Organised retail in India is still struggling to find sustainable and profitable business models for most of the formats it has experimented with. A survey of most public pronouncements of the retail players and their advisors, which are many, list four areas that they say they are addressing to improve their performance. These are:
a) Better merchandise mix
b) Improved customer programmes
c) Better sourcing
d) Cost control in all aspects of operations.
No doubt, improving these areas will have some impact on business performance, but these miss out the core issue that is dogging Indian organised retail-the dismal failure of the ?human supply chain?.
To understand the concept of the ?human supply chain?, let us look at the traditional retail. For any category of products, whether grocery, apparel, furniture or even durables, the supply chain from base raw material to the product on the shelve passes through many hands. Purists have lamented the multiple intermediaries and have suggested that disintermediation of the middle men will add value to the whole supply chain. What they fail to recognise is that each intermediary is in fact a ?decision centre? who optimises the use of the key resources material, money, message and men.
The much reviled arhtiya, in fact, is a critical bridge between the farm and the wholesaler. The arhtiya has the right skill set to buy very small quantities compared to global norms and aggregate them appropriately for the right market. When organised retail sets up its direct sourcing, its human chain just doesn?t have these skills.
Similarly, if we look at the wholesaler, he takes many critical supplies and price calls, which stabilise markets and optimise availability at retail. The distribution centres set up by organised retail to replace the wholesaler are not designed to be either decision centres or even entrepreneurial. The human supply chain thus gets broken.
As a consequence, retail finds that its skills to respond to day-to-day needs are just not there. And it tries to replace it with expensive IT systems and more centralised controls. But without the human skill managing the supply chain, risks rise and failures are high at each point in the supply chain.
Even at the front end, a large amount of effort and money is invested in physical hardware. In an experiment we did with one retailer in the furniture category, one store manager was shifted among three locations ranging from a 5,000 ft format to a 400 ft store, from good locations to bad and with investments in ambience improvements put on hold (some shops didn?t even have air-conditioners). Wherever he went, sales increased by a factor of three-four times within four months. The difference was that he had the skill to sell trust, not products.
Another way to look at successful retail is to see everyone in the chain as both a ?strategic? and a ?tactical? decision maker on a daily basis. This is very different from the manufacturing model. Very tactical decision makers are the operations people and strategic calls are taken less often by a different set of people.
If the right human supply chain is so crucial to getting the retail process right, it is a surprise how little attention is paid to it by retailers. They will do well by developing evidence-based competency maps staffing for them and only then rolling out the physical stores.
A well-implemented human supply chain will deliver all the elements of success, namely leadership in catchment areas, repeat business and responsive merchandise at a lower per unit cost.
?The writer is managing director of Intrim Business Associates, a thought leader in retail, consumer goods, strategy and supply chain