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KPIs of supply chain of retail sector - August 6th, 2008 Abstract

This paper attempts to track key performance indicators (KPIs) in order to figure out the performance of the Supply Chain in the retail sector. It also focuses on inventory replenishment strategies and capacity utilization in the retail sector. In recent years, this sector has spent considerable amount of time and money trying to improve its operations in such a way so as to respond efficiently to customers’ needs. This has led to several developments like the introduction of automated store ordering, usage of RFID and etc.

The KPIs helps in directly analyzing the performance of every specific activity and operation and hence also helps in zeroing down to the exact root of the problem, if any, and thus helps the managers to rectify them. The Improvement Opportunities are further explained in detail for achieving a better performance.

The

Key

Performance

Indicators

(KPIs)

The

KPIs

are

segregated

into

different

categories

accordingly

as

follows:

Supply Chain and Logistics: The network of retailers, distributors, transporters, storage facilities and suppliers that participate in the sale, delivery and production of a particular product.

• % of time spent picking back orders: Number of hours spent on picking back orders as a percentage of working hours.

• Sales order by FTE : This indicator measures the number of customer orders that are processed by full time employees per day. This helps evaluate the workforce cost per order. • Scrap (or leftover) value %: Scrap (or leftover) value as a percentage of production value. • Inventory Accuracy: Most Advanced Planning Systems calculate net inventory requirements. If the book inventory used as the basis for these calculations has a high error, the net inventory requirements generated will not reflect the true inventory needs. The inventory error should be factored into the safety stock calculation to protect

service levels from variance in inventory due to inventory count accuracy. Assertive continuous improvement programs should be in place to support a decrease in inventory count errors.

Inventory Accuracy = (|book inventory - counted inventory|)/book inventory • Inventory Carrying Costs: Inventory Carrying Cost = Inventory Carrying Rate x Average Inventory Value

• Inventory Carrying Rate: This can best be explained by the example below 1. Add up annual Inventory Costs: Example: Storage =Rs800k, Handling= Rs400k, Obsolescence =Rs600k, Damage= Rs800k, Administrative= Rs600k, Loss (pilferage etc)= Rs200k. Hence Total=Rs3,400k

2. Divide the Inventory Costs by the Average Inventory Value: Example: Rs3,400k / Rs34,000k = 10%

3. Add: Opportunity Cost of Capital (the return you could reasonably expect if you used the money elsewhere) = 9%, Insurance =4%, Taxes= 6%. Hence, total= 19% 4. Add the percentages: 10% + 19% = 29%. The Inventory Carrying Rate = 29% • Missed Deliveries per Million (MPM): Measures supplier on time delivery by part reference ordered using the same logic as the quality measure PPM.

Several missed categories are defined such as ; Missing part reference, undershipped, overshipped, delivery window missed etc.

MPM = (Total number of missed deliveries / Total number of part references ordered) x 1,000,000 • Delivery Schedule Adherence (DSA): Delivery Schedule adherence (DSA) is a business metric used to calculate the timeliness of deliveries from suppliers. Delivery schedule adherence is calculated by dividing the number of on time deliveries in a period by the total number of deliveries made. The result is then multiplied by 100 and expressed as a percentage.

• Customer order promised cycle time: The anticipated or agreed upon cycle time of a Purchase Order. It is gap between the Purchase Order Creation Date and the Requested Delivery Date. This tells you the cycle time that you should expect (NOT the actual). • Inventory replenishment cycle time: Measure of the Manufacturing Cycle Time plus the time included to deploy the product to the appropriate distribution center. • Material value add : Sell price minus material cost divided by material cost. • Supply chain cycle time: The total time it would take to satisfy a customer order if all inventory levels were 0.

• Fill Rate: The number of items ordered compared with items shipped. delivery. picking. or those goods and materials themselves. shipped without damage. case or value basis. held available in stock by a business. Inventory are held in order to manage and hide from the customer the fact that supply delay is longer than delivery delay. Fill rate can be calculated on a line item. SKU. case or value basis. and also to ease the effect of imperfections in the manufacturing process that lower production efficiencies if production capacity stands idle for lack of materials. • % of backorders: The number (or percentage) of unfulfilled orders. • Independent demand ratio: For manufacturers that also supply replacement parts and consumables this metric helps to define the % mix of demand for an item from . • Customer order cycle time: The average time it takes to fill a customer order. SKU. Error rates are captured at each stage (order entry. On time ship rate can be calculated on a line item. • Perfect Order Measure / Fulfillment: The error-free rate of each stage of an order. invoiced correctly) and multiplied together. • On time ship rate: What percent of orders where shipped on or before the requested ship date. Inventory: Inventory is a list for goods and materials.

This is a measure on your Planning efficiencies. sales samples. congested goods inwards and of course higher that projected inventory levels. • Early PO Receipts to PO due date: Early receipts to PO date . Measure: PO due date vs Receive to Dock (stores) date. The ratio is calculated by dividing the unit usage for customer orders by the total unit usage of the item from all sources (work orders. Early receipts to MRP produce higher levels of inventory that are not required yet.independent (outside sources) vs dependent (inside sources). Measure: MRP due date vs Receive to Dock (stores) date. Early receipts to PO produce unexpected deliveries turning up. this is at the other end of the scale than JIT.This is a measure on your suppliers and their diligence to supply per the contract date. Some planners or warehouse personnel may request that the material be brought in long before the plant/operators need the parts. lead time variance. destructive testing. etc. inventory adjustments. buffer stock etc. Reasons for doing so may be quality. In a way. This can also be described as Units sold . • Sell through %: A percentage of units sold during a period and is equal to Units sold divided by (units sold + on hand inventory).) • Early receipts to MRP date (required date): Early receipts to MRP date .

• Inactive Stock: Products with Stock (in units or Rs). with the oldest goods sold first and the newest goods sold last. • Average age of inventory: The (average) age of each product in stock. but remains until Aug. product received in Jan. every one is similar to every other one) Generally preferred inventory valuation method. For example. Assumes inventory is sold in the order that it is stocked. • Unit Cost per batch: Unit Cost per batch = (Cost/Quantity) for each batch Primarily used in FIFO (First In First Out) Method Assumes an inventory of non-unique goods (that is. Uses the unit cost per batch of acquired/produced goods. • Inventory Value: Inventory Value = (Average Unit Cost) x (Units of current Inventory) • Stock cover: Stock cover is the length of time that inventory will last if current usage continues. . and without movement -sales in a given period of time (depending on movement of the market).divided by Beginning Inventory Quantity. and counts the inventory backwards from the newest batch. Useful to define continuity of a specific product-size (SKU). or promotion campaigns. Most useful in companies with a big number of SKUs.

• Order fulfillment cycle time: Order Fulfillment Cycle Time is a continuous measurement defined as the amount of time from customer authorization of a sales order to the customer receipt of product. • Total supply chain management cost: Total Supply Chain Management Cost is a . • Inventory lead time: Lead time is the length of time it takes to obtain inventory from suppliers. • Inventory Turnover: The number of times that a company’s inventory cycles or turns over per measurement period (month. SCOR enables users to address. improve. year). • Inventory months of supply: Inventory On Hand / Avg Monthly Usage SCOR: The Supply-Chain Operations Reference-model (SCOR) is a process reference model that has been developed and endorsed by the Supply-Chain Council as the crossindustry standard diagnostic tool for supply-chain management. quarter.• Stockouts in period: Stockouts indicate where a demand cannot be met due to the absence of the required inventory. and communicate supply-chain management practices within and between all interested parties.

. and Deliver supply chain processes. Source. • Upside supply chain flexibility: Upside Supply Chain Flexibility is a discrete measurement defined as the amount of time it takes a supply chain to respond to an unplanned 20% increase in demand without service or cost penalty. • Time needed to obtain additional capital: Amount of time required to achieve a certain substantial improvement concerning capital.discrete measurement defined as the fixed and operational costs associated with the Plan. taxes etc. such as: package. • Time needed to recruit/hire/train additional labor: Amount of time required to achieve a certain substantial improvement concerning the number of employees. • Direct Labor Cost: Sum of costs associated with payment of the employee insurances. etc. Make. • Time needed to obtain additional equipment: Amount of time required to achieve a certain substantial improvement concerning equipment acquisition. stock. • Finished product cycle time: Average time associated with finalizing activities. • Direct Product Cost: Sum of costs associated with manufacturing a specific product. • Direct Material Cost: Sum of costs associated with acquisition of support material.

• Cost of managing processes: Periodic costs of managing processes. shipped without damage. in days.• Test cycle time: Average time associated with testing and trying out activities. and depreciation). the amount of time needed to collect receivables and the length of time the company is afforded to pay its bills without incurring penalties. This metric looks at the amount of time needed to sell inventory. labor. Cash Conversion Cycle (CCC): A metric that expresses the length of time. • Perfect Order Measure / Fulfillment: The error-free rate of each stage of an order. delivery. Error rates are captured at each stage (order entry. • Cost of goods sold (COGS): Cost of Goods Sold includes all ex penses directly associated with the production of goods or services the company sells (such as material. overhead. The cash conversion cycle attempts to measure the amount of time each net input dollar is tied up in the production and sales process before it is converted into cash through sales to customers. that it takes for a company to convert resource inputs into cash flows. It does not include SG&A. usually based on the number of FTEs involved in management functions for processes. Also known as “cash cycle”. picking. invoiced correctly) and multiplied together. Calculated as: CCC = .

the less time capital is tied up in the business process.DPO Where: DIO represents days inventory outstanding. DPO represents days payable outstanding. and thus the better for the company’s bottom line. Improvement Opportunities in Retail Logistics In general. . A company can also sell products on credit. which results in accounts receivable. therefore. Cash. DSO represents days sales outstanding. is not involved until the company pays the accounts payable and collects accounts receivable. the logistic decisions taken by the retailer can be improved by increasing: • the level of differentiation when controlling the operations.DIO + DSO . The shorter the cycle. This cycle is extremely important for retailers and similar businesses. Usually a company acquires inventory on credit. So the cash conversion cycle measures the time between outlay of cash and cash recovery. which results in accounts payable. This measure illustrates how quickly a company can convert its products into cash through sales.

Purchasing Capacity Promotion driven driven items items items . Below. based on the perception that items with large turnover (A-items) need to be treated differently compared to items with low turnover (C-items). we propose a different classification for retail-items.• the level of sophistication in the Decision Support Systems. While there is some value in this approach. Phasing-in/out items (including items with a short Product Life Cycle) 2. For example ABCclassification. The Level of Differentiation when Controlling the Operations Different types of items need different ways of replenishment. 4. taking into account the fact that different retailers and/or different products need different logistic solutions. several examples are given to illustrate how each of these general guidelines can be translated into specific solutions. We distinguish the following five main product categories: 1. • the level of integration of multiple decisions (made by the retailer company and/or its supply chain partners). 3.

obsolescence. Regular items Below.5. or it becomes very risky to carry inventory due to obsolescence. The demand forecasts for items with a short product life cycle (like style goods) can be improved substantially in two ways. each of these five product categories is discussed in more detail. Improvement opportunities reported in the literature are: • Using similarity in forecasts made by different individual people as an indicator of forecast accuracy when no sales data are available yet. Thus. The first improvement applies when an initial . for these items. • Using early sales data to improve demand forecasts in the case of style goods. special attention is given to issues like demand forecasting and inventory management in an environment with high risk of obsolescence and/or markdown policies. The phasing-in/out items (including items with a short product life cycle) are different from other items since there is either very little demand history available. • Using repeat rate information from customer cards to improve demand forecasts when • Using new optimal markdown products policies to reduce are the risk of introduced.

Another tool to quickly evaluate the performance of items that are phasing in is applied by Dunnhumby at Tesco (Hill and Dowle. the variance in these individual forecasts is an almost perfect predictor of the overall demand forecast accuracy. when he/she receives his/her first actual sales data in the new season. These first orders typically make up approximately 20% of the total orders. While this procedure was first applied at a manufacturer. when the retailer has two buying opportunities: an initial buy and a reorder opportunity. This is . The production of items with low demand forecast accuracy is postponed until a group of large retailers placed their first orders (called the Early Write program). When each member of a buying committee makes an independent demand forecast for every product. which can be manufactured at the beginning of the production season. (2001) report how the inventory replenishment of products with a short product lifecycle can be optimized for a retailer. This allows the manufacturer and/or retailer to select the items with a high demand forecast accuracy. Fisher et al. a similar procedure may also be used at a retailer. The strength of their approach is that they use detailed information on the buying behavior of individual customers. 2003).production or buy decision has to be made and no sales data are available yet for the new assortment.

5 years. they measure not only the sales rate. they identify the 10 most similar product launches (in terms of how the repeat rate evolves over time) that have taken place in the same product category in the last 2. via advertisements or via a special location in the store). The promotion items are items that are part of the regular assortment. To forecast demand. which is defined as the proportion of customers who come back to the store for the new product. but are either offered temporarily at a reduced price or offered at the regular price but with additional visibility (e. When a new product is introduced. This information enables them to tell within weeks of the launch whether a product is successful or not. Some of the possible Improvement opportunities are: • Using marketing intelligence and/or econometric models to forecast demand for the promotion • • Using Coordinating items a the and push-strategy promotion their with with two the substitutes waves supplier .possible thanks to the retailer’s customer card. but also the repeat rate. which is providing them with information for more than millions of customers.g.

Since the sales during promotions may well be a (large) multiple of regular sales. Often. For items in the same product category as the promoted item. promotions should be typically coordinated with external suppliers to make sure enough products are available in time in the retailers’ DC. For example. which are typically used when the item is not promoted). via methods like exponential smoothing or moving average.For these items. demand should no longer be forecasted based on extrapolation of time series (e. and. which have to be taken into account when forecasting their demand.g. substitution effects may occur. alpha % is pushed to the stores. A few days after the promotion started. The purchasing driven items are one-time-items that are not part of the regular . promotion items are typically pushed by a central decision maker. in the first wave. While regular items are typically pulled by the retail stores. but based on marketing intelligence taking into account price-elasticities and/or the impact of promotions and advertising on consumer buying behavior. the remaining 20 to 30% is distributed based on the early sales data. the optimal value for alpha is somewhere between 70 and 80%. the shipments from the DC may typically be based on a so-called “alpha-policy”: the items are distributed in two waves.

for example. The amount purchased is often determined by purchasing considerations (e. For example. based on discount-opportunities) rather than by demand forecasting. while another part of its assortment is ordered on a daily basis.assortment. If. a push-strategy with two waves. The purchasers buy a certain quantity of the product. a store may order part of its assortment on a weekly basis. the demand for these capacities varies within the week. The reason might be that they spotted a special buying or selling opportunity. no replenishment from the supplier takes place. To smooth handling-capacities in the DC and the stores. For the distribution of the purchasing driven items to the stores. The capacity driven items are items used by the Operations department to smooth handling and/or transportation capacities. the review period for items with sufficient excess shelf space1 may be increased by decreasing the delivery frequency. like the alphapolicy. The items ordered on a . smoothing may lead to a reduction in the total assets needed. may be adopted. but are bought by the Purchasing department. and when this lot is sold-out.g.

To smooth transportation capacities. Ordering with a lower frequency often leads to higher lot-sizes per item. the capacity load is smoothed. these are typically items like soft drinks. A prerequisite for this is that all items in this part of the DC have excess shelf space in all stores. and . while on Thursday and Friday these quantities may be high.weekly basis can be ordered in the quiet part of the week. If all items ordered on a weekly basis are stored in a separate part of the DC. implying also higher handling efficiency. The regular items are all items that are not phasing in or out. Another way to benefit from reduced ordering frequencies is to redesign the retailer’s DC. In groceries. large volume/large sales items may be used. . this option may not be feasible. On Tuesday and Wednesday. are not on promotion. the regular replenishment quantities ordered by the stores may be low. in order to smooth the handling capacity in the retail supply chain. the total walking distance for the order pickers per week can be reduced substantially. If the retail store has little storage space available. By ordering these items in advance on Tuesday and Wednesday instead of on Thursday and Friday.

the supply chain should often aim to handle goods as long as possible in the most efficient handling units (trucks or pallets (or even layers) when distributed from the manufacturer to the retailer’s DC). a few notes should be made on the trade-off between inventory holding costs and customer service. if this inventory is stored mainly downstream in the supply chain. In addition. it has been noted that at the operational level (where the size of the store and the assortments are given). and its impact on the control of the entire supply chain. handling costs at the retailer’s DC and particularly at the store level usually outweigh t he relevant 1 The items with sufficient excess shelf space are often slow-moving items and/or (physically) small items. Moreover.are not purchasing or capacity driven. Therefore. the inventory contributes most to the service level of the final customer. the space in the retail store should be considered as a constraint rather than a cost factor. and . Before discussing the operational control of the regular items in the store. In several projects with retailers. inventory holding costs for regular items by far.

For perishables with a very low Shelf Life. In current ASO systems. For example. after reordering. In a supermarket environment. As a result. These parameters still leave a number of options open to further differentiate the inventory replenishment strategies within the regular items. we noted that perishables and non-perishables have clear distinct sales and logistic characteristics. the inventory position is checked to see whether it is below the reorder level (s). from the retailer’s DC one might ship inventory as soon as possible to the store. the review period R may be different for different items. the focus is more on reducing waste. The goods can be shipped as soon as they are produced. when it fits on the shelves (given the number of facings.nQ)-policy2. Moreover. the regular items often follow a traditional (R. determined at the tactical level in the planograms). n times Q items are being ordered with Q being the case pack size and n the minimal integer number of case packs needed to make sure that.accept the higher inventory levels in the retailer’s DC. By definition. This concept is called Supply Driven Coordination or Chain Synchronization. when controlling perishables’ inventories. This means that every review period (R). perishables have a smaller Shelf Life than nonperishables. the inventory position is equal to or higher than s.s. If so. this reduction of waste may .

e. Most ASO systems are primarily designed for non-perishables and do not take into account these substitution effects. Apparently. for these items. bread) . For items with very high substitution rate (e. other options to reduce the waste are: reduction of the lead-time (e. but also the reorder level may be determined in a different way for different items.g.s.nQ) with s equal to the maximum shelf capacity minus the case pack size plus one consumer unit. the reorder level should not only be based on small leadtimes and high average demand. by using cross-docking or direct delivery).be achieved by decreasing the review period (i.g. by increasing the delivery frequency). If we consider again the perishables with a very low Shelf Life. but also take into account the product substitution. we note that apart from decreasing the review period. keeping average sales per item relatively high (by keeping assortments limited) and/or using the customers’ willingness to substitu te demand within a product category. Not only the review period may be different for different items. 2 Note that a full-service concept (fill the shelves as soon as a new case pack fits in) is a special case of (R.

this would lead to unrealistic reorder levels. for perishables with multiple lots on the shelf. At this moment. more complex models may be needed to determine the reorder level. each lot having a different age. and. it may differ substantially per retailer. For vegetables and fruit. The demand forecast might be improved by taking into account price-elasticity. Finally. The Level of Sophistication in Reorder Systems Thanks to economies of scale and cheaper and better information technology. large retail chains are trying to distinguish themselves from other retailers by increasing the level of sophistication of their reorder systems. and this can be improved by increasing the quality of the demand forecast. the quality of the inventory on hand and seasonal effects. the quality of reorder systems varies greatly between retail chains. There are numerous models in the literature dealing with perishable items. reduction of waste is also important. even within retail chains. The level of sophistication of their reorder system may differ with respect to: . Note that the demand forecast is a major factor in the reorder level.

5. since they either required additional intelligence (like a judgment on the quality of the inventory for vegetables). Even when automated store ordering is implemented. part of the assortment may still be ordered without the help of a computer. or they may attach an electronic identification . without any support from a computer. But even in those stores. the data quality has a large impact on the success of the system. 2. while certain perishables were ordered manually. the ability to visualize economic trade-offs. the intelligence in setting the logistic parameters in the reorder system. the ability of the personnel to make decisions or to evaluate proposed decisions. To increase the sales data accuracy retailers may either apply more strict rules on how to register sales. In other stores. It is known from empirical research that inventory data are highly inaccurate. 3. data. 4. At a grocer’s for example.1. the the quality level of the of input automation. or they had to be ordered via a separate ordering system (belonging to a particular supplier). In some stores. we noted that the majority of non-perishables were ordered via an ASO system. the computer may give advice on the timing and the quantity to be ordered for most items. the reorder decisions are still made manually.

Ideally.e. the retailer can optimize the case pack size. the determination of the reorder level depends on many different variables like the weather. but also take into account operational constraints like the maximum shelf capacity. a fixed reorder level is applied. the reorder level and the order quantity) also differs a great deal. which is scanned automatically at the cash register. the review period. but also offer insight to the decision maker on the economic trade-offs between important . The intelligence in setting the logistic parameters in the system (i. If. seasonality and/or trends in sales. The simplest case is when the supplier determines the order quantity by fixing the case pack size (typically for most items in the supermarket). the computer should not only calculate the optimal solution. This optimization should not only include the minimization of the inventory holding costs and the fixed ordering costs. Sometimes. etc. Also the order quantity is determined in many different ways. however. but are often handled by store clerks who have considerable experience in their product category. the item is made for one particular retailer only. the price. taking into account weekly sales patterns.device to each individual product. In some cases. and sometimes the reorder level varies over time. These more complex situations are often not dealt with by the ASO systems. substitution effects.

In the example of the case pack size. we can think of the following performance indicators: the number of orders per year. Purchasers for example. may be more focused on and trained in getting the lowest price than in making an overall evaluation of the impact of the case pack size on all performance indicators. who are often responsible for setting the case pack size in cooperation with the supplier. The Level of Integration of Multiple Decisions (Made by the Retail Company and/or Its Supply Chain Partners) The decisions with respect to inventory and capacity management are often affecting many different performance indicators.performances indicators. the total handling time needed. the expected total number of refills needed (if the case pack size is too big to put on the shelf). In addition. where store managers or store clerks are responsible for the determination of the order quantities. organizational units and hierarchical levels . the total inventory and the resulting service level to the customers To be able to make this trade-offs the personnel needs good training. the level of education may differ greatly. at the store level.

the quality of the decision-making can be improved by increasing the level of integration. 2. 3. Example 1 When deciding on the case pack size. which only considers the inventory holding costs and the fixed ordering costs. Integration of decisions made at different organizational units. Integration or coordination of decisions made at different hierarchical levels. a non-food-retailer used the classical Economic Order Quantity formula. Cost analysis in several retail supply chains (including this one) showed that. Each example includes one or more types of integration. which are related to inventory and capacity management and which were encountered in retail supply chains. . Often.within these organizational units at the same time. Integration of all relevant performance indicators in the supply chain. This formula is almost a hundred years old and applied successfully at many companies in multiple industries. The formula is derived from a model. in practice only partial effects are taken into account when decisions are being made. in fact. We distinguish three types of integration: 1. As a result. Below some examples are given.

reorder levels. The customer service level for example may also be affected by the case pack size. depth and breadth of the assortment. but this is not . note that even a focus on total relevant costs in the entire supply chain may be too narrow-minded. minimum lot-sizes. not only handling costs in the store. etc. delivery frequencies. In this case. Operations typically decide on issues like (in) direct delivery. the handling at the retailer’s DC had to be taken into account as well. Marketing typically decides on issues like the marketing strategy. Finally. Marketing and Operations are often separate departments. pricing. the store layout. be included in the decision-making. As a matter of fact. Sometimes the decisions from both departments are interdependent. Example 2 Within retail chains. therefore. and should. replenishment strategies (pull/push). promotions and shelf space allocation (via planograms). target customer service level. but also handling costs at the retailers’ DC and/or the supplier may be significant and affected by the decision on the case pack size.handling costs are often far more important than inventory holding costs. whereas the implications for the supplier were only minor.

the replenishment strategy is to fill the shelves completely as soon as a new case pack fits in. For example. it may not fit on the shelves. To make their strategies work. planograms and reorder levels should be matched. inefficient handling may be the result: if an order arrives at the store. If. there is a serious . Example 3 A retailer typically aims for a particular market segment and designs his logistics strategy to meet the requirements of this market segment. at the shop floor. e.g. some retailers aim for high customer service. If the space allocated to a product is less than the space required for operations (which is mainly based on the reorder level and the case pack size). but not with a low cost strategy. leading to leftovers. this would be in line with a high customer service objective. while others primarily aim for low costs. the retail companies have to ensure that their long-term marketing and logistics strategies are in line with the replenishment strategies applied at the store level every day. which are sent to the backroom and have to be taken back to the shelves again later on. For example.always taken into account when the actual decisions are being made. In case the inventory replenishment strategy is determined locally (at the store level) by individual people.

We have described the KPIs by dividing it into different categories of its respective field: Supply Chain and Logistics. In this paper. New technologies allow the retailers to improve their logistic decisions by increasing either the level of differentiation. we have shown that with the knowledge of the KPIs both customer service and the capacity utilization in retail chains can be increased by improving the logistic decisions taken by the retailer. the level of sophistication and/or the level of integration in their decision-making. Cash Conversion Cycle (CCC). formula and significance of each KPI.risk that either these people have different objectives. Concluding Remarks In this paper. All these metrics aids in the supply chain management of the retail sector. SCOR (Supply-Chain Operations Reference-model). different items need different logistic solutions. we described the meaning. Inventory. or they are simply not aware of the link between their decisions and the strategy of the retail chain. we . In this paper. In many retail chains.

and its impact on the focus of Retail Logistics and its decisions. Patel C. References • Gunasekaran A. All these categories require a different way of controlling the operations. A final remark can be made on the importance of the analysis of the KPIs in retail chains. Tirtiroglu E (2001) Performance measures and metrics in a supply chain environment. and regular items. McGaughey RE (2004) A framework for supply chain performance measurement.distinguished five product categories: items that are phasing-in/out. • Gunasekaran A. • Michael Armstrong (3rd Edition) Performance Management: Key Strategies and Practical Guidelines . Most ASO systems currently applied are primarily developed for regular items. items that are on promotion. we describe how these ASO systems can be improved to also support other products. items that are driving the utilization of capacities. In this paper. All these findings are based on observations at the retailers in Kolkata.

Reliance Industries Limited (RIL). Radhakrishnan. Chairman & Managing Director K. 2008 Boom in the Retail Sector : Reliance Mart By Aayush Patni Key People Mukesh Ambani. According to Raghu Pillai. Reliance Retail. 3-storey Mart spread over 1. President and CEO (operations and strategy). Reliance Retail Ltd (RRL).000 sq ft will have on its shelves over 95. inapplications of supply chain management and e-commerce research in industry. it had set up a cluster of Reliance Fresh stores in Hyderabad.000 products ranging from fresh produce. each of the hypermarket "will be better than the best in the market." Services Offered .June 27th. Reliance Mart. home care and health products. consumer durables and IT. automotive accessories. Last November. lifestyle products and footwear with aggregate stocks of about half-a million pieces. This Hypermart is being opened in less than a year of Reliance's entry into the 300-billion-dollar booming organised retail business. food and grocery.65. Advertisement Boom in the Retail Sector : Reliance Mart . non-food FMCG products. apparel and accessories. (2007) Supply Chain Management • Schwarz LB (2004) The stat of practice in supply chain management: a research perspective. CEO. Chief Executive & President Launching of Reliance Mart Aug 15: Reliance Retail Ltd (RRL) launched its first Hypermarket named 'RelianceMart' at Iscon Mega Mall (biggest mall in Gujarat) in Ahmedabad.• Peter Meindel. Reliance Hypermarket Raghu Pillai.

In order to grow faster and better in local markets with higher margins. it has focused largely on local brands instead of national brands or private labels. Big Bazaar. retail sector is the fastest growing sector in the Indian economy. few regional brands strongly liked by the consumers offer lower margins than that offered by the national brands. Being a bulk purchaser. the products at the outlets would be easily acceptable by the customers. Spend Anywhere'. Wagh Bakri and Madhur (spices brand). Advertisement Abstract Key words: Organized Retailing and Kirana Shops India's retail sector is going to transform and with a three-year compounded annual growth rate of 46. five each in Punjab and Andhra Pradesh. Strengths Keeping local brands at the outlets is more profitable and also makes the supply chain more efficient. Vishal Mega Mart nad the upcoming Wall Mart. Traditional markets are .64 per cent. besides setting up its own cold storage chain. gifting services and laundry services all within the store under one roof and also it has its own bakery shop. RelianceMart will also provide easy and attractive finance options. watch repair. President and CEO (operations and strategy). Weaknesses In some cases. including zero per cent financing for the purchases on select products. Reliance Mart can offer products at very low prices. Spencer Hyper. Radhakrishnan said six malls under the RelianceMart brand would come up in the national capital region (NCR). Reliance Industries Limited (RIL) said the company is planning to set up 500 hypermarkets across 784 towns by 2010. Reliance Retail is building a robust and state-of-the-art supply chain infrastructure spanning the entire country. Local brands includes Induben Khakrawala‟s Namkeens. Future Plans The next two hypermarkets are to be opened in Jamnagar in Gujarat and in the NCR by next month with plans to open 30 such marts by the year. Strategy The hypermarket would be selling the products on EDLP (every day low price) basis at prices 15-20 percent lower than market prices. Also taking into consideration the local brands. a common membership and loyalty programme across all its formats. It has to face a tough competition by big shopping malls ie. Raghu Pillai. And there would be comparatively less efforts needed by the marketer to explain the product to the consumers. Company‟s Sources says that the share of regional brands in the Hypermarts would be over 10%. three in Gujarat and two in Bangalore. Reliance hypermarket CEO K.It offers some unique services to the shoppers like tailoring. It is expected to generate direct employment for half-a-million people and indirect employment to two million. RelianceMart will continue to offer all its customers RelianceOne. The launch of RelianceMart is a step forward by Reliance Retail towards providing an international shopping experience to the customers at unmatched affordability. This is in addition to 100 private labels that Reliance plans to display. Lijjat Papad. a photo shop. which follows the philosophy of 'Earn Anywhere. shoe repair. guaranteed quality and choice of products and services.

Westside (Tata Group) and Lifestyle International." The Growth Drivers The Indian Retail growth can be attributed to the several factors including * Demography Dynamics: Approximately 60 per cent of Indian population below 30 years of age. and the difference between gross domestic product growth and retail growth. . among 30 countries as the world's most attractive market for mass merchant and food retailers seeking overseas growth. what will be the target market segment for the retailers and how will they try to serve this segment. a retail consulting and research agency. * Plastic Revolution: Increasing use of credit cards for categories relating to Apparel. organized retailing in India will cross the US$ 21. Consumer Durable Goods. organized retail is expected to grow to US$ 22 billion.transforming themselves in new formats such as departmental stores. KSA-Technopak. This article is an attempt to analyse the areas where retail sector is growing and will grow. hypermarkets. The Indian retail industry is currently estimated to be a US$ 200 billion industry and organized Retailing comprises of 3 per cent (or) US$6. organized retailing is projected to reach US$ 23 Billion by 2010. continuing for two years (2005 and 2006). Food and Grocery etc. India is on the first position . According to the report of American Management Consulting Firm A. On the other hand. predicts that by 2010. Modern retailing satisfies rising demand for such goods and services with many players entering the bandwagon in an attempt to tap greater opportunities. retail market alternatives. China is loosing its attractiveness and making the way to India GRDI helps retailers to prioritize their global development strategies by ranking emerging countries based on a set of 25 variables including economic and political risk.4 Billion of the retail industry. Western-style malls have begun appearing in metros and near metro cities. The attitudinal shift of the Indian consumer in terms of "Choice Preference". Indian retailing is clearly at a tipping point. The Indian retail market is of enormous size about US$ 350 billion. Kearney's 2006 Global Retail Development Index (GRDI). However. In the last few years. The Indian retail industry though predominantly fragmented through the owner -run " Mom and Pop outlets" has been witnessing the emergence of a few medium sized Indian Retail chains. Indians have gone through a dramatic transformation in lifestyle by moving from traditional spending on food. supermarkets and specialty stores. retail saturation level.5-billion mark from the current size of US$ 7. the opportunity for growth is huge—by 2010. But organized retail is not so huge and it is at only US$ 8 billion. The study quotes: "The Indian retail market is gradually but surely opening up. With a growth over 20 percent per annum over the last 5 years. Indian Retail Industry is ranked among the ten largest retail markets in the world. while China's market becomes increasingly saturated. "Value for Money" and the emergence of organized retail formats have transformed the face of Retailing in India. T. The economy is growing between 8 to 10 percent and the resulting improvements in income dynamics along with factors like favorable demographics and spending patterns are driving the consumption demand. introducing the Indian consumer to a new shopping experience. Overview India is witnessing an unprecedented consumption boom. namely Pantaloon Retail. groceries and clothing to lifestyle categories that deliver better quality and taste.5 billion. With the growth of organized retailing estimated at 40 per cent over the next few years. * Double Incomes: Increasing instances of Double Incomes in most families coupled with the rise in spending power. RPG Retail. Shoppers Stop.

attempting to provide farmers a one-stop destination for all of their needs. Delhi. * Cheap Consumer Credit Major Formats of In-Store Retailing Format Description . with Corporates and Entrepreneurs having made a foray in the past. Other corporate bodies include Escorts and Tata Chemicals (with Tata Kisan Sansar) setting up agri-stores to provide products/services targeted at the farmer in order to tap the vast rural market. offering a diverse product ranges from FMCG to electronics appliance to automobiles. that has initially started off by providing farm related inputs and services but plans to introduce the complete shopping basket in due course. * Fastest Growing Formats: Some of the formats that offer good growth potential are: o o o o o Specialty and Super Market (45 per cent) Hyper Market (36 per cent) Discount stores (27 per cent) Department Stores (18 per cent) Convenience Stores and E-Retailing (9 per cent) * Supply Chain Infrastructure: Supply chain infrastructure in terms of cold chain and Logistics. These new-format cash-and-carry stores attract large volumes from a sizeable number of retailers who do not have to maintain relationships with multiple suppliers for all their needs. Investment Opportunities * Potential for Investment: The total estimated Investment Opportunity in the retail sector is around US$ 56 Billion in the Next five years. There has been yet another initiative by the DCM Sriram Group called the 'Hariyali Bazaar'. Pune. * Location: with modern retail formats having made their foray into the top cities namely Hyderabad. Aggregation of demand that occurs due to urbanization helps a retailer in reaping the economies of scale. Nagpur there exists tremendous potential in two tier towns over the next 5 years. ITC launched the country's first rural mall 'Chaupal Sagar'. Mumbai. * Wholesale Trading: wholesale trading also holds huge potential for growth. * Sectors with High Growth Potential: Certain segments that promise a high growth are o o o o o Food and Grocery (91 per cent) Clothing (55 per cent) Furniture and Fixtures (27 per cent) Pharmacy (27 per cent) Durables. Watch & Jewellery (18 per cent). * Rural Retail: Retail sector offers opportunities for exploration and investment in rural areas. Chennai. Ahmedabad. Bangalore. Footwear & Leather. German giant Metro AG and South African Shoprite Holdings have already made headway in this segment by setting up stores selling merchandise on a wholesale basis in Bangalore and Mumbai respectively.* Urbanization: increased urbanization has led to higher customer density areas thus enabling retailers to use lesser number of stores to target the same number of customers. India's largely rural population has caught the eye of retailers looking for new areas of growth . Coimbatore.

One stop shop catering to varied/ consumer needs. comparison between brands is possible Department Stores Large stores having a wide variety of products.expanding the number of formats In modern retailing. Indian Retail. ranging from discount stores to supermarkets to hypermarkets to specialty chains. Variety of shops available to each other. Shopping Malls An enclosure having different formats of in-store retailers. toys. sometimes with a warehouse appearance. Formats Adopted by Key Players in India Retailer Original formats Later Formats RPG Retail Supermarket (Foodworld) Hypermarket (Spencer's)Specialty Store (Health and Glow) Piramal's . a key strategic choice is the format. furniture. organized into different departments such as clothing. Convenience stores Small self-service formats located in crowded urban areas. Innovation in formats can provide an edge to retailers. Organized retailers in India are trying a variety of formats.The Value Proposition Branded Stores Exclusive showrooms either owned or franchised out by a manufacturer. appliances. generally located in quieter parts of the city Low prices. house wares.mart Larger than a supermarket. all under one roof. vast choice available including services such as cafeterias. etc. certified product quality Specialty Stores Focus on a specific consumer need. Supermarkets Extremely large self-service retail outlets One stop shop catering to varied consumer needs Discount Stores Stores offering discounts on the retail price through selling high volumes and reaping economies of scale Low Prices Hyper. carry most of the brands available Greater choice to the consumer. Convenient location and extended operating hours. Complete range available for a given brand.

* Piramyd Retail: Aiming to occupy 1. Agra. Indore.): Trent to open 27 more stores across its retail formats adding 1 mn sq.000 crore plus ($20 billion) by 2009-10. the mall and multiplex culture has caught on in the country's smaller cities. .67 billion) in setting up multiple retail formats with expected sales of Rs. * RPG: Planning IPO will have 450-plus Music World. 50-plus Spencer's Hyper covering 4 mn sq. Whether it's Kanpur. * Pantaloon Retail: Will occupy 10 mn sq.75 million sq. 30. home and lifestyle centres. 90. From a handful of malls in the mid '90s. * TATA (Trent Ltd.000 crore ($6.400 crore-plus ($90 mn) in next five years on Max Hypermarkets & value retail stores. Apna Bazaar). powered by the burgeoning purchasing power of India's middle-class. Inorbit Mall. India today has nearly 200 malls spread across large and small cities. Specialty Electronics Road Ahead.ft retail space and achieve Rs. * Raheja's: Operates Shoppers' Stop. Supermarket (Nilgiri's).ft by 2010. Baroda or Surat. Small is big for Indian retail It's raining malls in small-town India. Titan industries to add 50-plus Titan and Tanishq stores in 2006.ft retail space through 150 stores in next five years.000 crore-plus ($2 bn) sales by 2008. Plans of Large Retailers * Reliance Retail: investing Rs. Crossword. Ahmedabad.9. * LIFESTYLE: Investing Rs. Will operate 55 "Hypercity" hypermarkets with US$100 million sales across India by 2015. and 'Home Stop' formats.Department Store (Piramyd Megastore) Discount Store (TruMart) Pantaloon Retail Small format outlets (Shoppe) Department Store (Pantaloon) Supermarket (Food Bazaar) Hypermarket (Big Bazaar) Mall (Central) K Raheja Group Department Store (shopper's stop) Specialty Store (Crossword) Supermarket (TBA) Hypermarket (TBA) Tata/ Trent Department Store (Westside) Hypermarket (Star India Bazaar) Landmark Group Department Store (Lifestyle) Hypermarket (TBA) Others Discount Store (Subhiksha. And 700 new malls are coming up all over India-40% of them concentrated in the smaller cities. Margin Free.ft of space in the next 12 DLF malls.

addressing the needs of the population in the area and being the point of contact with the consumer. The RPG group plans to open malls in all cities with a population of over 8 lakh. mostly in smaller cities. retail analysts suggest that the sustained success of the IT and ITeS industries in small towns is expected to create more jobs and enhance spending power. against Rs 100-120 per sq foot a month in the bigger cities. India's largest retailer. this is probably the most compelling example of the trickle-down impact of liberalisation in India. the garments and accessories retailing division of ITC Ltd. McDonald's. 25-acre commercial centre and some seven new shopping malls-cum-entertainment centres are under construction. It is being powered by healthy economic growth that is making more Indians more prosperous. exploit the first-mover advantage and establish strong brand loyalties in these relatively under-served markets. real estate costs present a major incentive for India's organized retailers. power the small-town retail revolution. Small Local Stores / Kiranas The small local stores have dominated Indian retailing over the decades and are present in every village and local community. By the end of this year. Surat and Lucknow. Domino's Pizza. Average rental values for ground-floor space are Rs 50-60 per square foot a month. These cities are untapped markets and retailers find it important to establish their brands there. are dwarfed by Mukesh Ambani's ambitions to do a Wal-Mart in India by investing $5. in turn. retailers are filling gaps by increasing more stores. increasing its retail space from 3. organized retail is expected to grow to $22 billion. For instance. Organised retailers have understood this and are hoping to ride the wave. With the growth of organized retailing estimated at 40% (CAGR) over the next few years. Typically. however. Even Sunil Mittal's Bharti group has announced plans to get into food and farm products retailing. The Indian retail market is estimated at $350 billion.500 cities and towns. Organized retailing in small-town India is growing at a staggering 50-60% a year compared to 35%-40% in the large cities. not just in terms of employee costs but real estate costs as well.Small-town India is the next big thing in the retail business. The small-town retail boom could be considered a show-case of India's free-market prosperity. Similarly. But organized retail is estimated at only $8 billion. plans to increase its footprint by doubling the number of stores from 50 to around 100 in the next two to three years. small cities offer a 15% to 30% cost advantage over larger cities. Most smaller cities are seeing plenty of action. Pizza Hut. not to speak of the gains that accrue from reduced staff attrition rates.5 million square feet to 30 million sq feet. Indeed. plans to invest Rs 3.60 billion (Rs 25. However. The Kishore Biyani-owned Future Group. Looking ahead. The striking point is that it is the big names in the organized retail business that are eyeing these new opportunities. these malls are way beyond the expectations of the consumers. that proportion is expected to grow to 25%. However. It is names like Dehradun. in small towns. the contribution of smaller cities to total organized retailing sales was 15%. Chandigarh. Ruby Tuesday and Subway. All these plans. Vijayawada. Lucknow and Nasik that will power India up the rankings soon. Consider these numbers: in 2005. the opportunity is huge—by 2010. Indian retailing is clearly at a tipping point. This gap is expected to widen over the next few years.000 crore) and covering 1. Wills Lifestyle. creating a pull for smaller towns that will. a strong demand for retail space has more than doubled rentals in cities like Jaipur. A new worldclass. India is currently the ninth largest retail market in the world. While in the metros. At present. The distribution networks of brands extend right upto this point to stay in touch with customer .600 crore in 100 stores in 30 cities. Ludhiana can already boast worldwide restaurant chains like KFC.

A little larger format is the neighborhood grocery store that focuses on grains. A lot of them function as paan and cigarette outlets with tea and coffee sometimes also offered. Dehra Dun. Ranchi. Kanpur. Fruits and vegetables that are perishable are usually maintained and offered by exclusive vegetable stores and not by the normal groceries. Cuttack. These small stores cater to the needs of their own local population and travelers who stop by for a smoke or a snack. shampoos. The cities that are seeing the first rush of malls are New Delhi. Kochi. Trivandrum. Raipur. Over 300 malls are expected to be built over the next two years and most Indian cities with over a million population will be exposed to this modern method of retailing. These small stores are very personal and have strong relationships with the local population. Bangalore. toothpastes and some creams. These Shopping Arcades tried to maximize on their store space and did not offer any areas for recreation and entertainment. snacks and toiletries besides other home essentials. Gurgaon. built on international formats of retailing and integrated with entertainment and restaurants to provide a complete family experience. You will find these in almost every village and locality. Procter & Gamble. recreation. The new addition of the past decade is to have a telephone booth that lets locals and travelers make national and international telephone calls. They are points of news and connection. While it is commonly believed that the new retail chains will drive these small stores out of business. Every fair sized village is likely to have at least one grocery store. It does however represent a network since large consumer product companies like Unilever. Pepsi and ITC uses them as their final point of retail to the consumer. It is not really a network since each store is individual or family owned and has no connection with the other. Most malls also feature a multiplex cinema that offers entertainment to the visitors of the mall. Shopping Malls The new shopping malls that have been expanding their footprint across Indian cities are well designed. Cadbury. Malls also have a large format store that serves as their anchor for shopping and a prominent restaurant that anchors the food needs of visitors. Kolkata The next run-up of the malls will be the second level cities of India that includesVisakhapatnam. Jaipur. most of which were small stores that promised bargains for their various wares. Many of them also sell fruits like bananas and a range of toiletries and cosmetics like soaps. Finally the mall has large atria and open spaces to allow visitors and families to hang-out. Chennai. Besides this these stores stock and offer small eats and soft drinks including biscuits. Chandigarh. Bhopal. sweets. bread and baked products. Shopping malls have existed in India since several decades but were designed and built to house several shops in a single facility. The present day malls are a creation of the past few years post 2000. chocolate. reality points the other way and it is likely that these stores will continue even in the next two decades of growth.needs and preferences. Surat. The retail industry in rural India has typically two forms: "Haats" and "Melas". Pune. foods. They are designed professionally using a lot of international experience and combine shopping with a lot of brand building. Coimbatore. They offer credit to the local population and help out in times of crisis. Colgate-Palmolive. . a fruit and vegetable shop and a paan and cigarette shop. Coca Cola. These new format malls are coming up in all the major cities of India. Mumbai. Noida. These malls also known as Shopping Arcades offered only rows of shops. Lucknow. Hyderabad. This network is very large and spread all across India. They also have a very good understanding of requirements of the local population and have very low overheads enabling them to offer the best price for their products. soft drinks. India like most other countries has a very large network of local stores. food and entertainment. Ahmedabad.

with figures doubling on weekends. high-speed lifts and escalators. The organized retail is attracting more and more Indian as well as foreign players of the retail industry.the rise of the shopping malls. a multiplex movie theater. Malls: The new face of retail market Robust GDP growth. Retail Biz tracks this unprecedented move that is ready to add a new chapter in the history of Indian retailing. Conclusion After analyzing the retail industry. This trend has attracted several major global retail players to India. underground parking space. 60 in the greater Delhi area alone. By Amit Singla Faculty Finance ICFAI National College Panipat Anil Kumar Goyal Jr. these malls generates approximately 25. Relinace Retail first store is opening in Hyderabad MUMBAI: Reliance Retail (RRL). per day.000 footfalls each. Sobha Group has set its eyes on launching the largest retail mall in the country. stronger currency reserves and ever-improving market and operating environments are propelling the Indian market through a period of stellar growth . having tasted the shopping experience of big cities overseas. International style shopping has finally come to India . The decade-old economic reforms have engendered a new. this opportunity has not been encashed by kirana stores and they are unable to meet the requirements of the customers. Therefore both the malls and kirana stores can play simultaneously in India so no need get afraid due to the malls. shop-till-you-drop breed of middle class Indians who. multi-cuisine restaurants and a host of national and international brands.and the retail community is responding with newer formats and innovative products. we can conclude that the organized retail has opportunities to grow in India in spite of the kirana stores because these kirana shops will also get benefit of the growing economy. have fuelled a demand that was inevitable -. As our study shows that a major portion of the organized retail will be developed in small cities and towns. the wholly owned subsidiary of Mukesh Ambani-led RIL will open its first . The economy of India has shown a remarkable increase driven by overall political and social stability.and with a splash. Faculty Member Finance ICFAI National College Mathura.The new malls are air-conditioned and have spacious areas and accesses which make them a true breath of fresh-air from the earlier arcades and shop line streets that used to be the available options for Indian customers.It is estimated that there are 450 malls in various stages of development across India. Centrally air-conditioned malls with piped music. The argument that the kirana shops will be affected by these malls is only myth.

These would be followed by general merchandise. the company plans to launch its retail stores incities like Ahmedabad. CEO-customer operations. Visakhapatnam. After Hyderabad. It is yet to be seen how successful Reliance will be in its retail venture assuming the stiff competition from other corporate houses like the Aditya Birla Group.retail showroom in Hyderabad on November 3 with a pilot store called „Reliance Fresh‟. CMD. Nita Ambani has been involved with all the aspects of RRL: store design. etc. Competition from foreign players will further intensify the market. Mumbai and Delhi. Chittoor. We still strive to continuously delight them.500 cities in India in a few years. RIL-retail business: “In India. RRL plans to generate close to $20bn by ‟10 . The kirana stores and vegetable vendors will be sourcing fruits and vegetables from us. Tirupathi. customer experience and people processes. Potatoes and onions may be sold at the same price across the year. $6bn will come from Reliance alone. RPG and Essar. Mukesh Ambani. Bharti. The company will also introduce its own brand „Reliance Select‟ for packed staple foods. The company has identified 15 other cities in Andhra Pradesh.” By November. depending on quality: premium. middle and lower ones. We are starting on a pilot journey of listening to customers and learning from them. RRL will adopt three pricing categories. Overall. specialty products. branding. RRL plans to add another half dozen such stores in Hyderabad only. there is enough space for everyone to flourish. Adilabad and Karimnagar for entry.” Analysts believe Reliance will get first-mover advantage. Tatas. KSA Technopak estimates organised retail will fetch investments worth $25bn. Says KS Venugopal. including Vijayawada. the company plans its multi-retail stores across 1. Commenting on the unveiling of the brand. Source : Economic Times Advertisement . RIL said: “This is the first small step in our attempt to build and forge strong and enduring bonds with the millions of farmers and transform our relationship with the consumers to a new level.