Supply Chain In Subhiksha
“We are a golden egg laying duck, we are in trouble. We need their (bankers and lenders) support and upon getting it we will restart operations and repay all debt. It is not easy, but we have to make it happen,” says R Subramanian, Founder, Promoter, and Managing Director of Subhiksha Trading Services, which owns Subhiksha. It is India's largest (in terms of number of stores), food and grocery, small format, neighborhood, convenience, discount retail chain. Subhiksha which means prosperity in Sanskrit is on the verge of bankruptcy.
In extensive research in consumer behavior, they found that the offering branded goods at a lower price than their competitors could make them stand out of the crowd. They designed the tag line accordingly “why pay more when you get it for less at Subhiksha”.
Problems faced by Subhiksha
The company faced problems in managing front-end and supply chain operations using its existing local Enterprise Resource Planning solutions (ERP).They were facing a lot of difficulty in accessing data across different regions using this local solution. It didn't have any HR issues at the ground level, sending the payroll to employees on time was getting difficult. The system worked manually, with a central team taking care of running 2-3 payroll systems in a month depending on the availability of the bandwidth and the entire process.
Expansion of Stores without adequate system control and IT Support. That's why there was a huge Audit and abnormal losses in the system. And when they have started implement ion of SAP the time has gone for survival of Subhiksha. The operations of the different outlets were not decentralized.
Expansion against consolidation:
With the availability of free capital and the irrational exuberance of the markets, people tried anything and everything to just expand without actually looking back at what they have become.
Lack of focus:
This to me is the biggest thing every other company in India faces. Once they see profits they will try for an Ambani or a Tata and try to become a conglomerate. It is just not one company they will run but they will create branches, Strategic Business Units, and do all kinds of stuff. In the end they forget what they really want. In Subhiksha's case though, it is not conglomerization but the lack of focus on the product mix they are offering.
I know retail is a different thing which might be confusing for anyone to focus on. But, before opening the 500th store shouldn't they be checking whether people are buying medicines from them or going to the medical shop round the corner. Before opening the 1000th store shouldn't they be checking whether people are buying a mobile from them or from a specialized mobile store?
On both occasions they answer is yes. I would rather go to a store which has a specialization for the thing I want to buy. I just don't want to waste my time in a shop which offers me everything and anything only to find that they don't offer a thing (which I want).
Supply Chain woes bare Subhiksha shelves
All goods are bought on cash to extract the maximum discount from suppliers; SKUs (stock keeping units, or the number of items on display) are restricted to the fastest moving ones of about 1,500. Most of the SKUs are bought directly from the manufacturer, cutting the intermediary out. Supply chain software, developed in-house, keeps track of what's selling and what isn't. There was a communication failure in informing customers why store shelves are empty. The stock outs in store lose some of the business.
Turndown of Subhiksha
The big mistake committed by the management of Subhiksha is expanding the number of stores rapidly without sufficient funds in hand. They thought of raising equity during last September but the things had gone too far before they woke up. The global markets were stated collapsing and there were no possible chances of raising funds. They were unable to tie up funds for our ongoing operations.
It is my belief that no matter how bad the economic situation is today, the economy will improve. When the economy improves, demand will start to increase and your business will need to be able to respond. Your ability to respond, and more importantly, your ability to respond better than your competitors will set the stage for how well your company performs as the economy improves.
There are numerous opportunities for improvement in any company, but I've outlined four ideas here:
1. Implement lean manufacturing So many companies out there that say they have implemented lean manufacturing but in reality all they have done is moved their inventory to their suppliers and made those suppliers deliver more frequently, in smaller batches (at a higher cost to the suppliers). To implement lean six sigma practices, you need to take apart your processes, examine each piece, and identify which steps add value to the customer and which steps is waste. Then you put the process back together, keeping the parts that add value and discarding the steps that don't. Once you have your internal processes in order, reach out to suppliers and customers to help them improve. Then you continuously improve.
2. Implement Sales and Operations Planning (S&OP) There are many companies without a Sales and Operations Planning process. Of the companies that are doing Sales and Operations planning many feel that their processes could be improved. S&OP provides two key benefits; Visibility to demand and supply projections into the mid to long term (typically 12- 18 months) and the ability to bring the various departments together (Sales, Marketing, Supply Chain Management, Finance) to define a plan that all understand and agree to. Companies implementing S&OP can expect; better customer service, lower inventories, more stable supply rates, faster and better controlled new product launches and shorter customer order backlogs.
3. Implement a Supply Chain Risk Management process Supply chain events can happen in good times and bad. Companies that have the tools and processes to predict and mitigate risk as well as respond quickly when the unexpected happens will be able to survive a supply chain event relatively unscathed.
4. Implement tools and processes to help you respond to change Successful companies have tools and processes that allow them to very quickly react to change and re-align on a corrected course. I'm not talking about ERP systems or Advanced planning (optimization engines). These tools are great at making a plan but slow at re-planning when something changes. To successfully respond to changes you need tools that deliver supply chain visibility, provide the ability to simulate changes and responses, enable collaboration with your team inside and outside the company and provide alerting mechanisms to let you know when something has happened.
Not only would implementing these processes better position you for growth when the economy turns, they can significantly improve your ability to manage through the tough economic times we are currently experiencing. As you go through your “downsizing”, “right sizing”, “and workforce adjustment” keep these ideas in mind. Remember that any company will likely come out of this recession and the process changes that you implement now can help ensure that your company will come through and can be stronger than ever.
Implementing Wireless Retail Solution
Working on wireless solution will aid outlets to mange demand and supply of stock on shelves. More stores will make the real-time information on price points of various commodities stocked in the store. It may also be used for real time data capture and coordination between the store and the supply chain.
A Radio Frequency Identification (RFID) tag (a chip) on items makes it possible to locate them physically besides providing information on aspects such as value and dimensions of the product. Research reports have indicated that this would replace the existing barcode tag used on items. But this technology is not cheap. Also the cost of RFID tags is likely to be higher than the value of most of the products that Subhiksha retails.
Strengthening Business Intelligence
The company needs to work on strengthening its business intelligence solution and its developing it in-house. A separate team is using internal data on price points, stock movement and purchase patterns to build a company-specific solution.
The company should focus on implementing off the shelf business intelligence models. But the company should not go for a third party solution and share the processes, giving them insight in end-to-end operations.
Need for a solution
The need was first felt when the company began to face managing its front-end and supply chain operations using its existing local Enterprise Resource Solution (ERP). They also find it difficult in accessing data across different regions using this local solution.
The company should invest in more effective ERP solutions and zeroed in on the SAP all-in-one solution. SAP covers the business requirements across the Line of Businesses (LOBs). It also caters to our planning and reporting requirement on a single platform. Also SAP would easily scale up to the volumes that they are expecting in next 3-4 years. Also SAP is very effective in ensuring functionality of HR and finance. SAP is an effective tool covering planning, merchandising, supply chain and other back end operations for the chain and also integrated well with the Point of Sale (POS) application at the front end.
Post implementation, Subhiksha will be able to ensure the smoother running of its business. With SAP, it has also built within the system the needed intelligence to streamline functions like replenishment, and inventory control, which have been standardized across the chain.
Subhiksha should also plan to successfully deploy common processes across the regions using the solution. Standardizing common processes bring in the needed predictability in the system and help nailing down the root cause of the problems.
Regional vendors would sell whatever they wanted to sell, irrespective of what was decided by the central team. It was difficult to monitor then. Now if everything is centrally controlled and we actually know which products are being sold? The big advantage here is they can track the articles that are being sold. Payroll processes will also become a lot smoother and more transparent with every employee now in a position to view his/her pay slip at will.