Home Big Grid Supply-side economics of digital retail

Supply-side economics of digital retail

By  
SHARE

Going by the current situation, the bar on retail supply chain excellence is at an all-time high as companies race to service customers and keep cash registers ringing.  That being said, the current restrictions are more practical in comparison to the ones imposed in 2020. Although essential products and services have been given first priority, other consumption verticals are also functional, albeit with some limitations. Digital channels are surging once again as at-home consumption rises and online transactions replace physical shopping.

Efficient fulfillment of orders is largely dependent on retail logistics and end-to-end supply chain management — from order procurement to the customer’s door.

Some of the pressures on even the most agile of e-commerce companies are becoming evident; delivery lead time has been more than 7-10 days for most orders.  There has also been a huge drop in the level of ‘stocking and trading’ due to supply chain disruptions. Consumers are thronging stores and e-commerce sites to panic buy and stock food and FMCG essentials. On the other hand, there is a fall of workforce at manufacturing plants and farms due to local lockdowns, leading to a significant disruption of the supply chain.

Even post the current economic distress, there are lessons to be learnt for optimising supply chain processes for e-commerce and Omnichannel retailers. A white paper from Leading global professional services firm, Alvarez & Marsal (A&M) India and CII Institute of Logistics called ‘Enabling the Next Wave of E-commerce in India Through Supply Chain Innovation’ offers some ideas on what to expect. The paper notes how different e-commerce categories are expected to witness differential growth in the next five years with evolving operating models and the implications for logistics service providers.  The report states, “While the bulk of e-commerce volumes come from top 30 cities, more than 60 percent of e-commerce volumes are likely to come from Tier II and III cities in the next five years. It is an imperative for e-commerce businesses to build their seller base and delivery reach in smaller towns. A study of different operating models will help us evaluate the ecosystem and the expansion requirements for e-commerce companies to level up in times of high demand. These insights underpin the expertise to maximize value for clients through actionable results.”

As a result of lockdowns across the world, more and more consumers are gravitating towards e-commerce platforms to meet daily and essential needs. E-commerce firms have to look at new and innovative ways to cater to demands of the customers. There has been huge pressure on the supply chain management in this situation and it will be interesting to note how they rise up to this challenge.  

The challenges emanating from a mass business disruption lie not only in boosting supply chain efficiencies, but also in offering the right products relevant for consumer behaviour during the period.

“Managing retail and CPG supply chains in a Covid-19-like situation requires creativity and visionary leadership. The conventional wisdom regarding just-in-time inventory and flow through replenishment works in times of business-as-usual. But as everyone is finding out the hard way, such models cannot handle significant supply chain disruptions. Maintaining higher inventory levels may cost 0.3–0.7 percent more; yet in a crisis, the higher inventory levels pay off in terms of customer satisfaction and competitive positioning,” says Siddharth Jain, Partner, AT Kearney.

“The coronavirus lockdown has forced FMCG companies to step out of their comfort zones, as manpower shortage and shutting down of stores have brought the traditional distribution mechanism to a grinding halt,” says Amrinder Singh, Director, Bonn Group of Industries.

“The pandemic has been an eye-opener for the QSR sector. Every player in the industry has realised that a digitally integrated supply chain, contactless technologies, and automation is the only path forward,” says Kabir Jeet Singh, CEO and Co-founder, Burger Singh.

“The current situation has genuinely brought to the forefront the interconnectivity and interdependency that exists in every aspect of our lives. It has laid bare the weaknesses in existing supply chains across segments of various industries and underscored how essential supply chains are to people and the global economy. We have heavily invested in our supply chain, which gave us the capacity and capability to serve nationally even during the pandemic.”

To a certain extent, Burger Singh was, in some aspects, better prepared in comparison to some other players when the pandemic struck, Singh says. “For the past few years, we have been working towards developing efficient infrastructure for storage, sorting and grading raw materials while leveraging technology to develop end-to-end supply chain capabilities to optimise our operations. This has given us flexibility and options with our menu, even during a pandemic.”

“We adapted our supply chain during the pandemic by staying in continuous touch with our vendors, rationalising inventory into channels that were showing good growth like e-commerce and changing or product lines to remain relevant to changing customer preferences to address work from home wear and subitizable products,” says Alisha Malik, VP – Marketing and Ecommerce, Metro Brands Ltd.

“We have a dynamic and nimble supply chain with a 100+ vendor base across the country. We service our stores through a centralised warehouse and run an auto replenishment model for our stores and run consolidation exercises on a city, state and national level on an ongoing basis. The model is customer-centric that adjusts based on regional and channel-specific requirements. The pandemic created many constraints in the entire system as store openings were happening in a staggered manner. During the second wave, store closures were also happening based on decisions taken in various states and we had to ensure we stayed nimble and sensitive to the different variables across the country,” she adds.

“The pandemic has driven unprecedented change across industries and one such industry that has been at the forefront of disruptions in the supply chain and logistics. In my opinion, the supply chain is the most important point in any manufacturing setup. To be able to supply on time to our consumers and serve them in time, we build up stocks because it was my personal observation and understanding that lockdown this time will not be an economic lockdown and it would be a movement lockdown and the businesses would run. Assuming the same pattern we made sure that we had enough stocks for about two months,” says Manish Bansal, Director, Window Magic.

Tech and Logistics Intersect

Tata Consumer Products Limited (TCPL) created an autonomous and integrated supply chain with Blue Yonder, to  improve end-to-end visibility across the value chain to meet growing consumer demands and enable purposeful growth.

The two-fold mantra of safety and stock availability, helped LOTS meet the requirements of its members, including kiranas, restaurants, offices, ensuring an adequate supply of essentials. Initial announcement of lockdown had brought an overnight halt to truck movement. The company quickly identified the challenges and adopted the reverse supply chain model. The supply chain team of the firm has reached out to distributors and FMCG companies by sending trucks and procuring goods directly from manufacturing hubs. By undertaking this unique approach, the organisation has ensured that essentials and day to day items are always present at their kirana member’s store.

LOTS Wholesale strength is derived from its three-pronged business model i.e. physical store, digital store and BDA App. At LOTS, members get a completely immersive O2O experience as the company has been serving its customer base through its e-commerce platform (lotswholesale.com) and Business Development App. Moreover, the online platform provides ease to the members and directly delivers to them at their doorstep. Offline to online has been a core part of the business strategy and the brand is witnessing a healthy number of orders coming through the digital store which complements their physical presence.

“Very early in the pandemic, we had devised strategies and plans to ensure supply chain agility and inventory replenishments. Our operations team and our staff worked tirelessly to obtain required licenses and adapt to the odd hours because of the various lockdowns. These plans and strategies combined with our robust supply chain model have ensured smooth feasibility in the business even in the runway of lockdown,” says Singh from Burger Singh.

“During the peak of lockdown everything had become uncertain and there was certainly a shortage of manpower. To ensure the smooth functioning of the warehouse and the overall supply chain, along with the necessary safety precautions of our employees, we decided to make arrangements for people to stay back at the warehouse,” Malik adds. “The commitment and dedication of our warehouse staff was truly inspirational and as long as they were safe and well, we could keep our engine running. As things opened up and traveling was a major concern, daily pick-up and drop arrangements were provided to them.  Following the safety protocol, all products were sanitised, and employees were masked up at all times. Revising the purchase orders, making alterations to merchandising plans, and reallocating resources were taken into consideration and nationwide inventory consolidation was the need of the hour. We stayed in constant touch with our vendors and supporting them and giving them visibility on our planning was immensely important.”

“We pre-stocked a lot of material and because of which we are operational to the tune of say about 45-50 percent but that is not only because of the inventory, but also because of the manpower we have. We have enough business in hand to serve customers and we are able to service customers in the current situation as well. We have been making regular dispatches to our consumers and wherever possible we are also getting end-to-end installations and providing customer service. In my opinion, I would say another two years would be a time wherein similar situations will keep on coming and going. We have to build up stocks and contingencies and serve our consumers,” says Bansal.

“Aggregation helps in capacity building. Our strong capabilities in analytics ensures better forecasting and planning of the volumes at lane and Pincode level which enables carrier service providers to plan their fleet on Street and drive productivity and better cost during the most challenging phases of COVID  lockdowns,” says Indranil Nath, Senior Vice President of Supply Chain at logistics firm Shiprocket.

Supply Chain-breakers 

Transportation: Transportation is the backbone of supply chain. With around 80-85 percent share in the value terms currently, the percentage of transportation will always remain high in coming years. However, the lockdown has imposed major restrictions, as a result air, rail and road services are feeling the heat in fulfilling the demand supply. A large part of Indian retail industry is still dependent on transportation via roads and therefore, despite the measures and support from the government, the supply chain industry is feeling the pressure.

Another major fallout here is unemployment. Due to social distancing and lockdown restrictions, companies have to operate with a limited number of workers.

Manpower: With millions of migrant workers back home or under lockdown, supply chains and other retail businesses are struggling to deploy even 20 percent of the required labour force. For maintaining inventory in warehouses, a skilled workforce is required, which seems a distant probability in the new normal. Aside from this, factories of essential goods have been operating with restricted working hours, reduced staff, and shortage of trucks.

Hygiene: With hygiene becoming the new standard by which industries are being judged today, the country’s supply chain management needs to put in that extra effort and time in maintaining the sanitation process during transportation and delivery of products. Supply chain management is done in a closed environment involving a number of workers (both skilled and unskilled), and with social distancing the new normal, working in closed areas requires fool proof safety measures to ensure employee wellbeing.

Lack of Inventory: The sudden spread of COVID-19 caught most retailers unawares, not giving them enough time to stock up on products. With the lockdown in place, retailers are left with limited stock of products, with a lot of inventory stuck in the state specific or local warehouses. This in turn is becoming a challenge in supply chain management.

“When the pandemic struck, a single-source strategy meant shortages and production interruptions that adversely affected operations for many players in the industry. Fortunately, the industry has realised the importance of diversifying the sourcing of raw materials and has adapted to implement the same in the supply chain,” says Singh.

“Another challenge that has plagued the industry for quite a while is the lack of actionable data and insights, which affects the decision-making process when it comes to supply chain management. Furthermore, historical inventory management strategies have been found wanting. All this and many other issues are on the mend since the pandemic has sped up the automation of logistics. Adopting new and innovative technology solutions has become imperative for ensuring lesser disruptions and seamless operations,” he adds.

“High cost of fuel in India, overdependence on ‘Surface Trucking’ for transportation compared to other developing countries and the infrastructure to support trucking on Indian highways is also a huge challenge,” Nath notes.

The Essential Toolkit
GlobalData’s Disruptor Database, which analyses and showcases real-world examples of vital use cases across disruptive technologies, points out that companies are leveraging digital technologies in the supply chain to create new disruptive product offerings, services and business models.

AI: Leveraging AI, companies can optimise supply and demand gap, automate decision making, channel warehouse requisites, identify target consumers, and bring greater visibility on order- to- delivery supply time. For instance, Arizona’s DigiTech company Blue Yonder launched an AI-powered end-to-end digital fulfilment platform ‘Luminate Planning Portfolio’ for manufacturers and retailers. The automated supply chain solution allows companies to fully manage their supply chain with streamlined planning, visibility, and improvisation.

Big Data: Chicago-based freight tracking logistics startup Fourkites has tapped predictive analytics to provide predictive capacity management solutions for logistics companies. It can automatically predict the availability of private fleet trucks and match these trucks in accordance with shipping demand.  The use of supply chain analytics across industries is increasingly becoming key to improve operational effectiveness by enabling data-driven decisions across levels.

Blockchain: Blockchain provides an open, tamper-proof, distributed record of transactions and, in turn, increases the accuracy and efficiency of supply chain systems. Shanghai -based blockchain developer VeChain launched a food safety solution ‘ ToolChain’ to improve end-to-end transparency in food supply chains. This Blockchain-as-a-Service (BaaS) platform enhances supply chain food traceability amidst the raising food safety concerns following the COVID-19 outbreak.

Digital twins: Digital twins allow the digital representation of a company’s actual supply chain, which can be leveraged to streamline and manage the supply chains and business strategies. Germany-based global logistics company DHL created a digital twin warehouse, which receives real-time data from the physical warehouse and continually tracks performance to identify optimal storage solutions.

Robotics: Robots in supply chains play a vital role in a broad range of applications beyond the basic transfer of objects. For instance, Singapore-based designer and manufacturer of warehouse robots, GreyOrange, has introduced a robot sortation system to enable retail, FMCG, and e-commerce companies to manage distribution networks.

“We are very much dependent on technology in terms of logistics and supply chain management. Even during our initial journey, the only hurdle the company had to hop over was making the supply chain efficient once the brand had arrived at that scale.  To ensure an efficient supply chain, we have leveraged data-driven software solutions and automation systems to institute advanced packaging labelling, warehouse sorting, forecasting etc. and drastically cut down the time taken for order completion and delivery. The pandemic has brought about unprecedented supply chain challenges, and nothing in our recent history compares to it. The only path forward is adapting to this new abnormal normal and bringing about technological changes that can help the industry evolve to cater to the evolving consumer needs,” Singh states.

“Tech and data optimization were integral for us to have a clear picture of inventory and the goods in the pipeline during the pandemic. We run our supply chain via SAP and we could get a clear understanding of where we would be over and understocked. We also run an auto replenishment and inventory consolidation tool using the ideology of the Theory of Constraints. This enabled us to move inventory quickly from cities that were badly hit to cities that recovered faster. Having said that, technology works best when it is business as usual. We definitely needed our best brains and strong business understanding to navigate this crisis. Machines are not always suited to deal with drastic changes, but people are. We used the best of both and will need to depend on both in the face of the second wave,” Malik explains.

“We at Window Magic are adopting digital ways at a much faster pace and are investing in technology to improve the quality of supply chain and customer service. I think now there is an appetite and companies are now moving ahead from the ROI approach to technology. The companies are learning towards technology to find supply chain solutions. Technology is playing an increasingly critical role in the success or failure of any business. Over the last several months we have been discussing the post-COVID comeback strategies and priorities and one thing has come out clear and certain – “Retail in the post-COVID era will never be the same again. “Contactless” will be the new normal in retail and technology companies will help retailers achieve this through multiple technologies.

Augmented and virtual reality (AR and VR) solutions expected to gain importance as a preferred technology in retail. For instance, furniture suppliers and manufacturers are also all set to provide customers a virtual tour of their home decorated with furniture and decor from their collection. Users can get virtual tours from their homes with the help of 3D visualization about the different furniture setups,” says Bansal.

“Technology is the most important pillar in efficient supply chain architecture. Initially it was mostly around Warehouse and Transportation Management systems and Warehousing Tech like automatic sorters, pick & put to light etc. Whereas these days deep AI & ML are being used to make the SC more efficient and dynamic. Internet of Things and Blockchains are the new innovations which are opening up newer dimensions in supply chain optimization,” Nath points out.

Expert Advice
The logistics systems and warehouses involved in the supply chain in Tier I cities are technically advanced and automated. As a result, they are still functioning and are able to process demand despite working with limited restrictions. Regrettably, Tier IV, V and beyond are mostly labour intensive, requiring vast amounts of paperwork among other formalities. In the current COVID-19 pandemic, governments and businesses with strong digital infrastructure and enabling regulations such e-signature and e-transactions laws, are dealing with the supply chain disruptions much better than those without. Digitization will make the entire process agile, transparent and responsive.

For Burger Singh, the five elements of supply chain that a company cannot and should not afford to ignore are Storage, Warehousing and raw material handling, Packaging and unitization, Inventory management, Transportation and tracking and Control.

Alisha Malik emphasizes on Omnichannel solutions and inventory visibility, Agile & Adaptive supply chain technologies,  Data driven management,  Automation  and  Manpower/ people management.

Some other key guidelines industry experts advise are:

  • Build your estimations for futuristic planning
  • Manage your manpower for better logistics; without adequate manpower, a logistics infrastructure will fail.
  • Get all teams vaccinated
  • Embed flexibility in the architecture
  • Provide details of shipping in real-time
  • Maintain the “right” amount of inventory
  • Develop a problem-free Return Policy
  • Enable consumers to buy and return goods via any channel
  • Track the life cycle of the product as well as the customer’s purchase habits.

A supply chain initiative needs constant upgradation. In India, the need of the hour is to implement supply chain finance programmes to support suppliers in dire financial straits and make the value chain more capital efficient. If companies begin to institute data sharing in their supply chains at the same time, they will be in a much better position to deal with future upsets.