#Lessonsfromthebest : SC Network Optimization

 Author’s Note: Over the last few weeks, I have been using this space to write about the lessons I learn from organizations with respect to their supply chain management, but not limited to it. I have also been attempting to convey my learnings as a narrative, and a story of sorts. So, if you want to learn something informative whilst having some entertainment, go ahead and read away! If you want to read my previous blog posts, click here! 😊

Shanmugeshwari, MBA '21

Amrita School of Business, Coimbatore

When the world just came out of recession in 2010, luxury took a hit. But Michael Kors was an outlier.

Kors modeled itself as an affordable luxury: giving recession-struck, cost-conscious American & European consumers a high style option. This was done by greatly overhauling its Retail distribution strategy & taking advantage of Low-cost manufacturing in China. It opened stores in newer countries, cities, malls & Duty-free zones.

This showed in revenue as $ 38Mn (2011) to $109 (2012) to $221 (2013). Soon becoming the best performing & most searched Luxury brand in the world.

However, three problems soon caught up:

• Overdistribution reduced its aspirational value
• Much of the growth was through markdown in the pricing structure that led to a weak P&L
• And finally, Michael Kors became one of the most counterfeited handbags in the world

Between 2013-14, the Inventory-to-Cash Ratio was around 0.5. This ratio being greater than 0.8 indicates a much higher inventory than what current assets can support. By 2016 this ratio sky-rocketed to 1.65, inventory increased by 37%, but cash reduced by 56%

How did they overcome this?

Kors stayed relevant by realigning its forecast and its distribution plans and giving us a good example of the inter-dependencies among Supply chain, Strategy & Finance.

They performed a supply chain network optimization study when they realized their long-term forecasts caused problems in the distribution centers as they couldn’t handle such large projected growth. By the time, they were moving from a high growth business to a mature business model. They started focusing more on how to utilize their retail assets for omnichannel distribution in order to derive maximum advantage for the lead times.

They reduced the number of touchpoints between the manufacturers and the customers. More goods were directly shipped to customers from the ports. Some orders went directly to the de-consolidators bypassing the distribution centers. Thus, by redesigning the supply chain, soon they developed a competitive advantage which over time became their core capability.

 

Reference for the financials from here.

JIT challenged by COVID-19?

    

     JIT- Just in Time, invented in the 1970's by the car maker Toyota is a supply chain model where all the materials from the suppliers arrives the plant just before the starting of production. This is a model which helps you to maintain zero inventory, thereby reducing the costs. Many companies, started adapting this model, thereby relying on a single supplier in a single place for the materials.

     When COVID-19 started spreading in china, the electronics supply chain got affected because, china is the hub for electronic suppliers to the world. And, when China recovered, the other parts of the world got affected, and had to close down production plants. Now, firms realises the loophole of JIT and we could see the firms selecting new regional suppliers or adding some inventory to the company, just in case if they need it to be prepared to any situation.

Dell's Reinvented Supply chain strategy

Welcome back Readers I’m Sivakami - A final year MBA student from Amrita School Of Business majoring in Marketing and operations. I have found my space to explore on the various verticals in the area of  Logistics and supply chain and of course not limited to theories and  empirical studies 😅. So come lets discover on our never ending territory 😇 

As a Supply chain management student it is always fascinating to know how companies design their supply chain strategy to achieve a competitive edge over other rivalries. One such is Dell. Dell has transformed significantly since they pioneered the direct-to-customer model for PCs. So what made Dell achieve competitive advantage is their customer-centricity and lean approach to the supply chain despite threats from rivalries like Apple.

    The most remarkable feature of Dell’s supply chain management is its direct sales model. In fact, it accepts orders directly from the customers, without involving any retailers. Their model helped in accessing the customer needs directly. Based on this data, the brand implemented additional products and services according to customers’ preferences. This made it stand out among other computer hardware manufacturers early on.

    Second factor which led to the brand's success is the reinvention of the supply chain. The company implemented strategies like Global structure instead of regional structure, with three business units, Standardized offers including the most frequently purchased configurations, Segmented model instead of a one-size-fits-all model, Infrastructure that corresponds to the changing needs of the business. Standard yet flexible processes that leverage global partnerships, Customer priorities aligned according to speed, choice and cost. Ready-made, in-stock systems for quick delivery, Optimization of global IT infrastructure. All of these renovations that they made in their supply chain model helped them in segmenting their customers as well. 

Following are the key segments:

• Customers with specific needs – configurable products
• Customers that choose the company as a trusted advisor – preconfigured products
• Customers that value speed – finished goods purchased either directly or through the website

    Accordingly, the brand implemented different supply chains targeting these groups of customers. However, all of the chains were using the same tools, processes and suppliers.

    Dell made sure that each of their suppliers have a manufacturing plant near Dell’s plant. The suppliers should also cooperate with logistics companies that can both deliver the components and ship the customer orders. Finally, the company manages its inventory based on the VMI model, meaning the supplied components are kept on the truck only and taken as needed while the vendor manages the inventory. Dell and its suppliers communicate with each other via an internal website called Value Chain. At this website, the companies can access information about the inventory status within the supply chain as well as get demand and production data.

    To summarize, Dell has been a successful player in the computer hardware market since the very beginning because of its innovative supply chain strategies. Despite the hard times in the early 2000s, its customer-centric model helped Dell remain afloat. Dell reinvented its supply chain according to the changing needs of its target audience. That just goes to show that renewing and improving your supply chain strategy continuously can go a long way. 

Happy Reading from Sivakami :)

The Future Group - Reliance Retail Deal

 

Welcome Readers !

I am Sheerapthi Ramiya, 2nd Year MBA from Amrita School of Business, coming back with this week's read ! Hope my readers are doing well and I hope you enjoy :) 

This is hot news! The Future group has reached out to Reliance Retail to buy their business for an overall transaction value of Rs. 27,513 Crores! Future group owns well known brands such as Big Bazaar, Brand Factory, Buffalo, DJ&C, FBB, etc. The transaction takes place as a three-step deal:

-        All Listed Future Group companies to be merged into Future Enterprises Ltd.

-        Future Enterprises to transfer assets of retail and wholesale undertaking and logistics and warehousing business to Reliance Retail entities

-        Reliance Retail will also invest Rs. 2,800 crores for an up to 13% stake in Future Enterprises.

 

But why did Future Group sell out ?

The Kishore-Biyani founded Future group has been seeking funding support for several months as around Rs 15,000 crore is in debt to the company as well as substantial decrease in sales and cash flow on the account of pandemic and lockdown. The loss for Future Group was its excessive leverage. It did win a very small investment from Amazon Retail several months ago, however India's FDI (Foreign Direct Investment) rules restrict foreign ownership of multi-brand retail. This deal with Reliance Retail will avert any further financial crisis at the Future Group, which last averted a debt default at the minute. The Future Group deal is a big relief to banks like Bank of India, SBI, Axis Bank, Canara Bank and RBL Bank.

What in it for Reliance Retail ?

Reliance Retail runs several retail formats in the grocery, electronics and apparel space but it does not have a large reach as that of Future Group, especially in the grocery Business. With household retail brands like Big Bazaar, Fashion at Big Bazaar, Easy Day and Brand Factory going to Reliance, an in-house multi brand retail product will be obtained giving Reliance Industries an immediate edge in the retail market. The deal will lead to an stronger organised retail market giving Mukesh Ambani led Reliance Industries’ retail venture pole position in the close to over $700 billion retail sector in India. The deal will also add over 1,700 retail stores to Reliance's footprint of 10,900 stores across groceries, electronics and other formats. The deal gives a positive cash flow and will also make Reliance Retail become the largest grocery player in the country. 

 

 

What does this mean for Reliance Retail?

This deal includes - store front, warehousing and logistics. Future Groups loss is Reliance gain as it gets a readymade reach and supply chin built over the years and ready for further execution by Reliance. The execution in retail will be rolled out in months to come and also promise growth from an established platform. Access to Tier 2 and Tier 3 towns where the Future group has inherent presence in shall develop and build the overall franchise footprint in grocery, retail and lifestyle and other businesses. Over a period of time, warehousing and supply chain dynamics should aid in cost synergies and overall digitization of the Jiomart Platform. The opportunities to make a 360-degree presence through digital mediums, brick and mortar stores, supply chain backward operations should ensure Reliance Retail are able to take over the competition from global players. That's not all. The important part with the deal coming in is that they are not only acquiring the front-end stores but also the backend for retail, which is highly important because we will have the ability to earn a margin out of it unless we have a proper backend if we want to start a grocery business. Reliance doesn't have to only use warehouses, but can also use the available brick and mortar as small warehouses to strengthen their supply chain and logistics network. 

 

The Windup 

India's retail market is highly fragmented and dominated by corner stores or Kirana stores. However there is large headroom for the top 5 retailers to increase their market share from the current less than 5% to 10% - 12% in the next decade (BCG Report). Isha Ambani, Director, Reliance Retail Ventures says that the transaction will help in the evolution of modern retail in India. The will actively collaborate with small merchants and kiranas as well as large consumer brands to help grown momentum in the retail industry. This will help accelerate providing support to millions of small merchants in increasing their competitiveness and enhance their income during challenging times says the press release. 

We can see how Reliance is trying to grab every single opportunity, to strengthen its position in the retail sector with the purchase of Sri Kannan Departmental Stores a few months back which is a local departmental store in across Tamil Nadu, the Purchase of the leading retailers - Future Group Retail and collaborating with technological companies to gain a dominant position in the Indian Retail Landscape. With Reliance's introduction of Jiomart and the availability of a large network of warehouses and brick and mortar stores and also the backend suppliers, logistics and supply chain will be seamless and digitized while reducing the delivery time in the modern age of India. 

What are your thoughts about this ? Give your comments below :)

If you haven't check out my last week's read, which is about Chennai being self sufficient and self reliant during lockdown, click the link below !

https://logisticsmatters.blogspot.com/2020/08/will-chennai-become-self-sufficient-by.html

- Sheerapthi Ramiya

ASB, Coimbatore