SUPPLY CHAIN MANAGEMENT BENCHING STUDY

MINI PROJECT 1

GROUP 7

COMPARING SUPPLY CHAIN OF INDIAN RETAIL INDUSTRY

Pantaloons vs. Spencer

Period of Study: 2006-2010

ABSTRACT:
This Project is done by the team as a part of Supply Chain Management Course. The present study aim at studying and comparing different Supply Chain Metrics that is either being used or that can be used to improve the overall supply chain in the Indian Retail industry. Two retail giants Big Bazaar (Pantaloons) and Spencer & Company Ltd are used for this study.

SUPPLY CHAIN MANAGEMENT COURSE MINI PROJECT 1 PROJECT ON SUPPLY CHAIN MANAGEMENT BENCHMARKING TEAM MEMBERS: VIVEK PAREKH 2010281 DEBASHISH BAGG 2010298 SAKSHI AGARWAL 2010206 SANKHA DIP DATTA 2010207 SHANTANU PANDEY 2010212 SHASHANK SHEKHAR TRIPATHI 2010213 BENJAMIN WEBER 2010FE01

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INTRODUCTION TO SUPPLY CHAIN BENCHMARKING STUDY:

Most exhaustive of the supply chain metrics are laid down by Supply Chain Council as Supply Chain Operations Reference (SCOR) model. The SCOR model captures content that been used by practitioners for many years. The SCOR model provides a unique framework that links business process, metrics, best practices and technology features into a unified structure to support communication among supply chain partners and to improve the effectiveness of supply chain management and related supply chain improvement activities. In this study we have not though taken the complete exhaustive SCOR model, we could be considering a few metrics that is suited for Indian Retail industry like Cash to cash cycle, Supply chain inefficiency ratio, supply chain length and supply chain working capital ratio.

INDIAN RETAIL SECTOR

Indian retail market has been ranked 4th most attractive emerging market. India's retail sector accounts for 12% of GDP with about 25 million people being employed and second largest employer after agriculture in the country. Moreover, India's overall retail sector is expected to rise to around USD 600 billion by 2013. The Organized retail currently accounting for around 5 percent is pegged at around USD 20 billion. This is expected to grow and touch USD 107 billion by 2013. The Key challenges Indian organized retail facing are the cost and availability and delivery of quality retail real estate, trained manpower, and attrition in the industry. The rentals continue to be the highest expense of modern retailers and are almost 4 to 5 times that of their western counterparts continue to pose a challenge to their growth. Indian retailers have difficulty in finding trained personnel and incur significant costs for training them. Further, the Attrition is another significant problem the retails are facing.

PANTALOON RETAIL LTD.

Pantaloon Retail India Limited (PRIL), a retailer was incorporated in 12th October of the year 1987, headquartered in Mumbai, the company operates through primarily the Lifestyle' and Value' formats through multiple delivery mechanisms and lines of business, some of them being, fashion, food, general merchandise, home, leisure and entertainment, financial services, communications and wellness. The Company has stores in 51 cities across the country, constituting over 6 million square feet of retail space. It caters to the Lifestyle' segment through its 35 Pantaloons Stores and 5 Central Malls, as well as its other concepts. In Value' retailing it is present through 78 Big Bazaar hypermarkets, 113 Food Bazaars and other delivery formats.

SPENCER RETAIL LTD.

Spencers Retail Limited is a multi-format food-first retailer providing a wide range of quality products to discerning young customers - well-travelled citizens of the world, looking out for authentic flavors and experiences in a fun-filled shopping environment. Part of the Rs 15,500 crore RPG Group, Spencer run about 200 stores (including about 30 large format stores) across 35 cities in India. As one of the earliest entrants in the retail space in India, Spencer have been instrumental in introducing Indian consumers to the concept of organized retailing, becoming the countrys first grocery chain back in 1920,
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and offering the joys of hypermarket shopping in 2001. Spencer also has a wide selection of electronics and electrical equipment, home and office essentials, garments and fashion accessories, toys, and personal care.

ASSUMPTIONS
A few assumptions that are made are the present studies are as follows: 1. Days of operation are 365 days a year. 2. Inventory carry cost is 20% of total inventory cost.

INTERPRETATIONS FROM THE RESULTS

Table 1 shows the calculation of Supply chain Metrics that are basis of comparison of Pantaloons and Spencers Retail format. Data for the first part of the table is primarily from Capital line database though annual reports of individual companies were studied for further detailed data. The Interpretation on the data here is broadly classified to heads i.e. Cash to cash cycle, length of supply chain, Supply chain inefficiency ratio and Supply chain Fig 1: Cash to cash cycle working capital productivity. 1. Cash to cash cycle. As can be seen from figure 1, 100 Spencer Retail has a better cash to cash 50 cycle when compared to other Indian Retail industries. On an overall we can 0 see the effect economic slowdown on 2006 2007 2008 2009 2010 retail industry of India that rose the cash -50 to cash cycle to 66 days. Pantaloons -100 expansionary visions might help in explaining the high cash to cash cycle that Pantaloons Spencer Retail Industry Pantaloon is presently dealing with. There is clear signal that even though Spencer is a much smaller player in the industry its able to led the bargain and win more cash from its vendors leading to a consistent negative cash to cash cycle time. Against an industry average growing by almost 6folds over the period of FY 2006-10, Big Bazaar-Pantaloon Retails Cash-to-Cash cycle has increased by just over three times, whereas that of Spencers Retail has increased seven fold, though he latter has maintained a negative cash-to-cash cycle throughout. This implies that, Big Bazaar has been pursuing credit sales policy unlike Spencers Retail, which might otherwise have been the primary factor behind the formers significantly higher growth in business. Alter: For most of the aforementioned metrics, there has been a deviation from the trend during the period FY 2008-09, due to the global economic downturn, and consequent slump in consumption level. 2. Length of Supply chain in number of days
150

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Figure 2 shows that the expansion of Indian retail format seems to have been affecting the length of its supply chain dearly. Length of retail industry has almost doubled in the last five years making the transportation and other related supply chain cost shoot up. This growth can also be attributed to growth in rentals and transportation charges.

Fig 2: Length of Supply chain

200 150 100 50 0

In this parameter it can be seen that the 2006 2007 2008 2009 2010 companies under study have performed better Pantaloons Spencer Retail Industry than the industry performance as a whole. The Length of Supply Chain (in days) for Big Bazaar has just doubled over the period of five years, whereas that for Spencers Retail has more than doubled, against the Retail Industry Average which has grown at an annual rate of 35% (approx). This implies that the responsiveness of the supply chain has reduced at a higher rate, for Spencers Retail than that of Big Bazaar.
Fig 3: Supply Chain In effeciency Ratio
0.55 0.50 0.45 0.40 0.35 0.30 0.25 0.20 2006

2007 Pantaloons

2008 Spencer

2009

2010

Retail Industry

3. Supply chain inefficiency ratio Figure 3 shows that the year 20082009 proved turning point to all the supply chain efficiency. Retail industry has been maintaining an efficiency of 65% over the years where as its members efficiency have been varying Pantaloon have returned back to its efficiency where as Spencers efficiency was badly affected by the slowdown. The ending part of the curve shows that Spencers are trying to return back to its former efficiency.

4. Supply chain working capital productivity. Figure 4 shows the working capital productivity varying over the time. It can be seen that the slowdown again in this parameter has too brought all the companies in the same platform to play i.e. the productivity has been approx 6 in 2008. Pantaloon in one hand seems to Fig 4: Working capital Productivity have been busy with making out with 500 the productivity where as Spencers 400 have been capitalizing on the same. Value of supply chain working 300 capital productivity is due to firms 200 working on negative working capital 100 of basically on the money borrowed, 0 i.e. in this case from their vendors.
2006 2007 Pantaloons 2008 Spencer 2009 2010 Retail Industry

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CONCLUSIONS
The supply chain mechanism of a retail business can be appropriately used to increase profitability by focusing on improving supply chain responsiveness and a long cash-to-cash cycle which boosts the growth in business prospects, which has been successfully followed by Big Bazaar-Pantaloons Retail. On the other end of the spectrum , as evident from the given supply chain metrics, maintaining a negative cash-to-cash cycle (minimizing credit sales) and focusing more on supply chain efficiency, can also be pursued as a conservative buy stable business policy. Striking a perfect balance between the two approaches, as described above, decides the prospects of the business, which has been found to be in favor of Big Bazaar- Pantaloons Retail.

LIMITATIONS OF THE STUDY

Due to lack of extensive data the seasonality and other effects on the metrics under observation were not studied. The results were basically based out of aggregate data that has been circulated. Due to most of the Indian retail sector being under control of local and unorganized player solid conclusions on the efficiencies and measures to improve the same cannot be formulated.

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Table 1: Supply Chain Metrics comparison of Indian Retail giants Pantaloons Retail Ltd. 2009 2008 2007 6,317 6,661 5,296 3,279 4,783 4,127 1,704 1,661 1,542 4.13 4.14 4.57 794 1155 903 1508 1588 1140 4.6 12.3 10.2 5.3 4.8 6.9 1,240 1,748 1,393 124 177 113 410 205 253 365 365 365 8.98 63.12 17.31 7.14 167.83 111.85 167.83 1704 0.2 1863 0.2949 13.10 63.12 18.25 9.71 121.18 67.77 121.18 1661 0.2 1892 0.2840 11.31 63.12 14.51 7.80 100.80 45.48 100.80 Spencer Retail Ltd. 2009 2008 2007 1,133 854 540 892 771 444 532 307 156 6.88 7.14 10.96 130 108 41 162 118 49 0 0 0 0 0 0 148 175 61 25 28 12 152 0 101 365 365 365 2.11 0.00 2.34 11.85 55.97 67.81 55.97 1.22 82.57 1.48 7.93 40.07 -34.57 40.07 156 0.2 163.96 0.3037 -48 -11.19 Retailing Industry 2010 2009 2008 10920 11115 8,932 6,351 7,735 6,740 3,260 3,253 2,654 2.56 3.94 4.41 2481 1963 1528 2697 2824 2028 0 0 0 0 0 0 2,295 3,099 2,550 584 538 291 1,885 1,794 1,255 365 365 365 17.40 108.35 29.92 19.52 154.99 66.16 154.99 3260 0.2 3799.35 0.3479 1,396 7.82 21.19 84.66 30.45 17.66 133.27 66.27 133.27 3253 0.2 3645.29 0.3280 707 15.73 18.47 67.99 24.47 11.88 109.80 53.69 109.80 2654 0.2 2959.86 0.3314 564 15.85

1 2 2a 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

Financial Year Sales Cost of Goods sold Operational Expenses Inventory Turnover Ratio Actual average Inventory Estimated average Inventory Raw Material Inventory Work in Process Goods Finished Goods Accounts Receivable Accounts Payable Days of Operation Cost of Goods sold/day Days of Accounts Payable Sales/day Days of Accounts Receivable Days of Inventory Cash-to-Cash Cycle in days Total length of Supply Chain in days DC Inventory Carry Cost Supply Chain Management Cost Supply Chain Inefficiency Ratio

2010 4,326 3,144 1,329 2.85 1103 1497 4.5 3.3 1,736 185 544 365 8.61 63.12 11.85 15.63 173.75 126.26 173.75 1329 0.2 1550 0.3583

2006 3,393 2,611 1,023 4.87 536 685 8.9 11.5 849 65 224 365

2010 952 727 467 N/A N/A 138 0 0 127 19 164 365

2006 291 259 69 7.88 33 22 0 0 37 7 65 365 0.71 91.26 0.80 8.30 30.90 -52.05 30.90 69 0.2 76.01 0.2615 -25 -11.52

2011 8,414 5,735 2,540 5.59 1026 2487 0 0 2,679 651 1,933 365 15.71 123.01 23.05 28.25 158.27 63.51 158.27 2540 0.2 2744.77 0.3262 -256 -32.92

2007 5,839 4,308 1,811 5.03 856 753 0 0 1,505 148 725 365 11.80 61.43 16.00 9.22 63.77 11.57 63.77 1811 0.2 1981.95 0.3394 279 20.94

Cash to cash cycle 7.15 1.99 2.44 63.12 82.44 62.07 9.30 2.61 3.10 7.01 7.17 8.01 95.79 69.06 66.20 39.68 -6.21 12.15 Length of Supply chain 95.79 69.06 66.20

Supply Chain Inefficiency Ratio 1542 1023 467 532 307 0.2 0.2 0.2 0.2 0.2 1723 1130 494 558 329.03 0.3253 0.3330 0.5193 0.4921 0.3855

Supply Chain Working Capital 745 508 1,127 Supply Chain Working Capital productivity 5.81 12.44 5.91 Monetary values mentioned in above table are in Crs of INR.

Supply Chain Working Capital productivity 763 378 -8 3 136 6.94 8.99 -119.80 399.26 6.29

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REFERENCES:
1. Annual reports of Spencer Retail. 2. Annual Reports of Pantaloon Retail Ltd. 3. Capitaline plus database. (Referred on 8th November, 2011).

APPENDIX:
Main source of data was Capitaline web site and annual report. Attached below are the balance sheets and profit and loss statements of Spencers retail and Pantaloon Retail ltd for the five years of study. The report also includes aggregate data of the retail industry that is extracted from Capital line website.

SPENCER RETAIL BALANCE SHEET

Year SOURCES OF FUNDS : Share Capital Reserves Total Equity Application Money Total Shareholders Funds Secured Loans Unsecured Loans Total Debt Total Liabilities APPLICATION OF FUNDS : Gross Block Less : Accumulated Depreciation Less: Impairment of Assets Net Block Lease Adjustment Capital Work in Progress Investments Inventories Sundry Debtors Cash and Bank Loans and Advances Total Current Assets Less : Current Liabilities and Provisions Current Liabilities Provisions Total Current Liabilities Net Current Assets 172.19 10.77 182.96 61.32 171.33 5.58 176.91 116.91 192.63 5.07 197.7 210.75 106.07 2.57 108.64 46.13 66.84 1.63 68.47 12.14 402.02 101.32 0 300.7 0 35.48 88.25 129.49 18.7 13.54 82.55 244.28 442.83 68.82 0 374.01 0 65.17 80.3 151.95 24.88 27.8 89.19 293.82 359.41 43.97 0 315.44 0 86.91 1.01 177.59 27.71 28.29 174.86 408.45 125.18 22.68 0 102.5 0 21.36 1.01 61.65 11.73 22 59.39 154.77 61.1 13.38 0 47.72 0 10.35 0.01 36.89 6.61 7.05 30.06 80.61 26.01 -468.58 767.45 324.88 57.18 350 407.18 732.06 26.01 -210.09 618.65 434.57 76.28 300 376.28 810.85 26.01 -32.42 248 241.59 84.54 350 434.54 676.13 26.01 57.69 0 83.7 87.3 0 87.3 171 20.61 16.23 6.25 43.09 17.28 9.85 27.13 70.22 Mar 10 Mar 09 Mar 08 Mar 07 Mar 06

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Miscellaneous Expenses not written off Deferred Tax Assets Deferred Tax Liability Net Deferred Tax Total Assets Contingent Liabilities

0 246.31 0 246.31 732.06 3.74

0 175.45 0.99 174.46 810.85 14.9

0 71.95 9.93 62.02 676.13 0.82

0 0 0 0 171 0.39

0 0 0 0 70.22 0.84

SPENCER RETAIL PROFIT AND LOSS STATEMENT

Year INCOME : Sales Turnover Excise Duty Net Sales Other Income Stock Adjustments Total Income EXPENDITURE : Raw Materials Power & Fuel Cost Employee Cost Other Manufacturing Expenses Selling and Administration Expenses Miscellaneous Expenses Total Expenditure Operating Profit Interest Gross Profit Depreciation Profit Before Tax Fringe Benefit tax Deferred Tax Reported Net Profit Extraordinary Items Adjusted Net Profit P & L Balance brought forward Statutory Appropriations Appropriations P & L Balance carried down Book Value-Unit Cur 726.75 25.45 105.25 28.13 204.63 103.33 1,193.54 -253.7 28.08 -281.78 48.57 -330.35 0 -71.86 -258.49 -61.38 -197.11 -325.93 0 0 -584.42 -170.15 891.84 39.84 140.35 32.95 266.78 51.7 1,423.46 -222.86 24.91 -247.77 40.79 -288.56 1.55 -112.44 -177.67 70.65 -248.32 -148.26 0 0 -325.93 -70.77 771.07 28.14 82.9 19.93 172.44 4.02 1,078.50 -104.71 17.48 -122.19 27.74 -149.93 1.39 -62.02 -89.3 -0.47 -88.83 -59.01 0 0 -148.26 -2.46 444.41 11.84 43.56 11.64 83.6 5.21 600.26 -35.53 6.67 -42.2 9.4 -51.6 0.74 0 -52.34 0.45 -52.79 -6.67 0 0 -59.01 32.18 258.54 5.06 20.9 5.24 34.97 3.28 327.99 -8.09 3.42 -11.51 3.65 -15.16 0.38 0 -15.54 0.07 -15.61 -17.5 0 -26.37 -6.67 17.87 951.84 0 951.84 14.41 -26.41 939.84 1,133.05 0 1,133.05 79.44 -11.89 1,200.60 853.61 0 853.61 6.73 113.45 973.79 539.83 0 539.83 0.86 24.04 564.73 290.64 0 290.64 0.29 28.97 319.9 Mar 10 Mar 09 Mar 08 Mar 07 Mar 06

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PANTALOON RETAIL BALANCE SHEET

Year SOURCES OF FUNDS : Share Capital Reserves Total Equity Share Warrants Equity Application Money Total Shareholders Funds Secured Loans Unsecured Loans Total Debt Total Liabilities APPLICATION OF FUNDS : Gross Block Less : Accumulated Depreciation Net Block Capital Work in Progress Investments Current Assets, Loans & Advances Inventories Sundry Debtors Cash and Bank Loans and Advances Total Current Assets Less : Current Liabilities and Provisions Current Liabilities Provisions Total Current Liabilities Net Current Assets Deferred Tax Assets Deferred Tax Liability Net Deferred Tax Total Assets Contingent Liabilities 1,166.48 29.92 1,196.40 1,315.73 19.03 106.08 -87.05 5,051.25 906.59 863.42 24.22 887.64 1,030.16 29.87 102.3 -72.43 4,142.47 3,547.05 916.39 20.46 936.85 2,345.89 2.77 118.87 -116.1 5,097.81 111.5 620.08 17.58 637.66 1,990.92 27.19 95.03 -67.84 4,038.41 158.42 343.89 15.71 359.6 1,389.85 2 57.84 -55.84 2,391.75 101.32 1,762.20 185.24 85.77 478.92 2,512.13 1,270.67 123.57 100.54 423.02 1,917.80 1,787.84 177.25 109.34 1,208.31 3,282.74 1,429.84 113.16 121.1 964.48 2,628.58 885.96 65.17 162.97 635.35 1,749.45 1,877.67 410.64 1,467.03 100.13 2,255.41 1,417.04 294.89 1,122.15 59.68 2,002.91 1,876.45 307.69 1,568.76 345.23 954.03 1,368.76 170.59 1,198.17 330.64 586.52 767.07 92.47 674.6 131.13 252.01 106.9 2,671.23 100 0 2,878.13 1,675.89 497.23 2,173.12 5,051.25 41.23 2,527.48 122.88 64.66 2,756.25 1,236.03 150.19 1,386.22 4,142.47 38.06 2,211.48 22.88 0 2,272.42 2,525.53 299.86 2,825.39 5,097.81 31.86 1,751.51 63.26 0 1,846.63 1,991.77 200.01 2,191.78 4,038.41 29.35 1,062.82 0 0 1,092.17 951.93 347.65 1,299.58 2,391.75 Jun 11 Jun 10 Jun 09 Jun 08 Jun 07

PANTALOON RETAIL PROFIT AND LOSS STATEMENT

Year INCOME : Sales Turnover Net Sales Other Income 4,325.57 4,325.41 21.4 6,316.66 6,316.66 97.43 6,661.42 6,661.42 12.28 5,295.88 5,295.88 30.93 3,392.79 3,392.79 96.53 Jun 11 Jun 10 Jun 09 Jun 08 Jun 07

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Stock Adjustments Total Income EXPENDITURE : Raw Materials Power & Fuel Cost Employee Cost Other Manufacturing Expenses Selling and Administration Expenses Miscellaneous Expenses Total Expenditure Operating Profit Interest Gross Profit Depreciation Profit Before Tax Tax Fringe Benefit tax Deferred Tax Reported Net Profit Extraordinary Items Adjusted Net Profit Adjust. below Net Profit P & L Balance brought forward Appropriations P & L Balance carried down Dividend Preference Dividend Equity Dividend % Earnings Per Share-Unit Cur Book Value-Unit Cur

494.15 4,840.96

-783.88 5,630.21

353.11 7,026.81

614.41 5,941.22

365.95 3,855.27

3,143.77 71.44 209.44 89.35 766.76 105.07 4,385.83 455.13 193.47 261.66 146.37 115.29 24 0 14.62 76.67 -3.69 80.36 0.16 495.98 66.44 506.37 20.27 0.01 45 3.38 125.04

3,278.65 83.2 270.67 136.61 1,041.88 142.64 4,953.65 676.56 301.04 375.52 161.88 213.64 32.83 0 1.25 179.56 44.42 135.14 0 380.54 64.12 495.98 17.13 0 40 8.57 124.6

4,783.06 98.97 269.94 182.44 867.12 144.56 6,346.09 680.72 324.44 356.28 140.05 216.23 25.5 1.89 48.26 140.58 -2.38 142.96 0 267.56 27.6 380.54 11.57 0 30 7.28 118.21

4,126.60 78.2 269.41 155.23 716.88 103.45 5,449.77 491.45 212.44 279.01 83.39 195.62 29.13 3.24 37.28 125.97 -0.93 126.9 -49.09 215.76 25.08 267.56 10.67 0 30 7.79 111.95

2,611.00 61.51 206.09 113.19 488.07 63.28 3,543.14 312.13 94.26 217.87 36.86 181.01 30.77 2.32 27.93 119.99 60.12 59.87 0 116.59 20.82 215.76 7.54 0 25 8.09 74.42

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