Have you ever considered this?
When you go to a restaurant to have a meal, and get a good one, at an acceptable price, well served by pleasant waiters, have you ever thought, “I wonder how big the kitchen is?”
Well, unlikely.
When you go to an ATM to draw money, and you get the cash, and return home, have you said, “let me thank the IT head of the ATM bank, for enabling the cash withdrawal?”.
Unlikely.
Well in the service industry, all support services get relegated to the background, commoditized, taken for granted, and is a silent provider.
However, if the meal on the table had too much salt, and tasted unpalatable, you would surely ask, “hey can you call the chef?”, “what kinda kitchen do you run?”
Retail supply chain is about the same. You may have the best warehouse, fastest trucks, the most efficient people, but unless you can get the 6 R's (Right -Product, time, price, place, quantity, quality), correct every time, the consumer will want to see your kitchen!
Well this has a lot of implications.
Going forward supply chain equations are going to change.
As chairman of ECR India (Efficient Customer Response), I had initiated a Common warehousing project with TCI. Where FMCG suppliers could have common warehousing and hence save a lot of cost. But the pilot failed because the top FMCG companies in India were not prepared to share their plans with common logistics provider. This was since over 50 years, FMCG companies, have built their competitive advantage through distribution reach.
The next 24 months will change it all. Logistics and supply chain in India is going to change because of 2 reasons - GST (Common tax code will allow free movement of goods across the country) and the Golden Quadrilateral. There will emerge experts in this area who will consolidate the volumes and commoditize the Supply chain. FMCG companies will have the (uncomfortable) opportunity to concentrate on Product development (which is woeful at this point), and Understanding the Consumer.
Retailers and FMCG companies will have to accept the emergence of a new entity in the chain, the supply chain service provider. Who is this?
The Supply chain service provider will do the following
• Have fewer warehouses than the current retailers
• Have warehouses built with lesser cost and hence will have higher ROIs and hence have to opportunity to provide A grade service at lower cost
• Have better strategic locations along the golden quadrilateral
• Have larger and faster trucks, paying lesser permit fees
• Have the state of the art software in warehouse management systems
• Will consolidate volumes across all sorts of commodities, and hence have optimized return logistics.
Hence retailers and FMCG will have to rely on other ways of driving competitive advantages.
OTIF (On Time In Full) will be taken for granted and no one will ask to see the Kitchen !
When you go to a restaurant to have a meal, and get a good one, at an acceptable price, well served by pleasant waiters, have you ever thought, “I wonder how big the kitchen is?”
Well, unlikely.
When you go to an ATM to draw money, and you get the cash, and return home, have you said, “let me thank the IT head of the ATM bank, for enabling the cash withdrawal?”.
Unlikely.
Well in the service industry, all support services get relegated to the background, commoditized, taken for granted, and is a silent provider.
However, if the meal on the table had too much salt, and tasted unpalatable, you would surely ask, “hey can you call the chef?”, “what kinda kitchen do you run?”
Retail supply chain is about the same. You may have the best warehouse, fastest trucks, the most efficient people, but unless you can get the 6 R's (Right -Product, time, price, place, quantity, quality), correct every time, the consumer will want to see your kitchen!
Well this has a lot of implications.
Going forward supply chain equations are going to change.
As chairman of ECR India (Efficient Customer Response), I had initiated a Common warehousing project with TCI. Where FMCG suppliers could have common warehousing and hence save a lot of cost. But the pilot failed because the top FMCG companies in India were not prepared to share their plans with common logistics provider. This was since over 50 years, FMCG companies, have built their competitive advantage through distribution reach.
The next 24 months will change it all. Logistics and supply chain in India is going to change because of 2 reasons - GST (Common tax code will allow free movement of goods across the country) and the Golden Quadrilateral. There will emerge experts in this area who will consolidate the volumes and commoditize the Supply chain. FMCG companies will have the (uncomfortable) opportunity to concentrate on Product development (which is woeful at this point), and Understanding the Consumer.
Retailers and FMCG companies will have to accept the emergence of a new entity in the chain, the supply chain service provider. Who is this?
The Supply chain service provider will do the following
• Have fewer warehouses than the current retailers
• Have warehouses built with lesser cost and hence will have higher ROIs and hence have to opportunity to provide A grade service at lower cost
• Have better strategic locations along the golden quadrilateral
• Have larger and faster trucks, paying lesser permit fees
• Have the state of the art software in warehouse management systems
• Will consolidate volumes across all sorts of commodities, and hence have optimized return logistics.
Hence retailers and FMCG will have to rely on other ways of driving competitive advantages.
OTIF (On Time In Full) will be taken for granted and no one will ask to see the Kitchen !
Radha, i am so glad to be reading this. Have been searching for an authoritative view on the impact of GST in India. Somehow felt that not many people (incl retailers, brands, 3PL) are preparing for a potential paradigm change in the Supply Chain, inspite of spending the highest share of logistics costs. Warehousing efficiencies can be implemented more easily & sooner too. However, Transportation costs is the actual creature in the overall logistics, and it would be interesting how efficiencies pan out there, given the inadequate infrastructure overall.
ReplyDeleteSiva
The process seems to be picking up speed as you predict.
ReplyDeleteIncreasing numbers of fleet owners are shifting to modern vehicles that are more cost-effective in the long-term (apart from easing our breathing through lower pollution !).
Increasing numbers of warehouses are being set up at key points on the quadrilateral. Some are automated, making a significant improvement in trans-shipment efficiency.
As you foresee, with access opening up across the country, large retailers will be forced to focus on value-propositions rather than erstwhile distribution strengths - which will no longer be their prerogative.
Hopefully the winner will be the customer...
Siva and Binu.I meet many customers as part of my consulting activity now. I see a certain lethargy in understanding the need for preparing for a quantum change in end-to-end integrated supply chain, starting from MDM to deliver and returns management. with the banking system digitising so fast, the 3 and 4 PL will start playing a crucial intermediary role.
ReplyDeleteDear Radha,Thanks for this foresight.
ReplyDeleteAs you mentioned about FMCG companies reluctance in sharing.. . they like to keep their plans close to their chest. Take for example NPI....I strongly feel, if they were more open in sharing their launch plans in advance to the retailer it would be a much more efficient New SKU intoduction to the shelf, as it gives retailer getting the due time for the back end preparation. Do you see this mind set changing soon?