Wal-Mart vs.

REI 6Ten Ltd

A comparison of the supply chain strategy of a large international retailer vs. a medium sized domestic retailer

Submitted By:
Bhagat Singh 118 Manjari Lakshmanan 128 Rakesh Das 139 Ratika Kapoor 140

Table of Contents
SUMMARY ............................................................................................................................................... 3 BACKGROUND ......................................................................................................................................... 3 Introduction To Wal-Mart ....................................................................................................................... 5 Vision & Culture ...................................................................................................................................... 5 Features Of A Supply Chain..................................................................................................................... 8 Procurement & Distribution ................................................................................................................... 9 Logistics Management .......................................................................................................................... 10 Cross Docking .................................................................................................................................... 10 Inventory Management ........................................................................................................................ 12 Performance Indicators ........................................................................................................................ 15 Efficiency measures that Walmart has incorporated ........................................................................... 17 Bull whip effect .............................................................................................................................. 17 Consequences: .................................................................................................................................. 19 WalMarts response: ....................................................................................................................... 19 Sustainable Supply Chain ...................................................................................................................... 19 Issues that Wal-Mart might will face in India ................................................................................... 20 Recommendations to Wal-Mart ........................................................................................................... 21 REI 6TEN RETAIL LTD ............................................................................................................................. 22 Procurement ......................................................................................................................................... 22 Issues faced in procurement ............................................................................................................. 23 Managing Inventory .............................................................................................................................. 24 Supply Chain.......................................................................................................................................... 24 Forecasting issue ............................................................................................................................... 24 Order and delivery Issues: ................................................................................................................ 25 Recommendations for 6Ten Retail ....................................................................................................... 25 CONCLUSION......................................................................................................................................... 25

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SUMMARY Wal-Mart
Saving People money so they can live better

The Indian retail industry is the fifth largest in the world. Comprising of organized and unorganized sectors, India retail industry is one of the fastest growing industries in India, especially over the last few years. Though initially, the retail industry in India was mostly unorganized, however with the change of tastes and preferences of the consumers, the industry is getting more popular these days and getting organized as well. With growing market demand, the industry is expected to grow at a pace of 25-30% annually. The India retail industry is expected to grow from Rs. 35,000 crore in 2004-05 to Rs. 109,000 crore by the year 2010. India is witnessing a retail revolution and the sector is seeing a rapid growth. But the food and grocery segment is still a segmented one. It is also characterized by inefficiencies. It aspire to create a vibrant and sustainable business model for this segment keeping abreast of this radical change in the retailing industry. Predominantly, it focuses on the products of daily needs especially fruits and vegetables. REI Agro launched its 6Ten chain of retail outlets in the last quarter of the fiscal of 2006-07. Through this venture, it endeavors to get closer to the customers to fulfill their needs. It is committed to provide excellent value for money maintaining an innovative and responsive operating structure that delivers quality products and services to customers. It is uniquely positioned because of its experience in the food industry as well as relationship in the supply network. Wal-Mart strongly believed and constantly emphasized on strengthening its relationships with its customers, suppliers and employees. The company was very vigilant and sensed the smallest of changes in store layouts and merchandising techniques to improve performance and value for customers. The company made efforts to capitalize on every cost saving opportunity. The savings on cost were always passed on to the customers, therby adding value at every stage and process. The report covers the literature behind Supply chain and Supply chain management. The various objectives and analysis of Supply chain management are covered in the report. There are many elements which form a backbone of Supply chain management. Efforts are been made to explore these dimensions with the help of retail giant Wal-mart. The report also covers the application of RFID in Wal-mart with Supply chain management technology at its behest. Efforts are been made to understand different processes that Wal-mart uses in its Supply chain management.

BACKGROUND
In the times of rapid globalization, with a number of foreign players entering different industries in India, it is interesting to see the effect that FDI will have on retailing in India. According to the 1991 population census, the total population of India was 846 million. One

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fourth of this population lived in 3768 towns and the remaining in 627000 villages. 1 To cater to such a large population spread over a vast geographic area with different levels of infrastructure, retailing in India evolved into a complex structure that varied in terms of size, economics and scope of activities. Unlike developed countries, retailing in India is fragmented. The structure ordinarily consists of many layers such as stockists, wholesalers, retailers, carrying and forwarding agents. Retail in India operates at three parallel levels: Formal sector: shops with ongoing business registered with government agencies under the Shops and Establishment Act ( kirana shops, malls, supermarkets) Informal Sector: enterprises without any fixed premises ( hawkers) Government Fair Price Shops: ration shops owned by private individuals

Retail is further divided into Inorganised Sector ( Kirana Stores) & Organised Retailing ( Reliance Retail, Subhiksha etc.) This paper is an effort to understand the supply chain and distribution strategies of A large international chain like Walmart Vs. the strategy of small organized retailers and whether the organized retailers will be able to match up to these international chains in the advent of 100% FDI in retail and Walmart entering the Indian Market. This project is divided into 2 parts An analysis of the best practices that Walmart follows Issues that Walmart might face in India An analysis of a domestic organized retail chain What it can learn from the Walmart example

We chose Walmart for 2 reasons: Being one of the largest retail chains in the world it has a lo Its entry into the Indian Market has the potential to beat a lot of indigenous players

Paper on Indian retail market by Mr.Amit Roy, and Mr. Sujit Das, director Indian Research and information services

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We chose REI 6/10 retail Its a mid sized organized retail chain in India We wanted to learn about how many of the best practices are followed and can be followed by Indian Retail Chains- Interviews with staff and CEO of Rei 6/10 Retail

Introduction To Wal-Mart
Wal-Mart was founded in 1962, with the opening of the first Wal-Mart discount store in Rogers, Ark. By 1969, Walmat had 18 stores, and an annual sale of $44 million. The company incorporated as Wal-Mart Stores, Inc. on Oct. 31, 1969. The company's shares began trading on OTC markets in 1970, and were listed on the New York Stock Exchange two years later. In mid 1970s Walmart acquired 16 Mohr-Value stores in Michigan and Illinois & by Late 70s, the retail chain had a pharmacy, an Auto service center and jewellery divisions. In the 1980s, continued to grow due to the large customer demand. Walton said When we arrived in these small towns offering lower prices everyday, customer satisfaction guaranteed, we passed right by the old variety store competition, with their 45% mark ups, limited selection and limited hours. Walmart stores were located in large warehouse type buildings, away from the main city. It targeted customers who bought merchandise in bulk. With the infusion of investor capital, the company grew to 276 stores in 11 states by the end of the decade. In 1983, the company opened its first Sams Club membership warehouse, and in 1988 opened the first supercentre -- now the companys dominant format -- featuring a complete grocery in addition to general merchandise. Wal-Mart became an international company in 1991 when it opened its first Sam's Club near Mexico City.

Vision & Culture

Wal-Mart is known all over the world as the company that helps their customers save money so they can live better. At the core of their rules and customs is the basic value of respect
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for the customer, associates, and suppliers, which is their focus for building relationships. They are well known for their unique corporate culture which has made them one of the most admired companies in the world. Operating divisions Wal-Mart's operations are organized into three divisions: Wal-Mart Stores U.S., Sam's Club, and Wal-Mart International. The company does business in nine different retail formats: supercentres, food and drugs, general merchandise stores, bodegas (small markets), cash and carry

stores, membership warehouse clubs, apparel stores, soft discount stores and restaurants. Wal-Mart Stores US Wal-Mart Stores U.S. is Wal-Mart's largest division, accounting for 67.2% of net sales for financial year 2006.It consists of three retail formats that have become commonplace in the United States: Discount Stores, Supercentres, and Neighbourhood Markets. The retail department stores sell a variety of mostly non-grocery products, though emphasis has now shifted towards supercentres, which include more grocery items. Wal-Mart Discount Stores Wal-Mart Discount Stores are discount department stores which carry general

merchandise and a selection of food. As of July 2009, there were 883 Wal-Mart Discount Stores in the United States. Wal-Mart Supercentre Wal-Mart Supercentres are hypermarkets which stock everything a Wal-Mart Discount Store does, and also include a full-service supermarket. Many Wal-Mart Supercentres also have a garden centre, pet shop, pharmacy, etc

Wal-Mart Neighbourhood Market

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Wal-Mart Neighbourhood Markets are grocery stores that offer a variety of products, which include full lines of groceries, pharmaceuticals, health and beauty aids, photo developing services, and a limited selection of general merchandise. Neighbourhood Markets are used to fill the gap between Discount Stores and Supercentres. Market side Market side is a new chain of grocery stores opened in October 2008. The stores are said to be less than half the size of a conventional supermarket. Sams Club Sam's Club is a chain of warehouse clubs which sell groceries and general merchandise, often in large quantities. Sam's Club stores are "membership" stores and most customers buy annual memberships. However, non-members can make purchases either by buying a oneday membership or paying a surcharge based on the price of the purchase. Some locations also sell gasoline. Sam's has found a niche market in recent years as a supplier to small businesses. All Sam's Club stores are open early hours exclusively for business members and their slogan is "We're in Business for Small Business." Wal-Mart International Wal-Mart's international operations currently comprise 2,980 stores in 14 countries outside the United States. According to Wal-Mart's 2006 Annual Report, the International division accounted for about 20.1% of sales. There are wholly owned operations in Argentina, Brazil, Canada, Puerto Rico (although PR is part of the US, the company's operations there are managed through its international division), and the UK. With 1.8 million employees worldwide, the company is the largest private employer in the US and Mexico, and one of the largest in Canada In addition to its wholly-owned international operations, Wal-Mart has joint ventures in China and several majority-owned subsidiaries. Wal-Mart's majority-owned subsidiary in Mexico is Walmex. In Japan, Wal-Mart owns about 53% of Seiyu. Additionally, Wal-Mart owns 51% of the Central American Retail Holding Company (CARHCO), consisting of more than 360 supermarkets and other stores in Guatemala, El Salvador, Honduras, Nicaragua, and Costa Rica.
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In November 2006, Wal-Mart announced a joint venture with Bharti Enterprises to open retail stores in India. As foreign corporations are not allowed to directly enter the retail sector in India, Wal-Mart will operate through franchises and handle the wholesale end. The partnership will involve two joint ventures; Bharti will manage the front end involving opening of retail outlets, while Wal-Mart will take care of the back end, such as cold chains and logistics. Private label Brands Almost all retailers dream to introduce and increase the sales of their private labels. This is where the money is because the margins earned in this case are the biggest. About 40% of products sold in Wal-Mart are private label store brands, or products offered by Wal-Mart and produced through contracts with manufacturers. Wal-Mart began offering private label brands in 1991 with the launch of Sam's Choice, a brand of drinks produced by Cott Beverages exclusively for Wal-Mart. Other Wal-Mart brands include Great Value and Equate in the US and Canada, and Smart Price in Britain.

Features Of A Supply Chain

The structure is almost cyclical in the supply chain. Initially the purchase order is generated, which is generated by the buyer of each category. This order is sent to the supplier and the
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supplier delivers to the depot, where the goods are received. The goods are picked from the depot by Walmart and dispatched to the store which placed the order . Here the stocks are scanned and the numbers are updated directly into the system. The customer buys at the store, and once the sales scan takes place, the stock amount decreases. Base Stock and Economic Order Quantity: Base Stock: Is the minimum level of inventory that a retailer must maintain at the store level. EOQ: An inventory-related equation that determines the optimum order quantity that a company should hold in its inventory given a set cost of production, demand rate and other variables. This is done to minimize variable inventory costs. When the amount is almost going to reach the base stock, a re purchase is initiated and the purchase order is sent to the supplier.

Procurement & Distribution

Wal-Mart emphasizes the need to reduce its purchasing costs and offer the best price to its customers. The company procures goods directly from manufacturers, bypassing all intermediaries. Wal-Mart is a tough negotiator on prices and finalizes a purchase deal only when it is fully confident that the products being bought are not available elsewhere at a lower price. By 1998, the company had 40 distribution centres located at different geographical towns. Its warehouses directly supplied 80-85% of inventory as compared to 50-65% in case of the competitors. According to some estimates, Wal-Mart is able to provide replenishments within two days against at least five days for competitors. Each distribution centre is further divided on the basis of the quantity of goods. Wal-Mart uses sophisticated barcode technology and hand-held computer systems, managing the centre became easier and more economical. Every employee has an access to real-time information regarding the inventory levels of all the products in the centre. They have to just make two scans one to identify the pallet, and the other to identify the location from where the stock had to be picked up. Different barcodes were used to label different products, shelves and bins in a centre. The hand-held computer guides an employee with regard to the location of a particular product from a particular bin or shelf in the centre. When the computer verifies the bin and picks up a product, the employee confirms whether it is the
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right product or not. The quantity of the product required from the centre is entered into the hand- held computer by the employee and then the computer updates the information on the main server. The hand-held computer also enabled the packaging department to get accurate information about the products to be packed. It displays all information about the storage, packaging and shipping of a particular product thus, saving time on unnecessary paperwork.

Logistics Management
An important feature of Wal-Marts logistics infrastructure is its fast and responsive transportation system. The distribution centres is serviced by more than 3,500 company owned trucks. These dedicated truck fleets allows the company to ship goods from the distribution centres to the stores within two days and replenish the store shelves twice a week. The truck fleet is the visible link between the stores and distribution centres.

Cross Docking
To make its distribution process more efficient, Wal-Mart also uses a logistics technique known as cross-docking. In this system the finished goods are directly picked up from the manufacturing plant of a supplier, sorted out and then directly supplied to the customers. The system reduces the handling and storage of finished goods, virtually eliminating the role of the distribution centres. There are 5 types of cross docking: Opportunistic Cross docking In this method of cross docking, exact information about where the required good is to be shipped and from where it has to be procured and the exact quantity to be shipped, is needed. This method of cross docking enables the company to directly ship the goods needed by the retail customers, without storing them in the warehouse bins or shelves. Flow-through Cross docking In this type of cross docking, there is a constant inflow and outflow of goods from the distribution centre. This type of cross docking is mostly suitable for perishable goods, which had a very short time span, or goods that were difficult to be stored in the warehouses. Distributor Cross docking

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In this type of cross docking, the manufacturer delivered the goods directly to the retailer. No intermediaries were involved in this process. This enabled the retailer to save a major portion of the costs in the form of storage. As the retailer did not need to maintain a distribution centre for storing various kinds of goods, it helped him save warehouse costs. The lead time for the delivery of goods from the manufacturer to the consumer is also drastically reduced. Manufacturing Cross docking In Manufacturing cross docking, these cross docking facilities served the factories and acted as temporary and mini warehouses. Whenever a manufacturing company requires some parts or materials for manufacturing a particular product, it is delivered by the supplier in small lots within a very short span of time, just when it is needed. This helps reduce the transportation and warehouse costs substantially. Pre-Allocated Cross Docking Pre-allocated cross docking is very much like the usual cross-docking, except that in this type of cross docking, the goods are already packed and labelled by the manufacturer and it is ready for shipment to the distribution centre from where it is sent to the store. The goods can be delivered by the distribution centre directly to the store without opening the pack of the manufacturer and re-packing the goods. The store can then deliver the goods directly to the consumer without any further re-packing.

BENEFITS OF CROSS DOCKING

Reduces Walmarts cost of sales o Reducing excess inventory o Sales prediction o Everyday low prices o Reducing the promotion expense

BARRIERS TO CROSS DOCKING

Huge investment Hard in adopting Management complexity Continuous contact between each department Operation of private satellite system
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Inventory Management
Wal-Mart has invested heavily in IT and communications systems to effectively track sales and merchandise inventories in stores across the country. With the rapid expansion of WalMart stores in the US, it was essential to have a good communication system. Hence, WalMart set up its own satellite communication system in 1983. Wal-Mart is able to reduce unproductive inventory by allowing stores to manage their own stocks, reducing pack sizes across many product categories, and timely price markdowns. Instead of cutting inventory across the board, Wal-Mart made full use of its IT capabilities to make more inventories available in the case of items that customers wanted most, while reducing the overall inventory levels. Wal-Mart also networked its suppliers through computers. The company entered into collaboration with P&G for maintaining the inventory in its stores and built an automated re-ordering system, which linked all computers between P&G and its stores and other distribution centres.

Walmart connected its stores and the vendor through satellite. P&G was able to check the sales of its items directly as they were being bought and collated by the system. This was good because, Walmart could safely move away from the reordering issues. Plus P&G had information about offers, national promotions, new products etc that Walmart did not have. The question arises, why wouldnt P&G decide to overstock, but this issue was also taken care of by Walmart, they paid on a SOR ( sales or return) basis, i.e. they paid for only what they sold, excess was returned.
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Employees at the store have the Magic-Wand, a hand held computer which is linked to instore terminals through a radio frequency network. These help them to keep track of the inventory in stores, deliveries and back-up merchandise in stock at the distribution centres. The order management and store replenishment of goods is entirely executed with the help of computers through the Point-of-Sales (POS) system. Through this system, it is possible to monitor and track the sales and merchandise stock levels on the store shelves. Wal-Mart makes use of an efficient algorithm system which enabled it to forecast the exact quantities of each item to be delivered, based on the inventories in each store. Wal-Mart also uses a centralized inventory data system using which the personnel at the stores could find out the level of inventories and the location of each product at any given time. It also shows whether a particular product is stored at the distribution centre or is in transit on a truck. Wal-Mart also makes use of bar coding and radio frequency technology to manage its inventories. Using bar codes and fixed optical readers, the goods could be directed to the appropriate dock, from where they were loaded on to the trucks for shipment. Bar coding devices enable efficient picking, receiving and proper inventory control of the appropriate goods. RFID is simply an enabling technology that has the potential of helping retailers provide the right product at the right place at the right time, thus maximising sales and profits. RFID provides the technology to identify uniquely each container, pallet, case and item being manufactured, shipped and sold, thus providing the building blocks for increased visibility throughout the supply chain. The technology will bring benefits to a wide range of industries, as we shall see, but one of the main drivers of RFID adoption has been the retail sector, led by Wal-Mart in the US. Phillip J. Windley, an Associate Professor of Computer Science at Brigham Young University, estimates that US retail giant Wal-Mart alone could save $8.35 billion annually with RFID - that's more than the total revenue of half the companies in the Fortune 500. His massive total is made up as follows: $600 million through avoiding stock-outs; $575 million by avoiding theft, error and vendor fraud; $300 million through better tracking of a billion pallets and cases; $180 million through reduced inventory; and a huge $6.7 billion by eliminating the need to have people scan barcodes in the supply chain and in-store. Small wonder, then, that Wal-Mart is investing $3 billion in RFID over several years and is one of the leading proponents of RFID implementation.
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RFID is a system of small electronic tags (comprising a tiny chip plus an antenna) that transmit data via a radio signal to RFID readers and related hardware and software infrastructure. The transmitters can be placed anywhere that tracking the movement of goods adds value to the commercial process: on containers, pallets, materials handling equipment, cases or even on individual products. The information on tags is read when they pass by an RFID reader, and that movement is captured and managed by the infrastructure. In this way, organisations are able to link the physical world to the digital world without any human interaction. Whatever actions are then triggered depends on the individual application, from basic stock replenishment at one end of the spectrum to facilitating the ultimate lean supply chain at the other. RFID promises to revolutionise supply chains and usher in a new era of cost savings, efficiency and business intelligence. The potential applications are vast as it is relevant to any organisation engaged in the production, movement or sale of physical goods. This includes retailers, distributors, logistics service providers, manufacturers and their entire supplier base, hospitals and pharmaceuticals companies, and the entire food chain. It has the potential to improve efficiency and visibility, cut costs, deliver better asset utilisation, produce higher quality goods, reduce shrinkage and counterfeiting, and increase sales by reducing out-of-stocks. The key to delivering all these benefits is cost. The falling price of RFID tags is a driver for the technology. One Canadian consumer products manufacturer has established that RFID becomes revenue-neutral at 15 cents per tag, at which point the prospect of RFID as a replacement for barcode labels becomes very real indeed.

Tag pricing is critical. Industry is hoping that tag manufacturers can hit 5 cents per unit, and that is being regarded as a breakthrough level. Yet even that is still too expensive for, say, an individual can of Coke, which is why packaging companies and other researchers are looking at innovative ways to apply this technology. In the coming years, at least, we are likely to see RFID tags and barcodes existing side by side.

The path to RFID nirvana is not without its obstacles: tag costs are still high; readers can't always read all the cases on a pallet; one frequency and one tag design does not fit all; standards are in a state of flux; end-users lack real RFID knowledge; and radio interference can upset the best-laid plans. Wal-Mart laid down its marker as an RFID pioneer by issuing mandates to its suppliers throughout the entire supply chain. Wal-Mart, Metro Group, Tesco, Target and the US Department of Defense all told their top suppliers to incorporate RFID
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tags in all pallet shipments by 2005. Wal-Mart then relented a little, having found that not only would its suppliers find the deadline hard to meet, but so would Wal-Mart itself. Wal-Mart has also invested heavily in a retail link system through which it can collaborate with its suppliers in a much more effective manner. Also, the company owns the largest and the most sophisticated computer system in the private sector (Massively Parallel Processor) to track the movement of goods and stock levels.

Performance Indicators
Wal-Mart strongly believed and constantly emphasized on strengthening its relationships with its customers, suppliers and employees. The company was very vigilant and sensed the smallest of changes in store layouts and merchandising techniques to improve performance and value for customers. The company made efforts to capitalize on every cost saving opportunity. The savings on cost were always passed on to the consumers, thereby adding value at every stage and process.

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Efficiency measures that Walmart has incorporated:

1. Its warehouses directly supplied 80-85% of inventory as compared to 50-65% in case of the competitors. 2. Wal-Mart able to provide replenishments within two days against at least five days for competitors. 3. Its transportation costs are 3% on an average as compared to 5% for the competitors. 4. Better Working Capital Management as compared to the competitors. a. Decreased lead time , safety stock b. Accurate inventory forecasting , faster turnover c. Increased warehouse space d. Reduced inventory storage cost 5. Inventory turnover rate lass than two weeks. 6. All the discounts provided to the customer are an indicator of the cost savings done in its Supply Chain Management

Bull whip effect

The Bullwhip Effect is an observed phenomenon in forecast-driven distribution channels and refers to the oscillating demand magnification further upstream a supply chain. Because customer demand is rarely perfectly stable, businesses must forecast demand to properly position inventory and other resources. Forecasts are based on statistics, and they are rarely perfectly accurate. Since forecast errors are a given, companies often carry an inventory buffer called "safety stock". Moving up the supply chain from end-consumer to raw materials supplier, each supply chain participant has greater observed variation in demand and thus greater need for safety stock.

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The causes can further be divided into behavioural and operational causes: Behavioural causes:

Misperceptions of feedback and time delays Panic ordering reactions after unmet demand Perceived risk of other players' bounded rationality

Operational causes

Dependent demand processing

Forecast Errors Adjustment of inventory control parameters with each demand observation

Lead Time Variability (forecast error during replenishment lead time) Lot-sizing/order synchronization

Consolidation of demands Transaction motive Quantity discount

Trade promotion and forward buying Anticipation of shortages

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Consequences:
In addition to greater safety stocks the described effect can lead to either inefficient production or excessive inventory as the producer needs to fulfil the demand of its successor in the supply chain. This also leads to a low utilization of the distribution channel. Despite of having safety stocks there is still the hazard of stock-outs which result in poor customer service. Furthermore, the Bullwhip effect leads to a row of financial costs. Next to the intangible consequences of poor customer services and the damage of public image and loyalty, an organization has to cope with the ramifications of failed fulfilment which can lead to contract penalties. Moreover the hiring and dismissals of employees to manage the demand variability induce further costs due to training and possible pay-offs.

WalMarts response:
Theoretically the Bullwhip effect does not occur if all orders exactly meet the demand of each period. One way to achieve this is to establish a demand-driven supply chain which reacts to actual customer orders. In manufacturing, this concept is called Kanban. This model has been most successfully implemented in Wal-Mart's distribution system. Individual Wal-Mart stores transmit point-of-sale (POS) data from the cash register back to corporate headquarters several times a day. This demand information is used to queue shipments from the Wal-Mart distribution centre to the store and from the supplier to the Wal-Mart distribution centre. The result is near-perfect visibility of customer demand and inventory movement throughout the supply chain. Better information leads to better inventory positioning and lower costs throughout the supply chain.

Sustainable Supply Chain

Wal-Mart is spearheading collaboration among supply-chain companies to measure and reduce the environmental footprint of its product shipping process and logistics network. The new rules for supply chain sustainability cover everything from fuel use, to facilities and equipment standards, to the overall environmental commitment demonstrated by the companies they hire to ship and store their products. Wal-Mart insists that once suppliers evaluate the environmental costs of their products, they will be able to improve production efficiencies and provide the items at a lower cost. With the introduction of the Supply Chain Sustainability Scorecard, Wal-Mart Canada plans to assess the businesses it hires to ship and store its products based on four categories:
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 Equipment - e.g. use of sustainable alternatives, efficient engines and tires, etc. Operations - e.g. enforcement of programs for recycling, vehicle idling, oil collection Facilities - e.g. responsible energy use (including green power), efficient buildings Corporate commitment - e.g. a vision or culture of sustainability throughout the business Wal-Mart has committed to three long-term sustainability goals, globally and in Canada: To produce zero waste To be powered 100 per cent by renewable energy To make more environmentally preferable products available to customers It plans to introduce a "sustainability label" similar to the nutritional information required on U.S. food packaging - can capture the full costs of producing a product or substantially shift consumer behaviour, perhaps persuading the more informed consumer to purchase less damaging products. By moving goods more efficiently, Wal-Mart Canada and its supply-chain service providers expect to directly contribute to the companys everyday-low-cost approach - lowering costs to ensure the lowest prices for customers, a key to Wal-Marts business model. At the same time, by reducing materials, increasing efficiency, and eliminating unnecessary shipping, the company and its suppliers will meet rising environmental standards.

Issues that Wal-Mart might will face in India

The Kirana store: High level of CRM. Shopkeeper knows about families and purchase history. Familiarity runs from generation to generation. Open long hours, home delivery, credit options, proximity to home, make the kirana store a preferred destination for shopping. High Costs: Small retailers have practically nil real estate and labour costs and little or no taxes to pay. On the other hand, players in the organized sector have high expenses and have to keep price low enough to compete with the traditional sector Correct Merchandise Mix: Right product mix is essential for retailing. All retailers like to have high value, high margin, fast moving products. This is however not

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possible. Organised retailers have a number of SKUs many of which do not sell, and a large inventory needs to be kept. Poor infrastructure: Efficient supply chain strategies like those of Walmart work best in countries that have the infrastructure to facilitate easy movement. In India, infrastructure like cold storage is primitive. Little access to electricity , poor rail and road network act as an impediment to efficient supply chain. Walmart Model: Walmart is traditionally based in areas outside the city, most customers come in cars and buy large quantities on a monthly basis. Spending patterns and lifestyle is not the same for Indians. Indians mostly donot have cars and thus cannot afford to go outside the city to buy provisions. Even Big Bazaar has a number of stores within the city limits. Secondly, the Indian customer never buys in bulk, they usually buy on a weekly or biweekly basis. Some items are bought daily. This is probably also due to the less incomes, coupled with electricity issues, refrigeration issues that domestic households are plagued with.

Recommendations to Wal-Mart
One allegation made against Wal-Mart is that it places unrealistic cost and time pressures upon its supply chain. Suppliers must be provided with the opportunity to make improvements in operating practices without compromising the viability of their operations. Moreover, responsibility for improvement cannot be simply transferred to suppliers. Wal-Mart itself has a responsibility to adopt proactive supply chain management initiatives, including the training of suppliers in terms of best practice operating procedures.

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Once we have understood in depth how Walmart Functions, It would be interesting to know how an organised retail chain would function, and whether the theories we learn apply to these companies or not. Through detailed interviews with the owner of REI 6/10 Retail: Mr. Ambuj Jhunjhunwala, we understood the functioning of the retail chains in India and the issues they face.

REI 6TEN RETAIL LTD

6 TEN is a organized retail format, similar to Reliance Fresh, Spencers Hyper etc. With a presence in Ludhiana, Mohali, Ghaziabad, Delhi, Faridabad, Rajasthan, Ahmedabad, Mumbai and Nagpur, 6TEN has 315 shops.

INPUT

Large product categories and product mix Follow FIFO: First in First out Good vendor relationships, negotiations for margins Lead time and fill rate

Placement of products, display and visual merchandising Packaging of products Billing Transformation Promotions and discounts: bundling, markdowns More footfalls Higher conversion rate and bill value Satisfied customer and repeat purchases Value for money

Output

Procurement
What to order: Unlike Walmart that stocks every kind of item, smaller retailer cater to a particular segment, segmentation that is done on Income. It identifies fast and slow moving SKUs and orders accordingly. Again it identifies, seasonal and flow items. Flow items are those items that have a demand throughout the year, and seasonal items are those whose demand differs at different times of the year.

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When to order: Similar to Walmart, smaller retail chains, also buy according to the ecomomic order quantity and base stock. Like larger retail chains, these also consider the lead time i.e. the time between the placing of the order and delivery to the store. 6/10 maintains an average of 15 days sales and orders according to lead time and fill rate. i.e. how much of a quantity demanded is delivered. Walmart has a number of vendors supplying the same product, so that a mistake or delay at the end of the vendor doesnt upset the business. However, unlike Walmart, smaller retailers like 6/10 usually order from one vendor or a few. Therefore fill rate is a major concern for these retailers. How much to order: Unlike Walmart which works on a just in time model, accepting requests from customers and updating it in the system immediately to reduce warehousing costs, smaller retail chains work differently. Ordering takes according to historical sales data. Previous month sales data is used to forecast sales in a particular month. 10 days min stock 17 days max stock then reordering happens within 7 days. Linearity of Sales method is followed. Ordering depends on the MBU and what is on hand. Walmart is routed through the satellite and vendors like P&G, etc monitor stock details at their end and replenish stock as and when they believe its reaching its base stock, keeping their lead times in mind. Smaller retailers, mostly have store staff to maintain these records and then these records are sent to the buyer and finally the purchase orders are created. This can be inaccurate and time consuming. Which is why, more and more retailers are going for ERP systems like SAP, which centralize the buying process. Buyers can monitor the stock across all stores and place orders accordingly. This information can also be viewed the the vendors end.

Issues faced in procurement

1. Linearity: Some products dont work on linearity, their sales happen in twos or threes. Reordering needs to keep this aspect in time. E.g sugar sales are 60 kilos a month at a store. Which amounts to 2kgs a day, however this sale doesnt take place everyday and customers might buy 4 kilos a day, hence reordering

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needs to keep this aspect in mind. For a commodity like this it would always be better to have a large base stock. 2. Productivity improvement: Benchmark month sales forecast to previous years sale in the same month to accommodate seasonal changes. Some products like fruits and vegetables show seasonal variations in terms of demand and supply. Some companies and distributors sell on an Outright or a Sales or Return (SOR)/ consignmentbasis. Outright buying needs to be very conservative, since a lack of demand and unsold stock adds to the retailers loss whereas SOR can be less conservative as stock will be returned to the distributor and company. 6Ten buys some of their private labels on a consignment basis, e.g Masala Category is bought on consignment as it has a longer shelf life. Since smaller retails have less bargaining power, they usually adhere to outright basis, unlike Walmart which had an SOR basis with almost all its vendors.

Managing Inventory
REI 6ten does not have store level DCs as this increases their costs, and reduces the shelf and display space. Located in prime locations they pay a large price per sqft area Has a Distribution centers that cater to stores in a particular location and in kilometer radius. E.g there are 4 distribution centers to cater to their Stores in Delhi NCR Has a mother warehouse that caters to all the distribution centers. Distributors send 30% to the DCs and 70% to the mother DC

On the other hand, Walmart would collect supplies from the vendor directly, just in time, so as to reduce the need for large distribution centers.

Supply Chain
Issues in supply chain were due to Forecasting and due to inefficient order of inefficient delivery.

Forecasting issue: Price of sugar depends on government prices, and as price fluctuates,
demand fluctuates. E.g. The price of sugar is Rs. 30 a kilogram, there is a forecasted increase
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in prices by Rs 8. Customers would flock to buy sugar at the current price. The forecasting and subsequent stocking did not keep this increase in account so the chain faced a stock out. Sometimes forecasting doesnt take into account defected, spoiled items.

Order and delivery Issues: E.g. HUL has a filling rate of 80% and a lead time of 6
days. However once the order is placed. 6Ten notices that the filling rate is only 60%. Again a stock out. This can be curtailed by analyzing the vendors and ordering accordingly. Walmart has a number of vendors that reduces their chance of a mistake, delay and hence a stock out.

Recommendations for 6Ten Retail

Manage its forecasting issues to reduce excess stock, since most of the stock is on an Outright basis, a loss in sales means a loss to Rei 6Ten Increase the number of suppliers in order to reduce the risk of delay and default Integrate the suppliers with the stores directly so as to reduce the costs of warehousing Softwares like SAP Retail and Oracle, that manage stock & sales information and reduce the need for manual entry, thus limiting mistakes

CONCLUSION
Only a small portion of the retailing market in India is organized. It is estimated that in the supply chain for fruits and vegetables in India a substantial part of the products ends up as wastage. 6Ten stores will strive to organize the retail market in India and to improve efficiencies in the supply chain in order to offer quality products at attractive prices. The mission is to be the trendsetter in the retail space in India with professional services making the lives of ordinary Indians easier and more convenient. Through an efficient business model in the retailing sector, 6Ten will be a household name through out the nation. By enhancing efficiency and reducing wastage it will ensure substantial savings in the food and vegetable retailing sector which will be passed on to the customers. It envisages an ideal retailing business model that can cater to the daily needs of the Indian consumers. True to the basic principle of business, the minimization of cost, high production leads to the maximization of profit. The practice of core principles on constantly improving sales is brought about by the service they have been offering at no extra cost. At Wal-Mart, they have been very successful in finding means in which to capitalize on every cost saving opportunities and the adoption of efficient logistics system enable Wal-Mart to earn unrivaled
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intangible competitive advantage and edge to the rest of the business world which is made possible also in the use innovative technology. Information technology has the potential to improve many business processes. Anything that is able to decrease costs and increase efficiency is welcome to companies that are constantly seeking ways to decrease cost and increase the quality of products and services. Wal-Mart, for example, is able to offer consumers an every-day-low-price largely in part because it is able to control its costs. The cost of its products, however, is not only a function of its efficiency or lack of it but also the efficiency/inefficiency of its suppliers. Because of the volume of products sold by Wal-Mart, it has a great influence over its suppliers and often pressures its suppliers to find ways to lower costs. Though it has a large influence over these suppliers, it is impossible for Wal-Mart to operate without their assistance, and thus it is important for Wal-Mart to maintain mutually beneficial relationships with those suppliers. Sharing benefits and costs in, instead of mandating the use of, technology implementations is an effective way for Wal-Mart to cultivate a mutually beneficial relationship with its suppliers. The novelty and frailty of certain technologies like RFID, however, sometimes preclude a timely and effective implementation of them. A technologys benefits are felt the more its use is standardized throughout the marketplace. Once unit cost has decreased and privacy issues have been resolved, many more companies will be able to implement RFID as an effective means to improve supply chain management efficiency.

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