Table of Contents
Supply Chain Decisions ....................................................................................................... 2 Location Decisions .................................................................................................... 3 Production Decisions ................................................................................................ 3 Inventory Decisions ................................................................................................... 3 Transportation Decisions .......................................................................................... 4
Supply Chain Modelling Approaches............................................................................... 4 Integration of Food Industry Key Driver of food Retail in India ................................... 5 Evolution of Organised Retailing ....................................................................................... 5 Impact of Organized Retail ................................................................................................ 5 Likely Transformation of the Supply Chain ....................................................................... 6 Big Bazaar ............................................................................................................................. 7 Big Bazaars Commitment .................................................................................................. 8 Sustained Growth...................................................................................................... 8 Empowered People.................................................................................................. 8 Responsibility and Trust ............................................................................................. 8
Future Strategies at Big Bazaar .......................................................................................... 9 Supply Chain Process at Big Bazaar .................................................................................. 9 Food Supply Chain ............................................................................................................ 10 Why managing Food Supply Chain is a challenge? .................................................... 11 Food Supply Chain Categorization ................................................................................. 12 Perishable Supply Chain ........................................................................................ 12 Non- perishable Supply Chain .............................................................................. 12
Need to manage this unique and complex supply chain .......................................... 12 Now Big Bazaar has:-......................................................................................................... 12 Food supply chain of Big Bazaar divided into 3 categories: ....................................... 13 Farm Fresh-Foods Supply Chain ............................................................................ 13 Cold Chain............................................................................................................... 13 FMCG Supply Chain ............................................................................................... 14
Future aspects of food retail supply chain ..................................................................... 14 Logistics ............................................................................................................................... 17 Problems at Big Bazaar Logistics ........................................................................... 18 Recommendations ................................................................................................. 19
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Location Decisions The geographic placement of production facilities, stocking points, and sourcing points is the natural first step in creating a supply chain. The location of facilities involves a commitment of resources to a long-term plan. Once the size, number, and location of these are determined, so are the possible paths by which the product flows through to the final customer. These decisions are of great significance to a firm since they represent the basic strategy for accessing customer markets, and will have a considerable impact on revenue, cost, and level of service. These decisions should be determined by an optimization routine that considers production costs, taxes, duties and duty drawback, tariffs, local content, distribution costs, production limitations, etc. (See Arntzen, Brown, Harrison and Trafton [1995] for a thorough discussion of these aspects.) Although location decisions are primarily strategic, they also have implications on an operational level. Production Decisions The strategic decisions include what products to produce, and which plants to produce them in, allocation of suppliers to plants, plants to DC's, and DC's to customer markets. As before, these decisions have a big impact on the revenues, costs and customer service levels of the firm. These decisions assume the existence of the facilities, but determine the exact path(s) through which a product flows to and from these facilities. Another critical issue is the capacity of the manufacturing facilities--and this largely depends on the degree of vertical integration within the firm. Operational decisions focus on detailed production scheduling. These decisions include the construction of the master production schedules, scheduling production on machines, and equipment maintenance. Other considerations include workload balancing, and quality control measures at a production facility. Inventory Decisions These refer to means by which inventories are managed. Inventories exist at every stage of the supply chain as either raw material, semi-finished or finished goods. They can also be in-process between locations. Their primary purpose to buffer against any uncertainty that might exist in the supply chain. Since holding of inventories can cost anywhere between 20 to 40 % of their value, their efficient management is critical in supply chain operations. It is strategic in the sense that top management sets goals. However, most researchers have approached the management of inventory from an operational perspective. These include deployment strategies (push versus pull), control policies --- the determination of the optimal levels of order quantities and reorder points, and setting safety stock levels, at each stocking location. These levels are critical, since they are primary determinants of customer service levels.
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Transportation Decisions The mode choice aspects of these decisions are the more strategic ones. These are closely linked to the inventory decisions, since the best choice of mode is often found by trading-off the cost of using the particular mode of transport with the indirect cost of inventory associated with that mode. While air shipments may be fast, reliable, and warrant lesser safety stocks, they are expensive. Meanwhile shipping by sea or rail may be much cheaper, but they necessitate holding relatively large amounts of inventory to buffer against the inherent uncertainty associated with them. Therefore customer service levels and geographic location play vital roles in such decisions. Since transportation is more than 30 % of the logistics costs, operating efficiently makes good economic sense. Shipment sizes (consolidated bulk shipments versus Lot-for-Lot), routing and scheduling of equipment are key parameter in effective management of the firm's transport strategy.
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In the organized retail industry, the gestation periods are long, institutional funding is difficult, and there is none or little Government support. But the belief among top retailer chains in the country is that the industry will see large investments coming once the current ban on foreign direct investment is lifted. But that could be twothree years away. Food and grocery retailing is a tough business in India with margins being very low, and consumers not dissatisfied with existing shops where they buy. For example, the next-door grocery shopkeeper is smart and delivers good customer service, though not value. Pantaloon Retail (India) Ltd, which operates two types of retail formats, made its maiden foray in food and grocery retailing in North India in mid-2003. Big Bazaar, Pantaloon group's discount store chain, has taken off to a roaring start in Delhi. The Pantaloon Big Bazaar in Delhi is the sixth for the group, and the first in North India. It has been found that existing Big Bazaar stores in cities such as Hyderabad, Bangalore and Mumbai attract average footfalls of 20,000 to 25,000 per day, more so during weekends. While Big Bazaar is essentially a discount store retailing product categories ranging from food and grocery to apparel to footwear to home and interior products, food and grocery retailing forms a significant part of the chain's business. Typically, while food and grocery retailing does well at the beginning of the month, the apparel sector sees maximum off take during festivals.
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Big Bazaar
Big Bazaar is consumer goods retail chain of Future Group Pvt Ltd. Future Group also runs Pantaloons, Lifestyle, Ezone, Book Depot, Future Bazaar, Food Bazaar, Home Town, Fair Price, Brand Factory and Central Hypermarket. Future group is a subsidiary of Pantaloons Retail India Limited which is listed in NSE and BSE the most established Stock Markets in India. Mr Kishore Biyani is the person behind Big Bazaar. He is CEO and MD of Pantaloons Retail India Limited. Big Bazaar is based on the concept of Hypermarket or Mega stores. In this kind of Hypermarket consumer get all the daily routine products under single roof. Big bazaar is having more than 215 stores in more than 95 cities and towns. Big Bazaar launched in India with a bang by opening its 4 stores in 4 major cities Bengaluru, Indore, Hyderabad and Kolkata within a time span of just 22 days. Big Bazaar was started in India in September 2001. It is now 10 years when big bazaar was started and has a huge number of stores all over India. Big Bazaar was started as a fashion hypermarket which had Apparels, Accessories, Cosmetics and General Merchandise on sale. Later on a huge range of other products was added to the list. This list includes FMCG products, Electronics, furniture, Stationery, etc. These stores are established on big areas having huge displays and providing cool and comfortable shopping experience to consumers. These stores are based on the concept of Wal-Mart USA. The starting Tag Line of Big Bazaar was Isse Sasta Aur Accha Kahin Nahin. After completion of its 10 years in Retail market the company has given a new tag line Naye India Ka Bazaar. In these 10 years Big Bazaar has become favourites among housewives and other group of consumers too. In overall it has become the favourite retail store of every Indian family. Most of outlets of Big Bazaar are on an area of minimum 50,000 square feet. In bigger metropolis there are some huge stores on an area of 160,000 square feet. Big Bazaar express stores in small towns are also on 30,000 square feet area only. Big Bazaar also has its own house brand also which it promote in its stores. The most famous of them are Clean Mate, Tasty treat, Sensei etc. Big bazaar has some great promotional schemes too. It offers Buy 1 Get 1 Free on many products. There are huge discounts on MRP of many products. Big Bazaar also has special schemes on weekends and weekdays. They keep on promoting products by having special display of products. Sampling and testing of many products is available in store. Many small companies even launch their products through Big Bazaar. There are many schemes by various companies which are available in Big Bazaar only. Big bazaar also provides consumer durables on Low EMI and interest free instalments also.
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Big Bazaar operates at 3 levels Super market, hyper market and Express stores. Express stores are running in high traffic areas too. It stared in developing areas to take advantage of Real estate Boom. Big Bazaar has changed the face of Indian consumer market a lot by giving consumer a lot of alternatives to choose from.
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Procurement cycle
Manufacturing cycle
Replenishement cycle
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Big Bazaars Supply Chains transportation capability enables it to implement Factory-Gate logistics involving pick-up of goods from vendors across the country, national distribution of goods, and city logistics that includes store deliveries and home deliveries. Big Bazaars Supply Chains is the first organized intra-city transportation services company in India -carrying out not only B2B deliveries but also B2C deliveries in the form of thousands of home deliveries every day across the country, especially for Furniture and Consumer Durables. Big Bazaar is also working on the vendor network as well as the logistics network. The company has identified up to 40 anchor vendors, each with turnovers of US$45 million, to achieve economies of scale. The group is also keen to ensure that its smaller vendors are able to reach turnovers of around US$1 million and a growth rate of 40% annually, to be able to pass on the benefits of scales. The company is also working towards bringing its 1,200 vendors online, like Wal-Mart. In India, Big Bazaar derives significant economies of scale in managing their supply chain. With more than 170000 products, the company maintains a strong supplier relationship in a partnership mode, avoiding the exploitative supplier buyer transactional philosophy. The IT enabled back-end operations and supply chain management increases the reliability and efficiency of the business. As part of the operation, Big Bazaar is also undertaking to reduce its warehousing costs through a consolidation process. In a country like India, where most retail stores are located in the heart of the city where rents are high and storage space is scarce supply chain management has even more serious business implications. Future Logistics now handles two-and-a-half million SKUs (or stock keeping units) a day across the Future Groups various retail formats around the country. By 2010, this number is expected to increase to more than 30 million SKUs a day. Even with 98% accuracy, some 600,000 pieces will not be delivered correctly, resulting in an estimated sales loss of more than Rs 4 crore a day. Big Bazaars four main consumer sectors: Fashion, Food, Home and General Merchandise have varied product lines, each with their own unique needs that require 30 distinct supply chain solutions.
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Now Big Bazaar has: Gained and mastered art of managing the food supply chain due to its association with Food Bazaar. In house expertise to manage perishable (Fruits and vegetables, dairy, meat, poultry, Bakery) and non-perishable (FMCG-Food, Staples, Processed food). State of the art warehouses across the nation which can cater to the customized needs. A strong in-house transportation department with fleet of vehicles for every need and type Availability of most advanced warehouse management system which would ensure all aspects like FIF, Lot management, product traceability, product recalls Availability of transport management system with vehicle tracking facilities to track product movement at every stage of transportation ( Real time visibility) Page 12
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such as fresh agricultural produce,[1] seafood, frozen food, photographic film, chemicals and pharmaceutical drugs. FMCG Supply Chain Big Bazaar maintains the supply chain of 3 different kinds of FMCG products Food, Non-food, Health & Personal care, with the latter being the latest entry into its product portfolios. While FMCG-Food is again distributed through cold-chain networks, non-food and health and personal care have different supply chain network. The FMCG-non-food category items follow usual general merchandise supply chain networks, where products are first stored from the factories to different vendors or distribution centres, from where Big Bazaar replenishes its stock based on demand of the items.
Whereas, health and personal care products may or may not be subject to refrigerated distribution. They are more or less distributed as non-food FMCG goods too.
can efficiently transport fresh fruits and vegetables from a farm to the shop-floor while retaining its freshness. Future Group has a separate company that handles its dry vegetables supplies as well, but the new entity will have independent profit and loss responsibilities as well. It will rent out space from Future Groups stores and separately branded counters will handle sales of fruits and vegetables. Mr Biyani has recently announced that he is planning to introduce the concept of freezing fruits and vegetable prices. That means prices of fruits and vegetables will not fluctuate throughout the year but sold at one fixed price around the year further adding benefits for the customers. If Big Bazaar does implements such a scheme, it will heavily depend and rely on its highly efficient supply chain to deliver seamless supply of products even when demands are very high and cost of products very low, reaping very less profit. In the process of setting up the retail networks, these large corporations are changing the domestic agricultural landscape. For starters, they are introducing the Indian farmer to better seeds, new technology, supply chain management and food processing. These companies have already brought in technology that increases the shelf life of fruits and vegetables. Primarily, there are three models being worked on by India Inc. First, a model farm likes Bhartis Field Fresh. Second, contract farming. Third, contact farming. In contract farming, the farmer is supplied seeds and other ingredients by the company. The contractor buys the entire farm produce at a pre-fixed price. However, in case there is a supply shortage and the price offered by the government is higher than the price contracted by the company, the farmer can sell it all to the government. Contact farming is a more complicated. Here, a farmer takes land on lease from other farmers. He is generally paid Rs 15,000 per acre every year, while the marginal farmer is employed to work on his land for which he is paid a monthly salary. But Bharti says it is switching to contract farming because of the complexities of contact or collaborative farming. In Ratnagiri, Maharashtra, farmers have formed cooperatives and regularly supply mangoes to retail chains. We sold 35,000 tonnes of mangoes from Ratnagiri last year. The farmers managed to get 90 per cent of the original cost; says Arvind Chaudhary, CEO Pantaloons Retails food business. If they had gone to a Mandi they would have realised only 70 per cent of the cost. This year, Pantaloons Food Bazaar is planning to buy 100,000 tonnes of mangoes. The supply chain is managed such that mangoes are transported to the store a week before they become ripe. Cold chain is used only in the case of potatoes, where 5,000 tonnes are stocked in UP. Pantaloons food
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business is growing at 25 per cent in the entire Big Bazaar chain, which also sells FMCG products. However, there are certain issues that agro-retail chains will have to address before they can make the farmer smile. Hurdles such as bad infrastructure, high cost logistics management, the middleman and the limiting APMC Act will have to be crossed if retail has to assist the farmer. Since the existing supply chain allows them to connect with only those farms that are nearest to the cities, those living in the hinterland still have no access to markets. Importantly, the best of these stores shy away from commenting on the investments. There has also been a call to set up an exchange market for agricultural produce. This free market principle, CEO s feel, will liberate the farmer in terms of actual price realisation and keep him out of debt for the coming season. The National Spot Exchange Limited, an exchange which is dedicated for agro-produce, is supposed to create a benchmark even for the small farmer who can sell only one quintal. The NSEL is in the process of setting up 117 warehouses and cold chains of 700,000 metric tonnes capacity each to make the exchange operational. Right now, companies are mostly dealing with farmers on the periphery of cities but analysts say they would ultimately have to invest in cold chains and move into the interiors. Whether companies except for those with deep pockets like Reliance will have the courage to do that is in question. According to the confederation of Indian industry, if India has to double fruits and vegetables production to 300 million tonnes by 2012, it would require pumping in close to Rs 20,000 crore. But analysts warn that such investment may not pay dividend since it doubles the cost of transportation. Fung Capital, a private equity investment company of Fung families, has decided to invest around $30 million in the logistics and supply chain arm of Kishore Biyani led Future group .Future Supply Chain Solutions (proposed new avatar of Future Logistic Solutions Ltd.), in return, has agreed to divest up to 26 per cent of equity stake in favour of the private equity firm. Future Supply Chain Solutions, which presently services over 1,100 retail outlets, manages over 2.6 million SKUs and over 3 million sq. ft. of warehousing network spread over 30 centres, and handles a fleet of over 500 vehicles plying across the country, will use the newly raised capital for enhancing logistics infrastructure, strengthening technology platforms, and expanding supply chain network of the company for its Big and Food Bazaar arms. We are building a world class supply chain infrastructure for the consumption products in India which is presently very limited, despite it being a critical support required in Indias rapidly growing economy. We will be investing in physical as well as technology infrastructure that will reduce the time-to-market and cost-to-market for fashion and apparel and other consumer categories, said Anshuman Singh, Managing Director of Big Bazaar. Another important future aspect of supply chain rather the biggest driver in Page 16
consumer logistics is going to be zero defects in managing the supply chain. While infrastructure, technology, automation, processes and people will all play an important role, zero defects can only be achieved through vertical integration across the entire supply chain from raw material supply, production, wholesale and retail. The different parts of the supply chain will no longer be able to work in silos as they do today.
Logistics
One of the most important challenge in organized retail in India is faced by poor supply chain and logistics management. The importance can be understood by the fact that the logistics management cost component in India is as high as 7% -10% against the global average of 4% - 5% of the total retail price. Therefore, the margins in the retail sector can be improved by 3% - 5% by just improving the supply chain and logistics management. In India, with demand for end-to-end logistics solutions far outstripping supply, the logistics market for organized retail is pegged at $50 million and is growing at 16%. It is expected to reach $120-$130 million by 2010. Organized retail on the other hand is growing at 400% and is expected to reach around $30 billion by 2010 Even supply chain and logistics firms like Hong Kong based Heng Tai Consumables and ABS Procurement Co and ACM China(the greenhouse specialist) is also eying the opportunity for managing the supplies. The supply chain management is logistics aspect of a value delivery chain. It comprises all of the parties that participate in the retail logistics process: Manufacturers, Wholesalers, and Third Party Specialists like Shippers, Order Fulfilment House etc. and the Retailer. Here, logistics is the total process of planning, implementing and coordinating the physical movement of merchandise from manufacturer to retailer to customer in the timeliest, effective and cost efficient manner possible. Logistics regards order processing and fulfilment, transportation, warehousing, customer service and inventory management as interdependent functions in the value delivery chain. It oversees inventory management decisions as items travel through a retail supply chain. If a logistics system works well, the retail firm reduces stock outs, hold down inventories and improve customer service all at the same time. Logistics and Supply Chain enables an organized retailer to move or store products more effectively. Efficient logistics management not only prevents needless movement of goods, vehicles transferring products back and forth; but also frees up storage space for more productive use. Retail analysts say on-time order replenishments will become even more critical once the Wal-Mart/ Bharti combine begins operations - the American retailer works almost entirely on cross-docking and is likely to demand higher service levels, including potential levies for delays in shipment. The efficiency and effectiveness of supply chain and logistics management can also be understood by the fact that modern retail stores maintain lower inventories than traditional retail. In India, generally in the traditional Kirana stores, three weeks inventories are kept; while in a modern retail store like Hyper city, it's nine days and it's under two weeks for Food Bazaar. Now, it is beneficial for both the manufacturer Page 17
as well as the retailer. If we go through the following food supply chain in India, we find that a lot can be improved by maintaining the supply chain and logistics, their availability on a relatively large scale and supplying them to customers on a relatively small scale. Retailer is a Person or Agent or Agency or Company or Organization who is instrumental in reaching the Goods or Merchandise or Services to the End User or Ultimate Consumer.
Big Bazaar sells variety of merchandise, at affordable rates, the prices of which it claims are lowest in the city but the level of services offered is also very low. Usually the items are clubbed together for offers as on the lines of Wal-Mart and Carrefour and it also offers weekend discounts. It currently operates out of 64 stores and top 15 stores register a cumulative footfall of 27 lakh a month on an average. Problems at Big Bazaar Logistics Significant losses/damages during Shipping The next problem in setting up organized retail operations is that of supply chain logistics. India lacks a strong supply chain when compared to Europe or the USA. The existing supply chain has too many intermediaries: Typical supply chain looks like Manufacturer - National distributor. Regional Distributor - Local Wholesaler - Retailer -Consumer This implies that global retail chains will have to build a supply chain network from scratch. This might run foul with the existing supply chain operators. In addition to fragmented supply chain, the trucking and transportation system is antiquated. The concept of container trucks, automated warehousing is yet to take root in India. Inadequate Infrastructure The lack of proper infrastructure and distribution channels in the country results in inefficient processes. This is a major hindrance for retailers as a non-efficient distribution channel is very difficult to handle and can result in huge losses. Infrastructure does not have a strong base in India. Urbanization and globalization are compelling companies to develop infrastructure facilities. The storage infrastructure, too, is severely restricted. In 2006, India had a total warehousing capacity of 81 million tonne. Like the rest of the infrastructure sector, warehousing is highly fragmented and unorganised Transportation, including railway systems, has to be more efficient. Highways have to meet global standards. Airport capacities and power supply have to be enhanced. Warehouse facilities and timely distribution are other areas of challenge. To fully utilize India's potential in retail sector, these major obstacles have to be removed. Almost 78% of total freight is transported by road. Almost 78% of total freight is transported by road. But, according to the FICCI-E&Y retail report, roads connect less than half of the half a million Indian villages. The normal distance covered by trucks and trailers in India are 250-300 km a day, whereas the international norm is 600-800 km a day. Most roads in India are designed to carry a maximum gross weight of 16.2 tonnes, which allows for a
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maximum loading of about 9 tonnes. This severely restricts the ability to transport goods on larger vehicles. Warehouses located far from city: Some of the warehouse are located in villages and are far from the city so it takes time for goods to reach mall. Recommendations Improvement in Supply Chain:Big Bazzar should use better techniques for improvising its supply chains. The organisational structure and the business model of Wal-Mart are its winning-formula for some markets. But this also dooms it to failure in others. The heart of the matter is high-volume-low-cost strategy, which made it a success in cost-conscious smaller, everybody-knows-everybody cities in the US. But this very strategy doomed it to failure in larger (anonymity, high consumerism) cities in the US. A very high real estate cost in big cities was also detrimental to its strategy in such cities. Warehouse Location:Though it is a cost cutting formula of Big Bazzar, but now the Indian scenario has changed. Though it has its own logistics called Future logistics, it should try some other ways to improve its in housing of goods. Many a times it happens that goods are not available to customers as the time taken between ordering and processing is very long. Improvement in Packaging:Big Bazzar should ask suppliers to send goods with good packaging so that losses due to breakage should be avoided. Moreover its own handling and carrying should be improved. Infrastructure:Internal ware house of Big Bazzar has very low capacity. Its completely Hoch- Poch. Due to insufficient space of storage losses are very frequent. Shop lifting especially internal is very high. It should allow its suppliers to have a track of their goods so that when stock finishes they will automatically supply.
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