Operations Management - I

LOGISTICS
(AUG 23, 2011)

Submitted To

Prof. Rajesh Jain

Submitted By: Anshul Kaushik Arihant Ostwal Avinash Jain Rakesh Jain Ram Krishna Pandey

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Introduction
Council of supply Chain Management professional describe logistics as The function that, plans, implements and services and related information between the point of origin and point of consumption in order to meet customers requirements . According to Deloitte & Touche survey 98% of companies consider supply chain management to be either critical or very important. Earlier logistics are considered as mandatory task and is not given proper attention but with the rising strategic importance of global sourcing, logistics planning has gain so much importance company source globally to cut costs down, and it doesnt make sense to let the rising costs, longer transit times and complexities associated with global logistics will take away those savings. The logistics market is mainly thought to mean transportation. But the major elements of logistics cost for industries include transportation, warehousing etc., and other value added services such as packaging. The Logistics cost accounts of 10 percentage of GDP (Gross domestic product). The industry is currently on an upswing and is poised for a growth of 15 percentages in the coming years. In this project we are studying various techniques used by three major retail players viz. Wal-Mart, Tesco & Big Bazzar. Retail Logistics Retail sector is highly competitive in nature and it also has direct contact with final customer, retailers often place more emphasis on inventory, Warehousing and customer service activities than do manufacturers. They tend to be more centralized than manufacturers and wholesalers. Logistical operations of retailers are geographically focused and highly detailed. Retail distribution warehouses are generally located within one or two days travel distance from the cluster of store location. Retailers generally ship large numbers of stock keeping units from their distribution warehouses, creating the need to intricate control systems. The notion of an inventory pipeline is critical in retailing due to high cost of retail space. Proper timing for store

deliveries is essential to the maintenance and velocity of store inventory. There are few retail strategies that combine number of tactics to improve inventory management and efficiency while speeding inventory flows. Some of them are as follows:1. Quick Response: Most of quick response is between manufacturer and retailer only. When fully implemented Quick response applies Just in time principles throughout the supply chain, from raw material suppliers through final customer. This is done by combining EDI with barcode technology. Sales are captured immediately. This information can be passed on to the manufacturer, who can than notify its raw material supplier and schedule production and deliveries. 2. Cross Docking: This process involves unloading inbound product storing product for individual store, and reloading the shipments onto trucks destined for particular store. 3. Floor ready merchandise: It is observed that merchandise routinely spend 3 days in the distribution center if it does not have retail price tickets and proper hangers. Thus some suppliers are shipping goods prehung and preticketed.

Inbound and Outbound Logistics:

Inbound logistics concentrate on arranging and buying of material parts and finished inventory from suppliers to manufacturing or assembly plant. Outbound logistics concentrate on storage and movement of final product and information from end of production line or retailers in this case to end users. IT and Logistics in Retail:

In Organized retail industry role of IT is prudent and it need to be synchronized with the logistics. IT and Logistics can be integrated in order to increase Retailer operational Efficiency and eventually retails profit.

WALMART:

WalMart is an American public multinational corporation that runs chains of large discount department stores and warehouse stores. Walmart has 9667 stores in 28 countries, under 60 different names. In 2010 Walmart recorded sales of about $405 Billion. It employs 2.1 million associates worldwide. The logistics infrastructure of Walmart comprises of an in house transportation system which enabled them to reap the benefits of low-cost in transportation for the delivering of goods to the different stores and distribution centers. Due to such an efficient and low cost transportation system Walmart is able to replenishing the shelves in its stores four times faster than its competitors. The code of conduct that is being imposed to the Wal-Marts drivers boosted more confidence for Walmart that the goods are being delivered exactly on time and right on the money. To bring in more efficiency in its distribution system, walmart has applied a logistics technique called Cross docking. In Cross-docking, materials are unloaded from an incoming truck, rail etc. and then loaded directly into outbound trucks, trailers, or rail cars, with little or no storage in between. This may be done to change type of conveyance, to sort material intended for different destinations, or to combine material from different origins into transport vehicles with the same, or similar destination.

Walmart emphasizes the need to constantly reduce its purchasing costs and offer the best and lowest price possible price to its customers. The company procures goods directly from manufacturers, bypassing all Intermediaries. Wal-Mart is a tough negotiator on prices and finalizes a purchase deal only when it is fully confident that the products being bought were not available elsewhere at a lower price.

Walmart spends a significant amount of time meeting vendors and understanding their cost structure. By making the processes transparent, the retailer could be assured that the manufacturers are doing their best to cut down costs. Once satisfied, Walmart establishes a long- term relationship with the vendor. In its attempt to drive hard bargains, Walmart does not even spare big manufacturers like Procter & Gamble (P&G). However, the company, generally, prefers local and regional vendors and suppliers due to lower costs.

A Walmart Green truck Walmart has one of the largest private distribution operations in the world with more than 40 Regional Distribution Centers. Each one is over 1 million square feet in size. They operate 24/7 to keep their fleet of tractors and trailers rolling. Inside each DC, more than five miles of

conveyor belts move over 9,000 different lines of merchandise. Each DC supports between 75 and 100 stores within a 250-mile radius. Each distribution center is divided into different sections on the basis of the quantity of goods received and is managed the same way for both cases and palletized goods. The inventory turnover rate is very high, about once every two weeks.

The distribution centers ensure a steady and consistent supply of products to support the supply function. As Walmart used sophisticated barcode technology and hand-held computer systems, effectively managing operations at store became easier and more economical. Every employee had an access to real-time information regarding the inventory levels of all the products in the store. They had to just make two scans one to identify the pallet, and the other to identify the location from where the stock had to be picked up. Different barcodes were used to label different products, shelves and bins in a center. The hand-held computer guided an employee with regard to the location of a particular product from a particular bin or shelf in the center. When the computer verified the bin and picked up a product, the employee confirmed whether it was the right product or not. The quantity of the product required from the center was entered into the hand-held computer by the employee and then the computer updated the information on the main server.

The hand-held computer also enabled the packaging department to get accurate information about the products to be packed. It displayed all information about the storage, packaging and shipping of a particular product thus, saving time on unnecessary paperwork. It also enabled the center supervisors to monitor their employees closely enabling them to give directions and even guide them even on the move. This enabled the company to satisfy customer needs quickly and improve the level of efficiency of the distribution center management operations

TESCO

Tesco is the UKs largest food retailer, with a Group sales turnover of more than 67 billion. It is among the leading international retailers with a total of more than 3,000 outlets and approximately 600 planned store openings in more than 10 countries. This number has increased rapidly as Tesco entered the convenience store market with its Tesco Express store format. The product range held by the stores has grown rapidly in recent years a larger store can hold up to 20,000 products as Tesco broadens its presence in the non-food market for electrical goods, stationery, clothing and the like. This massive range is supported by thousands of suppliers, who are expected to meet agreed service levels (correct time and quantities) by delivering to Tesco within specific time windows. Volumes are impressive. In a year, some 2.1 billion cases of product are shipped from suppliers to the stores. Mindful of its responsibilities, Tesco is the UKs market leader in the use of bio fuels and works hard to reduce its CO2 emissions per case delivered, through initiatives including rail, barge and alternative fuels. The company also buys considerable numbers of double-deck trailers to move more cases per trip. Tesco states that its core purpose is to create value for customers to earn their lifetime loyalty. An early reform for supermarket operation was to have suppliers deliver to a depot rather than to every store. During the 1980s, distribution to retail stores was handled by 26 depots. These operated on a single-temperature basis, and were small and relatively inefficient. Delivery volumes to each store were also relatively low, and it was not

economic to deliver to all stores each day. Goods that required temperature-controlled environments had to be carried on separate vehicles. Each product group had different ordering systems. The network of depots simply could not handle the growth in volumes and the increasingly high standards of temperature control. A new distribution strategy was needed. Many small depots with limited temperature control facilities were replaced by Fresh Food depots which can handle many products at several temperature ranges. The opportunity is to provide a cost-effective daily delivery service to all stores. Typically, a Fresh Food depot can handle over 80 million cases per year on a 40-acre site. The warehouse building comprises 36,000 square meters divided into three temperature zones: -25C (frozen), 1C (chilled) and 12C (semi-ambient). Each depot serves a group of between 48 and 335 retail stores. Delivery vehicles for Fresh Food depots use insulated trailers divided into chambers by means of movable bulkheads so they can operate at different temperatures. Deliveries are made at agreed, scheduled times. Grocery and Non-Food goods such as cans and clothing are delivered separately.

Tescos Food items delivery truck

Tescos Non food items delivery truck

With such a huge product range today, it is impossible for the individual store to reorder across the whole range (store-based ordering). Instead, sales of each product line are tracked continuously through the till by means of electronic point of sale (EPOS) systems. As a customers purchases are scanned through the bar code reader at the till, the sale is

automatically recorded for each stock-keeping unit (SKU). Cumulative sales are updated every four hours on Tesco Information Exchange (TIE). This is a system based on internet technology that allows Tesco and its suppliers to communicate trading information. The aim of improved communication is to reduce response times from manufacturer to stores and to ensure product availability on the shelf. Among other things, TIE aims to improve processes for introducing new products and promotions, and to monitor service levels. Based on cumulative sales, Tesco places orders with its suppliers by means of electronic data interchange (EDI). As volumes and product ranges increased during the 1990s, food retailers such as Tesco aimed to de-stock their depots by ordering only what were needed to meet next days forecast sales. For fast-moving products such as types of cheese and washing powders, the aim is day 1 for day 2: that is, to order today what is needed for next day. For fast-moving products, the aim is to pick to zero in the depot: no stock is left after store orders have been fulfilled. This means that the same space in the depot can be used several times over. Deliveries to stores are made in two waves, at specific times and within defined windows. This helps to improve product availability at stores throughout the day, and thus support changes in demand.

FUTURE GROUP

Logistics and Supply Chain Retail logistics is a critical business activity in a highly competitive retail market with changing consumer choices, different formats and geographical diversity like India. In Future Group, the retail operation success depends much on achieving efficient and effective logistics and supply chain. A continuous logistics function to move the products from the manufacturer to the retail store shelves is most significant process of the retail operations. The robust presence of future group in logistics and supply chain helps it move millions of products to consumers each day across India in the most efficient and cost-effective manner. Future Supply Chains Future Supply Chains is a specialized subsidiary of the Future Group. It offers a focused and consolidated approach to cope with the groups large supply chain requirements .It also meets the requirements of suppliers and business partners. It provides complete end-to-end supply chain management, warehousing and distribution, multi-modal transportation and container freight stations. Future Supply Chains is distinct because it is an end - to - end supply chain which delivers millions of pieces to millions of consumers on a daily basis. It manages the entire supply chain enabling its clients to concentrate on their core business. KEY FEATURES:

It operates on 4 major processes: Warehousing, Transportation, Reverse Logistics International Logistics.

The current warehouse area coverage is over 3.5 million square feet having 67 warehouses across 32 locations.

It has full-time dedicated fleet of over 400 vehicles and an outsourced fleet of 400 trucks that helps to move goods across the country in the most efficient and costeffective manner.

It caters to over 2600 retail outlets across the country.

The major processes are:1. Warehousing: The Storage & fulfilment process of Future Supply Chains provides storage & handling services through a current warehouse coverage area of over 3.5 million sqft across 67 locations. The key differentiators in warehousing are:

Its ability to operate on low cost using modern mechanization and leasing large space. Service efficiency has been enhanced manifold using multi level storage and continuous integration with customer ERP.

Service efficiency has improved a lot due the companys ability to handle multiple SKUs.

It handles widely differentiated product range across various seasons, cycles and demand patterns.

It has been successful in minimising obsolescence. Continuous process i.e 24x7 operations. It value added services like testing, packaging, refurbishing, bar coding.

Fig 1.Various Warehouses in India 2. Transportation: The movement vertical includes factory-gate logistics involving pick-up of goods from vendors across the country, national distribution of goods, and city logistics that include store deliveries and home deliveries. It is the first organized intra-city transportation services company - carrying out not only B2B deliveries but also B2C deliveries in the form of thousands of home deliveries every day across the country, especially for Furniture and Consumer Durables. Future Supply Chains offers following uniquely differentiated features:

Metro First- It provides door to door services. City Express- To provide deliveries within the city. Intercity trucking

GPS enabled trucking 3. Reverse Logistics: Reverse flow of merchandise is an integral part of any retail business. Future Supply Chains is the only organized supply chain company in India that offers reverse logistic solutions to its customers. It manages the reverse flow of merchandise from the stores and recycles, repairs and refinishes the merchandise through its machinery and expertise for garments, carpentry and sheet metal work shops. Hence, it helps to re-sell their products and once again create value at a small incremental cost to the consumers. 4. International Logistics: International Logistics process manages the operations related to freight forwarding and custom clearance that involve international movements of goods by sea, by air and by road. Future group Distribution services Future Supply Chain is introducing an organized distribution which is a first of its kind service in India. The company is creating a one - stop shop for National distribution services. The Distribution service will use the existing pan-India operations of Future Supply Chains. It will provide the customers easy access to approx. 1,100 stores of Future Group spread across 42 cities in India. Supply Chain Expertise The main consumers sectors are Fashion, Food and General Merchandise which have vast product lines, each with its own unique needs that require many distinct supply chain solutions. The in-depth understanding of supply chains and the ability to design, execute, manage and integrate the various operations seamlessly have helped the group to be successful.

Fig: Various Consumer Sectors Food Items: Customers have become more demanding and ask for quality food which guarantees the safety norms. On time delivery has become a norm to reduce the inventory holding costs. The food industry is facing challenges due to increasing operational complexity, ever changing consumer needs, government regulations and short product life cycles. It requires a very smart, efficient and agile system to manage the ever changing needs of the end customers. The food supply chain is complex and difficult to manage due to its perishable nature and short shelf life of the products as compared to other products like electronics, home needs, consumer durables etc. It also requires a robust infrastructure of warehouses and transportation network connecting suppliers, manufacturers, distributors and retailers. To deal with all such challenges, it used the following strategies:

It has gained expertise of managing the food supply chain due to its association with Food Bazaar.

It has state of the art warehouses across the nation which provides according to the customized needs.

It has strong in-house transportation department with fleet of vehicles for ever need and type.

Availability of most advanced warehouse management system which would ensure all aspects like FIFO, Lot management, product traceability, product recalls.

Availability of transport management system with vehicle tracking facilities to track product movement at every stage of transportation ( Real time visibility).

Fashion: Future Supply Chains has the expertise in managing a fast and responsive supply chain with short time-to- market for high fashion products and separate low-cost supply chain for value apparels. Future Supply Chains is continuously evolving its fashion supply chain efficiencies through simple solutions like pre-packs & unitization and auto replenishment systems implemented in close coordination with its customers. General Merchandise: Future Supply Chains has designed customized vehicle bodies specifically to accommodate GM's low-value voluminous cargo, keeping the transportation costs low. Initiatives like bulk packs, cross-docking and auto replenishment systems lead to improved supply chain efficiencies and reduced cost.

Bibliography and References:

 www.en.wikipedia.org Challenges in Retail Innovation Aspects of Innovation in Tesco plcs Market Entry into the USA (Case study by Joe Tidd, John Bessant 2009)

Creating a Customer-Driven supply chain (ECR Journal Vol 2, No 2 Winter 2002) Logistics Management and Strategy: Competing Through The Supply Chain (3rd Edition) (by Alan Harrison and Remko Van Hoek. www.tesco.com www.tescplc.com Global Logistics by Donald waters Strategic Logistic Management by James R.Stock
http://www.futuresupplychains.com

http://en.wikipedia.org/wiki/Future_group http://walmartstores.com/AboutUs/7794.aspx http://en.wikipedia.org/wiki/Walmart http://mohanchandran.files.wordpress.com/2008/01/wal-mart.pdf