The Real Indian Retails

Posted on 19 Jul 2019

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The real Indian retail lies in the unorganized segment. Does this line puzzle you? This should make you think because a common perception is that India as a nation is developing its retail segment by getting online or queuing at POS of some Modern trade outlet. Many departmental stores, big brands, and even online stores offer you to shop through and get the delivery at your doorstep, but the preference and need changes when you have to shop for a single item and you find distance or a larger queue as a pain point and you prefer to visit a local shop for the purchase. This is where the actual retail stands. On a broader perspective, the independent stores (also called as the mom & pop shops or Kirana shops) in India still occupy the largest share and that too with a big lead (80% plus).

 

Historically, Indians have acquired goods from traditional and small local vendors, establishing this approach all the way through the country. The reasons for these stores to perform well were these shops are in proximity of buyer, provide quick and personal service and at times operate on monthly credits. For these independent traditional retail shops, the supply chain is the key factor as it relates to- economically getting the goods or products, in a good quality condition, at a rate which is handy for customers to buy, get a better profit margin and create a locale that is steady with the brand image.

 

Supply Chain is the pathway in which goods travel from manufacturers (brands) or producers to consumers. It is a route that involves facilities, inventory, information, sourcing and transportation, pricing and finance flow.

 

Talking about the supply chain in India, it is largely traditional and unique in its own way. While very few brands (manufacturers) directly deal with the local stores (retailers); most of the brands follow a shared supply chain process to reach retailers or consumers. The creation and maintenance of this supply chain process require considerable effort, manpower, and investment. This is the joint efforts of many such resources who never meet each other (for eg: the transporter does not meet retailer) but help each other maintaining a balanced business chain.

 

 Unlocking the entities involved in the traditional supply chain process-

The traditional supply chain network for the products to reach independent businesses/ mom & pop/ kirana stores comprises of-

  • Retail Network
    • Brands or manufacturers
    • Depot/ C&F/ Super Stockists/ warehouses
    • Dealers/ Stockists/ Agents/Wholesalers or Distributors
    • Retailers or local stores

 

  • Logistics Infrastructure

 

Understanding the Retail Network-

Let us understand the supply chain through one of the good selling local shampoo, detergent, dish-wash and soap brands in Maharashtra and is considered to have low cost & efficient distribution channel in Mumbai, Thane, Nashik, Pune and nearby urban and rural locations. For this brand to supply their products to retailers across various regions is not an easy task. They cannot directly meet and supply products to retailers; thus there arrives the need to build a “Depot (or warehouse)” where the products arrive from the brand facility (manufacturing units), for storing as per delivery in nearby specific areas.

 

The brand packages the products in various units such as shampoo sachet (Rs 1/ sachet), shampoo bottles and shampoo solution. The reason these products are made in variety is because of the purchasing behavior as per regions and customer. For example, the rural population would go for sachets rather than buying a bottle and thus while sorting the depots make sure to package the products as per the region.

 

Here, one more point worth noting is before GST the products were sent on ‘Stock Transfer’ basis to the warehouses but with the implementation of GST, goods arrive at regional warehouses or depot after the issue of Sale invoices only. This has brought a major simplification and cost reduction in the process.

 

The transportation of goods from brands to warehouses engages either the dedicated transport (full truckload, FTL) or goods are transported in a shared truckload (part truckload) for small & medium consignments(which happens the majority of times). The benefit of shared transportation is cost efficiency and price advantage. From depot/ warehouse the goods are then supplied to the area distributors or wholesalers. Some brands appoint their field executives who take care of the distributors in the area for retailing of the goods. But there are many brands in place that do not have field executives and thus work on the wholesale model.

 

Now, when the goods are transported from depot to dealer (distributor), the percentage of shared transport increases, but it is flexible and even at this level, big Distributors may get consignment in FTL basis also. Whatever is cost-effective, that mode is chosen. Generally, there is a single dealer or distributor for a city, however, owing to a greater brand penetration; there can be multiple distributors in one city also.

 

A distributor or dealer is the representatives of the brands (manufacturers) that supply products directly to the retailers. The job of any distributor is to facilitate the supply of good from the main location to the destination location. Their major motive is not buying the product and selling the same, instead, they work towards a deal that is satisfactory to both buyers and sellers in the long term. Dealers supply goods to retailers based on the SKU demanded on top of the company price list. The transport of goods from dealer to retailer takes place through smaller load carrying vehicles such as loading rickshaw, thela or cycle-rickshaws, as the quantity demanded by the local retailers is less. The reason that a retailer buys from a distributor is that it provides better service, product replacement and credit facility with better profit margins.

 

This is the general traditional supply chain model. Here, the dealer or distributor can work for multiple companies also. Though there are some companies who appoint exclusive distributors, although the share of such companies is comparatively less.

 

The organization responsible for the stock is just till the stock achieves the Warehouse(C&F). Once the stock is circulated to the warehouse; it turns into the obligation of the depot center manager to deal with the stock. These warehouses have their arrangement of regional distributors or dealers who are particular at overseeing specific items. For example, some dealers are excellent at storing and distributing frozen items while others are on par with facilities to store multiple grains.

 

All through the inventory network process portrayed above, we examined around one channel of the procedure which is "movement" of stock or products from brands to retailers. This process includes a parallel channel which is the “manpower” or “company delegates”. The plan and arrangement between the brands (manufacturer) and the distributor or depot is encouraged by the brand agents at various levels, for example, Area Sales Manager, Re stockists Salesman (RSSM), Territory Sales Incharge and so forth that oversee Brand promotion at the retailer point and also supervise the supply of goods.

 

 Advantages of the traditional supply chain process-

  • The highly effective framework, as the number of goods, can be managed at the warehouse (depot) level for a large portion of the SKU's. The wholesaler can request limited subsets as required and the retailers can request a further limited subset of the stock according to his requirements. However, inventories are set at an overnight distance, subsequently if stock is short, response time is very less.
  • Logistics process involves warehousing and transportation costs, which is less as compared to modern trade. As traditional supply chain transport work on the shared transportation model, it is highly cost-efficient. The modern trade logistics involves express delivery through air transport or premium delivery models which are highly expensive. Also, this gives employment opportunity to many.
  • Smaller manufacturers can reach retailers providing equal opportunities for labors and growth, improving competition which prompts high quality and lower cost that place the end customer at a win-win situation.

 

Challenges of the traditional supply chain model-

Credit and distribution are important elements in a supply chain. Brands need to have a look at the distributors and wholesalers which have a good reputation in the market that can lead their products to end customers. There are many wholesalers and distributors who take advantage of the offers and discounts from brands and get involved in the illegal movement of these goods to attain more profits. Thus, the stock cost more for small retailers as they do not buy in bulk and the distributors tend to sell the stock to bigger units for better profits. This also has an effect on product quality if the stock is the loose product. Due to such fraudulent practices by the intermediaries, brands are at a loss. Brands do not get a direct association with small retailers and also waste their money and resources without even benefitting end customers. Having said this, the key limitations can be listed as under:

  • There is no transparency within this system resulting in non-compliance of the brand price list. Dealer or distributor does not receive goods at the same amount provided by the company and again the retailers do not receive at the best prices.
  • The range is not maintained for all the SKU’s; retailers and distributors are both interested in stocks which are fast moving and thus consumers do not receive a variety to choose from and also does not get the benefit of offers or schemes provided by brands.
  • There is no connectivity of brands to retailers and thus feedback of consumers, as well as retailers, does not reach brands.

 

Concluding View-

As we can sense, the conventional supply chain process in spite of being exceptionally cost effective and efficient is at a huge risk because of specific limitations. Thus, there is an immediate need for a productive framework that can interface retailers to the distributors, who will deal with their inventories better by using the present market situation. A system that provides retailers with more benefits, profits, best discounts and schemes, good range of products in required quantity and respecting their loyalty at every level of a supply chain is required for efficient working of small scale brands.

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