Operations Management - I

LOGISTICS(AUG 23, 2011)

Submitted To

Prof. Rajesh Jain

Submitted By: -Anshul Kaushik -111105Arihant Ostwal -111107Avinash Jain -111108Rakesh Jain -111144Ram Krishna Pandey -111145

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 doesn’t 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.

TESCO

Tesco is the UK’s 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 UK’s 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: -25°C (frozen), 1°C (chilled) and 12°C (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.

Tesco’s Food items delivery truck Tesco’s 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 customer’s 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

day’s 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 group’s 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 cost-

effective 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:

It’s 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 company’s ability to handle multiple

SKU’s.

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 plc’s 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

http://www.futuresupplychains.com

http://en.wikipedia.org/wiki/Future_group