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Scm mini project 1

  1. 1. SUPPLY CHAIN MANAGEMENT BENCHING STUDY MINI PROJECT 1 GROUP 7COMPARING SUPPLY CHAIN OF INDIAN Period of Study: 2006-2010 RETAIL INDUSTRY Pantaloons vs. Spencer ABSTRACT: This Project is done by the team as a part of Supply Chain Management Course. The present study aim at studying and comparing different Supply Chain Metrics that is either being used or that can be SUPPLY CHAIN MANAGEMENT COURSE used to improve the overall supply chain in the Indian Retail industry. Two retail giants Big Bazaar (Pantaloons) and Spencer & Company Ltd MINI PROJECT 1 are used for this study. PROJECT ON SUPPLY CHAIN MANAGEMENT BENCHMARKING TEAM MEMBERS: VIVEK PAREKH 2010281 DEBASHISH BAGG 2010298 SAKSHI AGARWAL 2010206 SANKHA DIP DATTA 2010207 SHANTANU PANDEY 2010212 SHASHANK SHEKHAR TRIPATHI 2010213 BENJAMIN WEBER 2010FE01 1|P a g e
  2. 2. SUPPLY CHAIN MANAGEMENT BENCHING STUDY MINI PROJECT 1 GROUP 7INTRODUCTION TO SUPPLY CHAIN BENCHMARKING STUDY: Most exhaustive of the supply chain metrics are laid down by Supply Chain Council as SupplyChain Operations Reference (SCOR) model. The SCOR model captures content that been used bypractitioners for many years. The SCOR model provides a unique framework that links business process,metrics, best practices and technology features into a unified structure to support communication amongsupply chain partners and to improve the effectiveness of supply chain management and related supplychain improvement activities. In this study we have not though taken the complete exhaustive SCOR model, we could beconsidering a few metrics that is suited for Indian Retail industry like Cash to cash cycle, Supply chaininefficiency ratio, supply chain length and supply chain working capital ratio.INDIAN RETAIL SECTOR Indian retail market has been ranked 4th most attractive emerging market. Indias retail sectoraccounts for 12% of GDP with about 25 million people being employed and second largest employer afteragriculture in the country. Moreover, Indias overall retail sector is expected to rise to around USD 600billion by 2013. The Organized retail currently accounting for around 5 percent is pegged at around USD20 billion. This is expected to grow and touch USD 107 billion by 2013. The Key challenges Indian organized retail facing are the cost and availability and delivery ofquality retail real estate, trained manpower, and attrition in the industry. The rentals continue to be thehighest expense of modern retailers and are almost 4 to 5 times that of their western counterparts continueto pose a challenge to their growth. Indian retailers have difficulty in finding trained personnel and incursignificant costs for training them. Further, the Attrition is another significant problem the retails arefacing.PANTALOON RETAIL LTD. Pantaloon Retail India Limited (PRIL), a retailer was incorporated in 12th October of the year1987, headquartered in Mumbai, the company operates through primarily the Lifestyle and Valueformats through multiple delivery mechanisms and lines of business, some of them being, fashion, food,general merchandise, home, leisure and entertainment, financial services, communications and wellness.The Company has stores in 51 cities across the country, constituting over 6 million square feet of retailspace. It caters to the Lifestyle segment through its 35 Pantaloons Stores and 5 Central Malls, as well asits other concepts. In Value retailing it is present through 78 Big Bazaar hypermarkets, 113 Food Bazaarsand other delivery formats.SPENCER RETAIL LTD. Spencer’s Retail Limited is a multi-format food-first retailer providing a wide range of qualityproducts to discerning young customers - well-travelled citizens of the world, looking out for authenticflavors and experiences in a fun-filled shopping environment. Part of the Rs 15,500 crore RPG Group,Spencer run about 200 stores (including about 30 large format stores) across 35 cities in India. As one ofthe earliest entrants in the retail space in India, Spencer have been instrumental in introducing Indianconsumers to the concept of organized retailing, becoming the country’s first grocery chain back in 1920, 2|P a g e
  3. 3. SUPPLY CHAIN MANAGEMENT BENCHING STUDY MINI PROJECT 1 GROUP 7and offering the joys of hypermarket shopping in 2001. Spencer also has a wide selection of electronicsand electrical equipment, home and office essentials, garments and fashion accessories, toys, and personalcare.ASSUMPTIONSA few assumptions that are made are the present studies are as follows: 1. Days of operation are 365 days a year. 2. Inventory carry cost is 20% of total inventory cost.INTERPRETATIONS FROM THE RESULTS Table 1 shows the calculation of Supply chain Metrics that are basis of comparison of Pantaloonsand Spencer’s Retail format. Data for the first part of the table is primarily from Capital line databasethough annual reports of individual companies were studied for further detailed data. The Interpretationon the data here is broadly classified to heads i.e. Cash to cash cycle, length of supply chain, Supply chaininefficiency ratio and Supply chainworking capital productivity. Fig 1: Cash to cash cycle 150 1. Cash to cash cycle. As can be seen from figure 1, 100Spencer Retail has a better cash to cashcycle when compared to other Indian 50Retail industries. On an overall we can 0see the effect economic slowdown on 2006 2007 2008 2009 2010retail industry of India that rose the cash -50to cash cycle to 66 days. Pantaloonsexpansionary visions might help in -100explaining the high cash to cash cycle that Pantaloons Spencer Retail IndustryPantaloon is presently dealing with.There is clear signal that even though Spencer is a much smaller player in the industry its able to led thebargain and win more cash from its vendors leading to a consistent negative cash to cash cycle time. Against an industry average growing by almost 6folds over the period of FY 2006-10, BigBazaar-Pantaloon Retail’s Cash-to-Cash cycle has increased by just over three times, whereas that ofSpencer’s Retail has increased seven fold, though he latter has maintained a negative cash-to-cash cyclethroughout. This implies that, Big Bazaar has been pursuing credit sales policy unlike Spencer’s Retail,which might otherwise have been the primary factor behind the former’s significantly higher growth inbusiness.Alter: For most of the aforementioned metrics, there has been a deviation from the trend during theperiod FY 2008-09, due to the global economic downturn, and consequent slump in consumption level. 2. Length of Supply chain in number of days 3|P a g e
  4. 4. SUPPLY CHAIN MANAGEMENT BENCHING STUDY MINI PROJECT 1 GROUP 7 Figure 2 shows that the expansion of Fig 2: Length of Supply chainIndian retail format seems to have been 200affecting the length of its supply chain dearly.Length of retail industry has almost doubled in 150the last five years making the transportationand other related supply chain cost shoot up. 100This growth can also be attributed to growth in 50rentals and transportation charges. 0 In this parameter it can be seen that the 2006 2007 2008 2009 2010companies under study have performed better Pantaloons Spencer Retail Industrythan the industry performance as a whole. TheLength of Supply Chain (in days) for Big Bazaar has just doubled over the period of five years, whereasthat for Spencer’s Retail has more than doubled, against the Retail Industry Average which has grown atan annual rate of 35% (approx). This implies that the responsiveness of the supply chain has reduced at ahigher rate, for Spencer’s Retail than that of Big Bazaar. 3. Supply chain inefficiency ratio Fig 3: Supply Chain In effeciency Ratio Figure 3 shows that the year 2008- 0.55 2009 proved turning point to all the supply 0.50 chain efficiency. Retail industry has been 0.45 maintaining an efficiency of 65% over the 0.40 0.35 years where as its members efficiency 0.30 have been varying Pantaloon have 0.25 returned back to its efficiency where as 0.20 Spencer’s efficiency was badly affected by 2006 2007 2008 2009 2010 the slowdown. The ending part of the Pantaloons Spencer Retail Industry curve shows that Spencer’s are trying to return back to its former efficiency. 4. Supply chain working capital productivity. Figure 4 shows the working capital productivity varying over the time. It can be seen that theslowdown again in this parameter has too brought all the companies in the same platform to play i.e. theproductivity has been approx 6 in2008. Pantaloon in one hand seems to Fig 4: Working capital Productivityhave been busy with making out with 500the productivity where as Spencer’shave been capitalizing on the same. 400Value of supply chain working 300capital productivity is due to firms 200working on negative working capitalof basically on the money borrowed, 100i.e. in this case from their vendors. 0 2006 2007 2008 2009 2010 Pantaloons Spencer Retail Industry 4|P a g e
  5. 5. SUPPLY CHAIN MANAGEMENT BENCHING STUDY MINI PROJECT 1 GROUP 7CONCLUSIONS The supply chain mechanism of a retail business can be appropriately used to increaseprofitability by focusing on improving supply chain responsiveness and a long cash-to-cash cycle whichboosts the growth in business prospects, which has been successfully followed by Big Bazaar-Pantaloon’sRetail. On the other end of the spectrum , as evident from the given supply chain metrics, maintaining anegative cash-to-cash cycle (minimizing credit sales) and focusing more on supply chain efficiency, canalso be pursued as a conservative buy stable business policy. Striking a perfect balance between the twoapproaches, as described above, decides the prospects of the business, which has been found to be infavor of Big Bazaar- Pantaloon’s Retail.LIMITATIONS OF THE STUDY Due to lack of extensive data the seasonality and other effects on the metrics under observationwere not studied. The results were basically based out of aggregate data that has been circulated. Due tomost of the Indian retail sector being under control of local and unorganized player solid conclusions onthe efficiencies and measures to improve the same cannot be formulated. 5|P a g e
  6. 6. SUPPLY CHAIN MANAGEMENT BENCHING STUDY MINI PROJECT 1 GROUP 7 Table 1: Supply Chain Metrics comparison of Indian Retail giants Pantaloons Retail Ltd. Spencer Retail Ltd. Retailing Industry Financial Year 2010 2009 2008 2007 2006 2010 2009 2008 2007 2006 2011 2010 2009 2008 2007 1 Sales 4,326 6,317 6,661 5,296 3,393 952 1,133 854 540 291 8,414 10920 11115 8,932 5,839 2 Cost of Goods sold 3,144 3,279 4,783 4,127 2,611 727 892 771 444 259 5,735 6,351 7,735 6,740 4,3082a Operational Expenses 1,329 1,704 1,661 1,542 1,023 467 532 307 156 69 2,540 3,260 3,253 2,654 1,811 3 Inventory Turnover Ratio 2.85 4.13 4.14 4.57 4.87 N/A 6.88 7.14 10.96 7.88 5.59 2.56 3.94 4.41 5.03 4 Actual average Inventory 1103 794 1155 903 536 N/A 130 108 41 33 1026 2481 1963 1528 856 5 Estimated average Inventory 1497 1508 1588 1140 685 138 162 118 49 22 2487 2697 2824 2028 753 6 Raw Material Inventory 4.5 4.6 12.3 10.2 8.9 0 0 0 0 0 0 0 0 0 0 7 Work in Process Goods 3.3 5.3 4.8 6.9 11.5 0 0 0 0 0 0 0 0 0 0 8 Finished Goods 1,736 1,240 1,748 1,393 849 127 148 175 61 37 2,679 2,295 3,099 2,550 1,505 9 Accounts Receivable 185 124 177 113 65 19 25 28 12 7 651 584 538 291 14810 Accounts Payable 544 410 205 253 224 164 152 0 101 65 1,933 1,885 1,794 1,255 72511 Days of Operation 365 365 365 365 365 365 365 365 365 365 365 365 365 365 365 Cash to cash cycle12 Cost of Goods sold/day 8.61 8.98 13.10 11.31 7.15 1.99 2.44 2.11 1.22 0.71 15.71 17.40 21.19 18.47 11.8013 Days of Accounts Payable 63.12 63.12 63.12 63.12 63.12 82.44 62.07 0.00 82.57 91.26 123.01 108.35 84.66 67.99 61.4314 Sales/day 11.85 17.31 18.25 14.51 9.30 2.61 3.10 2.34 1.48 0.80 23.05 29.92 30.45 24.47 16.0015 Days of Accounts Receivable 15.63 7.14 9.71 7.80 7.01 7.17 8.01 11.85 7.93 8.30 28.25 19.52 17.66 11.88 9.2216 Days of Inventory 173.75 167.83 121.18 100.80 95.79 69.06 66.20 55.97 40.07 30.90 158.27 154.99 133.27 109.80 63.7717 Cash-to-Cash Cycle in days 126.26 111.85 67.77 45.48 39.68 -6.21 12.15 67.81 -34.57 -52.05 63.51 66.16 66.27 53.69 11.57 Length of Supply chain18 Total length of Supply Chain in days 173.75 167.83 121.18 100.80 95.79 69.06 66.20 55.97 40.07 30.90 158.27 154.99 133.27 109.80 63.77 Supply Chain Inefficiency Ratio19 DC 1329 1704 1661 1542 1023 467 532 307 156 69 2540 3260 3253 2654 181120 Inventory Carry Cost 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.221 Supply Chain Management Cost 1550 1863 1892 1723 1130 494 558 329.03 163.96 76.01 2744.77 3799.35 3645.29 2959.86 1981.9522 Supply Chain Inefficiency Ratio 0.3583 0.2949 0.2840 0.3253 0.3330 0.5193 0.4921 0.3855 0.3037 0.2615 0.3262 0.3479 0.3280 0.3314 0.3394 Supply Chain Working Capital productivity23 Supply Chain Working Capital 745 508 1,127 763 378 -8 3 136 -48 -25 -256 1,396 707 564 27924 Supply Chain Working Capital productivity 5.81 12.44 5.91 6.94 8.99 -119.80 399.26 6.29 -11.19 -11.52 -32.92 7.82 15.73 15.85 20.94 Monetary values mentioned in above table are in Crs of INR. 6|P a g e
  7. 7. SUPPLY CHAIN MANAGEMENT BENCHING STUDY MINI PROJECT 1 GROUP 7REFERENCES: 1. Annual reports of Spencer Retail. 2. Annual Reports of Pantaloon Retail Ltd. 3. Capitaline plus database. (Referred on 8th November, 2011).APPENDIX: Main source of data was Capitaline web site and annual report. Attached below are the balancesheets and profit and loss statements of Spencer’s retail and Pantaloon Retail ltd for the five years ofstudy. The report also includes aggregate data of the retail industry that is extracted from Capital linewebsite.SPENCER RETAIL BALANCE SHEET Year Mar 10 Mar 09 Mar 08 Mar 07 Mar 06 SOURCES OF FUNDS : Share Capital 26.01 26.01 26.01 26.01 20.61 Reserves Total -468.58 -210.09 -32.42 57.69 16.23 Equity Application Money 767.45 618.65 248 0 6.25 Total Shareholders’ Funds 324.88 434.57 241.59 83.7 43.09 Secured Loans 57.18 76.28 84.54 87.3 17.28 Unsecured Loans 350 300 350 0 9.85 Total Debt 407.18 376.28 434.54 87.3 27.13 Total Liabilities 732.06 810.85 676.13 171 70.22 APPLICATION OF FUNDS : Gross Block 402.02 442.83 359.41 125.18 61.1 Less : Accumulated Depreciation 101.32 68.82 43.97 22.68 13.38 Less: Impairment of Assets 0 0 0 0 0 Net Block 300.7 374.01 315.44 102.5 47.72 Lease Adjustment 0 0 0 0 0 Capital Work in Progress 35.48 65.17 86.91 21.36 10.35 Investments 88.25 80.3 1.01 1.01 0.01 Inventories 129.49 151.95 177.59 61.65 36.89 Sundry Debtors 18.7 24.88 27.71 11.73 6.61 Cash and Bank 13.54 27.8 28.29 22 7.05 Loans and Advances 82.55 89.19 174.86 59.39 30.06 Total Current Assets 244.28 293.82 408.45 154.77 80.61 Less : Current Liabilities and Provisions Current Liabilities 172.19 171.33 192.63 106.07 66.84 Provisions 10.77 5.58 5.07 2.57 1.63 Total Current Liabilities 182.96 176.91 197.7 108.64 68.47 Net Current Assets 61.32 116.91 210.75 46.13 12.14 7|P a g e
  8. 8. SUPPLY CHAIN MANAGEMENT BENCHING STUDY MINI PROJECT 1 GROUP 7 Miscellaneous Expenses not written off 0 0 0 0 0 Deferred Tax Assets 246.31 175.45 71.95 0 0 Deferred Tax Liability 0 0.99 9.93 0 0 Net Deferred Tax 246.31 174.46 62.02 0 0 Total Assets 732.06 810.85 676.13 171 70.22 Contingent Liabilities 3.74 14.9 0.82 0.39 0.84SPENCER RETAIL PROFIT AND LOSS STATEMENT Year Mar 10 Mar 09 Mar 08 Mar 07 Mar 06 INCOME : Sales Turnover 951.84 1,133.05 853.61 539.83 290.64 Excise Duty 0 0 0 0 0 Net Sales 951.84 1,133.05 853.61 539.83 290.64 Other Income 14.41 79.44 6.73 0.86 0.29 Stock Adjustments -26.41 -11.89 113.45 24.04 28.97 Total Income 939.84 1,200.60 973.79 564.73 319.9 EXPENDITURE : Raw Materials 726.75 891.84 771.07 444.41 258.54 Power & Fuel Cost 25.45 39.84 28.14 11.84 5.06 Employee Cost 105.25 140.35 82.9 43.56 20.9 Other Manufacturing Expenses 28.13 32.95 19.93 11.64 5.24 Selling and Administration Expenses 204.63 266.78 172.44 83.6 34.97 Miscellaneous Expenses 103.33 51.7 4.02 5.21 3.28 Total Expenditure 1,193.54 1,423.46 1,078.50 600.26 327.99 Operating Profit -253.7 -222.86 -104.71 -35.53 -8.09 Interest 28.08 24.91 17.48 6.67 3.42 Gross Profit -281.78 -247.77 -122.19 -42.2 -11.51 Depreciation 48.57 40.79 27.74 9.4 3.65 Profit Before Tax -330.35 -288.56 -149.93 -51.6 -15.16 Fringe Benefit tax 0 1.55 1.39 0.74 0.38 Deferred Tax -71.86 -112.44 -62.02 0 0 Reported Net Profit -258.49 -177.67 -89.3 -52.34 -15.54 Extraordinary Items -61.38 70.65 -0.47 0.45 0.07 Adjusted Net Profit -197.11 -248.32 -88.83 -52.79 -15.61 P & L Balance brought forward -325.93 -148.26 -59.01 -6.67 -17.5 Statutory Appropriations 0 0 0 0 0 Appropriations 0 0 0 0 -26.37 P & L Balance carried down -584.42 -325.93 -148.26 -59.01 -6.67 Book Value-Unit Cur -170.15 -70.77 -2.46 32.18 17.87 8|P a g e
  9. 9. SUPPLY CHAIN MANAGEMENT BENCHING STUDY MINI PROJECT 1 GROUP 7PANTALOON RETAIL BALANCE SHEET Year Jun 11 Jun 10 Jun 09 Jun 08 Jun 07 SOURCES OF FUNDS : Share Capital 106.9 41.23 38.06 31.86 29.35 Reserves Total 2,671.23 2,527.48 2,211.48 1,751.51 1,062.82 Equity Share Warrants 100 122.88 22.88 63.26 0 Equity Application Money 0 64.66 0 0 0 Total Shareholders’ Funds 2,878.13 2,756.25 2,272.42 1,846.63 1,092.17 Secured Loans 1,675.89 1,236.03 2,525.53 1,991.77 951.93 Unsecured Loans 497.23 150.19 299.86 200.01 347.65 Total Debt 2,173.12 1,386.22 2,825.39 2,191.78 1,299.58 Total Liabilities 5,051.25 4,142.47 5,097.81 4,038.41 2,391.75 APPLICATION OF FUNDS : Gross Block 1,877.67 1,417.04 1,876.45 1,368.76 767.07 Less : Accumulated Depreciation 410.64 294.89 307.69 170.59 92.47 Net Block 1,467.03 1,122.15 1,568.76 1,198.17 674.6 Capital Work in Progress 100.13 59.68 345.23 330.64 131.13 Investments 2,255.41 2,002.91 954.03 586.52 252.01 Current Assets, Loans & Advances Inventories 1,762.20 1,270.67 1,787.84 1,429.84 885.96 Sundry Debtors 185.24 123.57 177.25 113.16 65.17 Cash and Bank 85.77 100.54 109.34 121.1 162.97 Loans and Advances 478.92 423.02 1,208.31 964.48 635.35 Total Current Assets 2,512.13 1,917.80 3,282.74 2,628.58 1,749.45 Less : Current Liabilities and Provisions Current Liabilities 1,166.48 863.42 916.39 620.08 343.89 Provisions 29.92 24.22 20.46 17.58 15.71 Total Current Liabilities 1,196.40 887.64 936.85 637.66 359.6 Net Current Assets 1,315.73 1,030.16 2,345.89 1,990.92 1,389.85 Deferred Tax Assets 19.03 29.87 2.77 27.19 2 Deferred Tax Liability 106.08 102.3 118.87 95.03 57.84 Net Deferred Tax -87.05 -72.43 -116.1 -67.84 -55.84 Total Assets 5,051.25 4,142.47 5,097.81 4,038.41 2,391.75 Contingent Liabilities 906.59 3,547.05 111.5 158.42 101.32PANTALOON RETAIL PROFIT AND LOSS STATEMENT Year Jun 11 Jun 10 Jun 09 Jun 08 Jun 07 INCOME : Sales Turnover 4,325.57 6,316.66 6,661.42 5,295.88 3,392.79 Net Sales 4,325.41 6,316.66 6,661.42 5,295.88 3,392.79 Other Income 21.4 97.43 12.28 30.93 96.53 9|P a g e
  10. 10. SUPPLY CHAIN MANAGEMENT BENCHING STUDY MINI PROJECT 1 GROUP 7 Stock Adjustments 494.15 -783.88 353.11 614.41 365.95 Total Income 4,840.96 5,630.21 7,026.81 5,941.22 3,855.27 EXPENDITURE : Raw Materials 3,143.77 3,278.65 4,783.06 4,126.60 2,611.00 Power & Fuel Cost 71.44 83.2 98.97 78.2 61.51 Employee Cost 209.44 270.67 269.94 269.41 206.09 Other Manufacturing Expenses 89.35 136.61 182.44 155.23 113.19 Selling and Administration Expenses 766.76 1,041.88 867.12 716.88 488.07 Miscellaneous Expenses 105.07 142.64 144.56 103.45 63.28 Total Expenditure 4,385.83 4,953.65 6,346.09 5,449.77 3,543.14 Operating Profit 455.13 676.56 680.72 491.45 312.13 Interest 193.47 301.04 324.44 212.44 94.26 Gross Profit 261.66 375.52 356.28 279.01 217.87 Depreciation 146.37 161.88 140.05 83.39 36.86 Profit Before Tax 115.29 213.64 216.23 195.62 181.01 Tax 24 32.83 25.5 29.13 30.77 Fringe Benefit tax 0 0 1.89 3.24 2.32 Deferred Tax 14.62 1.25 48.26 37.28 27.93 Reported Net Profit 76.67 179.56 140.58 125.97 119.99 Extraordinary Items -3.69 44.42 -2.38 -0.93 60.12 Adjusted Net Profit 80.36 135.14 142.96 126.9 59.87 Adjust. below Net Profit 0.16 0 0 -49.09 0 P & L Balance brought forward 495.98 380.54 267.56 215.76 116.59 Appropriations 66.44 64.12 27.6 25.08 20.82 P & L Balance carried down 506.37 495.98 380.54 267.56 215.76 Dividend 20.27 17.13 11.57 10.67 7.54 Preference Dividend 0.01 0 0 0 0 Equity Dividend % 45 40 30 30 25 Earnings Per Share-Unit Cur 3.38 8.57 7.28 7.79 8.09 Book Value-Unit Cur 125.04 124.6 118.21 111.95 74.42 10 | P a g e

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