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Samarth Final

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Investigation of key triggers and pain-points that are affecting the adaptation decision within consumer goods companies to the growth of organized retail.

Investigation of key triggers and pain-points that are affecting the adaptation decision within consumer goods companies to the growth of organized retail.

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  • 1. “ Investigation of key triggers and pain-points that are affecting the adaptation decision within consumer goods companies to the growth of organized retail” May 2008
  • 2. OVERVIEW
    • INTRODUCTION
    • DEVELOPMENT OF THE QUESTIONNAIRES
    • ADDRESSING PROJECT QUESTIONS
    • LEARNINGS
  • 3. INTRODUCTION
    • Indian retail market is the 5 th largest in the world.
    • Estimated growth: From US $330 billion in 07 to US $427 billion by 2010 & US $637 billion in 2015.
    • Organized retail has increased its share from 5 per cent of total retail sales in 2006 to 8 per cent in 2007.
    • The fastest growing segments have been the wholesale cash and carry stores (150 per cent) followed by supermarkets (100 per cent) and hypermarkets (75-80 per cent). Further, it estimates the organized segment to account for 25 per cent of the total sales by 2011.
    • Source: www.ibef.com
    Food & grocery has been the fastest growing retail segment at 91% of the whole market
  • 4. ESTIMATED FIGURES FOR 10 YEARS Source: Economist Intelligence Unit Projected Sales in Retail Till 2014 also Category Wise Sales Projections
  • 5. KPMG Advisory Services DEVELOPMENT OF THE QUESTIONNAIRES
    • Initial meeting helped a great deal.
    • Master Questionnaire – On 11 Sections
    • MERCHANDISING
    • RETURN(ROI)
    • LOGISTICS (3PL)
    • INVENTORY
    • PROMOTIONS
    • FORMATS AND LAYOUTS
    • PAYMENTS AND PROCESSES
    • ASSORTMENT
    • INFORMATION TECHNOLOGY
    • CATEGORY MANAGEMENT
    • SOURCING
    • Division of the questionnaire – Manufacturer & Retailer
    • Reference from - Retail Management – A strategic Approach: By BARRY BERMAN & JOEL R.EVANS
  • 6. ADDRESSING PROJECT QUESTIONS
    • What are the issues that consumer goods are facing in adapting their supply chain to the needs of modern retail?
    • What are the key pain points from the perspective of both manufacturer and retailers?
    • Are there examples of initiatives that have succeeded in satisfying both stakeholders?
    • Are there CPG companies that are at different stage of evolution in their adaptation to the requirements of modern trade?
  • 7. Supply Chain Logistic Issues Inventory Issues Promotional Issues Performance Issues Stock Security, Cost Reduction, Service Levels, Control Out of Stock, Replacement, Return Execution of campaigns, High Costs, Revenue, Less Inventory Late Deliveries, Damaged Goods, Missing Goods, Short Supplies (R) Internal Processes, Manpower, Conflicts, Awareness (M)
  • 8.
    • Stock Security
    • Retailers face problem of missing and damaged goods in transit from the Distribution Center to the retail outlet
    • Manufacturers face the same challenges from the factory to the DC to retail outlet
    • Service Levels
    • Timely delivery is one of the challenges retailers face often
    • Safety in transit is what the retailers desire from the manufacturers
    • Good Network is desired by both the parties
    • Return
    • Problem of return is seen in the perishable category of products by both the retailers and manufacturers
    • Manufacturers do not take the goods after a certain period, so retailers face losses
    • Nestle, Amul do not take back the goods from the retailers.
    • Promotional Issues
    • Retailers want store specific promotions which conflicts with the manufacturer’s national or global campaigns
    • Inventory does not match the demand in a campaign.
    • Retailers do not have enough skilled manpower to assist the manufacturers in a specific promotion
    • Performance
    • No awareness among retailers about new technologies and processes
    • Payment delays by retailers is a common occurrence
    • Fight for higher margins is seen between both the retailers and the manufacturers
    • Late deliveries by suppliers is a problem faced by the retailers
    • A lot of retailers face a problem of late supplies from the manufacturers
    Details of each issue will give a better picture of the problems in the supply chain.
  • 9.
    • What are the issues that consumer goods are facing in adapting their supply chain to the needs of modern retail?
    • What are the key pain points from the perspective of both manufacturer and retailers?
    • Are there examples of initiatives that have succeeded in satisfying both stakeholders?
    • Are there CPG companies that are at different stage of evolution in their adaptation to the requirements of modern trade?
  • 10. Pressure on margins, execution and not enough inventory support from retailers for promotions. Data constraints & retailer resistance in assortment. Not enough skilled manpower with retailers. Execution of promotions, weak internal processes & lack of skilled manpower from retailer’s side Competition, Pressure on margins. Payment issues & also bargains are high. Manpower, competition, pressure on margins. Not enough revenue generated by promotions, not enough inventory to support it. Integration challenges in assortment. Not enough awareness among retailers. Lack of modern tools to analyze sales. Backend operations are weak with retailers.
    • Tools like – SPSS & Spreadsheets to track sales
    • Assortment of products differ at the retail outlet
    • Shelf space competition is high
    • Delayed payments-beyond credit period
    • Bargains from stronger retailers bring down the margins
    • Gap in inventory vis-à-vis promotions
    • Implementation of desired campaigns do not happen
    • Promotions not in accordance with global campaigns
    • Lack of awareness in technology-sap, sales tracking software.
    • Assortment of products not in accordance-Big Bazaar
    Common pain points: Competition, Pressure on margins, Execution of promotions, Lack of skilled manpower, Assortment problems Manufacturers
  • 11. Retailers Replenishment is one of the major problems faced by Nilgiri’s, also due to high setup costs of manufacturer equipment, they have resorted to their own machinery. One reason for not using 3 rd party logistics is the stock security issue. Also they have a problem of space for new SKU’s in their stores. Metro wants improvements in service levels & cost reduction for their 3 rd party logistics. Replenishment is a big issue. Store specific product lot. Short supplies. Execution & high cost of promotions are issues. Integration challenges in assortment of products. Late deliveries, damaged goods & missing goods Due to stock security issues they avoid 3pl.Space for new SKU’s & high costs for promotions also pose problems. Stock security issues, return of goods, aisle specific product lot, high cost of promotions, merchant resistance in assortment of goods are various challenges they face. Croma very often goes out of stock & the layout of the stores is not increasing the profitability. Common Pain Points Stock security issue, Replenishment, High cost of promotions, Return of goods
    • High initial cost of promotions
    • Challenges in assortment of products in compliance with manufacturers
    • The lot sizes are small and SKU’s dimensions are not aisle/store specific
    • They get short supplies, hence they often run into stock outs
    • It has an angular floor plan which is not helping substantially to the profitability
  • 12. Merchandizing Logistics Inventory Performance Responses By Manufacturers The pie charts represent the responses by all the manufacturers N-No , Y-Yes The responses also reflect the pain points and problems of manufacturers N N Y (RTC Logistics) N N Y (Own) 3rd Party Logistics Nestle L'Oreal ITC P&G Godrej HUL  
  • 13. Logistics Merchandizing Inventory Performance Responses By Retailers The pie charts represent the responses by all the retailers N-No , Y-Yes N Y N N N N Y (Local Players) 3rd Party Logistics Reliance Fresh More Croma Namdhari Nilgiri Big Bazar Metro  
  • 14. A Perception On The Performance of CPG Companies on Various Supply Chain Fronts Areas Details Godrej L'Oreal HUL P&G ITC Nestle STRUCTURE Structure in terms of departments dealing with organized retail 3 4 4 4 4 4 SYSTEMS How good are their forecasting, merchandizing stock management systems 3 3 4 4 4 4 PROCESSES
    • Efficiency in their category management and payment cycles
    3 3 4 4 4 3 PRODUCT ASSORTMENT
    • Undertaking of cross category management and shelf space management
    3 3 4 4 4 3 PROMOTIONS Tie ups and partnerships with retailers. 4 4 4 4 4 4 PRICING Using price discrimination with retailers 2 3 2 2 2 2
  • 15. A Perception On The Performance of Retailers on Various Supply Chain Fronts Areas Details Big Bazaar Metro Nilgiri’s Namdhari More Croma Reliance Fresh STRUCTURE Structure in terms of departments dealing with organized retail 4 4 3 3 4 4 4 SYSTEMS How good are their forecasting, merchandizing stock management systems 4 4 3 3 4 4 4 PROCESSES
    • Efficiency in their category management and payment cycles
    4 4 4 3 4 4 4 PRODUCT ASSORTMENT
    • Undertaking of cross category management and shelf space management
    4 4 3 3 4 4 4 PROMOTIONS Promotions across different categories of products. Budget allocated for promotions. 5 4 3 3 4 4 4 PRICING Is the pricing policy competitive. Also how competitive are the prices of private labels. 4 3 4 3 4 4 4 SOURCING/SUPPLYING Sharing of information with suppliers and sourcing of products from international or domestic locations 4 4 2 3 4 3 4
  • 16.
    • What are the issues that consumer goods are facing in adapting their supply chain to the needs of modern retail?
    • What are the key pain points from the perspective of both manufacturer and retailers?
    • Are there examples of initiatives that have succeeded in satisfying both stakeholders?
    • Are there CPG companies that are at different stage of evolution in their adaptation to the requirements of modern trade?
  • 17.
    • Initial Observation:
    • One of the oldest retail chains in the southern region
    • Deals in majority of Private Brands
    • Problems Faced
    • Supplier equipment expensive and favoring the brand – Pepsi, Coke chillers have a down payment of Rs 45000 to Rs 60000. Also no other products can be kept in those.
    • The co-ordination in terms of order placement among the Main stores, Smaller stores and the factory had gaps, therefore right order lot sizes was a problem.
    • Steps & implementation
    • Supply chain information system (e-mail network)
    • Internal display changes
    • Private equipment – Nilgiri’s Chillers
    • Training of retail store staff (initiative towards education)
    • Using Planogram for product arrangement for customer ease.
    • Has recently formed a new team of management professionals to look into modern trade.
    • Once Nilgiri’s setup their own warehouses, their inventory turns will come down.
    * Current inventory turns for Nilgiris is not a good representation 21.9 Nilgiris 2005* 27.2 Nilgiris 2006* 12 Food Bazaar 7.54 Wal-Mart 5.73 Target 3.21 Tesco 31.45 Inventory Turns 7 Eleven Organization
  • 18.
    • Initial Observation:
    • One of the first cash & carry format in India.
    • Fundamentally a wholesaler with a B2B approach
    • Has large number of local and unorganized suppliers
    • Problems Faced:
    • Since a large number of suppliers are unorganized therefore deliveries tend to be late
    • Large number of suppliers are not aware of the latest trends in technology like ERP solutions, SAP therefore supplies do not match the demand.
    • Every supplier will have its own distribution fleet, hence there is mismanagement and delay in assembly of goods.
    • Steps & implementation:
    • Metro has started initiatives to educate and train farmers and other smaller suppliers to standardize their processes (Logistics) to meet wholesale stores worldwide.
    • It also aids the suppliers to modernize their supply chains by minimizing warehousing and shipping costs.
    • Metro helps its suppliers meet international quality standards.
    • Metro has launched a supplier relationship portal which allows all suppliers to manage their stock inventory with Metro.
  • 19.
    • What are the issues that consumer goods are facing in adapting their supply chain to the needs of modern retail?
    • What are the key pain points from the perspective of both manufacturer and retailers?
    • Are there examples of initiatives that have succeeded in satisfying both stakeholders?
    • Are there CPG companies that are at different stages of evolution in their adaptation to the requirements of modern trade?
  • 20. GODREJ
    • Have a Planogram to track the merchandize
    • Have promotions category wise
    • Clear objective of either higher sales or higher margins behind each promotion
    • Tie ups with various channel financers – HDFC,HSBC (Giving 14 days credit period)
    • Helps retailers to increase margins on various SKUs
    • Marginal change in business in modern trade
    • Tracking of ROI on promotional campaigns is less accurate
    • Sourcing of products has not seen a considerable change
    • RTC 3PL
    • Have integrated software in all logistic operations (warehousing, transportation, procurement)
    • Relations with retailers improved in modern trade
    • No merchandizing system but Trade Marketing Teams in place
    • No 3PL
    • No initiative for joint category management
    • No 3PL
    • No shared system with retailers
    • No specialized teams for Modern trade
    For Godrej & L’Oreal to evolve it will require certain strategic modern trade teams and planning systems which assist in proper negotiations and terms with the retailers. Also they need to initiate joint category management steps for proper SKU management HUL ITC P&G L’Oreal TIME EVOLUTION Evolution of different CPG companies since the advent of Modern trade
  • 21. Clearly HUL has an edge over other Manufacturers in certain areas of the supply chain, hence on a comparative basis it is more evolved than others No (direct) No (direct) No (direct) No (direct) No (direct) Yes Payments (Channel Financer) Yes Yes N/A  Yes Yes Yes Promotions (objectives defined) No No No N/A  Yes Yes Logistics (3PL) SAP SAP Trade Marketing teams N/A  SAP & SIFY Planogram Information Technology (Planning Systems) GODREJ NESTLE L'Oreal P&G ITC HUL AREAS COMPANIES  
  • 22. LEARNINGS
    • After looking into the retail supply chain closely, it comes to me as a revelation as to how various processes work together from both the ends of the spectrum (Suppliers & Retailers)
    • During the course of this study I also learnt the various problems which are faced by both the parties and also how they are going about finding solutions to counter them.
    • This study helped me look into the various processes with regards to Information Technology, Payments, Promotions etc carried out by retailers and manufacturers.
    • I could even picture various CPG companies evolving in the modern trade scenario in India by having in depth interviews and conversations with various category and marketing managers.
    • Even though the supply chain is not evolved to handle concerns from both the sides (retailers & manufacturers), there are examples of initiatives where steps are being taken to bring about collaboration in retail operations.
    • I also got to learn that various retailers and manufacturers are upbeat about the future prospects of retail and they feel it will only improve in the years to come.
    • This project has opened up horizons of knowledge for me in retail management and operations in the supply chain.
  • 23. THANK YOU