A Study on Reliance Retail Supply chain Operations

Operations Management-Assignment

MBA- 1st Semester, Sec-‘B’

Submitted by

George Vincent

Table of Contents

2 BACKGROUND OF RETAIL 2 3 COMPANY PROFILE 5 3.1 RELIANCE RETAIL LIMITED 5 3.2 THE RELIANCE EMPIRE 5 3.3 BACKGROUND 10 4 A GLANCE AT EXISTING RELIANCE 12 5 “FARM TO FORK” 13 6 SUPPLY CHAIN MODELS 14 6.1 RELIANCE FRESH: (MODEL 1) 14 6.2 UPDATED POLICY 16 6.3 WHOLESALE TRADING (WST): (MODEL 2) 17

BACKGROUND OF RETAIL

India is a land of retail democracy- hundreds of thousands of weekly haats and bazaars are located across the length and breadth of our country by people’s own self-organizational capacities. Our streets are bazaars – lively, vibrant, safe and the source of livelihood for millions. India has the highest shop density in the world, with 11 outlets per 1000 people. This does not include the village haats.
Our retail democracy is characterized by
1. High levels of livelihoods in retail with nearly 40 million employed which accounts for 8% of the employment and 4% of the entire population.
2. High levels of self - organization.
3. Low capital input
4. High levels of decentralization

Retail in India has started with the concept of weekly markets, where all the traders gather at one big place to sell their products every week. The people come to these weekly markets to buy the household items for the next one week. Village fairs and melas were also common as it had more of an entertainment value. Once the people started getting busy with their lives and when they turned entrepreneurial, there emerged the mom and pop shops and the kiranas in the neighborhood. After independence, came into existence the system of Public distribution of foods through the ration shops, where food grains, sugar and oil for the daily consumption were distributed at subsidized rates through the government ration shops. The modern corporate retail formats are of the exclusive brand outlets, hypermarkets and supermarkets, departmental stores and shopping malls. But still the Indian consumer depends on the self-organized retail shops for their daily needs.

This is largely due to the excellent food retailing system that was established by the kirana (mom and-pop) stores that continue meet with all the requirements of retail requirements albeit without the convenience of the shopping as provided by the retail chains. The Hawkers/lari galla vendors and the local kiranas are the two main forms of unorganized retail in the country, which almost account for 97% of the total retail trade.
Giant corporations like Wal-Mart and Reliance have started to try and take over the Indian retail sector. Currently the value of the retail market is estimated at around $ 270 billion with a growth rate of 5.7 per cent per annum according to the Indian retail report. The size of small retail is big, the size of big retail is small, a mere Rs. 250 billion in 2004 or 3% and Rs. 485 billion or 4.7% per cent of the retail market in 2006. However, the large scale corporate retail is projected to grow at the rate of 28% to 30% per annum, reaching Rs. 1000 billion or $ 70 billion by 2010 from the current size of US $ 8.7 billion. The tenfold increase in corporate retail will be at the cost of small scale retail, which employs nearly 10% of India’s population.

The strategy here is to define the small scale self-organized retail as “unorganized” and the large scale corporate retail as “organized”. The real difference is however not unorganized vs. organized. But it is “self-organized vs. corporate”.

COMPANY PROFILE

RELIANCE RETAIL LIMITED

Reliance Retail is the retail chain division of Reliance Industries of India which is headed by Mukesh Ambani. Reliance Industries Chairman Mukesh Ambani has unveiled a Rs. 25,000-crore ($5.60 billion) retail plan for the company on June 26, 2006. Mukesh Ambani has called this Starting of reliance retail as an idea which has the potential to revolutionize the Indian socioeconomic framework. He said "Conceptually, Reliance is creating a virtuous circle of prosperity by bringing farmers, small shopkeepers and consumers in a win- win partnership.” "A new company, Reliance Retail Ltd. (RRL) will spearhead this revolution. Reliance Industries will have a 100 percent stake in RRL, save for employee stock options".

THE RELIANCE EMPIRE

Reliance being the all encompassing company has entered into all the sectors, retail being their latest.

Reliance Industries Limited

Chairman and Managing Director : Mukesh Ambani
Market Capitalization : INR 39,609,150,020 (Sept, 2006)
Total Shares Outstanding : 22,405,900 (Sept, 2006)
Closely Held Shares : 11,365,943 Sales : INR 10,512,963,000
According to the company website "1 out of every 4 investors in India is a Reliance shareholder. RIL is ranked at 342 in the 2006 Fortune Global 500 list among the world’s largest corporations.

The Reliance IndustriesBusiness Brand | Product | End uses | Petroleum(Exploration& production) | Crude oil and Natural gas | Refining,power,petrochemicals and other industries. | Refining | LPG, Propylene, Gasoline, Jet/Aviation turbine fuel, High Speed Diesel, Superior kerosene oil | Domestic and industrial fuel Feed stock for petrochemicals,Trasnsport fuel, Aviation fuel, Domestic Fuel, Transport Fuel, Feedstock for fertilizers, feed stock for power plantsand cement plants | Polymers RepolRelene | PolypropyleneHigh Density Polyethylene | | Reclair Reon | Linear low density polyethylenePoly Vinyl Chloride | | Relpipe | Poly-Olefin pipes | | ChemicalsRelab | Linear Alkyl Benzene | Detergents | AcrylicRecrylonRecrylic | Wet spun Acrylic fibreDry spun Acrylic fibre | | Fibre Intermediates | ParaxyleneMono Ethylene | | TexltilesVimalHarmonyRueRelV2ReancePolyesterRecron | Suitings, shirtings, Dressmaterial, SareesFurnishing Fabrics, Daycurtains, AutomotiveupholsterySuitingsReady to stitch take away fabricReadymade garmentsStaple fibre, filament yarn | FabricsFurnishing, home textilesFabricsFabricsSuits, shirts and trousers. | Recron cotlukRecron DyefastRecron superblackRecron superdye | Cotton luk,cotton feel yarnEasy dyeable yarnDope dyed staple fibreCationic Dyeable staple fibre | |

* Reliance recorded a profit of 8.9% on assets - first among the 38 chemical companies in Asia.

* In terms of market cap, Reliance Industries ranks third among chemical companies in Asia, with a market cap of $6087.2 million as on October 19, 2001.

* Reliance's total sales, at $6232 million, ranked eighth among the 38 Asian chemical companies. Reliance's total sales have gone up substantially from 1996 when the company recorded $2485 million.

* Company with the highest refining capacity in India-60mpta Reliance SEZ at Jhajjar, Haryana (Area covered 25, 000 acres) (Nature of SEZ-Multi product) Reliance SEZ in Raigad (Area covered- 10,000 hectares)

BACKGROUND

We can see many examples of businesses where ,first we grow and then think of expanding but Reliance is quite different. Reliance has developed such huge amount of resources and capital over the years that whenever it steps into any segment it is not required to wait for growing signal, that’s why it always thinks of expanding without any bounderies. Reliance retail is next Step by RIL which will be a pan India project.

Reliance Fresh is the retail chain division of Reliance Industries of India which is headed by Mukesh Ambani. Reliance has entered into this segment by opening new retail stores into almost every metropolitan and regional area of India. Reliance plans to invest Rs 25000 crores in the next 4 years in their retail division and plans to begin retail stores in 784 cities across the country. The Reliance Fresh supermarket chain is RIL’s Rs 25,000 crore venture and it plans to add more stores across different g, and eventually have a pan-India footprint by year 2011.

The super marts will sell fresh fruits and vegetables, staples, groceries, fresh juice bars and dairy products and also will sport a separate enclosure and supply-chain for non-vegetarian products. Besides, the stores would provide direct employment to 5 lakh young Indians and indirect job opportunities to a million people, according to the company. The company also has plans to train students and housewives in customer care and quality services for part-time jobs.

The company is planning on opening new stores with store-size varying from 1,500 sq ft to 3,000 sq ft, which will stock fresh fruits and vegetables, staples, FMCG products and dairy products. Each store is said to be within a radius of 1-2 km of each other, in relation to the concept of a neighbour store. However, this is only the entry roll-out that the company has planned. Bangalore is said to have 40 stores in all by the end of the year.

In a dramatic change due circumstances prevaling in UP, West Bengal and Orissa, It was mentioned recently in News Dailies that, Reliance Retail is moving out stocking. Reliance Retail has decided to minimise its exposure in the fruit and vegetable business and position Reliance Fresh as a pure play super market focusing on categories like food, FMCG, home, consumer durables, IT, wellness and auto accessories, with food accounting for the bulk of the business.

The company may not stock fruit and vegetables in some states, Orissa being one of them. Though Reliance Fresh is not exiting the fruit and vegetable business altogether, it has decided not to compete with local vendors partly due to political reasons, and partly due to its inability to create a robust supply chain. This is quite different from what the firm had originally planned. When the first Reliance Fresh store opened in Hyderabad last October, not only did the company said the store’s main focus would be fresh produce like fruits and vegetables at a much lower price, but also spoke at length about its “farm-to-fork’’ theory. The idea the company spoke about was to source from farmers and sell directly to the consumer removing middlemen out of the way. Reliance may exit some businesses if the business does not increases by March 2008.

A GLANCE AT EXISTING RELIANCE

1. FACILITIES: More than 200 stores in 12 cities. Processing centers in Punjab, Delhi,Rajasthan, M.P, Gujarat, Jharkhand, Orissa, Kerala, Tamilnadu, Bengal, Andhra Pradesh, and Karnataka.

2. INVENTORY:
Fresh fruits and vegetables, staples, groceries, fmcg’s, milk etc.

3. TRANSPORTATION:
“Relogistics “, 2000 crore reliance company. Tata 407, Tata 409, Tata 909 and cold trucks. use third party logistics also

4. INFORMATION:
Advanced stores with upgraded software’s.

5. SOURCING:
Nearby villages of above mentioned processing centers + few in-house labels + known suppliers.

6. PRICING:
Procurement from farmers has given reliance competitive edge over the other retailers.

“FARM TO FORK”

The Reliance retail company sources say it is setting aside Rs 50,000 crore to build its farm-to-fork linkage. Reliance has drawn up plans for a presence in 784 towns and 6,000 mandi (wholesale market) towns with 1,600 rural business hubs to service these. It has already rolled out 177 Reliance Fresh stores across major towns in 11 states. According to a company report, RIL is targeting a turnover of Rs 40,000 crore in the next few years.

TRADITIONAL MODEL OF RETAIL RELIANCE “FARM TO FORK”

SUPPLY CHAIN MODELS

Reliance started its retail operations of Reliance Fresh stores with following supply chain model. Procuring directly from the farmers and operating with moderate margin but mass Selling was key to Reliance fresh operation for first few months. The following figure depicts the first Reliance fresh model : * RELIANCE FRESH: (MODEL 1)

FARMERS
CATEGORY 3
FARMERS
CATEGORY 2
FARMERS
CATEGORY 1

RELIANCE OWN
LOGISTICS
RELIANCE FRESH OUTLETS
RELIANCE FRESH OUTLETS
RELIANCE FRESH OUTLETS
PROCESSING UNIT/POINT
COLLECTION POINT/UNIT
Farmers Own Transportation
Reliance own Logistics
Reliance own Logistics
Farmers Own Transportation
RF
RF

MODEL 1 But things always don’t turn out to be the same as planned. Opposition against Reliance fresh outlets in U.P soon interrupted the momentum .Reliance wished to go with. Bowing to mass opposition from local shopkeepers, the company closed down 20 Reliance Fresh stores in Noida and Ghaziabad. A company insider said that Reliance Retail was being forced to exit UP owing to what he described as the “vindictive approach” of the state government. Within the month company started operations in Lucknow and Varanasi with 14 stores, stores had to be soon closed down following violent protests by local traders. After the protests, the state government instructed all standalone food & grocery stores run by corporates to close down. Similar things followed in NCR and Ghaziabad. The strategic importance of UP for a large-scale retailer like Reliance was not limited to it being a large consumer market. The state is extremely important from the sourcing point of view as well. The Gangetic plain in the state is considered to be one of the most fertile agricultural belts in the country. Reliance’s food & grocery business was in the line of fire, because of the popular perception of Reliance being the most ‘powerful’ business conglomerate in the country. This is evident from the fact that widespread political protests to corporate participation in retail started only after Reliance announced its roll-out plans. Companies like Kishore Biyani’s Future group, Subhiksha and Spencer’s have had operations in this format long before without encountering major problems. Moreover, the positioning of the Reliance Fresh format (small convenience stores) puts it in direct competition not only with neighbourhood kirana stores, but also with small fruit and vegetable vendors. At this point of time future and ambitions of 25000 Crore Reliance retail started falling under clouds.

UPDATED POLICY

From grocery, Reliance Retail plans shift to supply : Reliance Retail was faced with massive opposition from the trading community. But like every great visionary Reliance had a prepared back-up, and this time it was much more powerful than the earlier one, throwing solutions to every previous dilemma . In a dramatic shift, it decided to turn into a trader itself. It is entering the food-trading business as part of a major restructuring of its food and grocery initiative. The split has occurred because Reliance has realised that there is money to be made, may be more, in simple commodity trading, especially with food prices likely to go through the roof next year. As a result of this restructuring, Reliance Retail is setting up shop in mandis to sell fruits, vegetables and staples. It would thus be able to profit from commodity trading without worrying about the steep overheads and discounts that tied its hands in its avatar as Reliance Fresh. It would also allow the company to sell to a wide range of customers, including wholesalers, other traders, and retailers. A source said the company has already signed up with Spencer retail chains to supply cut fruits and vegetables. Till now, the Reliance supply chain was dedicated to meeting the needs of Reliance Fresh shops.

WHOLESALE TRADING (WST): (MODEL 2)

Reliance formalized its second supply chain model to shift itself from grocery retailer to grocery supplier by focusing and establishing itself in Mandi’s.

STEPS IN WTS MODEL:

1) Reliance has owned farms on contract basis for production of specific crop which is decided after extensive research depending on * SOIL CONDITIONS, * CLIMATE CONDITIONS, * RETURN OVER COSTS INCURRED. So as to yield best possible results.

2) Different vegetables and fruits from such farms are collected through reliance own logistics and brought to collection Processing centers where quality check and other required processing is done. In processing centers workers wearing balaclavas, woolen trousers and bulky jackets work inside a room kept at a constant 3oC, peeling and chopping vegetables, spinning them dry and then heaping them in small plastic packets before placing them in plastic transport crates. At the other end of the 5,000-sq-m warehouse, men unload crates of fruits from a truck pulled up to a spotless loading dock. A quality-control expert samples every tenth crate; if the fruits are good a team will ready them for delivery within hours to Reliance fresh stores around different places like U.P and as far away as Hyderabad and even Mumbai (formerly Bombay). If they are not, workers will inspect the entire shipment and discard anything below standard.

3) Merchandise from these collection processing centers are collected and loaded for Wholesale mandi’s. As this merchandise is to be made available by 4 A.M in morning thus deliveries in trucks are sent at time depending upon:

TRANSIT TIME. – Time required reaching destination i.e mandi’s.

MARGIN TIME. – Time period between a truck reaching mandi and then Unloads. (Can be 2 to 3 hours)

4) From mandi’s where the trucks have been unloaded, roadside vendors and pull carters buy fruits and vegetables to supply in households.

5) In case still some vegetables and fruits are not sold reliance logistics own Transportation send them to reliance fresh stores.

Diagrammatical representation of above said WST model is given below.

Reliance Own Logistics
RELIANCE OWN
LOGISTICS
RELIANCE FRESH OUTLET
RELIANCE FRESH OUTLETS
RELIANCE FRESH OUTLETS
PROCESSING UNIT/POINT FARMERS
Reliance own Logistics
Reliance own Logistics
Reliance Own Logistics
FARMHOUSE ON CONTRACT

FARMHOUSE ON CONTRACT
WHOLESALE MANDI’S
WHOLESALE MANDI’S
WHOLESALE MANDI’S
Cold Trucks, TATA 407,408,LP

WHOLESALE TRADING MODEL-2.