Retail Logistics Essay

?Research Paper Titled “Retail Transition in India: Prospects & Retrospects” Submitted by *Dr. Uday Singh Rajput **Dr. Deep Sharma ***Prof. Neeraj Dubey *Asst. Professor, Department of Management Studies, Shri Ram Institute of Information Technology Banmore (Near Gwalior) E-mail: [email protected] com **Project Leader & Head, Entrepreneurship Development Cell, MITS, Gwalior E-mail: [email protected] com Ph. : 0751-4049317 ***Sr. Lecturer, Department of Management Studies Shri Ram Institute of Information Technology Banmore (Near Gwalior) E-mail: [email protected] com

RETAIL LOGISTICS: CHANGES AND CHALLENGES Abstract Retailing is the India’s largest industry and one of the biggest requirements of the proper logistic service for its success. Retailing is the interface between the producer and the individual consumer buying for personal consumption. 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.

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Physical distribution and materials management have been replaced by logistics management and a subsequent concern for the whole supply chain. 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 such as transportation, stocking, inventory and warehousing are remarkably expensive, if not controlled effectively. Holding stock or inventory in warehouses just in case it is needed is a highly costly activity.

At this position, there can be service benefits. By appropriate integration of demand and supply, mainly through the extensive 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 suitable logistics, products should be of a better presentational superiority, 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. Keyword: Logistics, Retailing, inventory, service ******* Introduction: Indian retail industry is going through a transition phase. Most of the retailing in our country is still in the unorganized sector.

The spread out of the retails in US and India shows a wide gap between the two countries. Though retailing in India is undergoing an exponential growth, the road ahead is full of challenges. With the advent of the Internet, retailers are facing a very powerful consumer that demands anything, anywhere, anytime. Customer loyalties are changing and price is no longer the only criteria to attract customers. Customers want the most out of shopping experience – personalized attention, personalized promotions and personalized advertising.

Retail business needs to differentiate itself from competitors by providing superior customer service that includes management of your supply chain as well as distribution. In continuation, domestic logistics companies are planning significant investments to expand their portfolio of services. It is expected that in the next two years, the logistics sector will have undergone major changes, offering a wide spectrum of services. 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). Fig No. 1. 1 : – Logistics Management Objective of the study 1. To chalk out the importance of retail logistics.. 2. To focus the emerging trends in retail logistics. 3. To analyze the challenges before retail logistics. 4. To open new vistas for further research. Review of Literature

According to a study conducted by Ernst & Young, the organized retail sector is expected to grow fourfold from US$ 7 billion currently to US$ 30 billion by 2010. Dr. Alen Lweis (2001) have focused that most likely methods of further improvement to the delivery density appear be to deliveries to workplaces and to local stores or other collection points which would increase the proportion of daytime deliveries. The use of local shops in rural areas as collection/distribution point is mot likely way in which widespread provision of e-commerce can be brought to rural areas in the near future.

Shweta Kakkar have described that the retail logistics and warehousing sector in specific has reached the turning point in its evolution and is now poised for a paradigm change. Increasingly, retail back end is emerging and taking its rightful place as a critical component defining the viability and efficiency of retail operations and indeed becoming a strategic differentiator between companies. Guru Das Brahma, General Manager, Transportation & Economics RITES (2009) has concluded that cost reduction and reliability of services are the two main objectives of modern day logistics.

In the face of the melt down of the economy and growing competition, it is all the more crucial that necessary infrastructure is put in place and policies formulated to give a boost to the logistics industry in the country. About Retailing in India Indian Retail Industry has been experiencing a faster rate of growth these days. History of Indian retail market can be date back to times where retail stores were found in the village fairs, Melas or in the weekly markets, which were highly unorganized. Through Government intervention Indian retail industry has took a new shape.

Outlets for Public Distribution System, Cooperative stores and Khadi stores were set up and today world’s largest companies have started operating in Indian Retail Market. 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.

The Indian retail market, which is the fifth largest retail destination globally, has been ranked as the most attractive emerging market for investment in the retail sector by AT Kearney’s eighth annual Global Retail Development Index (GRDI), in 2009. The share of retail trade in the country’s gross domestic product (GDP) was between 8–10 per cent in 2007. It is currently around 12 per cent, and is likely to reach 22 per cent by 2010. Phases in the evolution of retail sector: Weekly Markets, Village and Rural Melas Source of entertainment and commercial exchange

Convenience stores, Mom-and-pop / Kirana shops Neighborhood stores/convenience Traditional and pervasive reach PDS outlets, Khadi stores, Cooperatives Government supported Availability/low costs/distribution Exclusive brand outlets, hypermarkets and supermarkets, department stores and shopping malls Shopping experience/ efficiency Modern formats/ international Retail Formats The following kinds of retail formats are found in India: Mom-and-pop stores: These are generally family-owned businesses catering to small sections of society. They are small, individually run and handled retail outlets.

Category killers: Small specialty stores have expanded to offer a range of categories. They have widened their vision in terms of the number of categories. They are called category killers as they specialize in their fields, such as electronics (Best Buy) and sporting goods (Sport Authority). Department stores: These are the general merchandise retailers offering various kinds of quality products and services. These do not offer full service category products and some carry a selective product line. K Raheja’s Shoppers Stop is a good example of department stores. Other examples are Lifestyle and Westside.

These stores have further categories, such as home and decor, clothing, groceries, toys, etc. Malls: These are the largest form of retail formats. They provide an ideal shopping experience by providing a mix of all kinds of products and services, food and entertainment under one roof. Examples are Sahara Mall, TDI Mall in Delhi. Specialty Stores: The retail chains, which deal in specific categories and provide deep assortment in them are specialty stores. Examples are RPG’s Music World, Mumbai’s bookstore Crossword, etc. Discount stores: These are the stores or factory outlets that provide discount on the MRP items.

They focus on mass selling and reaching economies of scale or selling the stock left after the season is over. Hypermarkets/ Supermarkets: These are generally large self-service outlets, offering a variety of categories with deep assortments. These stores contribute 30% of all food and grocery organized retail sales. Example: Big Bazaar. Convenience stores: They are comparatively smaller stores located near residential areas. They are open for an extended period of the day and have a limited variety of stock and convenience products. Prices are slightly higher due to the convenience given to the customers.

E-tailers: These are retailers that provide online facility of buying and selling products and services via Internet. They provide a picture and description of the product. A lot of such retailers are booming in the industry, as this method provides convenience and a wide variety for customer. But it does not provide a feel of the product and is sometimes not authentic. Examples are Amazon. com, Ebay. com, etc. Vending: This kind of retailing is making incursions into the industry. Smaller products such as beverages, snacks are some the items that can be bought through vending machines. At present, it is not very common in India.

The Work of Logistics: Retailing and logistics are concerned with product availability. Logistics companies, which now provide services from transportation to warehousing and inventory management, will soon have to expand their products basket to include value-added services such as packaging, labeling and reverse logistics. Many companies have state their as “getting the right goods to the right places at the right time for the least cost. Unfortunately however that description does not do fairness 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 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 etain 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. Managing the logistics mix in an integrated retail supply chain while aiming to balance cost and service requirements are the essential elements of logistics management (Figure 1. 2).

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). Figure 1. 2 The Management Task in Logistics 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. The compulsion of retailers, which necessitate seamless logistics function, can be summarized as follows: To ensure perfect coordination among various entities involved in the supply chain such as suppliers, manufacturers and vendors. To ensure that consumers get the right product at the right time and at the right place. To ensure that supply to retail stores across various geographies is seamless and consistent.

To be flexible in order to allow for changes in the product mix owing to changes in consumer demand. To constantly improve operating margins. To achieve profitable and sustainable growth of retail operations in the long run. To achieve optimal inventory levels and reduce wastage of products. Retail Logistics and Supply chain transformation: In 1996 Alan McKinnon reviewed and summarized the key components of this retail logistics transformation. He identified six closely related and mutually reinforcing trends: 1 Increased control over secondary distribution

Retailers have increased their control over secondary distribution (warehouse to shop) by channeling an increasing proportion of their supplies through distribution centres. In some sectors such as food this process is now virtually complete. British retailers exert much tighter control over the supply chain than their counterparts in most other countries. Their logistical operations are heavily dependent on information technology, particularly the large integrated stock replenishment systems that control the movement and storage of an enormous number of separate products. Restructured logistical systems: Retailers have reduced inventory and generally improved efficiency through for example the development of ‘composite distribution’ (the distribution of mixed temperature items through the same distribution centre and on the same vehicle) and centralization in specialist warehouses of slower moving stock. In the case of mixed retail businesses common stock rooms have been developed, where stock is shared across a number of stores, with demand deciding to which store it is allocated. 3 Adoption of ‘Quick Response’ (QR) The aim has been to cut inventory levels and improve the speed of product flow.

This has involved reducing order lead-time and moving to a more frequent delivery of smaller consignments both internally (between distribution centres and shop) and externally (between supplier and distribution centres). This has greatly increased both the rate of stock-turn and the amount of product being ‘cross-docked’, rather than stored at distribution centres QR (Lowson, King and Hunter, 1999) was made possible by the development of EDI (Electronic Data Interchange) and EPOS (Electronic Point of Sale), the latter driving the ‘Sales Based Ordering’ (SBO) systems that most of the larger retailers have installed. Rationalization of primary distribution (factory to warehouse): Partly as a result of QR pressures and partly as a result of intensifying competition, retailers have extended their control upstream of the DC (that is, from the DC to the manufacturer). In an effort to improve the utilization of their logistical assets, many have integrated their secondary and primary distribution operations and run them as a single ‘network system’. This reduces waste and improves efficiency. 5 Increased eturn flow of packaged material and handling equipment for recycling/reuse: Retailers have become much more heavily involved in this ‘reverse logistics’ operation. This trend has been reinforced by the introduction of the EU packaging directive. Although the United Kingdom currently lags behind other European countries, particularly Germany, in this field, there remain opportunities to develop new forms of reusable container and new reverse logistics systems to manage their circulation. Introduction of Supply Chain Management (SCM) and Efficient Consumer Response (ECR): Having improved the efficiency of their own logistics operations, many retailers have begun to collaborate closely with suppliers to maximize the efficiency of the retail supply chain as a whole. E-commerce and Future challenges of Retail Logistics: Whilst members of the supply chain have sought ways to foster collaboration, the rise of e-commerce has posed another set of challenges for retailers. The rise and subsequent fall of many dot. om companies led to a high degree of speculation as to the reconfiguration of the business to consumer (B2C) channel. Ultimately, e-fulfilment, especially the ‘last mile’ problem of delivering goods to the final customer, holds the key to success in this channel. The business to business (B2B) channel, however, has more to offer members of the supply chain because of the number and complexity of transactions and the greater adoption of Internet technology by businesses compared with consumers.

There have been numerous B2B exchange marketplaces created since the late 1990s, with most of these exchanges being created in highly concentrated global market sectors with a ‘streamlined’ number of buyers and sellers, for example in the automobile, chemical and steel industries. The more proactive retailers developed B2B Internet exchanges as an extension of the EDI platforms created a decade earlier. This has enabled companies such as Tesco, Sainsbury and Wal-Mart to establish their own private exchanges with suppliers to share data on sales, product forecasting, promotion tracking and production planning.

There are major benefits to be derived from pooling EDI efforts into a smaller number of B2B platforms. For example it is easier to standardize processes for communication, reduce development costs and give members access to a larger customer base. In 2000 several Internet trading exchanges were created, promising a revolution in product procurement. The two major exchanges, GlobalNet Xchange (GNX) and World Wide Retail Exchange (WWRE), have made some progress.

Although the Global Commerce Initiative established draft standards for global Internet trading, many issues need to be resolved to ensure the seamless flow of data across the supply chain. The complexity of dealing with thousands of stock-keeping units (SKUs) has meant that retailers have had to be selective in the projects that can be routed through their private exchanges compared with these global exchanges. To date the focus of the GNX exchange has been on special promotions, perishables and own-label products: for example, 600 out of potential 2,000 suppliers of Sainsbury’s retail brand products are on GNX.

In the business to consumer (B2C) channel, the rise and fall of Internet retailers has brought a touch of realism to the evolving market potential of online shopping. In Europe, grocery retailers are powerful ‘bricks and mortar’ companies and the approach to Internet retailing has been reactive rather than proactive. Most Internet operations have been small, and few pure players have entered the market to challenge the conventional supermarket chains. Why have ‘pure players’ failed in this channel? Laseter et al (2000) identify four key challenges: limited online potential; igh cost of delivery; selection–variety trade-offs; existing entrenched competition. Ring and Tigert (2001) came to similar conclusions when comparing the Internet offering with the conventional ‘bricks and mortar’ experience. They looked at what consumers would trade away from a store in terms of the place, product, service and value for money by shopping online. They also detailed the ‘killer costs’ of the pure play Internet grocers, notably the picking and delivery costs. The gist of the argument presented by these critics is that the standard Internet model is flawed.

The two main fulfillment models are illustrated in Figures 1. 3 and 1. 4 The store-based model makes use of existing distribution assets, as products pass through regional distribution centres (RDCs) to stores where orders are assembled for delivery to online customers (Figure 1. 3). Source: Foresight Retail Logistics Task Force, 2000, p 14 Figure 1. 3 Logistics Model for Store-Based Picking of E-Commerce Orders The advantages of the store model are the low initial investment required and the speed of rolling out the service to a wide geographical market.

Customers also receive the same products online as available in stores. The problem here, however, is that ‘out of stocks’ and substitutions of products are more prevalent as online shoppers compete with in store counterparts for products. This exposed the availability issue noted earlier. The dedicated order picking model (Figure 1. 4) utilizes e-fulfillment centres to pick and deliver orders to customers. The advantage of this system is that it is dedicated purely to e-commerce customers so stockouts should be low and delivery frequencies should be higher.

These picking centres, however, have less of a product range and they need to be working at capacity to justify investment costs. Ultimately the picking centre model will possibly be the long-term solution to online grocery fulfillment. The problem is that the economics of order fulfillment and delivery are so poor in the short run that companies are abandoning this approach or going bankrupt (Webvan). In the UK Asda has closed two picking centres in London, and Sainsbury is developing a hybrid model.

So why has the so-called least efficient fulfillment model proven successful? The answer is simple. You need to create market demand before you invest in costly infrastructure. E-commerce is here to stay, and B2B and B2C channels will increase in importance once established standards for data transfer across the supply chain are realized. Already, the information revolution has been the catalyst for improving supply chain efficiency and for fostering stronger relationships between supply chain partners.

Private Internet exchanges developed by leading retailers, such as Wal-Mart with its Retail Link network, have enabled them to respond quickly to consumer choice at store level. Indeed, much of the focus of this chapter has been on how competitive advantage can be achieved through companies co-operating and thus responding flexibly and quickly to market needs; hence the acronyms of JIT for lean supply chains and QR and ECR for agile supply chains. Source: Foresight Retail Logistics Task Force, 2000, p 15 Figure 1. 4 Logistics model for the e-fulfilment centre route

Regardless of sector or industry, supply chain integration can only be achieved through greater collaboration and coordination of functions across supply chains. This means partnerships, alliances and networks that are created within and between organizations. Traditional functions can no longer be viewed in isolation or ‘silos’ independent from the workings of other parts of their own and other businesses. Cross-functional teamwork and inter-organizational co-operation will therefore hold the key to future developments in supply chain management.

The improvements in vehicle design, engine efficiency, reusable handling systems and building standards have reduced the impacts; the distances products now have to travel have accentuated the problems. Environmental issues are thus one issue of future concern. It has to be recognized that terminology in this area has been the subject of some confusion. A good starting point however is: Reverse logistics is a process whereby companies can become more environmentally efficient through the recycling, reuse and reducing the amount of materials used.

Viewed narrowly, it can be thought of as the reverse distribution of materials among channel members. A more holistic view of reverse logistics includes the reduction of materials in the forward system in such a way that fewer materials flow back, reuse of materials is possible, and recycling is facilitated. (Carter and Ellram, 1998: 82) The amount a business has to recover and recycle depends on its position in the channel. Retailers can meet their obligations by either individually complying (primarily large companies) or joining a collective scheme (14 approved compliance programmes are registered nationally).

Members of a collective scheme do not have to meet individual obligations, as the scheme assumes this responsibility on behalf of its members. Such regulations are not likely to disappear and are probably going to become more stringent in the future. Conclusions: This consideration of the changes and challenges in retail logistics allows us to summarize the key issues in retail logistics and supply chains. First, it should be clear by now that the modern logistics and supply systems are heavily dependent on the use of information technology. Logistics now is as uch about information movement as it is about product movement. Anyone who believes that retail logistics is all about boxes and lorries needs to rethink. Of course it remains true that products have to be distributed. Vehicles and boxes are still involved. But increasingly it is the control of data and information that remains the key to a successful logistics system. Second, the discussion above should have indicated that modern retail logistics is no longer a separate or functionally based activity. Within a company, warehousing and transport can not exist as separate operations.

Instead logistics is all about integration, not only within a company, but also increasingly outside the business with suppliers, logistics service providers and customers. Partnership is a strong component of modern retail logistics, and an ability to work with other individuals and other companies is fundamental to success. Third, it should have become apparent that the ‘reach’ of retail logistics has expanded enormously. Companies used to manage local suppliers and products to and from local warehouses. Nowadays, retailers are much more global in their outlook.

Products are sourced from around the world and so the interactions and movements involved in logistics are now equally international. Finally however, we must not forget that logistics is about the movement of product, and much work is undertaken on improving the mechanics of this task. For example, a modern supermarket contains good examples of packaging and standardization, the best of which make handling easier. Vehicle fleets may be equipped with GPS (Global Positioning Satellite) systems and advanced technograph and communications equipment, allowing real-time driver and vehicle performance monitoring.

Such detailed analysis remains a key component of supply chain integration. With the pressure on to enhance service and reduce costs in supply chains, together with their enhanced complexity, there can be little doubt that retailers will be subjected to considerable logistical challenges in the years to come. References 1. Agrawal R. K. , (2008) Distribution and Logistics Management 1st ed. Mcmillan 2. Alan Lewis, (2001) Future models of Retail Logistics in an Age of E-commerce. 3. Carter, C R and Ellram, L M (1998) Reverse logistics: a review of the literature and framework for future investigation, Journal of

BusinessLogistics, 19 (1), pp 85–102 4. Christopher, M (1998) Logistics and Supply Chain Management, Prentice Hall 5. Christopher, M and Peck, H (1998) Fashion Logistics, chapter 6 in Logistics and Retail Management, ed J Fernie and L Sparks 6. Donald J bowersox (200) Supply Chain Ligstics Management, 2nd ed. Tata Mcgraw Hill 7. Fernie, J, Pfab, F and Marchant, C (2000) Retail grocery logistics in the UK, International Journal of Logistics Management, 11 (2), pp 83–90 8. Guru Das Brahma (2009) , Emerging Dimensions in the Indian Economy and Role of Logistics RITES Journal 9. Jain R. K. 2009), Retail Management, 1st ed. Vayu Education of India 10. John Fernie & Leigh Sparks( 2009) Logistics &Retail Management (Emerging Issues And New Challenges In The Retail Supply Chain) 3rd Edition 11. McKinnon, A C (1996) The development of retail logistics in the UK: a position paper, Technology Foresight: Retail and Distribution Panel, Heriot- Watt University, Edinburgh 12. Retail Week (2003) At the heart of a retail giant, Retail Week, Nov 21, pp 16–18 13. Sparks, L (1998) The retail logistics transformation, Chapter 1 ( pp 1–22) of Logistics and Retail Management, ed J Fernie and L Sparks, Kogan Page, London

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