Expression of feelings by words makes them less significant when it comes to make

statement of gratitude”

I am deeply indebted to Mr. Kirit Ved whose help, stimulating suggestions and encouragements

helped me in all the times of research and for writing the final report.

I would like to express my gratitude to all those who gave me the possibility to complete this

interim report. First of all I thank to Mr. Anand Bhandari for his cooperation during this

period. Their inspiration and precious guidance did play a key role to complete my work at ease

and well within time.

With warm regards, I would like to thank Mr. Dhaval Upadhyay and Mr. Pankaj Bhagat who

were always there to provide me the judicious judgment, logical thinking, procedure and in nut

shell everything. I wish my deepest gratitude for their support throughout.

I express my profound sense of respect and deepest gratitude to each and everyone. I thank all

my well-wishers who helped me directly or indirectly in carrying out this work

Date-

Place- Mumbai

(Amol Patil)


TABLE OF CONTENT

Contents Page No.

Industry information 9

Brand management 23

Assortment planning 25

Open to Buy 32

Markup and Mark down 35

Vendor Management 38

Case Study Shopper’s Stop 42


INDUSTRY INFORMATION

The global retail business is worth a staggering of US $16.6 trillion .In India retail is spread over the unorganized sector with over 5 million retail outlets .Garments produced in India are now available in some of the best-known retail outlets across the US and many European countries. However, disappointingly, India accounts for barely three percent of total US textiles imports of $ 85.7 billion. In 2010-11, total export of India apparel stood at $ 11.4 billion.

Quota restrictions, supply chain bottlenecks, customs clearances and other procedural problems have restrained growth. There are three key requirements for Indian exports to rise: fabric availability at the right price as it forms 60-65 per cent of the cost, exporters be allowed to import and administration of labour.

The most neglected areas in the garments industry are supply chain and logistics. The study revealed that most of the garment exporters are small in scale and the business they do reflects their size. They are primarily Cut; Make and Trim (CMT) manufacturers for international retain chains. In other words, this means that they are just converters for designs given to them by large international buyers. There is very little application in terms of development of new fabrics or ability to influence fashion. And from this study’s point of view, the size and the business model of these players means that they have little control on the supply chain and very little ability to influence it.

Both logistics and supply chain play a very important role in this business. Logistics is critical because most international retailers work on tight delivery schedule. Garment exporters in India have to ensure that the goods are shipped at the right time. This implies that they have to manage their supply chain to ensure that raw materials are delivered quickly. The garment supply chain is very fragmented and small scale in nature .Moreover, depending on the order; the exporters also need to import some fabric and accessories from the international market. Supply chain issues, therefore, form the main link in the industry.


Exports

Country-wise Export of Readymade Garments

COUNTRY - WISE EXPORT OF READY MADE GARMENTSValue in '000' $

COUNTRIES 2008-09 2007-08 % COPY

USA 302476 319757 5.40

UNITED KINGDOM 53012 77322 31.44

GERMANY 15604 22288 29.99

ITALY 13599 19839 31.45

UAE 11591 7799 48.62

NETHERLANDS 8844 11759 24.79

FRANCE 8628 9100 5.19

CANADA 8618 7894 9.17

BELGIUM 8559 10719 20.15

SOUTH AFRICA 6593 8291 20.48

AUSTRALIA 4783 6147 22.19

SPAIN 3901 5576 30.04

SAUDI ARABIA 3318 3152 5.27

SWEEDEN 2625 3605 27.18

DENMARK 2219 3134 29.20

CHILE 1887 871 116.65

MALAYSIA 1578 1204 31.06

IRELAND 1485 2451 39.41

CHINA 1123 520 115.96

POLAND 1039 995 4.42

INDIA 902 380 137.37

GREECE 833 1736 52.02

JAPAN 771 692 11.42

BRAZIL 751 379 98.15

NORWAY 558 666 16.22

MOZAMBIQUE 513 396 29.55

PORTUGAL 377 567 33.51

RUSSIOAN FED. 347 376 7.71

OTHER COUNTRIES 13,604 9,453 43.91

TOTAL 480,138 537,068 10.60


Post 2004, the quotas are expected to get abolished and the Indian industry, like the rest of the world, would be open to fierce competition. Supply chain and logistics will assume immense importance as the purchasing by retail chains and buying houses increases.

In retailing, since labour is the main factor and can not be cut beyond a point, the axe calls on other overheads and here logistics and supply chain costs are prime targets. So while the post-quota era will bring in more orders, it will also imply increasing demands on quality and timeliness.

TYPES OF EXPORTERS

Garment exporters in India are basically divided into two sets. The CMT exporters and the ‘fashion line’ exporters who design and develop a fashion line for exports. CMT exporters merely execute the process of manufacturing or tailoring the export order. The supply chain cycle for this begins once the design is approved and given to the exporter manufacturer.

The other exporters have their own team of designers and present their fashion line to the buying houses or retailers. Once the design is approved, production begins. This looks simple but the time element is quite complicated and often runs into days before the entire consignment is approved and dispatched. For example, the time taken from the stage a design is drafted to selection of the fabric, cutting, stitching, labeling and the finishing to being sent to the importer for approval takes between 15-35 days. Once the feedback is received by the exporter, the purchase and production planning is done.


How Retail Brands Manage Their Supply Chain

An interesting feature of the retail garments industry is that they have a very short product life cycle but long lead times Volatile fashion trends, low supplier reliability and longer supplier lead times characterize this business. This is because in this industry, supply chain is yet not fully integrated and forces the manufacturers to bear high inventory carrying and mark down costs.

A retail brand/store needs to maintain a significantly high number of SKUs or stock-keeping units to cater to the different segments, tastes, preference and so on For example, in the South; loud and bold colour shirts are preferred. The retailer, in this case, would need to maintain higher SKUs of these specifications. In Mumbai and other western markets, lighter shades are preferred, so the sourcing mix changes. In either case, the retailer needs to maintain a high number of SKUs (as much as 50000 sometimes). He can either outsource the job work of tailoring or have his own set-up for manufacturing. In both cases, managing the purchase of fabric, embellishments, tailoring, distribution and warehousing assumes an important role. Sourcing could be done locally or imported while manufacturing would be largely restricted to the small-scale units.

In the present set-up in India, very few companies have the capacities to tailor large orders and thus outsourcing to small units becomes imperative. There are exceptions like Madura Garments, Arvind Mills and pantaloon who have their own capacities and are able to execute the big orders. Once the tailoring is done, the most important task is to distribute the goods to the numerous retail outlets that these companies have. For example, Madura Garments sells through more than 2500 sales outlets and focuses on inventory management as one of its topmost priorities. As a result, since the retailer has to deal with large number of parties at the back-end and the front-end, some of these retailers have spent as much as 40 per cent of the company capital expenditure in building supply chain infrastructure. Madura Garments has centralized warehousing for high fashion items, to focus on inventory optimization and direct selling to retailers. The other aspect they are looking at is to have a central ware house with distributors for mass market items where one need to focus on efficiency and employ cross-docking as order lots are larger.

So, in the retail industry, it is the management of SKUs and forecasting that is important. Today, what the retail industry needs is better forecasting, need for speed and efficiency, manage SKU proliferation and mark down costs.


SET-UP AND PROCESS

Garment exports in India are mainly an unorganized business with majority of the exporters being fragmented and plenty of private enterprises. Down the line, their suppliers for cloth, textiles, embellishments and packing materials are small scale industries with limited capacity. This is one of the major bottlenecks in the country.

The present set-up of exporter manufacturers in India allows the production of between 50,000 to more than a million pieces but the capacity of the back-end supply chain is limited thus slowing the entire process flow. Another impediment is the fabric or the cloth for the garment. If the fabric is locally sourced then the time to procure the cloth would take anywhere between 15-45 days depending on the source. If it is imported (like Fleece from Taiwan), it would mean another 15-30 days. So the sourcing process takes 30-75 days.


For embellishments like buttons, threads, zippers and so on, procurement takes between 7-25 days, high by any standards for the value of the items but, again, limited back-end supply chain capacities create a hurdle Due to the nature of the industry, exporters do not stock excess inventories as the fashion cycle keeps changing and exporters purchase the items based on the order.

Once the raw materials are sourced, production, which comprises cutting, sewing, finishing, packing and shipping, is usually completed in around 15 days The industry is highly labour oriented, though in the areas of cutting, embroidery and trimming, mechanization has taken place. Overall, however, the industry still depends on labour for undertaking some of the major functions like sewing.



COST BREAK-UP

Materials cost accounts for about 60 per cent, trims 10 per cent and labour 15 per cent of the total expenses. Evidently, it is the materials supply that has to be managed. However, here, the issues of capacities and sourcing have to be considered.

In the present set-up, the major export centers are in Bangalore, Delhi, Ludhiana, Mumbai and Tirupur (for cotton T-Shirts). So sourcing of the fabric is mainly done from around these areas. It is very important to have a vendor base that is able to meet the orders. The exporters either source the fabric from the textile units or set up their own base.

Fabric manufacturing involves large capital expenditure in looms, cutting, finishing, printing and bleaching facilities. Welspun (Terry Towels) has planned inventory management in four stages. Sales forecast clarity by understanding customer’s needs, standardization of production mix, standardization of vendors for purchasing dyes and recipes and lastly on information technology here we are having SAP implementation. Productivity improvement at each stage was 80 per cent five years back and has jumped to 97 per cent at present.

THE PROBLEM OF SMALL

In this industry where big is beautiful, most players seem to be content with staying small. Indian garment exporters are highly unorganized and thee are very few listed companies. Most players are either genuinely small or have tried to stay small by breaking up capacities across various companies. For example, a major garment exporter from Mumbai doing, more than Rs.300 crore of business has, in all, six companies from which exports are routed. Compare this with China, where one plant manufactures close to 1 million shirts per annum.

It had maintained that garment manufacturing, should remain with small-scale industries thus restricting plant & machinery investment per company to Rs.3 crores. As a result of this, most exporters spread their investments across several companies. This raised logistical issues as the units could not be at one place leading to increase in the supply time. Besides, none of these companies can execute large orders at one time thus restricting the overall order size.

The crucial point to be made here is that even after the restriction was removed more than a year ago, garment manufacturers still remain small and there have not been any large capacity additions.


LACK OF COHESIVENESS

Although India has a large textile market, the collaboration between exporters and textile manufacturers is not at the required level. There has not been much fabric development and this has led to large imports of fabrics. While China imports a major part of its requirements, substantial value addition is done in terms of garment design to the supply chain cycle, putting it in a much stronger position in supply chain efficiencies to speed up the production process through better plants and larger capacities so that the entire cycle is smaller. On the other hand, in India, imports clearly add almost 20 days to the supply chain.

Internationally, the trend is now moving clearly towards development of fabric. This offers the benefit of becoming a captive supply base for the fabric and more orders for the exporter. Countries like Malaysia, Korea and Indonesia have out-performed India on this front. These players have already climbed to the next step – designing In India, the supply chain cycle is highly dispersed and often, the fabric manufacturers themselves act as major deterrents. It typically takes a fabric manufacturer 40-45 days to supply the material. Lack of long-term relationships and limited collaborative planning between the suppliers and exporters results in this larger supply cycle.

While world trade is shifting towards the use of synthetic fiber, Indian exports are 80 per cent cotton based. Even within cotton, there have been no efforts to experiment with making different fabrics. A major part of Indian exports are knits and mill-made fabrics.

UNDEVELOPED MATERIALS SUPPLY CHAIN

The problem of lack of cohesiveness in the supply chain is further aggravated by an undeveloped supply chain for other materials. Typically, the key raw materials for garments are fabrics, accessories and packing material. In accessories like buttons, threads and such, there are no large player, which makes it extremely difficult to extract large orders. The players have very small capacities and even if the exporter gets a large order of over million pieces there is no way he can arrange for these from a single source. The net effect is that often, there are differences in quality. This is because the accessories industry is also largely unorganized and small scale in nature. Except for Mahavir Spinning and Weaving and some others, there are no large players in the threads market. This affects the supply chain efficiencies of the Indian players, further hindering their ability to fully exploit the market.



Changing Scenario of the Apparel Industry

A sign that the Indian textile industry is finally waking up. Tirupur , which is India's biggest textile cluster, has finally turned hyperactive. The hundreds of tiny, nondescript garment units - aren't just investing in new machinery. They are hiring consultants to raise quality standards, implementing enterprise resource planning systems, and training employees to improve productivity.

Five months ago, Arvind Mills, one of the world's largest denim manufacturers, set up an 18,000-pieces-a-day shirt factory in Bangalore. In the next few months it's opening another factory to make 20,000 jeans a day. The capital outlay: Rs 150 crore this year. Some distance from the Arvind factory in Bangalore, India's biggest textile manufacturer Raymond has invested Rs 40 crore to build a plant that will produce 500,000 suits a year.

India is now on the radar of a new breed of global textile firms looking to invest in garment factories in low-cost destinations The Italians aren't alone. Industry sources say that even manufacturers like Brandix from Sri Lanka, SR Gent from Singapore and assorted firms from Taiwan have hotfooted to India in the last few months looking for manufacturing facilities.

Except for a few isolated examples, it didn't seem that the Indian textile industry had grasped the full potential of the 2005 opportunity. Most exporters knew that post-2005 they could vie for a larger share of the $200-billion global garments trade.China exports a staggering $50 billion worth of garments, and that's growing at 20% every year . With exports of $4.8 billion last year, India competes for the eighth position with the likes of Bangladesh and Thailand.

Moving up the pecking order isn't easy. The biggest Chinese firms have a turnover of $800 million-1,200 million - about 10 times the size of the Delhi-based Orient Craft, which, at Rs 450 crore of revenues, is India's largest garments exporter. Bangladesh churns out as many garments as India from a fifth as many factories. Thailand does almost the same business as India with a workforce a third the size. India lags in technology, productivity and scale.

Tirupur accounts for a fifth of the garment exports from India. But the 2,500 firms there need to solve two big problems: lack of productivity and lack of scale. Even after decades in the business, there are just about a dozen companies with a turnover of over Rs 100 crore. The biggest exporter in the cluster, Eastman Exports, had revenues of Rs 250 crore. It is largely into low-value knitted garments.

Mills Vertical integration is in. Mills like Raymond, Arvind and Vardhaman are graduating from fabric exports to apparel exports


Manufacture Exporteronly the top 40 companies are investing meaningfully. Others have a long way to go in technology, productivity and scale

Only cost-competitive companies can survive in the garment industry. This means they have to source inputs cheaply, or deliver products at a competitive price. Without size, small companies in Tirupur, Panipat and Ludhiana can do neither. Till 2002 only small-scale sector firms with a capital of Rs 1 crore or less could make ready-made garments. So none of the big players really invested in garments. The government realized its folly and lifted the small-scale restrictions in the 2002 Budget. Since then, textile mills have begun shifting to a vertically-integrated model.

Supply Chain Concepts

Collaborative Planning Forecasting and Replenishment (Cpfr):

CPFR is a business practice that reduces inventory costs while improving product availability across the supply chain. Moreover, it has the potential to increase sales, improve cash flow, streamline operational efficiency and improve return-on-assets performance.

In CPFR, retailers and suppliers move to improve the supply chain through collaborative planning, forecasting and replenishment. So there would be a combined planning, demand forecast and replenishment strategy by some of the big retail stores. This would aid them in having better bargaining power with its supply chain. This would involve complete sharing of


information across the chain so that the supplier and retailer know exactly what is working and what is not on the shop floor at almost the same time. Based on this, joint plans are drawn out and the delivery schedules are decided. The idea here is to work online to minimize amount of mark downs, slow-moving stocks and, on the whole, to increase the stock turnarounds and improve sales.

The benefits of CPFR ripple throughout the supply chain. While it obviously expands and systemizes the communication of critical data among trading partners, allowing them to improve forecasting and replenishment, the benefits actually run far deeper.

At the store level, CPFR can boost sales by reducing out-of-stocks, particularly during promotional times. It can also advance category management by giving retailers the power to fine-tune the product mix and the timing of promotions.

Distributors and manufacturers will benefit from CPFR too. Better planning and more sales means that distributors can carry less stock. Manufacturers can shift from a make-to-stock discipline to make-to-manufacturing, dramatically reducing inventory and netting cost savings on the production side.

Effective planning and scheduling are of critical importance to fashion companies. The ability to meet increasingly stringent delivery commitments while also maximizing profits is critical to any company's success in today's global business environment. For companies in the sewn products industry, it is particularly challenging because the fashion business is intrinsically complex and constantly changing, spurred by increased globalization, fierce competition and the impact of e-business..This concept applies to companies that manufacture and/or distribute textiles, fashion apparel, consumer packaged goods (CPG) apparel, fashion accessories, sportswear, footwear, bed linen and tableware, and spans enterprises that buy and resell products from various manufacturers, design houses that outsource manufacturing, companies that own their manufacturing base, and those that design and use a mixture of in-house and sub-contract manufacturing.

Every season, fashion/apparel companies must continually design and develop new lines and collections to keep retailers interested and spur consumer sales. Not all fashion companies are alike. Consumer Packaged Goods companies, supplying for example, underwear, intimate apparel and hosiery, are predominantly retailer driven and can, to some degree, forecast demand on the basis of historical information. Product lead times are long and lifecycles short. They work with high volumes and low margins and have a constant need to manage cash flow constraints.In comparison, high fashion companies are design-driven, premium brand providers whose


primary challenge is to launch multiple collections each year. They too have long lead times, but product lifecycles are even shorter. They also must cope with much larger numbers of Stock Keeping Units (SKUs) because of greater product variety. Demand is based on a combination of forecasts and pre-season orders taken at trade shows.

They also need to make complicated decisions with regard to sourcing. For example, a company can purchase goods directly. It can also use sub-contract manufacture, its own manufacture, or a combination of all three. Some sub-contractors may source all or some of their own raw material locally, or companies may choose to source raw materials centrally to ensure quality. The sources of supply constantly change, depending upon cost of labor and transport, the supply lead times, and the quality of provision. Deciding who supplies who, with what, how and when is a major challenge

MERCHANDISING

Merchandising is the planning required having the right fashion merchandise available in proper quantities and place at the right time and price to meet consumer demand. It involves all the activities vary from company to company, but usually include setting financial goals, budgets.


BRAND MANAGEMENT

What is a brand? In the past, apparel manufacturers owned factories and created brands, which were then purchased and sold by retailers. However, the lines are now blurring, and the definition of a brand is being stretched along the supply chain. Today, manufacturers still make brands, but retailers also produce their own labels, and in some cases the retail store is the brand. On top of that, wholesalers now have brands.

BRAND management will be key to the bottom-line. The positioning of the brand is important. Branding is important for integrated textile companies as margins are huge in branded ready-made garments compared to fabric. Big firms such as Raymond and Indian Rayon have realized that their core competence has no added value and that real value and growth is in the name that signifies quality.

Some of the players are fabric manufacturers who have branched into the retail business -- for example, Raymond and Bombay Dyeing. These players control the entire value chain, from the production of fabrics, to making and finishing the end-product. Some major fabric manufactures have ventured into value-addition by opening exclusive showrooms. For instance, Gangotri Textiles which just launched a new range of ready-made clothing, Tibre. Others are solely ready-made garments manufacturers sourcing fabric domestically and internationally, such as Zodiac. Companies such as Pantaloon cater to a wide market, including women's clothing and retail showrooms. Then there are department store brands such as Shoppers Stop, the Bombay Store, West Side, and Lifestyle.

Branded apparel is not confined to western wear. This has to be emphasized if the real potential of the market is to be realized. Branded apparel also comprises sari shops such as Nalli Silks, Kumaran Silks, ready-to-wear salwar kameezes that are also available in Shoppers Stop.

ColourPlus is perhaps one of the better examples of a well-placed brand. It has positioned itself well by keeping its brand premier enough to charge the right price with the right level of visibility. Madura Garments is an example of a company that has a vast brand portfolio ranging from lower-end shirt brands such as Peter England to the high-end Van Heusen. It is important to keep these brands distinct and highlight their individual value addition qualities.

Importance of Establishing Brands in International Markets

Garment exporters have to keep up with designers of the West. Now, they are no longer just CMT(cut, make and trim) garment makers—where the designs are given by foreign buyers and the manufacturing is done in India but are also creatively involved in garment merchandising and branding.

There are not many Indian exporters who have established brands overseas, although the realization has begun to dawn that branding overseas will help enhance market share and bring in good returns due to higher value addition. Dogged by financing problems, investing in brands is


still not a preferred activity for the majority of garment exporters. Therefore, some exporters are adopting the other route. They are trying to bring in value addition through outsourcing or by using the brands of their international collaborators. Others, however, fear that they may have to compete with their existing buyers if they go in for branding their products. Yet, in the long run, it is important that Indian exporters develop their own brands to improve their margins and retain capability to compete in international markets.

Outside India, outsourcing is common but it is impelled by the need for specialization. Companies owning the brands specialize in the marketing of goods while others concentrate their attention on best practices in manufacturing of garments.

Branded manufacturers must adopt three core competencies that will help them to better plan assortments at the store level, understand in-season trends, and support in season replenishment and VMI. The three core competencies involve:

Creating a timely and accurate plan that drives all business functions and enables planning initial assortments at the store level.

Identifying in-season trends at the store level in real-time to determine how best to maximize sell-through;

Developing synchronized supply chain competencies to react to trends and real-time market opportunities.

Branded manufacturers must integrate these competencies into a holistic business processes. To maintain market share, branded manufacturers must incorporate all of these competencies, maximizing selling and sell-through, accelerating the concept-to-cash cycle, and reducing supply chain costs.


ASSORTMENT PLANNING

IN SEASON AND PRE SEASON PLANNING

Assortment planning -- which involves asking questions such as: Which product? How much of it? What colors? What sizes? Where to place it? Who is the target customer? and so forth -- although it directly affects product selection, price, timing and micro-merchandising, has traditionally been de-emphasized due to hectic retail schedules. Extinguishing delivery fires and meeting marketing and financial planning obligations use valuable time, forcing companies to take the easy approach to merchandising: repeating assortment breadth and depth from previous seasons, creating store assortments based on store volume and ranking items by sales volume alone.

Example of an assortment of shirt for 20 pieces in stock:

Small / 2, Medium / 6, Large / 7, X’tra Large / 4, X’tra X’tra Large / 1 = 20 pieces.

Traditionally, apparel retailers have approached the planning process from different perspectives. Some don't go much farther than establishing a basic merchandising plan that meets the budget set forth by the company's financial plan. Others drill down to assortment planning, allocation planning and classification planning, while others have taken things to store planning, space planning and even style/SKU planning levels.

Typically, merchandisers have made decisions based on a combination of intuition and a generalized use of the company's historical sales data. Most merchandisers work in averages, using chain-wide POS data to make determinations about purchases, allocations and assortments for upcoming seasons. For example, merchandisers typically make assortment plans based on store clustering strategies, which identify groups of stores based on such factors as demographics, highest sales and store size, without being able to look at the particular quirks of individual stores and how their markets may respond differently to product assortments.


Pre Season Plans

Pre season planning is an essential portion of the Financial Planning and Merchandise Planning processes .There are a series of important pre season activities that occur in most retailers as they put their plans together for an upcoming season. These activities can include annual budgets or financial plans, seasonal merchandise plans, location plans, unit throughput plans, and advertising plans.

In the area of Store Planning and Allocation, there are also specific activities that must be accomplished on a pre season basis.

Several of the major activities that need to occur pre season include:

Pre Season Visual Merchandise Plan

Visual Merchandising plays a significant role with the in store message that the retailer sends to the customer. The merchandise presentation is a critical component in differentiation between retailers. In the fashion environment, there are specific merchandise seasons that the retailer tries to support with specific merchandise assortments The challenge offered by Visual Merchandising is most dramatic when the factor of different store sales grade levels, such as ABC store sales rankings, becomes a part of the equation.

- A compromise between store sales levels and in store planograms must be reached so that the initial allocations of merchandise to a store allow a appropriate visual presentation as well as an efficient location inventory plan.

- A process which allows for the early review of assortment plans and preliminary visual merchandise plans is key to the completion of assortment plans and merchandise plans that will work both financially from an Inventory Management and visually in the retail location.

Planogram

There is another type of assortment plan that is emerging now. It is a graphical range plan called the planogram. This sort of plan moves away from the purely numerical type of planning that has been used until now and allows the range to be put together in a visual way. Typically digitally stored images are manipulated into collage-type storyboards. Space planning software


packages like that of AC Nielsen support such graphic base stock mapping, which helps in easy replenishment planning and effective store space utilization.

Thus merchandise assortment planning and base stock mapping – numerical and visual-numerical methods respectively – enable one to take account of the space utilization in a store by calculating the Return on Space Employed or Returns on Footage.


Pre Season Assortment Plan

- An assortment plan is an important component of the merchandise planning, store planning, and allocation process.- There are many diverse interpretations of an assortment plan by retailers- The commonality that exists in the essential building blocks of the assortment that a merchant must understand when planning the upcoming season:

-- What are the seasonal or quarterly sales receipts and inventory requirements?-- How many styles will fit into the receipt plan by store grade?-- How many colors per style should be planned by store grade?-- What is the ABC sales grade store count breakdown?-- What are the min/max unit quantities per style to allocate by store grade?-- What are the store counts and styles that are needed to support micro-marketing efforts, such as branded product, licensed product, warm weather product, cold weather product, and fashion forward product?- The assortment plan becomes the tool that allows the creation of a merchandise assortment that is balanced between the merchandise plan and store plans.- When an assortment plan has been completed, an organization has the opportunity to conduct a meaningful discussion concerning the adequacy of a preliminary merchandise plan relative to the fashion urgency of the proposed assortment and the sufficiency of the proposed assortment to meet the needs of the Store population.- The assortment plan should allow for a comparison of expected sales and inventory levels by store grade and in total on a bottom up basis and relative to the topdown view point of the financial and merchandising plans.- The final assortment plan can act as a method of distributions available to a Store Planning and Allocation System.

Pre Season Location Sales & Inventory Plan

- Prior to the completion of the planning process, it would be an extremely value added step if bottom up sales and inventory plans by store could be created.- In an ideal situation, these sales and inventory plans would have been initially prepared as part of a hindsight process in the prior year. The benefit of creating these initial plans that early in the process is that it captures the organization’s sense ofopportunities and mistakes while still fresh in the minds of all concerned.- If preliminary store sales and inventory plans are available during the pre season planning process, there is an invaluable benefit of incorporating the store perspective into both the financial and merchandise planning process while changes andadjustments can be more readily made.- As pre season plans are finalized, the store plans can serve as the final portion of the planning triad of merchandise plans, assortment plans, and location sales and inventory plans.- Visual merchandising plans can also be considered early in the process and can be more proactive, rather than reactive, elements.- Pre season location sales and inventory plans will serve be the basis for initial allocations of product at the start of a season or “concept”.


Example:--

In Season Sales & Inventory Plans and Allocation Process

In season a routine and regular review of sales plans, inventory plans, reserve location inventory levels, and allocation management and execution must occur.

In Season Demand / Sales Plan Review and Update

- Dependent on the availability of demand or sales data, there is an important process in which the sales plans need to be evaluated and updated for current business trends- In the “Best Practice” environment, Plan Based Allocation (PBA) becomes the value added portion of the store location Inventory Management process


- Location sales plan review and revision are the main elements of the process- Sales plan revisions based on fast or slow turning stores at may be made at the appropriate merchandise classification level.- Adhoc groups of stores can be created and structured into store groups for the purpose of sales planning- Individual stores can be identified and reviewed through an opportunity analysis that can lead to sales plan revisions.- Lost sales may be calculated on stores with rapid sell through and provide input into a sales plan revision process.- Exception reporting would be a value added portion of the location sales review process.

In Season Inventory Plan Review and Update

- Inventory plan review is the complement to the sales plan review process.- Location level turnover targets can be established that lead to a faster or slower planned inventory turnover.- Stores in which the field has identified opportunities or concerns can have revisions made to their inventory plans that will support the flow of product to the location if there is consensus concerning the proper allocation approach- The ability to incorporate inventory decisions at the location level during the everyday business process via an inventory plan revision is extremely value added.

In Season Allocation Process

- The allocation process is the final element of the store planning process in a Plan Based Allocation (PBA) environment.- Allocations could potentially be an automated process if there is a high degree of confidence in store plans.- The Allocation process could shift to a review mode as opposed to a deliberative process.- The creation of a PBA environment allows for the formation of a Store Planner position as well as an Allocation position. These positions can both offer a career path and allow for a better solution for the customer and the stores.- Allocations can be reviewed on either a pre or post allocation exception basis for quality.- Adhoc system coding is a significant feature of PBA. The use of adhoc system coding should allow for the creation of merchandise groups and store groups.-- For example, all Los Angeles Dodgers licensed merchandise can be assigned to a merchandise group while the stores that should receive the product can be assigned to a store group. When the product is received, it can be allocated either on a store plan basis or on the group basis to create an initial allocation geared towards the specific store group


ASSORTMENT

Assortment the number of different items to be carried in a merchandise category) decision as a component of category management has, therefore acquired relevance today. Assortment variety is one of the first obvious stimuli that make an impact on the consumers and competition. In the West, up to 10 per cent of the open-to-buy budget is dedicated to experimenting with assortment variety in fashion/apparel retail. Assortment variety acquires a complex dimension which must include profit maximization for the category, for the retailer as well as variety for the consumer. The shelf space available in a retail store is limited and all experiments with assortment variety would have to be undertaken keeping this aspect in mind. This would involve category space allocation, as well as merchandise, arrangement and location..

Assortment reductionone of the crucial decisions to be taken in retailing is assortment reduction. With increase in the depth and width of assortment, consumers face a clutter with regard to choice. Therefore consumer clutter reduction becomes relevant in the face of diminishing marginal value attached to additional variety in assortment. However this has to be seen against the background of consumer segments that look to shopping for noting trends, variety, activity and pleasure.

The importance of providing sizable selections for consumers with uncertain preferences and also for those who tend to seek variety cannot be underestimated. One of the possible options out of this dilemma for the retailer is to provide more services and reduce the assortment. One of the other issues that could be looked at is whether any item in the assortment available in the store supports any one of the following:

1. Store patronage – increase in loyalty towards the store

2. Store sales stimulation – increase store sales in general

3. Company image – maintains the image of the store in spite of reduced margin

4. Models of the category – required for the category to be recognized in the store; for example, national brands of soap.

One of the ideas of effective assortment reduction could be to see how the effect on sales resulting from different types of SKU reductions could be used effectively. These reductions would be based on product characteristics other than on being low or non-selling. Not every product cut will lead to the elimination of a brand, size, or flavor. Merchandise managers might purposefully or inadvertently eliminate entire brands and sizes from a selection, or they might just trim a number of specific brand-size combinations.


OPEN TO BUY

Open to buy--(OTB) Knowing how much to buy and when to have it delivered. However, there are two kinds of “open-to-buy” systems: Replacement and Forecasting. It is a budget representing the amount of stock to receive in a given period. That period might be a week, a month, or a season OTB must be related to the forecasted sales for the period and rooted in a turnover plan for that. Period .Arriving at an amount of OTB for a given period of time involves the process referred to asg Merchandise Planning.

The Open to buy must be connected to a cash flow plan that incorporates the entire operation.

How can an OTB system increase profits?

Controlling the investment in stock in line with forecasted sales levels will reduce markdowns related to overbuying .A dynamic OTB system that adjusts to trends in a timely fashion will add dollars to upward trending categories and penalize underperforming categories resulting in profitable sales growth.

Buying for a retail organization is a critical function of merchandising. The process begins with the preparation of the buying plan, called ‘Open To Buy’ or OTB. It helps retailers project and control future buying so that the flow of merchandise in the store matches anticipated sales at desired stock turn rates to give a positive cash flow.

Iit prevents over-buying, eliminates confusion and enables the organization to make more profits.


OTB refers to merchandise budgeted for purchase during a certain period of time for which the stocks have not yet been ordered. It is also the process of forecasting sales and purchases. OTB is a planning tool that assists in setting budgets for sales and merchandise inventory levels and in monitoring the current status of the OTB amount, which is the amount remaining to be ordered to meet the budget.

Every retailer needs to use an OTB plan, as most tend to overstock when sales increase and under stock when they are low. Often a small increase in sales leads to excessive buying that ultimately affects the retail organization’s bottom line. OTB helps a retailer fix the ideal amount of stock that should be on hand at the beginning of any given month and the quantum of new merchandise to be received during the month.

An efficient OTB plan has the following elements:

(a) Forward Sales Planning (Sales Forecast): The sales plan ought to be prepared for the entire year with month-wise details of planned sales. A good OTB plan helps one to react to variations in sales plan (as the current month comes to an end), reschedule deliveries and cancel or alter purchase orders for future deliveries, as the case may be.

(b) Forward cover: This is based on the planned stock turns for the retail outfit. For instance, if the planned stock turns for the store is four times in a year, and then the ideal stock holding at any point in time should be equivalent to three months’ stock cover.

(c) Stock Required: This is based on the forward cover planned for the store. If the forward cover is for three months and the current month is month 1, then the stock required will be the sum of the planned/forecast sales of months 2, 3 and 4.

(d) Opening Stock: The value of the opening stock is flow calculation. In OTB planning, the first entry is an estimate. From the second month onwards, the opening stock is the closing stock figure of the previous month.

(e) Intake Requirement: This is the difference between the required stock and the opening stock.

(f) On Order: These are stocks that have been already ordered and due for delivery during the relevant period.

(g) Open to receive: This figure is arrived at by deducting the stock on order, if any, from the intake requirement. This figure indicates the OTB quantity.

(h) Closing Stock: To arrive at this figure, one needs to take the opening stock, subtract the sales, and add the on-order and open-to-receive quantities.


ADVANTAGES OF AN OPEN TO BUY PLAN

(1) The OTB plan enables retailers to estimate in advance the amount

Month

1

Month

2

Month

3

Month

4

Month

5

Month

6

Forecast Sales 1000 1500 2000 1500 1000 1000

Months Forward

Cover 3 3 3 3 3 3

Stock Required 5000 4500 3500 3000 3000 3000

Opening Stock 2000 5000 4500 3500 3000 3000

Intake Requirement 4000 1000 1000 1000 1000 1000

On Order 2000 1000

Open to receive-OTB 2000 0 1000 1000 1000 1000

Closing Stock 5000 4500 3500 3000 3000 3000

A Model OTB Plan

of working capital that needs to be employed in inventory from month to month.

(2) It helps ensure the right inventory level to support planned sales and to attain the best Gross Margin Return on Inventory (GMROI)

(3) The OTB plan places restraints on merchandise commitments so that the store receives the right merchandise at the right time and not before or after.

(4) It enables a continuous flow of fresh merchandise into the store month after month during the season.

(5) The OTB plan establishes goals so that the actual performance can be compared with the plan and corrective action taken in the required areas.

(6) Above all, an efficient OTB plan provides the organization more opportunity for profit.

Retailers who follow a well-formulated OTB plan are successful in their merchandising and buying efforts. The Merchandise management system employed in the organization generally supports such statistical techniques in the OTB plan, but it is the buyer’s insight and decision- making capability


MARK UP AND MARK DOWN

MARKUPS: Retailers and wholesalers need to consider the issue of markups in their pricing structure, and manufacturers or other product producers need to be aware of the average markup in their industry.

A "markup" is the percentage of the selling price (or sometimes the cost) of a product which is added to the cost in order to arrive at a selling price.

Be aware that there are two different ways to calculate markup — on cost or on selling price. So when you ask someone "what's your markup on that item?" the answer you want is not just "20 percent," for example, but "20 percent of cost" or "20 percent of selling price." In retailing, the industry standard is to compute markup as a percentage of selling price

The amount of the markup typically results from two marketing decisions:

1. The services performed by the retailer.

2. The inventory turnover rate.

After determining how much inventory to purchase, retailers must estimate what initial markup to put on goods. This may fluctuate between different classes of goods within a department or styles within classes.

The original markup must allow for a final profit after paying all operating costs, reductions, cost of goods etc. Initial markup percentages tend to fluctuate between manufacturers depending on their pricing structure.

This may include volume discounts and manufacturers suggested retails. Most retailers have a target percentage they want to start with.

Markup on Selling Price

Markup Percentage on = Amount Added to Cost

Selling Price Selling Price


Markup on Cost

Markup Percentage on cost= Amount Added to Cost/Cost

Converting Markup on Cost to Markup on Selling Price

Markup Percentage on selling price = Markup Percentage on Cost/100% + Markup Percentage on Cost

Markdown is the amount reduced from the maximum retail price to arrive at the new retail price. Markdown is calculated as a percentage of MRP

Mark down:- During a selling season the same markup is usually not achieved on all items with

in a product category Many times the price sold near the end of the season have to be reduced .Markdowns reduce the planned markup, anticipated profits are also reduced. Markdowns have a significant impact on the sales revenue that a store generates.

Planning markdownsPlanning for markdowns is simply part of good retail dollar planning. Some retailers naively believe that taking markdowns on unsold merchandise is a sign of failure. They believe that unsold merchandise shows that they have poor buying judgment. In fact, no retailer should ever assume that everything he or she buys will sell at the original retail price.

The total amount of markdown that is reasonable depends on the kind of merchandise being sold. Many retailers in soft goods, such as women's apparel, are surprised to discover that markdown figures are often as high as 29 percent of sales.

It is foolhardy to try to reduce markdowns by refusing to reduce the price of merchandise that is not selling. Remember, the longer merchandise sits on the sales floor, the more dated it becomes, and the greater will be the eventual markdown needed to finally sell it.


Markdown Percentage = Dollar Amount of Markdown/Original Price

Example: What is the markdown percentage for a dress whose original MRP is Rs. 400 and the new retail price after markdown is Rs. 200?

Markdown % = Difference between old MRP and new MRP after markdown

(Rs. 400 – Rs. 200) / old MRP (Rs. 400) x 100

= Rs. 200 / Rs. 400 x 100

= 50%

Markdown is done when product sales are low or when the season draws to a close and the product line needs to be cleared from the shelves. Merchandise is also marked down when inventories are high, when saleable merchandise is shop-soiled or when certain price-off promotions are done. Markdowns are also affected when products that have manufacturing defects but are still saleable are found at the floor level. It is essential that the markdown percentage is kept at the lowest, as it directly affects the returns on gross margins in a retail store.

INTEGRATED SUPPLY CHAIN

The end-to-end integration of all supply chain elements and functions are achieved by applying interlinked packages for perfect information management. The integrated supply chain starts from the design stage at the vendor level to the time when there is consumer response at the retail stage. The benefits of having an integrated supply chain are many, including achieving the best delivery performance, reduction in inventory, faster fulfillment of cycle time, accuracy in forecasts, lower supply chain costs, improvement in overall productivity, improvement in capacity utilization, and so on.


VENDOR MANAGEMENT

Efficient vendor management involves selecting the right vendors capable of giving the right quality of merchandise and meeting delivery deadlines. Besides, they should be able to deliver the right quantities as well, so that the retailer can get the right ‘hit ratio’. The right hit ratio measures the gap between delivery and purchase orders and helps eliminate backlog in deliveries. In a chain store scenario, a vendor directly delivering to stores is an important element in attaining good supply chain efficiency. The vendors directly manage inventories in a few retail organizations. Vendor Managed Inventory (VMI) is ideal for retail organizations as it totally eliminates inventory-carrying costs. Here, vendors manage the inventory at every store, monitoring the flow of information and ensuring just-in-time deliveries. The vendors are able to take back slow-selling and non-moving merchandise, thus reducing the scope for mark-down losses for the store.


Business houses in India are presently undergoing a major transformation in the Purchasing and Supply management functions with the objective of achieving effective and optimum sourcing. Bought-in costs currently represent a significant portion of the cost base of any manufacturing enterprise and therefore this programme is of major strategic importance.

Several specific objectives need to be laid down as follows:

Developing the Organisation towards an effective and optimum sourcing capacity. Developing closer relationships with the suppliers and foster “win-win” atmosphere that

eliminates inefficiency and waste. Building strong linkage between user departments and materials management function. Improving materials procurement and management processes. Developing focused sourcing strategies across all commodities.

To achieve these objectives and to perform the purchasing function efficiently/effectively, a sound vendor community of vendors should be motivated and capable enough to supply the best at the required time in a cost-effective manner, thus becoming a reliable link for the company. It is to arrive at this end result that Vendor Management assumes great importance. Some of the best practices are described in the subsequent sections.


VENDOR MANAGEMENTVendor Management broadly encompasses acquisition of a vendor, building/maintaining a relationship and termination of association if necessary.

ACQUISITION OF A VENDORThis process should be such that only the required and proven vendors get into the vendor base. Vendor acquisition process could be started from one or more of the following sources:

Through market intelligence, a vendor is identified to be suitable for a commodity. Through commodity research. End users make specific recommendation. Vendor approaches company for business. One (or more) vendor on commodity panel is found unsatisfactory.

The last three factors are basically reactive actions whereas acquiring a vendor through market intelligence and commodity research/expert opinion are proactive ways of identifying a suitable vendor.

BUILDING AND MAINTAINING THE RELATIONSHIP

After a vendor gets associated with the company, it becomes essential to foster a healthy relationship whereby both develop trust in each other and perceive the relationship as a mutually lucrative one. Various steps are taken to achieve this objective which is discussed further herein.

VENDOR ASSESSMENT

Performance assessment of a vendor is a pre-requisite to continual relationship. Poor performance would be penalized (refer termination) and good performance would be rewarded suitably.


For suppliers of goods, rating is done on four parameters viz. price, delivery compliance, quality of product and vendor professionalism each given a weight age of 32%, 32%, 26% and 10% respectively.


CASE STUDY

SHOPPER’S STOP

The Case study looks at the issues relating to the supply chain management at Shopper’s Stop and discusses the reasons for its revamping. In early 2000, Shoppers Stop Limited (SSL) faced problems regarding logistics and inventory management. These problems damaged SSL’s customer relations, as they caused stock-outs. The case examines in detail, SSL’s problems. The case also throws light on SSL’s problems related to the supply chain management for its dotcom venture.

LOGISTICS BOTTLENECKS

Shopper’s Stop Ltd. (SSL) has undoubtedly been the pioneer in India’s retail revolution. In the early 1990s, retailing in India was considered to be all about shelf space, merchandize and prices. SSL redefined the concept of shopping by providing consumers an international shopping experience. SSL was promoted by the K Raheja Corp Group (Raheja Group) of companies in 1991. The Raheja Group was started in the early 1950s, and was initially involved in real estate development, leasing and finance. I n the 1980s, the Group diversified into the hospitality industry and launched the Raheja Group of Hotels. SSL was set up by redeveloping one of the group’s properties in Mumbai, Maharashtra. The group identified SSL’s vision as , To be a Global Retailer in India and maintain No.1 position in the Indian market in the department store category (Refer Exhibit 1). Initially it was a men’s store with around 4000 sq. ft. trading area. Later, fashion and lifestyle apparel and accessories were included.

Around 85 percent of SSL’s merchandize was branded and its shelves were stored with more than 150 national and international brands. Within a short period SSL emerged as the largest single retailer for Levi’s, Pepe, Lee, Arrow, Zodiac, Reebok, Nike, Parker, Ray-Ban, Swatch, Chambor, Revlon, Lego, Mattel and many other leading brands. The company closely monitored the movement of all the brands, and if any brand failed to meet customer expectation expectations, it was phased out. SSL also launched a range of private labels like – Life, Kashish and Karrot in the premium classic, value classic and value fashion segments. A team of designers was recruited from India’s premier fashion design institutes for developing private labels. The team worked in co-ordination with the merchandizing, buying and marketing teams. Later, SSL began retailing home furnishings and books.


SSL established its stores in all the major cities in India, with store space ranging from 18,000 sq. ft. to 60000 sq. ft. It opened its Bangalore outlet in 1995, Hyderabad outlet in 1998 and the Delhi and Jaipur outlets in 1999. In its drive to become the No.1 retailer, it focused strongly on quality and was the only retailer from India to become a member of the Intercontinental Group of Departmental Stores (IGDS) consisting of 29 experience retailer from all over the world.

In early 2000, at SSL’s Andheri (Mumbai) store, a popular shade of a leading lipstick brand was moving so fast at the cosmetics counter, that the fresh stock which had arrived the day before was sold out. The vendors and the distribution centers were asked to replenish the stock. However, it was expected to arrive only two days later. Mrs. Gupta, a valued customer, who came in to buy very favorite shade of lipstick had gone back dejected. The floor manager was furious, as a loyal customer was just lost. When such incidents increased in all its outlets, SSL took various steps to overcome the logistics problem. SSL had already implemented an Automatic Replenishment System (ARS) and the Warehouse Management System (WMS) in 1999. The goal of these initiatives was to ensure 100 per cent availability of stocks at the department stores outlets. In 2000, SSL implemented the ARS.

Plugging the Holes in Distribution and Logistics

The online ARS was the offspring of the Enterprise Resource Planning (ERP) initiative implemented at SSL in 1999. In early 2001, the ARS acted as link between the distribution center and the department stores outlets. The ARS recommended that a particular item in a particular quantity, size and color be sent to an SSL. Outlet. The WMS on the other hand was designed to optimize the space in the warehouse. When the stock came in from the vendor, the WMS allocated a slot in the warehouse for the merchandize to be put in such way to enable the best use of space. The ARS, based on the time required to set replenishment, processed the replenishment at the distribution center. Prasad Chandratre, senior manager, (Distribution and Logistics) SSL, said, “At first, in order to decide what stock has to be evacuated, the manual replenishment system plays an important role. In the warehouse management system, when the stock is evacuated, a person dedicated for the job of manual replenishment feeds the details of the stock evacuation within the system and then the stock moves.”


The merchandizing department in SSL was managed by the head of Merchandizing and buying. SSL’s merchandizing cycle was based on two seasons:

August and September to February. : The consumption was different for the two reasons. Depending on the vendor lead time, the sourcing department at SSL worked on an average planning cycle of 60 to 120 days. The sourcing department dealt with 200 to 300 vendors on a regular basis. The merchandizing department was further sub divided into 52 divisions. Each division had a separate buyer and merchandizer. On an average the merchandizing and buying department dealt with 1-15 lakh Stock Keeping Units (SKU). SSL’s merchandizing struture was different from international configurations. The merchandizer looked after both merchandizing and allocation functions and the buyer handled sourcing as well as buying. The allocation function was a logistics function, which included the scheduling and transporting of merchandize, based on demand, to various stores. All this made the merchandize, based on demand, to various stores. All this made the merchandizing function of SSL highly complex.

To minimize the complexity in the merchandizing process, in 1999, SSL implemented the Atlanta based ERP system, James D Armstorm (JDA), through which the entire buying process was being undertaken. Under the distribution process, the whole purchase function was carried out through a merchandize management system called the JD Merchandize Management System (JDMMS). As per the consumer demand plant, purchase orders were placed with vendors through the central merchandizing system. The vendor dispatched items to the distribution center which supplied the goods to the store, according to the store’s requirement. The WMS provided back-up support for managing the warehouse operations efficiently. Chandratre said, “at present, the merchandizer analysis the sale across product categories t at all stores and then raised the replenishment trigger from the distribution center to the department store using the JDMMS.”

The function of the JD Automatic Replenishment System (JDARS) was to analyze all the store sales, and automatically raise the trigger for replenishment commenting on the need for an efficient replenishment system, Chandratre said. “Traditionally, in brick and mortar retailing, availability of merchandize at the front end of the department store drives sales. The customer buys what he or she sees in the department store. So, having the right merchandize as per the footage plan, in various a quantity, sizes and colors is of utmost importance.”


The ARS selected the method for the merchandize category, set up the replenishment parameter for each of these categories and then the company would set up the schedule for replenishment. For example, at SSL’s Hyderabad outlet, if the schedule was set for three days’ replenishment, as soon as the system raised the replenishment trigger at the distribution center, the store placed a purchase order with the vendors. The vendors dispatched the orders to the distribution centers within this period, to meet the deadline.

In 2000, the vendors took 48 hours to dispatch the goods to the store via the distribution center. The new system, company sources believed, would reduce the time to 24 hours. Also, the opportunity to sell more would be higher – because the goods would be transported faster from the distribution centers to the stores. Analysts felt that the ARS and WMS together would make SSL’s supply chain management far efficient. For example, while earlier it took two to three days in a week for the manual system to cover the actual sales, after the implementation of the ARS and WMS the previous day’s sales could be tracked anytime.


SHOPPERSTOP.COM-SLASHING COSTS?

Analysts felt that shopperstop.com would affect the supply chain because the Internet would actually add one more layer of intermediation in the chain. Earlier a customer went to SSL and bought a perfume, but with shopperstop.com, he could place the order from the site. The order processing would remain the same but shopperstop.com would have one additional task that of delivering the perfume to the customer’s home. This, analysts felt would consume additional time and money.

Analysts felt that shopperstop.com would have to ensure the speedy delivery of goods and at the same time keep the distribution and logistics cost to the minimum. Shopperstop.com was operating on the infrastructure at the 20000 sq.foot distribution center in Mumbai. “We are getting 3000 square feet of space there exclusively for shopperstop.com,” said Krishnamurti. This space was to be used to stock items which were ordered very often. These goods would arrive with the normal stock that the physical store ordered and routed straight to the customer. Since shopperstop.com would be using the space that Shoppers’ Stop already had the same logistics system, the distribution cost would be absorbed by Shoppers Stop. Again, shopperstop.com would have a 30-35 percent margin and none of the overheads that the physical store had. Company sources felt that these factors would allow shopperstop.com to slightly lower costs and enable Krishnamurti to sell products at least at the same price or at 10 percent below the maximum retail price.

However, analysts were skeptical of the success of SSL’s dotcom venture. They felt that price alone would not be enough to attract buyer to switch. Arvind Singhal, managing director KSA Technopak said, “In many goods, the Indian consumer is going to see costs drop and variety and quality increase over the next few years. So the trip to the mall is going to be entertainment. In that category of goods e-tailing will not gain volumes.

BOOKING BEYOND


After revamping the merchandize management system and replenishment mechanism, and putting the dotcom initiative in place, SSL, planned to target new areas. One such area was Automatic Data Capture (ADC). Chandratre said, “Every product has a different bar code and since every different bar code is number based, there are chances of errors in operations resulting in wrong recording of products sold. As this function is manual, SSL plans to take up the project of automatic data capture”. Another critical area was inventory control. To keep pace with the changing fashions, SSL began focusing on inventory to decrease obsolescence. Giridhar, SSL Vice President, finance said, “Efficient supply chain enables the company to optimize stock levels, thereby conserving working capital, enables quick turn-around of inventory, which minimizes obsolescence in stocks, which in turn is very essential for fashion retailers like ours.”

In 2000, SSL studied international stores like UK-based Littlewoods, Selfridges Adams and Manor to understand the best practices in supply chain management. To meet the performance criteria of the international stores, SSL changed the entire functioning structure at its distribution centers. Earlier, the distribution centers used to begin work at 10 am. Since 2000, the distribution centers started working at 6 am and the delivery was made at the store before the customer walked in. Artee Thakur, a customer care associate at SSL, said, “All deliveries from the distribution centers are made early in the morning. This enables us to display the merchandize much before the first customer walks in, eliminating any kind of disturbance to the customer while she is browsing the products on display.” SSL was also planning to operate the distribution centers 24 hours a day.

A Valued Customer is retained.

The stop manager was happy that there were no more stock-outs. Said Sajjad Sheikh, senior manager, SSL, Mumbai, “Our recent initiatives in the area of supply chain management have helped in optimizing the availability of the right kind of products at all times, thereby adding tremendous value to the customer, collectively along with efforts such as good display, personal assistance and pleasant ambience.”



BIBLIOGRAPHY

Web search :- www.google.com ( Folder created)

Indian Textile Journal 2010 issues

Clothesline 2010 issues

Retail Management –by Gibson G Vedamani


Documents

Project Report Final