It’s ALL about ‘CASH and CARRY’

‘CASH AND CARRY’-The name itself defines the business. Pay the CASH and CARRY the goods. This is a unique retail business model. For simple understanding, we can define it as a wholesale model. A wholesaler stocks and sells the goods in bulk. Cash and carry also follows the same. It also stocks and sells the goods in bulk. The one of the difference between the two is a wholesaler gives credit period but a cash and carry won’t. Another major difference between them is in assortment. Cash and carry assortment is wider than a wholesaler assortment. Assortment means width and depth. Width refers to the number of brands eg., if you take a shampoo, they will have various brands like Garnier, Sunsilk, Pantene, Head and Shoulder, Clinic Plus and so on. Depth refers to the number of SKUs (Stock Keeping Units) eg., In Head and Shoulder, they will have various kinds like Menthol, Black, Pink, Silky Smooth and so on. This kind of assortment you can’t find in a wholesaler. This is not only in shampoo but in all the categories like Staples (rice, wheat, ghee, oil etc.,) Home products and care (Fairness creams, perfumes etc.,) Food and drinks (biscuits, soft drinks etc.,) Frozen food items (fish, ice creams etc.,) Fruits and vegetables, Textiles (towel, bed sheets etc.,) Home improvement (Furniture) Media (TV, Mobile phones etc.,) Apparel, Foot wares and Home Appliances. It is impossible to find a wholesaler to have these entire assortments.

Normal customers like you and me can’t enter these cash and carry stores and purchase the goods unless you are registered customer. It is a B2B (Business to Business) model. They will sell only to the business customers like small Kiranas, Mom and Pop stores, hotels, restaurants and caters. And also these business customers should register themselves with the cash and carry. Once they get registered, they will get a Customer Identification Card. There is one more thing is there, a business customer cannot come inside the cash and carry store and buy items worth of 100 or 200 rupees. They have to have a minimum buy of 1000 or 2000 rupees depends on the cash and carry store.

In India, some of the players playing in the Cash and Carry game are the Germany giant Metro, Bharati-Walmart, Carrefour and Reliance Market. The basic fundamental thing in this cash and carry model is High Volume and Low Margin. If we see the supply chain it will be like this Manufacturers-->Distributors (in cases agents)-->Dealers-->Sub-dealers-->Retailers-->Consumers. This cash and carry model eliminates the intermediaries. It directly procures the goods from manufactures and selling it to the retailers. Here the supply chain will be like this Manufacturers-->Cash and Carry-->Retailers-->Consumers. It reduces the cost, lead time, damages and so on.

The most important benefit provided by the Cash and Carry model to their business customer is play with the retailer’s Working Capital. There is a Mom and Pop near my home. The daily average sales in that Mom and Pop store is around 1000 to 2000 thousand. For every three days the owner of the store purchases goods worth of 5000 thousand rupees. If he wants to do the purchase after three days, he has to sell all the goods which he bought. So, he will be too cautious in selecting the goods. He won’t buy 5 or 6 items for those 5000 thousand rupees. He will buy 15 to 20 items for those 5000 rupees. He does not want to take risk. He always wants to be in the safe side of the game. The risk here is, out of 5 items, if one of the items is not moving well, he will inquire a loss of around 4000 to 5000 rupees. But in the later part, out of 20 items if 3 items is not moving well, he will inquire a loss of around 500 to 1000 rupees. At the same time, he will be flexible in changing the assortment of his store whenever he wants. Instead of buying the goods from different distributors or dealers, he can find everything under one roof. The only disadvantage is he won’t get anything for credit. But the other benefits provided by the cash and carry completely screen the credit period demerit. Some of the cash and carry stores are also providing some credit, if a customer buys goods for a very large amount.

In India, this cash and carry model already created some changes. Let’s see the other changes in the coming days.

Business Activity Mapping - Requirement Identification and Vendor Management

Steps involve requirement identification and dealing with a vendor:

Step 1:

The customer places the purchase order for the number of units of product they need i.e., the finished goods.

Step 2:

The Engineering department receives the purchase order and it will check the availability of finished goods. If the finished goods are there, they supply the finished goods to the customers. Then, the freezing of design and preparation of BOM will take place. If not, go to step 3

Step 3:

The Engineering department prepares a Bill of materials. They send the BOM to the purchase department. The Engineering department requires the raw materials for the production of finished goods.

Step 4:

The purchase department checks the BOM with the stocks of raw materials

Step 5:

If the materials mentioned in BOM are available in the material storage department, they send the materials to the manufacturing department for manufacturing. Then, after manufacturing the finished goods stored in warehouse and then transported to the customers.  If not, go to step 6

Step 6:

List down the items need to be purchased and send the list of items to be purchased to the purchase department. Then, the purchase department sends the purchase order to the vendor.

Step 7:

The vendor supplies the ordered materials.

Step 8:

Before the materials get stored in the materials storage department, the inspection of materials will be done. This is to check whether all the materials are within the specification limit or not.

Step 9:  

If all the materials are within the specification limit then the materials are accepted and moved to material storage department. Then go to steps 5 and 11. If not go to step 10

Step 10:

Materials which are non-conforming and falling outside the specification limit are rejected. Suddenly intimation should be given to the vendor about the non-conformity of materials. After sending the non-conformity, the rejected lots should be sending back to the vendor. But, some of the materials are within specification limit. They follow step 7

Step 11:

The vendor sends the replacement lots. Then go to step 7

Step 12:

After the materials get stored in the material storage department, good receipt note will be prepared and it sent to the vendor and the finance department. Then, finance department sends the process payment to the vendor.

Supply Chain - "DevelopED Nations VS DevelopING Nations"

Is there any difference between supply chain between the developed nation like USA and developing nation like India? Of-course, there are lots of differences. The differences are in terms of flexibility, speed, innovation, the way the supply chain is designed etc..,

The major difference between the two economies is the GROWTH. India is growing in a faster rate when compared to USA. The GDP growth rate of India is 6.1% YoY. In case of USA is only 1.6% YoY. But the real GDP of USA is US$14.5 trillion and India is only US$1.73 trillion. USA market is almost reached the saturation point. Per capita income of USA is greater than India. Here, we can see the contradictory things. They are high per capita income versus slow growth rate and low per capita income versus high growth rate. So, obviously the supply chain approach is different for these two nations USA and India.  Source: http://www.tradingeconomics.com/

In case of USA, if the company wants to make money or to increase the margin, reducing the price of the product or cost cutting in the supply chain doesn't make any sense. The customers in the developed economies always seek for some innovative products that make some difference in the way they are living. Their main concern is no money. Their main concern is about the availability of brand new product. So, the supply chain in the developed nations should be agile enough to meet the demand of the customers. The supply chain should be efficient. 

Suppose, let’s take an example a brand new tablet enters the market. Customers want that tablet and the demand is so high for the tablet. At that time, if the company things of reducing the cost in supply chain, it will lead failure in meeting the demand. The company should think of how fast I can provide my new product to the customers. The customers are also willing to pay a premium for the new product. The only way for the company to make money is by charging more money to the customers by increasing their margin in case the demand is not high. But, in the above case of tablet, the demand is high and also the people are willing to pay a premium. The company will be beneficial if they increase the price and it ultimately leads to increase in the bottom line.

In case of India, the majority of the population always looks for a low cost product. The challenge for the companies in India is how they are going to provide products at low cost. Economies of scale play an important role. Apart from it, the other way of reducing the cost is by supply chain activities i.e., starting from the procurement of raw materials, logistics and distribution channels. In contrary to the developed nations, the bottom line can be increased not by increasing the price but by increasing the quantity of goods sold in developing nations.

Another important challenge the developing nations facing is predicting the demand. In case of developed nations, they don't have much difficulty in predicting the demand when compared to the developing nations. There are various reasons behind it. The most important thing is developed nations are technologically advanced. Everything is computerised and each and every activity that is happening in nook and corner of the supply chain are electronically recorded. They have inch by inch information about the business. In case of developing nations, nevertheless the technology is in developing stage.

Another important reason for the efficient supply chain in the developed countries is their transportation facilities. They have well laid roads, railways and frequent air transport. Developing nations are still lagging in it. 

"Supply Chain Changed"

SCM is one of the areas in an organization where about 60%-65% of money flow. In a typical supply chain there is always tradeoff between cost and delivery of the products. But in the current uncertain market scenario, cost and delivery of products won’t create any competitive advantage to the organization. Supply chain should be ‘agile’, to cope with the mismatch between supply and demand. And also an effective supply chain should be adaptable to the market condition. 

Supply chain of an organization should be adaptable to the fluctuations and uncertainties. The organizations should be flexible enough to change their supply chain strategy to meet the uncertainties and fluctuations. To be effective in supply chain management, an organization should align their interests with the customers and suppliers. 

Supply chain strategy depends on the type of product in which the organization is handling whether it is a functional or an innovative product. If it is a functional product, the organization should use the efficient supply chain i.e., it should focus on reducing the lead time unless it doesn’t affect the cost. If it is an innovative product, the organization should use the responsive supply chain i.e., fast enough to meet the demand.

Let’s see some of the examples for functional and innovative products. For functional product take the example of soft drinks (Pepsi, Coco-cola). These soft drinks are fast moving items. They should be in each and every shop whether it is a local kirana store or any big mall. It should be available in all the places. The reason behind this is people need them. Suppose I'm travelling in any rural area and suddenly I want to drink some soft drinks and I approach a store and asking for a soft drink of any brand. If the brand is not available in the shop, what will I do? I'll ask for some other brand and I'll quench my thirst. The supply chain of the soft drinks should be effective and make sure that it should be available in all the shops. At the same time, supply chain should be cost effective. Because replenishment of stocks will happen every day in each and every shop. If it is not cost effective, it will increase the operational cost and ultimately affects the bottom line.

For innovative products like Apple ipads or iphones responsive supply chain is the best. Ipad is an innovative product. It is new to the market. People are seeing the product for the first time. Demand for those products will be high. If the company can't meet the demand then it will lead backlog. Backlog is loss to the company. The supply chain should be fast enough to meet the consumer's demand. Another important thing here is the company should be good in forecasting the demand. If the forecasting is sceptical, it affects in both the ways i.e., it may lead to lots of inventory or backlog. Organisation should be conscientious about predicting the demand.

Reference: "Marshall L.Fisher, What is the right supply chain for your product? HBR, Reprint 97205"
                            "Hau L.Lee, The triple-A supply chain, HBR, page 102-112"