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H O W A G I L E I S Y O U R C O M P A N Y ISSUE 19, OCTOBER-DECEMBER 2008

INSIDE

Green Supply Chain Set on a luxury drive It’s All About Money
Hero Honda’s Vikram Kasbekar Evolving supply chain practices and A survey among finance and sup-
talks about environment-friendly quality standards being adopted by ply chain professionals to find their
supply chain practices high-end automakers level of collaboration
pg 3 pg 4 pg 6

THE RULES OF RETAIL

MESSAGE

As organised retailing KEY TO

gains ground, Fasttrack SUCCESS
explores the fundamen-
The impressive growth rates chalked up
tals and the evolving by orgainsed retailing in India, over the
business models in the past few years, has meant that the
domestic market is the cynosure of the
industry global industry. No wonder, then, that
quite a few of them, including big
brands such as Tesco and Carrefour, are
MONALISA DAS poised to launch their operations in the
welve million retail outlets and a top country. Moreover, quite a few of the

T
ranking in A T Kearney's Global
Retail Development Index for the
third consecutive year speak vol-
umes about the growth story of
Indian organised retail. Currently
the fifth-largest retail market in the world, India
is being considered as one of the most attractive
hubs for retail investments. With big names such
as Carrefour and Tesco coming in, the industry
is going to be in the limelight in the coming
years. And organised retail is expected to cash in
on this opportunity. At present having a 4 per
cent share (Rs 500 billion) of the overall retail
market, it is expected to grow up to 15 per cent
(Rs 3,100 billion) by 2012.
So what does it take to thrive in this business?
Can big brands and money single-handedly
drive a retailer towards success? Or are there
other infrastructural requirements as well that
need to be put in place?
Building blocks
"Retail is all about detail," points out Rajeev
Karwal, Founder and CEO, Milagrow Business
and Knowledge Solutions Pvt Ltd. "The first
thing that players need to realise is that organised
retail is not just about setting up a posh store. If
a retailer wants to achieve a pan-India presence,
it is extremely important to get the business plan
right, at least for the initial three years. Moreover,
a deep understanding of the depth and growth
pattern of each product category that one
intends to be in is required. This helps in fore-
casting trends and attaining a distinct position-
ing. Plus, an assessment of the presence of
domestic and international players in the market
and having the right contacts can make half the
battle won for an entrant."
Looking at the fundamentals from an opera-
tional standpoint, Raghav Gupta, President, Retail
and Consumer Goods, KSA Technopak, suggests,
"Like any business, organised retail requires four
“Like any business, organised retail requires four enablers –
namely people, process, technology and capital”
Raghav Gupta, President, Retail and Consumer Goods, KSA Technopak
enablers - namely people, process, technology and
capital. Obviously, these need to be considered care-
fully and applied in the retail business. For instance,
one needs the right technology to count the footfall
in stores, to maintain the right merchandise and
know what's selling and what's not, etc."
Setting up a suppliers' base is another prereq-
uisite. Govind Shrikhande, Customer Care
Associate and CEO, Shoppers Stop Ltd, recalls,
"When we started, small retailers were ruling the
roost. Hence, it was a big task to convince brands
to supply to us. Even today, many brands give
preference to their own stores over retail stores
such as ours because of margin issues."
One way to overcome this challenge is to
develop mechanisms that eventually turn suppli-
ers into business partners. This way, retailers can
work with their suppliers for common goals,
Continued on Page 2
Indian corporates have jumped onto the
bandwagon as well.
So, will this massive influx of new par-
ticipants mean a success story for one
and all? After all, one would assume the
pie is too large – a Rs 3,100 billion
opportunity in four years’ time. Well, not
quite.
As this issue’s lead story shows, the
battle will be primarily won or lost in
two areas — fundamentals and business
models. While it may seem very obvious,
the importance of having a right busi-
ness plan with in-depth understanding
of the sector cannot be understated.
That alone doesn’t suffice, however.
Four key aspects -– namely people,
process, technology and capital -– need
to be taken care of. Having the skilled
manpower as well as efficient processes,
in terms of setting up robust supplier
networks, standardisation across all out-
lets, etc., is critical. A right technological
infrastructure can also go a long way in
providing that competitive edge.
As far as business models go, no one-
size-fits-all approach will work. While
some players will gradually scale up, oth-
ers could seek the ‘big bang’ route. Amid
these two poles, there will be room for
niche players as well, who can target
specialised segments. This will see the
emergence of new concepts such as pri-
vate label, specialty retail and multi-chan-
nel retailing in the years to come.
PAWAN JAIN
Chairman & MD, Safexpress Pvt Ltd

For an e-zine version for your friends and colleagues, write to us at fasttrack@safexpress.com
FT Issue 19_V1.1.qxd 9/28/2008 11:59 AM Page 2

instead of their vested interests. These apart,

retailers need to focus on training personnel and
putting in place customer loyalty programmes.
Finally, standardisation across all outlets is
crucial. There should be an information dissem-
ination mechanism, whereby data regarding any
change in pricing or product category is auto-
matically updated at all stores. One needs to
ensure that the models and processes are replic-
able, so that consumers across the country get the
same merchandise, at the same price and in the
same ambience.

Business models
In his 24-year-long career, Karwal has
worked with some of the leading retailers and
has witnessed different players taking different
routes to success. He recalls, "Back in 1996,
when FoodWorld (now Spencer's) launched its
first store in Chennai, it maintained a low profile
for some time, understood the market and grad-
ually spread to other places."
"This is one of the best models for retailers,"
agrees Shrikhande. "You try out a format at a
small level, make it successful, and then scale it
up nationally. Meanwhile, as customer profile
changes, product lines can be added or deleted
accordingly," he adds.
Another model has been to make a nation-
wide impact in a short span, à la Subhiksha and
Big Bazaar. In 2002, Pantaloons Retail (India)
Ltd started with four Big Bazaar hypermarkets
in Mumbai, Kolkata, Hyderabad and Bangalore.
Within six years it has spread across the country “If a retailer wants to achieve a pan-India presence, it is important to get the business plan
with 97 stores and is further investing Rs 1,500- right, at least for the initial three years. Moreover, an understanding of the depth and growth
1,600 crores to launch another 15 outlets by pattern of each product category is required”
November-end, taking the total count to 115
Rajeev Karwal, Founder and CEO, Milagrow Business and Knowledge Solutions Pvt Ltd
stores. Considering that such outlets require
around 30,000-1,25,000 sq feet of floor space
each, real estate has been a major bone of con- cialists who are coming from the Middle East
tention for retailers aspiring to make a pan-India
presence.
Inefficiency in have had little experience - and that too as show-
room managers or store managers, not as prod-
"Big Bazaar began occupying real estate
spaces at all prime locations and hence, blocked
supply chains is uct category managers or CEOs. Moreover, one
can't build an organised retail business that is
the space for new entrants such as Bharti Retail completely manned by expatriates. The presence
and Reliance Retail. The competition among one of the rea- of a well-trained local workforce is essential.
these three further raised property prices. Even a look at B-schools reflects this lack of
However, in the last six months, there has been a
realisation that they don't have to compete so
sons why Indian attention in terms of the curriculum for retail."
Shrikhande highlights another major prob-
aggressively over space as new organised retail
spaces are expected by next year," informs
retailers have not lem - low margins vs. high costs challenge.
"Brand manufacturers need to understand the
Karwal. cost pressures faced by retailers and thus help in
A third approach could be to hit an unex- been able to offer cutting costs while increasing margins," he says.
plored market and walk away with the early bird Logistics also adds to the overheads. A report,
advantage. For instance, Major Cineplex Group,
the Thailand-based retail entertainment compa-
the pricing advan- titled Supply Chain Challenges in the Indian
Retail Sector, published in January by KSA
ny, has zeroed in on the lifestyle entertainment
market in India as an untapped growth area. It
tage, especially in Technopak, showed that supply chain and logis-
tics costs currently account for 10 per cent of the
has recently tied up with PVR Cinemas to set up
gaming zones, karaoke centres, ice skating rinks high-end organised retail industry's total sales in India,
while it is less than 5 per cent in the US. Gupta “In order to operate multiple
and bowling alleys at major PVR theatres. explains, "This is not because we move more
channels, retailers must have
"However, that would require the retailer to have
a focused approach. Such a strategy can be
products goods around. Rather, this is due to inefficiencies
in logistics that make people pay more." upgraded technology and
implemented only in niche segments," cautions At present there are many intermediate efficient supply chains”
Karwal. stages in the retail supply chain and there is Govind Shrikhande, Customer Care
New players can also enter the business from that one finds in a normal grocery store, except intense competition at each stage on both hori-
Associate and CEO, Shopper's Stop Ltd
an opportunity angle. As Gupta explains, "An that these are displayed in a more organised envi- zontal and vertical level. Moreover, there is no
interesting approach can be a comparison ronment. "Compare the same section with that of standardisation in terms of vendor rates and
between the current share of a product category a Tesco, Carrefour, etc," says Gupta. "You'll find supply chain partners work in a fragmented set- also one of the primary reasons why Indian
in organised retail and that in consumers' spend- mineral water bottles in different sizes. So there up instead of following a consolidated approach. retailers have not been able to offer the pricing
ing. The difference between the two will highlight are bottles for travel that can be fit in car doors Hence, quite a significant amount of prospective advantage, especially in high-end products.
the prospects of new investments for entrants." and bottles with sports caps that are convenient profit margins go down the drain. Whereas, in Another reason is the absence of private
to carry to a gym. Today there are opportunities the mature markets, even though retailers work labels in such product categories. "Retailers
Scope for improvement for a lot of product offerings which consumers in a more competitive environment, they are able come up with private labels whenever there is a
However, instead of eyeing such new oppor- would like to have in modern retail, but retailers to maintain profit margins because of efficient market opportunity for increasing their own
tunities, retailers have only attempted to offer have not addressed them as yet," he adds. supply chains. "Retailers such as Wal-Mart have margins and simultaneously attracting more
incremental benefits through the already existing Another missing link has been the lack of a strong supplier relationship and a well-organ- footfall by offering lesser prices," informs
formats. This is reflected in the industry's cut- skilled manpower. Karwal points out, "Currently ised logistics network. Hence, while consumers Karwal. "With the option of private label, a
and-dried approach towards product categories. there are many retail professionals in India who enjoy the benefits of low prices, the retailer still retailer opens up the possibility of offering con-
For example, the beverages section in any of are pseudo experts, mainly because of their lim- manages to earn good margins," elucidates sumers a 10-15 per cent lower price along with
the Indian supermarkets has the same poducts ited experience in organised retail. Even the spe- Gupta. In fact, inefficiency in supply chains is increasing his own profit margins by 10-15 per

OCTOBER-DECEMBER 2008
2
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LEADERS
cent," he explains. Private labels represent 40 and
55 per cent of the entire product portfolio at Wal-
Mart and Tesco respectively. Back home, retail-
ers haven't taken it to that level. Gupta points out,
"So far it has been focused on clothing, home tex-
tiles and food. India is yet to see private label in
high-end categories, such as consumer durables,"
he says.

Emerging trends
However, retailing is still in its infancy in India
and it's only a matter of time before these short-
comings get addressed. A study conducted by
KSA Technopak showed that while it has taken
15-20 years for organised retail to attain 25 per
cent of market share in developed nations, the
Indian industry is expected to achieve the same
in 10-12 years. This is because domestic players
can learn from the experiences and best practices
of their Western counterparts. Gupta further
explains, "Even in the mature markets there is a
fundamental difference in the way retail has
developed in Europe and the US. In the US,
retail arrived after brands were established. So
the capabilities of US retailers mainly revolved
around managing supplies and logistics. While in
Europe, retail existed even before brands were
established. Hence, European retailers have also
focused on product development along with sup-
ply chain development. Currently, we are seeing
European retailers such as Marks & Spencer and
Mothercare UK entering India before American
retailers. This is good for Indian retail, as we
need to develop both supply chain as well as
product capabilities. And this will create better
A GREEN SUPPLY CHAIN
skills in Indian retail." Vikram Kasbekar, Head, Operations and Supply Chain, Hero Honda Motors
With the presence of established international
players in India, new trends are likely to take
Ltd, talks to Monalisa Das about their initiative towards green supply chain
shape. One trend that is already visible in some and the current scenario of such practices in India
quarters is specialty retail. Looking at the con-
sumer electronics segment, there are new brands
on the horizon such as Croma by the Tata Group, oncerns over increasing carbon how difficult was it to bring an attitudinal change Did you also align with external agents in pursu -

eZone by Pantaloons and Reliance Digital by
Reliance Retail. However, Karwal points out,
"These players are mostly selling discounted prod-
ucts, which is a wrong approach. A specialty retail-
er need not be a discounter, rather an expert who
can explain about a particular product category in
depth. Therefore, new players should invest in
developing depth of product categories."
Another trend with a lot of promise is multi-
channel retailing. Shoppers Stop has started with
Argos, promoting catalogue shopping;
Pantaloons has initiated FutureBazaar, an online
equivalent of its Big Bazaar stores; Hindustan
Lever has forayed into telephonic retail with
Sangam Direct. "A retailer needs to select chan-
nels based on the product categories it is offering
and see which channel will fit best," suggests
Karwal. "Hence, catalogue retail will play a
major role in gift items and accessories, which
would save the consumer's double effort of buy-
ing and then sourcing it to its destination," he
predicts. Similarly, the internet can be a power-
ful channel for products that require specification
comparisons, such as consumer electronics.
Looking from the point of view of consumers'
convenience, Gupta says, "New players must
have the right internet infrastructure, home deliv-
ery mechanism and an efficient inventory man-
agement." Shrikhande adds, "In order to operate
across multiple channels, retailers must have
upgraded technology and efficient supply
chains."
"So far the focus was to gain presence in the
market. Retailers only concentrated on land-grab
and talent-grab. However, the current scenario is
forcing retailers to look into improving their
internal processes and efficiencies. Hopefully, this
will ensure that most retailers come out stronger,"
concludes Gupta.

C
footprints and pressure from reg-
ulatory bodies have driven global
companies towards green supply
chain practices. A study of 335
global enterprises, titled Building
a Green Supply Chain, done by the Aberdeen
Group in March showed that as many as 87 per
cent of the respondents have adopted green prac-
tices in their supply chain.
Back home, Hero Honda Motors Ltd is
among the few early birds who have woken up to
the reality. With its Green Dealer Development
Programme and Green Vendor Development
Programme, it has tried to address the issue on
an end-to-end basis. In conversation with
Fasttrack , Vikram Kasbekar, Head, Operations
and Supply Chain at Hero Honda Motors Ltd,
shares his experience in introducing and sustain-
ing the green practices. Excerpts:
What kind of eco-friendly practices have you
adopted in your supply chain?
We have taken an initiative to eliminate card-
board packaging for all input materials and
replace it with reusable bins, trolleys and pallets.
We also ensure that all inward material-bearing
trucks carry empty trolleys, bins and pallets on
their return trip. This has tremendously helped
us in reducing waste as well as saving costs on
packaging. These apart, we are working towards
elimination of hazardous materials from our
manufacturing process. For example, we have
currently attained a completely asbestos-free
product line. We are also in the process of replac-
ing toxic hexavalent chrome with non-toxic triva-
lent chrome for electroplating.
In a country that hasn't yet fully awakened to the
concept of green practices in business operations,
among your supply chain partners?
It was indeed very challenging to bring about
an attitudinal shift. Initially we did a lot of hand-
holding to implement our green supply chain ini-
tiative in its full scope. One major apprehension
on the vendors' and dealers' part was the idea of
being saddled with unnecessary management sys-
tems, which may not be synergetic with the exist-
ing management practices at their end. Part of
the action plan was to convince our supply chain
It was a challenge
to bring about an
attitudinal shift
among supply
chain partners
partners regarding the effectiveness of the invest-
ment in capital and management efforts. The
efforts have borne fruit by way of energy savings
and resource conservation, not only for us but at
their end as well.
What were the other roadblocks that you
encountered?
A major problem was the mindset that invest-
ments beyond the bare minimum in environmen-
tal management systems will not yield returns
beneficial to any organisation. However, we
demonstrated the returns on investments (ROIs)
made by us in the environmental management
systems in the last three to four years.
ing your green supply chain?
Yes, we have actively engaged with the
Confederation of Indian Industries (CII) and
other supplementary resource agents at different
levels for the implementation of our green initia-
tives. The CII has primarily been involved in the
design as well as implementation of the pro-
gramme with our vendors. In the implementa-
tion stage, they have been augmented with other
supplementary agencies.
Besides reducing carbon footprints on the envi -
ronment, did these green practices benefit your
supply chain and overall business?
The eco-friendly practices have benefitted our
entire supply chain and have also helped us in
arriving at better management systems. For
instance, we have attained better waste manage-
ment system through segregation of waste into
recyclable and non-recyclable categories.
Similarly, recycling water has helped better water
conservation. Energy conservation has been
achieved through installation of energy-efficient
devises, such as CFL, natural lighting, etc.
Moreover, stack monitoring and emission control
have led to pollution control. Through compli-
ance with statutory government norms, we are
also moving towards legal compliance.
What are your plans of expansion of the green
supply chain initiative and how do you view the
future of green supply chain in India?
There is a lot of potential in green supply
chain practices in India in the medium to long
term. As for our plans, we shall be shortly setting
out to initiate the phase II of our green supply
chain initiative with dealers. Additionally, we
shall be initiating our drive to develop and deploy
carbon neutral technology and processes.

OCTOBER-DECEMBER 2008
3
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INSIDE OUT

ANGELENE KAUR

espite soaring inflation and rising

D
oil prices, the luxury-goods mar-
ket in India has managed to stay
buoyant. The country's large mil-
lionaire base, growing at about 21
per cent a year at last count, has
contributed significantly to the rising demand for
products and services that come at a premium.
An expensive automobile being one such must-
have, must-flaunt luxury product.
To cater to uber-rich customers who don't
lose sleep over steep fuel prices, a number of
foreign auto makers have put India on top of
their list of high-growth markets. Mercedes
Benz India, a key player in the luxury-
auto segment, reported a sales growth
of 45 per cent in the first quarter of
this year, while rival BMW India
registered a whopping 95 per cent
growth in sales during the same
period.
It is no wonder then that high-
end auto makers have set up assem-
bly plants in the country.
Mercedez-Benz assembles the C-
Class, E -Class and S-Class vehicle
series at its Pune plant. It faces
tough competition from BMW, which
assembles its 3 Series and 5 Series at its
Chennai plant. Volkswagen, currently
manufacturing the A6 in India, will soon begin
assembly of its new A4 vehicle at the
Aurangabad Skoda plant (also part of the
Volkswagen group).
Although local operations enable significant
cost savings for these multinationals, setting up a

ALL FOR A LUX

new automotive supply chain is a complex and
challenging task. So, how do these luxury-car
players manage?

Knowledge re-engineering
Mercedes-Benz, BMW and Audi dominate
the international luxury-car market. With a pres-
ence across the globe, these players have trans-
ferred their know-how from other high-growth
markets, such as China, Russia and Brazil, to
India.
"While the supply chain across high-
growth markets is comparable, establishing
procurement and purchase operations
depends on whether we have a plant in the
country or not," says Thomas Thym, Head,
International Purchasing Office, BMW India.
"In countries where we do not have a plant,
such as Brazil and the Middle East, the pur-
chasing activities are handled either by our
centralised purchase department in Munich or
by a regional purchase office. For example,
our IPO in Singapore takes care of procure-
ment for several countries in the South-Asian
region. But, by and large, new supply chains
are set up based on a standardised process,
which includes guidelines on how to commu-
nicate with suppliers and how to train them so
that they can smoothly handle the serial deliv-
ery of parts."
BMW decided to set up a local plant keep-
ing in mind the long-term potential of the
Indian auto market. Chennai became the loca-
tion of choice because the city was a major
automotive hub with a pool of skilled workforce
and convenient logistics facilities. It also offered
the benefits of an international airport, a port
and well-developed roads. The company cur-
rently imports completely knocked-down
High-end automakers strive to streamline their Indian supply chains in terms
(CKD) units from Europe, which comprise 90
per cent of the vehicle parts, and procures the
remaining 10 per cent of the components from
local suppliers. These are finally assembled at
the Chennai plant. Parts being procured locally
include car seats and door-trim panels.
Additionally, BMW leverages India's low-cost
advantage and exports components, such as
iron castings, ready-to-fit parts and motorcycle
parts to locations in Europe and UK.
Supplier quality
Identification of right suppliers is especially
crucial in the case of luxury cars because con-
sumers of this segment demand high quality on
a consistent basis. They are willing to splurge
exorbitant amounts, provided the quality stan-
dards are not compromised.
Therefore, it becomes imperative to not only
focus extensively on supplier selection but also
ensure that, once selected, the suppliers under-
stand what is required of them. Thym says, "We
need to ensure that high quality standards are
maintained for every component of the vehicle.
For this, we work closely with our direct suppli-
ers and keep track of who their sub-suppliers are
as well."
Another key step that BMW India insists on
is an in-depth discussion of the quality parame-
ters at the time of signing service-level agree-
“The volumes do not justify
the costs of a 3PL provider
right now”
Thomas Thym, Head, International
Purchasing Office, BMW India
ments (SLAs) with suppliers. The company feels
that just providing a list of quality "to-dos" is not
enough. Rather, each supplier has to undergo
constant training and development to reach a
required level. BMW's Indian IPO has employed
special staff that interact with suppliers regularly
and also keep a tab on the quality of products
being procured as well as the efficiency of logis-
tics and supply chain operations. "Focusing on
quality is a priority when it comes to luxury cars,"
Thym says.
Managing fluctuations
To weather currency fluctuations and rising
costs of raw material, BMW India has a mecha-
nism in place, which ensures that all risks are
shared between the suppliers and the company.
"We usually decide on a price band beforehand,
within which we adjust any subsequent price
fluctuations. Sometimes, the risks can be convert-
ed into opportunities and in this case as well,
both the suppliers and the company benefit,"
Thym says.
Concept of lean
As is the case with other industries, luxury
auto makers strive towards creating lean sup-
ply chains. Innovating to cut down on the dis-
tance between suppliers and the final destina-
tion is a constant effort. The longer the supply
chain, the higher the need for risk-reducing
activities, such as intermediate warehousing,
extra-safe packing for delicate parts that could
get damaged in transit, and efficient trans-
portation to ensure timely delivery. And high-
er the number of links within the supply chain,
the greater the chances of delays and losses
during the transit.

OCTOBER-DECEMBER 2008
4
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A LUXURIOUS DRIVE
pply chains in terms of having the right suppliers on board and ensuring efficient project management
Volkswagen, for its part, is building a ven-
dor park at its 575-acre campus in Chakan,
near Pune, in a bid to shorten its supply
chain. Europe's biggest auto manufacturer
plans to invite at least 10 of its German sup-
pliers to set up base in the area. The compa-
ny is in the process of shortlisting auto-com-
ponent suppliers who will provide material
directly to the plant. This will enable a vast
reduction in the delivery time of spare parts
as well as cut down on import and transporta-
tion costs.
The company will also leverage synergies
from the nearby Skoda Group plant. Another
option that is open to automakers is leveraging
the expertise of 3PL providers who specialise in
integrated warehousing, safe and reliable trans-
portation as well as providing options to track
goods in transit.
BMW's roadmap involves outsourcing its
logistics functions to a 3PL provider sometime
in the future. But currently, the company is
handling the task in collaboration with its sup-
pliers. "At present, the number of supply
chains that BMW is operating in India is lim-
ited. So, we do not have a 3PL partner. But we
are already brainstorming and discussing
potential partners who can manage our logis-
tics operations when the number of supply
chains increases, which is definitely the goal.
Identification of right suppliers is cru-
cial in the case of luxury cars because
consumers demand high quality on a
consistent basis. Hence, some manu-
facturers ensure supplier training and
development on a regular level
As of now, we customise and discuss delivery
options individually with each supplier but
there is definitely room for further improve-
ment. Unfortunately, the volumes do not justi-
fy the costs of a 3PL provider right now,"
Thym says.
Communication
Efficient and timely information flow
between the plant and the suppliers is essential
to avoid stock-outs or over supply. One bottle-
neck can be commitment to timelines and mile-
stones on the part of vendors. "We need to con-
OCTOBER-DECEMBER 2008
5
stantly follow up with suppliers to ensure that
the defined timelines are adhered to. Agreeing
to delivery schedules once is not enough; you
really need to keep asking if everything is on
track," Thym says. But he feels, "It's not so
much a communication issue as it is one of
project management. At BMW, we work close-
ly with our suppliers to help them strengthen
their project management capabilities, to
ensure that things are well understood and
make sure no milestones are skipped."
BMW India has laid down a standardised
procedure for communication with suppliers. It
has a B2B portal through which suppliers can
access and download any required data.
However, the internet application works as a
back-up because the company has realised that
direct communication works best with Indian
suppliers. "Meeting them personally to sort out
problems and calling them up to discuss process-
es is necessary. Just electronic communication is
not enough," Thym says.
Looking ahead
Having sold 1,360 cars last year, BMW India
has set a target of 2,800 units for this year.
Mercedes-Benz, leading India's luxury automo-
bile segment, sold 2,300 units last year and
expects sales of another 3,000 vehicles this year.
Audi is confident of achieving its target of 1,000
units this year after selling 380 cars last year in
India.
However, suppliers will need to work on their
processes to support the growth of these auto-
makers. "I would personally like to see an
improvement in project management on the part
of suppliers. Some of them manage quite well but
many others require a lot of guidance and devel-
opment from the company, even though they have
been catering to a number of customers over the
years. As of now, project progress needs to be
closely monitored by us, so there is definitely room
for improvement there," says Thym.

FT Issue 19_V1.1.qxd 9/28/2008 11:59 AM Page 6
THE AGENDA
IT’S ALL ABOUT THE MONEY
Fasttrack takes a look at the current level of collaboration between the finance and supply chain
departments among Indian enterprises
MONALISA DAS
he expansion of business operations to
T
offshore locations and increasing
involvement of third-party logistics
providers have raised supply chain
costs. With rising costs concerns, organ-
isations are taking finance-supply chain
collaboration more seriously. Fasttrack approached
companies across different industries - including
consumer electronics, FMCG, book publication,
retail and healthcare - to find out how the relation-
ship has evolved in the last five years. The results
show a positive trend, with 86 per cent of respon-
dents claiming to have reduced inventories by 2-12
per cent. On the other hand, an equal number also
stated that the partnership has increased their work-
ing capital by 9-10 per cent. This has been achieved
through different collaborative strategies and tech-
nological advancements.
Collaborative approaches
One of the most common approaches towards
collaboration has been forming a core group that
comprises select members from both the functions.
Almost 57 per cent of the participants stated to have
picked up this strategy. Another way has been to seek
inputs from the finance department at each step of
supply chain operations, a practice observed among
43 per cent of the surveyed companies. However, the
biggest facilitator for the alignment has been the
adoption of advanced technology. Seventy one per
cent have invested in technological upgrades for
introducing transparency in their system. The study
found that enterprise resource planning has become
almost a necessity for companies today. More so,
some have even tried their hand at new automation
technologies, such as Electronic Invoice Presentment
and Payment (EIPP) — a process through which
companies provide invoices to their suppliers and
clients, and collect payments through the internet.
When compared to the traditional method of print-
ed invoicing, EIPP is much faster and hassle free.
Around 29 per cent of companies have invested in has meant a more satisfactory relationship with sup-
EIPP. An equal percentage has also adopted pliers. Around 57 per cent respondents stated that
Account Receivable (AR) and Account Payable (AP) the alignment has eventually resulted in more trust-
Automation. worthy relationship with suppliers, and an equal per-
These apart, enterprises are implementing sup- centage has also seen an increase in their business.
ply chain finance — a set of financial approaches More so, 43 per cent respondents informed that with
and tools that aim at lowering supply chain costs, higher financial security, suppliers have started offer-
optimising working capital, and reducing cash-to- ing cost benefits as well. Eighty-six per
cash cycle. A major SCF startegy has been extension On the other hand, even the finance department
of payment terms. With this, buyers get a higher
cash flow position or liquidity, and hence are able to
has benefited. Around 71 per cent reported that the
tie-up has equipped finance teams with more accu-
cent respon-
buy more from their suppliers. Even suppliers are
able to sell more. Almost 71 per cent of the partici-
rate cash flow forecasts — due to better visibility
over the supply chain operations, and hence the abil- dents say that
pants have adopted this strategy. Also, 57 per cent ity to do better planning vis-à-vis allotment of funds,
have introduced early payment discount pro- borrowings (if any), and payments . professionals
gramme, which gives leverage to buyers in terms of Along with these, there also has been an attitudi-
discounts in lieu of advance payments. nal shift among members of both the units. Today,
professionals have developed better sensitivity
of both the
Impact
A big benefit of such efforts has been in attain-
towards each other's requirements and constraints.
Around 86 per cent of the enterprises have felt this units have
ing higher financial security in supply chains. Eighty change. That apart, 71 per cent stated that a
100
stronger team spirit has evolved between the mem- developed
bers.
90
80
86 86 86
Looking ahead
sensitivity
Percentage of respondents
71 71
70
60
57
These are signs of change. All respondents were
unanimous about pursuing this relationship to a high-
towards each
er level, with an ongoing effort in this direction. Almost
other’s
Early payment discount programme
50
Cash flow forecasts accuracy
Reduction in inventory level
Extension of payment terms
Increase in working capital
57 per cent informed that they have plans to further
Financial risk mitigation
40
raise the level of interaction between the two depart-
30
20
ments in the coming years. This shall be attained
through timely induction programmes and seminars
requirements
10
0
SCF Strategies Impact on SCM Impact on Finance
on issues regarding supply chain and finance. Some are
even planning or are in the process of developing web
and con-
portals for inter-departmental communication.
Assessment metrics of collaboration
Another 57 per cent stated that they are aiming at straints
developing a system whereby both functions work as
six per cent claimed that the collaboration has one team instead of two separate departments.
helped them in mitigating financial risks in their sup- However, this will take a long time. As of now, the
ply chains by 2-3 per cent. Reason? All key supply alignment has proved to be a win-win situation for
chain decisions are taken in coordination with the both, with better vendor and inventory management
finance team. Hence, supply chains are better pre- for the supply chain, and better planning and alloca-
pared with their risk management strategies. This tion of funds for the finance department.

OCTOBER-DECEMBER 2008
6
FT Issue 19_V1.1.qxd 9/28/2008 11:59 AM Page 7
CONCEPT
ACTING AT A GLOBAL LEVEL
A look at the key findings from PRTM Management Consultants' sixth annual survey of
global supply chain trends, conducted among 300 companies worldwide
SAHEEM WANI
ith supply chain efficiency
W
being recognised as a strategic
differentiator for modern busi-
nesses, enterprises are increas-
ingly globalising their SCM
tive advantage.
operations to attain a competi-
However, this raises some pertinent questions.
How can product quality and safety be ensured
when so many internal and external partners are
involved across the world? Can a globalised SCM
strategy be truly flexible in meeting the desired per-
formance benchmarks of an organisation?
While the jury is still out on these issues, the fol-
lowing five trends provide a broad-level insight into
the different ways in which companies are manag-
ing their supply chains on a global basis.
1: Structural changes
As 'more global, less local' becomes the mantra,
international supply chains are undergoing massive
structural changes. The survey showed globalisation
being realised for 42 per cent of all manufacturing
activities and 38 per cent of final assembly. Low-cost
country locations such as China, India and Eastern
Europe have accounted for a bulk of this shift.
Interestingly, support functions such as warehous-
ing and procurement are also being globalised. This
is set to gather momentum, as four out of five respon-
dents intend to offshore additional functions by 2010.
The most striking aspect of this year's survey,
though, lies in the globalisation of product and tech-
nology development. Conventionally kept at a com-
pany's headquarters, the push towards globalisation
of these functions has been driven by the need to
customise products according to international mar-
kets and dearth of qualified R&D personnel.
The survey shows that offshoring of R&D and
technology development activities will nearly double
by 2010, with the former expected to record a 105
per cent growth and the latter by almost 50 per cent.
The globalisaton of IT and other shared services
such as HR and Finance is on the wane, as these
avenues have already been exploited to the fullest.
2: Labour and material costs
Over the last five years, much of the globalisation
Globalised Functions 2008 and Projected Increase by 2010
Functions
Manufacturing
Final Assembly & Configuration
Warehousing & Transportation
Procurement
Returns & Customer Service
Supply Chain Planning
IT / Shared Services
Innovation & Technology Development
Product Development
Increased access to
local markets has
come up as a pri-
mary driver of sup-
ply chain globalisa-
tion, coming next
only to material
and labour cost
disciplines
campaign has been influenced by the desire to attain
cost and balance sheet improvements following the
2001/02 economic downturn.
This has resulted in strict cost control and ratio-
nalisation plans with a dual purpose; streamlining of
excess resources within the enterprise supply chain
and bolstering working capital performance.
The survey reinforces this ongoing trend of inter-
nationalising a company's operational footprint in
order to achieve overall supply chain cost reduction.
And pruning of material and labour costs has, once
again, emerged as the key factor, irrespective of
industry and region.
Meanwhile, increased access to local markets has
also come up as a primary driver of supply chain
globalisation, coming next only to material and
labour cost disciplines. Nearly 50 per cent respon-
dents forecast that this 'local penetration' factor will
gain momentum, although the sentiment was more
pronounced in Asian and North American compa-
nies as compared to their European counterparts.
Asian and North American companies also cite
investment of capital in emerging markets as a driv-
er of their globalisation strategy, while European
companies are more likely to focus on gaining access
to technical resources.
% managed outside of the home country
% already globalised (2008)
OCTOBER-DECEMBER 2008
7
PRIORITY
3: Management costs
The survey's respondents have achieved average
cost reductions of 17 per cent for each of their glob-
alisation programmes — as highlighted by 26 per
cent decrease in labour cost and 18 per cent cost-sav-
ings in local material procurement.
Still, many companies claim that the correspon-
ding management and overhead costs have reduced
only marginally, by 8 per cent. In some cases, man-
agement costs have actually gone up due to the more
complex coordination of domestic and international
activities.
4: Investments geographically
China outranks all other countries in manufac-
turing and sourcing, accounting for nearly 34 per
cent of the globalisation investments planned by the
survey participants by 2010. This is due to the coun-
try's strong, low-cost manufacturing base and the
lucrative domestic consumer market.
India is likely to receive 13 per cent of the total
globalisation investment, as it has gained momen-
tum as the preferred destination for IT, R&D, and
technology investments.
On the other hand, Eastern Europe will be the
recipient of 12 per cent of total funding, helped
by its proximity to key markets in Western Europe
and an attractive skill/cost mix. European indus-
trial companies and global automotive and elec-
tronics manufacturers are likely to spearhead this
push.
Finally, North America and Western Europe will
account for 16 per cent of funding. This will be par-
ticularly relevant in areas such as R&D, technology,
and supply chain coordination.
5: Product quality and safety
While increased globalisation yields benefits in
terms of savings in material and labour costs, it has
a flip side as well — risks associated with product
safety and quality. More than a fifth of respondents
complained of frequent and serious issues in this
regard. In some cases, decisions to go in for off-
shoring were reversed following serious quality
problems.
Automotive and industrial equipment companies
are the most vulnerable to facing major issues, while
the likelihood is minimum in case of electronics and
consumer goods companies.

% increase by
% increase by 2010 2010 vs. 2008
51 21%
47 23%
46 24%
43 26%
43 26%
34 30%
35 40%
35 50%
39 105%
Source: PRTM Management Consultants
EXTENDING
THE AMBIT
M r. Pawan Jain, 'Logistics
Guru' and CMD, Safexpress,
was honoured with the prestigious
'Lifetime Achievement Award' at
the Express Logistics and Supply
Chain Conclave on September
19th, 2008 at Mumbai. Safexpress
was adjudged the 'Best Supply
Chain Company of the Year' at the
same ceremony.
Recently, Mr. Jain also became
the proud recipient of the 'Bharat
Gaurav Puraskar' for the 'Best
Business Leader', conferred by the
Institute of Economic Studies on
August 23rd, 2008, in Thailand.
IES also honoured Safexpress with
the 'International Business
Excellence Award' for the 'Best
Business Enterprise'.
Furthermore, Safexpress was
presented the 'Amity HR
Excellence Award 2008' for adopt-
ing best HR practices by Amity on
August 29th, 2008.
Safexpress participated in the
4th North East Business Summit
2008 at Guwahati on September
15th and 16th, 2008. While speak-
ing at the summit, Mr. Jain high-
lighted the various challenges and
opportunities presented by the
Northeast before Hon'ble Vice
President of India, Mr. M. Hamid
Ansari; Union Ministers Mr. Mani
Shankar Aiyar and Mr. Jairam
Ramesh, CM's of all North Eastern
States and ambassadors & high
commissioners from countries like
Czech Republic, Malaysia,
Indonesia, Singapore, Thailand,
the Arab League, etc.
On July 9th, 2008, CMAI con-
ferred Safexpress with the
'Logistics Company of the Year
Award' 2008 at the 'Apex Awards
2008', Mumbai, for the third con-
secutive time.
Safexpress, in conjunction with
Mahavir International, on
September 1st, 2008, organised a
completely free-of-charge medical
camp for its employees at its state-
of-the-art Logistics Park in Delhi.
The employees were also given
free medical aid.
FT Issue 19_V1.1.qxd 9/28/2008 12:00 PM Page 8

OFFBEAT

STANDING OUT FROM THE CROWD

As the airwaves get swamped with FM stations, some channels have carved out a niche for them-
selves, courtesy of an exclusive focus on select audience segments. How? Fasttrack explores
MONALISA DAS Audience identification Chennai population," informs Prem We also talk to college students, spon- sible reason could be the risks associat-
"Initially, we were looking for a seg- Kumar, Station Head, Chennai Live. sor functions, go to ladies' kitty parties, ed with experimenting with a new for-
ho cares whether ment that was omnipresent so that we "Our research showed that there was etc," informs Srivatsa. "In the last one mat. Explains Srivatsa, "It's not easy to

W
it's hot or it's a
radio station for
the 'fatafat' gen-
eration? So long
as it plays the lat-
est chartbusters, it is one and the same
thing. This has been the perception of
radio listeners vis-à-vis FM radio
channels ever since the nascent indus-
try witnessed a boom in the late 90s. A
recent study titled Indian
Entertainment Industry Focus 2010,
by televisionpoint.com, stated that the
similar programming content of FM
radio stations has resulted in constant
channel swapping by listeners, leaving
little room for any significant brand
loyalty. However, when the thodi
meethi thodi catty channel asked
young girls, working women and
housewives to meow, it was different.
India's first just-for-women radio sta-
tion, Meow 104.8 FM, has broken the
conventional pattern of catering to the
mass audience and brought in the con-
cept of talk radio, where talk comes
first and music is secondary.
could be loyal to a particular group
and yet attract a wi der group of listen-
ers. And women seemed to fit the bill.
They have emerged as an upwardly
mobile segment and we felt our radio
station could be a perfect platform for
them to voice their opinion," says Anil
Srivatsa, COO, Radio Today
Broadcasting Ltd, the radio division of
the India Today Group that has
launched Meow. "Moreover, as men
are usually curious about women's
affairs, we could also see the potential
of an extended listenership among
men," he says.
Fortunately for the India Today
Group, the print experience of dealing
with women's issues came handy and
they didn't have to invest much time
and effort in research. However, it
wasn't a cakewalk for the Muthoot
Group when it decided to foray into
the FM market with Chennai Live.
"We conducted a four-week research
in 2006 which included focus group
surveys and intensive interviews
among different segments of the
a segment of well-educated, socially
and politically aware citizens that did
not find the current radio format rele-
vant. And we decided to fill the gap,"
he says. After almost two years of
groundwork, the talk radio channel
was launched this July, with a focus on
lifestyle, civic and political issues
through talk shows, discussions, etc.
Brand image
The second step was to create a
brand identity. As Kumar explains, "If
you look at radio formats of the US,
the UK and Australia, talk radio
means only talk without any music.
But in India, we haven't reached that
level yet. So we decided to tweak the
concept and introduce music as well."
Once the format is in place, the
need to sustain it and convey the mes-
sage to the targeted audience on a con-
sistent basis becomes imperative. "For
brand promotions, we use very obvi-
ous touch points where women fre-
quent. For instance, the screening pan-
els in multiplexes and metro stations.
year we have realised that viral mar-
keting is probably the biggest push for
us," he says.
Revenue generation
Meow initially used hoardings as
well. But that was mainly to build a
perception among the advertising
community. Attracting advertisers can
be a little difficult in the beginning for
niche radio channels because of their
limited listenership. "The real chal-
lenge lies in convincing advertisers
regarding the premium value attached
to a niche channel. This is because
such channels offer depth of market
reach that a general audience channel
cannot. Once they are convinced,
there is immense potential for adver-
tising. For example, today around 60-
70 per cent of advertisements are tar-
geted at women. Hence, for a channel
like ours, there is a big opportunity on
the business front," explains Srivatsa.
Despite these positive attributes,
the niche FM segment has been con-
fined to a few channels only. One pos-
get into something like this because it's
an unknown industry and requires
long-term risk taking. It's also a matter
of endurance. For example, Go FM
had started as an all English channel.
But later it transformed into Radio
One and went all Hindi. Had they
stuck to their original format, they
would have been able to carve out a
very special niche for themselves. But
since it was an unknown market, going
into the big impact was risky."
The future
However, channel operators expect
more players to come up, especially
with the upcoming phase III of licence
bidding where special interest seg-
ments such as classical music lovers,
sports fans and kids could attract
increased attention. "Currently, there
are factors such as high licence fees
and music royalty. If these come
down, more niche channels would
emerge. It's still a matter of three or
four years for niche channels to come
up on a large scale," predicts Kumar.

Fasttrack is a quarterly magazine on management, with a special emphasis on supply chain issues, brought to you by Safexpress Private Limited. The
magazine is committed to promoting business agility. Fasttrack reaches out to CEOs, finance heads and logistics heads of companies. We would be
A MINDWORKS MEDIA PRODUCT FOR SAFEXPRESS PVT LTD
happy to take on-board issues related to supply chain that you might be facing.
contact@mindworksglobal.com

OCTOBER-DECEMBER 2008
8