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January 11, 2018

He for sure knows his onions, alright!

By Krishnakant Kasturi and R. Sriram

Foreword

We try to provide a glimpse of insight into the mind-space of the traditional grocer in emerging markets while ordering CPG brands. We to bring to life his daily drill, how he hedges his bets while making purchase decisions, tips for sales executives to add to their bag of tricks. Our perspective intends to provide meat for the Grocer's decisions related to brand positioning, order sizing and scheduling, monitoring stocks, promoting new products, trade schemes, distribution network and enablement of sales executives.

So why is understanding the traditional grocer so important?          

The Traditional Grocer with his advantages of enormous flexibility for price, display and negligible overheads, consumer goodwill, and with the ability to sell loose items and operate at convenient timings still remains the strongest driver of customer value and the linchpin to corner the market.

  • Firstly, this channel offers huge potential; a large chunk remains still untapped,
  • Secondly, a multi-tiered distribution system makes it difficult to monitor demand and supply from each and every grocer,       
  • Thirdly, the grocer base is heterogeneous and is low on brand loyalty, price sensitive, with limited space and hence there is no single formula to tap the potential.
  • Fourthly, the traditional purchase behavior and the needs and preferences of traditional grocers like Anna Chi haven't been as analyzed as have been those of the end consumer. There is little visibility. The best source of information is still the Distributor sales executive (DSE).
  • Fifthly, the DSEs prioritize and sell products to grocers as is their wont, sales training and initiatives not with-standing. The sale to the traditional grocer can be smarter, optimized, based on data and insights.

There is a need to for CPG brands and their partners to understand the traditional grocers better, understand his perception of brands, his goals and strategize smartly to manage the distribution of inventory across this and ensure availability of their products and brands to the right consumers through the DSE.

Anna Chi's daily drill

Let's personify the single Chief of-Finance-Marketing-Procurement-Operations head of the grocery store, and call him Anna Chi.

Albeit, he operates in a neighborhood market with enormous flexibility for price, display and negligible overheads, consumer goodwill, open to bargaining, with the ability to sell loose items and operate at convenient timings etc. but there are several challenges that he encounters everyday -the sheer size of his customer base with varying cultures and tastes, the road-side hawkers with mobile carts who grab their share of the pie and the large retail chains who are getting smarter by the day. Location is a major advantage for the friendly neighborhood Anna Chi store, as the mean distance to the residence for consumers at unorganized outlets is 1.1 km compared to 2.6 km for consumers at organized outlets.

Anna Chi assesses his inventory during various times of the day and determines which supplier bill to settle and which to postpone based on whether the current stock holding can fulfill the demand for the product till the next ordering date. While he attends to customers, he is often seen multi-tasking: selling to customers, purchasing from suppliers, settling bills, attending customer enquiries, reconciling cash, stacking products and so on.



Albeit, he operates in a neighborhood market with enormous flexibility for price, display and negligible overheads, consumer goodwill, open to bargaining, with the ability to sell loose items and operate at convenient timings etc. but there are several challenges that he encounters everyday -the sheer size of his customer base with varying cultures and tastes, the road-side hawkers with mobile carts who grab their share of the pie and the large retail chains who are getting smarter by the day. Location is a major advantage for the friendly neighborhood Anna Chi store, as the mean distance to the residence for consumers at unorganized outlets is 1.1 km compared to 2.6 km for consumers at organized outlets.


What to Buy - Anna Chi's thumb rule for selecting the right product assortment

Anna Chi, we believe has quite unwearyingly followed the lean concept with an underlying principle that the product should be "pulled" by actual customers rather than being "pushed" into the market? His decisions are based on logical assumptions aided by a gut feeling stemming from his experience or the wisdom passed on with every generation from his predecessors. He for sure knows his onions alright! And goes by his thumb rule to stay profitable and avoid succumbing to the overzealous DSEs.

How does he ensure that he carries the right portfolio of products? - While the gut feeling may be useful in choosing products the complexity of choosing brands both national and junta, product variants and pack sizes is a jig-saw puzzle? He follows a simple thumb-rule "I'll stock more of those brands/products which have current or potential demand (competitiveness), generate faster stock turns (top-line) and reduce working capital (bottom-line)".

Intelligent sourcing of stock plays a vital role in implementing his thumb rule. Any source which can ensure constant supply in time and offer better credit is what Anna Chi turns to. That's one of the challenges for the exclusive distributor of the CPG brand. While Anna Chi swears allegiance to CPG company appointed distributors, for temporary replenishment of stock (to avoid Out-of-stock situation, between regular ordering cycles), it is not uncommon to find Ann Chi tip-toeing to self-appointed wholesalers who can readily supply stock while sometimes also offering attractive cash discounts. The stock is not purchased from the wholesalers often, because the wholesalers do not offer credit and moreover, Anna Chi incurs additional costs as he has to arrange his own transportation for moving the goods.

Small-time grocers who are serviced only by one CPG Company appointed distributor, due to size or location constraints depend on local multi-brand wholesalers for supply of other CPG brands.

Thus, while following his thumb rule, Anna Chi always ensures that he keeps his margins in check. He hits an average margin of 8%-15% on most food products that he sells to the end consumers.


How much to buy? - Anna Chi's thumb rule for determining the order volume/value

Like any other retailer, our friendly neighborhood Anna Chi knows that portfolio optimization is the key to the profits that he intends to make. Well, he may not be using statistical forecasting but using his astute mind and back-of-the-envelope calculations, he targets an estimated monthly profit figure and breaks it down to a daily figure. For example, he targets an average 15 % margin for a Cost of Goods sold(COGS) of Rs.200000.00 every month on food products which is a profit of Rs.1000 a day and checks his cash box at the end of each day to re-ascertain his status.

The Distributor sales representatives play a major role in Anna Chi's purchase decision. Ann Chi trusts those representatives who understand his business and his thumb-rule. It is not uncommon to find several such grocers who approve predetermined orders of the representative with just a nod of the head. They follow a WIN-WIN situation following the golden rule" YOU'LL SELL MORE IF YOU STOCK MORE".

It is interesting to note that the sales representative opens his sales call with Anna Chi by introducing new products, if any, so that the excitement of his visit is not lost on Ann Chi. More often than not, the sales representative pitches more for those skus "on focus" as determined by the CPG company, as for the sales of these skus, his own incentives are attractive. Anna Chi evaluates the current stock position of replenishment skus and estimates demand until the next ordering date. Based on the week of the month (high demand, normal demand or lean), he decides the reorder quantity - (order the same quantity as last week, reduce or increase the stock levels?). The order is given to the sales representative, who may also communicate trade promotion schemes and propose increase in order quantity.

Here is an example of a trade promotion scheme which may induce Anna Chi to order a larger quantity:



Product

Pack

Cost price(Rs.)

M.R.P.(Rs.)

Scheme 1

Scheme 2

MyBrand Instant Coffee Premium

13g

9.17

10

24+1

48+3


 

Table 1: Trade promotion Example - MyBrand Instant Coffee Premium

This scheme on MyBrand Instant Coffee Premium (13g) offers 1 free pack additionally, if he purchases 24 packs (Scheme I) or 3 free packs on purchase of 48 packs (Scheme II).

If he purchases 24 packs, his net cost price/pack is Rs.8.80 and if he purchases 48 packs, his net cost price/pack is Rs.8.63, which is a better proposition. Thus, on a trade promotion scheme, Anna Chi is offered additional margin for purchasing additional quantity. But his ultimate decision in selecting the slab depends on his working capital, his confidence on the product's sale-ability and the credit period offered.

What influences Anna Chi's Purchase Decisions?

The 3 most important factors that influence Anna Chi's decision to stock different product brands and an optimal quantity are: a) Demand b) Gross Profit Margin and c) Credit period. We know that he would stock those that are in demand or those with potential demand as in the case of new products and would do so if the margins are significant. The credit period offered to him is very important in the decision-making process. Anna Chi normally prefers to buy goods on credit, rather than paying cash and availing cash discounts for two reasons - First, by paying cash up front, he may lock up his working capital in inventory. Considering demand uncertainty, he feels that risk of incurring inventory holding costs if demand were to be low, outweighs the benefits of the cash discounts (about 1-2 % on the purchase value) that he would receive on an outright cash payment. Secondly, he offers credit to his consumers, so it makes sense to balance a fraction of the receivables through debt.

Anna Chi allocates his funds for purchase of stocks (brands) of each CPG company, normally a predetermined figure, which includes all products. Apart from the basic gross margin (GM) on a product, if the current schemes operated by a CPG company for a particular brand SKU are better, he may order a higher quantity of this brand SKU while maintaining the order quantity of competing brands in the same product group. If he increases the stock ordered above the normal quantity, in order to reduce the amount of money blocked to finance stocks, he astutely demands an extended credit period, if he is not availing the cash discount for down payment.

Furthermore, the CPG (policy governance) and the Distributor (policy execution) may have a stringent return policy whereby slow moving stocks may not be accepted as partial returns beyond the first week of the following month from purchase.

Let's assume that the average stock holding of a particular product is 2.0 weeks of sales volume. If the value of stock amounts to Rs.20000, he pays for a week's stock of Rs.10000.00 and is given a credit of Rs.10000 for 7 days. If the CPG representative pushes for an additional order of Rs.10000.00 and if Ann Chi sees a benefit in increasing stock holding to 3 weeks, he demands a credit period of one week for the additional order placed. In effect, he frees about 2 weeks of working capital on stocks and is able to make more capital rotations.

Thus, Ann Chi's decision to stock product brands has two dimensions namely:

1)  Selecting The Brands in the particular product group - His Preference for various brands, i.e. endorsed brands, sub-brands and product brands.

2) Determining the Order Quantity and the replenishment frequency.

These decisions are governed by a mental jugglery of 3 factors namely:

Extent of Consumer Demand and estimated Inventory Turnover

  1. Degree of Gross Margin - the basic margin + Trade schemes (including free products, volume discounts etc.) and

  2. the Credit Period extended by the Distributor

These decisions are supplemented by the degree of trust in the DSE which is established by the salesman's ability to forge a progressive relationship with Anna Chi on a strong foundation of interest and awareness in/of Anna Chi's business, product knowledge and ability to deliver what is promised - marketing support, timeliness of supply, exclusive trade schemes etc.

Treatment of Product Brands in Anna Chi's Mind Space:

Here's how Anna Chi treats various categories of product brands and determines how he is going to stock them.

(A) Declining Product Brands - "Occupiers"

Here we refer to product brands which are on the verge of decline due to poor demand or in the phase out mode by CPG companies, due to lack of differentiation or they have been eclipsed by competitor brands during their lifecycle or because they never really picked up. The preference for these brands is usually low or none. These brands are normally ordered in minimal quantities by Anna Chi, sometimes only just to fulfill an obligation with the distributor or because CPG Companies may push these brands to the channel partners, as a tradeoff towards supplying other products of the same brand or when bundled with fast-moving brands.  But the "push" mentioned is with minimal force. These brands may be distributed across all territories by incentivizing sales associates or pushed to selected outlets where there is assurance of them getting sold. Such product brands are topped up with an attractive trade scheme, as a "One last offer" for liquidating stocks from the market with a shorter credit. As the short term gains are good, he orders minimal quantities which he is confident of selling, until they go out-of-stock and then reorders if the supply of the product is still available with the same or lesser credit.

What can the DSE do?


Get on like a house on fire

If Anna Chi doesn't trust your DSE or like his selling pitch, he isn't going to sell these SKUs to him even with an attractive trade scheme or a tempting credit period? He ought to understand the retailers' behavior and mood before any sales call. It doesn't take much effort to get him to snub your DSE

Sell with prudence

If Anna Chi is not one of those exceptional retailers, your DSE shouldn't push too many of these brand SKUs to him. The DSE might blot his copy book. Anna Chi hates to think of his as a dumping ground. The DSE can bide his time and plan additional visits to replenish an optimal order quantity at frequent intervals.

 

B) New Product Brand Entrants and Existing Product Brand extensions or variants - "Potentials"

Here we refer to new entrants like new product brands, new brand extensions or even new brand variants like a unique flavor, or a new pack size or new packaging, which are marketed by CPG companies through a heavy trade promotion.

New brand entrants require significant costs from the Distributor towards infrastructure and marketing activities. Hence, as payback period for initial investments on these brands is longer, the credit period for Ann Chi is very short. Moreover, during the initial stages of the launch, CPG companies may not offer any trade scheme or a consumer promotion in order to test market the product brand in the market. Ann Chi's preference to stock such new brand skus may be low initially.

But this may improve depending on the ability of the sales executive to plug the new brand sku by enthusiastically explaining the benefits of the new brand. Marketing Collateral and new display fixtures also influence the preference. While several new product brands including local brands are launched, Anna Chi prefers those brands where he perceives his risk is minimum. I.e. his working capital is least likely to get locked up beyond a week, within the said category. For example, in certain product categories, Anna Chi stocks local brands as the suppliers of these brands offer consignment stocks or irresistible credit value and period. Anna Chi treads very carefully and initially orders limited quantities of new brands. He waits for the demand to pick-up and for the trade schemes to be announced before he starts ordering more.

When a new product is launched from an existing umbrella brand, be it a new product altogether (brand extension) or a new variant, the preference ranges from Medium to High. Anna Chi accepts the minimum suggested offer from the Distributor/ CPG sales executive. If he trusts the brand, he may be willing to stock reasonable quantities over and above the current quantities of all brands/products from the CPG Company. But in course of time, if he finds that the overall sales haven't improved but customers have switched to the new variant, he smartly stops ordering the additional quantity. He reverts to the initially quantity being ordered of the particular brand which also includes the skus of the new variant. 

A new pack with a consumer promotion of an existing product brand may be treated as a new product and may be ordered in large quantities to capitalize on the short-term benefits of trade schemes and consumer inquisitiveness. If Ann Chi is already stocking a product variant of a CPG product brand in sufficient volumes, it may be difficult to convince Anna Chi to stock the new brand variant of a competing CPG brand, until unless the credit terms can be made alluring. After all, Anna Chi knows that more often than not, his consumers may at best switch brands.

At many neighborhood grocery and convenience mom and pop stores like Anna Chi's in India, confectionary products belonging to local brands fill up the display bottles. The order quantity is flexible, supply can be done on a daily basis if required and the credit is extended from one bill to the next or the billed amount is partly paid for.  Thus, in some categories, the national brands sometimes lose out on the supply efficiency and flexibility to the local brands.

What can the DSE do?


 

Arouse Anna Chi's Curiosity

He could be dramatic. Before he says anything else, if there is a new brand sku to be introduced, he could place a product sample on the retailer's cash-counter and within his reach. More times than not, Anna Chi might just touch'n'feel the product and ask him:  what is this, one more new product? Or what is this, a new pack?  Ice broken! Here is the opening, he could go for it.

 

 

Sell-in and exit

Anna Chi's span of attention is annoyingly short, as there will be customers craving for attention, other sellers nudging the retailer for orders, suppliers waiting to off-load the orders that were taking in the previous day and already off-loaded orders waiting to be checked and the invoice copies to be signed. Therefore, if the DSE has made an opening with the sample draw, he should resist from over-dramatizing, he could just take the order, reserve the space and move on to the next sku. Now, if he doesn't sell-in quickly, he should be ready for the snub - "Let's wait for enquiries first, then I'll buy. What's the hurry, are we both going to disappear!!? (Sic).


(C) Premium Product Brands - "Valuables"

Premium product brands may have limited demand, due to their exclusivity. These product brands may provide a high margin to Anna Chi. Anna Chi ensures that he stocks premium product brands in all categories but due to the uncertain demand, he stocks them in meager quantities. This trend could vary between locations across markets. Between competing product brands, the preference may fall in favor of respective sales representatives whom Ann Chi trusts. Some premium branded products may not be supplied by the CPG Company in markets where they expect negligible sales. However, if there are more enquiries from consumers, he might send his executive to the distributor or wholesaler and procure quantities just enough to satisfy the demand to ensure that they don't occupy the shelves for an undesirable period.

When the margins from the slow moving product brands are not substantial and if Anna Chi feels that the minimum order demanded by the distributor's representatives is not reasonable, he may even postpone ordering the particular brand till the demand picks up. On the other hand, when the distributor also does not offer a higher credit period for these slow-moving brands which have a low margin, Anna Chi is naturally discouraged to decline ordering for these brands. But before that he thinks whether the distributor will limit supply of fast-moving brands for not agreeing to order for these brands.

What can the DSE do?


 

 

Sell only to the targeted Retailer. Maintain a ready reckoner

Valuables may have limited demand as well as slow velocity. Can't be placed everywhere. He should sell this to Anna Chi only if he falls under the retailer class and type who is capable of selling it. The DSE should maintain a grocer classification ready reckoner with him with an exclusive replenishment plan. He should be warned against overstepping in enthusiasm and placing skus which may eventually just gather dust. If that happens, he will be selling Anna Chi down the river. Anna Chi is a sharp cookie and may just reduce orders of other brand skus too. Valuables may fetch high margin but at the same time may block a significant amount of Anna Chi's working capital.

 

 

Plan exclusive visits

If Anna Chi wouldn't consider stocking a "Valuable" when introduced as a new product, your DSE could be less surprised. He should market these during exclusive visits. Premium brand skus need special treatment. The selling effort has to be exclusive and should not be mixed with regular order-taking visits. This way, he stands a better chance of selling them. Exclusive orders might ensure that the products are not invoiced along with the usual orders and any delay in payment of the invoice will not result in suspension of regular service of other products.

Play it safe -Order Limited Quantity

The DSE could suggest a few pieces as an order and predict that they will get sold within a week. He should watch the movement and replenish in small quantities if required.


(F) Niche Product Brands - "Specials"

There are always other product brands which offer "niche" benefits and which have little competition from other brands in the same product group. The preference for these brands is usually low as the demand for niche products is uncertain and limited. But if the demand is significant due to mass advertising or increasing consumer awareness and the margins are significant, it induces Anna Chi to drum up business by ordering significant quantities of these brands albeit the ordering is done for smaller quantities more frequently, to derive quicker short-term gains.

What can the DSE do?


Explain the USP and benefits

The DSE should ensure Anna Chi knows the USP and benefits of the product, so that he can push the products and answer consumers' questions that come his way. For example, 'granulated coffee' could be a feature for a coffee brand and the benefit could be that it provides 'richer aroma'.

Carry the sample

If this brand sku is still not familiar to Anna Chi, the DSE should take the sample with him once if he can. This should ensure thereby ensure that when the product is supplied on the requested date it is not returned by Anna Chi quoting reasons like "the products were never ordered for" or the "The ones I received were not the ones I ordered for".

Service on Priority

Most of the 'specials' may not be part of the regular inventory plan of the CPG/Distributor as the requirement for the product may not be on a regular basis. Hence any special order for "specials" should be serviced on priority and immediately.  Regular demand backed up by prompt supply could place many "Specials" on the regular inventory plan.

 


 (E) Mass Popular Brands - "Winners"

Low Margin High Volume Popular brands which are leaders in their respective product groups, which also are usually stocked in quantities more than his average weekly sale for this product. These are brands of products which are consumed on a daily or more frequently by the consumers. For comparable brands from various CPG companies, Ann Chi may prefer and order a higher quantity of those brands on which a greater comparative margin is offered by means of a trade scheme. If the margins are not substantially different, he would stock the brand that comes with a longer credit period. Ann Chi knows that these brands deliver immediate sales and profits.

Brands of Low Margin High Volume products are stocked by Ann Chi in optimal quantities based on his weekly sale but is always careful to ensure that they do not go Out-of-stock as these brands are popular. If Ann Chi anticipates a delay in the regular supply from the CPG Company, he shrewdly draws his inventory from a Wholesaler. But due to the low margin and because credit offered is quite low, Ann Chi continues to order almost the same quantity in every ordering cycle. But, sometimes supply chain issues may cause a potential short supply. When distributors anticipate such a situation, they proactively hoard larger quantities to avoid lost sales, and in turn, Ann Chi. They might also do so if there is a significant price increase announced. But due to the additional working capital invested by the Distributor, Ann Chi is offered a relatively shorter credit term.

This is a Category where various CPG brands compete with each other on trade schemes, consumer promotions and seasonal offers. When CPG companies dole out a consumer promotion on one of their product brands, they would expect larger orders from Ann Chi and to do so, they either extend the credit period or roll out a trade or consumer promotion. Anna Chi is opportunistic. He knows that his sales may not increase due to the consumer promotion but is certain that customers will switch brands. He promptly increases his ordering quantity and sometimes even cuts down ordering of the product brands' nearest substitutes, to make most of the opportunity.

Half a decade ago, a very popular confectionary brand X was on a re-packaging drive and held off its supplies to the market. During this period, the nearest competitor Y, also a big brand, found the volumes of all its sub-brands increase exponentially. As demand rose incredibly, it led to a bull-effect in the entire supply chain. Distributors and retailers were holding a large inventory of Y and sales were skyrocketing, as customers switched brands easily. But very soon, the bubble burst, when X quickly re-entered the market and re-launched their products in their new avatar. The loyalists switched back to their favorite brand X.  As executives of Y didn't anticipate the speed with which X would be re-launched, their distributors were left with huge inventory in their warehouses and were lift with an uphill task of liquidating the stocks.

What can the DSE do?


 

Maintain healthy stock levels

Winners contribute to 70%-80% of overall revenue from Anna Chi and the DSE's targets. Can't afford to stumble on these brand skus. The DSE should ensure that 80% of the planned off-take form Anna Chi happens in the first 2 weeks of the month. He should aim for 120 % of your targets. Can't afford to let competition nudge you for space here. It's just short of committing a crime, if you have a stock out on Winners.

Be an SME

Train your DSE to be a subject matter expert on the Winners - potential sales volume of all the brands of the product put together, product pricing to the retailer as compared to competitor products, trade promotions of his vs. competition, consumer promotions (on-pack and off-pack offers), new entrants in the category and planned consumer contact programs/activities/media campaigns. Etc. Remember, Winners are the Brand Mascots and the DSE is the Brand ambassador.

Watch out for cheaper suppliers

The Winners are price-sensitive. Anna Chi will look for cheaper sources to make better margin. The DSE should time his visit to perfection before even Anna Chi has a chance of looking elsewhere - un-appointed distributers or wholesalers or hoarders or the like.

Process off-route orders

Anna Chi may not honor the "inventory push" immediately as his storage space is limited on your planned route. The DSE shouldn't forget to sell the planned off-take even if he has to go off-route. If Anna Chi requests additional quantity due to high demand, your DSE should go out of his way to process off-route orders. After all, winners are your bread and butter.

Communicate Schemes/promotions on Winners first

If you don't have new products to sell, Ensure Anna Chi hears breaking news about Winners first ,about all trade promotions and initiatives on Winners first, such as variable value discount, percentage discount on the value or volume of purchase, or display based fixed value disbursement  on 'Winners'.


Competing product brands in certain categories are likely to compete in Ann Chi's mind space depending on comparative trade schemes, consumer promotions and seasonal variations.

(F) Low-shelf Life Product Brands - "Essentials"

Popular Brands of products with shorter shelf life such as dairy products are normally offered with little or no credit to Ann Chi. The preference for these brands is based on the supply efficiency, restriction on minimum order storage capacity, customer enquiry, history of complaints, possibility of returning to supplier and perceived quality.  The preferred brands are ordered in sufficient quantities because these brands are frequently repurchased by the consumers.

What can the DSE do?


Pick order quantity on-behalf of the retailer

Based on the storage space(which is important considering the short shelf-life of the product, the DSE has to decide the order quantity for the retailer most of the times as the off-take of these products are closely monitored more by the DSE due to threat of high unsalable returns(products with very short shelf-life)

Rationalize orders

With visibility of the inventory (on-hand + transit) available with the distributor location the DSE can plan the order quantity basis the total available quantity. There is always a temptation to exhaust the available inventory within a few retailers

Monitor delivery schedule/service levels of the orders

DSE has to monitor if the order quantity has been serviced to the fullest at the requested time. Any delay or default in the orders will have an impact on the promised availability by the retailers to his customers

 

(H) Run-of-the mill and Local Brands - "Extras"

Anna Chi also stocks a variety of run-of-the-mill, me-too brands including local brands which compete on price. The Local manufacturers push their brands luring Anna Chi with increased credit and sometimes even sell their brands on consignment. Anna Chi may categorically offer to buy only a limited demand quantity on consignment or negotiate for an extended credit period. Anna Chi sells these brands to consumers who are not brand sensitive but look for cheap prices or just the functional benefit.

Many a time, grocers like Anna Chi not located in prime neighborhood areas are serviced better by the distributor selling the local brands, whereas the supply of CPG product brands may be intermittent. Suppliers of local product brands are also flexible, adjusting to the credit terms demanded by Anna Chi and often not insisting on minimum order quantities as is required for major CPG product brands.

It is not very uncommon to see Anna Chi stock local brands of ice-cream. Brand loyalty is low in ice-cream in India. What matters is the taste and the variety that they offer. The local manufacturers understand the local gastronomics and keep it simple. Suppliers of local brands may offer their freezers without any deposit, may accept returns of damages and expiries, may demand no minimum order quantities and can supply within a few hours of a telephone call. That cannot be said of all major national brands, though the trends have changed in recent times, as consumers have become increasingly quality conscious.

(I) Small packs - "Dynamos'

Anna Chi normally stocks sizes ranging from the smallest to the big ones, but usually to avoid stocking the bigger and biggest ones. The bigger packs are usually made available to the modern retail channel whereas the traditional markets are supplied with the smaller packs.  CPG brands offering the leverage of purchase of small packs without coercion of mandatory bigger packs get the benefit of higher purchase quantity and preference.

In a product group, where there are smaller packs of multiple brands fiercely competing with each other for shelf space and switching costs are negligible, Ann Chi always maintains variety. These products which have a low unit price but are sold in high volume are very valuable for any CPG Company in the particular product group and therefore, in order to maintain their market, share in that particular group, the distributor ensures that stock in excess of the average weekly sale is maintained by Ann Chi by extending credit periods. These brands require constant monitoring by the distributor's sales force and the CPG Company to ensure that adequate stock is maintained to retain market share.

What can the DSE do?


Sequence orders starting with small packs - Small is Big

The DSE should start order taking with small skus - quantities are bigger and replenishment frequency is more and he may be turned down less often. The sequence prepares Anna Chi for the bigger packs.

Highest margin offering trade promotion to be showcased

It is not uncommon to find multiple quantity or value based purchase slabs on a trade promotion. Anna Chi.  The DSE should point out the slab which provides larger benefit to Anna Chi. He should simplify by breaking the margins down to a single piece rate. If the DSE should carry refer a ready reckoner that will quickly show the net price per unit and the additional margin that Anna Chi would make from the trade initiative.

Know your product ordering configuration

The DSE should plan to take orders as per the 'strip' or 'streamer' quantity. That ensures that minimum order quantity is achieved and also reduces chances of the broken strips, torn sachets and 'count short'.


Conclusion:

The preferences for product brands and purchase behavior may vary from grocer to grocer, depending on the turnover, type and size of market, experience of the grocer and the effectiveness of the distribution channel in the particular region. The DSE and the distributor have to understand the needs, preferences and goals of grocers like Anna Chi so that they can prepare customized sales approaches such as:

  • Determine the timing, duration and focus of visits.
  • Revise or plan the routes.
  • Plan stock allocation and market beat plan.
  • Prioritize SKUs/brands for selling during a particular week, month or season.
  • Train sales executives to sell effectively and follow the roadmap.
  • Determine the costs to serve the market such as: Trade Incentives, Consumer promotions and awareness campaigns, merchandise presentation, Paid displays, sampling activities etc.


     

    By Krishnakant Kasturi and R. Sriram

     

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


December 18, 2014

The case for Online Grocery

 

 

Online retail is a very important channel today, on which every retailer is trying to gain a foothold. Giants like Amazon, Ocado, and Flipkart etc have established their online business and are trying to tap into a larger market share across the globe. Be it the retail or consumer products for new or used products, everyone wants to be on the web and doing business.

 The next big thing in the online business is Online Grocery. Online business has its own advantage on cost, but is it cost efficient? Grocery retailers today are striving hard to become unique in form of the service they provide, the range they carry or the omni-channel presence allowing easy access to the customer. But there is a definite amount of cost involved in being unique, which is a major concern for any grocery retailer. The margins are very thin and tight control on operating costs is required to meet the top and bottom line. However the buzz around going online in grocery segment remains a major thrust area in 2015.

Customer's wants are never ending and companies too are trying to satisfy them with innovative methods like click and collect, drive through, home delivery and centralized lockers, to service the customers and retain them, apart from the online offering.  There are retailers who have a physical store and also provide home delivery, drive through - these services win customers but they also mean additional cost for the retailer to manage these services. That's why online retailers have  a minimum cap of purchase for customers to avail these services.

Going online sets the retailer free from the real estate cost which occupies a major chunk of the P/L statement of any brick and mortar retailer. And added to it are other costs like power, human resources, shrinkage etc.

The advantage in the online grocery business is the use of limited manpower who could be trained to handle sensitive categories and make sure the product stays intact till it reaches the customer. Also, when a customer sitting anywhere, places the order, gets to pick it from a location near to his/her work place or home or gets it delivered, it gives enormous customer satisfaction, which is most important today. The only thing online retailers need to do is to market their services, try to reach all types of customers and make their supply chain efficient. Once the supply chain for home delivery, drive through and click-n- collect is in place, the online retailer can enjoy the cost advantage and scale up.

In conclusion, in having only a physical presence, there is always a limitation in targeting only the customers available in the catchment area. In an online business, the retailer has a better reach and the retailer can provide other services too, which improves customer centricity, apart from  benefitting both parties monetarily.

 

 

 

June 3, 2014

EDI Transforming Business Models

For most of us, EDI is a communication system to exchange formatted data between disparate applications, however it is time to realize that the technology has potential to deliver much beyond than what it was intended to. Since early 20th century commerce had seen industries leveraging the opportunities provided by Express mail and Telefax to grow network. Healthy and far-reached network implies smart way of handling goods and providing services, optimization of cost and labor, efficient processes and customer delight. Business growth, technological advancement, and ever changing customer needs demanded for more swift and complex information exchanging networks.

The growing concern was addressed by UN recommended EDIFACT and ANSI recommended X12 EDI standards that set to establish uniformity in business transactions defined for each industry or operation segment. The principal vision was to establish standardization and integrity of the business documents being exchanged amongst trading partners. However EDI proved to be a state of art technology in many areas starting from finance to processes. Following is an attempt to understand the way EDI has contributed to the evolution of many processes, creation of opportunities, and efficient management of resources in a supply chain.

 

Continue reading "EDI Transforming Business Models" »

April 24, 2014

Omni Channel Retailing -Are you prepared to win?


I wanted to buy a new smartphone and my brand engagement began with a Facebook recommendation from a friend who kept raving about his new possession, Galaxy S5. Interested, I googled the phone on my tablet, went to the product site to understand new features and also watched its video on You Tube. After reading expert and user reviews on CNET and exhaustive price search, I ended up buying it online from Best Buy, and picking up the same day at a store next to my home.

Today's empowered digital consumer has dynamic, non-linear shopping journeys.   They are demanding and have more power and choice than ever before. With rapid evolution in consumer buying behavior, emergence of new technologies and constantly changing competitive landscape, retailers need to rethink their business and operating model to stay relevant. As retailers transform, they will need to focus on 4 key dimensions to successfully convert an anonymous buyer to an engaged consumer.

  • Delivering consistent Consumer experience: Consumers expect the retailers to know and inspire them at every touch point, make shopping easy and convenient while valuing them for their loyalty, influence and life time value. For this, retailers need to know their consumers and their interactions across channels, engaging them early with inspirational content and easily searchable rich product information, providing access to enterprise wide inventory alongside personalized offers and flexible payment, shipping, and return options. Retailer will need to understand different paths to purchase and be there at every touch point to optimize the buying process.
  • Flawless Execution to match consumer expectation of product assortment, location, price, delivery and service. Retailers are taking on several measures to bring in agility in their supply chain. For example, leading retailers are now shipping products for online orders from stores closer to consumer to not only improve delivery time but also reduce shipping costs Retailers are also accessing social network data to refine demand forecasts and localize assortments. Retailers are leveraging predictive analytics to ensure inventory availability at the right place and time to minimize stock outs and reduce mark down.
  • Retailers also need an integrated, flexible and scalable digital platform powered by a common data set and technology services hub, ready to be tapped into from anywhere and any device. Such a platform will enable integration of business functions often spread across different departments and enable a single view of the customer, order, product information, inventory and price across channels. This foundation is crucial in driving consistent experience as consumers suspend and resume transactions across channels. This will also bring in increased agility to add new capabilities and onboard newer markets.
  • Last but not least, organization structure needs to align to reduce channel silos. Several leading retailers have created roles like 'Head/VP of Omni channel' as a step towards eliminating channel boundaries. Other retailers have reorganized by brands in order to deliver a unified customer experience across channels. Changes in the operating model also ushers in new processes, system, and shift in roles and responsibilities which needs to be managed deftly.

Omni channel transformation has a profound impact on an organization's value chain. Hence, it is imperative to have a clear vision and a multi-pronged strategy focused on consumer, operations, technology and change management to be successful. What strategies have you focused on to enable Omni channel? I'd love to hear your thoughts, especially challenges faced in transforming your organization.













 




    1. Continue reading "Omni Channel Retailing -Are you prepared to win?" »

      November 13, 2013

      See Your Customers In High-Definition

      Guest Post by

      Santhanalrishnan.R, Senior Principal, Infosys

       An old statesman once said that "all politics is local." The same could be said about retailing. We live in an exciting age - big box stores offer us every product under the sun in their modern, beautifully furnished outlets. Those chains have achieved admirable economies of scale and can therefore pass the savings on to their customers.

      When you take a closer look at each store - you tend to come to a startling revelation. None of these outlets is equal, beyond a point. They all have distinct inventory issues, consumer buying habits, and market vulnerabilities. Only when retailers realize that all stores are local will they get the data-driven insights for which they're constantly searching.

      As suppliers to the stores, Consumer Packaged Goods companies (CPGs) are one step removed from the customers who shop up and down the aisles. But they are an important element to the overall effort to achieve the best store-level insights. To many of us, "store level insight" means snapshots of data from the sales force or the sharing of data from retail customers. Other conventional sources of retail insight might be syndicated point-of-sale scanner data and consumer panel data, but neither of these sources is typically store level.

      Continue reading "See Your Customers In High-Definition" »

      February 26, 2013

      Foreign players in Indian Retail - When & How will the wait end?

      September' 2012 marked the opening of Indian retail sector to foreign players with government of India announcing upto 51% foreign stake in local ventures. The approval provided by government is however, guarded by stiff investment restrictions and mandatory local sourcing guidelines. Even post the passing by of more than four months since, the Government is yet to receive a proposal from any of the global majors to mark their entry in Indian arena.

       

      But are the government laid guidelines the only roadblocks hindering free flow of foreign players? A deeper analysis into Indian customer's mindset brings out interesting consumer behavior patterns.

       

      A typical Indian customer is heavily dependent on "Convenient" local mom and pop stores (Kirana) on account of the

      • Personalization of services - the familiar Kirana owner would be aware of consumer's preferences, requirements in terms of brand & ordering frequency.
      • Local credit facility offered by the stores
      • Flexibility in terms of conditions for product exchanges & returns is immense and can't be matched by organized sector.

      It is for these advantages catered by mom- pop stores that the sole survivors in Organized retail are price- point players like Big Bazaar, Star Bazaar, etc. Other Players which are non-price-point players  have been faced with losses which is depicted by the fact that many of these chains have had to shut down their stores.

      A little market research and insight into the positioning of the key retail players which can mark the true onset of FDI in India, the factor which stands out as the key deciding factor in MNC's India entry is:

      Right Local partner:

        • The local partner should be the one which has the correct understanding of the pulse of Indian consumer, their needs & purchase behavior.
        • The local partner should be familiar with local market rules, regulations & should have expertise in warding off the key challenges Indian market offers (Red- tapeism & Supply chain weaknesses)

      Its only after the finding of the Right local partner that the below mentioned factors would come into the picture. Of course the below mentioned areas would be efficiently handled in liaison with these partners.

      G-Localization:

      The much used internationalization concept can't be adapted in a better manner here than anywhere else. It is of prime importance that the global giants realize the difference in Indian consumer psyche whereby there are fundamental differences from the western strata. The concept of deep freezing, ready to eat meals, selling of fizzy drinks in crates are still limited in terms of adoption. It's thus, of prime importance that the product reinvention is done post a detailed market research.

      Brand recall and Store placements:

      While all the three biggies mentioned above are extremely popular with Indian educated elite class (thanks to their exposure to global markets), this might not be sufficient to entice the major business driving chunk. Further, stores such as Wal-Mart operate as destination stores. The physical distance of the stores from the buying population/ city hot-spots and brand familiarity has to be directly proportional. Without some unique positioning & attractive propositioning, destination store model wouldn't be a success in India.

      Human resource retention:

      Staff retention in Indian retail sector is another challenge global retailers would have to combat with to effectively penetrate India.


      It is only after the foreign players have a well drafted plans addressing all these issues that We the common Indian consumer can finally see the opening of FDI in Indian retail in the truest sense.   


      September 30, 2012

      "Mobile Apps For Faster Shopping Sprees"

       "Google Indoor Maps" has opened a whole new opportunity to retailers whereby they can enable their customers in getting easy and quick access to the products that they're looking for. In brief, "Google Indoor Maps" allows a person walking inside a store to navigate his travel within this indoor location just like what she(/he) would have done while driving a car using a GPS

      Integrating these maps with Retailer's own mobile application (app) and tagging a store's aisles by "Product Categories" on these Google Indoor Maps for a large format store, going down to category of products available by Brands may be just the beginning of the thought as to how Retailers allow their patrons to directly reach out for the product that they are looking for rather than wandering through store departments or searching for a store associate which for some shoppers may be time consuming or even frustrating.

      One of the best supporting feature on Google floor maps, is the ability to guide the user by individual floor's plans, whereby a large multi-level retail stores can also be covered easily and therefore we feel that some of the immediate exploits can be in the large scale Store or say Super Store

      Let us try to understand how one such Retailer app may make the life a Retailer's clientele much simpler and the shopping experience much better. Assume the scenario that our loyal Customer "Louise" is entering such a Large Super Store for her weekly purchases which runs across several departments of the store like fresh produce, dry grocery, apparel, cleaning supplies, bath-ware, electronics, sports goods and the list goes on. Soon after she has parked at the store, Louise logs-in to the Retailer's own native Mobile app on her smart phone. The Retailer's app upon invocation on her smart phone, detects her geographical location and the store that she is visiting today via Location Based Services (LBS) wherein this specific store's latest tagged maps can be pulled and displayed on Louise's phone's screen

      To make the whole shopping trip faster, Louise has keyed in the shopping-list beforehand in the app and a route map is prepared for her upon her check-in into the store via this app. This route map is based on the latest movement of shelves/racks in the store.  Such a guided walk cuts down the Louise's walk through the aisles a short, easy and a confortable one

      Louise was looking for a shirt for her son, but the size small does not appear on the shelf today... does the store have it? No problem... the check would be a quick one by Louise quickly getting to know this via her mobile app. Moreover, if it is not available in store right now, the app prompts her with an easy and quick site to store order which she can pick up during her trip next week 

      Another use for this app+google maps eco-system can be to integrate with the floor maps and publish current vacancies/next available time slots/expected wait times in Large Store's sub stores like ophthalmologist shops, saloons etc.

       

      This Large Super Store's sub stores are very frequently publishing a status of a vacant customer spots/seat available or unavailability of the same on the floor map which when viewed by Louise, will give her an idea whether she needs to do the shopping first or go to the sub store for a quick visit to the hair salon

      While these are just some of the initial thoughts, when pursued actively this specific technology can be utilized in umpteen ways to boost the store sales and to guarantee customer satisfaction. Overall, sky is the limit when one starts documenting the concept of such a solution/product. Customer purchase/return history and loyalty points can be utilized to highlight offers/deals when customer is approaching a specific aisle or when she has been looking for a specific product for some time

      This article has been contributed by Ashutosh Kaushal - Senior Consultant (Sterling Commerce - Infosys Ltd). You can reach Ashutosh at Ashutosh_Kaushal@infosys.com.

       

      Cashing in on "Order to Cash" through BPO shared services

       The Order to Cash process is at the heart of every business and I have often been tasked with asking clients and prospects to consider moving their Order to Cash processes into a Shared services delivery model with a third party service provider.  Over the years this attempt of mine has evinced myriad expressions from clients ranging from the "Have you lost it?" look to the "You just showed me business process nirvana" look. The industry where I experienced the most contrasting reactions was the CPG industry and I wanted to share some interesting learning from the experience of working with a few clients in walking the talk and sharing in their Order to Cash transformation journey over the years.

      To provide some context, the concept of Business process outsourcing in the CPG industry is not a new one. This industry was one of the earliest adopters of outsourcing transactional and back office business processes such as Accounts Payables, Accounts Receivables, Payroll processing and Procurement. The primary driver for outsourcing across all these processes was labor cost arbitrage followed by process efficiencies from consolidation; harmonization and continuous improvement. These drivers have become the cornerstone of all business process outsourcing relationships and have for long settled into becoming the marketing tagline for the BPO industry.

      With this legacy of perceived value from BPO relationships, when one has to go down the same journey with Order to Cash processes, the value equation does not necessary stack up. The most obvious reason for this skew in the case of O2C processes is Risk. To cite an instance provided by one of my clients - The entire annual cost savings delivered by a BPO relationship can potentially be eroded by one order from a large retailer being inadvertently dropped or shipped to the wrong address due to the contractual penalties involved. And one defect out of a million is acceptable even by "Six Sigma" standards!

      So two questions come up, the "Why" and the "How"? The "Why" is easy. Given that the Order to Cash process impacts not just the G&A metric but also the Cost of Goods Sold, Working capital efficiency, Days Sales of Inventory and Gross Revenue metrics, a successful shared services strategy undertaken by engaging the right partner could catalyze business transformation impacting the highest levels of the organization.

      The tough question however is the "How"? I often relate that to converting an "Art" into a "Science". The "Art" here refers to the finesse and proficiency that Customer service representatives have honed on their jobs for a number of years. The "Science" here refers to replicating that same level of service or sometimes even improving it but with a completely new team that's located thousands of miles away in a global delivery model.  Sounds like mission impossible right? Not really. It's been done before and involves the following best practices:

      ·         Create the right operating model: The tried and tested Front Office-Back Office model is a great starting point. It allows for a risk mitigated approach to the end state sourcing mix given the need to balance risk and value in a customer centric setup for the CPG industry.

      ·         Create the right performance measurement methodology: The days of adopting operational metrics such as cycle time, average handling time, Abandonment rate, First Contact Resolution etc to govern outsourcing relationships are a thing of the past. These metrics are now considered Business As Usual (BAU). Consider including business metrics and supply chain performance metrics such as cost per order/invoice, Case Fill Rates (CFRs), On Time Delivery (OTD), Truckload capacity utilization, Days Sales Outstanding (DSO) into the performance measurement framework

      ·         Create a segmented service framework: Most CPG businesses operate in the 80:20 model where 20% of customers account for 80% of revenues. Given this mix, a one size fits all shared services model will fail to deliver differentiated service experience to top tier customers. Consider a three tier service framework involving Transactional shared services, Business support services and Enterprise support services layers

      ·         Choose the right global delivery model: Most top tier BPO providers today have global presence with established Centers of Excellence. Adopt a hub and spoke global delivery model preferably aligned to customer tiers as well as the segmented service framework

      ·         Adopt a phased transition approach: A prudent transition plan is the foundation to successful Order to Cash shared services adoption. Consider creating a phased transition plan where phasing is based on customer tiers, markets, process complexity or a combination of these parameters

      While there are several other design considerations, the above five are what I could call the essential ingredients of Order to Cash BPO solutions for the CPG industry. With these best practices implemented, companies can start to cash in on their Order to Cash processes through BPO shared services led transformation.

      This article has been authored by Sushanth Ananth (Manager, Client Services - Retail, CPG, Logistics and Life Sciences, Infosys Ltd). You can reach Sushanth at Sushanth_ananth@infosys.com.

       

       

       

      July 31, 2012

      Paradigm Shift in Loyalty Card Programmes: Win-win for Retailers, CPG Brands and Customers

      Guest Post by

      Srinivasan Nithyanandam, Manager, Client Services for Retail,  CPG and Logistics - Europe , Infosys

       

      Battling slow economic growth and high costs in a difficult market, retailers are competing aggressively to increase their customer's wallet share and mindshare. The new breed of digital consumers, who want convenience, personalization, and promotion-based pricing, has made winning in this environment even more challenging. Operating within the tight confines of single-digit-percentage operating margins, retailers must continuously innovate to increase consumer foot falls and clicks. In such an environment, personalised offers, rewards, targeted communications and promotions can help heighten customer interest and encourage repeat shopping.

      Continue reading "Paradigm Shift in Loyalty Card Programmes: Win-win for Retailers, CPG Brands and Customers" »

      August 17, 2010

      Indian Retail-New distribution channel

      The concept of eliminating middlemen and in turn reaching out the bottom pyramid of the society has always been effective and has benefited all. So whether it be ITCs E-choupals or telecom revolution brought by the likes of Reliance and Airtel or even Air Deccan's cheap air line model, scale always brings in cost  effectiveness, better margins and expanded market for the company and at same time cheaper rates, better quality and access to variety for the consumer.

      Here is another idea in the market which uses the same logic in its heart and, I feel, has the potential to transform retail landscape.

      Business case:

      It's been an open secret that retail sector hasn't flourished in India as fast as it was expected. Some of the obvious reasons have been:

      i)              Network of stores like Big bazaar/Reliance Fresh etc restricted to bigger cities.

      ii)             Big retailers do not offer local brands which may be inferior to the ones they offer but are in demand due to higher recall value and brand loyalty.

      iii)            Heavy resistance by government in terms of allowing entry in retail format.

      iv)            Heavy resistance by kirana stores due to the fear of loss of employment.

      v)             Heavy rental costs associated with buying properties which pushes up operating costs.

      vi)            Tendency of customer to have touch-n-feel at their nearest kirana store before buying.

      vii)           With only 35% of the half a million-odd kiranas in India having an efficient sourcing system, it obviously means higher costs and lesser variety to kirana stores and in turn to consumers.

      Think about this-What if we combine the low manufacturing/sourcing ability of these big retail companies and combine it with huge network of micro finance institutions so as to offer products to kiranas which are cheaper (due to lack of multiple distributors), are of better quality and offer better variety to end consumer.

      Let's try to see in little detail what companies are trying to do:

      Big retail stores collaborate with micro finance institutions (MFIS) /banks and sources them products. MFIs in turn use their vast network to reach out to kiranas in not only cities but also in rural areas, get their orders, communicate it back to retailers via GPRS,  source it from retailers and delivers orders right on the doorstep of that kirana guy. What's more, MFIs by virtue of its identity offers such kiranas interest free credit!! This allows kiranas to go for bigger chunk of purchase thereby offering better rates. What do MFIs gain..?? They receive simple fixed commission from retailers in lieu of their services.

      The number of advantages it offers is limitless. Let's consider few of them:

      Advantages:

      i)              Peaceful coexistence between retailers and kirana stores.

      ii)             Gives retailers an immediate reach to bottom of the pyramid.

      iii)            An opportunity to understand likes and dislikes of rural consumer better.

      iv)            No heavy real estate investment which means low operating costs.

      v)             More variety of products to kirana stores and in turn end customer.

      vi)            Social touch by allowing kiranas to thrive instead of perishing out.

      vii)           Involvement of MFIs/banks and need of vast network mean more employment to everyone.

      viii)          Consumer takes all-more variety, cheaper product all at its own nearby kirana store.

      What started off with a pilot project in few retail companies has already caught eye of almost all the players. Though the concept is in its infancy stage and may offer certain hurdles but owing the potential and advantages it offers, it could be the next big thing in Indian supply chain.

      Apparently Bharti is already deriving quantifiable percentage of its sales from this mode of retailing. Other companies like Future group, Metro cash n carry, Godrej & Boyce too have acknowledged the business case and are running their own pilots before rolling it out on large scale.

      How can IT companies benefit out of it?

      More often than not every new opportunity begins on the business side; technology then complements it, makes it faster, easier and more efficient. Now we have an apparently new way to do business, technology can always seep in at various places and fill in the gap.

      Few examples that I can think of are:

      i)              Ensure efficient distribution from retail companies to MFIs.

      ii)             Retail practices must be new to MFIs. How can they ensure better sourcing, warehouse management, allocation etc?

      iii)            Faster order fulfillment at various stages (from company to MFI and then MFI to kirana store).

      iv)            Better margins at kirana level means ability to afford newer technologies like item scanning/RFID etc.

      Conclusion:

      Off late, we have realized the power of social networking websites which connect the urban elite and help connect millions across the world. In MFIs, by virtue of its huge client base, I see a unit which gives access to social network of rural India, and, in turn, open newer and profitable ways of doing businesses...businesses which have the potential to generate profits through the entire value chain and not just selective few.

      July 20, 2010

      RFID Middleware - Smart Devices?

      For any organization to adopt RFID (radio frequency identification), the biggest challenge is to integrate their existing enterprise applications with the data collected from RFID devices. Neither do these applications have the capability to hold and process EPC data, nor do they have the capability to communicate with devices and hardware. While the first issue of holding and processing EPC information is something that I've addressed in my white paper here, this blog is targeted towards discussing the issue of integrating enterprise applications with devices.

      This purpose of integrating existing legacy applications with RFID is enabled by deploying a thin piece of software called as the RFID middleware. Simply put, the job of the RFID middleware is to collect data from RFID devices, eliminate duplicate or junk data, convert the data to a format which the enterprise application understands, and feed the data to the enterprise application.

      The market for RFID middleware has been tapped by many players in the space, though it is dominated by product vendors who consider their RFID middleware as an excuse to sell more licenses of their existing products by making it dependent on their application servers, web servers, database servers, so on and so forth. Device vendors realized this to be a challenge for enterprises in terms of cost, and came up with an alternative - provide an embedded version of the middleware on the firmware of the device itself (making it a "smart" device) and let it communicate with enterprise applications directly. But is this a favourable approach?

      There are several returns of having an embedded RFID middleware, e.g., it reduces the TCO (total cost of ownership) because it is not dependent on any other licensed products like application-servers or databases. However, are there several drawbacks as well, for example, it over-burdens the device with additional processing responsibility, it doesn't allow filtering of duplicate data to be done across devices (since a middleware instance is specific to a device and can't access data from another device), and most importantly, it increases the dependency of the organization on the vendor - which is not a scalable strategy in the long run, especially for an enterprise which spans across multiple geographical locations, in each of which the vendor might not have presence and customer-support.

      Therefore, a more recommended approach is to use an RFID middleware which brings about the best of both worlds - the processing capabilities of a server-based RFID middleware and the low-cost, light-weight behaviour of an embedded middleware.

      I've done more in-depth analysis of this in a technical view-point which was published on RFID Journal under "RFID Expert Views", accessible here. It provides more insights into some of the unforeseen challenges that an embedded RFID middleware on a "smart" device might bring about for an enterprise. If you have any thoughts to share on this topic, I'd be glad to take your comments on the same.

      April 6, 2010

      Digital Signal Repository: Will it usher in Retail Utopia

      The latest buzz word in Retail Enterprise systems is Digital Signal Repository, DSR. Is this another passing fad or is it worth the investment in time, money and resources.

      Continue reading "Digital Signal Repository: Will it usher in Retail Utopia" »

      February 25, 2010

      How do we obtain Traceability - Part 2

      In my earlier post (available here), I had raised a few points regarding how we can obtain traceability across the supply chain using RFID (Radio Frequency Identification). I would like to thank everyone for the overwhelming response received in that post. In continuum with the same, I have published a white-paper on the topic "Supply Chain Traceability with RFID and SAP" (available here), in which I have elaborately discussed a viable solution for realizing Track and Track and Trace in the supply chain by the use of an EPCIS (EPC Information Service)-certified repository.

      Based on the EPCIS standards, there are several compliant products available in the market which can be used as central repositories to store and maintain RFID information. Through these repositories, existing applications such as WMS systems can obtain relevant EPC (Electronic Product Code) information whenever it is required, e.g., while commissioning or creating ASN (Advanced Shipment Notification).

      Most of these products provide standard interfaces for posting data to them, for querying them for information and for managing EPC serial-numbers (e.g., HTTP, HTTPS, web-services) via standard integrators and EAI (Enterprise Application Integration) tools. Through these interfaces, it becomes very easy for all trading partners in the supply chain to post or retrieve RFID events on a real-time basis, thus allowing every RFID-tagged object (like a pallet or a case or a cart) to be tracked with a greater amount of granularity and accuracy, and providing information pertaining to its complete life-cycle.

      A lot of organizations have got acquainted with RFID by using proprietary technology provided by vendors, and in many of these cases, the third-parties (vendors) also host the information for them. In certain cases, the dependency on vendor-hosted applications and repositories is to the extent that critical business functions like commissioning and creating ASN (advanced shipment notification) are done by them. While such solutions have helped jump-start the adoption of RFID, they are not scalable in the long run because they impose a lot of dependency on the vendor and they lack standards, thereby implying lesser integration with a large number of existing systems or with trading-partners. Deploying a central repository which is compliant with EPCIS standards goes a long way in eliminating the dependency on vendors, ensures that critical information related to the business processes of an enterprise remain within its systems, and also allows for seamless data-exchange with trading partners using industry-standard mechanisms.

      For more information on this, please refer to my white paper whose link I've provided above. I'd like to hear your thoughts and opinions too - please feel free to post your comments about the same here.

      January 18, 2010

      How do we obtain Traceability?

      Are you part of a CPG company trying to comply with mandates from retailers to start tagging pallets and cases with RFID (radio frequency identification), and seeking to formulate strategies to derive value out of the investment? Or are you a big-box retailer who has mandated suppliers on RFID but are still looking forward to devising means of obtaining end-to-end traceability? Or do you belong to a container-pooling organization worried about the visibility of your assets across the supply-chain?

      Very often, it has been seen that not all the supply chain players that deployed RFID in their business processes have garnered its promised benefits. Some of them faced challenges where there was not enough ROI (Return On Investment), no end-to-end traceability, and no value-addition. In order to realize the true potential of RFID, it is indispensable for organizations to enable business processes across the value chain and provide end-to-end traceability by capturing information throughout the life-cycle of the RFID-tagged assets or products.

      A lot of questions pop up in the mind as to which is the right way to go forward with a complete RFID deployment, especially when it comes to maintaining the EPC (Electronic Product Code) data. Traditional WMS (Warehouse Management System) or ERP (Enterprise Resource Planning) applications are not designed to hold EPC data, especially at case or sales-unit levels. Should we go ahead with a third party vendor-hosted repository which is completely disconnected from our ERP systems but holds our information, or should we modify all our existing WMS/ ERP systems to process and maintain the highly granular RFID data? Is there a better approach that can streamline the processes in our WMS systems by enabling them with RFID as just a new technology similar to barcode?

      I will add more details about this in my subsequent posts as to whether there is an EPCIS-compliant and standard way of solving this problem around Track and Trace. Meanwhile, if you have any experiences or thoughts to share on this topic, please feel free to comment and let me know.

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