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Cover Story: Hyperlocals: The New Big Trend
Merger Ahead: Future Group and Bharti Retail X-Ops conducts Immersion Course on Business Simulation
Opsession September Issue This is the fourth issue from volume two of Opsession, the monthly newsletter of X-Ops. The newsletter was introduced last year by X-Ops with the intention of covering all the activities and events that took place during the span of a month.
Around the World with Operations Management
Xavier Institute of Management, Bhubaneswar Volume#2
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Fiat Chrysler under - reported deaths That quality is an indispensable factor for assessing a firm’s operational capability, has been learnt by Fiat Chrysler’s American arm the hard way. Earlier in September, it recalled more than 1.7 million cars and trucks for several problems with including faulty air bags, bad welds and electrical wire risks. Although, initially it had feigned ignorance regarding the several accidents that occurred due to these faults, it has now come to light that Fiat Chrysler significantly under-reported the number of deaths and injuries which occurred in its vehicles, as per the U.S. safety regulators. The "significant failure" was discovered after the Italian automaker's U.S. subsidiary agreed to pay a record $105 million fine for failing to properly handle defects in 11 million vehicles.
I Phone 6S challenges the Apple Supply Chain Apple has been at the pinnacle of all ‘Best Supply Chain’ lists for years now. Its efficient supply chain management has been an important contributing factor for its international fame and brand value. The hysteria and frenzy surrounding Apple products reached its peak this September with Apple launching the new I Phone 6S and I Phone 6S Plus models. With customer pre-orders lining up, it is now to be seen how Apple meets the demand that is surging like never before. The rose gold
coloured version alone commands 40% of the pre-orders and has been a key attractive factor. While it will be definitely boost the revenues for Apple, but meeting such a huge demand would definitely put a lot of pressure on Apple’s supply chain. How efficiently it tackles the situation remains to be seen.
India, Myanmar and Thailand Superhighway A 25.6 km new section of the AH 1 (Asian Highway No. 1), between Myawaddy – Thinggan Nyenaung – Kawkareik linking India, Myanmar, and Thailand which is set to become fully operational this November after the signing of a few strategic agreements, has opened for operations in Myanmar. With the impending opening of this road, the North East Federation on International Trade (NEFIT), a trade body of exporters and importers from North East India, has announced a unique 7000 km, 19 day return road trip starting from Guwahati to Bangkok and back from November 2nd. Apart from enhancing multi-lateral trade relations, this new connectivity is set to become a logistics marvel.
Volkswagen in hot water September has not been a favorable month for automobile manufacturers in the US. With Fiat Chrysler being forced to recall vehicles, another automobile giant Volkswagen has landed itself in the center of controversy. Volkswagen, a former paragon of German engineering has found itself in the center of a pollution cheating storm of global dimensions. They were able to deceive US
regulators by installing ‘Engine Control Unit’ software in its diesel engine models that could detect when the cars were being subjected to emission tests and enabled emission controls to pass the test. However, during normal operations they remained shut, for better fuel economy but at the cost of harmful emissions. Though initially VW denied such reports, it was ultimately forced to admit the use of ‘defeat devices’. Apart from severe penalties and plummeting stock prices, it has been greeted with worldwide scorn and ridicule which saw the unceremonious ouster of Martin Winterkorn, the 68 year old CEO of VW. Overall, it has become a big blot on the repute of fabled quality if German manufacturing.
Coca Cola to revamp its supply chain with sale of production facilities Coca Cola which has been facing lower sales in the United States, has a plan in the pipeline to change its supply chain strategy. As it is looking for opportunities to offset its high manufacturing costs, it has now decided to sell nine production facilities to three of its largest independent bottlers and thereby unload some of its low margin assets. These plants valued at USD 380 million were incidentally created after buying its top bottler in North America in 2010. This way Coke is distancing itself from the capital intensive yet low margin distribution business, where the new buyers would be playing a more definite role.
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n the field of supply chain management, ‘Hyperlocal’ is creating the new buzz and it is expected to revolutionize the market in the future. Hyperlocal is actually a model that facilitates the delivery of everything, be it groceries, electronic equipments, medicines, food or any service like laundry, electrician, plumber etc. directly from the nearby stores thereby reducing the shipping cost and making a faster delivery. Today, the challengers of the brick-and-mortar stores are themselves finding it difficult to compete with this disruptive idea of hyperlocals in respect of logistics. These hyperlocal start-ups are making use of the trust factor built by the e-commerce
giants in order to establish them significantly in the market. About 11% of the e-commerce sales are through mobile devices. The Smartphones allow location tracking and other useful user information which has helped to create the hyperlocal business. With the exponential growth in sales of Smart-phones, the present and future of this business seem to have huge potential. Hyperlocals are coupling aggregation with logistics/delivery, thereby controlling even the last mile. Thus, this model is an asset-light, and less capital intensive than inventory led one. Also it is easier to be scaled up. The hyperlocal brigade is investing
BRIEFLY HYPERLOCALS ARE COUPLING AGGREGATION WITH LOGISTICS/ DELIVERY, THEREBY CONTROLLING EVEN THE LAST MILE. HYPERLOCAL START-UPS HAVE AN ADVANTAGE OF BEING FOCUSED AND BUILD GOOD RELATIONSHIP WITH LOCAL RETAILERS.
heavily on disruptive supply chain and logistics management. Companies like Grofers are providing consumers with convenience of delivery in minutes instead of ‘in-days’ concept. Seeing these signs of upheaval, e-commerce Juggernaut, Amazon kicked off a pilot run for Kirana Now, an on-demand delivery service which sources from local
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stores and guarantees delivery within 24 hours. The country’s largest ecommerce players like Flipkart and Snapdeal are pushing towards express delivery, but the hyperlocal start-ups have an advantage of being focused and build good relationship with local retailers.
Challenges Though this model may ensure high margins, but it is difficult to replicate the service model. It is very difficult to train people in services as they have to be available wherever a customer is
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located. Moreover, since these individuals represent a brand, it is inevitable for them to know how to handle a customer. The fragmentation of service industry makes it difficult to form partnership with groups of such service providers as the specialists are spread all across the country. Also it is difficult to create a need for services as people may have their own setup in the locality. With bigger players like Amazon and Ola now entering the hyperlocal market, the belief is strong that this model may
succeed. As it is more cost-effective compared to regular e-commerce, the capacity of solving a problem in minimal time gives it an upper edge. But the biggest learning will be the firm’s ability to scale. A hyperlocal that focuses on specific localities will find it difficult to estimate the scale needed to create an economically viable model. It is imperative for them to identify wide spread but local needs and create a model that adapts to each new market.
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Merger of Future Group and Bharti Retail A Modern Approach to Brick and Mortar Setup
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n the present scenario when internet connectivity has taken a great surge, everything in the world is shifting to the online channels. There has been an explosive growth in the e-commerce sector in the past few years. Customers are more willing to go for online shopping than unnecessarily taking the pain to visit retail stores. In such a condition, how well can the traditional brick and mortar retailers survive amidst all the competition posed by e-tailers? Future Group and Bharti Retail have taken the move to combine their retail business to give a head-on challenge to the online retailers by building one of the India’s biggest chains. Future Retail is India’s leading offline retailer that operates numerous retail formats
in both value and lifestyle segment of Indian consumer market. Kishore Biyani,
the owner of Future group has taken this decision of consolidating with Bharti Retail in order to realign its retail operations with the aim of creating the largest retail chain of 570 stores in 230 cities, thus become the strongest player in the booming market of etailers. The merger will create a vast network of retail stores comprising of 203 Big Bazaar and ‘easyday’ hypermarkets,197 Food Bazaar and ‘easyday’ supermarkets, and 171 other stores comprising Home Town, eZone, FBB and Foodhall. This merger will increase the retail business of Future Group by around 2000 crore and the combined turnover of both the companies is expected to be 15000 crore. After this merger, there will be two
OPSESSION | Volume 2 | Issue 4 distinct entities, Future Retail and Future Enterprises. Future Retail will be responsible for retail operations of both the entities and Future Enterprises will host the infrastructure, assets and investments of both the groups. The demerger will lead to a better focus of the two entities in their respective core functionalities. This will result in an eyecatching increase in the operational efficiency which would result in attracting millions of customers. It will also prove beneficial for the supply chain partners thereby making the supply chain more effective and adding value for the shareholders. The resulting entity will enjoy the economies of scale through synergies in sourcing, logistics and shared services. Since after the merger, they will be covering 7000 to 8000 pin codes across the country which will assist in bringing down the operational cost. The delivery cost will also come down to 5% which is much lower than the present cost of
6 delivery in the e-commerce sector (1320%). Along with the improved productivity and profitability, Future Group will gain a stronger footprint in areas such as NCR, Haryana, Western UP and Bangalore. The windfall resulting from lower delivery and marketing costs can be used to offer more deals and discount to the consumers. Data collected through consumer loyalty programs of the two companies can now be consolidated to gain new insights into consumer behavior. Also, higher revenue will result in better debt servicing with significant reduction in interest cost. Furthermore, the added advantage of advanced market reach clubbed with the new strategy of allowing customers to shop from anywhere and take deliveries from anywhere will enhance the customer experience and provide a competitive advantage over e-tailers and other brick and mortar chains. The
possible permutations of ordering and delivery options can be ‘order online’ and ‘ship at home’, ‘order at store’ and ‘ship at home’, ‘order online’ and ‘pickup from delivery Centre’ or ‘order at one store’ and ‘pick up at another store’. BRIEFLY FUTURE GROUP AND BHARTI RETAIL HAVE TAKEN THE MOVE TO COMBINE THEIR RETAIL BUSINESS TO GIVE A HEAD-ON CHALLENGE TO THE ONLINE RETAILERS BY BUILDING ONE OF THE INDIA’S BIGGEST CHAINS. AFTER THIS MERGER, THERE WILL BE TWO DISTINCT ENTITIES, FUTURE RETAIL AND FUTURE ENTERPRISES.
This move may drive other retail players to strengthen the brick and mortar setup by joining hands in order to counter the upcoming threats from the booming ecommerce industry.
"It's a very exciting merger and especially so because food and grocery space is one of the biggest opportunity in retail today. So far many companies have struggled because they did not have the scale and reach. This is deal which is potentially fitting in very well, both in terms of scale and reach, also both companies have sourcing and supply chain benefits,"- Arvind K Singhal, Chairman, Technopak Advisors. (Courtesy- PROFIT.NDTV May 04, 2015)
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X-Ops conducts immersion course on Business Simulation with Arena Simulation is the imitation of a real world process or system with a model in order to understand its behavior. It has now found widespread applications in various fields of study including several factions of business where it is being used extensively for analysis and improvement of business operations. With the advent of computer technology, it has gradually evolved from tedious physical and manual routines to automated software based simulation. Today, there are several such software applications equipped with multiple functionalities that allow business analysts to develop accurate models along with high speed simulation. "Arena" is among the most widely used discrete event simulation and automation software that was developed by Systems Modeling and acquired by Rockwell Automation in 2000. It is used by many large companies engaged in simulating business processes. Some of these firms include General Motors, UPS, IBM, Nike, Xerox, Lufthansa, Ford Motor Company, and others. It has the capability of simulating diverse operation strategies in the field of business. X-Ops, the Operations Management Committee of XIMB recently conducted an immersion course on "Business Simulation through Arena Simulation Software" in the domain of Operations Management and Decision Sciences for the final year students of Business Management on 26 and 27 September. The tightly scheduled academic
programme at a B-School is often not enough to cover all areas of a particular domain due to several constraints. In order to overcome such limitations, the administration at XIMB has made provision for immersion courses that allow students to cover additional topics in various domains.
models that covered several theoretical aspects to create a foundation for the students to understand the concepts and apply them in an effective manner. It was followed by a brief session on acquainting the students with the software Arena and several functions available with it. The subsequent sessions were really engaging for the students where they were involved in developing operative models and running the simulation program on them with the help of Arena. These models were based on several cases that described both hypothetical and real life business situations. BRIEFLY
Dr. D. S. Broca The programme by X-Ops was conducted by Prof. Dilbagh Singh Broca who is among the most highly lauded faculty members in the Operations Management & Decision Sciences area at XLRI, Jamshedpur. He embarked upon Arena as a personal project five years ago and has ever since been conducting several workshops on it across India. A total of 120 students had registered for the course that was conducted in six sessions. The two day programme began with an introductory session on simulation
THE PROGRAMME BY X-OPS WAS CONDUCTED BY PROF. DILBAGH SINGH BROCA. A TOTAL REGISTERED.
OF
120
STUDENTS
With the Arena training and the able guidance of Prof. Broca, students were introduced to the principles of simulation that will enhance their problem-solving skills and help them conduct effective simulation modeling, analysis, and research projects. The successful initiative that was thoroughly enjoyed by the students as an enriching learning opportunity has motivated the team of X-Ops to facilitate several such learning exercises for the student community of XIMB in future.
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EDITORIAL BOARD EDITOR:
ABINASH MALLICK
DESIGN:
ABHINEET SUDHENDRA PUNYASLOK GURU
CONTENT:
ANUJA VERMA DIVYA PRAKASH RAKSHA ARYA SAMPAT PADHI SWETA DAS
COORDINATOR:
Opsession Monthly
XIM, Bhubaneswar
P H PRUDHVI