A retailer is as good as his supply chain

The retail industry today is undergoing volatile times and retailers are struggling to drive their top- and bottom-line numbers. There is not only fierce competition, but the format of competition has also completely changed.

One department store chain may not be competing with its peer, but they could be competing against speciality retailers, category killers, online retailers, etc. The entry barrier is so low that everyone can become a retailer — even if they are sitting in the backyard of their house and selling products.

In such an exceptionally volatile, ambiguous and uncertain scenario, a retail CEO must know the answers to these three questions:

* Is my supply chain efficient?

What most people do not know is that the competition between retailers is actually the competition between their supply chain management. Most professionals think that supply chain is all about warehousing and transportation, which unfortunately is not true at all.

The supply chain is much more than that. It is a complex and dynamic system of organisations, people, activities and resources involved in the production and distribution of the product.

So, a retail CEO must know everything about end-to-end processes involved in handling a product.

How is it brought into the country? Where it is sourced from? How many units do we need to buy? What are the transport modalities to be used?

What is the speed at which the merchandise is sourced and transited? Is the warehouse operation efficient? What are the costs involved in that?

What time is the merchandise brought into the stores? When the merchandise is brought into the stores, does it arrive in perfect or damaged condition? Does the packaging facilitate double or triple handling for store people? In what time frame does the product need to be replenished in the stores?

These last 50 yards, as it is called in retail terminology, is the biggest supply chain challenge for many retailers but also crucial to make sales.

The CEO also needs to know whether he has a lean supply chain, the right IT system, the right CRM system and CPFR model in place to collaborate with all stakeholders that make the supply chain, as well as to meet the industry benchmark.

One cannot apply the cookie-cutter approach in supply chain. For every business model, there is a separate strategy. A written down strategy that can help the CEO to refer, react and review.

* What are my supply chain costs?

Achieving sufficient savings in supply chain costs can result in better profits for a company. However, to achieve savings, a CEO first needs to know the costs. The supply chain management cost is the total of the costs associated with the processes of planning, sourcing, delivering and returning.

A retail CEO must know the metrics that are used in the supply chain. How many cartons went into the warehouse? What is the average cost per carton? Is the fulfilment happening in an efficient way? What is the order processing cost? Does the pick and pack operation within the warehouse vary very much by the product or customer category? What is the average stock turn ratio?

If these costs are measured, then the processes can be streamlined, and an organisation can have a humming supply chain.

* What is my leverage as a retail CEO?

Boosting top-line revenue by bringing in efficiency through smart supply chain is OK, but a CEO should also look at other parameters such as product speed, customer walk-ins, conversion rate, what services are the company providing, cost of the inventory, procurement, transportation and warehouse, inventory order time, fixed assets, warehouse utilisation, strategic outsourcing when something is not the core competency, etc.

As a retail CEO, you should be asking:

· Product — Is the product locally sourced?

· Customer — How do my customers differ in service needs? How do my customers really value in supply chain terms? How can customer behaviour be influenced through supply chain performance?

· Cost — What is the real supply chain cost? What are my supply chain choke points? Where there are bottlenecks, does that also mean there are costs involved? The cost of handling and processing and inventory balancing between A, B and C lines?

· Inventory — Is excess inventory disguising poor forecasting and purchasing?

· Supplier performance — Does the supplier agreement take care of packaging standards? Is the supplier performance measured?

Taking care of all these things can lead to a smooth retail supply chain. When all of these are in place, then a CEO can truly build a world class retail organisation.

The writer is a Partner at Stanton Chase.