Retailers look to streamline logistics to cut costs

Indian retailers, plagued with declining sales and high cost of operations, are streamlining logistics to remain profitable.

Experts say the biggest expenditure for a retailer is real estate, followed by manpower and sales and advertisement expenses.

According to Sanjay Chugh, national head, business development, retail, Jones Lang Lasalle Meghraj, “Retailers can reduce costs 15-20 per cent by effective supply chain management, pruning store sizes and rationalising real estate portfolios.”

Spencer’s Retail, the Rs 1,000 crore retailing arm of the RPG group, is realigning logistics and supply chain strategies in an attempt to cut costs by at least 20 per cent. The supply chain accounts for nearly 2 per cent of the company’s costs.

As part of the initative, the retailer plans to reduce the space per distribution centre to lower the cost of real estate and encourage direct supply to stores, especially the bigger ones, according to Amit Mukherjee, head of supply chain and information technology (IT), Spencer’s Retail. The company also plans to invest more in software for automatic replenishments.

“This way we can do away with over-stocking. The other shift in the replenishment process is from a put-away to a flow-through model. This will mean requirement of lesser storage space and better wastage and inventory control,” he said. The initiative, started a couple of months ago, has lowered costs by almost 10 per cent. Over the next six months, the company expects costs to come down by another 10 per cent.
 

VALUE IN TACKLING LOGISTICS
	Q4 FY-08	Q4 FY-09	Q4 FY-10 (expected)
Same store sales (in Rs crore)	Flat	Flat	10%
Sales per sq ft (in Rs)	Rs 668	Rs 650	Rs 720
Customer entry (in million)	13.1	12.1	14
Conversion ratio	71%	73%	80%
'Source: Spencer’s Retail official statement

Implementing automatic replenishment helps ensure that stores are always well-stocked. This, in turn, ensures more business volumes. Also, reworking transport routes to bring down freight costs helps rationalise fuel costs and reduce overheads, input costs and wastage.

“If we can reduce storage at distribution centres, we can ensure less damage to goods, so that every penny invested in buying stock can be realised,” Mukherjee said.

Spencer’s has reduced close to 60,000 sq ft of distribution centre space in the past two to three months. Currently, it has 16-17 distribution centres over 3,50,000 sq ft. “We intend to reduce another 15-20,000 sq ft at distribution centres. The total number of distribution centres may not come down but the space occupied per distribution centre will,” said Mukherjee.

Spencer’s is also redoing its freight mix and planning to bring down freight movement. This means a lesser number of trucks will be used per day. For instance, while around six trucks are used in Chennai, Kolkata needs about three trucks as all Spencer’s stores in Kolkata are large format (50,000 sq ft and above), which enables the company to supply directly. In information technology (IT), the company has been using SAP’s supply chain management.

“In the next two months, we intend to use radio frequency identification (RFID) to track goods and assets. It can be used to automatically receive shipments and have greater visibility in back rooms and on-the-store shelves. We are also thinking of using scanner dispatch systems. We also plan to extend our systems to our vendors,” said Mukherjee.