Science Friction

By Gaurav Kumar

Businesses of all stripes have learnt a couple of lessons the hard way while navigating the tough economic climate this year. Among the more important of them is optimising the power of information. Investing in information technology (IT) infrastructure to leverage cutting-edge business IT applications to support business plans and growth efforts anchors this awareness. According to business heads of retail and food processing industries, IT investment is no longer a luxury, but crucial as a growth driver.

Over the past 12 months, major modern food retailers in India have eschewed previously-held beliefs about topline growth at the cost of almost anything else, and have realigned to the harsh realities of low-margin retail. Among the shifts is an increasing respect for the role of technology in raising effectiveness and efficiency. For food retail – a business whose success is determined by supply chain efficiency, inventory management and just-in-time replenishment – there can be no avoiding the writing on the wall.

To manage a large-scale business, which may include a diverse range of food products and consumer goods, one needs to systematically (pun intended) plan and channelise work processes and make proper material flow arrangements. And for that one will require robust and agile information collection and dissemination system across the business establishment. Most organisations will acknowledge that information flow and accessibility are most important things affecting their decisions and productivity.

“IT applications certainly help you to get useful business data in a understandable format for doing analysis, they help to contain unnecessary costs, and propel sales and revenues,” says M.N.V.V. Prasad, manager, sales and marketing, Indo Nissin Foods Ltd.

Lalit Agarwal, managing director, V Mart Retail agrees that IT solutions induce accuracy, which ultimately leads to productivity increase, better quality control, revenue growth. “What a convenience technology offers to our customers! Suppose a Delhi shopper somehow doesn`t like a product, he can actually exchange the same at a chain`s stores in Ambala, Chandigarh or Bangalore. This is only possible with the help of technology,” he adds.

To understand how technology is useful for retailers, consider this: Professionals running superstores, generally, are driven by the need to determine buying behaviour of customers to prioritise replenishment of those `stocks` to avoid out-of-stock situations. Also, to obtain information on what customers prefer, such as products or SKUs specifically available on discounts, or premium, quality products. Do customers like the format, design and style of displays, is store traffic density uncomfortably higher in some zones, is merchandise assortment optimum? All such quantitative and qualitative data can be collected, collated and analysed by some pretty smart technology available these days.

For Amit Mukherjee. vice president, supply chain and IT at Spencer`s Retail Ltd., thinking about a retail business without considering investment in sophisticated technology is not possible.

“IT has helped us to optimise inventory and reduce material waste. We use technology to do future planning and to have quick well-informed decisions,” informs RP Gupta, COO, Capital Foods Limited.

“The merit and position that technologies have assumed in today’s business environment to run and deliver various business functions is incredible. Technology can benefit business in so many ways -- collating real time data, data analyses, inventory and merchandising management along with reduction in processing and warehousing costs,” says Mukherjee.

These days, business applications like Enterprise Resource Planning (ERP), Supply Chain Management (SCM), Business Intelligence (BI), Customer Relationship Management (CRM), etc. have become vital organs of an enterprise body. Undoubtedly, if executed appropriately, their functions deliver competitive edge, high efficiency and high revenue generation. Moreover, because of their usage, manpower and machine productivity can be monitored and improved, as one is able to track material movements, worker productivity, batch production, quality check, and output.

Business process technologies

According to a Forrester report published last year, the market size for IT, IT enabled services and IT staff training in India is around USD 18 billion. There is no doubt that in functions like accumulating information on real-time, collaborating real-time data, conducting data analysis, inventory and merchandising management, warehousing management, and sagacious decision making, one needs to have robust and smart IT tools.

"To make meaningful decisions you require data, and for generating data you require requisite IT platform to capture it," says Mukherjee. “As we (retailers) are working at low margins you would require strong technology backing, or else whatever money you make will disappear,” he adds.

Spencer`s uses a SAP industrial solution (IS) package, which takes care of information management of various business processes including information storage or record keeping. It has an in-built analytical tool that can process and analyse historical and latest data available on the IT platform for the user`s (company officials and decision makers) consumption.

Business tools like ERP, SCM, and CRM improve business operation efficiencies like material sourcing, distribution, inventory management, logistics, financial transparency and visibility, compliance and management of point of sale (POS) data and customer relationship. Let us look at their functions closely:

“IT applications help you get useful business data in an understandable format for doing analysis, they help to contain unnecessary costs, and propel sales and revenues,” – M N V V Prasad, manager, sales & marketing, Indo Nissin Foods Ltd.

Supply Chain Management (SCM)

Food producers and retailers work overtime to ensure continuous and accurate supply of merchandise, particularly matching with the demand fluctuations, which is a tricky job, as demand fluctuates with factors like festivals, seasonality, fashion, etc. However, tools like SCM are designed to integrate different departments and functions to facilitate organisations for gauging market demands, for smooth flow of raw materials to factory and finished goods to customers, to attain high productivity and on-time delivery of goods to customers.

The processes in manufacturing set up are broadly classified as following: procurement of raw materials, distribution, transportation, storage, manufacturing procedures, finished products testing, transportation and warehouse storage and distribution. All these operations are usually IT enabled and automated.

The SCM architecture connects all commercial centres, factories, suppliers and warehouses, and offers centralised control, mostly from the head office.

Efficient SCM applications make the journey from procurement to purchase and storage very convenient. The quotations (or tenders) of raw material can be filed online by suppliers (eliminating delays, and cost of traveling or post). Thereafter, companies do proper scrutiny, assessment and evaluations, and award orders to chosen supplier or suppliers. This whole exercise becomes simpler and easier with SCM application.

“SCM is used to figure out quantity of raw materials availability and their procurement for new orders and sending off finished products to suppliers and customers,” says Viney Singh, managing director, Max Hypermarket India Pvt. Ltd.

Big retailers, food processing companies, FMCG marketers in India including Spencer`s Retail, Future Group, Max Hypermarket India, VMart Retail, Capital Foods, Indo Nissin Foods, etc. are currently reaping benefits of SCM technology.


Enterprise Resource Planning

ERP is an enterprise tool used to integrate different departments like purchase, inventory, production, and sales processes and is designed to help making online analyses of data. It can also keep one abreast of consumption patterns of all raw materials, consumables, packing materials, etc. Moreover, its adoption facilitates users to have better quality control across purchase, production and sales. ERP solutions would promptly deliver all requisite sales and marketing data, and assist companies to get better customer responsiveness.

“We use ERP for control, process integration, raw material procurement and processing, monitoring, etc,” says Prasad.

However, food companies utilise it for:

Production
Sales operations
Inventory management
Purchase
Quality control
Accounting
Reporting (at various levels)

According to Gupta, our ERP solution is customised keeping in mind different requirements. The information flow – right from supply of raw materials to data analysis -- is fully automated. Managers can monitor all work in progress online. “The technology gives us leverage to have control over different processes, and if things get wrong somewhere we can immediately correct them,” he adds.

Customer Relationship Management(CRM)

Customer Relationship Management essentially gives a retailer a 360 degree view of its customers. It allows generation and collation of useful customer data including phone numbers, email addresses, number and quantity of transactions, etc. helping companies in tracking shopping patterns of frequent customers. Also, it helps in registering data of potentially loyal customers. Manufacturing and retail companies find it very useful to maintain detailed records of their customers to be able to tweak and optimise merchandise assortments and customise saver deals. V Mart Retail and Spencer`s Retail have implemented CRM solutions to support in-store marketing activities.

Decisions, decisions

It is said that a chief information officer (CTO) should be able to step into the shoes of CEO, which ideally means they need to have through knowledge of business operations. However, in most cases, CEOs hold the final authority to take such decisions. “Fortunately or unfortunately, in my case, I have decision making powers for technology purchases and implementations,” says Mukherjee. However, in case of major deployments, he needs the board members` consent, he adds.

Enterprises usually have their own parameters to judge their requirements, and based on that they look out for solutions that would be best suited for them. The IT implementation partner`s selection is typically done by the board of members, CEO, or in some cases, the CTO. In case of Capital Foods, for instance, the senior management collectively finalise the technology buying decisions.

At some companies, the procedure of selection for major deployments are carefully gauged and recommended by an experienced IT team, which is followed by discussions among senior board members before a final approval is given.

“Barring some major deployments, which take place once in many years, IT spends remain at around 2 percent of profit,” says Gupta. VMart retail puts its average investment on technology as Rs.5 million per annum across all its 38 stores put together.


Pain areas and challenges

In food retail set-ups, the following areas are particularly challenging: process efficiencies and optimisation, stock management, vendor collaboration, consistent telecom services, and training manpower.

“Efficiencies in supply chain will finally determine which retailers will succeed in the long term,” says Mukherjee. “And inventory management is very important since retail is all about `what you see is what sells`,” he adds.


Singh identifies technology pain areas as “localisation requirements like multiple MRPs, SKU rationalisation – EAN/UPC codes, batch controls, forecasting of different types of categories.” “Since we are a hypermarket chain with a wide range of products, the complexities are many,” he adds.

“Vendor collaboration is a big pain area as most of our vendors fall in the medium to small range with low process maturity,” he notes. “We need to educate our vendors and bring their process maturity to an acceptable standard, which would make our operations more efficient.” Another major pain, according to him, is the unreliable telecommunication infrastructure, which is “preventing us from utilising the enterprise application to its fullest potential”.

For Agarwal, any area where manual intervention is required is an area of challenge. “Stock reconciliation is a challenge for us,” he admits. “Also, to calculate a unified price, as we have different tax structures and MRPs in different states is a daunting task -- even with the help of technology.”

“ERP application is a useful tool, but one needs people who would update data instantly, so that the data available is real-time. But generally enterprises and people lag in this job,” says Prasad.