Less is More: Not Just a Retail Phenomenon

One of the major advantages of organized retail, apart from low prices, is the vast array of choices it provides to the consumers. In the last few years, the rapid increase in the number of super-markets and mega-markets in the country has been accompanied by an explosion in the varieties of every imaginable merchandise that populates their shelves.

But like many other transformations that retail sector has been undergoing, a rather unexpected one has been gaining grounds, and it is not so recent. Retail giants like Walmart are already cutting down the huge number of choices offered in their stores, favouring only selected varieties which are generally preferred by the customers. But how does this make any sense? As it turns out, organized retail players all over the world are facing heat due to at least one of the following factors:

1.    Rising real estate prices,

2.    Expenses of managing a large number of SKUs, their supply chains and inventories,

3. Loss of opportunity of tapping consumers in urban centers where space is a scarcity and huge shopping centers cannot be established and

4. Loss of opportunity to tap communities of consumers in rural areas, which are too small to sustain a super or mega market.

These are also the significantly responsible reasons for the losses being incurred by almost all the organized retail players in India. Stocking a large number of products and their varieties calls for huge real estate investments, and that has been made very difficult by the sky-rocketing real estate prices. Towns and villages are usually dominated by unorganized retailers as they have been so far neglected by the organized players.

Another important aspect is related to the consumers. It has been found that though providing some variety boosts customer satisfaction, going too far might lead to “customer confusion”. Too many choices overwhelm the customers and lower their buying intent. The solution lies in bringing to them a few, “well-researched” types of products instead of too many varieties. This is the simple concept of “Less is More”. So, in a nutshell, this enables the organized retailers to achieve the following:

1.       Better customer satisfaction,

2.      Lesser number of SKUs to manage and hence simpler inventory,

3.      Ability to establish small-sized stores with low real estate investments and

4.      Ability to establish small-sized stores in urban centers as well as in rural areas.

It follows that Walmart’s decision of opening dozens of scaled-down stores in the near future is not surprising at all. It is interesting that some Indian retail giants have already been following this model. One close example could be the Mumbai based D-Mart. Future Group also runs a chain of small stores called KB's Fair Price, apart from the giant Big Bazaar stores.

“Less is More” has far wider implications than what appears from this article so far. For example, in a recent interview with The Economic Times, the MD and CEO of Bajaj Auto Mr. Rajiv Bajaj stressed upon the relevance of this idea to the competitive motorcycle market. Apparently, this has allowed Bajaj to gain a strong position in the market in the last few years. Though the top position is still held by Hero Motocorp, Bajaj Auto has stunned everyone by becoming the most profitable motorcycle manufacturer. The company claimed 58% of the total profits generated by the industry in 2010-11.

As the companies go “on diet” to become more efficient and move faster than the competition, the focus will now shift on selecting the “right diet” or the best choices to be provided to the customers.

References
1. Why Less is More for Holiday Shopping - Forbes

2. In Store Aisles, Less is More but Customers can still be Particular - The Globe and Mail
3. Less is More for Walmart, Other Retailers - CSPnet.com

4. Strategy is Nothing but Specialization: Rajiv Bajaj, MD & CEO, Bajaj Auto - The Economic Times
5. Retail Chains Witness Growth but Widened Losses; Rs. 987 Cr Hit During 2010-11 - The Economic Times
6. Aditya Birla Retail Plans to Shut Down More than 3 Dozen Stores and Lay off More than 150 Staff - The Economic Times

The writer of this article, Akshay Agarwal is a PGP student of Indian Institute of Management, Raipur and has done his B.Tech from Indian Institute of Technology, Guwahati.

Supply Chain Improvements in Wal-Mart

Wal-Mart the retail giant has been successful to attract customers through the unbelievably low prices it charges for its products. ‘Everyday Low prices’ is the atrocious slogan Wal-Mart dared to use for a long period and which it has displayed in action. Such an accomplishment could be achieved by Wal-Mart as it was successful in creating a great supply chain on which it had a high degree of command. The growth model which Wal-Mart followed was based on excelling in the logistics. The real power derived by Wal-Mart was due to the fact that it could put pressure on its suppliers on account of its huge purchasing power. Wal-Mart has an enormous control over its suppliers and dictates terms in what to produce, when to produce and the price of the produced goods.

Wal-Mart can exercise the power it does on its suppliers as it is the organization in the supply chain which is controlling the end sales. The sales information which is vital to all players of the supply chain can be provided only by the end retailer. Wal-Mart maintains a collection of last two years sales data which it shares with its suppliers. Thus, it saves the effort on Wal-Mart’s part in situations where they can do away with the purchase orders. The suppliers themselves analyze the sales data and determine how much to produce. Wal-Mart also uses this system to predict future sales data which is again very attractive to the suppliers. Thus, handling of such a huge volume of data has become a core competency of Wal-Mart. It just has to provide the adequate training to the suppliers to use this data effectively, and thereby minimize its own and its suppliers’ costs.

Another area of the supply Chain where Wal-Mart has shown innovative thinking is the area of transportation. The complex transportation network necessitates bringing all the supplies from different producers from different areas to one location which is highly complicated and requires sophistication. This is where the second core competency of Wal-Mart lies. Wal-Mart has also achieved high levels of Logistics Coordination by establishing buying offices around the world. It does not use intermediate warehouses and has abolished middle men from the chain. This has also led to lowering of costs resulting in higher revenues.

Wal-Mart has chosen to establish suppliers in countries which have lower costs of production to lower costs. It has thus utilized technology, invested creatively trained the members of its supply chain and used its purchasing power to create an effective supply chain which has been at the core of its success. It thus has established a pioneering position in the retail industry which is now being emulated worldwide.

References:

http://www.freepatentsonline.com/article/International-Journal-Business-Strategy/208534987.html

Supratik Saha is a PGP student of Indian Institute of Management, Raipur. He has done his B.Tech. in Computer Science & Engineering from Siliguri Institute of Technology, West Bengal and can be reached at totoslg @ gmail . com

Amazon and its supply chain

"When we think about how we're going to grow our company, we focus on price, selection, and availability," says Jeffrey Wilke, senior VP of worldwide operations at Amazon.com Inc. "All three depend critically on the supply chain."

Amazon has one of the most-sophisticated supply-chain systems in the world, and it was all built from scratch. Homemade applications handle nearly every aspect of its supply chain: warehouse management, transportation management, inbound and outbound shipping, demand forecasts, inventory planning, and more. "We don't have any legacy systems," Wilke says. "That's a clear advantage."

In the last four years, Amazon has worked to minimize the need for human intervention in its supply-chain processes, such as manually inputting sales forecasts into an inventory-management system. Today, Amazon's supply-chain apps communicate in real time, a rarity when most companies have to integrate a variety of software tools and manual processes, such as phone and fax orders. "We've reached a point where computers do what they're supposed to do," Wilke says.

Amazon's supply chain is so tightly integrated that when an online customer buys a couple of books and a CD, the order-management system communicates with inventory and warehouse-management systems to find the optimal distribution centre or centres for fulfilling the order. The customer knows in less than a minute how long it will take to ship the items and whether they will come in one package or separately.

Amazon, which spends about $200 million a year on business technology, last year launched a business unit to resell its Web-commerce and back-end fulfilment services to retailers. And it continues to seek technical advantages in its supply chain. For instance, certain Amazon applications can use radio-frequency identification technology, and the online retailer will turn on the capability when it's needed, Wilke says. "RFID is most useful when you have one of a number of conditions: if you have poor inventory accuracy, if you have a high shrink rate, or if you have a need for more real-time information." RFID isn't a priority because those aren't problems for Amazon today.

"RFID will add the most value to us when it's used on every item," rather than on cases and pallets, as Wal-Mart Stores Inc. and Target Corp. are planning. "Then we'll just position the antennas in our operations." 

 

Vishwajit Vyas has done his B.Tech. in Electronics Engineering from Wayne State University, Detroit,  Michigan and can be reached at vishwajitvyas @ gmail . com.