Shoppers stop has 4 regional distribution centres.

Previously each store had its

warehouse(DC) but that turned out to be a wrong strategy as the flexibility was being
affected and costs were building up. There was also a lot of inventory pile up in each of
these stores and hence added to cost in inventory and transportation from one store to
another to transfer excess inventory.

III. Procurement Strategy

Shoppers Stop has Centralized Procurement and no regional buying, the following are
the benefits of centralized procurement:
Target profile same across the country
Better Cost Controls
Better Bargaining Power
Better inventory management
100% inventory control
100% tracking of inventory – (what’s selling what’s not?)
 IV. Buying Process
Illustration

Purchase order for 5000 shirts of Arrow

Purchase order is a guarantee from shoppers stop that they will buy but supplier
cannot dispatch goods on PO. PO helps is reducing inventory cost as the goods are
ready and stocked at the manufacturers place, so no inventory pile up at the DC’s or
stores. 4 purchase orders are sent by the buying and merchandising manager for 4
DC’s.
For eg Vendor ABC gets 4 Purchase orders from shoppers stop, for four DC’s
Mumbai DC 2500 shirts catering to 6 stores
Banglore DC 1000 Shirts catering to 3 stores
Delhi DC 1000 shirts catering to 3 stores
Calcutta DC 500 shirts catering to 1 store

Delivery Authorisation for 500 Shirts

Delivery Authorization is an international system followed by all major retailers. DA is
prepared on the projected sales for that week. So if the PO (6monthly for 2 seasons) for
all 13 stores is 5000 and for a particular week shoppers stop sells 500 shirts, it will
send a DA for 500 shirts. Thus with delivery authorization system Shoppers Stop can
place order according to the demand assessment with the condition that it would pick
up a fixed amt every week. Thus it doesn’t have to stock goods at his place and block
money in inventory. It also helps in better inventory management as it is based on
weekly projections. It is an assurance for both the Shoppers Stop as well as the
manufacturer.

Manufacturer dispatches the weekly requirements to the 4 DC’s according to the

DA’s

DC’s check the details (date, number) of the product and match it with the invoice.
Anything not matching even if it is one piece is rejected. If accepted it causes a mis-
match between the Purchase Order and Delivery Authorisation. Hence the PO has to
match with the Invoice carried by the Manufacturer.

Accounts department receives confirmation in the system for the pieces physically
accepted. The accounts department can make payment that very second, in which
they receive confirmation. This process is so stable and fast because of being
connected and fully integrated.
Once the confirmation is sent by the DC, the stocks are transported to the stores.
Dispatches are always made early morning. There is a PRE-RETAILING Team that
receives the stocks and their duty is to put them on display before 10.30 when the
store opens, so that when the customer enters everything is on display.

Stocks are updated in the store

V. Warehousing
oRegional Warehouses
oNo in-store warehouses
oNumber of warehouses - 4
oLocation – Metros (Mumbai, Delhi, Banglore, Calcutta)
oFloor Area – 20,000 to 22,000 sq.ft
oTransportation from warehouse to Store – Done by the DC’s

Distribution centers
Distribution centers for S.S are 100% outsourced to another company. Each of the
distributions centers has a floor area of around 22000 sq.ft.. The DC is divided in to
zones and1000 based on the brands or vendors. When a delivery comes in the person
in-charge feeds in the details like merchandise type, brand name, size, color, batch
number, date, etc. the system give him a ticket describing where the merchandise has
to be kept. It gives a detailed description of the pile and rack number. Thus, even if the
person is unacquainted with the slots of the DC, the system will tell him where to keep
the merchandise. The systems are thus not dependant on any person and can work
independently. This whole activity is outsourced to another company who acts as a
internal supplier for SS. The delivery transportation from the DC to the stores is the
DC’s task.

Advantages of having outsourced the activities

Cost benefit
No Labor problems – handling labor unions
No liability for pilferage by own staff and damages
Specialized expertise of the company
Dictate terms to the outsourced company – 24 hours delivery, etc

VI. Inventory Management

SS has a system of checking stocks on a continuous basis. There are 90 departments
at SS each day one department is frozen after closing hours and the staff is made to
scan the tags and feed in the stock levels in the system. The staff is completely
unaware of the stock levels according to the system. The system then compares the
actual to the customary and gives a variance reports. Thus there is stock matching
done everyday and the entire store completes a cycle in 3 months. That means SS
conducts 4 cycles of stock taking each year. This has helped them get the pilferage to
its minimum. As each day is accounted for and there is a complete match on a
constant basis.
In the day inventory levels get collated store wise. While in the night this information
gets polled in the server and is integrated at the national level. Thus, each day the
information on stocks available for that day and at which store is made accessible to
each and every store.

Every day Auto Replenishment:

Shoppers’ Stop has determined its minimum stock keeping units and as soon as the
stocks in the store touch that level, the DC is triggered to send the replenishment.
Thus the system automatically checks for stock out and replenishes it. The lead time
for replenishment is 1 day. Every night data is collated and a store-wise list of
merchandise is generated. During the day the dispatched is made ready and the next
day morning 6.00am the truck leaves reaching the store in an hours time. The Pre-
retailing team display’s the stock and by 11am when the store opens their work has to
be complete.

Stock keeping Units

Stock keeping units are determined on the basis of moving averages. The system
generates averages of the required quantities for the last two weeks. As the process is
concurrent to the market conditions they go up with the demand and fall with the
slump. The minimum units are fixed which are based on the past lows and highs.

How does the organization handle product discrepancies?

Saturdays and Sunday’s account for 40% of the week’s business hence most
fluctuations are expected on these two days. Inventory is stocked up on Friday based
on the weekly forecast. But demand is never really unpredictable at shoppers stop.
product discrepancies takes place very rarely.

VII. Sales Forecasting

Sales forecasting is done for each brand then built up to the category then the
division then store and then the entire organization. For example the men’s
division head decides how much business Arrow can do this year and thus
similarly for its other brand similarly the other division heads build up the figures
for each brand and then each division arriving at a common figure at the top. After
further deliberation and discussion with the CEO and Division head the company
finalises its sales forecast.

Sales forecast for the spring summer season (1 st April to 30th September) is done on
1st October, six months in advance. This sales if broken down division wise and
further brand wise.

For Example:
 Shoppers’ Stop has targeted a business of 1crore with Arrow for its Andheri branch
for the year 2003-04.
For its spring summer business it targets a sale of 50,00,000
Season – 50lakhs
Monthly - 8.33 lakhs
Weekly – 2.08 lakhs
They keep a cover of 7 weeks hence need a stock of 14.56lakhs.

On an average a Arrow shirts Costs Rs.1000/- and a Arrow trouser costs

Rs.1200/-. And the ratio of shirts to trousers is 70:30
That means it needs to stock shirts worth 1.46lakhs and trousers worth 0.62lakhs
of trousers for a week. This is equivalent to 146 shirts and 52 trousers. Shirts are
in the ratio of 1:2:3:1 for sizes 38:40:42:44.

At the store Arrow shirts are kept at their average required units, that is 2 of size
38, 3 of 40, 4 of 42 and 2 of 44, and trousers too in their respective ratio. As soon
as one shirt of arrow of size 38 is sold, the system alerts the DC to send one shirt
of size 38 of arrow for the specific style and option. Thus the stocks are
automatically replenished.

The DC also follows the same system. The DC stocks with a cover of 7 weeks so as
soon as its stocks are at its minimum levels it sends a DA to the manufacturer to
dispatch the order already kept ready for them. Shoppers stop give a 10 days
delivery time to the manufacturer. If the good don’t reach in 10 days the order is
cancelled. Thus they are very stern on the execution of their policies.

VIII. Payment Models

Payment Systems: Shoppers stop uses 3 models for payments.
1. Outright Model:
In this model the company picks up the total merchandise on the payment of cash or
on credit terms depending on the terms decided in the contract. They buy on outright
100% payment depending on the normal credit terms of 10 to 15 days. The main
advantage in this model is they can avail discounts but if the stocks are unsold they
incur losses as the last stage is that they have to be sent to charity!

2. Consignment Model- In this case the company pays only for the number of
products they sell & the unsold are given back to the vendor. Pay only for Sale. They
have this model with Arrow Shirts, wherein they put arrow shirts on display but pay
only for the ones that are sold and the rest are returned. The benefit here is, no
inventory cost and no risks, but the margins are very low in this model.

3. Concession Model- In this case space is given to another co. for opening a store
within S.S something like shop in shop. EG: Nalisaree. The advantages are Fixed
rentals and commission but it suffers from low margins.

IX. Systems
oSecondary (Update Records) – ERP – JD Edwards
oMerchandise Management system and front end
 oWarehouse Management system
oB2B website - S.S has around 400 vendors supplying around 450 brands.
Most of the vendors are connected to S.S B2B site. Each vendor can
check the stocks and movement of his merchandise. They can track
which product is selling best in which city and which one is not. The
vendor need not call SS for information when all that he wants is
available by click of a mouse
Realizing the role of IT way back in 1991, Shoppers' Stop was among the first few
retailers to use scanners and barcodes and completely computerized its operations.
Today it is one of the few stores in India to have retail ERP in place which has now
been integrated with Oracle Financials and the Arthur Planning System, the best retail
planning system in the world. With the help of the ERP, they are able to replicate
stores, open new stores faster and get information about merchandise and customers
online, which reduces the turnaround time in taking quick decision. Shoppers' Stop
has also set up a WAN system to link all units and distribution centers and facilitating
seamless operations across all the outlets.

Supply Chain Management

Realizing the importance of distribution and logistics in ensuring the availability of
merchandise on the shop floor, Shoppers' Stop has streamlined its supply chain. The
company has developed process manuals for each part of the logistics chain. These
modules include vendor management, purchase order management, stock receiving
systems, purchase verification and inventory build up, generation and fixing of price
and store tags, despatch of stocks to the retail floor and forwarding of bills for
payment. The Company now has an off location warehouse and has also streamlined
the layout of its Distribution Centre. Shoppers' Stop has also tied up with Sembcorp
Logistics (P) Ltd. as its logistics partner.
X. Transportation
oManufacture to DC – Manufacturer handles
oDC to Store – DC handles
oDC to Vendor (Reverse Logistics) – AFL
oDC to DC – AFL
oInternal transfers between Stores - AFL
oModes of Transportation - Tempos
Reverse Logistics
Reverse logistics comes in to action for 3 reason return due to
Manufacturing defects
Laying defects
Consignment stocks – Stocks purchased on consignement basis need to be sent
back if they are unsold
Line defect- Here the no. of complaints are more & the problem is also same
across all the sections so the product line itself is withdrawn from the stores
across the country. For eg. There is a constant complaint for arrow’s blue
checks shirt. The entire stock for blue checks in all the sizes is removed from
the store and sent back to the manufacturer.

Process for Reverse logistics:

1. Physical transfer of goods from stores to DC’s
 2. DC makes RTV(return to vendor)
3. System Debits the vendor

XI. Future plans

Shoppers' Stop aims to position itself as a global retailer. The company intends to
bring the world's best retail technology, retail practices and sales to India. Their goal is
to increase sales and cross the Rs 800 cr. mark by the year 2005-06. To achieve the
set target, they plan to expand their family by opening 4 new stores every year. The
latest addition to their family is the Calcutta store.

Internalize in-bound logistics to exercise more control and efficient planning. Today
the manufacturer takes 1% as cost for transport which may or may not be the actually
cost. Shoppers Stop ran a pilot and concluded that there are definite cost advantages
and the cost can be lowered to as low as .80% if done internally.

IT system for reading manufacturers tags: Shoppers stop has to re-tag all the
merchandise because their systems cannot accept manufacturer’s codes. This involves
re-packing expenses, expenses for tags and plastic holders, labor cost, etc. All these
cost could be completely done away with if the system could understand the
manufacturer’s codes. SS is in the process of buying a system which reads these
codes.

The Reasons for Sales and Markdowns

Sale is the best method to increase sales volume or to get rid of the excess stock piled
up. But the reasons for Shopper’s stop’s sale are different.

Wrong predictions of fashion:

Fashion is highly unpredictable! Knowing what a SEC A customer of 25 years of age
would want to buy six months from now is rather a difficult task. And this task lies in
the hands of the Buyer and the Merchandiser at Shoppers Stop. They are together
responsible for the bad performance of a certain style or option. Sales at Shoppers are
usually to get rid of this failed merchandise or out of fashion styles.

High sale forecasting:

Sales forecast is rather aggressive than conservative. Sales forecast are purposely kept
higher than achievable to push sales and keep the pressure on the employees. Thus it
is not realistic and the deviation is expected. Shoppers stop needs to have a more
realistic sales forecast and it their aggressive selling strategy should not be only based
on stocking up the stores but by concurrent promotions and programs to make
customer buy more and have a higher rate of conversion.