“Learning never stops. Flexibility, agility, resilience, adaptability, and effective collaboration are essential to meet the challenges of doing business during a period of significant disruption. Digitalization of supply chain supports these requirements. Understanding the supply chain vulnerabilities that emerged during lockdown plays an important role in helping us prepare for the future shocks, including a potential second wave of Covid-19,” shares Aniruddha Banerjee, Sr. Vice President – Supply Chain, Spencer’s Retail Ltd. & Nature’s Basket Ltd., during an exclusive interview…
How was the year 2020 for Spencer’s Retail? What innovative idea made its way to reach consumers?
Evolution and change are the only constant – a philosophy that was exemplified during the pandemic, made companies to think differently. Retail sectors (both food and non-food) having Omni-channel presence had to evolve and so did Spencer’s as an organization. Curbing the primitive thought processes and harping on the old normal of scheduling, planning, and forecasting, Spencer’s took initiatives that were not only nimble and flexible but also involved a lot of dynamism. Every function in the organization played their own part in developing newer and leaner ways of achieving objectives. Right from customer feedback-based forecasting algorithm to capacity planning based on sale outlier normalization to developing robust mechanisms for inventory load balancing, and planned increase of DC throughput, Spencer’s has done it all. The approach was simple yet efficient. Everything evolved from the vision – Makes fine living affordable and convenient. Keeping customer at the helm, Spencer’s as an organization has treated each business case with equal importance, and the results are encouraging. Spencer’s hopes to be always with their customer.
How has FMCG sector been performing over the years?
The main trends for this sector have been growing awareness, easier access and changing lifestyles of millennials. The sector's primary growth drivers have been rising wages and increasing youth populations. Also, brand recognition has helped demand. Demand for quality products and services in rural areas is on an upward trajectory on the back of increased manufacturing and FMCG distribution networks. The increasing youth population, especially in urban regions, is another major factor driving the need and demand for food services in India. India has a large base of young consumers who make up majority of the workforce, and hardly get time for cooking because of time constraints. Growing internet penetration and increasing digital maturity in India, along with infrastructure growth, have helped improve online transactions. Around 72% of Indian customers are most likely to shop online for premium items locally. FMCG companies are launching products online before making them available in traditional retail stores with e-commerce sales recording 56% growth in the first quarter of 2020 and 38% increase in June 2020. Because of the direct cash transfer system, disposable income has increased in rural India. Another rising category is exports. By 2030, the e-commerce segment is projected to contribute 11% to total FMCG revenue. Stock availability has become much simpler because the internet and multiple distribution outlets have made it easier for consumers to access the desired product at the right time and location. Post pandemic, the consumer behaviour had been brand agnostic for a few days. But the ones adhering to the MT section has come back to look for product width rather than depth.
What are the crucial learnings gained from the pandemic?
COVID-19 has taught us many lessons. COVID-19 has dramatically and suddenly shifted more customer traffic to digital channels. The growth in e-commerce is irreversible and will continue to witness traction. Owing to the rising trend of internet consumption and the sheer ease of disposal at the end of the customer, the purchase paradigm has moved towards Omni-channel delivery services. COVID-19 has taught businesses to embrace an agile operating model. The ability to move fast and adapt is a clear characteristic of winning businesses & retailers throughout this ongoing crisis. Health and safety of employees & customers remains the first and foremost riority and customer and community engagement remains vital. Digital, convenience, speed, cleanliness, health, trust and community are all keywords that will become the future foundations upon which retailing rebuilds. Consumers tend to panic and buying patterns are based on market feedback. The evolution of the second strain may entice in hoarding even if not like the last one. Learning from the past, panic buying might be a little more structured if planned on the criticality scale.
What were the strategies adopted to mitigate risks and ensure Business Continuity?
We started off with Residential Welfare Association list preparation for essential SKUs of FMCG, Staples & General Merchandise by identifying high throughput essential SKUs so that it can be shared with manufacturers and distributors to plan their production and distribution. This helped us in ensuring the supply connect for the essentials demand. To ensure the business continuity in hotspot, virus-stricken areas and to avoid disruption owing to this, the large format store was chosen as the as a hub for cluster with the smaller ones as spokes, enabling a pseudo-DC and catering to the demands. Strategic tie up with Omni-channel delivery partners was an important lever, especially down South. We have implemented staggered shift working at warehouses for DC manpower to mitigate the risk of virus spread, promote social distancing and to cope up with manpower crunch. We focused on phone delivery model, Spencer’s App and WhatsApp enabling the consumers to get the products delivered to their homes.
How did the inventory planning happen during the same time?
When supply is restricted or lead times are unreliable, it’s important to identify stock items that are critical to your business and build an inventory plan to alleviate the risks. We identified focus articles across each category along the ones which are fast movers and have set stocking policies to help secure their supply and the optimum inventories. To ensure that stocks don’t pile up at warehouses during this period, a case lot based allocation model was developed which helped in efficient picking in case lot, thereby reducing the warehouses turnaround time. A unique hub & spoke model for stock replenishment was made where a unique store had been chosen as the back-up or alternate hub location, which acted as a DC and catered to the essentials SKUs supplies with strategic tie-up with Omni-channel delivery partners for the delivery.
Please share with us Spencer’s technology transformation story with respect to supply chain.
There was a misrepresentation of the Average Daily Sales due to sales spikes due to bulk/liquation sales at the stores. This in turn provided a wrong average daily sale number, which is a driver in inventory planning, computation of Manual, Gap Fill PO calculation or affixing DOH norms. This computation considers the ADS comprising bulk sales and hence, excess stocks gets triggered, thereby resulting in higher inventory as required. So, it is required to reduce the effect of outlier sale spikes (bulk/liquidation sale) from stores, misrepresenting the ADS (average daily sale numbers).
We developed sale outlier normalization model on SAP ABAP. The model encompassed identifying the effect of outlier sale on the time frame of D-91 days. Comparing the daily sale number with the moving segment of 91 days prior to the sale day, if an outlier was recognized by the model, based on the z-score on the curve, the rationalization takes place in the form of a replacement value. On implementation of the project, skewed and outlier sale numbers were eliminated. The data became useful and gave exact scenario to merge forecasted inventory phasing with capacity planning. Average daily sale reduced by 8-12%, days of inventory holding reduced by 13-18%.
What peculiar consumer behavioural shifts have you observed during the last year till now?
The trust towards the efficacy and authenticity of digital platform has increase many folds. More and more consumers now prefer to opt for internet shopping. About 40% customers now intend to increment spends on diversion and tech empowering agents - Apps, OTT, DTH, and WIFI. Customers now prefer to have less discretionary spend on leisurely activities and lifestyle while the focus towards health, hygiene and financial security has increased. The focus on quality and efficacy – hygiene and immunity has increased many folds since the onset of the pandemic. New products introduction with focus on quality and efficacy are on surge as Indian consumers are highly adaptable to new and innovative products. Purchasing power for consumers are same, but brand preference for FMCG is steadily making its way into the basket, e.g.: demand for Maggi across retail chains. For staples, the region-wise preference still plays a dominant role. But the new normal has shifted towards a bullish few than towards a bearish many.
Online retail has become the mainstay today with the onset of pandemic and prolong lockdowns. How aligned was your business before the lockdown was imposed? If not, how did you reach your consumers to get the business rolling? We initially focused to plug the gap for essential SKUs supplies by focusing on Essentials Needs. To ensure the hassle and risk-free deliveries for these essential SKUs, we also moved ahead in diversifying the delivery services with strategic tie-up with Omni-channel delivery partners with Uber and Swiggy. WhatsApp Bot Deliveries and Phone Delivery for bulk essential deliveries for societies have been a rescue lifeboat for us and that is how we kept on reaching our consumers to get the business rolling.
As a supply chain professional, what do you think were the most important classroom lessons that helped you take the right decision during tough times and especially the covid-19 pandemic?
Learning never stops. Flexibility, agility, resilience, adaptability and effective collaboration are essential to meet the challenges of doing business during a period of significant disruption. Digitalization of supply chain supports these requirements. Understanding the supply chain vulnerabilities that emerged during lockdown plays an important role in helping us prepare for the future shocks, including a potential second wave of Covid-19.
What are the upcoming trends in FMCG supply chain that we would witness in the years to come?
Increase in disposable income in rural India and low penetration level in rural market offers room for growth for FMCG supply chain logistics portfolio. Many multinational FMCG players are seeing India as a strategic sourcing hub for cost-competitive product development, high performance supply chain and manufacturing to cater to international markets. Also, the number of online users in India is likely to cross 850 million by 2025. 1 in 3 FMCG shoppers goes online first and then to stores. Trends such as research online purchase offline are becoming quite common and it is expected that 40% of all FMCG purchases in India will be online by 2020, thereby making it a US$ 5-6 billion business opportunity. Companies are aggressively digitizing growth of earnings before interest and taxes. New Omni-channel supply chain engagement models such as Buy online Pick up at store (BOPIS) are becoming increasingly popular. Technological development is transforming the last mile delivery. Congestion, emission, and delivery cost are three key challenges in the last mile delivery operation and digital infrastructure will help in addressing these challenges. The uberization of last mile will become a significant factor in meeting the e-commerce and digital surge. Last mile delivery is the most deconsolidated form of shipping strategy, implying it is multiple deliveries at numerous locations. Digital transformation would ensure that last mile distribution operations are flexible and scalable, allowing for the rapid accommodation of shifts in demand for e-commerce shipping.
How can companies make their supply chains future proof and pandemic proof?
Most traditional and modern supply chains do not have the capability to be very resilient or flex with a major disruption due to their linear nature. If there is one thing that the companies need to learn from the ongoing pandemic, it is the agility in the supply chain. Companies can make their supply chain future proof and pandemic proof by designing their supply chain in such a way that it is flexible enough to absorb shocks, major or minor, which come along its ways. Today’s supply chains need to be highly resilient, scalable, and flexible to meet the challenges of doing business during a period of significant disruption.
How should the new age supply chain network design happen?
The unorganized retail sector in India has a huge untapped potential for adopting digital mode of payments as 63% of the retailers are interested in using digital payments like mobile and card payments. Companies should delve into ways to interact and deliver directly to consumers. We need to focus on Omnichannel and flexible online delivery models. Also the focus should be on investing more towards infrastructure development for strong last mile delivery setup and on personalization of shipments. FMCG Players need to build infrastructure that allows customization of orders within the supply chain, without adding any cost. Smart supply chain control tower are the need of hour, which can anticipate potential problems in an automated and optimized fashion at a regional and global level. More and more companies are trying to transform their traditional supply chain models to digital supply networks (DSN). It is seen as a long-term solution to build a more resilient supply chain that can withstand disruptions like COVID-19.
What are the five aspects that are needed to make Indian supply chain network efficient?
Agility in the network: Quickly responding to disruption necessitates a flexible network of vendors and stakeholders capable of handling unexpected shortfalls or even developing new goods. Setting up alternate manufacturing sites and assembly points, as well as using resources to reduce costs, would increase network efficiency.
Network visibility and monitoring in real time: Real-time insight is provided by control tower solutions that incorporate data across the whole supply chain, 5G technologies, and blockchain. By comparing internal production capacity data with real-time market signals, businesses can better balance supply with projected demand.
Digital Collaboration: The Supply Chain Network would be more effective as a result of digital collaboration between internal and external supply chain associates, retailers, and distributors. Knowledge collaboration can be supported by cloud-based supply chain systems and shared networks and software. It will also boost the quality and speed of decision-making within a company, as well as with suppliers and other stakeholders.
Automation: Manufacturers have requested better insight into their vendors' supply chains in the wake of the Covid-19 pandemic, a trend that should be continued. To maintain business sustainability, companies are using automation and robotics to make their supply chains more autonomous.
Decentralized Workflow: Decentralized teams will adapt rapidly to applied analytics insights and develop the rapid-recovery tools that can help businesses move during periods of disruption.
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