supply chain

SUPPLY CHAIN MANAGEMENT

A supply chain is a network of facilities and distribution options that performs the functions
of procurement of materials, transformation of these materials into intermediate and finished
products, and the distribution of these finished products to customers. Supply chains exist in
both service and manufacturing organizations, although the complexity of the chain may vary
greatly from industry to industry and firm to firm.

Traditionally, marketing, distribution, planning, manufacturing, and the purchasing
organizations along the supply chain operated independently. These organizations have their
own objectives and these are often conflicting. Marketing's objective of high customer
service and maximum sales dollars conflict with manufacturing and distribution goals. Many
manufacturing operations are designed to maximize throughput and lower costs with little
consideration for the impact on inventory levels and distribution capabilities. Purchasing
contracts are often negotiated with very little information beyond historical buying patterns.
The result of these factors is that there is not a single, integrated plan for the organization---
there were as many plans as businesses. Clearly, there is a need for a mechanism through
which these different functions can be integrated together. Supply chain management is a
strategy through which such an integration can be achieved.

Supply chain management is typically viewed to lie between fully vertically integrated firms,
where the entire material flow is owned by a single firm, and those where each channel
member operates independently. Therefore coordination between the various players in the
chain is key in its effective management. Cooper and Ellram [1993] compare supply chain
management to a well-balanced and well-practiced relay team. Such a team is more
competitive when each player knows how to be positioned for the hand-off. The relationships
are the strongest between players who directly pass the baton, but the entire team needs to
make a coordinated effort to win the race.

Supply Chain Decisions

We classify the decisions for supply chain management into two broad categories -- strategic
and operational. As the term implies, strategic decisions are made typically over a longer time
horizon. These are closely linked to the corporate strategy (they sometimes {it are} the
corporate strategy), and guide supply chain policies from a design perspective. On the other
hand, operational decisions are short term, and focus on activities over a day-to-day basis.
The effort in these type of decisions is to effectively and efficiently manage the product flow
in the "strategically" planned supply chain.

There are four major decision areas in supply chain management: 1) location, 2) production,
3) inventory, and 4) transportation (distribution), and there are both strategic and operational
elements in each of these decision areas.

Location Decisions
The geographic placement of production facilities, stocking points, and sourcing points is the
natural first step in creating a supply chain. The location of facilities involves a commitment
of resources to a long-term plan. Once the size, number, and location of these are determined,

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so are the possible paths by which the product flows through to the final customer. These
decisions are of great significance to a firm since they represent the basic strategy for
accessing customer markets, and will have a considerable impact on revenue, cost, and level
of service. These decisions should be determined by an optimization routine that considers
production costs, taxes, duties and duty drawback, tariffs, local content, distribution costs,
production limitations, etc. (See Arntzen, Brown, Harrison and Trafton [1995] for a thorough
discussion of these aspects.) Although location decisions are primarily strategic, they also
have implications on an operational level.

Production Decisions

The strategic decisions include what products to produce, and which plants to produce them
in, allocation of suppliers to plants, plants to DC's, and DC's to customer markets. As before,
these decisions have a big impact on the revenues, costs and customer service levels of the
firm. These decisions assume the existence of the facilities, but determine the exact path(s)
through which a product flows to and from these facilities. Another critical issue is the
capacity of the manufacturing facilities--and this largely depends the degree of vertical
integration within the firm. Operational decisions focus on detailed production scheduling.
These decisions include the construction of the master production schedules, scheduling
production on machines, and equipment maintenance. Other considerations include workload
balancing, and quality control measures at a production facility.

Inventory Decisions
These refer to means by which inventories are managed. Inventories exist at every stage of
the supply chain as either raw materials, semi-finished or finished goods. They can also be in-
process between locations. Their primary purpose to buffer against any uncertainty that might
exist in the supply chain. Since holding of inventories can cost anywhere between 20 to 40
percent of their value, their efficient management is critical in supply chain operations. It is
strategic in the sense that top management sets goals. However, most researchers have
approached the management of inventory from an operational perspective. These include
deployment strategies (push versus pull), control policies --- the determination of the optimal
levels of order quantities and reorder points, and setting safety stock levels, at each stocking
location. These levels are critical, since they are primary determinants of customer service
levels.

Transportation Decisions
The mode choice aspect of these decisions are the more strategic ones. These are closely
linked to the inventory decisions, since the best choice of mode is often found by trading-off
the cost of using the particular mode of transport with the indirect cost of inventory
associated with that mode. While air shipments may be fast, reliable, and warrant lesser
safety stocks, they are expensive. Meanwhile shipping by sea or rail may be much cheaper,
but they necessitate holding relatively large amounts of inventory to buffer against the
inherent uncertainty associated with them. Therefore customer service levels, and geographic
location play vital roles in such decisions. Since transportation is more than 30 percent of the
logistics costs, operating efficiently makes good economic sense. Shipment sizes


(consolidated bulk shipments versus Lot-for-Lot), routing and scheduling of equipment are
key in effective management of the firm's transport strategy.

Supply Chain Modeling Approaches

Clearly, each of the above two levels of decisions require a different perspective. The
strategic decisions are, for the most part, global or "all encompassing" in that they try to
integrate various aspects of the supply chain. Consequently, the models that describe these
decisions are huge, and require a considerable amount of data. Often due to the enormity of
data requirements, and the broad scope of decisions, these models provide approximate
solutions to the decisions they describe. The operational decisions, meanwhile, address the
day to day operation of the supply chain. Therefore the models that describe them are often
very specific in nature. Due to their narrow perspective, these models often consider great
detail and provide very good, if not optimal, solutions to the operational decisions.

To facilitate a concise review of the literature, and at the same time attempting to
accommodate the above polarity in modelling, we divide the modelling approaches into three
areas --- Network Design, ``Rough Cut" methods, and simulation based methods. The
network design methods, for the most part, provide normative models for the more strategic
decisions. These models typically cover the four major decision areas described earlier, and
focus more on the design aspect of the supply chain; the establishment of the network and the
associated flows on them. "Rough cut" methods, on the other hand, give guiding policies for
the operational decisions. These models typically assume a "single site" (i.e., ignore the
network) and add supply chain characteristics to it, such as explicitly considering the site's
relation to the others in the network. Simulation methods is a method by which a
comprehensive supply chain model can be analyzed, considering both strategic and
operational elements. However, as with all simulation models, one can only evaluate the
effectiveness of a pre-specified policy rather than develop new ones. It is the traditional
question of "What If?" versus "What's Best?"

INTEGRATION OF FOOD INDUSTRY – THE KEY DRIVER OF FOOD RETAIL IN
INDIA

India is world’s second largest grower of fruits and vegetables after Brazil and China. While
the agriculture sector has witnessed several leaps of innovation and technological
advancements, the processing sector is still in its infancy. Even with less than 4% processing
of fruits and vegetables, the Food Processing Industry sector in India is one of the largest in
terms of production, consumption within India, export and growth prospects. The government
has accorded it a high priority, with a number of fiscal reliefs and incentives, to encourage
commercialisation and value addition to agricultural produce; for minimising pre/post harvest
wastage, generating employment and export growth. As a result of several policy initiatives
undertaken since liberalisation in early 90’s, the industry has witnessed fast growth in most of
the segments. In the following few paragraphs, it can be noted that the processed food market
for India is vast and the amount of scope that retail chains would be exposed to is
phenomenal taking into consideration the demographics and raise in standards of living.
Retailers could throng the market with all these processed and packaged foods with their
private labels.


EVOLUTION OF ORGANIZED RETAILING

Retailing, one of the largest sectors in the global economy, is going through a transition phase
in India. For a long time, the corner grocery store was the only choice available to the
consumer, especially in the urban areas. This is slowly giving way to international formats of
retailing. The traditional food and grocery segment has seen the emergence of
supermarkets/grocery chains, convenience stores and fast-food chains.

The traditional grocers, by introducing self-service formats as well as value-added services
such as credit and home delivery, have tried to redefine themselves. However, the boom in
retailing has been confined primarily to the urban markets in the country. Even there, large
chunks are yet to feel the impact of organized retailing. There are two primary reasons for
this. First, the modern retailer is yet to feel the saturation' effect in the urban market and has,
therefore, probably not looked at the other markets as seriously. Second, the modern retailing
trend, despite its cost-effectiveness, has come to be identified with lifestyles.

Impact of Organized Retail

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 1905, the retail revolution happened with the RPG group
starting the Foodworld chain of food retail outlets in South India with focus on Chennai,
Hyderabad and Bangalore markets, preliminarily. The experiment has reaped rich dividends
and the group is now foraying into other territories as well. Owing to the success of
Foodworld model of RPG group, several new models such as Trinethra, Subhiksha, Margin
Free and others have made their foray into this sector albeit at regional levels. Today the food
retail sector in India is about Rupees Ten Lakh Crores (USD 200 billions) of which the
organised food retail segment is about 1 per cent and increasing at a pace of over 20% y-o-y.

In the organized retail industry, the gestation periods are long, institutional funding is
difficult, and there is none or little Government support. But the belief among top retailer
chains in the country is that the industry will see large investments coming once the current
ban on foreign direct investment is lifted. But that could be two-three years away. Food and
grocery retailing is a tough business in India with margins being very low, and consumers not
dissatisfied with existing shops where they buy. For example, the next-door grocery
shopkeeper is smart and delivers good customer service, though not value.

Pantaloon Retail (India) Ltd, which operates two types of retail formats, made its maiden
foray in food and grocery retailing in North India in mid-2003. Big Bazaar, Pantaloon group's
discount store chain, has taken off to a roaring start in Delhi. The Pantaloon Big Bazaar in
Delhi is the sixth for the group, and the first in North India. It has been found that existing
Big Bazaar stores in cities such as Hyderabad, Bangalore and Mumbai attract average
footfalls of 20,000 to 25,000 per day, more so during weekends. While Big Bazaar is
essentially a discount store retailing product categories ranging from food and grocery to
apparel to footwear to home and interior products, food and grocery retailing forms a
significant part of the chain's business. Typically, while food and grocery retailing does well
at the beginning of the month, the apparel sector sees maximum off take during festivals.


Likely Transformation of the Supply Chain:
To counter the unbeatable advantages of convenience of a hop, skip and a jump access and
home delivery, organized retailers seem to have just one option - offer attractive prices to the
consumer. A successful retailer's winning edge will therefore come from sourcing - how best
it can leverage its scale to drive merchandise costs down, increase stock turns and get better
credit terms from its vendors. There are obvious and hidden areas where costs can be pruned
and the benefits of this lower cost of retailing can be passed on to customers as lower prices,
which in turn should fuel demand. One way of trimming costs is if the pressure points in the
long, often unnecessary, supply chain for produce and staples can be identified and suitably
dealt with. The food supply chain in India is full of inefficiencies - a result of inadequate
infrastructure, too many middlemen, complicated laws and an indifferent attitude.

Corporate and NGO interventions at the farm end in the form of Farm Management Services
are emerging to ensure quality and timely supply of produce for the operations. The Farmer-
Corporate relationship has helped both the farmers and the corporates in bringing the high
quality low cost product to the retail shelf. To ease the burden of the corporate in setting up
farm management services, several leading NGO bodies have taken up this activity
essentially due to the fact that their operations are mostly at the farm end.

We feel that these farmer-corporate models would be replicated and extended to all the farm
end products. With the emergence of Private Label, we would soon find even the retail chains
to work with the farm community in developing a efficient supply chain and to leverage on
the cost advantage at both ends.

BIG BAZAAR

Big Bazaar is consumer goods retail chain of Future Group Pvt Ltd. Future Group also runs
Pantaloons, Lifestyle, EZone, Book Depot, Future Bazaar, Food Bazaar, Home Town, Fair
Price, Brand Factory and Central Hypermarket. Future group is a subsidiary of Pantaloon
Retail India Limited which is listed in NSE and BSE the most established Stock Markets in
India. Mr. Kishore Biyani is the person behind Big Bazaar. He is CEO and MD of Pantaloon
Retail India Limited. Big Bazaar is based on the concept of Hypermarket or Mega stores. In
this kind of Hypermarket consumer get all the daily routine products under single roof. Big
bazaar is having more than 215 stores in more than 95 cities and towns.

Big Bazaar launched in India with a bang by opening its 4 stores in 4 major cities Bengaluru,
Indore, Hyderabad and Kolkata within a time span of just 22 days. Big Bazaar was started in
India in September 2001.

It is now 10 years when big bazaar was started and has a huge number of stores all over
India.
Big Bazaar was started as a fashion hypermarket which had Apparels, Accessories,
Cosmetics and General Merchandise on sale. Later on a huge range of other products was
added to the list. This list includes FMCG products, Electronics, furniture, Stationery, etc.
These stores are established on big areas having huge displays and providing cool and


comfortable shopping experience to consumers. These stores are based on the concept of
Walmart USA.

The starting Tag Line of Big Bazaar was ‘Isse Sasta Aur Accha Kahin Nahin’. After
completion of its 10 years in Retail market the company has given a new tag line ‘Naye India
Ka Bazaar’. In these 10 years Big Bazaar has become favorites among housewives and other
group of consumers too. In overall it has become the favorite retail store of every Indian
family.

Most of outlets of Big Bazaar are on an area of minimum 50,000 square feet. In bigger
metropolis there are some huge stores on an area of 160,000 square feet. Big Bazaar express
stores in small towns are also on 30,000 square feet area only. Big Bazaar also has its own
house brand also which it promote in its stores. The most famous of them are Clean Mate,
Tasty treat, Sensei etc. Big bazaar has some great promotional schemes too. It offers Buy 1
Get 1 Free on many products. There are huge discounts on MRP of many products.

Big Bazaar also has special schemes on weekends and weekdays. They keep on promoting
products by having special display of products. Sampling and testing of many products is
available in store. Many small companies even launch their products through Big bazaar.
There are many schemes by various companies which are available in Big Bazaar only. Big
bazaar also provides consumer durables on Low EMI and interest free installments also

Big Bazaar operates at 3 levels Super market, Hyper market and Express stores. Express
stores are running in high traffic areas too. It stared in developing areas to take advantage of
Real estate Boom. Big Bazaar has changed the face of Indian consumer market a lot by
giving consumer a lot of alternatives to choose from.

Big Bazaar’s Commitment
Our commitment is to deliver sustained growth, through empowered people, acting with
responsibility and building trust with customers. Here’s I am explaining what this means:

Sustained Growth
is fundamental to motivating and measuring our success. Big Bazaar’squest for sustained
growth stimulates innovation, places a value on results, and helps usunderstand whether
today’s actions will contribute to our future. It is about growth of people and company
performance. It prioritizes making a difference and getting things done.

Empowered People
means we have the freedom to act and think in ways that you feel will get the job done, while
being consistent with the processes that ensure proper governance and being mindful of the
rest of the company’s needs.

Responsibility and Trust
Form the foundation for healthy growth. It’s about earning the confidence that other people
place in us as individuals and as a company. Our responsibility means we take personal and
corporate ownership for all we do, to be good stewards of the resources entrusted to us. We
build trust between ourselves and customers by talking not by mouth but by our superior
customer service and being committed to succeeding together.


FUTURE STRATEGIES AT BIG BAZAAR

As w e k no w s upp l y ch ai n i s t h e ba c k bo ne o f an y i n dust r y. A su ppl y c h ai n
co ns i s t s o f al l p a r t i e s i nvo l v ed di r e ct l y o r i n di re ct l y i n f ul fi l l i n g a
cu s t om e r re qu es t . T he s up pl y ch ai n i n c l ud es n ot o nl y t h e m an u fa ct u re r o r
s up pl i e r pa rt but a l so t ra ns po rt er , w a r e ho us e a nd customer part. In retail
especially supply chain begins with the customer and his or her need for the product. In retail
supply chain involved in receiving and filling a customer request.

As w e kno w c ust o m e r i s an i nt e gr al pa rt o f t he s upp l y ch ai n. In fa ct t h e
pri m a r y p a rt o f an y s upp l y c ha i n i s t o s at i s f y c ust om er n ee ds a nd i n
pr o c e s s gen e r at e p r ofi t f or i t s el f. Th e t e rm s u p p l y c h a i n c o n j u r e s u [
images of product or supply moving from to manufacturer to
distributer to retailer to customer along a chain. This is certainly part of supply chain, but it is
al s o i m po rt an t t o v i su al i z e i nf o rm at i o n, fu nds and p ro du ct s f l o ws al on g
bot h d i r e ct i ons o f this chain.

In reality a manufacturer may receive material from several suppliers and then supply several
distributers. A supply chain may include a variety of stages.

1. Customer
2. Retailer
3. Wholesaler/distributor
4. Manufacturer
5. Component/raw material supplier


Supply chain Process at BIG BAZAAR

Procurement cycle

Manufacturing cycle

Replenishement cycle

Customer order cycle

The supply chain Big Bazaar is managed by Future Supply chain, which has developed
expertise in supply chain management of consumer product categories such as fashion food,
home and General Merchandise. The company operates from 60 strategically located hubs,
servicing more than 2600 retail outlets spread across the length and breadth of the country. Its
network of facilities and specialised expertise enable it to manage more than 3 million SKUs.
This requires 30 million supply chains to be managed simultaneously, with their own specific
requirements that need customized solutions.

Big Bazaar’s Supply Chain’s transportation capability enables it to implement Factory-
Gatelogistics involving pick-up of goods from vendors across the country, national distribution of goods, and
city logistics that includes store deliveries and home deliveries. Big Bazaar’s Supply Chains
is the first organized intra-city transportation services company in India -carrying out not only
B2B deliveries but also B2C deliveries in the form of thousands of home deliveries every day across the
country, especially for Furniture and Consumer Durables.

Big Bazaar is also working on the vendor network as well as the logistics network. The company has identified
up to 40 anchor vendors, each with turnovers of US$45 million, to achieve economies of scale. The
group is also keen to ensure that its smaller vendors are able to reach turnovers of around US$1
million and a growth rate of 40% annually, to be able to pass on the benefits of scales. The company is also
working towards bringing its 1,200vendors online, like Wal-Mart.


In India, Big Bazaar derives significant economies of scale in managing their supply chain. With more than
170000 products, the company maintains a strong supplier relationship in a partnership mode, avoiding the
exploitative supplier ± buyer transactional philosophy. The IT enabled back-end operations
and supply chain management increases the reliability and efficiency of the business.

As part of the operation, Big Bazaar is also undertaking to reduce its warehousing costs
through a consolidation process. In a country like India, where most retail stores are located
in the heart of the city²where rents are high and storage space is scarce²supply chain
management has even more serious business implications. Future Logistics now handles two-
and-a-half million SKUs (or stock keeping units) a day across the Future Group’s various
retail formats around the country. By 2010, this number is expected to increase to more than
30 million SKUs a day.

Even with 98% accuracy, some 600,000 pieces will not be delivered correctly, resulting in an estimated
sales loss of more than Rs 4 crore a day.

Big Bazaar’s four main consumer sectors: Fashion, Food, Home and General Merchandise
have varied product lines, each with their own unique needs that require 30 distinct supply chain solutions.

Food Supply Chain

In the present competitive environment customers have become more demanding and asking
for quality food which guarantees the safety. n time delivery is becoming a norm to reduce
the inventory holding costs. The food industry is facing challenges due to increasing operational
complexity, frequently changing consumer needs, government regulations and short product
life cycles. It requires a very smart, efficient and agile supply chain to manage the ever
changing needs of the end customers.

Why managing Food Supply Chain is a challenge?

The food supply chain is complex and difficult to manage due to its perishable nature and
short shelf life of the products as compared to other supply chains like electronics, home
needs, consumer durables etc. It also requires a robust infrastructure of warehouses and
transportation network connecting suppliers, manufacturers, distributors and retailers. The
complexity of food supply chain increases further because of the below
mentioned parameters

1.Food safety requirements
2.Regulatory requirements
3.Short shelflife of products leading to expiryand wastage
4.Product recalls
5.Product traceability requirements
6.Effective handling of customer complaints
7.High order frequencyand lowvolumes


Food Supply Chain categorization
It is basically categorized into two broad categories Perishable and non Perishable

Perishable Supply Chain
In perishable supply chain the shelf life for the products is very low. It requires managing the end to end
supply chain with utmost care. The perishable supply chain typically requires a cold chain to
manage it properly. The cold chain infrastructure is very capital intensive. The infrastructure
consists of pre-coolers, temperature controlled warehouses, refrigerated transport etc.

Non- perishable Supply Chain
The shelf life for the product is considerable (varying from 3-18 months). Typically FMCG/Processed
products, staples etc fall under this category. Although the shelf life of the product is 3-18
months, the products falling under this category requires strict monitoring of FIF at
distributors end to ensure that the products reaching the end consumer are left with enough
shelf life.

What is needed to manage this unique and complex supply chain?

1. A well organized supply chain infrastructure of warehouses and transportation covering all
the major cities.
2. Sophisticated cold chain for perishable products which guarantees a cost efficient and safe
delivery of products


3. Warehouse management system to ensure traceability of products and minimize the losses
due to product expiry
4.State of the art warehouse infrastructure equipped with the sophisticated material handling
equipments to aid cross docking, flow thru which will reduce transit times and inventory
5. Adherence to well documented GMP at the storage locations. This would ensure food safety
in storage condition (Warehouses)
6. Vehicle tracking abilities GPS/GPRS to continuously evaluate the time to destination.

Now Big Bazaar has,
Gained and mastered art of managing the food supply chain due to its association with Food
Bazaar.
In house expertise to manage perishable ( Fruits and vegetables, dairy ,meat, poultry, Bakery ) and non
perishable ( FMCG-Food, Staples, Processed food)
State of the art warehouses across the nation which can cater to the customized needs.
A strong in-house transportation department with fleet of vehicles for every need and type
Availability of most advanced warehouse management system which would ensure
all aspects like FIF, Lot management, product traceability, product
recalls
Availability of transport management system with vehicle tracking facilities to
track product movement at every stage of transportation ( Real time visibility)

Food supply chain of Big Bazaar can be divided into 3 categories:

Farm Fresh-foods supply chain

Currently, Food Bazaar stores across the country have concessionaires handling the Farm
Fresh section of their stores. The concessionaires ensure that the supply chain complexities
are reduced for the store, because they¶re in charge of the goods that they bring. ver a period of
time Big Bazaar has developed an expertise in managing this farm fresh foods supply chain in the most
efficient manner. Big Bazaar has removed the traditional mandi route supply chain that
traditionally existed in the Indian market, where fruits and vegetables would come a long and
tardy way, right from the farmers to finally reach the customers, as depicted below. Food Bazaar
has links with farmers growing potatoes and fruits. It has also sourced produce from farmers
growing exotic vegetables like red pepper, mushroom, etc.
Earlier, agricultural and farm products, would first be collected by aggregators in different
villages, and then they would sell the fruits and vegetables at the agricultural farm yards, who
would subsequently sell it to a wholesaler. Now semi or smaller wholesalers will buy these
products from the larger wholesalers and sell them to different smaller retailers, from where
the customers finally bought the products.


But Big Bazaar has shortened the supply chain path in such a way that the farm products can
now directly reach the stores or take a slightly longer route of first getting collected at a
collection centre which is then passed on to the processing and distribution centre, from
where they would be delivered to the store for sale to customers.

These features has enabled Big Bazaar to efficiently carve it s supply chain, reducing irrelevant
delays and fruit s and vegetables wastage. Also farmers are at a benefits since they are
selling direct to the retailer, hence cutting out the commission of unnecessary aggregators,
wholesalers and farm yards.

b) Cold chain

A cold chain is a temperature controlled supply chain. An unbroken cold chain is an
uninterrupted series of storage and distribution activities which maintain a a given temperature
range. It is used to help extend and ensure the shelf life of products such as fresh agricultural
produce,[1] seafood, frozen food, photographic film, chemicals and pharmaceutical drugs.

c) FMCG Supply Chain

Big Bazaar maintains the supply chain of 3 different kinds of FMCG products ± Food, Non-food, Health &
Personal care, with the latter being the latest entry into its product portfolios. While FMCG-Food are again
distributed through cold-chain networks, non-food and health and personal care have
different supply chain network.

The FMCG-non food category items follow usual general merchandise supply chain
networks, where products are first stored from the factories to different vendors
or distribution centres, from where Big Bazaar replenishes its stock based on demand of the
items.


Whereas, health and personal care products may or may not be subject to refrigerated
distribution. They are more or less distributed as non-food FMCG goods too.

Future aspects of food retail supply chain

Kishore Biyani’s Future Group is making a vigorous push to increase its share in the fruit and vegetables
business, a category that has traditionally been an Achilles heel for the country’s largest
retailer. The group behind supermarket chains such as Food Bazaar and Big Bazaar is
empowering the specialised entity, Future Supply Chains which will now totally manage all the
efficient supply chain for fruits and vegetables (F&V), marking a shift away from the
outsourced model it has followed so far.

Mr Biyani is betting that by putting in place new sorting and grading technologies, better cold
storage and aggressively cutting out middlemen, he can bring down the prices of fruits and vegetables by
about 15-20% across categories. "The efficiencies created by this exercise will be passed on to
the consumer," he observed. The Future Group now outsources retailing of fruits and vegetables to vendors, who
are allowed to use space in its shops in exchange for a share of their revenue.

Mr Biyani¶s move to take direct control of the fruits and vegetables business brings to focus the challenges
faced by organised retailers in selling fresh and perishable goods. India lacks a network of
cold storages and refrigerated trucking facilities that can efficiently transport fresh fruits and
vegetables from a farm to the shop-floor while retaining its freshness.

Future Group has a separate company that handles its dry vegetables supplies as well, but the new entity will
have independent profit and loss responsibilities as well. It will rent out space from Future
Group’s stores and separately branded counters will handle sales of fruits and vegetables.

Mr. Biyani has recently announce that he is planning to introduce the concept of freezing
fruits and vegetable prices. That means, prices of fruits and vegetables will not fluctuate
throughout the year but sold at one fixed price around the year further adding benefits for the
customers. If Big Bazaar does implements such a scheme, it will heavily depend and rely on its highly efficient
supply chain to deliver seemless supply of products even when demands are very high and cost of products very
low, reaping very less profit..

In the process of setting up the retail networks, these large corporations are changing the
domestic agricultural landscape. For starters, they are introducing the Indian farmer to
better seeds, new technology, supply chain management and food processing. These
companies have already brought in technology that increases the shelf life of fruits and
vegetables.

Primarily, there are three models being worked on by India Inc. First, a model farm like Bharti’s Field Fresh.
Second, contract farming. Third, contact farming. In contract farming, the farmer is supplied seeds
and other ingredients by the company. The contractor buys the entire farm produce at a pre-fixed price.


However, in case there is a supply shortage and the price offered by the government is higher
than the price contracted by the company, the farmer can sell it all to the government.

Contact farming is a more complicated. Here, a farmer takes land on lease from other farmers. He is
generally paid Rs 15,000 per acre every year, while the marginal farmer is employed to work on
his land for which he is paid a monthly salary. But Bharti says it is switching to contract farming because
of the complexities of contact or collaborative farming.

In Ratnagiri, Maharashtra, farmers have formed cooperatives and regularly supply mangoes to
retail chains. ³We sold 35,000 tonnes of mangoes from Ratnagiri last year. The farmers managed to get 90
per cent of the original cost,´ says Arvind Chaudhary, CEO
Pantaloon Retail’s food business. If they had gone to a mandi they would have realised only 70 per cent of the
cost. This year, Pantaloons Food Bazaar is planning to buy 100,000 tonnes of mangoes. The supply chain
is managed such that mangoes are transported to the store a week before they become ripe. Cold
chain is used only in the case of potatoes, where 5,000 tonnes are stocked in UP. Pantaloons food business is
growing at 25 per cent in the entire Big Bazaar chain, which also sells FMCG products.

However, there are certain issues that agro-retail chains will have to address before they can
make the farmer smile. Hurdles such as bad infrastructure, high cost logistics management,
the middleman and the limiting APMC Act will have to be crossed if retail has to assist the farmer. Since the
existing supply chain allows them to connect with only those farms that are nearest to the
cities, those living in the hinterland still have no access to markets. Importantly, the best of these
stores shy away from commenting on the investments.
There has also been a call to set up an exchange market for agricultural produce. This free
market principle, CEO s feel, will liberate the farmer in terms of actual price realisation and
keep him out of debt for the coming season. The National Spot Exchange Limited, an exchange which is
dedicated for agri-produce, is supposed to create a benchmark even for the small farmer who can
sell only one quintal. The NSEL is in the process of setting up 117warehouses and cold chains of
700,000 metric tonnes capacity each to make the exchange operational.

Right now, companies are mostly dealing with farmers on the periphery of cities but analysts say they would
ultimately have to invest in cold chains and move into the interiors. Whether companies ² except for those with
deep pockets like Reliance ² will have the courage to do that is in question. According to the confederation of
Indian industry, if India has to double fruits and vegetables production to 300 million tones by 2012, it would
require pumping in close to Rs 20,000 crore. But analysts warn that such investment may not pay
dividend since it doubles the cost of transportation.

Fung Capital, a private equity investment company of Fung families, has decided to invest around $30 million in
the logistics and supply chain arm of Kishore Biyani-led Future group .Future Supply Chain Solutions
(proposed new avatar of Future Logistic Solutions Ltd.), in return, has agreed to divest up to 26 per
cent of equity stake in favour of the private equity firm.

Future Supply Chain Solutions, which presently sevices over 1,100 retail outlets, manages over 2.6 million SKUs
and over 3 million sq ft of warehousing network spread over 30centres, and handles a fleet of over 500 vehicles
plying across the country, will use the newly raised capital for enhancing logistics infrastructure,
strengthening technology platforms, and expanding supply chain network of the company for its Big and
Food Bazaar arms.³We are building a world class supply chain infrastructure for the
consumption products in India which is presently very limited, despite it being a critical support required in
India’s rapidly growing economy. We will be investing in physical as well as technology infrastructure that


will reduce the time-to-market and cost-to-market for fashion and apparel and other consumer
categories,´ said Anshuman Singh, Managing Director of Big Bazaar. Another important
future aspect of supply chain rather the biggest driver in consumer logistics is going to be zero
defect in managing the supply chain. While infrastructure, technology, automation, processes and
people will all play an important role, zero defect can only be achieved through vertical
integration across the entire supply chain²from raw material supply, production, wholesale
and retail. The different parts of the supply chain will no longer be able to work in silos as they do
today.

LOGISTICS

One of the most important challenge in organized retail in India is faced by poor supply chain
and logistics management. The importance can be understood by the fact that the logistics
management cost component in India is as high as 7% -10% against the global average of 4%
- 5% of the total retail price. Therefore, the margins in the retail sector can be improved by
3% - 5% by just improving the supply chain and logistics management. In India, with
demand for end-to-end logistics solutions far outstripping supply, the logistics market for
organized retail is pegged at $50 million and is growing at 16%. It is expected to reach $120-
$130 million by 2010. Organized retail on the other hand is growing at 400% and is expected
to reach around $30 billion by 2010.Even supply chain and logistics firms like Hong Kong
based Heng Tai Consumables and ABS Procurement Co and ACM China(the greenhouse
specialist) is also eying the opportunity for managing the supplies.

The supply chain management is logistics aspect of a value delivery chain. It comprises all of
the parties that participate in the retail logistics process: Manufacturers, Wholesalers, and
Third Party Specialists like Shippers, Order Fulfillment House etc. and the Retailer. Here,
logistics is the total process of planning, implementing and coordinating the physical
movement of merchandise from manufacturer to retailer to customer in the timeliest,
effective and cost efficient manner possible.

Logistics regards order processing and fulfillment, transportation, warehousing, customer
service and inventory management as interdependent functions in the value delivery chain. It
oversees inventory management decisions as items travel through a retail supply chain. If a
logistics system works well, the retail firm reduces stockouts, hold down inventories and
improve customer service – all at the same time. Logistics and Supply Chain enables an
organized retailer to move or store products more effectively. Efficient logistics management
not only prevents needless movement of goods, vehicles transferring products back and forth;
but also frees up storage space for more productive use.

Retail analysts say on-time order replenishments will become even more critical once the
Wal-Mart/ Bharti combine begins operations - the American retailer works almost entirely on
cross-docking and is likely to demand higher service levels, including potential levies for
delays in shipment.

The efficiency and effectiveness of supply chain and logistics management can also be
understood by the fact that modern retail stores maintain lower inventories than traditional
retail. In India, generally in the traditional kirana stores, three weeks inventories are kept;
while in a modern retail store like Hypercity, it's nine days and it's under two weeks for Food
Bazaar. Now, it is beneficial for both the manufacturer as well as the retailer. If we go
through the following food supply chain in India, we find that a lot can be improved by


maintaining the supply chain and logistics, their availability on a relatively large scale and
supplying them to customers on a relatively small scale. Retailer is a Person or Agent or
Agency or Company or Organization who is instrumental in reaching the Goods or
Merchandise or Services to the End User or Ultimate Consumer.

FOR BIG BAZAAR

Big Bazaar sells variety of merchandise, a t a f f o r d a b l e r a t e s , t h e prices of which it
claims are lowest in the city but the level of services offered is also very low. Usually
the items are clubbed together for offers as on the lines of Wal-mart and Carrefour and it
also offers weekend discounts. It currently o p e r a t e s o u t o f 6 4 s t o r e s a n d
t o p 1 5 s t o r e s r e g i s t e r a cumulative footfall of 27 lakh a month on an average.

P R O B L E M S A T B I G B A Z Z A R LOGISTICS

Significant losses/damages during shipping.
The next problem in setting up organized retail operations is that of supply chain logistics.
India lacks a strong supply chain when compared to Europe or the USA. The existing supply
chain has too many intermediaries: Typical supply chain looks like:- Manufacturer - National
distributor.

Regional distributor - Local wholesaler - Retailer -Consumer. This implies that global retail
chains will have to build a supply chain network from scratch. This might run foul with the
existing supply chain operators. In addition to fragmented supply chain, the trucking and
transportation system is antiquated. The concept of container trucks, automated warehousing
is yet to take root in India.

Inadequate infrastructure
The lack of proper infrastructure and distribution channels in the country results in inefficient
processes. This is a major hindrance for retailers as a non-efficient distribution channel is
very difficult to handle and can result in huge losses. Infrastructure does not have a strong
base in India. Urbanization and globalization are compelling companies to develop
infrastructure facilities.

The storage infrastructure, too, is severely restricted. In2006, India had a total warehousing
capacity of 81 million tonne. Like the rest of the infrastructure sector, warehousing is highly
fragmented and unorganised Transportation, including railway systems, has to be more
efficient. Highways have to meet global standards. Airport capacities and power supply have
to be enhanced. Warehouse facilities and timely distribution are other areas of challenge. To
fully utilize India's potential in retail sector, these major obstacles have to be removed.

Almost 78% of total freight is transported by road.
Almost 78% of total freight is transported by road . But, according to the FICCI-E&Y retail
report, roads connect less than half of the half a million Indian villages. The normal distance
covered by trucks and trailers in India are250-300 km a day, whereas the international norm
is 600-800 km a day. Most roads in India are designed to carry a maximum gross weight of
16.2 tonnes, which allows for a maximum loading of about 9 tonnes. This severely restricts
the ability to transport goods on larger vehicles.


Warehouses located far from city:
Some of the warehouse are located in villages and are far from the city so it takes time for
goods to reach mall.

RECOMMENDATIONS

Improvement in supply chains:-
Big bazzar should use more better techniques for improvising its supply chains. The
organisational structure and the business model of Wal-Mart are its winning-formula for
some markets. But this also dooms it to failure in others. The heart of the matter is high-
volume-low-cost strategy, which made it a success in cost-conscious smaller, everybody-
knows-everybody cities in the US. But this very strategy doomed it to failure in larger
(anonymity,high consumerism) cities in the US. A very high real estate cost in big cities was
also detrimental to its strategy in such cities.

Warehouse location :-
Though it is a cost cutting formula of big bazzar, but now the Indian scenario has changed.
Though it has its own logistics called Future logistics, it should try some other ways to
improve its in housing of goods. Many a times it happens that goods are not available to
customers as the time taken between ordering and processing is very long.
Improvement in packaging:-
Big Bazzar should ask suppliers to send goods with good packaging so that losses due to
breakage should be avoided. Moreover its own handling and carrying should be improved.

Infrastructure
Internal ware house of big bazzar has very low capacity. Its completely hoch- poch. Due to
insufficient space of storage losses are very frequent. Shop lifting especially internal is very
high. It should allow its suppliers to have a track of their goods so that when stock finishes
they will automatically supply.


REFERENCES

http://bigbazaar.net.in/

http://lcm.csa.iisc.ernet.in/scm/supply_chain_intro.html

http://www.isb.edu/isbinsight/Insight_June07/ISBInsight_June2007.pdf

www.webstatschecker.com


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