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Demand driven retail: Through SCM and LTO

As retailers flourish in the Indian market, the market for software and hardware-based products and solutions that cater to this segment is burgeoning. Supply chain management (SCM) along with ERP is among the critical ingredients of a retail success story. By Dominic K

India is on the verge of an organised retail boom. Earlier, the trend was more about various Indian corporate houses rolling out malls and supermarkets, but with the recent Bharti-Wal-Mart venture, the era of the hyper stores is expected to dawn for good. Unlike the kirana stores that served us for decades, these fully air-conditioned, well-organised and neat malls are heavily dependent on IT and IT based solutions.

Retail statistics

Retail IT spending shows that retailers are investing in capabilities to help them better shape and fulfil consumer demand while delivering a superior shopping experience through flawless execution across selling channels. Increasingly, retailers are looking to third-party services firms to provide the expertise necessary to support their business and technology investments and help them cut costs. Indeed, third-party services firms get nine percent of retail IT budgets, and 23 percent of retail companies surveyed will increase their IT services budgets in 2006 (only four percent plan to trim their budgets). Options abound for services firms, ranging from boutique onshore providers to offshore and global behemoths.

Retailers must sift through the multitude of choices to determine which services firm offers them the right balance of domain knowledge of retail process and technical capabilities at an appropriate cost.

Demand driven retail
Demand driven retailing is a system of technologies and processes that senses and responds to real-time demand across a network of customers, suppliers, and employees increase visibility of stocks across the supply chain, conducts 'what if' based analysis for selecting a solution and reduces the days of inventory.

Scope for improvement

One of the key imperatives facing retailers in India is to have a robust and scalable supply chain that will facilitate rapid growth. One measure of efficient operations is the inventory turns ratio.

Many Indian retailers surveyed by KPMG have inventory turns levels between four and ten. Another measure of efficient supply chain management is stock availability on the retail shelves. Global best-practice retailers can achieve more than 95 percent availability of all SKUs on retail shelves (translating into a stock-out level of less than five percent).

As per KPMG, the stock-out levels among Indian retailers range from five to 15 percent. Looking at the inventory turns and stock availability measures, retailers in India need to improve their operations.

An AMR Research report on retail supply chains informs that most retailers lose sales around 41 percent of the time due to stock outs and 29 percent due to the fact that consumers opt to buy competing brands. The primary reason of this is that changes in the consumer demand do not reflect in the retail supply chain.

Informs Apurva Chamaria, Category Marketing Manager, HCL Retail practice “Demand-driven retailers will replace or supplement legacy merchandising and pricing systems. This will enable merchants and category managers to accurately predict their customer needs and provide enhanced services such as better pricing, promotions, merchandising, assortment, allocation, space, and replenishment functionality.”

Lead Time Optimisation (LTO)
  • Lead Time Optimisation is a recent supply chain management theory, practice and software focused on trend-driven demand uncertainty and products with short selling cycles. A LTO solution maximizes profits for volatile and short lifecycle products in addition to minimizing costs. The leading solution provider on LTO currently is Infosys.
  • The potential benefits derived by retailers implementing a Lead Time Optimisation solution include:
  • Increase in full-price merchandise sales and subsequent revenues due to reduced stock-outs and markdowns
  • Cost savings from planned fulfilment versus ad hoc replenishment
  • Increased supply chain efficiency and responsiveness
  • Increased operating profits

Source: Infosys

ERP: what they need

The Indian economy grew at about 8.1 percent in 2005-06. The estimated retailer base in the country is 12 million, of which two to three percent fall into the organised sector. The organised retail sector is growing at 25 to 30 percent per annum, and the combined turnover of this portion of the retail market is forecast to touch Rs 1,00,000 crores by 2010.

Dynamic Vertical Solutions (DVS) has a suite called LS Retail that sits atop the Microsoft Dynamics platform. It offers solutions from POS to back-office on the same application, allowing seamless integration of all functional areas in all of the following activities—retail management, financials, sales, purchase, inventory, human resources, payroll, CRM and production.

Key issues in the retail supply chain
Supply chain complexity Supply chains have started stretching across boundaries leading to greater variance and complexity
Longer lead times Offshore manufacturing leads to longer lead times, thereby causing huge transit costs, delayed reaction to changes in demand, greater cycle times and piling inventories
Intense pricing competition With big box retailers competing heavily on prices, the need to retain customers and maintain margins requires having an efficient supply chain network
Shortening product life cycles With big box retailers competing heavily on prices, the need to retain customers and maintain margins requires having an efficient supply chain network
Globalisation Globalisation of retailers has led to increased risks in the supply chain
Outsourcing Retailers rely more on outsourcing to meet their product needs
Source: HCL

Path ahead

India is witnessing phenomenal growth when it comes to shopping malls and dedicated speciality retail stores. The speciality stores cater to electronics, furniture, watches, sunglasses etc. There will be more fashion stores for the youth. Speciality retail stores and malls are the future of Indian retail.