Supply Chain Model |Submitted To: Miss Lipi Choudhary

NATIONAL LEVEL RETAILERS GETTING INTO HANDICRAFT RETAIL AS PART OF CSR

Submitted By: Kratika Singh Mayank Pitariya Sachin Pratap Smriti Deep Kaur Swati Pal Vigya Gupta

Table of Content

S.No Chapter Pg No.

1

Introduction

1.1 Introduction to Handicraft Industry of India

1.2 Supporting handicraft Industry as a part of CSR 2

2 Supply Chain Model 7

3 Primary Activities 9

4 Secondary Activities 11

5Regional Activities & CSR Activities 14

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Chapter 1: Introduction

“A glass pitcher, a wicker basket, a tunic of coarse cotton cloth. Their beauty is inseparable from their function. Handicrafts belong to a world existing before the separation of the useful and the beautiful.”

- Octavio Paz

Octavio Paz, has very exquisitely carved the essence of handicrafts and how machine made objects will always lack behind whenever there will talk of fine arts and their delicacy and authenticity. Though cheap imitations of the classic handicrafts are easily available but the authenticity still remain questionable.

Such is the beauty of Handicrafts; therefore before beginning our whole study on “National level retailers getting into handicraft retail as part of CSR”, we would like throw some light on present status of Handicrafts in India and how we retailers can help them grow.

1.1 Indian Handicrafts Industry

India is one of the important suppliers of handicrafts to the world market. The Indian handicrafts industry is highly labor intensive cottage based industry and decentralized, being spread all over the country in rural and urban areas. Numerous artisans are engaged in crafts work on part-time basis. The industry provides employment to over six million artisans (including those in carpet trade), which include a large number of women and people belonging to the weaker sections of the society. In addition to the high potential for employment, the sector is economically important from the point of low capital investment, high ratio of value addition, and high potential for export and foreign exchange earnings for the country. The export earnings from Indian handicrafts industry for the period 1998-99 amounted to US$ 1.2 billion.

Although exports of handicrafts appear to be sizeable, India’s share in world imports is miniscule. It is a sector that is still not completely explored from the point of view of hidden potential areas. India, a country with 26 states and 18 languages and more than 1500 dialects offers an enormous range of handicrafts from each of the states. Major centres in Uttar Pradesh are Moradabad also known as the "Peetalnagari" (City of Brass), Saharanpur for its wooden articles, Ferozabad for Glass. The North Western state of Rajasthan has to offer the famous Jaipuri quilts, Bagru and Sanganer printed textiles and wooden and wrought iron furniture from Jodhpur. The coastal state of Gujarat comes with embroidered articles from Kutch. Narsapur in Andhra Pradesh is famous for its Lace and Lace goods. But this is only a small part of the total product range. India offers much more.

Handicrafts are classified into two categories:

1. Articles of everyday use2. Decorative items

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The craftsmen use different media to express their originality. The diversity of the handicrafts is expressed on textiles, metals – precious and semi-precious, wood, precious and semi-precious stones, ceramic and glass.

Textile based handicrafts:

Hand printed textiles including block and screen printing, batik, kalamkari (hand printing by pen) and bandhani (tie and die) are used in products ranging from bed-covers to sheets, dress material to upholstery and tapestry. The famous embroidered articles of silk and cotton, often embellished with mirrors, shells, beads, and metallic pieces are also found in India. Embroidery is done too on leather, felt and velvet etc. This segment of the industry accounts for almost half a million strong employment in addition to a large number of designers, block makers, weavers and packers involved in the trade.

Clay, Metal and Jewellery:

Brass, copper, bronze, bell metal are used for a variety of wares and in a variety of finishes. Scintillating ornaments are available in a wide range of patterns, styles and compositions. Made from precious metals, base metals, precious and semi-precious stones; these ornaments have traditional as well as modern styles.

Woodwork:Wooden articles in India range from the ornately carved to the absolutely simple. One can find toys, furniture, decorative articles, etc. bearing the art and individuality of the craftsman. India is known particularly for its lacquered wood articles.

Stone Craft:The intricately carved stoneware made of marble, alabaster or soapstone, etc., inlaid with semiprecious stones carry on the heritage of Indian stone crafts.

Glass and Ceramic:Glass and ceramic products are a fast upcoming segment in the handicrafts from India. The age-old production process of mouth-blowing the glass instills a nostalgic feeling. The varied shapes of ceramic and glass in a number of colours, would appeal to Western aesthetics while retaining the Indian touch.

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Craft concentration Areas:

A wide range of handicrafts are produced all over Indian artmetalware / EPNS ware, wood carvings and other wooden artwares, imitation jewellery, handprinted textiles, shawls as artwares, embroidered goods, lace and lace goods, toys, dolls, crafts made of leather, lacquerware, marble crafts etc. Although it is difficult to limit a specific place for the particular craft, the following places are listed for their particular crafts.

Artmetalware : Moradabad, Sambhal, Aligarh, Jodhpur, Jaipur, Delhi, Rewari, Thanjavur, Madras, Mandap, Beedar, Kerala & Jagadhari, Jaselmer

Wooden Artwares : Saharanpur, Nagina, Hoshiarpor, Srinagar, Amritsar, Jaipur, Jodhpur, Jagdalpur, Bangalore, Mysore, Chennapatna, Madras, Kerala & Behrampur (WB)

Handprinted Textiles & Scarves

: Amroha, Jodhpur, Jaipur, Farrukhabad, Sagru & Sanganer

Embroidered goods : Kutch (Gujarat), Jaisaimer, Baroda, Lucknow, Jodhpur, Agra, Amritsar, Kullu, Dharmshala / Chamba & Srinagar

Marble & Soft Stone Crafts

: Agra, Madras, Baster, Jodhpur

Papier Mache Crafts : Kashmir, Jaipur

Terracotta : Agra, Madras, Baster, Jodhpur

Zari & Zari Goods : Rajasthan, Madras, Baster

Imitation Jewellery: : Delhi, Moradabad, Sambhal, Jaipur, Kohima (Tribal)

Artistic Leather Goods : lndore, Kolhapur, Shanti Niketan (WB)

Selected crafts pockets for achieving export goal:Although each crafts pockets has its particular problems, a few selected craft pockets are identified based on their past performance for immediate remedial attention to stimulate a quantum in exports of handicrafts in the coming years.

Moradabad(UP) : For Artmetalwares and imitation jewellery

Saharanpur (UP) : For Wooden handicrafts & Wrought iron handicrafts4 | P a g e

Jodhpur (Raj.) : For Wooden, Wrought Iron and Sea Shell handicrafts

Narsapur (A.P.) : For Lace and Lace goods

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1.2Retailers getting into Handicrafts as CSR activity

After doing the brief on Indian Handicrafts Industry’s health, we would now like to move on to how national level retailers like us can help these industries to flourish

Company Profile

The brand is a one stop destination for handicraft furniture, furnishings and home decorates that will truly represent style, comfort and individuality. It comprises pottery, sculptures, bamboo furniture, coconut carving, stone/ wood craft and even metallic / brass statues.

Initially, the products will be made available across India at metro city, focusing on the upper class or high earning customers.Customer Profile

Client-tele of a brand depends on the type of the product that a company or the retailer offers. As we are offering handicrafts in form of luxury goods, therefore the customer we shall target should be of high class or upper middle class. This economical strong class loves to revamp its house frequently as the décor of their house advocates their aristocracy. This only attitude of our client is the backbone of our brand, thus selling them items which are delicate, handmade, and famous yet difficult to acquire. The items which are the USP of any region are very expensive in the area where they cannot be accessed. That is why we are focusing on the upper class with disposable income who won’t hesitate for spending on such items. The customer would be getting all type of sales services and after sales services. And after acquiring our customers we will try our best to retain them thus turning them into brand advocates.

Helping Handicrafts Industry

Selling Handicrafts is just not another business model of ours but a CSR initiative as well. Though no CSR activities are being done with our downstream partners but for our upstream partners we have devised a model, which shall help them to grow and make maximum profit.This CSR plan will be explained in our further chapters while we will also discuss the Supply Chain model for our retail brand.

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Chapter 2: Supply Chain Model

Supply Chain Model, was first illustrated by Michael Porter, stating the firm’s primary activities and the support activities happening at different level. But, we have modified this prototype on the basis of our business model. The model which we shall follow is

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QC & QA

FEEDBACK

FEEDBACK

QC & QA

Support Activities

Primary Activities

In the previous figure, we have tried to explain the value chain model that we would be following. Like the Porter’s model, even our model is divided into Primary activities and Support activities.

The front end activities which cover distribution and selling of the goods are Primary Activities, and the back end activities which involve manufacturing and storing is are Support Activities.

One thing that we would like to clear before proceeding is that, in this whole model, there is no other middleman involved. It us, who is taking care of from producing the raw material, getting it processed, manufacturing, warehousing and distributing, selling and even taking care of after sale service. The purpose of doing so is to maintain transparency and make sure that the expected receivers are receiving the benefits as planned. These activities are explained in detailed in following chapters.

Our CSR activities are the part of our Support Activities, but firstly we would like to discuss our primary activities in our next chapter.

Chapter 3: Primary Activities

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Primary activities are the activities which are the Product or Market related activities happening in the firm around which whole company revolves. They are basic activities which a firm cannot afford to neglect and has to pay special attention. They can be even called as the backbone of a firm which on which the company’s fortune depends.

The Primary activities of a firm are:

Inbound Logistics

Inbound logistics is the management of goods and materials which are arriving at your business premises

Operations

An activity that directly affects an organization's cash inflows and outflows, and determine its net income

Outbound Logistics

The movement of material associated with storing, transporting, and distributing goods to its customers

Marketing and Sales

Marketing is any technique used to make the public aware of a company and what it has to offer over its competitors

Services

Various processes which make sure customers are satisfied with the products and services of

the organization. After-sales service is the key to customer retention

Hence, now we would study what all activities would be taking place in our firm under these primary activities.

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- Finding out best quality material for inputs

- Providing raw material or any other help to the artisans

- Procuring finished goods from the artisans at warehouse

2. Operations

- Money incurred in inventory purchase

- Payment of salaries and wages to the employees and workers along with the medical

facilities.

- Other costs like packaging cost, brochures, etc.

3. Outbound logistics

- Warehousing to keep the finished goods

- Delivery of goods to the customers as per the sale

4. Marketing

- Pricing points will be according to the income level of the target customers.

- Promotional activities for handicrafts like trade fairs, exhibitions, online promotional

pages, banners, etc.

- Place of distribution would be exclusive brand outlets and city malls

5. After-Sale Services

- Home delivery service to the customers, based on the size and weight of the handicraft

products.

Chapter 4: Support Activities

Talking of the support activities occurring in a firm, these are the activities to assist the primary activities to gain the competitive advantages. It supports the primary activities and the personnel involved in carrying out these activities.

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Support activities talk of creating a healthy ambience in and out of the firm to keep up spirits of its staff and to excerpt maximum productivity out of them.

The departments which are the part of Support activities are:

Firm Infrastructure

This includes the planning management, legal framework, financing, accounting, public affairs, quality management and general management. These are required to perform the value added activities efficiently to drive the organization forward to meet the strategic plan and objectives.

Human resource Management

The key role of HR is to support the attainment of the overall strategic business plan and the objectives. As a strategic business partner HR designs the work positions by hiring, recognizing, rewarding, appraisal systems and employee development.

Technology

Technology should be used to reduce cost, develop new products, increase customer service facilities, and to build up cost effective process. It supports the value chain activities such as research and development, process design etc.

Procurement

This is the purchasing activity of the inputs to transform these into finished products or services. Procurement adds value by the acquisition of appropriate goods and services at best prices, at the right time and right place in desired quality and quantity.

Now, coming to our Support Activities, we would like to bring this in notice that we focused rather independently on our retail outlets, corporate office and our Region Based Handicrafts offices. Hence, while discussing here about all the different activities undertaken by these support departments we shall concentrate more on our regional based handicrafts offices rather than our regular offices.

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1. Firm Infrastructure

a. At the store

Our store would be earlier covering only metropolitan city to test the feasibility of our project. Once this project passes the litmus test, we shall expand our home furnishing department in our every retail outlet. But for beginning shop in shop facility would be provided to our home furnishing department.

b. At the regional offices

At regions, from we would be getting out handicrafts done, we shall be developing an open office system to give the complete natural ambience to our artisans. A comfortable, airy and well maintained office would be developed in these regions. However, couple of our company’s employee would also be appointed in such regions to assist these artisans and to act as a communication bridge between us and the artisans working there.

2. Human Resource Management

Apart from our regular practices at our retail outlets and corporate offices, special HR policies would be formulated for our special regional handicrafts offices.

a. Medical Insurance to the artisans and their families

b. Free lunch for the artisans

c. Fixed salaries at fixed time for insuring their development

d. Education loan at minimum interest for the artisans children.

e. Even, special scholarship program for the students

f. Privilege of medical leaves and paid leaves to the artisans

g. If any artisan wants to do overtime, he shall be provided fair amount of wages

h. Free workshops to the artisans on new age technology and time saving gadgets and new developments

i. Brain storming sessions with artisans to improve the aesthetic appeal of the product with creative freedom

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3. Technology

However, the technology to be used at front end office would be the regular. But apart from that the technology that we would be using in our regional handicrafts offices shall be minimum, as most of the work is manual but still basic technologies like phone, internet and computer would be installed to ensure better connectivity. Also, the softwares to track the no.of products made and what all have been dispatched where.

4. Procurement

As in our this project, we self are involved from providing the raw materials for manufacturing, hence selling the goods whole network of purchase and sell shall be under our direct control. For maintaining the quality standard of our goods, raw materials purchased would be of high quality and if required processed.

Also, once the goods are maintained our distribution channel shall be distributed through our own distribution channels and facilities as the goods would be delicate nature.

Chapter 5: Regional Offices & CSR Activities

As our whole project is based to handicrafts and CSR activities for these artisans, therefore in this chapter we shall discuss in detail about the offices that we would be settling in these special regions and the activities which will take place to ensure the betterment of artisans of that region.

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Regional Offices

Our Region Based Handicrafts offices are the one where the goods for our home furnishing department will be developed and then sent to our stores. We have selected four towns wherein we would be establishing our regional offices on the basis of those regions special handicrafts and their feasibility. The regions we have selected are:

Hoshiarpor (For wooden artworks) Srinagar (For wooden artworks) Shilong (For wooden artworks) Agra (For marbels and soft stones)

Initially we would be establishing our offices only in these four towns but if the project got success we shall be doing further expand.

Although we have discussed the firm infrastructure and HR policies for the benefits of artisans in the previous chapter, but now we would like to link up our step with the CSR intention of our brand.

All these regions are though famous for their handicrafts but their availability is still low because of the poor economic status of artisans living there. Therefore while establishing our offices we would be hiring the regional talents and will give them creative freedom to make what they are best at. We shall only be increasing their product reach pan India.

We all are aware of poor status of labors in our country with no respect given to their hardwork and time. Our regional offices would be epitome of employee friendly culture. We will not only give them a monthly fixed salary on fixed time but also will follow several employee motivation policies like appraisal, incentives etc.

Artisans are recognized by their talent not by their personality; therefore no hard selection procedure will be followed while recruiting these artisans. Infact, we will welcome as many artisans as we can in this development plan.

---------------------------- Thank You----------------------------

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No more middleman: Dell started out as a direct seller, first using a mail-order system, and then taking advantage of the internet to develop an online sales platform. Well before use of the internet went mainstream, Dell had begun integrating online order status updates and technical support into their customer-facing operations. By 1997, Dell’s internet sales had reached an average of $4 million per day. While most other PCs were sold preconfigured and pre-assembled in retail stores, Dell offered superior customer choice in system configuration at a deeply discounted price, due to the cost-savings associated with cutting out the retail middleman. This move away from the traditional distribution model for PC sales played a large role in Dell’s formidable early growth. Additionally, an important side-benefit of the internet-based direct sales model was that it generated a wealth of market data the company used to efficiently forecast demand trends and carry out effective segmentation strategies. This data drove the company’s product-development efforts and allowed Dell to profit from information on the value drivers in each of its key customer segments.Virtual integration: On the manufacturing side, the company pursued an aggressive strategy of “virtual integration.” Dell required a highly reliable supply of top-quality PC components, but management did not want to integrate backward to become its own parts manufacturer. Instead, the company sought to develop long-term relationships with select, name-brand PC component manufacturers. Dell also required its key suppliers to establish inventory hubs near its own assembly plants. This allowed the company to communicate with supplier inventory hubs in real time for the delivery of a precise number of required components on short notice. This “just-in-time,” low-inventory strategy reduced the time it took for Dell to bring new PC models to market and resulted in significant cost advantages over the traditional stored-inventory method. This was particularly powerful in a market where old inventory quickly fell into obsolescence. Dell openly shared its production schedules, sales forecasts and plans for new products with its suppliers. This strategic closeness with supplier partners   allowed Dell to reap the benefits of vertical integration, without requiring the company to invest billions setting up its own manufacturing operations in-house.Innovation on the assembly floor: In 1997, Dell reorganized its assembly processes. Rather than having long assembly lines with each worker repeatedly performing a single task, Dell instituted “manufacturing cells.” These “cells” grouped workers together around a workstation where they assembled entire PCs according to customer specifications. Cell manufacturing doubled the company’s manufacturing productivity per square foot of assembly space, and reduced assembly times by 75%.Dell combined operational and process innovation with a revolutionary distribution model to generate tremendous cost-savings and unprecedented customer value in the PC market.The following are some key lessons from the story of Dell’s incredible rise:1. Disintermediation (cutting out the middleman): Deleting a player in the distribution chain is a risky move, but can result in a substantial reduction in operating costs and dramatically improved margins. Some companies that have surged ahead after they eliminated an element in the traditional industry distribution chain include:Expedia (the online travel site that can beat the rates of almost any travel agency, while giving customers more choice and more detailed information on their vacation destination)ModCloth (a trendy virtual boutique with no bricks-and-mortar retail outlets to drive up costs)PropertyGuys.com (offers a DIY kit for homeowners who want to sell their houses themselves)

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iTunes (an online music purchasing platform that won’t have you sifting through a jumble of jewel cases at your local HMV)Amazon.com (an online sales platform that allows small-scale buyers and sellers to access a broad audience without the need for an expensive storefront or a custom website)Netflix (the no-late-fees online video rental company that will ship your chosen video rentals right to your door)2. Enhancing customer value: Foregoing the retail route allowed Dell to simultaneously improve margins while offering consumers a better price on their PCs. This move also gave customers a chance to configure PCs according to their specific computing needs. The dramatic improvement in customer value that resulted from Dell’s unique distribution strategy propelled the company to a leading market position.3. Process and operations innovation: Michael Dell recognized that “the way things had always been done” wasn’t the best or most efficient way to run things at his company. There are countless examples where someone took a new look at a company process and realized that there was a much better way to get things done. It is always worth re-examining process-based work to see if a change could improve efficiency. This is equally true whether you’re a company of five or 500.4. Let data do the driving: Harnessing the easily accessible sales and customer feedback data that resulted from online sales allowed Dell to stay ahead of the demand curve in the rapidly evolving PC market. Similarly, sales and feedback data was helpful in discovering new ways to enhance customer value in each of Dell’s key customer segments. Whether your company is large or small, it is essential to keep tabs on metrics that could reveal emerging trends, changing attitudes, and other important opportunities for your company.Walmart distribution model

Presentation of the companyWal-Mart Stores, Inc.(branded as Walmart) is an American public corporation that runs a chain of large, discount department stores. In 2008 it was the world’s largest public corporation by revenue, according to the Fortune Global 500 for that year.  Wal-Mart is the largest majority private employer and the largest grocery retailler in the United States. It also owns and operates the Sam’s club retail warehouse in North America.Wal-Mart’s operations are organized into three divisions: Wal-Mart Stores U.S., Sam’s Club, and Wal-Mart International. The company does business in nine different retail formats:supercenters, food and drugs, general merchandise stores, bodegas (small markets), cash and carry stores, membership warehouse clubs, apparel stores, soft discount stores and restaurants. (Wikipedia, 11.5.2010)Wal-Mart enjoyed a 50 percent market share position in the discount retail industry with its nearly 3,000suppliers. Though Wal-Mart may have been the top customer for consumer product manufacturers, it deliberately ensured it did not become too dependent on any one supplier; no single vendor constituted more than 4 percent of its overall purchase volume. (Achmeyer William F., “Walmart Stores Inc. Case”, Tuck School of Business at Dartmouth, Center for global leadership).

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The current ratio in the last 5 years is below 1, between 0,8 and 0,9 (Walmart, annual report 2009). This is typical of strong distribution companies that pay their suppliers in 1,2 or 3 months but they cash inmediately from customers. They use this lag as a financial source.About 85 percent of all the merchandise sold by Wal-Mart was shipped through its distribution system to its stores. Wal-Mart used a “saturation” strategy for store expansion. The standard was to be able to drive from a distribution center to a store within a day. A distribution center was strategically placed so that it could eventually serve 150-200 Wal-Mart stores within a day. Stores were built as far away as possible but still within a day’s drive of the distribution center; the area then was filled back (or saturated back) to the distribution center. Each distribution center operated 24 hours a day using laser-guided conveyer belts and cross-docking techniques that received goods on one side while simultaneously filling orders on the other. The company owned a fleet of more than 3,000 trucks and 12,000 trailers. (Most competitors outsourced trucking.) Wal-Mart had implemented a satellite network system that allowed information to be shared between the company’s wide network of stores, distribution centers, and suppliers. The system consolidated orders for goods, enabling the company to buy full truckload quantities without incurring the inventory costs. (Achmeyer William F., “Walmart Stores Inc. Case”, Tuck School of Business at Dartmouth, Center for global leadership).The key to Wal-Mart’s supply chainWal-Mart is committed to improving operations, lowering costs and improving customer service. But the key to retailer Wal-Mart’s success is its ability to drive costs out of its supply chain and manage it efficiently. Many supply chain experts refer to Wal-Mart as a supply chain-driven company that also has retail stores. Wal-Mart’s company philosophy (‘The Wal-Mart Way‘) is to be at the leading edge of logistics, distribution, transportation, and technology.  The Wal-Mart business model would fail instantly without its advanced technology (Wal-Mart has the largest IT systems of any private company in the world) and supply chain(Wal-Mart has made significant investments in supply chain management). (“Why Wal-Mart´s supply chain is so successful?”, http://supply-chain-case-studies.blogspot.com/)Wal-Mart’s business model and competitionWal-Mart’s business model is based on a low price strategy and low transportation costs allow it to sell its products at the lowest possible prices. In return for its strategy (Everyday Low Price Strategy), Wal-Mart’s suppliers – both large and small – either break even or make profit supplying at Wal-Mart’s stores. But the real winners are Wal-Mart’s customers (approximately 175 million every week) who save thousands of dollars buying at low prices. Since Wal-Mart stores began selling groceries almost three dozen regional grocery suppliers have struggled to match or simply run out of business. Last year (2007), Wal-Mart’s annual sales were $350 billion and it had more than 7,000 stores, 120 distribution centres and operations spanning 15 countries. Nearly two million employees at Wal-Mart focus on cost, customers and continuous improvement on a daily basis. (“Why Wal-Mart´s supply chain is so successful?”, http://supply-chain-case-studies.blogspot.com/)Wal-Mart’s one-store-at-a-time, RFID and just-in-time distribution approach

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Every Wal-Mart store operates like a small company. Store managers are trained to manage one store at a time, one department at a time, and one customer at a time. Decisions are made by store teams to make the individual stores operate at its best with superior in-store execution. With established vendor partnerships with top manufacturers, Wal-Mart has implemented advanced logistics solutions like RFID (radio frequency identification). RFID solutions help maintain lower costs, identify out-of-stocks and increase sales. Distribution centres instead of warehouses, automated replenishment and cross-docking technology also reduce inventory carrying costs.(“Why Wal-Mart´s supply chain is so successful?”, http://supply-chain-case-studies.blogspot.com/)Monitoring supply chain riskIn 2008 Wal-Mart introduced Supply Risk Monitoring (SRM)service as a requirement to Wal-Mart’s supplier community. This after Wal-Mart made an agreement with Strategic Forecasting, Inc. (Stratfor) to assess and rank security risk for countries in its global supply chain.Stratfor is a leading private intelligence company and its serviceswill enable Wal-Mart to identify risks with supply chain infrastructure in countries (ranked as high, medium or low) within its supply chain using a unique analytical methodology. The countries will be assessed on risks associated with terrorism, insurrection, crime, the political and regulatory environment, natural disasters, including various other factors related to supply chain infrastructure. This will help Wal-Mart to produce a quantifiable measure of the actual risk to a nation’s supply chain and thereby determine appropriate supply chain security counter-measures. It can thus quickly warn of emerging threats and prevent disruption of deliveries of goods to major markets around the world. (http://supply-chain-case-studies.blogspot.com/)Consolidation Strategy in Walmart.Remixing the Inbound ChannelShippers are always on the lookout for ways to speed product from source through supply chains to the consumer, and Wal-Mart’s “Remix” distribution strategy is going to give its vendors a new way to reach the goal whether they’re ready for it or not.Remix is Wal-Mart’s name for a vendor transportation consolidation program on a colossal scale.Between 2006 and 2007, Wal-Mart plans to transform its distribution system of 120 company warehouses fed by thousands of vendors moving 2 billion cases of food and 2.7 billion packages of other merchandise to 3,700 U.S. stores annually. The Bentonville, Ark.-based chain is forging a two-track inbound logistics system that will separate high-turnover goods from slower-selling products to reduce stock-outs, especially in its fast-growing grocery stores.To do that, Wal-Mart is leaning on its vendors to work with transportation and logistics providers to consolidate less-than-truckload deliveries into truckload freight before it reaches a store. If successful, the system will change the way vendors and supply chain partners move goods to Wal-Mart, and because of the company’s size and reach, set an example other high-volume competitors will be hard-pressed not to follow.It will also sharply expand Wal-Mart’s distribution channels through certain gateways in ways that will ripple across strategies for handling and moving imported goods well beyond Wal-Mart’s own operations.(…)

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The largest shippers have the expertise, resources and technology to move beyond a simple role as a buyer of goods. They want to dictate not only when shipments are delivered, but how and where, whether to a third-party warehouse or the company’s own, or direct to the store.For Wal-Mart, the Remix strategy also means a realignment of supply chain relationships.The shipper asserts more control in this case by encouraging vendors to coordinate their LTL shipping schedules with logistics providers and carriers so they arrive as full truckloads at stores. Inventory management becomes more the responsibility of the vendor and logistics provider. Investments may have to be made in technology to support a much more complex loading of trucks and other transport modes. Many of these costs will be borne by the vendor or third-party provider.“I’ve heard the argument,” said Tyler Ellison, vice president, global client group for Schneider National. “But what I would contend is that Wal-Mart’s Remix initiative at the end of the day eliminates waste and cost from the supply chain. … Even if we have to add costs in some areas, the cost of being out of stock is higher.”At its heart, Remix is about avoiding stock-outs of popular, fast-moving items, from paper towels and toothpaste to laundry detergent and fresh food.Stock-outs became an issue for Wal-Mart after the mass merchandiser ramped up its in-store grocery units in the 1990s. At the same time, Wal-Mart turned from its focus on American-made goods to becoming a huge importer, particularly from Asia, lowering the cost of the goods but adding complexity and cost to a supply chain now built on inbound logistics.The initiative aims to free distribution workers from the need to sort manually on receiving docks the higher-velocity items from slower-moving goods, thus slowing replenishment of both.Wal-Mart wanted more and smaller deliveries faster, something of a challenge when goods are coming from overseas in bulk.That would mean vendors sending more LTL shipments, which would push up their transportation costs. Instead, Wal-Mart suggested vendors partner with carriers and logistics providers to have their LTL freight consolidated into truckloads at third-party distribution centers. Systems were also encouraged to pack freight for optimal unloading and distribution at stores to reduce overlapping or redundant delivery stops.The company offers its online Retail Link software for vendors to enter and review purchase orders, make carrier appointments and get data on consolidated loads. It compiles vendor scorecards to assess on-time performance and other metrics.Remix relies heavily on technology. CaseStack has what Sanker called a consolidation engine installed into a combined transportation and warehouse management system to make truckloads easier to pack, and a transportation optimizer that reviews roughly 1,000 carriers for the best routes and price.“You have to be able to move really fast in a consolidation program,” Sanker said. “Instead of two pallets of three products, you might have five cases, two pallets, six boxes, which means a lot more picking. The system has to be able to kick out the right information and instructions to everyone in the warehouse. … If you tried to do it manually, you’d be buried.”Late or missed deliveries are intolerable in an environment without safety stock. As a result, he said, “We’re always one day away from a Wal-Mart distribution center. … The probability of a service failure is reduced dramatically the fewer miles you have to drive.”

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To support Remix, more logistics providers and carriers are turning to barcode-enabled mobile computers to update inventory databases on the fly. Accurate, near-real time data from vendors and warehouses feeds higher-level systems Wal-Mart needs to fine-tune its new distribution system.“Once you know what you’re selling and how fast,” McNerney said, “you can work on your demand forecast.”For those who send the products to the shelves, the judgment is more complicated.Although he wouldn’t name names, Conover said vendor reaction to the new program breaks down into roughly two camps. “There’s a concern because vendors see the increase in supply chain costs. Their view is that they have to bear the expense of it,” he said. “The other camp also looks at the increased costs to their supply chain, but recognizes if they do it right they will see their sales increase,” and they may enjoy an advantage over non-participating competitors.As results accumulate, the ripple effects of Remix will spread from gateways to points deeper in supply channels, observers said.“As Wal-Mart pushes back inventory, that’s going to force vendors to relocate distribution centers and such closer to the retailers own distribution facilities and stores,” said Barry Hibbard, vice president of real estate at Tejon Ranch, a 426-square-mile multi-use development in Southern California’s Inland Empire. Those relocations will in turn have ripple effects on the distribution networks of vendors to other retailers.“Wal-Mart’s focus on the end customer is what makes them great,” he said. Reducing the biggest merchandiser’s cash-to-cash cycle, as Remix is expected to do, will benefit not only the retailer but eventually its partners, as new efficiencies help each move other clients’ freight on the same swift schedules. Keeping Wal-Mart’s shelves stocked keeps customers, but also focuses the company’s supply chain partners in ways that benefit their other clients.

Travelling from Delhi to Sedda village in Bijnaur (UP) on a warm September morning, one gets a feel of the inconvenient distance that separates India from Bharat. There, one gets to see how Fabindia Overseas — the 47-year-old Delhi-based retail chain that sells handloom garments, linen and other handicrafts — manages its relationships with its rural suppliers.The journey is illuminating. Fabindia is recasting its supply chain, setting up dozens of “supply-region companies” that will gradually take over its entire supply chain in a particular region; these companies will also offer shareholding to Fabindia’s suppliers in line with the vision plan articulated by Managing Director William Bissell (40), who sees himself as a champion of free market in the NGO- and government-dominated handicrafts sector.For a company that owns India’s most successful and chic brand of handloom garments and handicrafts, that’s only one of many exciting developments taking place — Fabindia has opened 37 stores in the last 18 months; sales have been growing at a CAGR of 40-50 per cent over the last three years; and margins are so attractive that investors are queuing up with their cheque books.

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Aqueel Ahmed, who owns one of the two dozen home-based handloom units in Sedda that weave cotton fabrics for Fabindia, has applied for shares worth Rs 1.5 lakh in Bijnaur Artisans, the newly set up supply-region company that will deal with all artisans and suppliers in the Bijnaur region. “I have worked with Fabindia for the last eight years and supply exclusively to the company. It’s a relationship that’s based on mutual trust, which is why I have invested in Bijnaur Artisans. I am sure it will be to my benefit,” he says.Nabeel Ahmed, Mohammad Rizwan and Gauhar Ali, all Aqueel’s neighbours, are also Fabindia suppliers and shareholders-in-waiting in Bijnaur Artisans. All of them say they are “happy” with the orders they get from the company and the payments they receive.Nabeel “outsources” part of his work to a household unit where Tarannum and her sister Yasmine weave colourful cotton khadi table mats for him. Each of them makes Rs 5 per mat, does about 30 mats, thus, earning about Rs 150 per day.Marketing FinesseThe successful adaptation of handloom fabrics to urban tastes in a purely commercial manner has been the strength of Fabindia. Government-owned players like Khadi & Village Industries Commission (KVIC) and state emporiums have fared miserably on this front despite large subsidies and grants.Interestingly, the company has woven its handloom magic without ever spending anything significant on advertising. “I’ll credit Fabindia with bringing traditional and heritage products into the mainstream. Today, it’s the only commercially successful and widely available brand associated with handloom apparel,” says a Bangalore-based marketer of handicraft products and a former Fabindia supplier.

Anita Kathpalia, CFO, FabindiaThe growing acceptance of handlooms and crafts by urban Indian consumers also explains the shift in Fabindia’s focus, in the early 1990s, from exports to the domestic market, and the rapid expansion from 13 stores in 2003-04 to 68 at present. “The 1992-93 period was difficult—we suddenly lost our largest overseas buyer and (founder) John (Bissell) suffered a severe stroke. By the time we opened our second store in Delhi, William (John’s son and successor) had decided the company’s future lay in domestic retail expansion,” says Charu Sharma, Working Director, Fabindia. In the years that followed, Fabindia became increasingly

surefooted. “We started work on our first Vision Plan in 2002, which laid stress on creating and sustaining the demand for handmade goods and generating fast growth in sales. Since then, the company has done a lot to streamline its back-end,” says Anita Kathpalia, CFO, Fabindia.More Stores, More Products

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The retail expansion gathered pace from 2004 onwards; revenues grew in tandem from Rs 89 crore in 2004-05 to Rs 129 crore in 2005-06 and then to Rs 200 crore last year. Riding on over 35 store openings this year, the company hopes to close 2007-08 with sales of Rs 300 crore. “While we have been opening stores in Tier-II cities like Vadodara, Dehradun and Bhubaneswar, we also want to add more outlets in Tier-I cities like Mumbai and Bangalore,” says Sunil Chainani, Working Director, Fabindia. The company is also looking at retail expansion overseas, particularly in West Asia, which “has the scope for multiple Fabindia stores”. The existing store in Dubai is doing “extremely well” and the ones in Rome (Italy) and Guangzhou (China) are picking up. The company wants each of its stores to be a profit centre, adds Chainani.Bissell, who is married to an Indian, says Fabindia’s emphasis on utility and contemporariness, rather than beauty and quaintness, have created “sustainable demand”. Result: customers buy a product because they need it, not because they think it’s beautiful. “Fabindia’s regular customers tend to be Indians who are not insecure about their identity; who appreciate the fact that they have an extraordinary culture and that a handmade product has an intrinsic value, not an externally imposed price of a big brand, inflated manifold by advertising and packaging,” says Bissell. Then, given that its “basic” line of garments starts at a price point of Rs 150, Fabindia has become synonymous with “affordable chic”.Profits and JobsPrakash Tripathy, Director in Artisans Micro Finance, a Fabindia arm and main promoter of supply-region companies, says these companies are “our way of streamlining and strengthening our supply chain, eliminating middlemen, providing jobs to rural artisans, and giving our suppliers ownership in this business”.According to Bissell’s plan, 200 supply-region companies, manned by local people, to be set up by 2010 across India’s handloom- and craft-rich regions, will gradually take over design, distribution, quality control, warehousing, and some processes like dying from the parent company. Sixteen companies have so far been set up in various states, of which eight are already functional thanks to a financing arrangement with ICICI Bank. “Fabindia’s evolving supply chain is responding to the need for large investments in enhancing product quality and sophistication. So, we’ll provide better quality and designs to our customers,” says Bissel, whose American father John Bissell, a buyer for Macy’s, New York, visited India in 1958, fell in love with Indian crafts, and established Fabindia in 1960 as an export house.Sunil Chainani, Working Director, FabindiaThe company hopes to expand its sourcing from over 22,000 artisans in 21 states to about 100,000 by 2010—the “back-to-the-grassroots” approach it decided to take a couple of years ago after agonising over whether or not it should move away from handlooms in order to grow faster. “Fabindia’s success lies in getting small handloom and craft units scattered across remote villages to develop products that appeal to urban consumers. We’ll continue to develop our supply chain the hard way rather than take the easy way of using mill-made fabrics,” says Chainani.Growth and Constraints

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The company’s expansion this year has been helped in part by WCP Mauritius Holdings; the private equity firm has reportedly invested $11 million (Rs 44 crore) for a 6 per cent stake. This values the company at about $183 million (Rs 732 crore). Chainani says the company’s healthy internal accruals and balance sheet gives it the ability to raise debt without overleveraging the company. “We have been ploughing back profits into expansion on an ongoing basis. We’ll invest several hundred crores over the next few years. Options like IPO and private placements will be considered only when an extraordinary need arises,” he adds.Spiralling real estate prices are, however, slowing down retail expansion, admits Shilpa Sharma, Fabindia’s Marketing Head, who’s scouting for new store sites. The company’s strategy has been to lease property rather than own it (it owns only 6 stores; the rest are leased) and is trying to be the first mover in new markets to get cheaper prices, says Kathpalia. “Fabindia has decided not to expand through the franchisee route in the domestic market because we do not want to dilute our brand,” adds Shilpa Sharma.Bissell says his wage costs are rising fast.like in the case of other organised retailers. He is also aware that retailers like Westside and Pantaloon now stock handloom apparel, furnishings, and crafts, but points out that Fabindia's painstakingly built supply chain gives it a clear advantage over its rivals. Crafts make up a niche market in the sense that our customers know what a handcrafted product is. The larger market, on the other hand, could become increasingly full of fake handloom products. So, players like Fabindia need to constantly educate customers, says Charu Sharma, noting that all Fabindia products bear Craftmark, which is the craft industry's certification for original handmade products.Bissell says he hopes more Indians will wise up to the ggenius of modern marketing that sells them big brands at outrageous prices. He also hopes that more Indians will become secure about their identities and stop being dazzled by western lifestyles and brands.Whether that happens or not, Bissell and Fabindia have little reason to be insecure.

John Bissel started FabIndia in 1960 in New Delhi as a company that worked with various

weavers across the country and developed fabrics that were sold to retail stores in western

markets. For almost 30 years they kept growing at a steady pace adding both the suppliers and

customers to their kitty. They started their first store in 1975 on an experimental basis which was

a big hit, but the focus of the business still remained exports and that is where the maximum

revenue came from. In early 90s when the Indian economy was liberalized and India opened

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itself to the world, the scenario began to change for FabIndia. Their customers now wanted to

work directly with their suppliers. This was because they had an easier access to these suppliers,

suppliers by now well versed to weave for the western tastes and also the volumes needed made

sense for them to set up their own shops in India. On the other hand, Indians started making more

money and were willing on spend on the merchandise sold in FabIndia stores, which till then was

one of the few organized retail stores selling products made out of Indian hand woven fabrics.  

By this time FabIndia’s baton had also moved into the hands of John’s son, William Bissell. It

was more or less imperative that company has to change its focus from exports to domestic

market for the reasons mentioned above. But the challenge was how to achieve scale in this

business. The brand was built on hand made products, which could not be changed. For a large-

scale supply of products, not only you need to work with many more communities in rural areas,

but also ensure a consistent quality of products. Quality assurance in hand made products is a big

challenge as each item is unique and since it is not coming out of a standard machine, there is no

way to embed quality in the production process. 

Challenge was to have an orchestrated supply chain, which not only caters to the need for large

volume of supplies but the quality and type of supply had to be market driven. There was a need

for a central co-ordination agency that can work with the suppliers to design new fabrics and

styles based on the market trends and also ensure the quality of products reaching the retail

stores. Now as the suppliers were based across the length and breadth of the country and

specialized in products from their region, one central agency may not have been enough to deal

with them. At the same time FabIndia also wanted to keep its well established partnership with

the craftsmen and make them own a piece of enterprise that they work for.  

FabIndia came out with an Innovative re-organization of company. It created 17 supplier region

companies (SRC) that covered the entire country, divided by geographies. A minimum of 26%

stake in SRC was reserved for artisans. FabIndia owns 49% stake and employees and investors

own the rest. Twice a year the shares of these companies can be traded. Setup less than 5 years

back, most of these companies are already profitable and pay dividends. A separate microfinance

company was setup to provide funds to these SRCs.  

SRCs provide artisans with inputs on designs and market trends. They help them get access to

funds and management skills and ensure the quality of products supplied to FabIndia. For

FabIndia the quality control and sourcing has been decentralized and localized. As SRCs supply

directly to the stores, the time to market is considerably reduced.  

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            Typical Order Flow between Stores, SRC and Artisans / Producers          

Key Innovations at FabIndia can be classified as:

Networking:  Pioneering the concept of community-owned

Enabling Process: Decentralized Inventory management

Core Process: Decentralized quality assurance and mechanism for transmission of market

signals.

Customer Experience: Standardized and consistent quality, Wide Variety.

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