Feature | 595 days ago |

Amit Mukherjee, Vice-President (IT and supply chain) and Group CIO at RPG, has been working steadily for the last three years towards consolidating the supply-chain and is deploying some effective strategies, discover Aanand Pandey and Jayashree Mendes.


For a generation fed on malls, technology, and mobile phones, it is only necessary that markets bring forth creations and products that can satiate them. Fortunately, lots of people are doing that. Businesses are not content with adopting new technologies alone, they are also seeking out new models of doing business — profitably.

Kolkata-based Spencer’s Retail is a fine example. And the man at the helm of RPG Spencer’s Retail Limited, Amit Mukherjee, Group CIO at RPG and Vice-President (Supply Chain & IT) – an organization ranked in the top five retail companies with revenues of `1,100, and part of the `17,000 crore RPG Enterprises – offers an understanding.

Mukherjee should know. Since the mantle of Spencer’s supply chain came to him in January 2009 [he joined the company in September 2007 as VP (IT)], he continues to incorporate several changes in its supply chain through calculated use of IT.

The changes are much-needed in keeping with Spencer’s decision to consolidate its position, introduce brands offering high margins, not to mention opening more hypermarkets, etc. The company plans to acquire good properties at the right locations when the opportunity presents itself. As one of the earliest entrants in the retail space, it was the first ever to open a hyperstore in India at Hyderabad in 2000.

The retail company, operating in nine geographies, has about 200 stores ranging from 10,000 sq ft to 40,000 sq ft, including 30 large format stores that focus on verticals like food and grocery, fruits and vegetables, electrical and electronics, home and office essentials, garments, and personal care. Goods are sourced from 3,000 suppliers across the country and over 7,000 professionals specially trained to meet consumer needs and the business objectives of the organization help in the daily functioning of the company. The logistics of handling the people, timing, and location can indeed be a subject worth perusing.

The Man And The Method

Mukherjee’s track record at well-known companies handling critical functions of IT, production, and services has stood him in good stead in the current capacity. After working with Tata Steel, handling several functions, for nine years, Mukherjee moved to SAP India as senior solution architect. He then moved to Reliance Energy as additional VP (IT) for a year-and-a-half. Before moving to RPG as CIO, he did a short stint with another technology company, Hewlett-Packard’s service division.

There’s something about people overseeing technology at organizations. They tend to change the nature of a workplace and the company. In his words, “Last 7-8 years, I have been in the ERP space and primarily in SAP’s multiple industry solutions. My core competency is my ability to strategize on the IT front, with respect to the business or the customer or the organization needs in terms of design and implementation.”

Keeping with this, Spencer’s has a well thought-out supply chain design. Mukherjee says, “Our supply chain ensures constant availability of products, while keeping inventory at a bare minimum.”

Wizened through the months of the recent recessionary churn, the team keeps a hawk eye on cost. “There are several constituents to the cost. One is the warehouse cost, which includes manpower, rentals, electricity, advertisements, etc. The second is the freight charges incurred in moving goods, and the third is shrink, a term we use to refer to inadvertent losses incurred due to associate error, theft, process loss, etc. This needs to be kept at a minimum.” For smooth functioning, Spencer’s insists that its routines are driven through systems and processes, be it warehouse management or the
replenishment model.

The effect of following systems has made Spencer’s into a leaner organization. Since the last year, the company claims to have not only halved losses, but also improved margins by 200 basis points to take the margins to the current 19 percent. The retailer also pulled off its goal to increase revenue from per square foot to `900 from `811 in March 2010, an exercise undertaken about a year ago. The same store sales are growing by 13 to 14 percent. Its biggest achievement has been the break-even at the store level, says a company spokesperson.

About the positioning of the retail chain, Mukherjee says, “We don’t operate on everyday low pricing platform and neither are we on the premium layer. Our strategy takes into account various parameters like quality of products, merchandize spread and depth, international and informed shopping ambience we offer our customers. If we are compared on these parameters with other Indian retailers, we are superior, yet our prices are extremely competitive, though not necessarily the cheapest.”

Stock-n-Store

For a company that has found a method, managing efficiencies is the next step. After taking over, Mukherjee directed his energies to reducing and keeping costs low. Primarily, warehousing costs account for a large portion of retail supply chain. So it is necessary that it maintains minimum DC space. Mukherjee says, “We need to understand the amount of inventory level and the optimum level of stock required, so that there are no stock-outs. I am also keen that we do not over-stock our stores, since cost of stocking is higher at stores than at the DC.”

The company’s large stores already have stock-keeping units (SKUs) of about a lakh, while it ranges from 10,000 to 14,000 at the smaller stores. “So there’s a fine trade-off one needs to do at every point, and find the most optimum solution. It all depends on our priorities at that point in time. Another objective is keeping warehousing costs proportionate to the freighting area. Remember, we are talking of finite resources,” he adds.

The supply chain has two mother DCs —a modern 80,000 sq-ft mother DC at Gurgaon run and managed by a third party, and an import DC at Bhiwandi in Maharashtra. The 17 regional warehouses are managed in-house. The company has a strategy for movement of different kinds of products. For instance, at its Kolkata warehouse, based out in Dankuni (40 odd kilometers from the city), FMCG products and staples are moved from the DC to the store; while perishables and frozen items are routed through direct supply model. Garments follow hub-and-spoke and are directly moved from the mother DC to the store. Mukherjee says, “Our strategy for each region hinges on the vendor capability of that region. In Eastern UP, we have a warehouse in Lucknow, and stores are based in Benares and Gorakhpur. The strategy here would be unlike that adopted in Kolkata or Bangalore where distances are much shorter.”

Spencer’s has tied up with several local LSPs and transporters to move its goods. Some well-known ones are L.G. Brothers, which manage the road transportation; Quick ‘N’ Safe attends to the distribution  network through hub and spoke and multimodal transportation;  AFL offers warehousing and logistics services; Spear Logistics offers warehousing services, and there are also several other local players.

The retail company has adopted the Japanese practice of 5S at some of its DCs. The 5S concept for retail would entail: a) Sort (Seiri in Japanese) – the first step in keeping stocks organized b) Set in order (Seiton) –Identify and arrange the goods on the shop floor c) Shine (Seiso) – Regular cleaning and maintenance d) Standardize (Seiketsu) – Allow quick access of goods to buyers and e) Sustain (Shitsuke) – Maintaining what has been accomplished. It has also begun ISO certification program for the DCs as well.

An advantage of operating locally has enabled the retailer to shrink the size of its facilities. So it moves its chill and frozen goods in igloo boxes (using dry ice), which maintains the temperature for 6 to 7 hours, long enough for the goods to reach the store.

Springing Into Action

Inventory turnover plays an important role in understanding how products sell, and the next shelf fill rate. On an average, Spencer’s has an inventory turn of 45 to 47 days across most product categories.

The buying function at retail outlets mainly depends on effective demand and supply forecasting. There are six to seven parameters it follows. The supply chain forecasts are based on factors such as buying history, the time of the month and the category of product. For instance, the early part of the month sees more footfalls. Weekends are usually hectic so that has to be taken into account. Keeping track of seasonality, holiday factor, trends, and promotions are other factors.

For replenishment, Spencer’s takes recourse to three strategies that run through the entire system: a) Flow-Through b) Put-away, and c) Direct-to-Stores.

Flow-through helps centralize inbound shipments, sorts them by delivery destination and then sends them out – all on the same day. Used mainly for fast moving goods, this eliminates the need for fixed assets (like warehouses), reduces the dependence on high inventory levels, and improves the time it takes to get the product to market.

Flow-through centers use enhanced information technology to move cartons from inbound to outbound trailers. For up-market retail companies, this model helps reduce inventory levels and improves ability to refresh shelves more often. Especially for non-seasonal SKUs, retailers can cost-effectively replenish distribution centers with smaller order quantities on a more frequent basis throughout the year.

Put-away is the process of moving material from the dock and transporting it to a warehouse’s storage, replenishment, or pick area. Best practice companies use WMS to manage the cross-docking, which is the process of moving specific products to support an open order or replenishment request, with minimal handling and delay. An efficient practice here would be to put-away directly from receipt to its final location, as this uses the least space for staging and the product is handled less and ready for use sooner. Spencer’s has about 300-plus supply chain employees across the country.

In the third strategy, Direct-to-Stores, vendors supply directly to the stores. The entire strategy is one that is based on the forecasting model, and on certain parameters – one way that ensures no manual interventions and thus reduces inefficiencies.

A good retailer also knows that proper placement of goods is essential for increased sales. By analyzing past and current sales pattern, it uses planograms to assist in space planning.

Planogram is a visual diagram that details where every product in a retail store should be placed. These schematics not only present a flow chart for the particular merchandise departments within a store layout but also show on which aisle and on what shelf an item should be located. To give an example, in the case of vegetables, hard vegetables like potatoes should ideally be kept at the bottom and soft, leafy ones at the top.

Wiring The System

It would be impossible for any large retail chain in India to function without the extensive use of technology. The market has much to offer. Some common technologies in use are warehouse management system (WMS), ERP (enterprise resource planning), merchandise management system (MMS), automatic store replenishment model (ASRM), automatic warehouse replenishment model (AWRM), etc.

The right technology can not only help reduce cost, but also errors. Spencer’s warehouses use scanners and bar-coding at its Point of Sale (PoS) system. A mix of ERP solutions integrates all the functions from warehousing to distribution, front and back office store systems, and merchandising. Advanced Planning and Scheduling Systems (APS), used for supply chain planning. It helps support decisions thus resulting in significant improvements to supply chain order fulfillment, cycle time and cost efficiency.

Spencer’s Retail uses SAP as the legacy system at most of its stores. It uses mainly SAPZone for bill-value and time analysis. It also uses MySAP Business Warehousing BW 7.0 and BusinessObjects for analytics. Most of the supply chain IT infrastructure was heralded by Mukherjee.

It is technology that helps the retail company keep costs low. Its replenishment strategy of putting SKUs on flow-through has helped it to reduce DC area through cross-docking, since goods will not be required to be stocked in the DC for long. The chain works this way: Less stock in the DC means lesser workforce required for the job. A smaller workforce means reduction in operational expenditure cost. Mukherjee admits, “At times we (the supply-chain managers) do get carried away with some of the supply chain management (SCM) objectives, but the larger objectives of business also have to be kept in mind. SCM is part of the larger business. There could be situations when SCM objectives are compromised on, but then it addresses a bigger and larger organizational objective, which we need to keep in focus.”

However, Mukherjee is clear about one thing — maintain minimum inventory thus reducing storage space per DC. “Sometimes to lose on availability of goods might not be fatal. From the sales point of view, I would rather err on inventory than lose on sales. So that’s a fine balance one needs to manage,” he adds.

Predictably, our next question would be usage of RFID. Mukherjee draws some conclusions. “I tried a pilot with RFID. It was not much of a success.”

Spencer’s would have liked to use RFID in moving materials from the DC to stores, especially the ones with high shrink areas. “And see what is the shrink I would have been able to arrest,” he adds.

The company did try out RFID at its Andhra outlet. However, the amount of investment paled in comparison to the cost expected to save.  “As a user industry, there is little clarity on adopting RFID at the right places and time, apart from the theory. There needs to be a set of protocols for RFID to work well. That is yet to happen.”

For a technology to become fashionable, it must justify the costs. Unfortunately, vendors and service providers dealing in RFID need to throw more light as to how RFID can work well from an application perspective.

Moving Goods

Managing the logistics of the business is every retailer’s immediate problem. Large amount of stocks have to be moved on a regular basis from the DC or the warehouse to the store. Most of the time, the goods have to travel across states as one warehouse caters to several neighboring states.

Spencer’s continuing drive to keep costs low has in fact pushed up its warehousing space, with the result that it has 17 warehouses across the country, managed by the company. But it has reduced the long haul movement of goods to smaller distances with the help of the local service provider. Mukherjee says, “Our transportation is the milk run kind. Operating on fixed contracts, we gauge the cost versus kilometer the service provider can offer.”

The per-cubic utilization of space is estimated on the type of goods being moved. The volume dimensions of moving plastic balls or buckets vis-à-vis F&B (foods and vegetables) are different. So perishable goods are sourced locally or from farms and cooperatives that Spencer’s owns or has tied up with.

On The Double

Mukherjee has had his task cut out. During the last two years Spencer’s has been on a consolidation path that requires rationalizing retail presence and operational cost. The method is internally referred to as 2/3/20 which the company has decided to adhere to for the next two years. The ‘2’ in the formula refers to the target of doubling the trading area from one to two million, ‘3’ refers to trebling the sales revenue from the current `1,100 crore to `3,300 crore, and the last numeral is about growing the store profitability by 20 times.

Spencer’s plans to achieve this through some well thought out measures. It will essentially focus on large format stores in select geographies and enhance the ratio of trading area from 45 percent to 65 percent. Since private labels can be a high margin vertical, the retail company expects to rake in 25-30 percent individually from the current 10-15 percent. The program also seeks to adopt higher IT-enabled processes to help reduce shrink totaling to about 4.5 percent of revenue and build a consistent, enterprise-wide real time platform integrating all the major entities of the retail business. These measures, it expects, will improve customer experience with services built on an infrastructure underpinned by loyalty management platforms and demand intelligence. For supply chain and customers, Spencer’s Retail plans to forge closer ties between assortment planning and space planning, merchandizing and supply chain, while leveraging data warehousing and data mining that can help customers try out special features like personalized promos, and on-the-go product information. It will also utilize advanced consumer intelligence, mobile and self-service capabilities for the omni-channel shopper, an evolution of the multi-channel consumer, who wants to use all channels – store, web and mobile.

Mukherjee says, “We want to see how we can cater to a larger trading area without adding warehouse space. We also want to make the automated replenishment system more robust, so we can maintain leaner inventory at a higher rate. We need to improve on our forecasting model and promotion factor which could have an error that could be as high as 20 percent. So we tweak the model. The best of class models typically operate at 12-15 percent. That’s the kind of improvement we are looking at.”

Spencer’s is also focusing on its private labels for increasing the product assortment and enhancing the range. It plans to tweak the current range to shift 10-12 percent of its offerings to higher contributing items to raise the share of private labels in company revenues. Currently, private labels contribute 15 percent to revenue. It is looking at increasing this to 30 percent.

The company’s SCM policy plans to address the overall sales revenue without adding much warehouse space. It is also relying on the implementation of goods and services tax (GST) that would help them reduce DC space. He adds, “Today we operate with short hauls from warehouse to stores. But lesser DC will mean long hauls. So we might have a central DC in Chennai that would cater to even Bengaluru, so the lead times would be different as we’ll have to seek out bigger transport operators.”

So how does the company keep its 3,000 suppliers happy? Mukherjee says, “We have rated our vendors into ABC categories. For the A vendors, we would like to give them access to our in-house built portal, so they check for all transactional details. We are also looking at giving them facilities to conduct transactions. The facilities are narrowed as we move to Group B. With them, it could be only information dissemination.

For the future, Spencer’s plans to move to VMI (vendor managed inventory), thus automating DC operations. Mukherjee says, “Today one of the biggest problems in the DC is that vendors come in and bunching happens. The turnaround time of the vendor increases. I want to move into a system be able to give him timely maybe hourly appointments. I want to be able to give him time at that hour so that I can evacuate. And this should be automated.”

And so the method continues. Till it is made perfect.