Retailers spruce up back-end operations

Last Updated: Wed, Apr 03, 2013 05:28 hrs

The huge distribution centre at Nagpur international airport's cargo hub can clearly be misunderstood for a buzzing factory. Inside, hundreds of thousands of cartons are neatly stacked on vertical shelves, while workers wearing bright orange reflective jackets load and unload boxes on battery-operated trucks zipping around the factory floor. Some of the trucks are dispatching the stock to delivery points, while others are taking them to the shelves for storing.

The hustle and bustle here is the new face of the Kishore Biyani-promoted Future group's back-end operations. The action here is geared towards meeting the supply needs of about 200 Big Bazaar and Fashion at Big Bazaar stores across the country. The facility handles 500,000 pieces a day including apparels, home furnishings and furniture.

The massive distribution centre, which is spread over 500,000 square feet, has helped the company cut supply chain and transport costs by 20 to 40 per cent and inventory by half, says Anshuman Singh, chief executive, Future Supply Chain, the supply chain and logistics arm of the Future group.

At the heart of this new efficient distribution centres lies a more integrated logistics system that links the stores to the distribution centres. This has reduced the on-road and delivery time for products and, in turn, has cut the inventory requirement for each item. So, for instance, if the retailer needed to keep 100 pieces of an item in a centre earlier, it now can make do with much less. Future group has built eight such distribution centres in key locations including Bangalore, Kolkata, Hyderabad, Ahmedabad and Mumbai.

With the reduction in the minimum stock level, the requirement for space has also shrunk. "If we were working like earlier, we would have required 6 million square feet of space. Today, we have 2.2 million square feel, but volumes have doubled," says Singh.

Other retailers such as Aditya Birla Retail, Spencer's and Tata's Star Bazaar are also sprucing up the logistics and storage side of the business in order to cut costs.

Spencer's Retail of RP-Sanjiv Goenka Group, which is yet to break even, plans to build one or two centralised distribution centres and support them with smaller distribution warehouses closer to areas where it has a cluster of stores, says its chief executive, Mohit Kampani.

"It will reduce the inventory at the store level and at regional distribution centres," says Kampani. "Since we are expanding our hypermarkets, we are relooking the entire supply chain management," he adds.

Aditya Birla Retail, a part of the Aditya Birla group, is betting on the "high-flow through process". It essentially means that all its distribution chains are linked to its supermarkets and goods flow in quick succession from vendors to distribution centres and from there to stores. The company has also optimised its ordering frequency. "The high-flow process reduces the total warehousing space required by us. Most important, it changes customer perception towards us as freshness of the product goes up," says Vishak Kumar, chief executive (supermarkets), Aditya Birla Retail. The retail chain has also streamlined procurement at the collection centres to ensure fruit and vegetables are fresh upon arrival at the stores. "We have been successful in having all our fresh fruits and vegetables reach our stores by 8.00 am," Kumar says.

The role of Information technology is crucial here. Future Supply Chains has automated replenishment systems which place orders with distribution chains as soon as the shelves go empty. In another example, the "Put To Light Sortation System" at distribution chains helps to sort large number of products to hundreds of Future group stores.

"It is not possible for human beings to sort such large orders. We studied international best practices and then Indianised them," says Future Supply Chain's Singh.

Aditya Birla Retail uses a software called Retek that streamlines and integrates all aspects of retail business including planning, merchandising and supply chain.

"We have also enhanced our IT applications to enable faster receiving and loading processes and to alert stores on truck-arrival timings," says Kumar of Aditya Biral Retail.

These innovations have resulted in better fill rates , or the number of items delivered against the number of items placed. UK's Tesco, which is providing back-end support such as technical know-how and sourcing support to Tata's Star Bazaar hypermarkets, manages three distribution centres.

Armed with an advanced demand forecast system, automated ordering mechanisms and advanced warehouse systems, Tesco gets over 80 per cent fill rate to the stores of Star Bazaar. Normally, Indian retailers only manage to get fill rates of 60 to 65 per cent as against 90-95 per cent in Europe and the US due to poor demand forecast.

The fill rates at Future group stores, which are serviced by its modern distribution centres, have touched 90 per cent from 60 per cent a couple of years ago.

Fill rates have improved at Aditya Birla group too. "We have strengthened our ways of working with our vendor partners so as to seamlessly ensure that fill rates and availability of stock is managed efficiently,"Kumar says.

The benefits of a smarter distribution centre are many. "When you have better fill rates, your sales go up. With lesser inventory at stores, your cash flows will improve," says Singh.

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