Organized
retailing in India is still evolving in terms of reach and process maturity.
One of the key metrics for process maturity for a retailer is Inventory Turns.
The roadmap for improving this metric is a holistic effort covering demand and
supply side functions.
*Value chains are simplified to show only the prominent supply/consumption points in apparel; both the maps are to the same scale
The roadmap has to be more holistic as the metric of
inventory turns, as noted earlier, is more holistic in nature. This roadmap
touches demand and supply sides of the retail value chain as indicated in the
diagram above. The next steps in the roadmap will be elaborated in the
subsequent articles in this series. In brief the next steps involve planning
the demand flow and supply flow, more efficiently.
Organized retail in India is rather young – the larger
ventures in this space didn’t start until late 1990’s. We have made good
progress since then. There has been thousands of crores invested in setting up
retail businesses everywhere in India. These investments have gone into
acquiring the most basic resources and capabilities to setup shop – trained
workforce, suitable shopping space (suitable in size and location),
distribution infrastructure, basic vendor agreements, etc. All of the large
retailers today either have setup these basic resources and capabilities or
have made definite progress towards these. It becomes imperative that the next
round of investments should be in developing more advanced resources and
capabilities.
Indian retail does certainly need more advanced resources
and capabilities, especially since we still compare very bleakly to retailers
in developed retail markets. One key metric to note in this regard is the
inventory turnover. Inventory turnover indicates the velocity of goods movement
in the retailer’s value chain. This velocity is not just a factor of
distribution and procurement processes. It is also a factor on how well the
retailer understands his customer and stocks his stores for it – if the
customer doesn’t like the goods, they won’t move as fast in the value chain.
Hence, inventory turnover is a key indicator of the maturity the retailer’s
processes in doing the above (There is a more popular indicator in the retail
world – GMROI – since retailer’s balance sheets today include their
manufacturing operations, this is not considered here. The argument to be made
in the article is the same with this metric as well).
Comparing the inventory turnover’s in the
apparel retailing business of prominent players in India and a developed market
like USA showed just how big the gap is – (see the diagrams below) US retailer
was moving goods across 19,000 Kms +, across multiple nations and an ocean and
across varied language/customs domains and yet achieved 3 times better
inventory turnover than the Indian retailer.![]() |
Simplified US Retail Value Chain @ 10 Inventory Turns |
![]() |
Simplified US Retail Value Chain @ 3+ Inventory Turns |
*Value chains are simplified to show only the prominent supply/consumption points in apparel; both the maps are to the same scale
An interesting note is that the US retailer’s value chain
stretches into countries with evolving infrastructure in Asia. Therefore, the
credit to better performance cannot only be conferred to the better roads in
US. What other factors contribute to this performance? An analysis of the
contributing factors yields the following roadmap (this is called as roadmap as
there is a definite sequence to building these factors into a retail business).
Roadmap:
The roadmap to building the process maturity, to
achieve the level of performance of a US retailer, begins from not imitating
the US retailer - US retailers face different regulations, different market
conditions and different geographic features. The roadmap begins from building
something more fundamental than mimicking the practices of a US retailer - it
begins from building a culture of adaptation and innovation. Culture is often
the first thing to be changed before a large change happens. Quality Management
Strategies have often highlighted this to the Manufacturers. The cultural
change required here is about empowering various sections of the employee base
with suitable tools to analyze processes, establishing forums for evaluating
ideas at various levels, encouraging talent acquisition with varied exposure
and building a vision statement that clearly communicates this. However, this
is just the first of the steps in the roadmap to higher inventory turns.![]() |
Retail Value Chain and Roadmap |
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