Material Management Inventory is defined as a stock or store of goods. These goods are maintained on hand at or near a business's location so that the firm may meet demand and fulfill its reason for existence. If the firm is a retail establishment, a customer may look elsewhere to have his or her needs satisfied if the firm does not have the required item in stock when the customer arrives. If the firm is a manufacturer, it must maintain some inventory of raw materials and work-in-process in order to keep the factory running. In addition, it must maintain some supply of finished goods in order to meet demand. Sometimes, a firm may keep larger inventory than is necessary to meet demand and keep the factory running under current conditions of demand. If the firm exists in a volatile environment where demand is dynamic (i.e., rises and falls quickly), an on-hand inventory could be maintained as a buffer against unexpected changes in demand. This buffer inventory also can serve to protect the firm if a supplier fails to deliver at the required time, or if the supplier's quality were found to be substandard upon inspection, either of which would otherwise leave the firm without the necessary raw materials. Other reasons for maintaining an unnecessarily large inventory include buying to take advantage of quantity discounts (i.e., the firm saves by buying in bulk), or ordering more in advance of an impending price increase. Generally, inventory types can be grouped into four classifications: raw material, work-in-process, finished goods, and MRO goods. RAW MATERIALS Raw materials are inventory items that are used in the manufacturer's conversion process to produce components, subassemblies, or finished products. These inventory items may be commodities or extracted materials that the firm or its subsidiary has produced or extracted. They also may be objects or elements that the firm has purchased from outside the organization. Even if the item is partially assembled or is considered a finished good to the supplier, the purchaser may classify it as a raw material if his or her firm had no input into its production. Typically, raw materials are commodities such as ore, grain, minerals, petroleum, chemicals, paper, wood, paint, steel, and food items. However, items such as nuts and bolts, ball bearings, key stock, casters, seats, wheels, and even engines may be regarded as raw materials if they are purchased from outside the firm.
Inventory is defined as a stock or store of goods. These goods are maintained on hand at or near a business's location so that the firm may meet demand and fulfill its reason for existence. If the firm is a retail establishment, a customer may look elsewhere to have his or her needs satisfied if the firm does not have the required item in stock when the customer arrives. If the firm is a manufacturer, it must maintain some inventory of raw materials and work-in-process in order to keep the factory running. In addition, it must maintain some supply of finished goods in order to meet demand.
Sometimes, a firm may keep larger inventory than is necessary to meet demand and keep the factory running under current conditions of demand. If the firm exists in a volatile environment where demand is dynamic (i.e., rises and falls quickly), an on-hand inventory could be maintained as a buffer against unexpected changes in demand. This buffer inventory also can serve to protect the firm if a supplier fails to deliver at the required time, or if the supplier's quality were found to be substandard upon inspection, either of which would otherwise leave the firm without the necessary raw materials. Other reasons for maintaining an unnecessarily large inventory include buying to take advantage of quantity discounts (i.e., the firm saves by buying in bulk), or ordering more in advance of an impending price increase.
Generally, inventory types can be grouped into four classifications: raw material, work-in-process, finished goods, and MRO goods.
Raw materials are inventory items that are used in the manufacturer's conversion process to produce components, subassemblies, or finished products. These inventory items may be commodities or extracted materials that the firm or its subsidiary has produced or extracted. They also may be objects or elements that the firm has purchased from outside the organization. Even if the item is partially assembled or is considered a finished good to the supplier, the purchaser may classify it as a raw material if his or her firm had no input into its production. Typically, raw materials are commodities such as ore, grain, minerals, petroleum, chemicals, paper, wood, paint, steel, and food items. However, items such as nuts and bolts, ball bearings, key stock, casters, seats, wheels, and even engines may be regarded as raw materials if they are purchased from outside the firm.
The bill-of-materials file in a material requirements planning system (MRP) or a manufacturing resource planning (MRP II) system utilizes a tool known as a product structure tree to clarify the relationship among its inventory items and provide a basis for filling out, or "exploding," the master production schedule. Consider an example of a rolling cart. This cart consists of a top that is pressed from a sheet of steel, a frame formed from four steel bars, and a leg assembly consisting of four legs, rolled from sheet steel, each with a caster attached. An example of this cart's product structure tree is presented in Figure 1.
Generally, raw materials are used in the manufacture of components. These components are then incorporated into the final product or become part of a subassembly. Subassemblies are then used to manufacture or assemble the final product. A part that goes into making another part is known as a component, while
the part it goes into is known as its parent. Any item that does not have a component is regarded as a raw material or purchased item. From the product structure tree it is apparent that the rolling cart's raw materials are steel, bars, wheels, ball bearings, axles, and caster frames.
Work-in-process (WIP) is made up of all the materials, parts (components), assemblies, and subassemblies that are being processed or are waiting to be processed within the system. This generally includes all material—from raw material that has been released for initial processing up to material that has been completely processed and is awaiting final inspection and acceptance before inclusion in finished goods.
Any item that has a parent but is not a raw material is considered to be work-in-process. A glance at the rolling cart product structure tree example reveals that work-in-process in this situation consists of tops, leg assemblies, frames, legs, and casters. Actually, the leg assembly and casters are labeled as subassemblies because the leg assembly consists of legs and casters and the casters are assembled from wheels, ball bearings, axles, and caster frames.
A finished good is a completed part that is ready for a customer order. Therefore, finished goods inventory is the stock of completed products. These goods have been inspected and have passed final inspection requirements so that they can be transferred out of work-in-process and into finished goods inventory. From this point, finished goods can be sold directly to their final user, sold to retailers, sold to wholesalers, sent to distribution centers, or held in anticipation of a customer order.
Any item that does not have a parent can be classified as a finished good. By looking at the rolling cart product structure tree example one can determine that the finished good in this case is a cart.
Inventories can be further classified according to the purpose they serve. These types include transit inventory, buffer inventory, anticipation inventory, decoupling inventory, cycle inventory, and MRO goods inventory. Some of these also are know by other names, such as speculative inventory, safety inventory, and seasonal inventory. We already have briefly discussed some of the implications of a few of these inventory types, but will now discuss each in more detail.
Transit inventories result from the need to transport items or material from one location to another, and from the fact that there is some transportation time involved in getting from one location to another. Sometimes this is referred to as pipeline inventory. Merchandise shipped by truck or rail can sometimes take days or even weeks to go from a regional warehouse to a retail facility. Some large firms, such as automobile manufacturers, employ freight consolidators to pool their transit inventories coming from various locations into one shipping source in order to take advantage of economies of scale. Of course, this can greatly increase the transit time for these inventories, hence an increase in the size of the inventory in transit.
As previously stated, inventory is sometimes used to protect against the uncertainties of supply and demand, as well as unpredictable events such as poor delivery reliability or poor quality of a supplier's products. These inventory cushions are often referred to as safety stock. Safety stock or buffer inventory is any amount held on hand that is over and above that currently needed to meet demand. Generally, the higher the level of buffer inventory, the better the firm's customer service. This occurs because the firm suffers fewer "stock-outs" (when a customer's order cannot be immediately filled from existing inventory) and has less need to backorder the item, make the customer wait until the next order cycle, or even worse, cause the customer to leave empty-handed to find another supplier. Obviously, the better the customer service the greater the likelihood of customer satisfaction.
Oftentimes, firms will purchase and hold inventory that is in excess of their current need in anticipation of a possible future event. Such events may include a price increase, a seasonal increase in demand, or even an impending labor strike. This tactic is commonly used by retailers, who routinely build up inventory months before the demand for their products will be unusually high (i.e., at Halloween, Christmas, or the back-to-school season). For manufacturers, anticipation inventory allows them to build up inventory when demand is low (also keeping workers busy during slack times) so that when demand picks up the increased inventory will be slowly depleted and the firm does not have to react by increasing production time (along with the subsequent increase in hiring, training, and other associated labor costs). Therefore, the firm has avoided both excessive overtime due to increased demand and hiring costs due to increased demand. It also has avoided layoff costs associated with production cut-backs, or worse, the idling or shutting down of facilities. This process is sometimes called "smoothing" because it smoothes the peaks and valleys in demand, allowing the firm to maintain a constant level of output and a stable workforce.
Very rarely, if ever, will one see a production facility where every machine in the process produces at exactly the same rate. In fact, one machine may process parts several times faster than the machines in front of or behind it. Yet, if one walks through the plant it may seem that all machines are running smoothly at the same time. It also could be possible that while passing through the plant, one notices several machines are under repair or are undergoing some form of preventive maintenance. Even so, this does not seem to interrupt the flow of work-in-process through the system. The reason for this is the existence of an inventory of parts between machines, a decoupling inventory that serves as a shock absorber, cushioning the system against production irregularities. As such it "decouples" or disengages the plant's dependence upon the sequential requirements of the system (i.e., one machine feeds parts to the next machine).
The more inventory a firm carries as a decoupling inventory between the various stages in its manufacturing system (or even distribution system), the less coordination is needed to keep the system running smoothly. Naturally, logic would dictate that an infinite amount of decoupling inventory would not keep the system running in peak form. A balance can be reached that will allow the plant to run
relatively smoothly without maintaining an absurd level of inventory. The cost of efficiency must be weighed against the cost of carrying excess inventory so that there is an optimum balance between inventory level and coordination within the system.
Those who are familiar with the concept of economic order quantity (EOQ) know that the EOQ is an attempt to balance inventory holding or carrying costs with the costs incurred from ordering or setting up machinery. When large quantities are ordered or produced, inventory holding costs are increased, but ordering/setup costs decrease. Conversely, when lot sizes decrease, inventory holding/carrying costs decrease, but the cost of ordering/setup increases since more orders/setups are required to meet demand. When the two costs are equal (holding/carrying costs and ordering/setup costs) the total cost (the sum of the two costs) is minimized. Cycle inventories, sometimes called lot-size inventories, result from this process. Usually, excess material is ordered and, consequently, held in inventory in an effort to reach this minimization point. Hence, cycle inventory results from ordering in batches or lot sizes rather than ordering material strictly as needed.
MRO GOODS INVENTORY
Maintenance, repair, and operating supplies, or MRO goods, are items that are used to support and maintain the production process and its infrastructure. These goods are usually consumed as a result of the production process but are not directly a part of the finished product. Examples of MRO goods include oils, lubricants, coolants, janitorial supplies, uniforms, gloves, packing material, tools, nuts, bolts, screws, shim stock, and key stock. Even office supplies such as staples, pens and pencils, copier paper, and toner are considered part of MRO goods inventory.
CYCLE COUNTING BEST PRACTICE
Courtesy of Bob SteeleOctober 6, 2004
Cycle counting is a crucial business discipline. It not only enables high-performance store operations, but also has a significant impact on supply-chain operations:
Accurate data is foundational to retailer-supplier cooperation and collaboration
o On promotion, merchandising, & replenishmento For inventory optimization (core-inventory initiatives and vendor-
managed, and –assisted inventory programs)o For better product development, improved order cycle times, reduced
freight cost, less returns
What’s Cycle Counting?Definitions:
A systematic method of taking inventory continually through out the year A dynamic audit that allows for real-time inventories accuracy of merchandise. A method for auditing inventory accuracy and reconciling errors on a cyclical
The primary goal for the company is customer's satisfaction and if company cannot reach perfection in this area then all the processes are worthless. All parts of the value chain and everything in the enterprise must be healthy for realization of competitive business processes. If the company wants strong and long-lasting value chain all the links within the chain must be prepared to overpass all existing problems.
One of the most important links inside that value chain is definitely logistics. Logistics is concerned with the physical distribution and storage of products and services. During the 20th century several approaches of implementation of logistics were developed. Surely, one the most famous and most important logistics concept is the Just-In-Time concept.
Logistics network has a far wider meaning than just goods delivery and channel distribution system. It is the total flow of materials, information and cash, from the suppliers' suppliers, right through an enterprise to the customers' customers. The flows of materials and cash are opposite, but information needs be visible throughout to give control over what is happening in the chain.
Logistics forms a specific part of the supply chain. Logistics can be considered as a tool for getting resources, like products, services, and people, where they are needed and when they are desired. It is difficult to accomplish any marketing or manufacturing without logistical support, almost impossible. It involves the integration of information, transportation, inventory, warehousing, material handling, and packaging. The operating responsibility of logistics is the geographical
repositioning of raw materials, work in process, and finished inventories where required at the lowest cost possible. Simply definition of logistics can be: "The time-relatedpositioning of resources".
Just in Time (JIT) production is a manufacturing philosophy, which eliminates waste associated with time, labour, and storage space. Basics of the concept are that the company produces only what is needed, when it is needed and in the quantity that is needed. The company produces only what the customer requests, to actual orders, not to forecast. JIT can also be defined as producing the necessary units, with the required quality, in the necessary quantities, at the last safe moment. It means that company can manage with their own resources and allocate them very easily. Figure 2 shows a drawing of the JIT concept.
In queuing theory, Little's result, theorem, or law are three names for the same law.
In plain English, it says:
The average number of customers in a stable system (over some time interval) is equal to their average arrival rate, multiplied by their average time in the system.
Although it looks intuitively reasonable, it's a quite remarkable result, as it implies that this behaviour is entirely independent of any of the detailed probability distributions involved, and hence requires no assumptions about the schedule according to which customers arrive or are serviced, or whether they are served in the order in which they arrive.
It is also a comparatively recent result - it was first proved by John Little in 1961.
Handily his result applies to any system, and particularly, it applies to systems within systems. So in a bank, the queue might be one subsystem, and each of the tellers another subsystem, and Little's result could be applied to each one, as well as the
whole thing. The only requirement is that the system is stable - it can't be in some transition state such as just starting up or just shutting down.
Imagine a small shop with a single counter and an area for browsing, where only one person can be at the counter at a time, so the system is roughly:
Entrance → Browsing → Counter → Exit
The three important measures are the average time people take at the counter, the utilisation of the counter, and the rate at which people move through the system. The rate is what the shop wants to maximise.
So all we do is apply Little's result to the counter. This shows that the number of people on average at the counter is the rate at which they move through the system; multiplied by the time it takes to serve them. Since the number of people at the counter is just the utilisation, it can therefore be shown that the rate is given by the utilisation, divided by the time per customer.
Therefore, to make a really productive shop you should strive to take as little time as possible ringing up the bill, and you should try to keep your counter as busy as possible. In practice, the latter means walking up to people who seem to be taking their time browsing and saying 'Can I help you' in an annoying fashion. Unfortunately. Other ways to increase the counter utilisation might be to have more people in the shop browsing, or to have a queue.
Peter Denning succinctly phrases this rule as ``The average number of objects in a queue is the product of the entry rate and the average holding time.'' He applies it to his wine cellar: ``I have 150 cases of wine in my basement and I consume (and purchase) 25 cases per year. How long do I hold each case? Little's Law tells me to divide 150 cases by 25 cases/year, which gives 6 years per case.''
Using Little’s law for capacity planning in hardware servers
Little's Law states:
The average number of customers in a queuing system N is equal to the average arrival rate of customers to that system λ, times the average time spent in that system T
When load, or stress, testing a system, the only variable you can control is the arrival rate. The values you can measure are the response time and the throughput, or the completed requests in a period of time. As long as your arrival rate is equal to your throughput, you are not queuing requests. At the point where the throughput is less than the arrival rate, you have reached 100% utilization in the system.
In the real world, load reaches a system in bursts. But to simplify matters, we only want the steady state values. Note that queuing during bursts is good, assuming the load is just a burst and will settle down allowing the queue to empty.
To determine the load on a system in steady state, you need to keep the arrival rate into the system constant for a relevant period of time. To do this, you do not have concurrent threads/clients blindly fire one request after another into the system.
For an arrival rate of 1 request/sec you must have a client start a request every second, on the second. Not block for the reply and the fire a new request. The requests should fire like the tick of a metronome. By increasing the number of clients or threads making a request every second, you increase the arrival rate. If we have 5 clients making one request each second, we have an arrival rate of 5 request/sec.
What's of interest here is if the average response time remains constant up to 100% utilization, or if it is non-linear and increases as the arrival rate increases. That is, with an arrival rate of 1 request/sec, the average response time is .2 sec. If you plan for 80% utilization at average peak loads by extrapolating with these values you get, .8 utilisation / .2 sec = 4 request /sec per resource. But this may not be true. At 4 requests a second, your average response time in the real world might be .25, which is 100% utilization.
Another interesting thing to keep an eye on is to see what the actual level of concurrency is. If you get the arrival rate up to the point where the throughput cannot keep up (100% utilisation), the value of N should equal the number of effective resources. In a very simple system, this should approach the number of CPU's on the server. But if the server is passing requests to a database, you may see far fewer effective resources (a lower number of concurrent requests) when at 100% utilisation.
Indian Logistics Industry
This section gives an overview of the size of the Indian logistics industry, its competitive dynamics and future prospects.
Size of the Indian logistics industry
The annual logistics cost in India is estimated to be 14% of the GDP, which translates into USD 140 billion assuming the GDP of India to be slightly over USD 1 trillion. Out of this USD 140 billion logistics cost, almost 99% is accounted for by the unorganized sector (such as owners of less than 5 trucks, affiliated to a broker or a transport company, small warehouse operators, customs brokers, freight forwarders, etc.), and slightly more than 1%, i.e. approximately USD 1.5 billion, is contributed by the organized sector. So, one can see that the logistics industry in India is in a nascent stage. However, the industry is growing at a fast pace and if India can bring down its logistics cost from 14% to 9% of the GDP (level in the US), savings to the tune of USD 50 billion will be realized at the current GDP level, making Indian goods more competitive in the global market. Moreover, growth in the logistics sector would imply improved service delivery and customer satisfaction leading to growth of export of Indian goods and potential for creation of job opportunities.
Competitive dynamics and other issues
The following problems existing in the Indian logistics industry make it unattractive for investments and also create entry barriers.
· Logistics is a high-cost, low-margin business. The problem of organized players is compounded by unfair competition with unorganized players, who can get away without paying taxes and following operating norms stipulated in the Motor Vehicles Act such as quality of drivers and vehicles, volume and weight restrictions, etc.
· Economies of scale are absent in the Indian logistics industry. Even the organized sector that contributes slightly more than 1% of the logistics cost, is highly fragmented. Existence of the differential sales tax structure also brought in diseconomies of scale. Though VAT (Value Added Tax) has been implemented since April 1, 2005, failure in implementation of a uniform VAT structure across different states has let the problem persist even today.
· Apart from the non-uniform tax structure, Indian LSPs have to pay numerous other taxes, octrois, and face multiple check posts and police harassment. High costs of operation and delays involved in compliance with varying documentation requirements of different states make the business unattractive. On an average, a vehicle on Indian roads loses 24-48 hours in complying with paperwork and formalities at different check posts en route to a destination. Fuel worth USD 2.5 billion is spent on waiting at check posts annually. A vehicle that costs USD 30,000 pays USD7,500 per annum in the form of various taxes, which include the excise duty on fuel. This is why freight cost is a major component of the cost of a product in India.
· There is lack of trust and awareness among Indian shippers with regard to outsourcing logistics. The volume of outsourcing by Indian shippers is presently very low (~ 10%) compared to the same for the developed countries (> 50%, sometimes as high as 80%). The unwillingness to outsource logistics on part of Indian shippers may be attributed to skepticism about the possible benefits, perceived risk, and losing control, of sensitive organizational information, and vested interests in keeping logistics activities in-house.
· Indian shippers expect LSPs to own quality assets, provide more value-added services and act as an integrated service provider, and institute world-class information systems for more visibility and real-time tracking of shipments. However, they are unwilling to match the same with increased billings; even pay little attention to timely payments that leave LSPs short of adequate working capital.
· Indian freight forwarders face stiff competition from multi-national freight forwarders for international freight movement. MNCs, because of their size and operations in many countries, are able to offer low freight rates and extend credit for long periods. Indian freight forwarders, on the other hand, because of their smaller size and lack of access to cheap capital, are not able to match the same. Moreover, clients of MNCs often want to deal with a single service provider and especially for FOB (Free on Board) shipments specify the freight forwarders, which most of the time happen to be the multi-national freight forwarders. This is sort of a non-tariff barrier imposed on Indian freight forwarders.
· Poor physical and communications infrastructure is another deterrent to attracting investments in the logistics sector. Road transportation accounts for more than 60% of inland transportation of goods, and highways that constitute 1.4% of the total road network, carry 40% of the freight movement by roadways. Slow movement of cargo due to bad road conditions, multiple check posts and documentation requirements, congestion at seaports due to inadequate infrastructure, bureaucracy, red-tapeism and delay in government clearances, coupled with unreliable power supply and slow banking transactions, make it difficult for exporters to meet the deadlines for their
international customers. To expedite shipments, they have to book as airfreight, rather than seafreight, which adds to the costs of shipments making them uncompetitive in international markets. Moreover, many large shipping liners avoid Indian ports for long turnaround times due to delays in loading/unloading and hence Indian exporters have to resort to transshipments at ports such as Singapore, Dubai and Colombo, which adds to the costs of shipments and also delays delivery.
· Low penetration of IT and lack of proper communications infrastructure also result in delays, and lack of visibility and real-time tracking ability. Unavailability and absence of a seamless flow of information among the constituents of LSPs creates a lot of uncertainty, unnecessary paperwork and delays, and lack of transparency in terms of cost structures and service delivery. For example, a shipper has to pay a higher freight rate if it cannot ensure return load. At present, there is no realtime process by which a shipper may know about the availability of trucks and going rates at the destination market. Therefore, it has to pay more. Had the market information been available to both the shipper and the service provider, the service provider’s cost structure would have been transparent to the shipper and it would have ended paying the actual market rate. Another example would be that LTL (Less than Truckload) shipments cost more than FTL (Full Truckload) shipments. Now, when a shipper books a LTL shipment, it has no idea about the status of its shipment after it leaves the warehouse at the origin and before it reaches the warehouse at the destination. The service provider may still convert this LTL shipment into a FTL shipment at it own warehouse before delivering at the destination. So, the shipper ends up paying LTL rates for a FTL shipment. Had there been visibility during delivery, this problem would not have occurred.
· Since most of the LSPs are of relatively small size, they cannot provide the entire range of services. However, shippers would like service providers to offer more value-added services and a single-stop solution to all their logistical problems. The inability of service providers to go beyond basic services and provide value-added services such as small repair work, kitting/dekitting, packaging/labeling, order processing, distribution, customer support, etc. has not been able to motivate shippers to go for outsourcing in a big way.
· Service tax levied on logistics service fees (currently 12.36% with educational cess) may make outsourcing costly and outweigh the possible benefits.
· There is lack of skilled and knowledgeable manpower in the logistics sector. Managementgraduates do not consider logistics as a prime job. To improve the status of the industry, serviceproviders have to move beyond the level of brokers and truckers to attract and retain talent.
Despite problems, The Indian logistics industry is growing at 20% vis-à-vis the average world logistics industry growth of 10%. Since the organized sector accounts for merely 1% of the annual logistics cost, there is immense potential for growth of the sector. The major opportunities are highlighted below.
· Many large Indian corporates such as Tata and Reliance Industries have been attracted by the potential of this sector and have established logistics divisions. They started providing in-house logistics services, and soon sensing the growth of the market, have started providing services to other corporates as well.
· Large express cargo and courier companies such as Transport Corporation of India (TCI) and Blue Dart have also started logistics operations. These companies enjoy the advantage of already having a large asset base and an all-India distribution network. Some large distributors have also forayed into the logistics business for their clients.
· Since logistics service can be provided without assets, there is growing interest among entrepreneurs to venture into this business.
· Indian shippers are gradually becoming more aware of the benefits of logistics outsourcing. They are now realizing that customer service and delivery performance are equally important as cost to remain competitive in this global economy.
· The Indian economy is growing at over 9% for the last couple of years (compared to the world GDP growth rate of 3%), which implies more outputs and more demand for specialized logistics services.
· The Indian government has focused on infrastructure development. Examples include the golden quadrilateral project, east-west and north-south corridors (connecting four major metros), Free Trade and Warehousing Zones (FTWZ) in line with Special Economic Zones (SEZ) with 100% Foreign Direct Investment (FDI) limit and public-private partnerships (PPP) in infrastructure development. It is expected that infrastructure development would boost investments in the logistics sector.
· In India, 100% FDI is allowed in logistics whereas in China, until recently, foreign investment was not allowed in domestic logistics. Almost all large global logistics companies have their presence in India, mainly involved in freight forwarding. For domestic transportation and warehousing, they have tie-ups with Indian companies. As the Indian logistics scenario looks promising, these MNCs are expected to play a bigger role, probably forming wholly-owned subsidiaries or taking the acquisition route. The latter may be the preferred route of investment since the target company is readily acquired with its asset base and distribution network, and the need for building everything from scratch can thus be avoided. The benefits for the acquired company include the patronage of an MNC and access to the MNC’s global network. As an example, DHL Danzas, the biggest logistics company in the world, has taken over Blue Dart.
FRANCHISING REFERS TO THE METHODS OF PRACTICING AND USING ANOTHER PERSON'S BUSINESS PHILOSOPHY. THE FRANCHISOR GRANTS THE INDEPENDENT OPERATOR THE RIGHT TO DISTRIBUTE ITS PRODUCTS, TECHNIQUES, AND TRADEMARKS FOR A PERCENTAGE OF GROSS MONTHLY SALES AND A ROYALTY FEE. VARIOUS TANGIBLES AND INTANGIBLES SUCH AS NATIONAL OR INTERNATIONAL ADVERTISING, TRAINING, AND OTHER SUPPORT SERVICES ARE COMMONLY MADE AVAILABLE BY THE FRANCHISOR. AGREEMENTS TYPICALLY LAST FROM FIVE TO THIRTY YEARS, WITH PREMATURE CANCELLATIONS OR TERMINATIONS OF MOST CONTRACTS BEARING SERIOUS CONSEQUENCES FOR FRANCHISEES.
One out of every three dollars spent by Americans for goods and services is spent in a franchised business. In India Franchising is the known way of doing business since
the days of the familiar Bata shops, and it has been catching up fast in the recent past. With India's vast and inherent entrepreneurial talent, franchising is well poised to help spur the economy and establish global standards for products and services. Consider the numbers : 1 billion population, with GDP growth rate of 6 - 8% per annum With annual growth rate of 40%, franchising contributes Rs.9000 Crores (US$ 2 billion) to Indian Economy 40,000 franchisees have invested over Rs.5000 Crores (US$ 1.1 billion) in individual franchised businesses he total manpower employed by franchised businesses in India is around 30,000.
(AUTOMATIC VENDING MACHINE)
The vending machine industry generated U.S. sales of about $22.1 billion annually in the late 1990s. With significant advances in technology and innovation, the vending machine industry served numerous markets. In 2000, shipments of coin-operated vending machines by manufacturers totaled $1.24 billion, up from $767 million in 1995, though lower than shipments in both 1998 and 1999 of $1.44 billion.
The industry segments itself by the kind of service provided by the vending operator. Some of the major categories include: the 4 C's, which include coffee, club soda, candy, and cigarettes; full-line vending, which includes hot food, canned soda, and diary and frozen food; specialty vending, which encompasses such special products as pizza or french fries; OCS, or office coffee service; bulk vending, focusing on such unpackaged items as gum or nuts; and street vending, which includes music machines, video games, and other vending machines used in public places.
Wholesaling, historically called jobbing, is the sale of goods or merchandise to retailers, to industrial, commercial, institutional, or other professional business users, or to other wholesalers and related subordinated services.
"WHOLESALE" IS THE RESALE (SALE WITHOUT TRANSFORMATION) OF NEW AND USED GOODS TO RETAILERS, TO INDUSTRIAL, COMMERCIAL, INSTITUTIONAL OR PROFESSIONAL USERS, OR TO OTHER WHOLESALERS, OR INVOLVES ACTING AS AN AGENT OR BROKER IN BUYING MERCHANDISE FOR, OR SELLING MERCHANDISE TO, SUCH PERSONS OR COMPANIES. WHOLESALERS FREQUENTLY PHYSICALLY ASSEMBLE, SORT AND GRADE GOODS IN LARGE LOTS, BREAK BULK, REPACK AND REDISTRIBUTE IN SMALLER LOTS. WHILE WHOLESALERS OF MOST PRODUCTS USUALLY OPERATE FROM INDEPENDENT PREMISES, WHOLESALE MARKETING FOR FOODSTUFFS CAN TAKE PLACE AT SPECIFIC WHOLESALE MARKETS WHERE ALL TRADERS ARE CONGREGATED.
Modern wholesale Market complex under National Horticulture MissionMain features of Modern Wholesale Market
1. The Modern Wholesale Market will be set up in those States that undertake reforms in their laws dealing with agricultural marketing to provide direct marketing and permit the setting up of markets in private and cooperative sectors.
2. The Modern Wholesale Market would operate on a Hub-and-Spoke Format wherein the main Market (the hub) would be linked to a number of Collection Centres (CC) (the spokes).
3. The spokes would be conveniently located at key production centers to allow easy farmers access and the catchments area of each spoke would be based on meeting the convenient needs of farmers, operational efficiently and effective capital utilization of the investment.
4. The Modern Wholesale Market would establish backward linkages with farmers through the collection centers and forward linkages through wholesalers, distribution centres, retails cash and carry stores, processing units and exporters.
5. Collection Centres in the villages would integrate producers and retailers, processing units and exporters into the market system.
6. An electronic auction system would be established to ensure transparency in price fixation and competition.
7. The scheme will attract and facilitate private sector investment in the agribusiness sector, by assisting the key stakeholders-entrepreneurs, producers, processing industry and exporters.
8. Producers, farmers and their associations and other market functionaries from any part of the country may use the infrastructure and facilities of the Modern Wholesale Market directly or through the collection centres.
9. The Modern Wholesale Market would provide one-stop solution in terms of providing logistics support including transport services and cool chain facility. The modern wholesale markets have been categorized based on number of collection centers and cost of project as under:
Category A- Market having 20 or more collection centers costing upto 100 crores.Category B- Market having 1-19 collection centres costing upto 60 crores.Category C- Market without collection centers costing upto 30 crores.
For the calculation of subsidy the cost of infrastructure for non-marketing services should be excluded from the total project cost as apprised by the Financial Institution.
The developer of the market should operate the market for a minimum period of 15 years and not divert the asset for any other purpose or change the land use before that period. As regards the cost of land, the same shall be governed as per operational guidelines of NHM. If land is on rental basis or provided by state Government the same shall not become part of project cost.The main objectives of setting up Wholesale Markets Complex
1. To link the farmers to the markets by shortening the supply chain of perishables and enhance their efficiency and thus increase farmers income.
2. Provide professionally managed competitive alternative marketing structures that provide multiple choices to farmers for sale of their agricultural produce.
3. To accelerate development of marketing and post harvest infrastructure including cool chain infrastructure in the county through private sector investment.
4. To bring transparency in the market transactions and price fixation for agricultural produce and through provision of backward linkages to enable the farmers to realize higher price an thus higher income to the farmers.
The Modern Wholesale Market project would be built, owned and operated by individuals, Group of farmers/Growers/Consumers, Partnership/Proprietary firms, Companies, Marketing Boards, Corporations, Co-operatives, Producers Organizations and self help groups. The Private Enterprise could also be a consortium of entrepreneur from, inter-alia, agri-business, cold chain logistics, warehousing, agri-infrastructure and related background.
The commodities to be marketed by the Modern Wholesale Market will include all perishables, inter-alia, fruits, vegetables, flowers, aromatics, herbs, meat, poultry etc. Non-perishables can also be handled in the Modern Wholesale Market. However, the proportion of Non-Perishables shall not exceed 15% of the total through put of the market. Similarly, proportion of non-horticultural products within the perishable commodities shall not exceed 15% of the total through put of the market.
The State Government will approve the number and indicative location of the Modern Wholesale Market based on the demand, economic viability, commercial considerations etc. Core facilities and essential services to be provided at the Wholesale Markets:
1. Electronic auction facility 9. Material handling equipment (palletisation and plastic crates)
17. Storage area of plastic crates
2. Storage and Cold storage facility
10. Movement and parking facility for vehicles
18. Standards for the produce arriving at the market
In addition to the above, the modern wholesale market will provide the following User facilities and services free of charge to the users:
1. Price information display screens both at the central and the collection centers for Perishable Agricultural Produce
2. Advisory on inputs, prices, quality for Perishable Horticulture Produce Non Market Services “Non Market Services” means the provision of the following indicative user facilities and services at the wholesale market:
1. Business Center services 6. Locker rental 11. Vehicle rental services
4. General retail shops 9. Porter service 14. Shopping Complex5. Hotels and Motelsservices includingreservation services
10. Restaurants, and otherrefreshment services
15. Processing facilities
In addition to the above which are non chargeable, the market will provide the followingUSER FACILITIES AND SERVICES AT NOMINAL RATES TO THE USERS:
1. Food items3. Infrastructure / Facilitiesfor Public telephones
5. Vehicle parking lot
2. Infrastructure / Facilitiesfor Post Offices
4. Infrastructure / Facilitiesfor access to internet
Facilities and services to be provided at the collection center for Perishable AgriculturalProduce handled by the PE.
1. Washing, grading,sorting, weighing facilities
3. Plastic crates5. Banking servicesincluding settlement ofpayment if possible
2. Transport services tomain market complex
4. Facility for collection andaggregation of produce
THE FUNDS WILL BE RELEASED AS PER THE CRITERIA APPLICABLE FOR AVAILING CREDIT LINKED BACK ENDED SUBSIDY. THE STATE AUTHORITIES WILL HAVE TO MONITOR THE IMPLEMENTATION AND FURNISH QUARTERLY PROGRESS REPORTS OF UTILIZATION OF CENTRAL ASSISTANCE.
Retailing in India
RETAILING IS THE INTERFACE BETWEEN THE PRODUCER AND THE INDIVIDUAL CONSUMER BUYING FOR PERSONAL CONSUMPTION. THIS EXCLUDES DIRECT INTERFACE BETWEEN THE MANUFACTURER AND INSTITUTIONAL BUYERS SUCH AS THE GOVERNMENT AND OTHER BULK CUSTOMERS. A RETAILER IS ONE WHO STOCKS THE PRODUCER’S GOODS AND IS INVOLVED IN THE ACT OF SELLING IT TO THE INDIVIDUAL CONSUMER, AT A MARGIN OF PROFIT. AS SUCH, RETAILING IS THE LAST LINK THAT CONNECTS THE INDIVIDUAL CONSUMER WITH THE MANUFACTURING AND DISTRIBUTION CHAIN.
THE RETAIL INDUSTRY IS DIVIDED INTO ORGANISED AND UNORGANIZED SECTORS. ORGANISED RETAILING REFERS TO TRADING ACTIVITIES UNDERTAKEN BY LICENSED RETAILERS, THAT IS, THOSE WHO ARE REGISTERED FOR SALES TAX, INCOME TAX, ETC. THESE INCLUDE THE CORPORATE-BACKED HYPERMARKETS AND RETAIL CHAINS, AND ALSO THE PRIVATELY OWNED LARGE RETAIL BUSINESSES. UNORGANISED RETAILING, ON THE OTHER HAND, REFERS TO THE TRADITIONAL FORMATS OF LOW-COST RETAILING, FOR EXAMPLE, THE LOCAL KIRANA SHOPS, OWNER MANNED GENERAL STORES, PAAN/BEEDI SHOPS, CONVENIENCE STORES, HAND CART AND PAVEMENT VENDORS, ETC.
The Indian Scenario:
Trade or retailing is the single largest component of the services sector in terms of contribution to GDP. Its massive share of 14% is double the figure of the next largest broad economic activity in the sector. India is the ‘second most attractive retail destination’ globally from among thirty emergent markets. It has made India the cause of a good deal of excitement and the cynosure of many foreign eyes. With a contribution of 14% to the national GDP and employing 7% of the total workforce (only agriculture employs more) in the country, the retail industry is definitely one of the pillars of the Indian economy1.
GROWING IN TANDEM WITH THE ECONOMY IS THE INDIAN RETAIL SECTOR. THE SECTOR IS ON A HIGH GROWTH TRAJECTORY AND IS EXPECTED TO GROW BY MORE THAN 27 PER CENT OVER THE NEXT 5 TO 6 YEARS. RETAIL IS ONE OF INDIA’S LARGEST INDUSTRIES, CONTRIBUTING TO ABOUT 10 PER CENT OF THE GDP AND PROVIDING EMPLOYMENT TO 8 PER CENT OF THE NATION’S WORKFORCE. INDIAN RETAIL BUSINESS PROMISES TO BE ONE OF THE CORE SECTORS OF THE INDIAN ECONOMY, WITH ORGANISED RETAIL SECTOR ESTIMATED TO GROW BY 400 PER CENT OF ITS CURRENT SIZE BY 2007-08.
Income, technology and life styles of consumers are changing, even from whom they buy are changing. The location or the place where they buy is changing; the shops are opened closed according to the convenience of the buyers. The buying process has changed due to Internet buying, which brings new and better deals and also saves time. Population growth rate, increasing literacy rate and increasing family income has an effect on consumer spending.CHANGING SOCIAL ATTITUDES TOWARDS WORK, HOME AND LEISURE AFFECT THE RETAIL STRATEGIES. POLITICAL DECISIONS RELATING TO THE ENVIRONMENT, SHOPPING LOCATIONS AND FAIR TRADE AFFECT, WHERE AND HOW RETAILERS CAN TRADE. CHANGES IN TECHNOLOGY BRING NEW ATTITUDES TO BUYING PRODUCTS AND SERVICES AND TO BETTER ORGANIZATION OF THE SUPPLY CHAIN.
INDIA HAS THE HIGHEST SHOP DENSITY IN THE WORLD AND THE PRESENT RETAIL MARKET IN INDIA. WE ARE RANKED SECOND IN THE GLOBAL RETAIL DEVELOPMENT INDEX OUT OF 30 BY AT KEARNEY. THIS FIGURE SHOWS THE COMPARATIVE PENETRATION OF ORGANIZED RETAIL IN INDIA.
Evolution of Retail Market in India.
In the beginning there were only kirana stores called Mom and Pop Stores, the friendlyneighborhood stores selling every day needs. In the 1980s manufacturer’s retail chains likeDCM, Gwalior Suitings, Bombay Dying, Calico, Titan etc started making its appearance inMetros and small towns. Multi brand retailers came into the picture in the 1990s. In the food andFMCG sectors retailers like Food world, Subhiksha, Nilgris are some of the examples. In musicSegment Planet M, Music world and in books Crossword and Fountainhead are some others.Shopping Centres began to be established from 1995 onwards. A unique example was theEstablishment of margin free markets in Kerala. The millennium year saw the emeregence of super markets and hypermarkets. Now big players like Reliance, Bharti, Tatas, HLL, ITC are entering into the organized retail segment. The big international retail bigwigs are waiting in the wings, as the present FDI guidelines do not allow them to own retail outlets in the country. Walmart is testing the waters by agreeing to provide back end and logistic support to Bharti for establishment of retail chains with a view to study the market for future entry when the FDI guidelines
change and to establish a backbone supply chain. Table 1 shows the different phases in the growth of organized retailing in India.
Table: 1. Journey of Organized Retail in IndiaYear Growth Function2000 First Phase Entry, Growth, Expansion, Top line focus2005 Second Phase Range, Portfolio, Former options
End to end supply chain management, Backend operation, Technology, Process
2011 Fourth Phase M&A, Shakeout, Consolidation, High investment
Source: Ernst & Young
RETAIL STORES CONSTITUTE 20% OF US GDP & ARE THE 3 RD LARGEST EMPLOYER SEGMENT IN USA. CHINA ON THE OTHER HAND HAS ATTRACTED SEVERAL GLOBAL RETAILERS IN RECENT TIMES. RETAIL SECTOR EMPLOYS 7% OF THE POPULATION IN CHINA. MAJOR RETAILERS LIKE WAL-MART & CARREFOUR HAVE ALREADY ENTERED THE CHINESE MARKET. IN THE YEAR 2003, WAL-MART & CARREFOUR HAD SALES OF US $ 70.4 CRORE & US $ 160 CRORE RESPECTIVELY. THE GLOBAL RETAIL INDUSTRY HAS TRAVELED A LONG WAY FROM A SMALL BEGINNING TO AN INDUSTRY WHERE THE WORLD WIDE RETAIL SALES IS VALUED AT $ 7 X 10” CRORE. THE TOP 200 RETAILERS ALONE ACCOUNTS FOR 30 % OF THE WORLDWIDE DEMAND. RETAIL TURNOVER IN THE EU IS APPROXIMATELY EUROS 2,00,000 CRORE AND THE SECTOR AVERAGE GROWTH IS SHOWING AN UPWARD PATTERN. THE ASIAN ECONOMIES (EXCLUDING JAPAN) ARE EXPECTED TO GROW AT 6% CONSISTENTLY TILL 2005-06.ON THE GLOBAL RETAIL STAGE, LITTLE HAS REMAINED SAME OVER THE LAST DECADE. ONE OF THE FEW SIMILARITIES WITH TODAY IS THAT WAL-MART WAS RANKED THE TOP RETAILER IN THE WORLD THEN & IT STILL HOLDS THAT DISTINCTION. OTHER THAN WAL-MART'S DOMINANCE, THERE'S A LITTLE ABOUT TODAY'S ENVIRONMENT THAT LOOKS LIKE THE MID-1990S. THE GLOBAL ECONOMY HAS CHANGED, CONSUMER DEMAND HAS SHIFTED & RETAILERS' OPERATING SYSTEMS TODAY ARE INFUSED WITH FAR MORE TECHNOLOGY THAN WAS THE CASE SIX YEARS AGO.
The Top FiveCompany Investment
Wal-Mart - Bharti Yet to announce
Reliance $ 5.5 billionAditya Birla Group $ 3.3 billionPantaloon $ 1 billionTatas $ 89 millionSource: The Economic Times
PRESENT INDIAN SCENARIO
INDIA’S RETAIL MARKET THAT IS SEEN AS THE GOLDMINE BY GLOBAL PLAYERS HAS GRABBED ATTENTION OF THE MOST DEVELOPED NATIONS. THIS IS NO WONDER TO THE ONE WHO KNOWS THAT THE TOTAL INDIAN RETAIL MARKET IS US $350BN. (16, 00,000 CRORE INR APPROX.) OF WHICH ORGANIZED RETAILING IS ONLY AROUND 3 PERCENT I.E. US $8BN (36,000 CRORE INR APPROX).
MODERN RETAIL HAS ENTERED INDIA AS SEEN IN SPRAWLING SHOPPING CENTERS, MULTI-STOREYED MALLS AND HUGE COMPLEXES OFFER SHOPPING, ENTERTAINMENT AND FOOD ALL UNDER ONE ROOF. THE FUTURE OF INDIAN RETAILING MAY EVEN WITNESS THE CONCEPT OF 24 HOUR RETAILING.
THE URBAN RETAIL MARKET HAS BEEN EMBRACING VARIOUS NEW FORMATS AND THE MALLS TURNED OUT TO BE THE TRENDSETTERS BY PROMISING THE CONCEPT OF SHOPPERTAINMENT. THE TRENDS IN THE RURAL MARKET ALSO HAVE BEEN CHANGING FROM THE OLD HAATS AND MELAS TO THE RURAL MALLS LIKE ‘CHAUPAL SAGAR’ LAUNCHED BY ITC, DCM SHRIRAM GROUPS ONE-STOP SHOPPING DESTINATION CALLED ‘HARIYALI BAZAAR’, GODREJ GROUPS AGRI STORE ‘ADHAR’ ETC.
Organized retailing is spreading and making its presence felt in different parts of the country. The trend in grocery retailing, however, has been slightly different with a growth concentration in the South. Though there were traditional family owned retail chains in South India such as Nilgiri’s as early as 1904, the retail revolution happened with various major business houses foraying into the starting of chains of food retail outlets in South India with focus on Chennai, Hyderabad and Bangalore markets, preliminarily. In the Indian context, a countrywide chain in food retailing is yet to be established as lots of Supply Chain issues need to be answered due to the vast expanse of the country and also diverse cultures that are present.
UNORGANIZED MARKET: RS. 583,000 CRORES* ORGANIZED MARKET: RS.5, 000 CRORES* 5X GROWTH IN ORGANIZED RETAILING BETWEEN
2000-2005 * OVER 4,000 NEW MODERN OUTLETS IN THE LAST 3 YEARS* OVER 5,000,000 SQ. FT. OF MALL SPACE UNDER DEVELOPMENT
- FOOD AND GROCERY- - FOOD WORLD- - SHOPPERS' STOP- - SUBHIKSHA- WORKING AT CERTAIN PLACES
INDIAN CONSUMERS ARE RAPIDLY EVOLVING AND ACCEPTING MODERN FORMATS OVERWHELMINGLY. RETAIL SPACE IS NO MORE A CONSTRAINT FOR GROWTH.
FEW OF INDIA'S TOP RETAILERS ARE:
1. BIG BAZAAR-PANTALOONS:BIG BAZAAR, A DIVISION OF PANTALOON RETAIL (INDIA) LTD IS ALREADY INDIA'S BIGGEST RETAILER. IN THE YEAR 2003-04, IT HAD REVENUE OF RS 658.31 CRORES & BY 2010; IT IS TARGETING REVENUE OF RS 8,800 CRORE.
2. FOOD WORLD: FOOD WORLD IN INDIA IS AN ALLIANCE BETWEEN THE RPG GROUP IN INDIA WITH DAIRY FARM INTERNATIONAL OF THE JARDINE MATHESON GROUP.
3. TRINETHRA:IT IS A SUPERMARKET CHAIN THAT HAS PREDOMINANT PRESENCE IN THE SOUTHERN STATE OF ANDHRA PRADESH. THEIR TURNOVER WAS RS 78.8 CRORE FOR THE YEAR 2002-03.
4. APNA BAZAAR:IT IS A RS 140-CRORE CONSUMER CO-OPERATIVE SOCIETY WITH A CUSTOMER BASE OF OVER 12 LAKH, PLANS TO CATER TO AN UPWARDLY MOBILE URBAN POPULATION.
5. MARGIN FREE:
IT IS A KERALA BASED DISCOUNT STORE, WHICH IS UNIFORMLY SPREAD ACROSS 240 MARGIN FREE FRANCHISEES IN KERALA, TAMIL NADU AND KARNATAKA. WHOLESALE TRADING IS ANOTHER AREA, WHICH HAS POTENTIAL FOR RAPID GROWTH. GERMAN GIANT METRO AG AND SOUTH AFRICAN SHOPRITE HOLDINGS HAVE ALREADY MADE HEADWAY IN THIS SEGMENT BY SETTING UP STORES SELLING MERCHANDISE ON A WHOLESALE BASIS IN BANGALORE AND MUMBAI RESPECTIVELY. THESE NEW-FORMAT CASH-AND-CARRY STORES ATTRACT LARGE VOLUMES FROM A SIZEABLE NUMBER OF RETAILERS WHO DO NOT HAVE TO MAINTAIN RELATIONSHIPS WITH MULTIPLE SUPPLIERS FOR ALL THEIR NEEDS.
What is retailing?
The word 'retail' is derived from the French word 'retailer' meaning 'to cut a piece off' or 'to break bulk'. In simple terms it involves activities whereby product or services are sold to final consumers in small quantities. Although retailing in its various formats has been around our country for many decades, it has been confined for
along time to family owned corner shops. Englishmen are great soccer enthusiasts, and they strongly think that one should never give Indians a corner. It stems from the belief that, if you give an Indian a corner he would end up setting a shop. That is how great Indians retail management skill is considered.
THIS EMERGENCE OF ORGANIZED RETAILING HAS BEEN DUE TO THE DEMOGRAPHIC AND PSYCHOGRAPHICS CHANGES TAKING PLACE IN THE LIFE OF URBAN CONSUMERS. GROWING NUMBER OF NUCLEAR FAMILIES, WORKING WOMEN, GREATER WORK PRESSURE, CHANGING VALUES AND LIFESTYLES, INCREASED COMMUTING TIME, INFLUENCE OF WESTERN WAY OF LIFE ETC. HAVE MEANT THAT THE NEEDS AND WANTS OF CONSUMERS HAVE SHIFTED FROM JUST BEING COST AND RELATIONSHIP DRIVE TO BRAND AND EXPERIENCE DRIVEN, WHILE THE VALUE ELEMENT STILL DOMINATING THE BUYING DECISIONS.
A retail revolution is happening at newer markets, India presents exciting opportunities on account of its vast middle-class and a virtually untapped retail industry.
• The network of retailers reaches every nook and corner of the country. So any product produced anywhere in the country can be easily accessed by the buyers from any location. Thus the spatial convenience of Indian retailers is varying high. According to ORG-MARG2 the total number of all kinds of retail outlets in India was 51,30,000 during 1996-97. This means one retail outlet exists against an average of almost 190 persons.
• Secondly, in India the retailing industry is an unorganized lot consisting of, in most of the cases, small entrepreneurs. And the virtual omnipresence of the Indian retailer can be attributed to these small entrepreneurs only.The second attribute gives rise to the following characteristics –
• The manufacturers cannot directly reach all retailers in a particular geographical area. Therefore, the manufacturers cannot maintain the desired relationship with the retailers, which in turn, makes management of the channel complicated. This also makes the possibility of a direct feedback loop from the retailers almost remote.
• Therefore, the member operating between the manufacturers and retailers become more powerful as they can block the channel of communication between the two. So the dependence of retailers on other channel members increases to a high extent. Thus the participation of retailers in the flows of marketing mix becomes lower than desired.
• The financial strength of the Indian retailers, in general, is very low and hence the investment capabilities. This makes the retailers more dependent on the other channel members. However, these characteristics are peculiar to the small retail outlets and may not be present at every kind of retail level. According to the ORG-MARG study referred to above, the number of smaller retailers (having turnover less than Rs. 20,000 pa) is estimated to be 27,71,200 and the number of retail outlets with turnover more than Rs. 1,20,000 per annum is only 3,59,100. In recent times, however, more and more big retail outlets are coming up in the metros and cities of the country. Many business houses now are thinking of opening up a retail chain of their own. Spencer and Co. Limited (retailing arm of the RPG group), Vitan Industries Limited, Pantaloon, Shoppers Stop, to name a few, have already in the business with a big bang. All of them have got very ambitious plans to get into the new millennium. Pantaloon, for example, has got 40 strong chain of franchisee and 12 stores owned directly by them. RPG Group plans to increase their outlets to 50 FoodWorld, 18 Health & Glow, 8 MusicWorld from present 27 FoodWorld and 2 MusicWorld outlets by
the end of the year 1999. Likewise, Archies has got a good presence in the market through a very successful and efficient franchisee network.
In India, the logistics market is mainly thought to mean transportation. But the major elements of logistics cost for industries include transportation, warehousing, inventory management, courier and other valued-added services such as packaging.
The logistics costs account for 13 per cent of GDP. The industry is currently on an upswing and is poised for a growth of 20 per cent in the coming years.
With the expansion of retail, supply chain will take on an increasingly important role. With the end consumer becoming more demanding and time conscious, the need for just-in-time services is increasing. In retail, where competition is intense and stakes are high, customer satisfaction is paramount.
Retailers realize that knowing what is selling and what is not can improve the inventory processes. Inventory is the biggest cost factor, and if not managed well, it can also be the biggest drain. That's why retailers and their trading partners today set store by the inventory process and its impact. Effective SCM enables:
Averting problems: Stores easily identify potential stock-outs and request replenishment before the inventory drops to zero. Deciding to de-list or replace a product is easier.
Facilitating resource planning and allocation: Product forecasts and supply schedules are easily converted to perform space planning, establish staffing needs and organise inbound/outbound shipments. Financial experts can plan cash flow and analyse margins into the future.
The key players in the logistics industry are gearing up to meet the challenges by initiating both organic and inorganic growth to leverage the retail opportunity. Logistics firms have also started focusing on related services such as Customs clearing and forwarding, inbound warehousing, labeling and packaging, fleet management, order picking and inventory management.
RETAILING IS THE MOST ACTIVE AND ATTRACTIVE SECTOR OF LAST DECADE. WHILE THE RETAILING INDUSTRY ITSELF HAS BEEN PRESENT SINCE AGES IN OUR COUNTRY, IT IS ONLY THE RECENT PAST THAT IT HAS WITNESSED SO MUCH DYNAMISM. THE EMERGENCE OF RETAILING IN INDIA HAS MORE TO DO WITH THE INCREASED PURCHASING POWER OF BUYERS, ESPECIALLY POST-LIBERALIZATION, INCREASE IN PRODUCT VARIETY, AND INCREASE IN ECONOMIES OF SCALE, WITH THE AID OF MODERN SUPPLY AND DISTRIBUTIONS SOLUTION AND NEW TECHNOLOGIES ARE IMPROVING RETAIL PRODUCTIVITY, THOUGH THERE ARE MANY OPPORTUNITIES TO START A NEW RETAIL BUSINESS, RETAILERS ARE FACING NUMEROUS CHALLENGES.
It is often taken for granted that products will be available to buy in the shops. The cornucopia of goods that is available in a hypermarket or a department store sometimes means that we forget how the products were supplied. We expect our lettuces to be fresh, the new Playstation to be available on launch day and our clothes to be in good condition and ready to wear. With the introduction of e-commerce we have come to demand complete availability and home delivery at times of our choosing.
Consumer beliefs and needs have altered. Our willingness to wait to be satisfied or served has reduced and we expect instant product availability and gratification. It should be obvious from this that the supply or logistics system that gets products from production through retailing to consumption has also needed to be transformed.
Physical distribution and materials management have been replaced by logistics management and a subsequent concern for the whole supply chain (Figure 1.1). This logistics transformation derives from cost and service requirements as well as consumer and retailer change (see Fernie, 1990; Fernie and Sparks, 1998). Elements of logistics are remarkably expensive, if not controlled effectively. Holding stock or inventory in warehouses just in case it is needed is a highly costly activity. The stock itself is expensive and might not sell or could become obsolete. Warehouses and
distribution centres generally are expensive to build, operate and maintain. Vehicles to transport goods between warehouses and shops are expensive, in terms of both capital and running costs.
Materials Management Physical distribution management
There is thus a cost imperative to of both capital and running costs. There is thus a cost imperative to making sure that logistics is carried out effectively and efficiently, through the most appropriate allocation of resources along the supply chain. At the same time, there can be service benefits. By appropriate integration of demand and supply, mainly through the widespread use of information technology and systems, retailers can provide a better service to consumers by, for example, having fresher, higher quality produce arriving to meet consumer demand for such products. With the appropriate logistics, products should be of a better presentational quality, could possibly be cheaper, have a longer shelf life and there should be far fewer instances of stock outs. Reaction time to spurts in demand can be radically improved through the use of information transmission and dissemination technologies. If operating properly, a good logistics system can therefore both reduce costs and improve service, providing a competitive advantage for the retailer.
Retailing and logistics are concerned with product availability. Many have described this as ‘getting the right products to the right place at the right time’. Unfortunately however that description does not do justice to the amount of effort that has to go into a logistics supply system and the multitude of ways that supply systems can go wrong. The very simplicity of the statement suggests logistics is an easy process. As the boxed example shows, problems and mistakes can be all too apparent. The real management ‘trick’ is in making logistics looks easy, day in and day out, whilst reacting to quite volatile consumer demand
FOR EXAMPLE, IF THE TEMPERATURE RISES AND THE SUN COMES OUT IN AN ATYPICAL SCOTTISH SUMMER, THEN DEMAND FOR ICE CREAM, SOFT DRINKS AND EVEN SALAD ITEMS RISES DRAMATICALLY. HOW DOES A RETAILER MAKE SURE THEY REMAIN IN STOCK AND SATISFY THIS TRANSIENT DEMAND? OR WE MIGHT THINK ABOUT VALENTINE’S DAY, WHEN DEMAND FOR CERTAIN PRODUCTS IN THE DAYS BEFORE INCREASES EXPONENTIALLY. IF A RETAILER STOCKS VALENTINE’S CARDS AND DEMAND DOES NOT MATERIALIZE, THEN THE RETAILER HAS STOCK THAT WILL NOT SELL. THERE IS LITTLE DEMAND FOR VALENTINE’S CARDS ON 15 FEBRUARY. WHILE OVER-STOCKS IN THIS CASE WILL NOT PERISH, THE COST OF THEIR STORAGE AND HANDLING FOR THE INTERVENING YEAR CAN BE CONSIDERABLE.
The examples above demonstrate that retailers must be concerned with the flows of product and information both within the business and in the wider supply chain. In
order to make products available retailers have to manage their logistics in terms of product movement and demand management. They need to know what is selling in the stores and both anticipate and react quickly to changes in this demand. At the same time they need to be able to move less demand-volatile products in an efficient and cost-effective manner. The logistics management task is therefore initially concerned with managing the components of the ‘logistics mix’. We can identify five components:
• Storage facilities: these might be warehouses or distribution centres or simply the stock rooms of retail stores. Retailers manage these facilities to enable them to keep stock in anticipation of or to react to, demand for products.
• Inventory: all retailers hold stock to some extent. The question for retailers is the amount of stock or inventory (finished products and/or component parts) that has to be held for each product, and the location of this stock to meet demand changes.
• Transportation: most products have to be transported in some way at some stage of their journey from production to consumption. Retailers therefore have to manage a transport operation that might involve different forms of transport, different sizes of containers and vehicles and the scheduling and availability of drivers and vehicles.
• Unitization and packaging: consumers generally buy products in small quantities. They sometimes make purchase decisions based on product presentation and packaging. Retailers are concerned to develop products that are easy to handle in logistics terms, do not cost too much to package or handle, yet retain their selling ability on the shelves.
• Communications: to get products to where retailers need them, it is necessary to have information, not only about demand and supply, but also about volumes, stock, prices and movements. Retailers have thus become increasingly concerned with being able to capture data at appropriate points in the system and to use that information to have a more efficient and effective logistics operation. It should be clear that all of these elements are interlinked. In the past they were often managed as functional areas or ‘silos’, and while potentially optimal within each function, the business as a whole was sub-optimal in logistics terms. More recently the management approach has been to integrate these logistics tasks and reduce the functional barriers. So, if a retailer gets good sales data from the checkout system, this can be used in scheduling transport and deciding levels and locations of stock holding. If the level of inventory can be reduced, perhaps fewer warehouses are needed. If communications and transport can be linked effectively, a retailer can move from keeping stock in a warehouse to running a distribution centre which sorts products for immediate store delivery: that is, approaching a ‘Just-In-Time’ system. Internal integration has therefore been a major concern.
It should also be clear, however, that retailers are but one part of the supply system. Retailers are involved in the selling of goods and services to the consumer. For this they draw upon manufacturers to provide the necessary products. They may outsource certain functions such as transport and warehousing to specialist logistics services providers.
Retailers therefore have a direct interest in the logistics systems of their suppliers and other intermediaries. If a retailer is effective, but its suppliers are not, errors and delays in supply from the manufacturer or logistics services provider will impact the
retailer and the retailer ’s consumers, in terms of either higher prices or stock-outs (no products available on the store shelves).
If a retailer can integrate effectively its logistics system with that of its suppliers, such problems may be minimized. Much more importantly, however, the entire supply chain can then be optimized and managed as a single entity. This brings potential advantages of cost reduction and service enhancement, not only for the retailer, but also for the supplier. It should also mean that products reach the stores more rapidly, thus better meeting sometimes-transient customer demand. In some instances it may mean the production of products in merchandisable ready units, which flow through the distribution systems from production to the shop floor without the need for assembly or disassembly. Such developments clearly require supply chain co-operation and coordination.
We may be describing highly complex and advanced operations here. Retail suppliers are increasingly spread across the world. A retailer may have thousands of stores in a number of countries, with tens of thousands of individual product lines. They may make millions of individual sales per day. Utilizing data to ensure effective operation amongst retailers, manufacturers, suppliers, logistics services providers, head office, shops and distribution centers is not straightforward. There is thus always a tension between overall complexity and the desire for the simplest possible process. Summarizing the discussion above, the logistics task therefore can be described as:
The process of strategically managing the procurement, movement and storage of materials, parts and finished inventory (and the related information flows) through the organization and its marketing channels in such a way that current and future profitability are maximized through the cost effective fulfillment of orders. (Christopher, 1998: 4)
Managing the logistics mix in an integrated retail supply chain, while aiming to balance cost and service requirements, is the essential element of logistics management. As retailers have begun to embrace this logistics approach and examine their wider supply chains, many have realized that to carry out logistics properly, there has to be a transformation of approach and operations (Sparks, 1998).
"RIGHT PLACE, RIGHT CHOICE"
Follow the Four `Rs' of SCM — Right time, Right place, Right price, Right quantity — to reap the advantages of:
Sustained inventory reduction by as much as 60 per cent for both the buyer and seller.
Improved forecast accuracy by as much as 30 per cent.
Enhanced store shelf stock rates by as much as 8 per cent.
Increased sales by as much as 20 per cent.
Reduced logistics costs by as much as 4 per cent.
LOCATION IS THE MOST IMPORTANT INGREDIENT FOR ANY BUSINESS THAT RELIES ON CUSTOMERS, AND IS TYPICALLY THE PRIME CONSIDERATION IN A CUSTOMER’S STORE CHOICE. LOCATIONS DECISIONS ARE HARDER TO CHANGE BECAUSE RETAILERS HAVE TO EITHER MAKE SUSTAINABLE INVESTMENTS TO BUY AND DEVELOP REAL ESTATE OR COMMIT TO LONG-TERM LEASE WITH DEVELOPERS. WHEN FORMULATING DECISION ABOUT WHERE TO LOCATE, THE RETAILER MUST REFER TO THE STRATEGIC PLAN:
INVESTIGATE ALTERNATIVE TRADING AREAS. DETERMINE THE TYPE OF DESIRABLE STORE LOCATION
EVALUATE ALTERNATIVE SPECIFIC STORE SITES
2) MERCHANDISE, (TRADE, COMMODITIES OFFERED FOR SALE):
THE PRIMARY GOAL OF THE MOST RETAILERS IS TO SELL THE RIGHT KIND OF MERCHANDISE AND NOTHING IS MORE CENTRAL TO THE STRATEGIC THRUST OF THE RETAILING FIRM. MERCHANDISING CONSISTS OF ACTIVITIES INVOLVED IN ACQUIRING PARTICULAR GOODS AND SERVICES AND MAKING THEM AVAILABLE AT A PLACE, TIME AND QUANTITY THAT ENABLE THE RETAILER TO REACH ITS GOALS. MERCHANDISING IS PERHAPS, THE MOST IMPORTANT FUNCTION FOR ANY RETAIL ORGANIZATION, AS IT DECIDES WHAT FINALLY GOES ON SHELF OF THE STORE.
PRICING IS A CRUCIAL STRATEGIC VARIABLE DUE TO ITS DIRECT RELATIONSHIP WITH A FIRM'S GOAL AND ITS INTERACTION WITH OTHER RETAILING ELEMENTS. THE IMPORTANCE OF PRICING DECISIONS IS GROWING BECAUSE TODAY'S CUSTOMERS ARE LOOKING FOR GOOD VALUE WHEN THEY BUY MERCHANDISE AND SERVICES. PRICE IS THE EASIEST AND QUICKEST VARIABLE TO CHANGE.
4) TARGET AUDIENCE:
"CONSUMER THE PRIME MOVER” “CONSUMER PULL", HOWEVER, SEEMS TO BE THE MOST IMPORTANT DRIVING FACTOR BEHIND THE SUSTENANCE OF THE INDUSTRY. THE PURCHASING POWER OF THE CUSTOMERS HAS INCREASED TO A GREAT EXTENT, WITH THE INFLUENCING THE RETAIL INDUSTRY TO A GREAT EXTENT, A VARIETY OF OTHER FACTORS ALSO SEEM TO FUEL THE RETAILING BOOM.
5) SCALE OF OPERATIONS:
SCALE OF OPERATIONS INCLUDES ALL THE SUPPLY CHAIN ACTIVITIES, WHICH ARE CARRIED OUT IN THE BUSINESS. IT IS ONE OF THE CHALLENGES THAT THE INDIAN RETAILERS ARE FACING. THE COST OF BUSINESS OPERATIONS IS VERY HIGH IN INDIA.
: IT IS THE LARGEST FORMAT IN INDIAN RETAIL SO FAR IS A ONE-STOP SHOP FOR THE MODERN INDIAN SHOPPER.*MERCHANDISE: FOOD GROCERY TO CLOTHING TO SPOTS GOODS TO BOOKS TO STATIONERY.*SPACE OCCUPIED: 50000 SQ. FT. AND ABOVE.*SKUS: 20000-30000.*EXAMPLE: PANTALOON RETAIL’S BIG BAZAAR, RPG’S SPENCERS (GIANT).
: A SUBDUED VERSION OF A HYPERMARKET.
*MERCHANDISE: ALMOST SIMILAR TO THAT OF A HYPERMARKET BUT IN RELATIVELY SMALLER PROPOSITION.*SPACE OCCUPIED: 5000 SQ. FT. OR MORE.*SKUS: AROUND 10000.*EXAMPLE: NILGIRIS, APNA BAZAAR, TRINETHRA.
C) CONVENIENCE STORE
: A SUBDUED VERSION OF A SUPERMARKET.*MERCHANDISE: GROCERIES ARE PREDOMINANTLY SOLD.*SPACE OCCUPIED: AROUND 500 SQ. FT. TO 3000 SQ. FT.*EXAMPLE: STORES LOCATED AT THE CORNERS OF THE STREETS, RELIANCE RETAIL’S FRESH AND SELECT.
D) DEPARTMENT STORE
: A RETAIL ESTABLISHMENT WHICH SPECIALIZES IN SELLING A WIDE RANGE OF PRODUCTS WITHOUT A SINGLE PROMINENT MERCHANDISE LINE AND IS USUALLY A PART OF A RETAIL CHAIN.
*MERCHANDISE: APPAREL, HOUSEHOLD ACCESSORIES, COSMETICS, GIFTS ETC.*SPACE OCCUPIED: AROUND 10000 SQ. FT. – 30000 SQ. FT.*EXAMPLE: LANDMARK GROUP’S LIFESTYLE, TRENT INDIA LTD.’S WESTSIDE.
E) DISCOUNT STORE
: STANDARD MERCHANDISE SOLD AT LOWER PRICES WITH LOWER MARGINS AND HIGHER VOLUMES. *MERCHANDISE: A VARIETY OF PERISHABLE/ NON-PERISHABLE GOODS.*EXAMPLE: VISWAPRIYA GROUP’S SUBIKSHA, PIRAMAL’S TRUMART.F) SPECIALTY STORE
: IT CONSISTS OF A NARROW PRODUCT LINE WITH DEEP ASSORTMENT.*MERCHANDISE: DEPENDS ON THE STORES *EXAMPLE: BATA STORE DEALS ONLY WITH FOOTWEAR, RPG’S MUSIC WORLD, CROSSWORD.
G) MBO’S: MULTI BRAND OUTLETS, ALSO KNOWN AS CATEGORY KILLERS. THESE USUALLY DO WELL IN BUSY MARKET PLACES AND METROS.
*MERCHANDISE: OFFERS SEVERAL BRANDS ACROSS A SINGLE PRODUCT CATEGORY.
H) KIRANA STORES: THE SMALLEST RETAIL FORMATS, WHICH ARE THE HIGHEST IN NUMBER (15 MILLION APPROX.) IN INDIA.
SPACE OCCUPIED: 50 SQ FT AND EVEN SMALLER ONES EXIST.*MALLS: THE LARGEST FORM OF ORGANIZED RETAILING TODAY. LOCATED MAINLY IN METRO CITIES, IN PROXIMITY TO URBAN OUTSKIRTS. *MERCHANDISE: THEY LEND AN IDEAL SHOPPING EXPERIENCE WITH AN AMALGAMATION OF PRODUCT, SERVICE AND ENTERTAINMENT, ALL UNDER A COMMON ROOF.*SPACE OCCUPIED: RANGES FROM 60,000 SQ FT TO 7, 00,000 SQ FT.*EXAMPLE: PANTALOON RETAIL’S CENTRAL, MUMBAI’S IORBIT.
Supplier Retailer Relationships
Traditionally the supplier-retailer relation in India comprised several layers such as the national distributor, the regional wholesaler and the end retailer. However this scenario is fast changing with the organized retail increasing its presence in the country where the relationship is directly with the manufacturer. However this new model has been affecting the relationships that the manufacturer enjoys with the traditional system that is still the most dominant in the entire retail sector. The issue of differential pricing is being taken up at several forums and the growing dissatisfaction among the traditional retailers is being addressed by the manufacturers. However we see that in the long term, the role of a national distributor would slowly fade away or get restricted to the rural/ upcountry regions. The supplier-retailer relationship would come under severe pressure, as each party would try to squeeze maximum margins out of the other.
Innovations in Transportation Logistics
The logistics service providers have been innovating several interesting formats and models for the retail sector. As of now, organized retail chains in India do not, by far, outsource logistical requirements; they develop their own network. This was basically due to the fact that the supply-chain was still in its infancy stage, which has begun to mature and the systems are being well defined. As retail chains begin to focus more and more on the retail end, the logistics support would begin to get outsourced. The logistics service providers have begun to come out with innovative customized solutions for the retail chains such as GATI’s model for distribution of Alphonso mangoes throughout the country with the Information Technology support. We see that the logistics service providers would continue to innovate and develop effective distribution systems for the retail sector.
Currently the retail sector in India is populated with the traditional mom-and-pop stores and some 1000 odd supermarkets under organized retail chains. A daring few ventured into the Hypermarket segment with successful results and this format is being fast replicated by other players. This experience indicates that the Indian consumer has matured to the next level of shopping experience. Given the Indian conditions and the vast diversity a single format may not be possible for the national presence, but region specific formats may evolve. An interesting observation is that of lack of presence of organized retail chains in the rural/semi-urban centers as over 60% of Indian population is still in these parts. An ideal “no frills” model to start with, would be ideal for the rural markets, this would help to take them to the next level of supermarket experience.
Enumerating some of the likely positive outcomes.
ORGANIZED RETAIL MARKET BOOM IS EXPECTED TO CREATE THE MUCH-NEEDED MASS EMPLOYMENT. IT WILL UPGRADE INDIA’S LAYER SECOND AND THIRD TIER CITIES TO INTERNATIONAL STANDARD. WHILE THIS BOOM ADDRESSES INDIA’S BASIC INFRASTRUCTURE CHALLENGES IT PROMISES TO CREATE DEMAND FOR THE PRODUCT OF RURAL INDIA AND A MORE EFFICIENT AGRICULTURAL SECTOR. THE ORGANIZED RETAIL MARKET BOOM IS EXPECTED TO BRING POSITIVE OUTCOMES IN MANY OF SECTORS LIKE ECONOMIC GROWTH, EXPORTS, EDUCATION, IT INDUSTRY, FOOD PROCESSING, INFRASTRUCTURE AND TRAFFIC, BANKING, TOURISM, AGRIBUSINESS MANAGEMENT ALONG WITH THE GREATER CUSTOMER SATISFACTION. SOME OF THESE POSITIVE OUTCOMES
• Development of world class retail shops is likely to gives direct employment to many professionals like real estate dealers, builders, architects, display designers, retail shop managers and workers like sales persons, security etc. Figure 2 shows the manpower gap by 2010.According to CII the retail sector can absorb 9.0 lakh people over the next five years. Some of the activities like packing is likely to be outsourced from in and around the vicinity of the establishment. One million people will be employed by this retail sector and 3.2 million will be required by 2008-09. The local community is likely to benefit from employment opportunity so generated. The employees have the opportunity of getting pension, other employee benefits and union membership under this organized sector.
• Small business can spring up around such mega retail outlets giving service to a large number of shoppers visiting the malls.
• The organized retail market boom is expected to become one of the pillars to Indian economy as are oil and gold for Middle East. Indian exports will get a boost when the big showrooms source Indian goods from small businesses for their international outlets and it will help us to find the market for the products form rural India.
• Think of the increase in transport required for providing goods and services for the retail outlets. This boom will eliminate the absence of cold-storage infrastructure problem of our farmers and help them to get the product to marketplace in time. The supply chain can again provide opportunities for a host of manufacturing, trading, and services. Air, road and rail transport is going to benefit from this. Numbers of domestic airlines is now increasing their cargo services considerably to meet the requirements of this sector
• The big book stalls in these hypermarkets become a blessing to voracious readers and researchers. It offers considerable discount and variety of books to all age of people, that now small magazine hats fail to offer.
• Managing inventories is one of the important asset of the big retailers. The best practices available in the world in this field would come into the country with the coming of players like Wal-Mart in the logistics of retail marketing. India is the fastest growing mobile market in the world. These showrooms will become major hubs for this electronic industry. Organized retail showrooms give the consumers wide range of electronics goods ranging from robots to imported toys.
• The air conditioning and refrigeration industry is likely to get a big boost. Commercial air-conditioning is likely to overtake the domestic market with the coming of this boom. The refrigerated containers required to transport perishables to various retail outlets would be enormous. The production of consumer durable goods is expected to increase by this organized retail sector.
Consumers would be the group, which benefits the most. They would get wider choices of products and cheaper prices. This will increase consumption rate and will indirectly generate more employment and wealth. The local retailers will start offering better discounts that other foreign retail giants could not cope. Time saving online shopping, home delivery through web portal and ability for better comparison of products will increase customer satisfaction.
• Education is considered as the most happening sector in India. While retail giants entering in to the fray there are many opportunities opening up in the educational sector. Retailers like Reliance itself now hire around 60-70 percent of its front-end staff from government school pass outs. Pantaloon hires 300 school passed out from both government and private. Retail career area includes store operation, supply chain management, human resource management, entrepreneurship, IT, sales etc. The management schools like NMIMS, IIMs start offering courses with specialization in this field. Number of e-learning portals start provides online courses for retail in India. Foreign Institutional Investors and corporate like Lifestyle tie up with Indian institutes like National Institute of Fashion Technology (NIFT) to start both short and long tem course for fashion retail management and retail supply chain management. This tie up will slowly shift in to other education fields also offering high quality foreign education in Indian soil. The great demand for those qualified students surely attract more and more youngsters and managers to this attractive courses and more and more public and private institutions start offering variety of courses in this field. The non-organized market sectors hiring these qualified professionals will also have change in their methodology for quality of services, supply chain management, store organization, financial management and product appreciation.
• Growing organized food retailing in India will bring significant change in the agribusiness management. The supermarket and fresh food outlet showrooms will
directly procure product from the farmers. The organized retail marketing will channelise large-scale private investments into irrigation, agriculture marketing, agriculture extension services and infrastructure such as roads, cold storage and grain banks.
• Farmers are likely to get better prices for their products as these mega retailers are likely to procure their farm products directly from the farmers. Many of the middlemen would be eliminated. They start contracts based farming and get assured buyer with stable price. The food procurement business helps the farmers when government controversial decisions to import food items or when state procurement agencies stay away
• People becoming fashion conscious. The retail markets bring the latest in fashion accessories and kids wear for customers of all age groups. Indian customers will accept the international fashion brands like Parfois, Vincci, Oakidi and Obaibi with open arms and there will be drastic changes in the dress code. The traditional saree, Kadhi and silks dress will be shifted to occasional one. Baby care products like bed linen, rolling products, handbags, jewelry, watches, sunglasses, hats, belts and hair accessories and Vincci range of footwear of foreign brands will take place in the daily use of Indian customers. Figure 3 shows the retail segments ratio in Indian
• The IT sector offers fairly high income in Indian youngsters. The greater purchasing opportunity makes them to work hard for the luxuries in their life. The world-class restaurants occupied in these retail showrooms will become a best place for get together and facilitate better family relation ship. These retail showrooms will be a great relief for old age people since they need not to walk anywhere. Those who come back to India from foreign nation would be able to keep using their favorite brands, as they are easily available through these retail shops.
• The celebrations will become more enjoyable with costly gifts. The contest and offers during the festival season by theses big giants varies like air tickets, gadgets, jewelry, and chocolates. The offers from air services like Singapore airlines and number of tourism development agencies like from other countries give a new face to the festival season in India.
• The cigarette manufactures will face strict completion from foreign brands. The places near the theses showrooms will become turn to posh areas. The street corner shops selling cheap product like Pan, Beedi etc in these places will disappear and significant reduce in the smoking at public place
• The retail boom will bring a rush in property development and significant improvements in real estate and construction work at every small town in the country. Table 4 shows the drastic changes in the Indian cities.
Table: 4. Changes in India.Urban Share Population. Average Return on
• INFRASTRUCTURE AND TRAFFIC FACILITIES WILL IMPROVE SIGNIFICANTLY. MOST OF THESE STORES ARE LOCATED AWAY FROM THE TOWN AREAS THEY WILL ENCOURAGE TO FACILITATE THE ROAD AND TRANSPORT FACILITIES TO REMOTE AREAS IN THE COUNTRY. THE GRIDLOCK OF CARS AND OTHER VEHICLES IN THE TOWN AREAS WILL BE REDUCED SINCE THE SHOPPING CENTERS FIND DIFFICULT TO FIND PARKING AREAS AND OFTEN THE CUSTOMERS VEHICLE BRING LOT OF TRAFFIC JAM IN PEAK HOURS .THE SHOPPERS WILL BE SPENDING MONEY TO DEVELOP THESE AREA.
• Better weather forecasting will be take place as Wal-Mart like big giants start depending on local whether data for replenishment purpose. Consumers will be benefited by the call center agents to enquire on particular product. For better store connectivity they will facilitate the real time status monitoring application, transformational technology like RFID, service based infrastructure and Virtual Private Networks. The IT professionals start developing retail technology products like Personal Shopping Assistant (PSA), ERP and CRM applications which will look in to inventory turn and stock availability by communicating in real time. IT industry will bring web portals to avoid go to market mechanism and innovative technologies like Ontological applications for treat each customer as unique. Number of strategic acquisitions like Oracle acquisition of Retek, 360Commerece, ProfitLogic etc in the IT industries will take place to meet the retail specific functionality. Establishment of new centers like TCS retail innovation lab, HCL, Oracle Retail Centre for the requirement engineering and related process will take place across the country.
• Retail showrooms will start offering multi channel online retailing facility. The Indian society shift to purchase product and services online in a large amount. The online shopping destinations like eBay, Amazone comparison shopping portals like google and shopping.com will be more popular in Indian community. New domestic e-commerce retailers are being born. There will be increase in the banks offerings and online facilities. The society will start using these online banking facilities, credit cards etc more and more in their daily life. The customer will be saving lot of time and have a better comparison of product in the neighborhood retail showrooms. The competition become more as adjacent district showrooms will deliver better product with in few hours. Many other related industry start advertising their product in these local web portals. This will be benefit to the small-scale industry units.
The flip side of this revolution
The flip side is equally prominent, large section of India’s people are still deprived of the fruits of development. 26 percent of India lives below poverty line their life will become more pathetic and result in increased social tensions. Table 5 shows the urban and rural area poverty rate in India.
Table 5: Over all poverty in India over various years
YearPoverty Ratio Percent Number Of Poor (Millions)
Around 40 million people in India depend on the unorganized retail sector; the trade unions and traders fear these people's livelihoods will be ruined if retail giants are permitted to enter India's retail market, some of the negative outcomes
• It is observed that the presence of big retailers like Wal-Mart depresses the wages of the employees at the bottom of the pyramid in the community. Some of the retail market giants who going to print their foot in India are notorious for driving out competition and slashing labour costs in other countries. Most of the employment opportunities that promise to create are for the semi skilled and unskilled labors this is not useful for majority of highly educated Indian youth. Reliance already started using two of the special economic zone as warehouse for their retail outlets. Farmers lost their lively hood as most of the area that acquired for the purpose are farmland. The promised compensation packages are often inadequate. Due to delay in processing and corrupted middle players of government employees, it is not reaching to the real farmers. Most of the place senior citizens protesting against for their farmland acquisition are arrested and imprisoned for several months. The great apprehensions about these retail giants’ styles of operation will bring law and order problems in the country.
• The coming of the big players in the retail market would be last nail in the coffin for thefriendly neighborhood kirana stores. The personal touch one used to get from the service ofkirana stores would be a thing of the past.
• The life style of the community would change. In food consumption, heat and eat culture would replace the conventional cooking habits of the populace. Fast foods and junk foods would replace the more nutritional conventional foods
• Retail giants with strong presence in other countries get the products cheapest rates possible from around the globe like oranges from California, pineapples from Hawaii and apples from Washington. The existing apple industry in Kashmir and Himachal will be badly affected. The presence of seasonal fruits from foreign country will surely decrease the market for Indian fruit. India’s estimated 2% food processing will struggle with the imported apple juice and processed food items. The domestic food product wastage that is 40% now will increase. The Indian tea market may vanish by the cheaper tea from Vietnamese. This global supply chain will become outlets for cheep Chinese made goods stores in India.
• The decreasing sales of fruit juice, sauce and bread items in small shops will stop the supply/movement of these ready to eat products to the owner manned general stores, which will affect the lively hood of 3.95 crores of unorganized retail trade employees.
Need of Regulations
Change is inevitable. Different retailers serve for different needs of Indian society trying to protect any group of retailers through special laws hurt the customers. The foreign retailers failed in countries like Japan. If the retailer’s growth is prevented in India the expected economic growth will be badly affected. But law enforcement and rules like Micro, Small and Medium Enterprises act 2006, Agricultural Produce Marketing Committee (APMC) act etc should be effectively implemented to make sure that small and local business are not adversely affected. Department of industrial policy and promotion Polices (DIPP) and local governing bodies should make polices to integrate small trading class as partners in the large retail chains so that they too can benefit from new technologies and new management practices.
*State government must have control over these retailers and they should bring conditionality for the functioning of foreign retailers from place to place. They should closely monitor their functioning and introduce new internal self-regulations.
*Banking finance for the welfare of unorganized sector for improving their efficiency should be enhanced.
*Strict labor laws and limited opening hours must be there for theses shops.
*The FDI policies should be reformed from time to time and foreigners entering strategies like franchise agreement, cash and carry whole sale trading, strategic licensing agreement make foolproof for avoiding global retailers to engage in full retailing. Like Mexico, Brazil, Argentina, Uruguay, Chile and Costa Rica got together to bring new legislation to prevent Wal-Mart from opening too many stores in their countries.
*India should not allow the retail giants from monopolizing market above some percent in any sector. The price of commodities should be agreed by the state government. Mutual agreement with local government for the promotion of local commodities and employment should be signed by the foreign vendors. The food processing and allied services should bring under reserved items. The procurement must be through government agencies like supply co.
*The ministry should make sure that for all foreign retailers wishing to enter India, they should give an undertaking that whatever volume of business they generate in India for the first 10 years, they must export an equivalent amount (or more) from India for these 10 years This will facilitate Indian manufacturing sector to get a boost. All foreign retailers must undertake to buy at least 50% of their merchandise (by retail value) from within India. This will prevent any dumping in India. All large retailers (of say total retail space > 250 square feet) must have a 4 percent turnover cess that should be used by the Government to provide technology, training, and marketing support (through local small retailer associations) to kirana / other neighborhood stores. Government should make sure that the farmers are getting real profit of their product, which were bulkily procured and stored in the cold storage of these retailers, during off-season as well.
The paper paints a verbal picture of the impending retail boom likely to happen sooner than later. The signs are all over the place. For few years foreign retailers will have the role of facilitator for to standardize the agribusiness and to unify customer’s preference across the country. The competition will help to increase the quality of service of the existing local retailers and greater customer satisfaction in Indian society. Concept of self-employment will vanish and sustainable small industries will be roped with the big chains. Paper gives a glimpse of the slow evolution of retail market over the years. A concise description of the drivers of this phenomenon was discussed. The likely positive and negative impact of this revolution is enumerated.
Reference*Andrew Collins,”Competitive Retail Marketing Dynamic Strategies for Winning and KeepringCustomers”, McGraw-Hill, 1992Arjun Swarup,”India`s Retail Revolution”, Blog Globaleconomydeosmatter, March, 2007.Arpita Mukerjee, “FDI in retail Sector: India “, Academic foundation, 2005Charles M Edwars,Roselle A Brown,”Retail Advertizing and Sales Promotion”,1959.E-Business,”Hosted E-commerce Building Competitive Advantage for the Online Retailer”,ET “Govt to scan Bharti, Wal-Mart deal: Nath”. The Economic Times, November 28, 2006
*MRINMOY K SARMA - RETAIL MANAGEMENT IN INDIA: SOME GLOBAL ISSUES*Retail logistics: changes and challenges - John Fernie and Leigh Sparks