Retail Dude

CRM (Customer Relationship Management) is regarded as key to the success of any Retailer. Most of the retailers across the globe are investing in Customer Retention and Loyalty Building Programs. In case of a Specialty Retailer who caters a niche variety of product, these can be achieved by well designed CRM Program. But in case of Large Format Retailers like Wal-Mart, Tesco, IKEA or Big Bazaar for that matter, it will not be solely depend on CRM, though it plays an important role. Customers of such Retailers expect Best deal in comparison to others and 24X7 Availability of products. Thus Supplier Relationship Management (SRM) plays pivotal role in success of Large Format Retailers.

SRM is a process which helps Retailer in identifying there key suppliers and integrating them in there business to create a win win situation for both the parties. SRM fills the gap between suppliers and retailer’s understanding of market demand and thus create a win win situation by aligning retailer’s sales plan and supplier’s manufacturing plan together. It ensures that retailers get the best contract and suppliers get long term commitment. Moreover it eliminates the possibility of any kind of dispute between both parties by bringing them on same page in regard to all policies like returns, facing, pricing etc.

The process of SRM can be penned down as follows:

• Identification of potential suppliers based on qualification required.
• Evaluating and selecting suppliers on various parameters like product, price, capability, background, brand etc.
• Entering into agreement with selected supplier in terms of price (term of sale); return policy, ordering policy etc.
• Identifying key suppliers in different product categories based on sales volume and demand of product.
• Selected strategic suppliers will be CPFR (Collaborative Planning Forecasting and Replenishment) Vendors and will have limited access to Retailers Sales Plan so that they can align there Manufacturing Plan accordingly.
• Retailer need to regularly monitor the performance of Suppliers.

In my next post I would be discussing on CPFR in detail

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- Rajeev Damani

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Dear Readers,

A set of three new rule books for businesses in the country is going to transform and affect a company’s operations. Welcome GST, IFRS and DTC!

GST (The Goods and Service Tax) will be the one whole sole tax that the Government has proposed that will swallow all other indirect taxes that we end up paying. GST will treat as one market in terms of taxation and thereby only a single rate for products. Currently companies pay the central excise duties, the VAT imposed by the State Govt. Not to mention there are entry taxes and interstate taxes that is burdened upon. The proposed date of application of the GST is April 1^st 2010, although it’s almost ready to be postponed for sure as the Centre has a huge task of bringing all the States to the same page. Not to mention that the companies have a hefty back end work that will be needed to complete, this means aligning business documentation, supplier relationships, distribution, compensation policies, loan agreements to name a few. The benefits are major as the GST (proposed to be around 16% - 18%) will significantly reduce the total combined taxes (currently around 35%-40%) that are prevalent today to any sale of product or service provided. Talking about impacts, the first to flash is lowering of prices, this will increase demands. A single price for any product or service across the country which gives consumers a great relief. Talking of benefits to organizations, having regional warehouses instead of having one in every state impacts supply chain costs and capital investments. You will see a real application of the ‘hub and spoke’ model where a single warehouse caters to a lot many states at retail too. A significant change will be lower capital required to match the same level of production owing to consolidating the excise duty in GST.

IFRS (International Financial Reporting Standards) is a new basis of accounting that is more transparent being followed globally. About 100 countries have adopted it, which then makes comparison of statements across companies much easier. This will eventually replace the Indian GAAP structure. Again the adoption date is effective April 1^st 2010. Companies listed and unlisted will now have to consolidate their accounts, not just subsidiaries but associate and vendors they control (GAAP defines it as total control, but IFRS states that it could be partial control or directing activities too) . “Fair Value” accounting is to be adopted where all transaction or entry will be reflected in the current market value. This also means reporting for intangible assets like, manpower, copyrights, brands, patents, customer base etc, therefore a constant evaluation of assets take place. This will result in a wide variance in income and profits as companies will not be able to dump their losses into subsidiaries and associates. It is sure to have a big impact on FMCG, Pharmaceutical and the Automobile industries where a lot of vendors are implied. It’s sure to change a way of business in India.

DTC or the Direct Tax Code is a proposal to take an effect 2011. Under this regime the proposal is to cut the corporate profit tax from 34% to 25% all inclusive including surcharge and cess. The change in MAT (Minimum Alternate Tax) from the current 15% of booked profits to 2% on the gross assets for non banking firms. This simply means a loss making venture also can’t avoid this tax, but the losses can be carried forward too! These rules will even the playing field. Economics and not incentives will decide locations of new units. Tax holidays and Special Industry, what’s that? Location based incentives will be a passé. Special industrial zone status like (Baddi in HP) where a lot many FMCG and Pharma Co’s have their setup without much competitive advantage or Export oriented incentives/ SEZ’s or Software Parks / Infrastructure companies ( Sec 80-1A) rebates that they all enjoyed so far will be flushed out. However 9 businesses have been exempted like oil and gas, SEZ developers, power, cold chain, warehousing, hospitals (in select areas), fruits and vegetables, oil pipelines and infrastructure, as they are considered high risk developments. Although the incentive will on the amount invest and not where they invest.

Overall, the new regime if implemented on the deadlines will affect the way corporate houses do business and in the right way. There will be much more accountability and will be a change in which companies measure its customers. Pushing towards mere financial gains will come hard by. A better collaboration of industries will soon happen and therefore a better consolidation. The customers are sure to laugh their way back home.

Cheers to One India!

Sudip

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Guest Post:

When we say that the market is changing we should ask ourselves who is changing the market? If it is not you, changes done by your company will not yield significant gain.

I am going to discuss changes in market dynamics with respect to introduction of new products. If a company is not leading the product innovation in the market, company is bound to compromise on the bottom line. In such situation the new product will be new to the portfolio of the company only but not to the market. A real new product introduction means surprise to market.

In one of my earlier post I discussed the correlation between new product introduction and market share. I listed some variables like working capital of channel, rotation of working capital and pace of introduction of new products should be properly planned well before laying out the product road map. It seems theoretical but I convincingly suggest to focus on following parameters at the time of introducing a breakthrough product to make sure that the planed gains are intact:

1. Pace of introduction: It is a philosophy of a company’s strategy which defines dynamism and youthfulness. High risk with high returns. If executed properly, it will establish a product leadership image of the company. Every successful introduction will fetch a yield, during its life cycle, much more than the cost incurred in ten mediocre or failed introductions. When we say pace, it’s important to assume the competition will copy it in no time. Pace is introduction of real products in the market, consistently with a motto to surprise expectations of the customer every time. In competitive environment it will give you a first mover advantage with better sales realization and in monopolistic environment it will increase barriers on entry of competition. The pace of introduction can be decided based on the intensity of existing competition.

2. Working capital of channel: Only new product introduction may not give the desired growth. Think this in a way that if cumulative working capital of all the channel partners is constant, the retail will only replace the existing portfolio with new one. This may give better top line because of higher realization from new product but overall volume will remain constant. If a company’s thrust is to expand, the sales volume will increase only with increase of selling capacity of the channel. This can be done with penetration into untapped market. More distributors or more retailers means more working capital. If such distribution plans are in place the real volumetric growth of new products can be assessed.

3. Cycle time: Or the speed of rotation of working capital of selling channel. This is the area which any company in any industry will love to improve. This is also a measure of supply chain performance. With the proposed implementation of GST (in India) we will see a radical shift in collaborative supply chain management with better distribution at lower cost. A longer term strategy on depot and inventory planning in line with product road map and futuristic capacity planning is required.

This is a guest post, the original article can be found here: http://santoshsrivastava.wordpress.com/2009/10/24/surprise-expectation-of-consumer-every-time/

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Dear Readers,

Let me wish you on behalf of the Retail Dude Team a very prosperous year ahead. Let it be a year of change.

With the advent of new modern technology and business methods, one thing that most organization does is to create wealth for themselves. In primitive a few companies did go public and created wealth for its shareholders and gave a handsome to employees as esops which of course strengthened our national economy. But today a new economy has emerged the one of Social Economy where entrepreneurs make a far greater impact to a societal section primarily the disadvantaged ones. Slowly but steadily Social Entrepreneurs are the new wealth creators and I believe they are far more innovative in approach that can be a lesson to the government and companies alike.

But do not make a mistake of realizing that they are just mere charities for they use all modern methods and technologies and yet are not greedy but have a drive of creating a social impact. Some may quote that bigger companies do their bit by funding and resolving issues of the communities so called as CSR, but the prime difference is that a handful actually are sustainable!  I am yet to quote a few notable existences of people who have transformed this picture and yet can find that they have managed to evolve themselves even in the shades of the bigger corporate giants. Almost like a phoenix have created values and wealth from dust.

“DesiCrew” is one of the efforts of Saloni Malhotra who started this venture of a rural BPO in the villages of Tamil Nadu in 2007 and managed a turnover of over 2 crores last year. Not to mention Satyams Gram IT was already in place by then, but today the winds of change have hit Kollunmangudi and created a big social and commercial impact. “Bamboo House India” of Prashant and Aruna Kappagantula realized that bamboo art comes naturally to the tribes residing in Tripura and the fact that most bamboo furniture sold in the country was made in China! After they setup their company, the earning potential through a cultural art has thrived in the region and has a potential to bail almost 5 million people above the poverty line. The bamboo ecosystem also revitalizes the environment, a classic triple bottom line result.

“Industree Crafts” created by Gita Ram and Neelam Chibber (NID) set up in 1994 is another tale of how the modern economics can fortify the rural talent. The chain of Mother Earth stores which stands proud today is no more than a market linkage of the urban demand to the rural artisans. In fact they also managed to bag orders from global brands like Ikea, Crate&Barrel and Interface boosting the lives of more than 350 artisans groups.

Talking of crafts and hand work none can challenge Fab India’s niche and its vast network of over 100 retail outlets.  Set up by John Bissell, today Fab India supports more than 30000 artisans and over 17 small producer / community companies. Through their sourcing of materials, has also boosted cottages industries spread across geographies. It actually recorded over 300cr as revenues for FY09, truly FAB!

The focus is not only on delivery but also on affordable innovation as “D.Light Design”  and “Selco” have done to bring in cheap solar powered led lamps that run up to 12hrs a day with a minimal charge. The innovation also was a hit with poorly electrified states with items like mobile chargers, cookers etc using all but using solar cells. The dilemma and the question that lies unanswered now is that if such technological advances can take place to help the poor, why isn’t it being used as an alternative power/ fuel solution to the urban?

To talk of young entrepreneurs, none match Dr Vikram Akula creating “SKS Microfinance”, which today has disbursed over 3000 Cr as loans to 3.95 million lives. SKS single handedly changed the face of microfinance which even the state owned banks couldn’t do.  Nearly 4 lakh Sangam members of the Company own Kirana or small grocery stores. The Company has launched this project to provide working capital finance to help these Sangam members to buy Fast Moving Consumer Goods (FMCG) and groceries through a dedicated vendor. The Company has partnered with METRO Cash & Carry India Private Limited, one of the world’s most-reputed wholesalers, who deliver 13,000 SKU (Stock Keeping Unit) at competitive prices and standard quality at their doorstep. Insurance is yet another feather which SKS has added. No matter how significant the business idea may be, it is SKS that did lay out the very foundation to carry it out, by economic empowerment through small credits. No wonder that they still have a 99% credit recovery record.

And who can forget the firebrand Ela Bhatt’s “SEWA” which had helped millions break the bonds of poverty in Gujrat setup in 1972 and now into more than 8 states. From financing small rural entrepreneurs helping them earn a livelihood to healthcare, insurance, schooling, eco tourism SEWA has done it all. In fact it also set up Rudi multi trading company a marketing channel for the rural by the rural. Bajaj Electricals uses packaging made by Rudibens. SEWA also broke the national barrier with it importing 10Tonnes of dry fruits from Afghanistan creating a market for them whilst a market for us. Guess where her next stop is? Africa!

Social entrepreneurship describes a set of behaviors that are exceptional. These behaviors should be encouraged and rewarded in those who have the capabilities and temperament for this kind of work. We could use many more of them. We need social entrepreneurs to help us find new avenues toward social improvement as we enter the next century.

Cheers!

Sudip

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