Putting the right foot first 

                                        group 10

In line with its new strategy, Reebok is furiously expanding distribution coverage. 
Has it opened a Pandora’s box?
Mukesh Pant has a brand new blueprint for his assault on the Indian footwear
market. Not only has the CEO of Reebok India junked his original strategy of
selling only through select shoe stores, today he wants to expand coverage to
retail outlets in as many towns as possible.
While the logic is sound, the task is nonetheless daunting. With the exception of
Bata, the footwear market has never had a national brand. The reason? The
logistics of footwear soiling is so complex that most companies have deliberately
preferred to set limits for their geographical area of operation. Even Liberty,
which has been around for decades, has very little presence in the eastern and
southern regions of the country.
Tackling the complexity is no mean task. Listen to Liberty's executive director      
Adarsh Gupta as he outlines the operational complexity in the business: "We have
500 different models. Each model has six sizes. Every size and model type comes
in a pack of 12 pairs. What this means is that the retailer should have stock levels
75-125 times more than his daily sales." Of course, the retailer is compensated
with a hefty 25 per cent margin to ostensibly to offset the high inventory carrying
costs.
But what about the manufacturer? The complexity is much the same just that he
has to keep an eye on all his distributors and retailers. Now, for Reebok there's an
additional complexity, it also sells in half sizes. And ever since it decided to extend
distribution, it has also had to cope with regional imbalances in demand. "After
entering new pockets in the country, we realised that demand patterns were
dramatically different from place to place. In the south smaller sizes of pink
coloured shoes tended to sell more, which wasn't the case in North India. Each
market has its own size curve," says Gautam Advani, general manager - sales.
Reebok India.
So even a small error in managing demand-supply logistics can prove very costly.
For Reebok, the smallest, economical-feasible production run for a particular
model is 5,000 pieces. This works out to around Rs 0.50 crore worth of stocks for
Reebok's lowest priced model.
 Reebok's solution is based on simple precepts: Keep very close tabs on stocks,
predict demand as accurately as possible, and use information systems smartly. It
was these very same seemingly simple ground rules that Carona ignored, and as a
result, had to shut shop.

Reebok is trying to avoid making the same mistakes. To begin with, it has put up
a centralised inventory management system that tracks offtake in all its 36 stores
and 350 dealer outlets across the country, Instead of setting up warehouses in
different cities. It has concentrated on maintaining the stocking at its Delhi head
office. "We regroup every month, get a sales report from all our stores, scan the
inventory position, immediately call back stocks that are not moving off the
shelves and ship it to other markets where there is a demand for that product,"
says Advani.

For instance, when Reebok discovered that its aerobic model was not doing well
in Delhi, they recalled stocks from the stores and sent the consignment to
Mumbai, albeit at an additional transportation cost. Advani says, "Even if we do
not make money in the deal, we keep transferring our stocks to obviate carrying
dead stock."
The next stage in Reebok's plan to simplify retail logistics is to move towards
larger stores, with even higher inventories. The logic? "Efficient inventory
management is all about turning over the stocks as rapidly as possible. If most of
the models can be displayed in the store, customers will spend less time in buying
a pair of shoes," explains Gupta.
The high real estate costs are an obvious deterrent. But until then, footwear
companies will have to do a fine balancing act between a large retail spread and
cost-effective logistics management.  
Question

1. What are management activities in the Company?

 
2. What are the steps undertaken while planning for reduction inventory?
 
3. Do you think it would reduce customer service? Why/Why not?

4. Research the current status of the company in India