Off the Shelf: The Retail & CPG Blog

Henry Ford once famously quipped about the Model T car in 1909- Any customer can have a car painted any color that he wants so long as it is black. As I hurriedly move around the aisle of the local Kroger Grocery store looking for a particular brand of I-forgot-what; I couldn't help but think that this was perhaps the best instance of SKU optimization ever done!

But this is 2011, and things have become a tad more complex ever since. CPG companies are looking to hold on to their market share- at the added cost of increasing their SKU portfolio; retailers are looking to streamline their aisles, lessening clutter and increasing their efficiency; and above all- customers are looking for simplicity in the choices they have once they enter the retail stores rather than the overwhelming assortment of confetti colored, similar looking products that craves for attention across the aisles.

Although many would have liked us to believe, but the fact is that just having a presence in the social networking bandwagon won't suffice if the CPG companies were to win the battle in the stores. Like a duck which is frenetically paddling underneath but shows a Zen like calmness on the surface- there is hard work being done by the enterprising CPG companies to stay ahead of the curve and optimize their SKU portfolios.

Michael E. Porter's 5-forces model more or less defines the market strategy that an organization can employ to gain the maximum on its limited resources, increase RoI and maintain their competitive advantage. For most CPG companies reducing SKU complexity and joining the lean-trim bandwagon might be the most obvious thing to do. CPG companies are looking deep at their tactical and strategic factors to come up with a win-win formula and SKU Optimization is a clog in that wheel of success; albeit an important one. An ideal situation for strategic decision makers keen on a strong SKU Optimization process is to keep on reducing the number of Stock keeping units as much as possible- which in turn would lower costs, reduce losses due to OOS (Out of stock) of the Power SKUs, and efficient economies of scale.

The devil is in the detail, or in the realm of BI we call it 'data'- sometimes for the lack of it and sometimes for the overkill. In order to generate reports on key SKU Optimization metrics we are looking at synergy between disparate data sources, business intelligence and reporting tools, and various departments within an organization with their own agenda. Moreover, there is always a trade-off between the cost of acquiring the data and analyzing it to make sense vs. the incremental benefit the business users derive out of the report. They must look for answers to critical questions like which bottom SKUs to trim, which are my power SKUs, how much market share I'm willing to lose to retain my cost competitiveness and so on.

BI professionals are looking at combining data from disparate sources like Shipments, SAP, Nielsen, AOD and then normalizing the metrics to give a clearer, common picture of the state of the business and making it simpler (1-2 click reports) for the users to analyze the report more effectively and make real time business decisions in a collaborative mode. For a truly global CPG company, we are talking about similar reports being generated across geographies and more standardized the process, more optimal is the output. A typical SKU Portfolio Optimization report typically consists of SKU Count, Productivity, and Ranking of SKUs details and the decision makers are able to slice and dice the filters to suit their needs.

The data is the hard fact, how it is interpreted to suit strategic and tactical needs is of the essence and to roll it out for multiple categories, brands, SKUs, Business Units, Channel will define the thin line between success and failure. For instance, A Loss Leader strategy employed by a CPG company will obviously have a different philosophy than say a Profit Maximization Strategy.

An example-

While analyzing the SKU Optimizations report details we might observe that a particular SKU is sold only to the Bottom 3-4 Customers.

The questions that immediately comes to our minds are-

·         Is that a strategic decision? Why are we even selling this product to the bottom customers only? Are they a strategic partner in some other Geography?

·         Can we stop manufacturing these SKUs and replace them by the Top selling SKUs? This will reduce my costs, reduce OOS and will give me more space in the aisles for my Top SKUs.

·         Or wait!! Are these my discontinued SKUs that are being liquidated and sold to the bottom customers?

Although the CPG companies may not like it, but reducing their long tail SKUs which makes up for say, the bottom 10-12% volume SKUs as their 'one-size-fits-all' SKU optimization strategy is an adventure waiting to unfold. The objective of a good SKU Optimization initiative remains the same- Reduce OOS, optimize the retail space and save on fixed and variable costs. SKU Optimization, for a fact, is the journey; the traveler needs to decide where they want to go!

At the Kroger store, I saw some promotional packs of a particular brand of chips in the aisles- and then I thought to myself- what a terrible waste!! Extra production shifts, marketing costs, extra packaging, one additional SKU, added complexity and what not.

Am I becoming cynical? I don't know. I just wish for a simpler, clutter free and efficient world. Well, isn't that a truism?!

Posted by Jagat J. Saikia at 6:53 PM | Permalink | Comments (3) | TrackBacks (0)

The first set of things we learn about warehouse management, when we start to read about it, is that there are a set of defined processes - Receiving, Putaway, Picking and Shipping. Simple and well defined. In the most typical scenarios, we have the receiving dock at one end of the warehouse and the shipping dock at the other. Goods arrive, stocked inside and then leave.

More often than not, a lot of time of the warehouse folks is spent in transferring of the goods from the receiving to putaway locations and then from putaway to picking. In order to have a quicker and responsive supply chain, it is always expected out of the warehouse to devise a strategy such that the lead time of delivering the goods is as less as possible and also reduces the operational cost of the warehouse. Especially in case of grocery or fast food industry,  products arrive in the warehouse just in time and the turnaround time to the stores is just about a couple of hours.

So the poor doughnut which arrives in the warehouse first steps down at the receiving dock, walks and sits in the storage area for a while and when the store calls, walks down all the way to the picking slot waiting to be picked and loaded in the truck to be finally sent away to the store where it can now display itself proudly.

It could be a good solution if the warehouse structure is such that receiving and shipping locations are in vicinity of each other such that there is more opportunity for immediate loading of goods in the shipping carriers as soon as they arrive in the receiving dock. This is more like an alibi for cross dock and can be very handy in the case of food items where the size and volume of the goods are also not very big and direct transfer from receiving to shipping is easy. Immediate benefits could be:

·         Reduced cost of transfers within warehouse

·         Reduced lead time of shipping and delivery

·         Works better for food items as more freshness is maintained

There can be a few difficulties in terms of charting out the infrastructure for correct routing of receiving and shipping trucks or better coordination required for loading the right items in the right trailer.

Receiving and Shipping can work as pillars of support to each other and result in a more effective supply chain. Not to forget, a responsive supply chain would result in happier customers - both internal as well as external. After all, Customer is KING!

Posted by Sneha Tarang Randev at 5:29 AM | Permalink | Comments (0) | TrackBacks (0)

 The events in Japan shook the earth.. literally. No words can describe the suffering that people in Japan are going through. Dual natural calamities and then a nuclear emergency coming all at once is truly unimaginable. And hence something that no one plans for. Yet this is the time when it is most imperative that the millions affected be helped at the earliest possible time - within hours or days. Similar large scale disruptions have happened in the past - Indonesia Tsunami, Chile, Haiti, and in war scenarios.

Amongst other things, lots of basic consumer goods are needed for recovery. For instance, bottled water, packaged high nutrition imperishable Ready to Eat foods, sanitation, cleansing and household products, and clothing.  This is needed. Urgently. At a low cost or even at no cost to the end consumer. At places which are most inaccessible.

CPG companies bear an important responsibility in making this recovery happen.

The challenge is that exactly at this time, the regional/ local supply chain suffers the most too. These disasters led to severe supply chain disruptions- from unavailability of raw material, to factories closing, to infrastructure, port, roads and warehousing disruptions. The people who would run the local links of the supply chains are often themselves the affected ones.

The question is how can companies create truly agile supply chains that can operate fast in these difficult times?

- How can the CPG organizations' regional leaders and their teams quickly and proactively organize themselves, prepare fair-priced or subsidized offers, contact buyers (donors, relief agencies, and host governments) to quickly determine the impact, and get the contractual arrangements sorted out? Can this be done in hours, not days and weeks?

- In parallel, how can the demand planners quickly get visibility into the event-driven demand,  the available inventory, and determine the gap for categories that are known to have an increased demand after these catastrophic events?

- What is the best way to determine the right SKUs and the right packaging?

- How can the Supply planners provide this "Demand Signal" to the factories in near real time, and ensure adequate production?

- How can supply chain planners re-prioritize some of the existing production, and existing inventory towards these humanitarian needs?

- How can alternate transportation and warehousing contracts be put in place, and goods moved fast from multiple factories and warehouses?

- How can the last mile problem be solved? Partnering with the emergency response team is a must, and that's something many in the local distribution network might not have experience with.

These are some of the many questions that CPG companies need to solve for, while creating their "disaster recovery" plans. If you are aware of any best of breed examples /  benchmarks, we would love to hear from you.

Posted by Aditya Mittal at 3:50 AM | Permalink | Comments (0) | TrackBacks (0)

Also with flexible return policies, the volume of returns is expected to go up marginally. Are the retailers and manufacturers geared up to better handle higher volumes of return items to extract value out of it or will it throw up a new set of challenges for them? Well let me leave it for a different discussion.

Posted by Sathyanarayanan Varadan at 12:43 PM | Permalink | Comments (1) | TrackBacks (0)

In the modern fast paced life, everbody needs everything quicker. Food is no exception to this theory. QSRs - Quick Service Restaurants or commonly referred to as Fast Food restaurants, are a big hit and an answer to an increasing demand of food-served-fast. How often we have seen a long bee of cars waiting in a McDonald drive thru during breakfast or lunch or dinner time?

This article is not to talk about the good and bad of eating out in a fast food restaurant. But instead, I want to talk about how the operations of QSR are different from a classical restuarant. I want to look at the challenges of QSR both from its internal operations standpoint as well as from a distributors standpoint.

Large Inventory Turnover

The first fundamental difference is that the menu of a QSR is thin. They dont carry too many items on the menu, but they thrive on the volume. Due to that, the inventory turnover is very high and the storage facility available in a store is very limited. Imagine you walking into the kitchen of a medium-sized classical restaurant and you will find that they will have enough storage capacity to last them for at least a week. Of course, fresh produce is a different animal altogether and you cannot stock it for more than couple of days.

But if you walk into a Taco Bell or Burger King's kitchen, you will be amazed that the size of their "warehouse" will be no larger than your master bath cabinets. Since space is scarce, the need for a better inventory management is extremely critical. But unfortunately, most of the QSRs struggle with this. The inventory visibility, leave alone the corporate, even for the store manage is very poor. It is extremely difficult to account for inventory by comparing the sales

Shrinkage

Another related challenge is the amount of shrinkage a QSR store has. I was talking about the difficulty in tying the inventory to sales. That is mainly due to large amount of shrinkage. Just visualize this situation: you order a ham burger and the guy will flip couple of buns, stack it with the patty and stuff various vegetables like onions, lettuce, tomatoes, etc. The chef (so to say) will pick a bunch of lettuce leaves, tear some of them to stuff in your burger and throw the rest. Based on analysts report, the amount of shrinkage is sometimes is as high as 40%

Too many drops

Due to the limited storage capacity, the number of drops from a QSRs distributor is very high - sometimes more than once a day. QSRs are not adequately staffed and equipped to handle receiving these frequent inventory drops which results in wrong entering of inventory data in the system.

The margin in this type of business is very low, primarily due to issues like these. If you have to look at it positively, there are multiple opportunities for any QSR to improve their bottom line.

We will talk about the challenges a distributor to QSR face in my next post

Posted by Prasanna Ramaswamy at 6:14 PM | Permalink | Comments (0) | TrackBacks (0)

For furniture retailers, logistics is an extremely important constituent of the overall supply chain, both in terms of complexity and cost. Many retailers outsource their logistics operations to third party providers. While this has several advantages, in certain scenarios, insourcing this function can actually prove beneficial.

Let me highlight few common issues which some of the leading retailers face with their 3PL partners.

In order to optimize the load per trip, 3PL carriers load the retailer's merchandise in the same truck along with merchandise from the retailer's competitor (who uses the services of the same carrier). Sometimes this results in more than 50% of the load belonging to the retailer's competitors. Due to this shared service model, at the expense of the retailer, the competitors get advantage in terms of inventory carrying cost and are also able to maintain more optimal stock level

In addition, every item in the truck gets handled multiple times en-route before it reaches the retailer's warehouse or the customer, leading to more damages and high chance of getting exchanged with other retailer's items as well. Things go worse when there is an issue with the delivery and customer does not find a right person to talk to on the spot of delivery.

In-source their logistics system can result in some interesting advantages:  First of all, retailers will be able to curb the advantage that the competitors have been taking out of their outsourced logistics system. Secondly, they could decide on the replenishment cycles based on their own requirement, which gives them better control over logistic cost.  Third, banners on their trucks can provide free display advertising options. 

Of late, few leading furniture retailers have started moving at this trend and ripping a good of benefit out of it.

Specialty retailing is all about creating differentiation and logistics can be used innovatively to create this differentiation and reduce this cost.

Posted by Jagannath Prasad Lenka at 4:10 AM | Permalink | Comments (0) | TrackBacks (0)

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.

Posted by Neeraj Goel at 4:25 PM | Permalink | Comments (0) | TrackBacks (0)

What's in a name, so said the good old barb. Turns out a whole lot, if you want to hawk your wares in the market.

Continue reading "Brand Positioning : Impact of manufacuturer's name" »

Posted by Punit Maheshwari at 4:54 AM | Permalink | Comments (0) | TrackBacks (0)

There is so much online buzzing going around today.

Twitter, Face book, Digg, Delicious, My Space; everyone seems to be out there with full arsenal. Now all of a sudden, all the denizens of this planet (at least ones who have internet and a computer) have got voice that they can beam through endlessly over the net. And most importantly people are listening to each other.

Continue reading "Online Chatter: Buckle up and listen" »

Posted by Punit Maheshwari at 7:36 PM | Permalink | Comments (0) | TrackBacks (0)

This is the era of pay per use. Consume all you can, seems to be falling out of flavor. Pay per use minutes in cell phones, pay per plate in restaurants, pay per hour in rental car, pay per mile for car insurance, pay per use in cloud computing and now per use rest rooms in no frills European airlines:)
This is a logical evolution of consumption's renumeration. Why pay in bulk, when the usage is limited and piecemeal.

Continue reading "Cloud Computing: Will it result in end of cross subsidization" »

Posted by Punit Maheshwari at 12:52 PM | Permalink | Comments (0) | TrackBacks (0)

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

Posted by Punit Maheshwari at 7:55 PM | Permalink | Comments (0) | TrackBacks (0)

Continue reading "Carbon Labeling: Issues during design, implementation and execution" »

Posted by Punit Maheshwari at 3:54 AM | Permalink | Comments (0) | TrackBacks (0)

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 & trace in the supply chain by the use of an EPCIS (EPC Information Service)-certified repository.

Continue reading "How do we obtain Traceability - Part 2" »

Posted by Mayank Shridhar at 10:31 AM | Permalink | Comments (3) | TrackBacks (0)

A few months back I purchased a GPS from the online channel of a brick and mortar store. The web site was friendly, the deal wonderful, it even offered me a free rush shipping. I got regular updates on the status of my order every few hours, and within 2 days, the GPS was on my door steps. An awesome shopping experience.

However, I had a completely different experience when I decided to return the GPS. First of all I could not return the item online. There was also no provision for me to return the item to their store as it was bought online. I had to call their care center who advised me to ship it to their warehouse. I followed their instructions but had no clue where my returned item was and when I would get my credit back. Finally, after several days and many calls to the care centers and an equal number of unpleasant conversations I got my money back.

 Retailers have consumer friendly sales channels, stores, online and catalogs but cumbersome returns processes. A robust returns and reverse logistics process can be of enormous benefit to the retailers. It will provide higher customer satisfaction and loyalty, improved in-transit tracking, reduced shrinkage and damage leading to higher sales and lower costs.

Continue reading "‘Unreturn’ – How Retailers Can Transform 'Return' Into An Opportunity" »

Posted by Somnath Sinha at 4:52 AM | Permalink | Comments (3) | TrackBacks (0)

Continue reading "Business Intelligence – Is it a waste of investment?" »

Posted by Prasanna Ramaswamy at 7:34 PM | Permalink | Comments (1) | TrackBacks (0)

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?

Continue reading "How do we obtain Traceability?" »

Posted by Mayank Shridhar at 6:16 AM | Permalink | Comments (17) | TrackBacks (0)

Going green is no longer a fad. With the large-scale destruction of the Earth’s ecology and natural resources, environmental consciousness has become absolutely imperative. The corporate world has responded by making it a high priority to “go green” and to implement sustainability initiatives in recent years.

Continue reading "Ten Steps to Green Packaging in the CPG Industry" »

Posted by Sivakumar.V at 11:04 AM | Permalink | Comments (0) | TrackBacks (0)

I then started to dive deeper into those focus areas and analyzed how BI can assist companies in improving customer satisfaction and loyalty

Continue reading "Intelligent Sourcing and Procurement – Can BI help?" »

Posted by Prasanna Ramaswamy at 3:46 AM | Permalink | Comments (0) | TrackBacks (0)

When a consolidation happens  in any industry, the market takes the news in awe. The market reacts swiftly initially with lot of news-spread, followed by strong analysis, view points and the market settles down accepting the new order and moves on. I’m sure the same will happen with the JDA i2 acquisition. JDA historically has been a great aggregator and have done acquisitions at strategic moments in its growth phase. Acquisition of Intactix, E3 and Manugistics all helped JDA solidify its position in the market, expand its footprint and establish itself as the leader.

Continue reading "JDA i2 acquisition: 3 point view" »

Posted by Kirthi S Subramanian at 2:15 PM | Permalink | Comments (2) | TrackBacks (0)

Continue reading "How Can BI improve customer satisfaction and profitability in the food distribution industry?" »

Posted by Prasanna Ramaswamy at 3:25 PM | Permalink | Comments (0) | TrackBacks (0)