CASE

Perishables Supply Chain Operation

3 of Hyderabad Food and General
Merchandise Chain Stores
Supply chain processes and role of drivers in perishables business

Hyderabad Food & General Merchandise Chain Stores (HFGM) is a part of the
national retail stores established by one of the largest industrial groups in India in the
year 2000. The premise on which the group has embarked on this business is that
consumerism in India is growing. Fast urbanization, especially the growth of metros,
and trends in consumer spend on brands and private labels among many fast moving
consumer goods (FMCG) justified the investment. People are getting conscious of
quality, price, and the experience of buying, and these factors work against the
erstwhile pop and mom stores (kirana shops). However, what remains as a challenge
today is the level of inventory, especially private labels and perishables which
contribute tosupply chain efficiency and cost management.
1 SOURCING
Sourcing activity is a primary function in the retail industry and it decides the success
For sourcing FMCG
and failure of a business. HFGM handles this function in-house.
are drawn up.
commodities, prices are negotiated with manufacturers and contractsHerculean task,
market is a
However, a similar practice in the fruits and vegetablesmastered.
have Hyderabad Super
which the Hyderabad Super Market executivesdifferent locations across Andhra
Market has consolidation points (CP) at six
Pradesh-Vadlapudi, Amalapuram, Bhimavaram, Narsapalem, Khammam, and
The teams at these points source the produce from the farmers and mandis
Tekkali. days
and supply to three distribution centres (DC). The indent is given two local
directly supplies are sourced from mandis or
prior to the actual consolidation. The farmers is not sufficient to meet the indent
markets only when the produce from the the
DCs. The shortages at the CPs are handled in the following ways, in
from the
same order or preference as listed:
within state
(a) Procure from other CPs,
(b) Procure from mandis
nation-wide CPs
(c) Procure from
(d) Shutout notice to the DC
564 Suptply Chain Management

2 PRICING
The pricing is set by the HFGM executives who are educated and trained in the
agriculture sector. They ascertain the rates based on the following factors:
(a) Price at the market
(b) Maximum price, minimum price and model or average price offered to farmers
() Required quantity and quality
Once the price is set, it is announced to the farmers. The farmers are given proper
registration numbers and are registered with Hyderabad Super Market. They can sell
their produce for the whole day at the fixed price, despite any fluctuations in the local
market. This is advantageous to the farmer also, as he is certain about the revenue at
the end of the day, and is protected from market fluctuations. Also, since Hyderabad
Super Market always uses standardized weights, the farmers are very loyal to the firm.

3 SORTING AND GRADING: THE DAILY ACTIVITY

Sorting and grading was a major activity of the City Processing Centre (CPC), which
was later handed over to DCs. The farmers produce has to be graded as per
Hyderabad Super Market's quality norms. There are two levels of grading:
1. iStandard Quality: Standards set by Hyderabad Super Market
2. oStandard Quality: Non Hyderabad Super Market standards
The executives at DC can reject the produce that does not meet the HFGM quality
standards. However, they sometimes accept the produceto maintain therelationship
with farmers and sell it at a subsidized price. Once the produce is graded and sorted,
it is packed in separate crates and loaded on the trucks. The procurement manager is
the backbone of this entire operation. There are procurement associates working
under his leadership, who in turn lead the labourers.
4 PACKING

Packing is always done in crates for better handling. Be it FMCG goods or fruits and
vegetables, they are allpacked in crates. Colour coding is followed strictly for the Wet
and Dry DC. Allthe FMCG products are packed in Colour Acrates, whereas all the
fruits and vegetables are packed in Colour Bcrates. The fruits and vegetables are
further provided some special protective packing to enhance visual appeal as welas
to safeguard the items.

5 WAREHOUSE MANAGEMENT
The HFGM warehouse which is commonly known as the Distribution Centre or DC
is located far from the city limits. It's about 30,000 sq. ft and is the biggest DC of
HFGM. The choice of location is based on the following factors:
(a) The area is situated outside the city limits, so that the problem of traffic conges
tion can be avoided.
 Case Shudies 565

(b) It is well-connected by road to the city

and to highways.
(c) Typical benefits from locating at a town instead of a city, such as less restrictions
and constraints for movement.
The DC follows strict discipline in people management. Every
required to take an oath of adherence to rules and responsibilities, andemployee
to maintain
discipline in his dealings within the DC. The DC also follows its own philosophy of
management.
The entry and exit to DC are guarded and the entrants are thoroughly checked.
The DC functions all 365 days with three shifts per day. The DC is fully operational in
3PL mode. The staff comprises mainly contract employes. There are only fifteen
Hyderabad Super Market direct employees who run the show. Several factors such as
cost, volume of transactions, dynamismn of operations, and increased retail sales of
SKUs push the decision to remain in a 3PL mode rather than opting for 4PL.
5.1 Design of the Warehouse or DC
The warehouse or DCis a neat rectangle. There are multiple entries and exits for the
DC called docks. The rationale behind such a move is that the nature of delivery of
goods in this industry is highly time-sensitive and product availability is a crucial
factor in deciding survival rather than profitability of the business, necessitating
simultaneous loads/unloads via multiple docks.
The staging area is a mini-warehouse in itself where all the sorting, grading, and
tagging happens. The inbound and outbound cargo are brought to the staging area,
verified, tagged, and then only sent for distribution. The inbound and outbound
docks are separated in such a way that there is no overlap to avoid confusion.
The DC has adequate parking space both at the sides and in the front. It is high and
wide to accommodate as much goods as possible. There are multiple storage
practices:
1. Racking system: Racking system is used for storing goods in bulk quantities.
For example, a carton consisting of 10 boxes of 50 x 200g Colgate toothpaste
boxes each is a bulk item. This will be stored in the rack.
When
2. Storage bins: Storage bins are used only for loose quantities storage.
the toothpaste carton (from the above example) is opened for supplying 25 x
storage bin and
200g boxes to a particular store, the entire box is shifted to the
loading on the truck.
the twenty-five pieces are moved to the staging area for
vegetables. Onions and
3. Cold storage: Cold storage is used for fruits and
retain their fresh
potatoes need to be stored ina particular temperature so as to
facilitate faster ripening.
ness. Also, mangoes are stored in gas chambers to
5.2 DC Classification
The DC is classified into Wet DC or Dry DC based on the nature of commodities
handled. This is necessary because the transportation function is distinctly different for
FMCGs and fruits and vegetables.
566 Sutpply Chain Management

(a) Though HFGM handles both types of commodities, they are differentiated to
facilitate handlingclassification helps avoid confusion and mismanagement to
a large extent. Moreover, it is important to classify commodities for legal rea
sons. The Wet DC is registered under the Industries Act and the Dry DC under
the Shops and Establishments Act. Fruits and vegetables need to be processed
and require special protective packing, so they are registered under the Indus:
tries Act. However, FMCG products don't have processing and special packing
requirements. Since the major activity is trading, the registration is under Shops
and Establishments Act.

5.3 Operations in Dry DC

HFGM warehouses are very advanced and the daily operations of the DC are as
described below.
Indent to the Vendor
The indent is automatically generated by Warehouse Management System (WMS)
based on the quantity remaining in the bins and racks as applicable. The vendor
details are stored in the WMS database. Once the reorder point for a particular
commodity is reached, WMS automatically triggers the indent to the registered
vendor based on the data available. The indent is basically a purchase order. An
advance shipping notice is given to the vendor to facilitate faster response time.
The Vendor
Based on the indent from the DC, the vendor sends his supply to the DC. The vendor
has to ensure the following for the supply:
(a) The quantity and quality of the material to be supplied based on the indent
received from the DC
(b) Fix up an appointment with the shift executive (at the DC) to know the time of
delivery at the DC
(c) Prompt delivery at the DC
The Shift Executive
On hearing from the vendor, the shift executive finds afree slot in the dock and fixes
up a timne for the vendor to unload the supply at the DC. The materials received from
the vendor are left in the staging area. Then samples are checked for quality. Once the
shift executive is satisfied, he generates bar codes (from WMS) and pastes them on
the inbound cartons. The bar codes are used to indicate the location, quantity, and
description of inventory in the DC. Once the bar codes are pasted, the items are ready
to be put away to particular locations. The items are placed on a palette for better
handling. Each handling unit/palette is assigned a bar code too.
The Stacker

The function of a stacker is to find bar-coded location in racks and place the palettes.
He has to ensure that he places the palettes in the correct position by a manual
 Case Studies 567

checklist. Each location has a check digit which is unique. The stacker enters the
particular digit in the manual checklist. Stacking is done by fork lifts, stackers, and
reach-trucks.

Indent to the DC
The DC will receive indents from stores when the reorder point is reached for a
particular SKU. The reorder point is ascertained by the Minimum Bin Quantity
(MBQ). If the SKU's quantity levels reach below MBO, an indent is generated to the
DC.

Pick List
Apick list is automatically generated once the indent is received. In case the indent is
for a quantity greater than the quantity available at DC, the available quantity is
supplied, and an indent for replenishment to the vendor is initiated for rest of the
quantity. A pick list is generated with the following details:
(a) Name and address of the store
(b) Product description with code
(c) Location of product in the rack
(d) Quantity required
(e) The check digit-for manual verification by the loader
() Signature of the supervisor
The pick list is sorted based upon the store and rack to facilitate optimized picking.
than
It is optimized such that the loader need not goin to the same passageway more list, and
in the pick
once for a particular store. The loader has to just pick the items
leave them in the staging area in a palette/handling unit.
Despatch
to be despatched to the
Once all the items have been picked from the racks, they areareready
positioned near the dock,
store. The items are stacked neatly on the palette and
given to transportation
waiting to be loaded into a vehicle. The despatches aretransportation for Dry DC.
department which takes care of both inbound and outbound
Operations in Wet DC
fruits and vegetables. The operations
The Wet DC, as discussed above, deals only in a
the Wet DC are not divided in as many stages as the Dry DCbecause there is
of just cross-docked. The vehicles from
problem of storage. Mostly the items are supplies are received by the CPC (City
collection centres arrive at the DC, where the
Centre). The CPC receives supplies till 3a.m. in the morning. Once the
Processing stock, based on the stores indents, up
supplies have been received, the CPCallocatesallocated to the stores. The loading is
and
to 10:30 a.m. The bar codes are scanned
of 10 kg. For items that are not to be
done in Crates. Each crate has a carrying capacity in to WMS. The non-cross-docked
cross docked. the bar codes are scanned and fed
standardized temperatures or
items are mostly put away in cold storage tor storage at
568 Supply Chain Management

special handling, for example, mangoes are ripened at a particular temperature. The
transfers are initiated and despatches are given to the transportation department,
which takes care of the outbound activities of the Wet DC.
Network Design
The HFGM DCs are situated at three prime places inside the state Hyderabad.
Vijayawada, and Vishakhapatnam.
MAHARASHTRA

AdilabaÑ ORISSA

Nizamabad
CHHATTISGÅRH
Karimnagar Sikakujram
Medak Warangal
Svzianagaram
Sangareddi East
Hyderabad Godavari Vishakhapatnam
Khammam
Rahgaredd West
Nalgõnda Godavari
Krishna Eluru
AMahbubnagar
KARNATAKA Gunture

Kurnool
Machilipatnam
Ongole
Prakasam B AO
Y F
BENGAL

Anantapur
Cuddapath
Nellore

Chittoor

TAMIL
NADU

The network was designed keeping the following factors in mind:

(a) Proximity to the city that the DC is catering to
(b) Easier access to the collection centres
(c) Connectivity to other facilities
IT in Warehouse Management
technology is used at each and every stage of warehouse
As discussed above,
for bar codes or fork lifts, the equipment used is state of the art.
management. Be it
Every aspect is thoughtfully interwoven with the rest of the system.
 Case Stdies 569

Every shift executive has a handheld device, with which every item is
identified. He
generates a bar code for each of the items in the inbound lot by
entering the
description, expiry date, and the maximum retail price of the item. The handheld
device transmits data to the repository. This information is used to pick a particular
item. First-in-First-out (FTFO) method is used to pick items to retain the freshness of
Goods. The bar coded locations are linked via WMS to the handheld devices. The
stock audits reveal that there is only 0.04 per cent leakage in the system, which should
soon be curbed.
Every store in the HFGM supply chain is linked to the DC with leased line
connectivity. It is connected to the ERP and every indent from the store to the DC is
managed electronically. The complete order management process is simplified with
minimal manual intervention. Periodical audits and regular statistics collection keep
the system in check. The following numbers reveal the actual performance of the
HFGM DC:
(a) DC fill rate: 70% to 80%.
(b) DCefficiency: 95%
(c) Stock accuracy: 99%
(d) Despatch accuracy: 99%
(e) Damage and expiry: 0.04°%
6 TRANSPORTATION MANAGEMENT
Iransportation management is a specialized function in itself which is separately
dynamic
managed by a trainedset of executives in HFGM. The function is highly
these decisions are taken by
and involves several on-the-fly decisions. However,
in the same field.
protessionals who have not less than eight years of experience
the following responsibilities:
1he transport manager in HFGM has the
Outbound operations in Dry DC. The inbound operations are handled by
(a)
vendors themselves.
(b) Inbound and outbound operations in Wet DC.
exception.
time-bound and transportation is no number
All the operations in the DC are of
to strict schedules. He plans the routes, the
etransport manager adheres the sequence of stores to be catered and
the
emcles plying on those routes,
there is a mishap. Transportation is mostly outsourced.
Contingency plan in case
vehicles.
However, HFGM also maintains own

6.1 Types of Movement

(a) Primary Movement such
movement of fruits and vegetables is from sourcing locations
The primary transportation
or any wholesaler/trader or CCto CPC. The
as farms, mandis
full truck-loads. This movement is mostly undertaken by the
happens mostly in
570 Supply Chain Management
vendors themselves. Based on the indents from the DC, the vendors themselves
arrange transport and supply to the DC.
(b) Secondary Movement
The secondary movement involves moving the supplies from the DC to stores
While the secondary movement of fruits and vegetables happens in cold ve
hicles, FMCGs, staples, and other general merchandise are moved in closed
containers. It is also used for movement of fruits and vegetables from sourcing
locations like farms, mandis, or any wholesaler/trader to DC. The transportation
happens in less-than-truck-loads or part loads. The movement is primarily
through milk runs to different retail stores across the city.
6.2 Types of Vehicles
Dry vehicle: For FMCG products and fruits and vegetables that donot require
refrigeration
Refrigerated vehicle: For fruits and vegetables that require refrigeration
" Frozen vehicle:For frozen products they are commonly known as chiller ve
hicles.

6.3 Routing and Scheduling

The inbound operations at the Wet DC have to be finished before 4:00 a.m. So all the
trucks from the CCs should reach the DCbefore this time. In case a truck misses the
schedule, the transport manager is responsible for routing the truck. There are three
schedules which are shown belowin Table 4:
Table 4 Schedules

Deliveryaliol Wet DC S Dry DC

IDelivery Morning delivery (6 a.m.) Afternoon delivery (2 p.m.)
I|Delivery Afternoon delivery (2 p.m.) Evening delivery (8 p.m.)
II Delivery Evening delivery (4 p.m.) Night delivery (4 a.m.)

Though the schedules do not vary by time, they vary by the number of vencie
plying on the routes. The routes are all fixed and they follow the simple algorithm o
nearest-store-next. The number of vehicles on weekdays are considerably lesser
number than on weekends, when the demand soars. However, the chiller vehicles are
not altered in schedule because the demand is almost constant.

6.4 Fixed Routes

to reach
Every truck plies on apredetermined route. The driver is given a specific time
schedule,
each destination. If he doesn't reach a particular destination as per the andthe
has to contact the DC to intimate the whereabouts of his present location
reason for his delay. The next stop of the driver is planned accordingly.
 Case Studies 571

6.5 Security measures

Several security measures are taken to curb the
locking tapes, which are numbered sequentially, possibility of theft during transit. Self
are used in addition to locks to
enforce security. The store manager at each store is
responsible for the following:
(a) Checking whether the self locking tape is
intact
(b) Acceptance of cargo
(c) Affixing the next tape for the driver to proceed to the
next stop
The last store manager alsO needs to performn the additional
that the function of ensuring
crates are brought back to the DC. The drivers are not supposed to
exit the DC without swiping their smart cards. A new system is being enter or
evolved, in
which the driver would be required to swipe his smart card at the timne of entry,
parking at the dock, stuffing beginning, stuffing ending, and exit from the DC. This
willbe used to collect statistics on the turn around time of every request. Also, it will
reduce security vulnerabilities.
6.6 Issues in Transportation
Transportation is the most used as well as abused function. The people involved in
transportation represent the front face of operations in any supply chain management
function. The most common problems are:
(a) Dealing with RTOs and the local traffic police: Though these problems are gen
erally managed by the transporters themselves, statistics reveal sometimes these
complaints are handled by transport executives at HFGM.
(b) Internal problems of coordination: Since the departments in the HFGM are
recognized as individual cost centres, the executives try to maximize profitabil
ity for their own cost centres. This results in higher profits but in the long run
leads to lack of coordination between the departments.
HFGM has devised many innovative ways to solve the problems in their
still
tansportation function, but, as a transport manager at HFGMputs it, ... there is
room for improvement."
6.7 IT in Transportation
function. HFGM
Ihere are a lot of ways in which IT can be used in the transportation
the tracking of vehicles. HFGM
uses IT only in the transaction portion and not for reasons:
does not require the tracking function due to the following
(a) The distances are short.
need for GPS tracking.
(b) Communication with drivers via mobile phones dilutes the
transaction portion.
However, HFGM has employed a lot of automation in the
pattern in which the
Ihe drivers are given a vehicle load plan, which specifies the the crates are
to ensure that
Crates are to be stacked inside the vehicle. The driver has
572 Supply Chain Management

loaded exactly in the same way. The load plan is generated with the route and the
order of the stores to be serviced by the vehicle.
To conclude, in perishables business, it is important to ensure right sourcing,
stocking in right temperature and hygienic conditions, and transporting at efficient
cost so that goods are available at the right price, right quality, right quantity to the
right customer at the right time. Price management is another important aspect as
freshness and price are to be balanced and mark down has to be managed effectively.