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Material Management

Inventory is defined as a stock or store of goods. These goods are maintained on


hand at or near a business's location so that the firm may meet demand and fulfill its
reason for existence. If the firm is a retail establishment, a customer may look
elsewhere to have his or her needs satisfied if the firm does not have the required
item in stock when the customer arrives. If the firm is a manufacturer, it must
maintain some inventory of raw materials and work-in-process in order to keep the
factory running. In addition, it must maintain some supply of finished goods in order
to meet demand.

Sometimes, a firm may keep larger inventory than is necessary to meet demand and
keep the factory running under current conditions of demand. If the firm exists in a
volatile environment where demand is dynamic (i.e., rises and falls quickly), an on-
hand inventory could be maintained as a buffer against unexpected changes in
demand. This buffer inventory also can serve to protect the firm if a supplier fails to
deliver at the required time, or if the supplier's quality were found to be substandard
upon inspection, either of which would otherwise leave the firm without the
necessary raw materials. Other reasons for maintaining an unnecessarily large
inventory include buying to take advantage of quantity discounts (i.e., the firm saves
by buying in bulk), or ordering more in advance of an impending price increase.

Generally, inventory types can be grouped into four classifications: raw material,
work-in-process, finished goods, and MRO goods.

RAW MATERIALS

Raw materials are inventory items that are used in the manufacturer's conversion
process to produce components, subassemblies, or finished products. These
inventory items may be commodities or extracted materials that the firm or its
subsidiary has produced or extracted. They also may be objects or elements that the
firm has purchased from outside the organization. Even if the item is partially
assembled or is considered a finished good to the supplier, the purchaser may
classify it as a raw material if his or her firm had no input into its production.
Typically, raw materials are commodities such as ore, grain, minerals, petroleum,
chemicals, paper, wood, paint, steel, and food items. However, items such as nuts
and bolts, ball bearings, key stock, casters, seats, wheels, and even engines may be
regarded as raw materials if they are purchased from outside the firm.

The bill-of-materials file in a material requirements planning system (MRP) or a


manufacturing resource planning (MRP II) system utilizes a tool known as a product
structure tree to clarify the relationship among its inventory items and provide a
basis for filling out, or "exploding," the master production schedule. Consider an
example of a rolling cart. This cart consists of a top that is pressed from a sheet of
steel, a frame formed from four steel bars, and a leg assembly consisting of four legs,
rolled from sheet steel, each with a caster attached. An example of this cart's product
structure tree is presented in Figure 1.

Generally, raw materials are used in the manufacture of components. These


components are then incorporated into the final product or become part of a
subassembly. Subassemblies are then used to manufacture or assemble the final
product. A part that goes into making another part is known as a component, while
the part it goes into is known as its parent. Any item that does not have a component
is regarded as a raw material or purchased item. From the product structure tree it is
apparent that the rolling cart's raw materials are steel, bars, wheels, ball bearings,
axles, and caster frames.

WORK-IN-PROCESS

Work-in-process (WIP) is made up of all the materials, parts (components),


assemblies, and subassemblies that are being processed or are waiting to be
processed within the system. This generally includes all material—from raw material
that has been released for initial processing up to material that has been completely
processed and is awaiting final inspection and acceptance before inclusion in finished
goods.

Any item that has a parent but is not a raw material is considered to be work-in-
process. A glance at the rolling cart product structure tree example reveals that work-
in-process in this situation consists of tops, leg assemblies, frames, legs, and casters.
Actually, the leg assembly and casters are labeled as subassemblies because the leg
assembly consists of legs and casters and the casters are assembled from wheels,
ball bearings, axles, and caster frames.

FINISHED GOODS

A finished good is a completed part that is ready for a customer order. Therefore,
finished goods inventory is the stock of completed products. These goods have been
inspected and have passed final inspection requirements so that they can be
transferred out of work-in-process and into finished goods inventory. From this point,
finished goods can be sold directly to their final user, sold to retailers, sold to
wholesalers, sent to distribution centers, or held in anticipation of a customer order.

Any item that does not have a parent can be classified as a finished good. By looking
at the rolling cart product structure tree example one can determine that the finished
good in this case is a cart.

Inventories can be further classified according to the purpose they serve. These
types include transit inventory, buffer inventory, anticipation inventory, decoupling
inventory, cycle inventory, and MRO goods inventory. Some of these also are know by
other names, such as speculative inventory, safety inventory, and seasonal inventory.
We already have briefly discussed some of the implications of a few of these
inventory types, but will now discuss each in more detail.

TRANSIT INVENTORY

Transit inventories result from the need to transport items or material from one
location to another, and from the fact that there is some transportation time involved
in getting from one location to another. Sometimes this is referred to as pipeline
inventory. Merchandise shipped by truck or rail can sometimes take days or even
weeks to go from a regional warehouse to a retail facility. Some large firms, such as
automobile manufacturers, employ freight consolidators to pool their transit
inventories coming from various locations into one shipping source in order to take
advantage of economies of scale. Of course, this can greatly increase the transit time
for these inventories, hence an increase in the size of the inventory in transit.
BUFFER INVENTORY

As previously stated, inventory is sometimes used to protect against the


uncertainties of supply and demand, as well as unpredictable events such as poor
delivery reliability or poor quality of a supplier's products. These inventory cushions
are often referred to as safety stock. Safety stock or buffer inventory is any amount
held on hand that is over and above that currently needed to meet demand.
Generally, the higher the level of buffer inventory, the better the firm's customer
service. This occurs because the firm suffers fewer "stock-outs" (when a customer's
order cannot be immediately filled from existing inventory) and has less need to
backorder the item, make the customer wait until the next order cycle, or even
worse, cause the customer to leave empty-handed to find another supplier.
Obviously, the better the customer service the greater the likelihood of customer
satisfaction.

ANTICIPATION INVENTORY

Oftentimes, firms will purchase and hold inventory that is in excess of their current
need in anticipation of a possible future event. Such events may include a price
increase, a seasonal increase in demand, or even an impending labor strike. This
tactic is commonly used by retailers, who routinely build up inventory months before
the demand for their products will be unusually high (i.e., at Halloween, Christmas, or
the back-to-school season). For manufacturers, anticipation inventory allows them to
build up inventory when demand is low (also keeping workers busy during slack
times) so that when demand picks up the increased inventory will be slowly depleted
and the firm does not have to react by increasing production time (along with the
subsequent increase in hiring, training, and other associated labor costs). Therefore,
the firm has avoided both excessive overtime due to increased demand and hiring
costs due to increased demand. It also has avoided layoff costs associated with
production cut-backs, or worse, the idling or shutting down of facilities. This process
is sometimes called "smoothing" because it smoothes the peaks and valleys in
demand, allowing the firm to maintain a constant level of output and a stable
workforce.

DECOUPLING INVENTORY

Very rarely, if ever, will one see a production facility where every machine in the
process produces at exactly the same rate. In fact, one machine may process parts
several times faster than the machines in front of or behind it. Yet, if one walks
through the plant it may seem that all machines are running smoothly at the same
time. It also could be possible that while passing through the plant, one notices
several machines are under repair or are undergoing some form of preventive
maintenance. Even so, this does not seem to interrupt the flow of work-in-process
through the system. The reason for this is the existence of an inventory of parts
between machines, a decoupling inventory that serves as a shock absorber,
cushioning the system against production irregularities. As such it "decouples" or
disengages the plant's dependence upon the sequential requirements of the system
(i.e., one machine feeds parts to the next machine).

The more inventory a firm carries as a decoupling inventory between the various
stages in its manufacturing system (or even distribution system), the less
coordination is needed to keep the system running smoothly. Naturally, logic would
dictate that an infinite amount of decoupling inventory would not keep the system
running in peak form. A balance can be reached that will allow the plant to run
relatively smoothly without maintaining an absurd level of inventory. The cost of
efficiency must be weighed against the cost of carrying excess inventory so that
there is an optimum balance between inventory level and coordination within the
system.

CYCLE INVENTORY

Those who are familiar with the concept of economic order quantity (EOQ) know that
the EOQ is an attempt to balance inventory holding or carrying costs with the costs
incurred from ordering or setting up machinery. When large quantities are ordered or
produced, inventory holding costs are increased, but ordering/setup costs decrease.
Conversely, when lot sizes decrease, inventory holding/carrying costs decrease, but
the cost of ordering/setup increases since more orders/setups are required to meet
demand. When the two costs are equal (holding/carrying costs and ordering/setup
costs) the total cost (the sum of the two costs) is minimized. Cycle inventories,
sometimes called lot-size inventories, result from this process. Usually, excess
material is ordered and, consequently, held in inventory in an effort to reach this
minimization point. Hence, cycle inventory results from ordering in batches or lot
sizes rather than ordering material strictly as needed.

MRO GOODS INVENTORY

Maintenance, repair, and operating supplies, or MRO goods, are items that are used
to support and maintain the production process and its infrastructure. These goods
are usually consumed as a result of the production process but are not directly a part
of the finished product. Examples of MRO goods include oils, lubricants, coolants,
janitorial supplies, uniforms, gloves, packing material, tools, nuts, bolts, screws, shim
stock, and key stock. Even office supplies such as staples, pens and pencils, copier
paper, and toner are considered part of MRO goods inventory.

CYCLE COUNTING BEST PRACTICE


Courtesy of Bob Steele
October 6, 2004

Introduction

Cycle counting is a crucial business discipline. It not only enables high-performance


store operations, but also has a significant impact on supply-chain operations:
• Accurate data is foundational to retailer-supplier cooperation and collaboration
o On promotion, merchandising, & replenishment
o For inventory optimization (core-inventory initiatives and vendor-
managed, and –assisted inventory programs)
o For better product development, improved order cycle times, reduced
freight cost, less returns

What’s Cycle Counting?


Definitions:
• A systematic method of taking inventory continually through out the year
• A dynamic audit that allows for real-time inventories accuracy of merchandise.
• A method for auditing inventory accuracy and reconciling errors on a cyclical
schedule rather than once a year.
Why Is It Important?
Improves data accuracy
• Cycle counting drives ordering, replenishment cycle times, category
management
• Affects your store and the entire supply chain
• Is the basis for all decisions related to POS data analysis
Reduces human error
• Helps identify and correct receiving, shelving, selling, ordering errors
• Staff training is vital to ensure correct counts
Replaces annual inventory
Can Increase Sales with Reduced Inventory
• Real-time inventory accuracy means less out of stocks
• It also aids finding misplaced and lost stock
Can Increase Performance
• Improved inventory turns and GMROII because you can measure what’s in
stock and moving
• Better customer service through higher in-stock rates
• Cycle counts and resulting accurate data increase productivity and efficiency,
and lead to reduced operational and inventory-carry costs
A Continuous-Improvement Practice
• Cycle counting helps ensure accuracy is part of your store culture
• It optimizes business opportunities through data-driven knowledge

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Just In time

1. Introduction

The primary goal for the company is customer's satisfaction and if company cannot
reach perfection in this area then all the processes are worthless. All parts of the
value chain and everything in the enterprise must be healthy for realization of
competitive business processes. If the company wants strong and long-lasting value
chain all the links within the chain must be prepared to overpass all existing
problems.

One of the most important links inside that value chain is definitely logistics. Logistics
is concerned with the physical distribution and storage of products and services.
During the 20th century several approaches of implementation of logistics were
developed. Surely, one the most famous and most important logistics concept is the
Just-In-Time concept.

Logistics network has a far wider meaning than just goods delivery and channel
distribution system. It is the total flow of materials, information and cash, from the
suppliers' suppliers, right through an enterprise to the customers' customers. The
flows of materials and cash are opposite, but information needs be visible throughout
to give control over what is happening in the chain.

Logistics forms a specific part of the supply chain. Logistics can be considered as a
tool for getting resources, like products, services, and people, where they are needed
and when they are desired. It is difficult to accomplish any marketing or
manufacturing without logistical support, almost impossible. It involves the
integration of information, transportation, inventory, warehousing, material handling,
and packaging. The operating responsibility of logistics is the geographical
repositioning of raw materials, work in process, and finished inventories where
required at the lowest cost possible. Simply definition of logistics can be: "The time-
related
positioning of resources".

Just in Time (JIT) production is a manufacturing philosophy, which eliminates waste


associated with time, labour, and storage space. Basics of the concept are that the
company produces only what is needed, when it is needed and in the quantity that is
needed. The company produces only what the customer requests, to actual orders,
not to forecast. JIT can also be defined as producing the necessary units, with the
required quality, in the necessary quantities, at the last safe moment. It means that
company can manage with their own resources and allocate them very easily. Figure
2 shows a drawing of the JIT concept.

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Little's Law

In queuing theory, Little's result, theorem, or law are three names for the same
law.

In plain English, it says:

The average number of customers in a stable system (over some time interval) is
equal to their average arrival rate, multiplied by their average time in the system.

Although it looks intuitively reasonable, it's a quite remarkable result, as it implies


that this behaviour is entirely independent of any of the detailed probability
distributions involved, and hence requires no assumptions about the schedule
according to which customers arrive or are serviced, or whether they are served in
the order in which they arrive.

It is also a comparatively recent result - it was first proved by John Little in 1961.

Handily his result applies to any system, and particularly, it applies to systems within
systems. So in a bank, the queue might be one subsystem, and each of the tellers
another subsystem, and Little's result could be applied to each one, as well as the
whole thing. The only requirement is that the system is stable - it can't be in some
transition state such as just starting up or just shutting down.

Simple Example

Imagine a small shop with a single counter and an area for browsing, where only one
person can be at the counter at a time, so the system is roughly:

Entrance → Browsing → Counter → Exit

The three important measures are the average time people take at the counter, the
utilisation of the counter, and the rate at which people move through the system. The
rate is what the shop wants to maximise.

So all we do is apply Little's result to the counter. This shows that the number of
people on average at the counter is the rate at which they move through the system;
multiplied by the time it takes to serve them. Since the number of people at the
counter is just the utilisation, it can therefore be shown that the rate is given by the
utilisation, divided by the time per customer.

Therefore, to make a really productive shop you should strive to take as little time as
possible ringing up the bill, and you should try to keep your counter as busy as
possible. In practice, the latter means walking up to people who seem to be taking
their time browsing and saying 'Can I help you' in an annoying fashion. Unfortunately.
Other ways to increase the counter utilisation might be to have more people in the
shop browsing, or to have a queue.

Peter Denning succinctly phrases this rule as ``The average number of objects in a
queue is the product of the entry rate and the average holding time.'' He applies it to
his wine cellar: ``I have 150 cases of wine in my basement and I consume (and
purchase) 25 cases per year. How long do I hold each case? Little's Law tells me to
divide 150 cases by 25 cases/year, which gives 6 years per case.''

Using Little’s law for capacity planning in hardware servers

Little's Law states:

The average number of customers in a queuing system N is equal to the average


arrival rate of customers to that system λ, times the average time spent in that
system T

When load, or stress, testing a system, the only variable you can control is the arrival
rate. The values you can measure are the response time and the throughput, or the
completed requests in a period of time. As long as your arrival rate is equal to your
throughput, you are not queuing requests. At the point where the throughput is less
than the arrival rate, you have reached 100% utilization in the system.

In the real world, load reaches a system in bursts. But to simplify matters, we only
want the steady state values. Note that queuing during bursts is good, assuming the
load is just a burst and will settle down allowing the queue to empty.
To determine the load on a system in steady state, you need to keep the arrival rate
into the system constant for a relevant period of time. To do this, you do not have
concurrent threads/clients blindly fire one request after another into the system.

For an arrival rate of 1 request/sec you must have a client start a request every
second, on the second. Not block for the reply and the fire a new request. The
requests should fire like the tick of a metronome. By increasing the number of clients
or threads making a request every second, you increase the arrival rate. If we have 5
clients making one request each second, we have an arrival rate of 5 request/sec.

What's of interest here is if the average response time remains constant up to 100%
utilization, or if it is non-linear and increases as the arrival rate increases. That is,
with an arrival rate of 1 request/sec, the average response time is .2 sec. If you plan
for 80% utilization at average peak loads by extrapolating with these values you get,
.8 utilisation / .2 sec = 4 request /sec per resource. But this may not be true. At 4
requests a second, your average response time in the real world might be .25, which
is 100% utilization.

Another interesting thing to keep an eye on is to see what the actual level of
concurrency is. If you get the arrival rate up to the point where the throughput
cannot keep up (100% utilisation), the value of N should equal the number of
effective resources. In a very simple system, this should approach the number of
CPU's on the server. But if the server is passing requests to a database, you may see
far fewer effective resources (a lower number of concurrent requests) when at 100%
utilisation.

Indian Logistics Industry

This section gives an overview of the size of the Indian logistics industry, its
competitive dynamics and future prospects.

Size of the Indian logistics industry

The annual logistics cost in India is estimated to be 14% of the GDP, which translates
into USD 140 billion assuming the GDP of India to be slightly over USD 1 trillion. Out
of this USD 140 billion logistics cost, almost 99% is accounted for by the unorganized
sector (such as owners of less than 5 trucks, affiliated to a broker or a transport
company, small warehouse operators, customs brokers, freight forwarders, etc.), and
slightly more than 1%, i.e. approximately USD 1.5 billion, is contributed by the
organized sector. So, one can see that the logistics industry in India is in a nascent
stage. However, the industry is growing at a fast pace and if India can bring down its
logistics cost from 14% to 9% of the GDP (level in the US), savings to the tune of USD
50 billion will be realized at the current GDP level, making Indian goods more
competitive in the global market. Moreover, growth in the logistics sector would imply
improved service delivery and customer satisfaction leading to growth of export of
Indian goods and potential for creation of job opportunities.

Competitive dynamics and other issues

The following problems existing in the Indian logistics industry make it unattractive
for investments and also create entry barriers.
· Logistics is a high-cost, low-margin business. The problem of organized players is
compounded by unfair competition with unorganized players, who can get away
without paying taxes and following operating norms stipulated in the Motor Vehicles
Act such as quality of drivers and vehicles, volume and weight restrictions, etc.

· Economies of scale are absent in the Indian logistics industry. Even the organized
sector that contributes slightly more than 1% of the logistics cost, is highly
fragmented. Existence of the differential sales tax structure also brought in
diseconomies of scale. Though VAT (Value Added Tax) has been implemented since
April 1, 2005, failure in implementation of a uniform VAT structure across different
states has let the problem persist even today.

· Apart from the non-uniform tax structure, Indian LSPs have to pay numerous other
taxes, octrois, and face multiple check posts and police harassment. High costs of
operation and delays involved in compliance with varying documentation
requirements of different states make the business unattractive. On an average, a
vehicle on Indian roads loses 24-48 hours in complying with paperwork and
formalities at different check posts en route to a destination. Fuel worth USD 2.5
billion is spent on waiting at check posts annually. A vehicle that costs USD 30,000
pays USD
7,500 per annum in the form of various taxes, which include the excise duty on fuel.
This is why freight cost is a major component of the cost of a product in India.

· There is lack of trust and awareness among Indian shippers with regard to
outsourcing logistics. The volume of outsourcing by Indian shippers is presently very
low (~ 10%) compared to the same for the developed countries (> 50%, sometimes
as high as 80%). The unwillingness to outsource logistics on part of Indian shippers
may be attributed to skepticism about the possible benefits, perceived risk, and
losing control, of sensitive organizational information, and vested interests in keeping
logistics activities in-house.

· Indian shippers expect LSPs to own quality assets, provide more value-added
services and act as an integrated service provider, and institute world-class
information systems for more visibility and real-time tracking of shipments. However,
they are unwilling to match the same with increased billings; even pay little attention
to timely payments that leave LSPs short of adequate working capital.

· Indian freight forwarders face stiff competition from multi-national freight


forwarders for international freight movement. MNCs, because of their size and
operations in many countries, are able to offer low freight rates and extend credit
for long periods. Indian freight forwarders, on the other hand, because of their
smaller size and lack of access to cheap capital, are not able to match the same.
Moreover, clients of MNCs often want to deal with a single service provider and
especially for FOB (Free on Board) shipments specify the freight forwarders, which
most of the time happen to be the multi-national freight forwarders. This is sort of a
non-tariff barrier imposed on Indian freight forwarders.

· Poor physical and communications infrastructure is another deterrent to attracting


investments in the logistics sector. Road transportation accounts for more than 60%
of inland transportation of goods, and highways that constitute 1.4% of the total road
network, carry 40% of the freight movement by roadways. Slow movement of cargo
due to bad road conditions, multiple check posts and documentation requirements,
congestion at seaports due to inadequate infrastructure, bureaucracy, red-tapeism
and delay in government clearances, coupled with unreliable power supply and slow
banking transactions, make it difficult for exporters to meet the deadlines for their
international customers. To expedite shipments, they have to book as airfreight,
rather than seafreight, which adds to the costs of shipments making them
uncompetitive in international markets. Moreover, many large shipping liners avoid
Indian ports for long turnaround times due to delays in loading/unloading and hence
Indian exporters have to resort to transshipments at ports such as Singapore, Dubai
and Colombo, which adds to the costs of shipments and also delays delivery.

· Low penetration of IT and lack of proper communications infrastructure also result in


delays, and lack of visibility and real-time tracking ability. Unavailability and absence
of a seamless flow of information among the constituents of LSPs creates a lot of
uncertainty, unnecessary paperwork and delays, and lack of transparency in terms of
cost structures and service delivery. For example, a shipper has to pay a higher
freight rate if it cannot ensure return load. At present, there is no realtime process by
which a shipper may know about the availability of trucks and going rates at the
destination market. Therefore, it has to pay more. Had the market information been
available to both the shipper and the service provider, the service provider’s cost
structure would have been transparent to the shipper and it would have ended
paying the actual market rate. Another example would be that LTL (Less than
Truckload) shipments cost more than FTL (Full Truckload) shipments. Now, when a
shipper books a LTL shipment, it has no idea about the status of its shipment after it
leaves the warehouse at the origin and before it reaches the warehouse at the
destination. The service provider may still convert this LTL shipment into a FTL
shipment at it own warehouse before delivering at the destination. So, the shipper
ends up paying LTL rates for a FTL shipment. Had there been visibility during delivery,
this problem would not have occurred.

· Since most of the LSPs are of relatively small size, they cannot provide the entire
range of services. However, shippers would like service providers to offer more value-
added services and a single-stop solution to all their logistical problems. The inability
of service providers to go beyond basic services and provide value-added services
such as small repair work, kitting/dekitting, packaging/labeling, order processing,
distribution, customer support, etc. has not been able to motivate shippers to go for
outsourcing in a big way.

· Service tax levied on logistics service fees (currently 12.36% with educational cess)
may make outsourcing costly and outweigh the possible benefits.

· There is lack of skilled and knowledgeable manpower in the logistics sector.


Management
graduates do not consider logistics as a prime job. To improve the status of the
industry, service
providers have to move beyond the level of brokers and truckers to attract and retain
talent.

Future prospects

Despite problems, The Indian logistics industry is growing at 20% vis-à-vis the
average world logistics industry growth of 10%. Since the organized sector accounts
for merely 1% of the annual logistics cost, there is immense potential for growth of
the sector. The major opportunities are highlighted below.

· Many large Indian corporates such as Tata and Reliance Industries have been
attracted by the potential of this sector and have established logistics divisions. They
started providing in-house logistics services, and soon sensing the growth of the
market, have started providing services to other corporates as well.
· Large express cargo and courier companies such as Transport Corporation of India
(TCI) and Blue Dart have also started logistics operations. These companies enjoy the
advantage of already having a large asset base and an all-India distribution network.
Some large distributors have also forayed into the logistics business for their clients.

· Since logistics service can be provided without assets, there is growing interest
among entrepreneurs to venture into this business.

· Indian shippers are gradually becoming more aware of the benefits of logistics
outsourcing. They are now realizing that customer service and delivery performance
are equally important as cost to remain competitive in this global economy.

· The Indian economy is growing at over 9% for the last couple of years (compared to
the world GDP growth rate of 3%), which implies more outputs and more demand for
specialized logistics services.

· The Indian government has focused on infrastructure development. Examples


include the golden quadrilateral project, east-west and north-south corridors
(connecting four major metros), Free Trade and Warehousing Zones (FTWZ) in line
with Special Economic Zones (SEZ) with 100% Foreign Direct Investment (FDI) limit
and public-private partnerships (PPP) in infrastructure development. It is expected
that infrastructure development would boost investments in the logistics sector.

· In India, 100% FDI is allowed in logistics whereas in China, until recently, foreign
investment was not allowed in domestic logistics. Almost all large global logistics
companies have their presence in India, mainly involved in freight forwarding. For
domestic transportation and warehousing, they have tie-ups with Indian companies.
As the Indian logistics scenario looks promising, these MNCs are expected to play a
bigger role, probably forming wholly-owned subsidiaries or taking the acquisition
route. The latter may be the preferred route of investment since the target company
is readily acquired with its asset base and distribution network, and the need for
building everything from scratch can thus be avoided. The benefits for the acquired
company include the patronage of an MNC and access to the MNC’s global network.
As an example, DHL Danzas, the biggest logistics company in the world, has taken
over Blue Dart.

FRANCHISE

FRANCHISING REFERS TO THE METHODS OF PRACTICING AND USING ANOTHER PERSON'S BUSINESS PHILOSOPHY. THE
FRANCHISOR GRANTS THE INDEPENDENT OPERATOR THE RIGHT TO DISTRIBUTE ITS PRODUCTS, TECHNIQUES, AND
TRADEMARKS FOR A PERCENTAGE OF GROSS MONTHLY SALES AND A ROYALTY FEE. VARIOUS TANGIBLES AND INTANGIBLES
SUCH AS NATIONAL OR INTERNATIONAL ADVERTISING, TRAINING, AND OTHER SUPPORT SERVICES ARE COMMONLY MADE
AVAILABLE BY THE FRANCHISOR. AGREEMENTS TYPICALLY LAST FROM FIVE TO THIRTY YEARS, WITH PREMATURE
CANCELLATIONS OR TERMINATIONS OF MOST CONTRACTS BEARING SERIOUS CONSEQUENCES FOR FRANCHISEES.

One out of every three dollars spent by Americans for goods and services is spent in
a franchised business. In India Franchising is the known way of doing business since
the days of the familiar Bata shops, and it has been catching up fast in the recent
past. With India's vast and inherent entrepreneurial talent, franchising is well poised
to help spur the economy and establish global standards for products and services.
Consider the numbers : 1 billion population, with GDP growth rate of 6 - 8% per
annum With annual growth rate of 40%, franchising contributes Rs.9000 Crores (US$
2 billion) to Indian Economy 40,000 franchisees have invested over Rs.5000 Crores
(US$ 1.1 billion) in individual franchised businesses he total manpower employed by
franchised businesses in India is around 30,000.

(AUTOMATIC VENDING MACHINE)

The vending machine industry generated U.S. sales of about $22.1 billion annually in
the late 1990s. With significant advances in technology and innovation, the vending
machine industry served numerous markets. In 2000, shipments of coin-operated
vending machines by manufacturers totaled $1.24 billion, up from $767 million in
1995, though lower than shipments in both 1998 and 1999 of $1.44 billion.

The industry segments itself by the kind of service provided by the vending operator.
Some of the major categories include: the 4 C's, which include coffee, club soda,
candy, and cigarettes; full-line vending, which includes hot food, canned soda, and
diary and frozen food; specialty vending, which encompasses such special products
as pizza or french fries; OCS, or office coffee service; bulk vending, focusing on such
unpackaged items as gum or nuts; and street vending, which includes music
machines, video games, and other vending machines used in public places.

WHOLESALE

Wholesaling, historically called jobbing, is the sale of goods or merchandise to


retailers, to industrial, commercial, institutional, or other professional business users,
or to other wholesalers and related subordinated services.

"WHOLESALE" IS THE RESALE (SALE WITHOUT TRANSFORMATION) OF NEW AND USED GOODS TO RETAILERS,
TO INDUSTRIAL, COMMERCIAL, INSTITUTIONAL OR PROFESSIONAL USERS, OR TO OTHER WHOLESALERS, OR
INVOLVES ACTING AS AN AGENT OR BROKER IN BUYING MERCHANDISE FOR, OR SELLING MERCHANDISE TO,
SUCH PERSONS OR COMPANIES. WHOLESALERS FREQUENTLY PHYSICALLY ASSEMBLE, SORT AND GRADE
GOODS IN LARGE LOTS, BREAK BULK, REPACK AND REDISTRIBUTE IN SMALLER LOTS. WHILE WHOLESALERS
OF MOST PRODUCTS USUALLY OPERATE FROM INDEPENDENT PREMISES, WHOLESALE MARKETING FOR
FOODSTUFFS CAN TAKE PLACE AT SPECIFIC WHOLESALE MARKETS WHERE ALL TRADERS ARE CONGREGATED.
Modern wholesale Market complex under National Horticulture Mission
Main features of Modern Wholesale Market

1. The Modern Wholesale Market will be set up in those States that undertake reforms
in their laws dealing with agricultural marketing to provide direct marketing and
permit the setting up of markets in private and cooperative sectors.

2. The Modern Wholesale Market would operate on a Hub-and-Spoke Format wherein


the main Market (the hub) would be linked to a number of Collection Centres (CC)
(the spokes).

3. The spokes would be conveniently located at key production centers to allow easy
farmers access and the catchments area of each spoke would be based on meeting
the convenient needs of farmers, operational efficiently and effective capital
utilization of the investment.

4. The Modern Wholesale Market would establish backward linkages with farmers
through the collection centers and forward linkages through wholesalers, distribution
centres, retails cash and carry stores, processing units and exporters.

5. Collection Centres in the villages would integrate producers and retailers,


processing units and exporters into the market system.

6. An electronic auction system would be established to ensure transparency in price


fixation and competition.

7. The scheme will attract and facilitate private sector investment in the agribusiness
sector, by assisting the key stakeholders-entrepreneurs, producers, processing
industry and exporters.

8. Producers, farmers and their associations and other market functionaries from any
part of the country may use the infrastructure and facilities of the Modern Wholesale
Market directly or through the collection centres.

9. The Modern Wholesale Market would provide one-stop solution in terms of


providing logistics support including transport services and cool chain facility. The
modern wholesale markets have been categorized based on number of collection
centers and cost of project as under:
Category A- Market having 20 or more collection centers costing upto 100 crores.
Category B- Market having 1-19 collection centres costing upto 60 crores.
Category C- Market without collection centers costing upto 30 crores.

For the calculation of subsidy the cost of infrastructure for non-marketing services
should be excluded from the total project cost as apprised by the Financial Institution.

The developer of the market should operate the market for a minimum period of 15
years and not divert the asset for any other purpose or change the land use before
that period. As regards the cost of land, the same shall be governed as per
operational guidelines of NHM. If land is on rental basis or provided by state
Government the same shall not become part of project cost.
The main objectives of setting up Wholesale Markets Complex

1. To link the farmers to the markets by shortening the supply chain of perishables
and enhance their efficiency and thus increase farmers income.

2. Provide professionally managed competitive alternative marketing structures that


provide multiple choices to farmers for sale of their agricultural produce.

3. To accelerate development of marketing and post harvest infrastructure including


cool chain infrastructure in the county through private sector investment.

4. To bring transparency in the market transactions and price fixation for agricultural
produce and through provision of backward linkages to enable the farmers to realize
higher price an thus higher income to the farmers.

Eligibility

The Modern Wholesale Market project would be built, owned and operated by
individuals, Group of farmers/Growers/Consumers, Partnership/Proprietary firms,
Companies, Marketing Boards, Corporations, Co-operatives, Producers Organizations
and self help groups. The Private Enterprise could also be a consortium of
entrepreneur from, inter-alia, agri-business, cold chain logistics, warehousing, agri-
infrastructure and related background.

Commodities

The commodities to be marketed by the Modern Wholesale Market will include all
perishables, inter-alia, fruits, vegetables, flowers, aromatics, herbs, meat, poultry etc.
Non-perishables can also be handled in the Modern Wholesale Market. However, the
proportion of Non-Perishables shall not exceed 15% of the total through put of the
market. Similarly, proportion of non-horticultural products within the perishable
commodities shall not exceed 15% of the total through put of the market.

Location

The State Government will approve the number and indicative location of the Modern
Wholesale Market based on the demand, economic viability, commercial
considerations etc. Core facilities and essential services to be provided at the
Wholesale Markets:
9. Material handling
17. Storage area of
1. Electronic auction facility equipment (palletisation
plastic crates
and plastic crates)
10. Movement and 18. Standards for the
2. Storage and Cold storage
parking facility for produce arriving at the
facility
vehicles market
3. Temperature controlled 11. Futures trading
19. Bulk Weighment etc
warehouse facility
20. Drinking water,
12. Transport services
4. Ripening chamber toilets and Information
(including cool chain)
desks
21. Emergency
13. Banking services
5. Sorting, grading, washing services, policing/
including settlement to
and packing lines general security and
transactions
Fire fighting services.
14. Vehicle fuelling
6. Labeling of produce
services
7. Price displays / bulletin 15. Waste and refuse
service. treatment and disposal
16. Basic lodging
8. Quality testing facility
services

In addition to the above, the modern wholesale market will provide the following User
facilities and services free of charge to the users:

1. Price information display screens both at the central and the collection centers for
Perishable Agricultural Produce

2. Advisory on inputs, prices, quality for Perishable Horticulture Produce Non Market
Services “Non Market Services” means the provision of the following indicative user
facilities and services at the wholesale market:

11. Vehicle rental


1. Business Center services 6. Locker rental
services
2. Catering services 7. Logistic Centers 12. Vending services
3. Freight consolidators / 13. Leisure service
8. Messenger services
forwarders or agent services Facilities
4. General retail shops 9. Porter service 14. Shopping Complex
5. Hotels and Motels 10. Restaurants, and
services including other 15. Processing facilities
reservation services refreshment services

In addition to the above which are non chargeable, the market will provide the
following
USER FACILITIES AND SERVICES AT NOMINAL RATES TO THE USERS:

3. Infrastructure /
1. Food items Facilities 5. Vehicle parking lot
for Public telephones
4. Infrastructure /
2. Infrastructure / Facilities
Facilities
for Post Offices
for access to internet
Facilities and services to be provided at the collection center for Perishable
Agricultural
Produce handled by the PE.

5. Banking services
1. Washing, grading,
3. Plastic crates including settlement of
sorting, weighing facilities
payment if possible
4. Facility for collection
2. Transport services to
and
main market complex
aggregation of produce

THE FUNDS WILL BE RELEASED AS PER THE CRITERIA APPLICABLE FOR AVAILING CREDIT LINKED BACK ENDED SUBSIDY.
THE STATE AUTHORITIES WILL HAVE TO MONITOR THE IMPLEMENTATION AND FURNISH QUARTERLY PROGRESS REPORTS OF
UTILIZATION OF CENTRAL ASSISTANCE.

Retailing in India
Retail Marketing

RETAILING IS THE INTERFACE BETWEEN THE PRODUCER AND THE INDIVIDUAL CONSUMER BUYING FOR PERSONAL
CONSUMPTION. THIS EXCLUDES DIRECT INTERFACE BETWEEN THE MANUFACTURER AND INSTITUTIONAL BUYERS SUCH AS
THE GOVERNMENT AND OTHER BULK CUSTOMERS. A RETAILER IS ONE WHO STOCKS THE PRODUCER’S GOODS AND IS
INVOLVED IN THE ACT OF SELLING IT TO THE INDIVIDUAL CONSUMER, AT A MARGIN OF PROFIT. AS SUCH, RETAILING IS
THE LAST LINK THAT CONNECTS THE INDIVIDUAL CONSUMER WITH THE MANUFACTURING AND DISTRIBUTION CHAIN.

THE RETAIL INDUSTRY IS DIVIDED INTO ORGANISED AND UNORGANIZED SECTORS. ORGANISED RETAILING REFERS TO
TRADING ACTIVITIES UNDERTAKEN BY LICENSED RETAILERS, THAT IS, THOSE WHO ARE REGISTERED FOR SALES TAX,
INCOME TAX, ETC. THESE INCLUDE THE CORPORATE-BACKED HYPERMARKETS AND RETAIL CHAINS, AND ALSO THE
PRIVATELY OWNED LARGE RETAIL BUSINESSES. UNORGANISED RETAILING, ON THE OTHER HAND, REFERS TO THE
TRADITIONAL FORMATS OF LOW-COST RETAILING, FOR EXAMPLE, THE LOCAL KIRANA SHOPS, OWNER MANNED GENERAL
STORES, PAAN/BEEDI SHOPS, CONVENIENCE STORES, HAND CART AND PAVEMENT VENDORS, ETC.

The Indian Scenario:

Trade or retailing is the single largest component of the services sector in terms of
contribution to GDP. Its massive share of 14% is double the figure of the next largest
broad economic activity in the sector. India is the ‘second most attractive retail
destination’ globally from among thirty emergent markets. It has made India the
cause of a good deal of excitement and the cynosure of many foreign eyes. With a
contribution of 14% to the national GDP and employing 7% of the total workforce
(only agriculture employs more) in the country, the retail industry is definitely one of
the pillars of the Indian economy1.

GROWING IN TANDEM WITH THE ECONOMY IS THE INDIAN RETAIL SECTOR. THE SECTOR IS ON A HIGH GROWTH
TRAJECTORY AND IS EXPECTED TO GROW BY MORE THAN 27 PER CENT OVER THE NEXT 5 TO 6 YEARS. RETAIL IS ONE
OF INDIA’S LARGEST INDUSTRIES, CONTRIBUTING TO ABOUT 10 PER CENT OF THE GDP AND PROVIDING EMPLOYMENT
TO 8 PER CENT OF THE NATION’S WORKFORCE. INDIAN RETAIL BUSINESS PROMISES TO BE ONE OF THE CORE SECTORS
OF THE INDIAN ECONOMY, WITH ORGANISED RETAIL SECTOR ESTIMATED TO GROW BY 400 PER CENT OF ITS CURRENT
SIZE BY 2007-08.

Income, technology and life styles of consumers are changing, even from whom they
buy are changing. The location or the place where they buy is changing; the shops
are opened closed according to the convenience of the buyers. The buying process
has changed due to Internet buying, which brings new and better deals and also
saves time. Population growth rate, increasing literacy rate and increasing family
income has an effect on consumer spending.
CHANGING SOCIAL ATTITUDES TOWARDS WORK, HOME AND LEISURE AFFECT THE RETAIL STRATEGIES. POLITICAL
DECISIONS RELATING TO THE ENVIRONMENT, SHOPPING LOCATIONS AND FAIR TRADE AFFECT, WHERE AND HOW RETAILERS
CAN TRADE. CHANGES IN TECHNOLOGY BRING NEW ATTITUDES TO BUYING PRODUCTS AND SERVICES AND TO BETTER
ORGANIZATION OF THE SUPPLY CHAIN.

INDIA HAS THE HIGHEST SHOP DENSITY IN THE WORLD AND THE PRESENT RETAIL MARKET IN INDIA. WE ARE RANKED
SECOND IN THE GLOBAL RETAIL DEVELOPMENT INDEX OUT OF 30 BY AT KEARNEY. THIS FIGURE SHOWS THE
COMPARATIVE PENETRATION OF ORGANIZED RETAIL IN INDIA.

Traditional
Comparitive penitration of organized retail
Organized
120%

100%

80%

60%

40%

20%

0%
US Taiwan Malaysia Thailand Indonesia China India

Evolution of Retail Market in India.

In the beginning there were only kirana stores called Mom and Pop Stores, the
friendly
neighborhood stores selling every day needs. In the 1980s manufacturer’s retail
chains like
DCM, Gwalior Suitings, Bombay Dying, Calico, Titan etc started making its
appearance in
Metros and small towns. Multi brand retailers came into the picture in the 1990s. In
the food and
FMCG sectors retailers like Food world, Subhiksha, Nilgris are some of the examples.
In music
Segment Planet M, Music world and in books Crossword and Fountainhead are some
others.
Shopping Centres began to be established from 1995 onwards. A unique example
was the
Establishment of margin free markets in Kerala. The millennium year saw the
emeregence of super markets and hypermarkets. Now big players like Reliance,
Bharti, Tatas, HLL, ITC are entering into the organized retail segment. The big
international retail bigwigs are waiting in the wings, as the present FDI guidelines do
not allow them to own retail outlets in the country. Walmart is testing the waters by
agreeing to provide back end and logistic support to Bharti for establishment of retail
chains with a view to study the market for future entry when the FDI guidelines
change and to establish a backbone supply chain. Table 1 shows the different phases
in the growth of organized retailing in India.

Table: 1. Journey of Organized Retail in India


Year Growth Function
2000 First Phase Entry, Growth, Expansion, Top line focus
2005 Second Phase Range, Portfolio, Former options
End to end supply chain management, Backend operation, Technology,
2008
Third Phase Process
2011 Fourth Phase M&A, Shakeout, Consolidation, High investment
Ernst &
Source:
Young

GLOBAL SCENARIO

RETAIL STORES CONSTITUTE 20% OF US GDP & ARE THE 3 USA. CHINA ON
RD LARGEST EMPLOYER SEGMENT IN
THE OTHER HAND HAS ATTRACTED SEVERAL GLOBAL RETAILERS IN RECENT TIMES. RETAIL 7% OF THE
SECTOR EMPLOYS
POPULATION IN CHINA. MAJOR RETAILERS LIKE WAL-MART & CARREFOUR HAVE ALREADY ENTERED THE CHINESE
MARKET. IN THE YEAR 2003, WAL-MART & CARREFOUR HAD SALES OF US $ 70.4 CRORE & US $ 160
CRORE RESPECTIVELY. THE GLOBAL RETAIL INDUSTRY HAS TRAVELED A LONG WAY FROM A SMALL BEGINNING TO AN
INDUSTRY WHERE THE WORLD WIDE RETAIL SALES IS VALUED AT $ 7 X 10” CRORE. THE TOP 200 RETAILERS ALONE
ACCOUNTS FOR 30 % OF THE WORLDWIDE DEMAND. RETAIL TURNOVER IN THE EU IS APPROXIMATELY EUROS
2,00,000 CRORE AND THE SECTOR AVERAGE GROWTH IS SHOWING AN UPWARD PATTERN. THE ASIAN ECONOMIES
(EXCLUDING JAPAN) ARE EXPECTED TO GROW AT 6% CONSISTENTLY TILL 2005-06.ON THE GLOBAL RETAIL STAGE,
LITTLE HAS REMAINED SAME OVER THE LAST DECADE. ONE OF THE FEW SIMILARITIES WITH TODAY IS THAT WAL-MART
WAS RANKED THE TOP RETAILER IN THE WORLD THEN & IT STILL HOLDS THAT DISTINCTION. OTHER THAN WAL-MART'S
DOMINANCE, THERE'S A LITTLE ABOUT TODAY'S ENVIRONMENT THAT LOOKS LIKE THE MID-1990S. THE GLOBAL
ECONOMY HAS CHANGED, CONSUMER DEMAND HAS SHIFTED & RETAILERS' OPERATING SYSTEMS TODAY ARE INFUSED
WITH FAR MORE TECHNOLOGY THAN WAS THE CASE SIX YEARS AGO.

The Top Five


Company Investment
Bharti Yet to
Wal-Mart - announce
Reliance $ 5.5 billion
Aditya Birla
Group $ 3.3 billion
Pantaloon $ 1 billion
Tatas $ 89 million
Source: The Economic Times

PRESENT INDIAN SCENARIO

INDIA’S GOLDMINE BY GLOBAL PLAYERS HAS GRABBED ATTENTION OF THE


RETAIL MARKET THAT IS SEEN AS THE
MOST DEVELOPED NATIONS.
THIS IS NO WONDER TO THE ONE WHO KNOWS THAT THE TOTAL INDIAN RETAIL MARKET IS
US $350BN. (16, 00,000 CRORE INR APPROX.) OF WHICH ORGANIZED RETAILING IS ONLY AROUND 3 PERCENT
I.E. US $8BN (36,000 CRORE INR APPROX).

MODERN RETAIL HAS ENTERED INDIA AS SEEN IN SPRAWLING SHOPPING CENTERS, MULTI-STOREYED MALLS AND HUGE
COMPLEXES OFFER SHOPPING, ENTERTAINMENT AND FOOD ALL UNDER ONE ROOF. THE FUTURE OF INDIAN RETAILING MAY
EVEN WITNESS THE CONCEPT OF 24 HOUR RETAILING.

THE URBAN RETAIL MARKET HAS BEEN EMBRACING VARIOUS NEW FORMATS AND THE MALLS TURNED OUT TO BE THE
TRENDSETTERS BY PROMISING THE CONCEPT OF SHOPPERTAINMENT. THE TRENDS IN THE RURAL MARKET ALSO HAVE BEEN
CHANGING FROM THE OLD HAATS AND MELAS TO THE RURAL MALLS LIKE ‘CHAUPAL SAGAR’ LAUNCHED BY ITC,
DCM SHRIRAM GROUPS ONE-STOP SHOPPING DESTINATION CALLED ‘HARIYALI BAZAAR’, GODREJ GROUPS AGRI STORE
‘ADHAR’ ETC.
Organized retailing is spreading and making its presence felt in different parts of the
country. The trend in grocery retailing, however, has been slightly different with a
growth concentration in the South. Though there were traditional family owned retail
chains in South India such as Nilgiri’s as early as 1904, the retail revolution happened
with various major business houses foraying into the starting of chains of food retail
outlets in South India with focus on Chennai, Hyderabad and Bangalore markets,
preliminarily. In the Indian context, a countrywide chain in food retailing is yet to be
established as lots of Supply Chain issues need to be answered due to the vast
expanse of the country and also diverse cultures that are present.

• UNORGANIZED MARKET: RS. 583,000 CRORES*


• ORGANIZED MARKET: RS.5, 000 CRORES* 5X GROWTH IN ORGANIZED RETAILING BETWEEN 2000-2005
* OVER 4,000 NEW MODERN OUTLETS IN THE LAST 3 YEARS* OVER 5,000,000 SQ. FT. OF MALL
SPACE UNDER DEVELOPMENT

MAJOR PLAYERS
- FOOD AND GROCERY-
- FOOD WORLD-
- SHOPPERS' STOP-
- SUBHIKSHA- WORKING AT CERTAIN PLACES

- WESTSIDE –
- PLANET M-
- NILGRIS –
- LIFESTYLE-
- MUSIC WORLD-
- NIRMA-RADHEY
- GLOBUS-
- RELIANCE FRESH
- RPG’S SPENCERS

INDIAN CONSUMERS ARE RAPIDLY EVOLVING AND ACCEPTING MODERN FORMATS OVERWHELMINGLY. RETAIL SPACE IS NO
MORE A CONSTRAINT FOR GROWTH.

FEW OF INDIA'S TOP RETAILERS ARE:

1. BIG BAZAAR-PANTALOONS:
BIG BAZAAR, A DIVISION OF PANTALOON RETAIL (INDIA) LTD IS ALREADY INDIA'S BIGGEST RETAILER. IN THE YEAR
2003-04, IT HAD REVENUE OF RS 658.31 CRORES & BY 2010; IT IS TARGETING REVENUE OF RS 8,800
CRORE.

2. FOOD WORLD:
FOOD WORLD IN INDIA IS AN ALLIANCE BETWEEN THE RPG GROUP IN INDIA WITH DAIRY FARM INTERNATIONAL OF
THE JARDINE
MATHESON GROUP.

3. TRINETHRA:
IT IS A SUPERMARKET CHAIN THAT HAS PREDOMINANT PRESENCE IN THE SOUTHERN STATE OF ANDHRA PRADESH. THEIR
TURNOVER WAS RS 78.8 CRORE FOR THE YEAR 2002-03.

4. APNA BAZAAR:
IT IS A RS 140-CRORE CONSUMER CO-OPERATIVE SOCIETY WITH A CUSTOMER BASE OF OVER 12 LAKH, PLANS TO
CATER TO AN UPWARDLY MOBILE URBAN POPULATION.

5. MARGIN FREE:

IT IS A KERALA BASED DISCOUNT STORE, WHICH IS UNIFORMLY SPREAD ACROSS 240 MARGIN FREE FRANCHISEES IN
KERALA, TAMIL NADU AND KARNATAKA. WHOLESALE TRADING IS ANOTHER AREA, WHICH HAS POTENTIAL FOR RAPID
GROWTH. GERMAN GIANT METRO AG AND SOUTH AFRICAN SHOPRITE HOLDINGS HAVE ALREADY MADE HEADWAY IN
THIS SEGMENT BY SETTING UP STORES SELLING MERCHANDISE ON A WHOLESALE BASIS IN BANGALORE AND MUMBAI
RESPECTIVELY. THESE NEW-FORMAT CASH-AND-CARRY STORES ATTRACT LARGE VOLUMES FROM A SIZEABLE NUMBER OF
RETAILERS WHO DO NOT HAVE TO MAINTAIN RELATIONSHIPS WITH MULTIPLE SUPPLIERS FOR ALL THEIR NEEDS.

What is retailing?

The word 'retail' is derived from the French word 'retailer' meaning 'to cut a piece off'
or 'to break bulk'. In simple terms it involves activities whereby product or services
are sold to final consumers in small quantities. Although retailing in its various
formats has been around our country for many decades, it has been confined for
along time to family owned corner shops. Englishmen are great soccer enthusiasts,
and they strongly think that one should never give Indians a corner. It stems from the
belief that, if you give an Indian a corner he would end up setting a shop. That is how
great Indians retail management skill is considered.

THIS EMERGENCE OF ORGANIZED RETAILING HAS BEEN DUE TO THE DEMOGRAPHIC AND PSYCHOGRAPHICS CHANGES
TAKING PLACE IN THE LIFE OF URBAN CONSUMERS. GROWING NUMBER OF NUCLEAR FAMILIES, WORKING WOMEN,
GREATER WORK PRESSURE, CHANGING VALUES AND LIFESTYLES, INCREASED COMMUTING TIME, INFLUENCE OF WESTERN
WAY OF LIFE ETC. HAVE MEANT THAT THE NEEDS AND WANTS OF CONSUMERS HAVE SHIFTED FROM JUST BEING COST
AND RELATIONSHIP DRIVE TO BRAND AND EXPERIENCE DRIVEN, WHILE THE VALUE ELEMENT STILL DOMINATING THE
BUYING DECISIONS.

A retail revolution is happening at newer markets, India presents exciting


opportunities on account of its vast middle-class and a virtually untapped retail
industry.

• The network of retailers reaches every nook and corner of the country. So any
product produced anywhere in the country can be easily accessed by the buyers from
any location. Thus the spatial convenience of Indian retailers is varying high.
According to ORG-MARG2 the total number of all kinds of retail outlets in India was
51,30,000 during 1996-97. This means one retail outlet exists against an average of
almost 190 persons.

• Secondly, in India the retailing industry is an unorganized lot consisting of, in most
of the cases, small entrepreneurs. And the virtual omnipresence of the Indian retailer
can be attributed to these small entrepreneurs only.
The second attribute gives rise to the following characteristics –

• The manufacturers cannot directly reach all retailers in a particular geographical


area. Therefore, the manufacturers cannot maintain the desired relationship with the
retailers, which in turn, makes management of the channel complicated. This also
makes the possibility of a direct feedback loop from the retailers almost remote.

• Therefore, the member operating between the manufacturers and retailers become
more powerful as they can block the channel of communication between the two. So
the dependence of retailers on other channel members increases to a high extent.
Thus the participation of retailers in the flows of marketing mix becomes lower than
desired.

• The financial strength of the Indian retailers, in general, is very low and hence the
investment capabilities. This makes the retailers more dependent on the other
channel members. However, these characteristics are peculiar to the small retail
outlets and may not be present at every kind of retail level. According to the ORG-
MARG study referred to above, the number of smaller retailers (having turnover less
than Rs. 20,000 pa) is estimated to be 27,71,200 and the number of retail outlets
with turnover more than Rs. 1,20,000 per annum is only 3,59,100. In recent times,
however, more and more big retail outlets are coming up in the metros and cities of
the country. Many business houses now are thinking of opening up a retail chain of
their own. Spencer and Co. Limited (retailing arm of the RPG group), Vitan Industries
Limited, Pantaloon, Shoppers Stop, to name a few, have already in the business with
a big bang. All of them have got very ambitious plans to get into the new millennium.
Pantaloon, for example, has got 40 strong chain of franchisee and 12 stores owned
directly by them. RPG Group plans to increase their outlets to 50 FoodWorld, 18
Health & Glow, 8 MusicWorld from present 27 FoodWorld and 2 MusicWorld outlets by
the end of the year 1999. Likewise, Archies has got a good presence in the market
through a very successful and efficient franchisee network.

In India, the logistics market is mainly thought to mean transportation. But the major
elements of logistics cost for industries include transportation, warehousing,
inventory management, courier and other valued-added services such as packaging.

The logistics costs account for 13 per cent of GDP. The industry is currently on an
upswing and is poised for a growth of 20 per cent in the coming years.
With the expansion of retail, supply chain will take on an increasingly important role.
With the end consumer becoming more demanding and time conscious, the need for
just-in-time services is increasing. In retail, where competition is intense and stakes
are high, customer satisfaction is paramount.

Retailers realize that knowing what is selling and what is not can improve the
inventory processes. Inventory is the biggest cost factor, and if not managed well, it
can also be the biggest drain. That's why retailers and their trading partners today
set store by the inventory process and its impact. Effective SCM enables:

Averting problems: Stores easily identify potential stock-outs and request


replenishment before the inventory drops to zero. Deciding to de-list or replace a
product is easier.

Facilitating resource planning and allocation: Product forecasts and supply


schedules are easily converted to perform space planning, establish staffing needs
and organise inbound/outbound shipments. Financial experts can plan cash flow and
analyse margins into the future.

The key players in the logistics industry are gearing up to meet the challenges by
initiating both organic and inorganic growth to leverage the retail opportunity.
Logistics firms have also started focusing on related services such as Customs
clearing and forwarding, inbound warehousing, labeling and packaging, fleet
management, order picking and inventory management.

RETAIL LOGISTICS

RETAILING IS THE MOST ACTIVE AND ATTRACTIVE SECTOR OF LAST DECADE. WHILE THE RETAILING INDUSTRY ITSELF HAS
BEEN PRESENT SINCE AGES IN OUR COUNTRY, IT IS ONLY THE RECENT PAST THAT IT HAS WITNESSED SO MUCH
DYNAMISM. THE EMERGENCE OF RETAILING IN INDIA HAS MORE TO DO WITH THE INCREASED PURCHASING POWER OF
BUYERS, ESPECIALLY POST-LIBERALIZATION, INCREASE IN PRODUCT VARIETY, AND INCREASE IN ECONOMIES OF SCALE,
WITH THE AID OF MODERN SUPPLY AND DISTRIBUTIONS SOLUTION AND NEW TECHNOLOGIES ARE IMPROVING RETAIL
PRODUCTIVITY, THOUGH THERE ARE MANY OPPORTUNITIES TO START A NEW RETAIL BUSINESS, RETAILERS ARE FACING
NUMEROUS CHALLENGES.

It is often taken for granted that products will be available to buy in the shops. The
cornucopia of goods that is available in a hypermarket or a department store
sometimes means that we forget how the products were supplied. We expect our
lettuces to be fresh, the new Playstation to be available on launch day and our
clothes to be in good condition and ready to wear. With the introduction of e-
commerce we have come to demand complete availability and home delivery at
times of our choosing.

Consumer beliefs and needs have altered. Our willingness to wait to be satisfied or
served has reduced and we expect instant product availability and gratification. It
should be obvious from this that the supply or logistics system that gets products
from production through retailing to consumption has also needed to be transformed.

Physical distribution and materials management have been replaced by logistics


management and a subsequent concern for the whole supply chain (Figure 1.1). This
logistics transformation derives from cost and service requirements as well as
consumer and retailer change (see Fernie, 1990; Fernie and Sparks, 1998). Elements
of logistics are remarkably expensive, if not controlled effectively. Holding stock or
inventory in warehouses just in case it is needed is a highly costly activity. The stock
itself is expensive and might not sell or could become obsolete. Warehouses and
distribution centres generally are expensive to build, operate and maintain. Vehicles
to transport goods between warehouses and shops are expensive, in terms of both
capital and running costs.

Materials Management Physical distribution


management
C

O
Raw Materials Inventory
N
Parts Storage Facilities S
Packaging Finished Product Utilization U
Materials Transportation
M
Communication E
R

S
Logistics management

There is thus a cost imperative to of both capital and running costs. There is thus a
cost imperative to making sure that logistics is carried out effectively and efficiently,
through the most appropriate allocation of resources along the supply chain. At the
same time, there can be service benefits. By appropriate integration of demand and
supply, mainly through the widespread use of information technology and systems,
retailers can provide a better service to consumers by, for example, having fresher,
higher quality produce arriving to meet consumer demand for such products. With
the appropriate logistics, products should be of a better presentational quality, could
possibly be cheaper, have a longer shelf life and there should be far fewer instances
of stock outs. Reaction time to spurts in demand can be radically improved through
the use of information transmission and dissemination technologies. If operating
properly, a good logistics system can therefore both reduce costs and improve
service, providing a competitive advantage for the retailer.

Retailing and logistics are concerned with product availability. Many have described
this as ‘getting the right products to the right place at the right time’. Unfortunately
however that description does not do justice to the amount of effort that has to go
into a logistics supply system and the multitude of ways that supply systems can go
wrong. The very simplicity of the statement suggests logistics is an easy process. As
the boxed example shows, problems and mistakes can be all too apparent. The real
management ‘trick’ is in making logistics looks easy, day in and day out, whilst
reacting to quite volatile consumer demand

FOR EXAMPLE, IF THE TEMPERATURE RISES AND THE SUN COMES OUT IN AN ATYPICAL SCOTTISH SUMMER, THEN DEMAND
FOR ICE CREAM, SOFT DRINKS AND EVEN SALAD ITEMS RISES DRAMATICALLY. HOW DOES A RETAILER MAKE SURE THEY
REMAIN IN STOCK AND SATISFY THIS TRANSIENT DEMAND? OR VALENTINE’S DAY, WHEN
WE MIGHT THINK ABOUT
DEMAND FOR CERTAIN PRODUCTS IN THE DAYS BEFORE INCREASES EXPONENTIALLY. IF A RETAILER STOCKS
VALENTINE’S
CARDS AND DEMAND DOES NOT MATERIALIZE, THEN THE RETAILER HAS STOCK THAT WILL NOT SELL. THERE IS LITTLE
DEMAND FOR VALENTINE’S CARDS ON 15 FEBRUARY. WHILE OVER-STOCKS IN THIS CASE WILL NOT PERISH, THE COST
OF THEIR STORAGE AND HANDLING FOR THE INTERVENING YEAR CAN BE CONSIDERABLE.

The examples above demonstrate that retailers must be concerned with the flows of
product and information both within the business and in the wider supply chain. In
order to make products available retailers have to manage their logistics in terms of
product movement and demand management. They need to know what is selling in
the stores and both anticipate and react quickly to changes in this demand. At the
same time they need to be able to move less demand-volatile products in an efficient
and cost-effective manner. The logistics management task is therefore initially
concerned with managing the components of the ‘logistics mix’. We can identify five
components:

• Storage facilities: these might be warehouses or distribution centres or simply


the stock rooms of retail stores. Retailers manage these facilities to enable them to
keep stock in anticipation of or to react to, demand for products.

• Inventory: all retailers hold stock to some extent. The question for retailers is the
amount of stock or inventory (finished products and/or component parts) that has to
be held for each product, and the location of this stock to meet demand changes.

• Transportation: most products have to be transported in some way at some stage


of their journey from production to consumption. Retailers therefore have to manage
a transport operation that might involve different forms of transport, different sizes of
containers and vehicles and the scheduling and availability of drivers and vehicles.

• Unitization and packaging: consumers generally buy products in small


quantities. They sometimes make purchase decisions based on product presentation
and packaging. Retailers are concerned to develop products that are easy to handle
in logistics terms, do not cost too much to package or handle, yet retain their selling
ability on the shelves.

• Communications: to get products to where retailers need them, it is necessary to


have information, not only about demand and supply, but also about volumes, stock,
prices and movements. Retailers have thus become increasingly concerned with
being able to capture data at appropriate points in the system and to use that
information to have a more efficient and effective logistics operation. It should be
clear that all of these elements are interlinked. In the past they were often managed
as functional areas or ‘silos’, and while potentially optimal within each function, the
business as a whole was sub-optimal in logistics terms. More recently the
management approach has been to integrate these logistics tasks and reduce the
functional barriers. So, if a retailer gets good sales data from the checkout system,
this can be used in scheduling transport and deciding levels and locations of stock
holding. If the level of inventory can be reduced, perhaps fewer warehouses are
needed. If communications and transport can be linked effectively, a retailer can
move from keeping stock in a warehouse to running a distribution centre which sorts
products for immediate store delivery: that is, approaching a ‘Just-In-Time’ system.
Internal integration has therefore been a major concern.

It should also be clear, however, that retailers are but one part of the supply system.
Retailers are involved in the selling of goods and services to the consumer. For this
they draw upon manufacturers to provide the necessary products. They may
outsource certain functions such as transport and warehousing to specialist logistics
services providers.

Retailers therefore have a direct interest in the logistics systems of their suppliers
and other intermediaries. If a retailer is effective, but its suppliers are not, errors and
delays in supply from the manufacturer or logistics services provider will impact the
retailer and the retailer ’s consumers, in terms of either higher prices or stock-outs
(no products available on the store shelves).

If a retailer can integrate effectively its logistics system with that of its suppliers,
such problems may be minimized. Much more importantly, however, the entire
supply chain can then be optimized and managed as a single entity. This brings
potential advantages of cost reduction and service enhancement, not only for the
retailer, but also for the supplier. It should also mean that products reach the stores
more rapidly, thus better meeting sometimes-transient customer demand. In some
instances it may mean the production of products in merchandisable ready units,
which flow through the distribution systems from production to the shop floor without
the need for assembly or disassembly. Such developments clearly require supply
chain co-operation and coordination.

We may be describing highly complex and advanced operations here. Retail suppliers
are increasingly spread across the world. A retailer may have thousands of stores in a
number of countries, with tens of thousands of individual product lines. They may
make millions of individual sales per day. Utilizing data to ensure effective operation
amongst retailers, manufacturers, suppliers, logistics services providers, head office,
shops and distribution centers is not straightforward. There is thus always a tension
between overall complexity and the desire for the simplest possible process.
Summarizing the discussion above, the logistics task therefore can be described as:

The process of strategically managing the procurement, movement and storage of


materials, parts and finished inventory (and the related information flows) through
the organization and its marketing channels in such a way that current and future
profitability are maximized through the cost effective fulfillment of orders.
(Christopher, 1998: 4)

Managing the logistics mix in an integrated retail supply chain, while aiming to
balance cost and service requirements, is the essential element of logistics
management. As retailers have begun to embrace this logistics approach and
examine their wider supply chains, many have realized that to carry out logistics
properly, there has to be a transformation of approach and operations (Sparks,
1998).

KEY CHALLENGES:

1) LOCATION:

"RIGHT PLACE, RIGHT CHOICE"

Follow the Four `Rs' of SCM — Right time, Right place, Right price, Right quantity —
to reap the advantages of:

• Sustained inventory reduction by as much as 60 per cent for both the buyer
and seller.
• Improved forecast accuracy by as much as 30 per cent.
• Enhanced store shelf stock rates by as much as 8 per cent.
• Increased sales by as much as 20 per cent.
• Reduced logistics costs by as much as 4 per cent.

LOCATION IS THE MOST IMPORTANT INGREDIENT FOR ANY BUSINESS THAT RELIES ON CUSTOMERS, AND IS TYPICALLY THE
PRIME CONSIDERATION IN A CUSTOMER’S STORE CHOICE. LOCATIONS DECISIONS ARE HARDER TO CHANGE BECAUSE
RETAILERS HAVE TO EITHER MAKE SUSTAINABLE INVESTMENTS TO BUY AND DEVELOP REAL ESTATE OR COMMIT TO LONG-
TERM LEASE WITH DEVELOPERS. WHEN FORMULATING DECISION ABOUT WHERE TO LOCATE, THE RETAILER MUST REFER
TO THE STRATEGIC PLAN:

• INVESTIGATE ALTERNATIVE TRADING AREAS.


• DETERMINE THE TYPE OF DESIRABLE STORE LOCATION
• EVALUATE ALTERNATIVE SPECIFIC STORE SITES

2) MERCHANDISE, (TRADE, COMMODITIES OFFERED FOR SALE):

THE PRIMARY GOAL OF THE MOST RETAILERS IS TO SELL THE RIGHT KIND OF MERCHANDISE AND NOTHING IS MORE
CENTRAL TO THE STRATEGIC THRUST OF THE RETAILING FIRM. MERCHANDISING CONSISTS OF ACTIVITIES INVOLVED IN
ACQUIRING PARTICULAR GOODS AND SERVICES AND MAKING THEM AVAILABLE AT A PLACE, TIME AND QUANTITY THAT
ENABLE THE RETAILER TO REACH ITS GOALS. MERCHANDISING IS PERHAPS, THE MOST IMPORTANT FUNCTION FOR ANY
RETAIL ORGANIZATION, AS IT DECIDES WHAT FINALLY GOES ON SHELF OF THE STORE.

3) PRICING:

PRICING IS A CRUCIAL STRATEGIC VARIABLE DUE TO ITS DIRECT RELATIONSHIP WITH A FIRM'S GOAL AND ITS
INTERACTION WITH OTHER RETAILING ELEMENTS. THE IMPORTANCE OF PRICING DECISIONS IS GROWING
BECAUSE TODAY'S CUSTOMERS ARE LOOKING FOR GOOD VALUE WHEN THEY BUY MERCHANDISE AND
SERVICES. PRICE IS THE EASIEST AND QUICKEST VARIABLE TO CHANGE.

4) TARGET AUDIENCE:

"CONSUMER THE PRIME MOVER”


“CONSUMER PULL", HOWEVER, SEEMS TO BE THE MOST IMPORTANT DRIVING FACTOR BEHIND THE
SUSTENANCE OF THE INDUSTRY. THE PURCHASING POWER OF THE CUSTOMERS HAS INCREASED TO A GREAT
EXTENT, WITH THE INFLUENCING THE RETAIL INDUSTRY TO A GREAT EXTENT, A VARIETY OF OTHER FACTORS
ALSO SEEM TO FUEL THE RETAILING BOOM.

5) SCALE OF OPERATIONS:

SCALE OF OPERATIONS INCLUDES ALL THE SUPPLY CHAIN ACTIVITIES, WHICH ARE CARRIED OUT IN THE
BUSINESS. IT IS ONE OF THE CHALLENGES THAT THE INDIAN RETAILERS ARE FACING. THE COST OF BUSINESS
OPERATIONS IS VERY HIGH IN INDIA.

RETAILING FORMATS:

A) HYPERMARKET

: IT IS THE LARGEST FORMAT IN INDIAN RETAIL SO FAR IS A ONE-STOP SHOP FOR THE MODERN INDIAN
SHOPPER.
*MERCHANDISE: FOOD GROCERY TO CLOTHING TO SPOTS GOODS TO BOOKS TO STATIONERY.
*SPACE OCCUPIED: 50000 SQ. FT. AND ABOVE.
*SKUS: 20000-30000.
*EXAMPLE: PANTALOON RETAIL’S BIG BAZAAR, RPG’S SPENCERS (GIANT).

B) SUPERMARKET

:A SUBDUED VERSION OF A HYPERMARKET.


*MERCHANDISE: ALMOST SIMILAR TO THAT OF A HYPERMARKET BUT IN RELATIVELY SMALLER PROPOSITION.
*SPACE OCCUPIED: 5000 SQ. FT. OR MORE.
*SKUS: AROUND 10000.
*EXAMPLE: NILGIRIS, APNA BAZAAR, TRINETHRA.

C) CONVENIENCE STORE

: A SUBDUED VERSION OF A SUPERMARKET.


*MERCHANDISE: GROCERIES ARE PREDOMINANTLY SOLD.
*SPACE OCCUPIED: AROUND 500 SQ. FT. TO 3000 SQ. FT.
*EXAMPLE: STORES LOCATED AT THE CORNERS OF THE STREETS, RELIANCE RETAIL’S FRESH AND SELECT.

D) DEPARTMENT STORE

:A RETAIL ESTABLISHMENT WHICH SPECIALIZES IN SELLING A WIDE RANGE OF PRODUCTS WITHOUT A SINGLE PROMINENT
MERCHANDISE LINE AND IS USUALLY A PART OF A RETAIL CHAIN.

*MERCHANDISE: APPAREL, HOUSEHOLD ACCESSORIES, COSMETICS, GIFTS ETC.


*SPACE OCCUPIED: AROUND 10000 SQ. FT. – 30000 SQ. FT.
*EXAMPLE: LANDMARK GROUP’S LIFESTYLE, TRENT INDIA LTD.’S WESTSIDE.

E) DISCOUNT STORE
: STANDARD MERCHANDISE SOLD AT LOWER PRICES WITH LOWER MARGINS AND HIGHER VOLUMES.
*MERCHANDISE: A VARIETY OF PERISHABLE/ NON-PERISHABLE GOODS.
*EXAMPLE: VISWAPRIYA GROUP’S SUBIKSHA, PIRAMAL’S TRUMART.
F) SPECIALTY STORE
: IT CONSISTS OF A NARROW PRODUCT LINE WITH DEEP ASSORTMENT.
*MERCHANDISE: DEPENDS ON THE STORES
*EXAMPLE: BATA STORE DEALS ONLY WITH FOOTWEAR, RPG’S MUSIC WORLD, CROSSWORD.

G) MBO’S
: MULTI BRAND OUTLETS, ALSO KNOWN AS CATEGORY KILLERS. THESE USUALLY DO WELL IN BUSY
MARKET PLACES AND METROS.

*MERCHANDISE: OFFERS SEVERAL BRANDS ACROSS A SINGLE PRODUCT CATEGORY.

H) KIRANA STORES:
THE SMALLEST RETAIL FORMATS, WHICH ARE THE HIGHEST IN NUMBER (15 MILLION APPROX.) IN INDIA.

SPACE OCCUPIED: 50 SQ FT AND EVEN SMALLER ONES EXIST.


*MALLS: THE LARGEST FORM OF ORGANIZED RETAILING TODAY. LOCATED MAINLY IN METRO CITIES, IN
PROXIMITY TO URBAN OUTSKIRTS.
*MERCHANDISE: THEY LEND AN IDEAL SHOPPING EXPERIENCE WITH AN AMALGAMATION OF PRODUCT,
SERVICE AND ENTERTAINMENT, ALL UNDER A COMMON ROOF.
*SPACE OCCUPIED: RANGES FROM 60,000 SQ FT TO 7, 00,000 SQ FT.
*EXAMPLE: PANTALOON RETAIL’S CENTRAL, MUMBAI’S IORBIT.

Supplier Retailer Relationships

Traditionally the supplier-retailer relation in India comprised several layers such as


the national distributor, the regional wholesaler and the end retailer. However this
scenario is fast changing with the organized retail increasing its presence in the
country where the relationship is directly with the manufacturer. However this new
model has been affecting the relationships that the manufacturer enjoys with the
traditional system that is still the most dominant in the entire retail sector. The issue
of differential pricing is being taken up at several forums and the growing
dissatisfaction among the traditional retailers is being addressed by the
manufacturers. However we see that in the long term, the role of a national
distributor would slowly fade away or get restricted to the rural/ upcountry regions.
The supplier-retailer relationship would come under severe pressure, as each party
would try to squeeze maximum margins out of the other.

Innovations in Transportation Logistics

The logistics service providers have been innovating several interesting formats and
models for the retail sector. As of now, organized retail chains in India do not, by far,
outsource logistical requirements; they develop their own network. This was basically
due to the fact that the supply-chain was still in its infancy stage, which has begun to
mature and the systems are being well defined. As retail chains begin to focus more
and more on the retail end, the logistics support would begin to get outsourced. The
logistics service providers have begun to come out with innovative customized
solutions for the retail chains such as GATI’s model for distribution of Alphonso
mangoes throughout the country with the Information Technology support.
We see that the logistics service providers would continue to innovate and develop
effective distribution systems for the retail sector.

Formats

Currently the retail sector in India is populated with the traditional mom-and-pop
stores and some 1000 odd supermarkets under organized retail chains. A daring few
ventured into the Hypermarket segment with successful results and this format is
being fast replicated by other players. This experience indicates that the Indian
consumer has matured to the next level of shopping experience. Given the Indian
conditions and the vast diversity a single format may not be possible for the national
presence, but region specific formats may evolve. An interesting observation is that
of lack of presence of organized retail chains in the rural/semi-urban centers as over
60% of Indian population is still in these parts. An ideal “no frills” model to start with,
would be ideal for the rural markets, this would help to take them to the next level of
supermarket experience.

Enumerating some of the likely positive outcomes.

ORGANIZED RETAIL MARKET BOOM IS EXPECTED TO CREATE THE MUCH-NEEDED MASS EMPLOYMENT. IT WILL UPGRADE
INDIA’S LAYER SECOND AND THIRD TIER CITIES TO INTERNATIONAL STANDARD. WHILE THIS BOOM ADDRESSES INDIA’S
BASIC INFRASTRUCTURE CHALLENGES IT PROMISES TO CREATE DEMAND FOR THE PRODUCT OF RURAL INDIA AND A MORE
EFFICIENT AGRICULTURAL SECTOR. THE ORGANIZED RETAIL MARKET BOOM IS EXPECTED TO BRING POSITIVE OUTCOMES IN
MANY OF SECTORS LIKE ECONOMIC GROWTH, EXPORTS, EDUCATION, IT INDUSTRY, FOOD PROCESSING, INFRASTRUCTURE
AND TRAFFIC, BANKING, TOURISM, AGRIBUSINESS MANAGEMENT ALONG WITH THE GREATER CUSTOMER SATISFACTION.
SOME OF THESE POSITIVE OUTCOMES

• Development of world class retail shops is likely to gives direct employment to


many professionals like real estate dealers, builders, architects, display designers,
retail shop managers and workers like sales persons, security etc. Figure 2 shows the
manpower gap by 2010.According to CII the retail sector can absorb 9.0 lakh people
over the next five years. Some of the activities like packing is likely to be outsourced
from in and around the vicinity of the establishment. One million people will be
employed by this retail sector and 3.2 million will be required by 2008-09. The local
community is likely to benefit from employment opportunity so generated. The
employees have the opportunity of getting pension, other employee benefits and
union membership under this organized sector.

• Small business can spring up around such mega retail outlets giving service to a
large number of shoppers visiting the malls.

• The organized retail market boom is expected to become one of the pillars to Indian
economy as are oil and gold for Middle East. Indian exports will get a boost when the
big showrooms source Indian goods from small businesses for their international
outlets and it will help us to find the market for the products form rural India.

• Think of the increase in transport required for providing goods and services for the
retail outlets. This boom will eliminate the absence of cold-storage infrastructure
problem of our farmers and help them to get the product to marketplace in time. The
supply chain can again provide opportunities for a host of manufacturing, trading,
and services. Air, road and rail transport is going to benefit from this. Numbers of
domestic airlines is now increasing their cargo services considerably to meet the
requirements of this sector

• The big book stalls in these hypermarkets become a blessing to voracious readers
and researchers. It offers considerable discount and variety of books to all age of
people, that now small magazine hats fail to offer.

• Managing inventories is one of the important asset of the big retailers. The best
practices available in the world in this field would come into the country with the
coming of players like Wal-Mart in the logistics of retail marketing. India is the fastest
growing mobile market in the world. These showrooms will become major hubs for
this electronic industry. Organized retail showrooms give the consumers wide range
of electronics goods ranging from robots to imported toys.

• The air conditioning and refrigeration industry is likely to get a big boost.
Commercial air-conditioning is likely to overtake the domestic market with the
coming of this boom. The refrigerated containers required to transport perishables to
various retail outlets would be enormous. The production of consumer durable goods
is expected to increase by this organized retail sector.

Consumers would be the group, which benefits the most. They would get wider
choices of products and cheaper prices. This will increase consumption rate and will
indirectly generate more employment and wealth. The local retailers will start
offering better discounts that other foreign retail giants could not cope. Time saving
online shopping, home delivery through web portal and ability for better comparison
of products will increase customer satisfaction.

• Education is considered as the most happening sector in India. While retail giants
entering in to the fray there are many opportunities opening up in the educational
sector. Retailers like Reliance itself now hire around 60-70 percent of its front-
end staff from government school pass outs. Pantaloon hires 300 school passed out
from both government and private. Retail career area includes store operation,
supply chain management, human resource management, entrepreneurship, IT, sales
etc. The management schools like NMIMS, IIMs start offering courses with
specialization in this field. Number of e-learning portals start provides online courses
for retail in India. Foreign Institutional Investors and corporate like Lifestyle tie up
with Indian institutes like National Institute of Fashion Technology (NIFT) to start both
short and long tem course for fashion retail management and retail supply chain
management. This tie up will slowly shift in to other education fields also offering
high quality foreign education in Indian soil. The great demand for those qualified
students surely attract more and more youngsters and managers to this attractive
courses and more and more public and private institutions start offering variety of
courses in this field. The non-organized market sectors hiring these qualified
professionals will also have change in their methodology for quality of services,
supply chain management, store organization, financial management and product
appreciation.

• Growing organized food retailing in India will bring significant change in the
agribusiness management. The supermarket and fresh food outlet showrooms will
directly procure product from the farmers. The organized retail marketing will
channelise large-scale private investments into irrigation, agriculture marketing,
agriculture extension services and infrastructure such as roads, cold storage and
grain banks.

• Farmers are likely to get better prices for their products as these mega retailers are
likely to procure their farm products directly from the farmers. Many of the
middlemen would be eliminated. They start contracts based farming and get assured
buyer with stable price. The food procurement business helps the farmers when
government controversial decisions to import food items or when state procurement
agencies stay away

• People becoming fashion conscious. The retail markets bring the latest in fashion
accessories and kids wear for customers of all age groups. Indian customers will
accept the international fashion brands like Parfois, Vincci, Oakidi and Obaibi with
open arms and there will be drastic changes in the dress code. The traditional saree,
Kadhi and silks dress will be shifted to occasional one. Baby care products like bed
linen, rolling products, handbags, jewelry, watches, sunglasses, hats, belts and hair
accessories and Vincci range of footwear of foreign brands will take place in the daily
use of Indian customers. Figure 3 shows the retail segments ratio in Indian

Fastest growing retail segment in India


Watch and Jewelry
18%
Durables
18%
Food and Grocery
Pharmacy
91%
27%

Furniture and
Fixtures
27%
Clothing
55%

• The IT sector offers fairly high income in Indian youngsters. The greater purchasing
opportunity makes them to work hard for the luxuries in their life. The world-class
restaurants occupied in these retail showrooms will become a best place for get
together and facilitate better family relation ship. These retail showrooms will be a
great relief for old age people since they need not to walk anywhere. Those who
come back to India from foreign nation would be able to keep using their favorite
brands, as they are easily available through these retail shops.

• The celebrations will become more enjoyable with costly gifts. The contest and
offers during the festival season by theses big giants varies like air tickets, gadgets,
jewelry, and chocolates. The offers from air services like Singapore airlines and
number of tourism development agencies like from other countries give a new face to
the festival season in India.

• The cigarette manufactures will face strict completion from foreign brands. The
places near the theses showrooms will become turn to posh areas. The street corner
shops selling cheap product like Pan, Beedi etc in these places will disappear and
significant reduce in the smoking at public place

• The retail boom will bring a rush in property development and significant
improvements in real estate and construction work at every small town in the
country. Table 4 shows the drastic changes in the Indian cities.

Table: 4. Changes in India.


Urban Share Population. Average Return on
Investment in Retail
Year Growth Rate
Real Estate.
1991 26%Tier 1 Cities 9-10%
2001 28%Tier 2 Cities 8-9%
2011 41%Tier 3 Cities 10-11%
Source: Ernst & Young

• INFRASTRUCTURE AND TRAFFIC FACILITIES WILL IMPROVE SIGNIFICANTLY. MOST OF THESE STORES ARE
LOCATED AWAY FROM THE TOWN AREAS THEY WILL ENCOURAGE TO FACILITATE THE ROAD AND TRANSPORT
FACILITIES TO REMOTE AREAS IN THE COUNTRY. THE GRIDLOCK OF CARS AND OTHER VEHICLES IN THE TOWN
AREAS WILL BE REDUCED SINCE THE SHOPPING CENTERS FIND DIFFICULT TO FIND PARKING AREAS AND OFTEN
THE CUSTOMERS VEHICLE BRING LOT OF TRAFFIC JAM IN PEAK HOURS .THE SHOPPERS WILL BE SPENDING
MONEY TO DEVELOP THESE AREA.

• Better weather forecasting will be take place as Wal-Mart like big giants start
depending on local whether data for replenishment purpose. Consumers will be
benefited by the call center agents to enquire on particular product. For better store
connectivity they will facilitate the real time status monitoring application,
transformational technology like RFID, service based infrastructure and Virtual Private
Networks. The IT professionals start developing retail technology products like
Personal Shopping Assistant (PSA), ERP and CRM applications which will look in to
inventory turn and stock availability by communicating in real time. IT industry will
bring web portals to avoid go to market mechanism and innovative technologies like
Ontological applications for treat each customer as unique. Number of strategic
acquisitions like Oracle acquisition of Retek, 360Commerece, ProfitLogic etc in the IT
industries will take place to meet the retail specific functionality. Establishment of
new centers like TCS retail innovation lab, HCL, Oracle Retail Centre for the
requirement engineering and related process will take place across the country.

• Retail showrooms will start offering multi channel online retailing facility. The Indian
society shift to purchase product and services online in a large amount. The online
shopping destinations like eBay, Amazone comparison shopping portals like google
and shopping.com will be more popular in Indian community. New domestic e-
commerce retailers are being born. There will be increase in the banks offerings and
online facilities. The society will start using these online banking facilities, credit
cards etc more and more in their daily life. The customer will be saving lot of time
and have a better comparison of product in the neighborhood retail showrooms. The
competition become more as adjacent district showrooms will deliver better product
with in few hours. Many other related industry start advertising their product in these
local web portals. This will be benefit to the small-scale industry units.

The flip side of this revolution

The flip side is equally prominent, large section of India’s people are still deprived of
the fruits of development. 26 percent of India lives below poverty line their life will
become more pathetic and result in increased social tensions. Table 5 shows the
urban and rural area poverty rate in India.

Table 5: Over all poverty in India over various years


Poverty Ratio Percent Number Of Poor (Millions)
Year
Rural Urban Combined Rural Urban Combined
1993-94 37.3 32.4 36.0 244.0 76.3 320.3
1999-00 27.1 23.6 26.1 193.2 67.1 260.3
2007 21.1 15.1 19.3 170.5 49.6 220.1
Source: Economy watch, March 07

Around 40 million people in India depend on the unorganized retail sector; the trade
unions and traders fear these people's livelihoods will be ruined if retail giants are
permitted to enter India's retail market, some of the negative outcomes

• It is observed that the presence of big retailers like Wal-Mart depresses the wages
of the employees at the bottom of the pyramid in the community. Some of the retail
market giants who going to print their foot in India are notorious for driving out
competition and slashing labour costs in other countries. Most of the employment
opportunities that promise to create are for the semi skilled and unskilled labors this
is not useful for majority of highly educated Indian youth. Reliance already started
using two of the special economic zone as warehouse for their retail outlets. Farmers
lost their lively hood as most of the area that acquired for the purpose are farmland.
The promised compensation packages are often inadequate. Due to delay in
processing and corrupted middle players of government employees, it is not reaching
to the real farmers. Most of the place senior citizens protesting against for their
farmland acquisition are arrested and imprisoned for several months. The great
apprehensions about these retail giants’ styles of operation will bring law and order
problems in the country.

• The coming of the big players in the retail market would be last nail in the coffin for
the
friendly neighborhood kirana stores. The personal touch one used to get from the
service of
kirana stores would be a thing of the past.

• The life style of the community would change. In food consumption, heat and eat
culture would replace the conventional cooking habits of the populace. Fast foods and
junk foods would replace the more nutritional conventional foods

• Retail giants with strong presence in other countries get the products cheapest
rates possible from around the globe like oranges from California, pineapples from
Hawaii and apples from Washington. The existing apple industry in Kashmir and
Himachal will be badly affected. The presence of seasonal fruits from foreign country
will surely decrease the market for Indian fruit. India’s estimated 2% food processing
will struggle with the imported apple juice and processed food items. The domestic
food product wastage that is 40% now will increase. The Indian tea market may
vanish by the cheaper tea from Vietnamese. This global supply chain will become
outlets for cheep Chinese made goods stores in India.

• The decreasing sales of fruit juice, sauce and bread items in small shops will stop
the supply/movement of these ready to eat products to the owner manned general
stores, which will affect the lively hood of 3.95 crores of unorganized retail trade
employees.

Need of Regulations

Change is inevitable. Different retailers serve for different needs of Indian society
trying to protect any group of retailers through special laws hurt the customers. The
foreign retailers failed in countries like Japan. If the retailer’s growth is prevented in
India the expected economic growth will be badly affected. But law enforcement and
rules like Micro, Small and Medium Enterprises act 2006, Agricultural Produce
Marketing Committee (APMC) act etc should be effectively implemented to make sure
that small and local business are not adversely affected. Department of industrial
policy and promotion Polices (DIPP) and local governing bodies should make polices
to integrate small trading class as partners in the large retail chains so that they too
can benefit from new technologies and new management practices.

*State government must have control over these retailers and they should bring
conditionality for the functioning of foreign retailers from place to place. They should
closely monitor their functioning and introduce new internal self-regulations.

*Banking finance for the welfare of unorganized sector for improving their efficiency
should be enhanced.

*Strict labor laws and limited opening hours must be there for theses shops.

*The FDI policies should be reformed from time to time and foreigners entering
strategies like franchise agreement, cash and carry whole sale trading, strategic
licensing agreement make foolproof for avoiding global retailers to engage in full
retailing. Like Mexico, Brazil, Argentina, Uruguay, Chile and Costa Rica got together
to bring new legislation to prevent Wal-Mart from opening too many stores in their
countries.

*India should not allow the retail giants from monopolizing market above some
percent in any sector. The price of commodities should be agreed by the state
government. Mutual agreement with local government for the promotion of local
commodities and employment should be signed by the foreign vendors. The food
processing and allied services should bring under reserved items. The procurement
must be through government agencies like supply co.

*The ministry should make sure that for all foreign retailers wishing to enter India,
they should give an undertaking that whatever volume of business they generate in
India for the first 10 years, they must export an equivalent amount (or more) from
India for these 10 years This will facilitate Indian manufacturing sector to get a boost.
All foreign retailers must undertake to buy at least 50% of their merchandise (by
retail value) from within India. This will prevent any dumping in India. All large
retailers (of say total retail space > 250 square feet) must have a 4 percent turnover
cess that should be used by the Government to provide technology, training, and
marketing support (through local small retailer associations) to kirana / other
neighborhood stores. Government should make sure that the farmers are getting real
profit of their product, which were bulkily procured and stored in the cold storage of
these retailers, during off-season as well.

Conclusion

The paper paints a verbal picture of the impending retail boom likely to happen
sooner than later. The signs are all over the place. For few years foreign retailers will
have the role of facilitator for to standardize the agribusiness and to unify customer’s
preference across the country. The competition will help to increase the quality of
service of the existing local retailers and greater customer satisfaction in Indian
society. Concept of self-employment will vanish and sustainable small industries will
be roped with the big chains. Paper gives a glimpse of the slow evolution of retail
market over the years. A concise description of the drivers of this phenomenon was
discussed. The likely positive and negative impact of this revolution is enumerated.

Reference
*Andrew Collins,”Competitive Retail Marketing Dynamic Strategies for Winning and
Keepring
Customers”, McGraw-Hill, 1992
Arjun Swarup,”India`s Retail Revolution”, Blog Globaleconomydeosmatter, March,
2007.
Arpita Mukerjee, “FDI in retail Sector: India “, Academic foundation, 2005
Charles M Edwars,Roselle A Brown,”Retail Advertizing and Sales Promotion”,1959.
E-Business,”Hosted E-commerce Building Competitive Advantage for the Online
Retailer”,
ET “Govt to scan Bharti, Wal-Mart deal: Nath”. The Economic Times, November 28,
2006

*MRINMOY K SARMA - RETAIL MANAGEMENT IN INDIA: SOME GLOBAL ISSUES


*Retail logistics: changes and challenges - John Fernie and Leigh Sparks

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