The issues andchallenges in Indian retail

 The retail in India is in infancy. It is thelargest industry as it accounts for over 10% of GDP and 8% of employment. Theretail industry was estimated to be about of Rs. 10800 bn and estimated to begrown to Rs. 17800 bn by 2010. Although, the organized sector is just meagre3.4% or about Rs.366 bn of total retail. But with evolving retail formats and new technologies, retailing isgetting complex. The more organized and professional it gets, the more avenuesseem to open up for improvement. When there is life, challenges have to bethere, the challenges facing the Indian organized retail sector are various andthese are thwarting the Indian retailindustry from reaching its full potential. The behaviour pattern of theIndian consumer has undergone a major change following the Indian middle class’deeper pocket and western influences. All these have lead the Indian organizedretail sector to give more in order to satisfy the Indian customer. 

One of the most important challenge inorganized retail in India is faced by poor supply chain and logisticsmanagement. The importance can be understood by the fact that the logisticsmanagement cost component in India is as high as 7% -10% against the globalaverage of 4% - 5% of the total retail price. Therefore, the margins in theretail sector can be improved by 3% - 5% by just improving the supply chain andlogistics management. In India, with demand for end-to-end logistics solutionsfar outstripping supply, the logistics market for organised retail is pegged at$50 million and is growing at 16%. It is expected to reach $120-$130 million by2010. Organised retail on the other hand is growing at 400% and is expected toreach around $30 billion by 2010. Logistics and Supply Chain enables anorganized retailer to move or store products more effectively. Efficientlogistics management not only prevents needless movement of goods, vehiclestransferring products back and forth; but also frees up storage space for moreproductive use.

The critical areas that need to be addressed for efficient retailingbusiness are

The business ofretailing needs a healthy balance between predictability and innovation.Predictability, as much as is possible in sourcing, could be represented by relationshipswith known and trusted suppliers. It requires a large safety net of manysuppliers to work with them in every season. It also requires lot of managementtime and effort to keep intact old suppliers and educating new suppliers aboutthe business.

Another factor isaccurate forecasting of products to be brought on the shelves so that not asingle customer goes with empty hands. Forecasting becomes also crucial in caseof fluctuating demands. The retailer’s major concern is to meet out daily demand atcheaper rate with better quality. Another challenge is to estimate the demandduring the festive seasons and weekends. As demand of fruits increases more indays of fasting.

A focus oncost/margin/profitability management. It means how can we make the managementof sourcing more efficient in terms of effort and cost? Recent times have showninflationary trends at national levels in prices of fuels leading to costescalation.

An eye towardsinnovation and risk management. It means that how can we tap out new supplierswhen expansion plans are there.

Competition withlocal vendors is also vital, since they have very low operating costs. Theyhave low labour, property cost and pay generally low taxes.

Maintainingappropriate quality for perishable commodities is also a daunting task. Beforereaching the shelves from the production centre wastage is certain.

Strategies to overcome

Understanding the product type and itssourcing strategy is very important while devising the strategies.

For the predictableproducts like basic and staple items, strategy should be to concentrate ondeveloping relationships with certain key supply bases and suppliers whoprovide long term sustainability or constant improvements in terms of cost,quality and other performance parameters. To estimate daily demand, it is requiredto keep tracking the sale’s record and find out the demand trend of commoditiesduring weekends and festive seasons. Stock filling is taken care of at bothcustomer end (end product) and at the end of shelves at the shop. Reaching thecustomer at the right time and constant check on stocks and making sure rightquantity is ordered at the right time. 

The products whosedemand varies with vogue, for these products putting a long term commitment onany significant proportion of this segment to specific suppliers would becounterproductive. It can create a sense of security in supplier or even theretailer. For this such a relationship should be there which make the supplierworried about their own survival. Accurate forecasting and procuring materialalso become very vital in this case.

To deal withuncertain demands quick decision making and execution is important. Reliablesupply base and reduced replenishment time is the key so that multiple orderscan be managed.

Foruninterrupted supply, safe and reliable transport at as much low price aspossible is required. Partnership with transportation firms is very vitalbecause cost and transport can be shared if the shipment does not occupy thewhole truck space.

Dumping losses can be minimized by adopting better inventory management practices.

Minimize the cost by increasing inventory turnover, control quality bothe internally and externally. Keeping the cost of purchased parts and products at accpetance level.

Use of advanced technologies like RFID would be useful.

The efficiency andeffectiveness of supply chain and logistics management can also be understoodby the fact that modern retail stores maintain lower inventories than traditional retail.In India, generally in the traditional kirana stores, three weeks inventoriesare kept; while in a modern retail store it is nine to fourteen days .Now, itis beneficial for both the manufacturer as well as the retailer. If we gothrough the following food supply chain in India, we find that a lot can beimproved by maintaining the supply chain and logistics.