ASSIGNMENT – SUBHIKSHA CASE STUDY

Apoorv Chamoli
Jn180024

1. The Drivers of Supply chain are:

The various decisions taken by Subhiksha in regards to various drivers of supply chain
management are:
Facility – The company had 1665 outlets in the country so they had to maintain a huge
distribution network
Inventory – the company started as a food and grocery store but diversified their business
and added mobile phones in their stores. So, the company had to maintain a large amount
of inventory which increased their inventory carrying costs
Transportation – the company did not apply the concept of cross docking
Information – there was no communication network and IT infrastructure such as lack of
point of sale capture (POS) of data
Pricing – the company operated on Every Day Low Price scheme (ELDP) and also gave
deep discounts to the customers

2. The company failed to achieve a strategic fit between competitive and supply chain
strategies because there were many flaws in the decisions related to supply chain
drivers.
 Without analyzing the revenue and growth of their stores, they continued to spread
throughout the country and opened a large number of stores. This led to an enormous
increase in the operating costs of these facilities.

 Moreover, the pricing strategy of Subhiksha was not adequate. They gave deep
discounts to the customers and used the pricing strategy of Walmart i.e. Everyday
Low Pricing (ELDP). Although giving discounts to the customers help in bringing
more customers but the company was in its initial stage so it should have maintained a
balance between customers and the profit for the company. Discounts should be given
but not at the cost of the company.

 The company that started off as a food and grocery store continued to diversify its
business and included more consumer goods such as mobile phones. This decision
actually brought losses for the company because consumer goods like mobile phones
operate at highly low margins in the market. The company should have diversified
and explored those areas that could have given them profit as well as a better market
share. Hence, the company had a cash crunch because of low margin goods and deep
discounts. It was impossible for the company to meet its daily obligations such as
giving wages to their staff which ultimately lead to the demise of the company.

 Having a large number of stores and maintaining the inventory in those stores
incurred a huge inventory carrying cost for the company. The company failed to
understand that the square root law of inventory is applied which gives an estimate
that how the number of warehouse locations affect the size of the inventory.
For example,
If the Current inventory is 4000 units, 2 facilities grow to 3. Using the square root
law, the future inventory = (4000) * √ (3/2) = 4000 * 1.2247 = 4899 units.

Current inventory is 4000 units, 2 facilities grow to 8. Using the square root law, the
future inventory = (4000) * √ (8/2) = 8000 units.

Hence the company should have understood that less is more. Carrying inventory
under a single roof is cheaper than spreading it across multiple warehouses.
Moreover, large number of facilities involved higher maintenance and staff costs.

 Transporting goods from one warehouse to other also increased the transportation cost
beyond a certain limit because there were no economies of scale. Moreover, the
company had no cross docking which could have ensured seamless flow of goods
from one end to the other end.
  The company lacked communication network and infrastructure which led to poor
coordination and poor information flow from one end to the other. There was no IT
infrastructure that could have eased the flow such as no point of sale (POS) data
capture.

Recommendations to Subhiksha:
 The company should have started with a clear definition of firm’s competitive
strategy. Moreover, the company should have forecasted the likely evolution of global
competition and the constraints.
 The company should have opened warehouse-style stores which would have reduced
the inventory carrying costs for the company.
 Rather than selling only branded products of the suppliers, the company could have
come up with private label products and see if those products give the company a
better margin or not.
 In order to achieve economies of scale, the company should have used the design of
‘Hub-and-spoke’ model. This would have reduced the transportation cost because the
distance between the distribution centers would have reduced.
 Rather than diversifying into an entirely different segment, the company should have
initially started with fast moving consumer goods which are always in high demand
by the customers.
 Subhiksha should have used in-house trucks for the movement of goods and also the
shipments should have been cross docked. This would not only have reduced the
transportation costs for the company but the trucks would also have generated ‘back-
haul’ revenue for the company.
 The company should have made efforts to continually reduce operating costs. For
example, the stores should have proper light and temperature settings.
 A real time information system should have been used by the company to keep a
check on each store’s in-stock levels so that the merchandise could be automatically
pushed to the stores.
 Investments should have been made by the company in the IT Infrastructures such as
POS, satellite networks, central database, RFID tags, etc.
 A proper communication system should have been established between the suppliers
and Subhiksha’s personnel.
 The company should have made efforts to make their supply chain efficient because
the company was generating huge losses.