Procurement for Departmental Stores

Submitted by

Dnyaneshwari N (95) Majid Khatib (84) Wasim Tolkar (115)

Procurement - MeaningComplete process of obtaining goods and services from preparation and processing of a requisition through to receipt and approval of the invoice for payment. Commonly involves(1) purchase planning (2) standards determination (3) specifications development (4) supplier research and selection (5) value analysis (6) financing (7) price negotiation (8) making the purchase (9) supply contract administration (10) inventory control and stores (11) disposals and other related functions

Objectives To understand Procurement pattern of shoppers stop One of the fastest growing departmental stores One of the stores to implement ERP and Supply chain management To Understand the Procurement pattern of Akbarallys the oldest departmental store in Mumbai To compare and contrast the two models and identify problem areas Give suggestions to Akbarallys by benchmarking Shoppers Stop

MethodologyInterviews were conducted with the following designated individuals Purchase Manager Merchandise manager Logistics Manager References Mr.Devdas- Logistics Head Shoppers Stop Mr.Gopal Head Mens Division Shoppers Stop Mr.Yunus Purchase Manager Akbarallys

Shoppers Stop Profile 1991 First flagship store in Andheri, Mumbai Shoppers Stop is a member of the K. Raheja Corp. of Companies Shoppers' Stop is the first retail venture by the K. Raheja Corp. K. Raheja Corp. have been leaders in the construction business for over 48 years Expanding its operations to Bangalore, Hyderabad, Jaipur, Delhi, Chennai, Ghatkopar, Pune (Mumbai) and most recently Calcutta, Shoppers' Stop is today recognised as India's premier shopping destination It was awarded the "Most Admired Apparel Retailer" at the Images Fashion Awards 2008

Shoppers Stop Profile Customer Profile - age group of 16 to 40, SEC - A and B+, young couples with a monthly household income above Rs. 15,000 Range of Merchandise - apparel and lifestyle accessories for the entire family From apparel brands like Provogue, Colour Plus, Arrow, Levi's, Scullers, Zodiac to cosmetic brands like Lakme, Chambor, Le Teint Ricci etc., Shoppers' Stop caters to every lifestyle need. Shoppers' Stop has also introduced its own line of clothing in the classic, value classic and value fashion segments - LIFE, STOP, KARROT and KASHISH that are available across different categories

Shoppers Stop Profile Shoppers Stop has 4 divisions - the Mens apparels, ladies apparels, kids wear and the Non-apparels Following is their contribution to the turnover Mens 43% of sales Womens 18% of sales Kids 8% of sales Non-Apparels 31% of sales Shoppers Stop Motto: "We are responsible for the goods we sell".

Logistics Planning, execution, and control of the procurement, movement, and stationing of personnel, material, and other resources to achieve the objectives of a campaign, plan, project, or strategy It may be defined as the 'management of inventory in motion and at rest. Reverse Logistics - Flow of surplus or unwanted material, goods, or equipment back to the firm, through its logistics chain, for reuse, recycling, or disposal

Hierarchy Logistics Dept.Director Buying and Merchandising Supply chain management head Manager logistics and distribution Distribution Coordinator (link between SS and DCs) Four Distribution Centers Operating Costs - The logistics cost equals to 1% of the total turnover and includes the follow expenses Warehousing (OH, rents, staff, facilities), Transportation, Handling charges, Allocated Expenses, Re-packaging

Supply Chain Entire network of entities, directly or indirectly interlinked and interdependent in serving the same consumer or customer It comprises of vendors that supply raw material producers who convert the material into products warehouses that store distribution centers that deliver to the retailers retailers who bring the product to the ultimate user Supply chains underlie value-chains because, without them, no producer has the ability to give customers what they want, when and where they want, at the price they want Producers compete with each other only through their supply chains, and no degree of improvement at the producer's end can make up for the deficiencies in a supply chain which reduce the producer's ability to compete

SWOT Supply Chain

Strengths Suppliers, Efficient logistics, partners Weakness Less control over inbound logistics Opportunities Floor ready, Ready to sell garments Threats Competitors, rapidly changing systems

Buying ChannelManufacturer

Mumbai DC

Delhi DC

Bangalore DC

Calcutta DC

6 stores

3 stores

3 stores

1 store

Procurement StrategyProcurement Strategy - procedure used in converting requirements or requisitions into purchase orders or contracts

Centralized Procurement and no regional buying Target profile same across the country Better Cost Controls Better Bargaining Power Better inventory management 100% inventory control 100% tracking of inventory (whats selling whats not?)

Buying ProcessPurchase Order Sent to the manufacturer Delivery Authorization Manufacturer Dispatches merchandise to the DC DCs check the merchandise and confirms through its systems Accounts Department receives the confirmation Payment to manufacturer DC transports weekly req. to the store Stocks updated in-store

Pre-retailing team displays the merchandise

IllustrationA) Purchase order for 5000 shirts of Arrow Vendor ABC gets 4 Purchase orders from shoppers stop, for 4 DCs Mumbai DC Delhi DC Calcutta DC - 2500 shirts - 6 stores - 1000 shirts - 3 stores - 500 shirts - 1 store Banglore DC - 1000 Shirts - 3 stores

B) Delivery Authorisation for 500 Shirts DA is prepared on the projected sales for that week if the PO (6monthly for 2 seasons) for all 13 stores is 5000 and for a particular week shoppers stop sells 500 shirts, it will send a DA for 500 shirts

IllustrationC) Manufacturer dispatches the weekly requirements to the 4 DCs according to the DAs D) DCs check the details (date, number) of the product and match it with the invoice E) Accounts department receives confirmation F) Once the confirmation is sent by the DC, the stocks are transported to the stores, Dispatches are always made early morning G) Pre retailing team - Stocks are updated in the store

WarehousingWarehousing - Performance of administrative and physical functionsassociated with storage of goods and materials. These functions include receipt, identification, inspection, verification, putting away, retrieval for issue, etc

Regional Warehouses No in-store warehouses Number of warehouses - 4 Location Metros (Mumbai, Delhi, Banglore, Calcutta) Floor Area 20,000 to 22,000 sq.ft Transportation from warehouse to Store Done by the DCs

Distribution CentersDistribution Center - Facility that is usually smaller than a firm's mainwarehouse and is used for receipt, temporary storage, and redistribution of goods according to the customer orders as they are received Distribution centers for SS are 100% outsourced (internal supplier) Each of the distributions centers has a floor area of around 22000 sq.ft The DC is divided in to zones based on the brands or vendors . When a delivery comes in the person in-charge feeds in the details like merchandise type, brand name, size, color, batch number, date, etc. the system give him a ticket describing where the merchandise has to be kept It gives a detailed description of the pile and rack number delivery transportation from the DC to the stores is the DCs task

Distribution CentersAdvantages of having outsourced the activities Cost benefit No Labor problems handling labor unions No liability for pilferage by own staff and damages Specialized expertise of the company Dictate terms to the outsourced company 24 hours delivery, etc

Inventory Management Policies, procedures, and techniques employed in maintaining the optimum number or amount of each inventory item The objective of inventory management is to provide uninterrupted production, sales, and/or customer-service levels at the minimum cost Since, for many firms, inventory is the largest item in the current assets category, inventory problems can and do contribute to losses or even business failures Also called inventory control

Inventory Management SS has a system of checking stocks on a continuous basis 90 departments - each day one department is frozen after closing hours and the staff is made to scan the tags and feed in the stock levels in the system The staff is completely unaware of the stock levels according to the system The system then compares the actual to the customary and gives a variance reports Thus there is stock matching done everyday and the entire store completes a cycle in 3 months i.e, 4 cycles of stock taking each year

has helped them get the pilferage to its minimum

Inventory ManagementEvery day Auto Replenishment Shoppers Stop has determined its minimum stock keeping units and as soon as the stocks in the store touch that level, the DC is triggered to send the replenishment Thus the system automatically checks for stock out and replenishes it The lead time for replenishment is 1 day Every night data is collated and a store-wise list of merchandise is generated During the day the dispatched is made ready and the next day morning 6.00am the truck leaves reaching the store in an hours time

Inventory ManagementStock Keeping Units (SKUs) are determined on the basis of moving averages The system generates averages of the required quantities for the last two weeks the process is concurrent to the market conditions they go up with the demand and fall with the slump The minimum units are fixed which are based on the past lows and highs

Sales Forecast Projection of achievable sales revenue, based on historical sales data, analysis of market surveys and trends, and salespersons' estimates Also called sales budget, it forms the basis of a business plan because the level of sales revenue affects practically every aspect of a business

Sales Forecasting Sales forecasting is done for each brand then built up to the category then the division then store and then the entire organization Sales forecast for the spring summer season (1st April to 30th September) is done on 1st October, six months in advance Eg - Shoppers Stop has targeted a business of 1crore with Arrow for its Andheri branch for the year 2003-04 For its spring summer business it targets a sale of 50,00,000 Season 50lakhs Monthly - 8.33 lakhs Weekly 2.08 lakhs They keep a cover of 7 weeks hence need a stock of 14.56lakhs

Sales Forecasting Arrow shirt = Rs.1000/ Arrow trouser = Rs.1200/ ratio of shirts to trousers is 70:30 i.e., needs to stock shirts worth 1.46 lakhs & trousers worth 0.62 lakhs of trousers for a week This is equivalent to 146 shirts and 52 trousers Shirts are in the ratio of 1:2:3:1 for sizes 38:40:42:44

Payment Models Outright Model Consignment Model Concession Model

Systems Secondary (Update Records) ERP JD Edwards Merchandise Management system and front end Warehouse Management system B2B website

Supply Chain Management Shoppers' Stop has streamlined its supply chain has developed process manuals for each part of the logistics chain These modules include vendor management purchase order management stock receiving systems purchase verification and inventory build up generation and fixing of price and store tags dispatch of stocks to the retail floor forwarding of bills for payment Shoppers' Stop has tied up with Sembcorp Logistics (P) Ltd. as its logistics partner

Transportation Manufacture to DC Manufacturer handles DC to Store DC handles DC to Vendor (Reverse Logistics) AFL DC to DC AFL Internal transfers between Stores - AFL Modes of Transportation - Tempos

Reverse LogisticsReverse logistics comes in to action for 3 reason return due to 1. 2. 3. 4. Manufacturing defects Laying defects Consignment stocks Line defect Physical transfer of goods from stores to DCs DC makes RTV (return to vendor) System Debits the vendor

Process for Reverse logistics

Company Profile India's oldest retailers more than 100 years old company The management style has been conservative all along and the core principle on which it reaches out to its customers is trust Number of stores: 3 No. of departments : 13 SKUs: Around 12000 in each of the stores. No. of employees: 150 Average footfalls:

Hierarchy Logistics Dept.

PositioningPositioning - Marketing strategy that aims to make a brand occupy a distinct 'position,'relative to the competing brands, in the mind of the customer. Firms apply this strategy either by emphasizing the distinguishing features of their brand (what it is, what it does and how, etc.) or try to create a suitable image (inexpensive or premium, utilitarian or luxurious, entry-level or high-end, etc.) through advertising

Family store, where one can satisfy the needs of the entire family They have everything, from apparels gifts cosmetics appliances electronics home ware kitchenware, etc.

Customer ProfileCustomer Profile - Customer description that includes demographic, geographic, and psychographic characteristics, buying pattern, creditworthiness, purchase history, etc Their departmental stores cater to the upwardly mobile socio-economic class

(A1/A2/B1) of society

Buying ChannelManufacturer /Distributor

Godown (Chembur) Akbarallys (Chembur)

Godown (Fort) Akbarallys (Fort)

Godown (Crawford) Market) Akbarallys (Crawford)

Procurement Strategy decentralized procurement Merchandise is purchased as and when its required Most of the store procurement is from local players hence they procure just in time Merchandise is transported to the store warehouse by the manufacturer or distributor following which the merchandise is relabeled and stocked Akbarallys does not believe in bulk buying Thereby saving on capital blocked in inventory and lower warehousing costs and also avoid over stocking

Procurement StrategyCost Benefit Lesser space required to store inventory Lower storage costs Low investment in a warehouse Low capital investments in stocks No over stocking Inventory management works on a kind of JIT system

Disadvantages Loss of sale due to stock out

No benefits of bulk buying no discounts & credit period advantages

Buying ProcessManufacturer Approaches Purchase Manager

Purchase Manager & Merchandise Managers collective decision

Merchandise Supplied to the store warehouse

Warehouse Checks and confirms

Payment to the Manufacturer

Warehousing Akbarallys follows a decentralized warehousing strategy Each store has its in-store warehouse Benefits of in-store warehouse Easy access No internal transportation cost between warehouse and store Low levels of stock at the display counter, providing more area for diff merchandise

Disadvantages High warehousing costs Weak logistics systems High cost of internal transfers incase of discrepancies

Inventory Management The Economic Order Quantity is normally based on the past trends and experience replenishment is decided by the Department head in the store after consultation with the individual counter sales persons For e.g. if it is observed that 6 units of betel fixed line phone brand sell in a month the stock levels for betel fixed line phones are maintained at 6 units and accordingly the replenishment is done In peak seasons like festival time, the stock replenishment is higher as compared to other times (also decided on the basis of past trends of festival seasons)

Replenishment ProcessCounter Staff reports requirement

Store Manager prepares a memo

Purchase Manager checks

PM places order with the Manufacturer or Distributor

Distributor sends merchandise to the store

1) Payment Models Outright Model

2)Systems 3) Transportation Mfg /distributor to the Akbarallys Warehouse Mfg /distributors responsibility Warehouse to Store In store warehouse so no transportation costs Inter Store Transfers Courier

4) Communication between suppliers and storesPhone Fax

Problem Identification No bulk buying benefits Akbarallys buying from distributors Loss of sale due to stock out Pilferage in the warehouse due to bad handling, shoplifting All of Akbarallys warehouses are at Prime Location The warehouses being at the prime location demand high rentals and capital investments. Akbarallys has 2 warehouses in an area of 10 kms. Once the merchandise reaches the in-store warehouse, the merchandise is labeled and stocked. There are people appointed for labeling and there is a cost attached to this re-labeling

Suggestions1) Buying Channel

Manufacturer

Central WH

Chembur

Fort

Crawford

Suggestions

1) Buying Channel 2) Centralized Warehousing 3) Outsource Logistics 4) Buying from Manufacturer 5) Inventory Management system