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IMB 323

Janat Shah, Rahul Patil, and Trilochan Sastry prepared this case for class discussion. This case is not intended to serve as an endorsement, source
of primary data, or to show effective or inefficient handling of decision or business processes.

Copyright 2010 by the Indian Institute of Management Bangalore. No part of the publication may be reproduced or transmitted in any form or
by any means electronic, mechanical, photocopying, recording, or otherwise (including internet) without the permission of Indian Institute of
Management Bangalore.


JANAT SHAH, RAHUL PATIL AND TRILOCHAN SASTRY
SUBHIKSHA: MANAGING STORE OPERATIONS

At 7.30 pm on a Saturday evening, Aravindan, President, Karnataka Region, Subhiksha, was getting ready to go
home. He had collected the necessary reports that would help him in getting ready for the visit by R. Subramanian
(RS as fondly called by everyone in Subhiksha), Managing Director, Subhiksha on Monday. In the past, a meeting
with RS was a grueling exercise where the bulk of the discussions would take place on the floor of a retail store. He
was always amazed at the way RS managed to keep track of every region in the organization which was growing at
breakneck speed. RS somehow seemed to have all the numbers on his finger tips whether it is inventory data or
stores data or product availability data. He was looking forward to the meeting because he knew that at the end of
day there would be at least two or three fresh ideas which would help improve his operations. A majority of the
stores within his region had been operating for more than 18 months and now was the time to focus on getting
higher sales from each store in his region.

Once out of his office, on an impulse, Aravindan decided to walk into the Indiranagar store which was next to his
office. It being the first Saturday of the month, the store was crowded and he could see Santosh, the supermarket
store manager out in front helping his cashiers. Watching the staff scurrying to and fro to help the customers,
Aravindan mused that pharmacy and telecom were relatively simpler to manage. Among the three businesses, the
supermarket was the most challenging because of the complexity of the operations arising from the number of stock
keeping units (SKUs) and the typical number of items in a customer basket. As a retailer, Aravindan knew that
managing products on the shelf and managing waiting time at the billing counter in the supermarket were at the
heart of the store operations at Subhiksha. But as a discount retailer, he was also fully conscious of the fact that he
had to keep a tight control on the inventory and operating expenses. So, improving product availability and reducing
customer waiting time at the counter with a tighter control on the inventory and the operating expenses was a never-
ending challenge. Of course, this constant pressure to do better than yesterday was what excited Arvindan the most
about life at Subhiksha

Subhiksha Background

Founded in 1997 by R. Subramanian, an IIT- and IIM- alumnus and derived from the Sanskrit word, Subhiksham
"giver of all things good," Subhiksha had grown from one store in 1997 to more than 1000 retail outlets in 2008. It
sold FMCG, grocery, pharmacy, mobile products, and fruits and vegetables (F & V). It was the largest supermarket
and mobile retail chain in India with presence in 90 cities. It was the only Indian retail chain to feature in the world`s
top 50 local dynamos list that comprised 11 Indian firms according to a study conducted by the global consultancy
firm, Boston Consultancy Group.

In March 1997, Subhiksha opened its first store in Thiruvanmiyoor in Chennai with an investment of Rs. 45 lacs
with a clear idea that it would be a part of a larger system. In the first year, it opened 10 stores in Chennai.
Subhiksha also started selling medicines at a discount. By 2000 it had expanded to 50 stores in Chennai. In the next
two years, it had 120130 stores across Tamil Nadu. Until 2004, it focused on consolidation in Tamil Nadu.
Subhiksha then looked at every part of India which was literate and also a significant consumption market. In the
year 20042005, it decided to open 420 stores in Gujarat, Delhi, Andhra Pradesh, and Karnataka by 2006. Now, it
had more than 1000 stores in India. In its supermarket, Subhiksha started offering fruits and vegetables; the logic
being that since F&V are bought more frequently by customers, stocking the same would increase footfalls to
Subhiksha stores. In 2005, looking at the tremendous growth in mobile business, Subhiksha started offering mobile
telephones at its stores. By 2005, Nokia had become bigger in size compared to Hindustan Unilever Limited (HUL)
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Subhiksha Managing Store Operations Page 2 of 22

and Subhiksha saw mobiles as a natural extension to its product line. In all its offerings, it tried to ensure that it
provided the highest possible value to customers by offering the deepest possible discounts.

In 2008, a typical Subhiksha store had supermarket, pharmacy, and telecom store operations, where pharmacy and
telecom operated as sub-stores within the store.

According to Subramanian, the success of Subhiksha lay in its Indian retail model 'I wanted to do the things the
India way. On the Subhiksha business model, he adds:

The Subhiksha targets the middle and lower class and not the high-end customer. To do so, it
operates with an everyday low pricing model and locates several smaller stores to move closer to
the customer. At operational level, it constantly plans to increase supply chain process efficiency
to deliver goods at low prices.

The Indiranagar, Bangalore Store

The Indiranagar store was located on the 6
th
cross road in Indiranagar 1
st
stage, Bangalore (Exhibit 1). It started
operations in August 2006. The store was 50 m from the main street (known as 100 ft road), which was a busy
commercial road with departmental stores, supermarkets, restaurants, banks, fast food chains, and gas stations.

It operated on a 15-year lease contract that could be renewed. Subhiksha had remodeled the property according to its
requirements. It had 2,000 sq ft area without any fancy fittings, flooring, or air-conditioning unit. Out of the 2,000 sq
ft; 150 sq ft each was allocated to telecom and pharmacy, 200 sq feet was allocated to backroom store and office and
the remaining was available for the supermarket.

Pharmacy had sales of Rs. 3 lacs, while the mobile store operated with wafer-thin margins resulting in a high
volume to the extent of Rs. 6080 lac per month. Grocery and F &V categories had relatively higher margins and
FMCG and pharmacy worked with low margins and the mobile business worked with very low margins.

The pharmacy business operated by Subhiksha was focused on customers who were on continuous therapies like
cardiac, diabetic, etc. They had regular consumption patterns and incurred significantly large medical expenses. The
pharmacy maintained a list of customers and tracked their buying and usually either the customers informed
Subhiksha before they ran out of stock or Subhiksha checked with them periodically because it knew their
consumption patterns. As a result, it practically functioned with very little stock and was based on regular customer
requirement, it bought the required medicine from drug wholesalers and passed on a standard discount of 10% to its
customers. Most of the customers were aged people and the 10% discount translated to huge savings for the
customers. Subhiksha saw pharmacy business as a community service. The pharmacy store could be managed by
two people (to take care of two shifts).

In the telecom business, Subhiksha offered handsets, accessories, and charge cards from leading brands including
Nokia, Motorola, Sony Ericsson, LG, and Samsung. As the number of SKUs offered was less than 100, managing
store operations for the telecom business was relatively simpler than the supermarket business. The telecom store
could be managed by two people (to take care of two shifts).

The Indiranagar Supermarket

The Indiranagar supermarket sold both branded and private labels; FMCG, and grocery products in addition to F &
V. Within the supermarket, 30% space was allocated to the F & V line of products and the remaining 70% was kept
for FMCG and grocery products. It was located in a mainly residential area with few commercial properties. Unlike
other supermarkets where the customer was expected to drive down to the store, the store focused on customers in
the neighborhood so that they did not have to worry about parking space. And locating the store on the side street
allowed them to manage the store at much lower rental costs compared to other organized retail players.

Other supermarkets namely: Food World, More, and MK retail also operated within 1 mile radius besides many
Kirana stores. See Exhibit 2 for the location of the store. Kirana stores are typical mom and pop stores. Nilgiris, a
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2014.

Subhiksha Managing Store Operations Page 3 of 22

supermarket chain, opened an outlet close to the store. The hypermarket Big Bazaar was also nearby. Despite
increase in the competition, Aravindan, felt:

The store business has continued to grow in sales because of the unique selling proposition
offering value to the customer through lower price and convenience.

The number of households within the 1 km catchment area was 2,000. A typical household (with three consumption
units) spent on an average Rs. 4,000 a month in the supermarket and F & V (excluding non-vegetarian products and
clothing)
1
. Generally, the sales per month were Rs. 1012 lacs in FMCG and grocery unit and Rs. 3 lacs in F & V.

The supermarket retail outlet manager (ROM), Santosh grew up in Bangalore. He worked in a retail outlet in Dubai
for a few years. He then joined Subhiksha as ROM. Describing the retail business (see Exhibits 3 and 4 for details),
he said:

During a day, there is a predictable peak between 5.30 pm and 9 pm. In a month, the peak occurs
in the first 10 days. Also, in general, business on the weekends is higher. It also depends upon
factors such as weather, festivals one day we were heading for a record sales, suddenly heavy
rains for the rest of the day ruined the remaining day.

Managing Supermarket Operations

Category Management

The supermarket stocked around 1,200 SKUs that could take care oI approximately 90 oI the customer`s value
requirements. Typically, the store would stock only products of the top three brands in each product category
(sunflower oil, detergent powder 1, etc. This conscious choice allowed the store to manage its operations at much
lower inventories which in turn allowed it to offer 8% to 10% discounts to its customers. To satisfy complete
customer requirement would require bigger store space and explosion in the inventory costs with additional SKUs.
In general, the stocked SKUs moved fast and generated consistent and considerable volumes (Exhibit 5).

Since the store stocked only 1,200 SKUs in the supermarket, it monitored its assortment very carefully so that it
really captured on an average 90% of the value requirements of the customers. Arvindan commented:

When we start a new store we make lot of effort to understand the requirement of target customers
in the catchment area. Usually by end of six months we have good idea about the ideal assortment
for the store. If customer finds that we can provide only 50% to 60% of his requirement he may
not visit us again. For 10% of his requirement which is not served by the store he does not mind
visiting other stores in neighborhood.

In FMCG, 950 branded merchandise and private label SKUs were stocked while in grocery 150 branded and private
label SKUs were sold. From a consumer perspective, brands reduced the uncertainty while choosing products and
also gave a guarantee of quality
2
. As a result, the consumers in general liked them.

Private labels provided Subhiksha control over the design and quality of its products. Tatwa, Aaharam, and
Subhiksha are some examples of private labels kept in the outlet. Subramanian explains, 'Besides offering more
margins, private labels give the store an opportunity to attract and retain customers due to their low prices. The
store sold the private label wheat flour with the maximum retail price (MRP) of Rs. 140 at the Subhiksha price of
Rs. 102 (Exhibit 6).






1
http://india.gov.in/govt/studies/report/2.pdf
2
Note on the retailing industry, Harvard Business School Note, May 1998 ( 9-598-148)
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2014.

Subhiksha Managing Store Operations Page 4 of 22

Marketing

'Everyday low pricing model was always followed at the store. In the supermarket, it usually offered an average
discount of 8%10% on all the products irrespective of the quantity purchased with reference to the MRP. The
discounts did not change frequently. Kirana stores sold their products at the MRP.

The display at each SKU showed both the MRP and the Subhiksha store price so that consumers could compare
prices while shopping (Exhibit 3). Also, the customer bill showed the total discount received so that consumers
could estimate their savings. Exhibits 7 and 8 show the price comparison chart for a select FMCG and grocery
SKUs, and a typical Subhiksha bill. Aravindan adds: 'the store offers deep discounts on rice and lentils in Bangalore
and Mysore stores.

The outlets could not vary the prices, instead the regional unit set the price list for the stores. Given that the terms of
trade with all the FMCG companies were fixed centrally, it was mainly grocery items where there was great
flexibility in pricing at the region level. But within a region, prices were identical across all the stores in that region.
On the other hand, some discount retailers such as Wal-Mart allowed their managers to vary the prices to handle
local competition
3
.

The highest sales occurred in the first 10 days of every month. The store always offered some promotional schemes
in that period to increase the footfalls. One of the promotional schemes was: 'Ior purchases above Rs. 500, Rs. 750,
and Rs. 1,000, get Rs. 25, Rs. 50, and Rs. 75 off, respectively. Sometimes, gift-based promotional schemes were
offered.

Subhiksha periodically advertised through a local radio channel 'Radio Mirchi. It did not advertise through local
newspapers and catalog mailings. TV advertisements were minimal for the supermarket. Whenever Subhiksha
started operations in any city it brought out newspaper and local TV advertisements to create awareness. But,
subsequently, it mainly depended on word-of-mouth as a primary medium of reaching people within the catchment
area. So, unlike other organized retail players, the advertisement spend by Subhiksha was relatively at a lower level.

The Crew
The store was open between 9 a.m. and 10 p.m. and operated by 13 people (scheduled in two shifts). Two cashiers,
two customer sales representatives (CSRs), and two sales assistants were present in each shift. Some employees
worked in a split shift (morning and evening slots). A person was assigned for home delivery. Cashiers handled
billing and payment transactions. CSRs were mainly responsible for store cleaning and hygiene, merchandising, and
stock arrangements. They also assisted customers when the sales assistants were busy. Sales assistants mainly
interacted with customers and assisted them in the shopping process. During peak periods, the main focus was on
the sales and checkout counters, while during lean periods, the focus shifted to cleanliness, inventory check-up,
stock arrangements, etc. During the first 10 days, almost all the staff members were present in the store and avoided
taking leave.

An assistant ROM in addition to a ROM managed the store in two shifts.

Most of the staff members were young women and new to the retail business. Continuous on-job training was
provided to them. Cashier was the most 'sought aIter position amongst the staII. Staff members were motivated
and promoted to this position based on their performance. Also, from a monetary perspective, if the store achieved
its sales target, all the staff members in the shop were rewarded with coupons, using which they could buy material
from the stores. The staff members were trained at the cashier counter during the lean periods. Staff requirement at
the cashier counter depended upon the business volume. The trained staff helped at the cashier counter during the
peak periods. There were two checkout counters for the FMCG and grocery units and 1 checkout counter for the F &
V unit. During lean periods, the FMCG and grocery units and the F & V unit had a cashier each who would perform
all the operations billing, weighing, and packaging items. F & V within the supermarket had its own billing
counter in addition to two counters allocated for FMCG and grocery products. During peak periods, as the number
of customers increased, the shopping baskets increased, queues at the checkout counter increased, and more staff
members were shifted to the three counters. Santosh remembers Once, a shopping basket bill was Rs. 3,315

3
Wal-Mart Stores, Inc, Harvard Business School Case (9-794-024)
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2014.

Subhiksha Managing Store Operations Page 5 of 22

against an average bill of Rs. 212 and that increased the queue. Additional crew worked at the third checkout
counter, weighing unit in F & V and billed items packaging unit. Average time taken for a customer with an average
bill of about Rs. 250 was about 2 minutes at the billing counter. But, a customer with a large basket could take 5
minutes of time at the checkout counter.

Attrition was one the main problems faced by the store. Santosh, explains, 'Subhiksha employees are in huge
demand in the retail market which currently lacks skilled manpower there is a separate queue for them during
recruitments.

It affected the performance of the store. At checkout counters, it took time for new cashiers to pick up speed. The
store staff personally knew most of the regular customers and their requirements. ROM tried to mitigate a problem if
it was a small salary or relocation issue.

Management

An assistant retail outlet manager in addition to a ROM managed the store in two shifts. The responsibilities of the
managers included managing category-wise sales, increasing customer interactions (the business volume on a daily
basis), maintaining store hygiene, managing personal, F & V wastage, and adhering to a planogram (drawing of a
store`s layout) and was evaluated based on the same.

As the investment in terms of the inventory and the operating cost in terms of rental, wages and electricity and
security were governed centrally, the ROM could increase profitability of the store mainly by increasing the
category-wise sales and reducing F&V wastages and shrinkage. The Indiranagar supermarket would have a fixed
cost of Rs. 1.2 lacs per month including the rental (Rs. 40,000), wages (Rs. 60,000), electricity (Rs. 10,000), and
security costs (Rs. 1,000). A typical store would have Rs. 6 lacs worth products in its supermarket inventory. For
discount stores, their gross margins were much lower compared to other retail players; so generating high sales per
store was very important.

The organization had a SBU structure where each SBU in the region was responsible for operations, which included
the stores in the region and the warehouse. The ROM reported to the business development manager (BDM). Refer
to Exhibit 9 for the organization structure. For a cluster of 67 stores, there was one BDM who in turn reported to
the Vice President (VP). The BDM monitored the store on category-wise sales and F&V wastage and would visit
competitor stores in the region. The VP would visit every store once in 10 days.

Sourcing was a centralized function. For local sourcing of F & V and for a few local brands, a few sourcing people
would operate from the region but they reported to the centralized sourcing. This allowed Subhiksha to take
advantage of the economies of scale. For example, with each major FMCG company, it negotiated its annual terms
of trade where because of the sheer scale of operations it could get significant discounts. Central sourcing allowed
them to develop in-depth understanding in sourcing food grains and F & V across the country.

Customer Service

Industrial engineering techniques were used to standardize and reduce the time required to process a bill. Bar code
technology was used for the branded FMCG and grocery products. Private labels provided the product and pricing
information. In F & V, some SKUs such as onions were pre-packed in the bags. The goal was to speed up the
checkout process and to reduce paperwork. Subhiksha had a fixed internal target that once the customer selected the
items in the supermarket, the customer should be able to leave the Subhiksha premises in five minutes. This posed a
challenge on peak days when a large number of customers visited the store and were also likely to have a large
number of items in their shopping list.

In Chennai and a few other locations, Subhiksha had put in place a two-stage checkout process where the billing was
done at stage 1, while the payment was received at stage 2. This is the outcome of a detailed time and motion study
carried out by Subhiksha.

A customer could place an order over phone. The store staff would take the customer order and inform the customer
about the expected delivery time. The order was packed and billed in the store and kept in the storage area. Also, the
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2014.

Subhiksha Managing Store Operations Page 6 of 22

customer could shop in the store and ask for home delivery if the basket was large. A person (allotted for home
delivery) delivered the order to the customer in an auto rickshaw. Around 15% of the business was through the
home delivery channel. Billing for such orders was done when there was a low load at the checkout counters.
Although the store expected a minimum shopping basket of Rs. 1000 for home delivery, the ROM adds, 'Store did a
home delivery for a basket of Rs. 250 Ior a regular` customer who was pregnant. Some oI the home delivery
customers were located at a distance of 23 km. The store transport cost for home delivery worked out to be 1% to
1.5% of the home delivery sales value. Although the main catch of the store were households located at a 11.5 km
distance, home delivery was extended to households which were located at a distance of 23 km.

About the store customers, Santosh explains:
We get customers from different classes middle, lower-middle, and low. Also, customers come
from different cultures: Telugu, Malayalam, Gujrati, Marathi, Punjabi.. We need to deal with
them in their way`. Having skills to handle such diverse group of customers also makes the
difference.

Subhiksha had articulated its customer service philosophy in the Subhiksha Promise (see Exhibit 10) during its
induction training. Subhiksha ensured that all its new employees understood the true spirit of the Subhiksha
Promise.

Logistics and Supply Chain Management

In the supermarket, the SKUs were divided into A to K classes in the descending order of the sales value/period
(demand/period times price/unit). Greater attention was paid to the A to D category, each category having 100125
SKUs, which accounted for around 80% of the total sales. A-class SKUs were reviewed on a daily basis while B, C,
and D class SKUs were reviewed twice a week. The remaining SKUs (classified as EK classes) were reviewed
twice a month. Also, the savings benefits to the customers depended upon the class and decreased in the AK order.
Based on the category of the item, maximum batch quantity (MBQ) levels were fixed for each SKU. For example,
MBQ for A category item would be fixed at 3 days of demand while the same for B D categories would be fixed at
6 days of demand and MBQ level for EK categories were fixed at 15 days of demand. As the demand varied across
months, MBQ was usually fixed keeping in mind the peak demand observed during the last three months. Since the
peak demand observed for Maggi masala noodle was 10 units, MBQ for the same was fixed at 30 units. However, it
is possible that few stores in the region which were called hub stores (Indiranagar is a hub store) may have stock
which was higher than the MBQ levels. Subhiksha believed in the philosophy that if there is excess inventory in the
system, it should be kept in the store rather than in the warehouse subject to availability of storage space. So if there
was excess stock, it was kept in the hub store because lead-time of supply from hub store to another store was half a
day compared to two days from the warehouse.

Over a week, every day, a subset of the SKUs was scheduled for a review (for example, on Monday, 100 A and 125
B class SKUs were scheduled for a review) such that the review norms were met for each SKU. Except for Sunday,
this process was carried out on all days in the week. The store staff physically checked and recorded the opening
stocks of the SKUs (scheduled for review) in the morning. The store compiled and sent electronically this
information in the early afternoon to the MIS department located in the area head office. Similarly, all the stores in
Bangalore sent the information electronically to the MIS department. In the afternoon, the MIS department, using a
manual indenting module compared the closing stocks with MBQs to compute the store-wise requirements for each
SKU under review. The review schedule was the same across all the stores. MIS raised indents for each store and
electronically sent them to the Hoskote warehouse in the late evening. Microsoft Excel was used for the
computations. Exhibit 11 shows the opening stocks, receipts, and sales of three SKUs in February 2008 for the
Indiranagar supermarket store. Usually all the required supplies of the store were made from the warehouse but it
was not unusual to carry out inter-store transfer based on demand and inventory situations at relevant stores. On an
average, the store inventory was around six lacs. Inventory levels were very tightly controlled at the store .Unlike
other firms; Subhiksha managed to operate with inventory turns close to about 2025.

On fixing MBQ levels, an employee explained 'sometimes one cannot depend on past data. For example when
sunflower oil prices increased by 40%, one would expect that people would substitute the same with a cooking oil of
lower price range. Such information was used while deciding inventory levels (for example, Gemini Sunflower Oil
in February changed from 150 to 70). Similarly, there were a few items with special schemes. But, one had to be
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Subhiksha Managing Store Operations Page 7 of 22

careful, because too many variables and manual changes could result in loss of control. So, they resisted making too
many changes. Once in a month, they seriously looked at the MBQ levels.

The store worked with static MBQ levels, that is, MBQ does not change within a month. But in the Chennai stores,
Subhiksha was experimenting with dynamic MBQ levels wherein the reviewing forecast was carried for relevant
days in the time horizon and as a result the MBQ level kept changing during the month. For example, in the initial
part of the month, demand was expected to be on the higher side so one had to carry a high inventory; whereas
demand during rest of the month was on the lower side, so one could work with a lower inventory. Dynamic MBQ
levels also captured day of the month, day of the week, and effect of festivals in the forecasting horizon. By
implementing a dynamic MBQ, average inventory in the system was further reduced.

Losses owing to pilferage or breakages known as shrinkage ratio`` in Indian retail was around 1.5 % of the total
sales and eroded the bottom line. Because of the small size of the store, the shopping process could be closely
monitored. Also, while unloading the goods (shipped by the warehouse) from the locked vehicle, the store manager
and an external security person were present. The manager thoroughly checked the quantity shipped with the
dispatch list sent by the warehouse with the security person. The unloaded stock was then kept in the storage area.
Ten percent of the space was allocated for the storage. Also, the store carried out the audit of the store inventory
every month. Training was provided to the staff regarding the handling methods for different kinds of goods.
Shrinkage costs at Subhiksha were 0.25 % of the total sales.

F & V had its own challenges. In the past, it was difficult to ensure that F & V would reach early in the morning.
Later, the delivery schedule was such that they reached the store before 7.30 am. Unlike other products, some of the
F&V SKUs required special handling because of the fragile nature of the products. Further, it was necessary to keep
them shuffling to ensure that the offering looked fresh.

The warehouse delivered the goods to the store twice a day (F & V in morning and supermarket in the afternoon).
The warehouse fulfilled these store demands as described below. The order fulfillment lead time of the warehouse
was two days after receiving the store indents.

The Hoskote Warehouse

Background

The Hoskote warehouse was located close to the Hoskote town which was near Bangalore (25 km). It was connected
to Bangalore via a national highway (Old Madras Road). The warehouse served Bangalore (55 stores) and Mysore
(4 stores). Firms such as Amway and ITC had set up their warehouses in the neighborhood and the warehouse
enjoyed the synergies associated with the 'warehouse atmosphere. For example, obtaining good internet
connectivity at a comparatively lower cost was because of the existing infrastructure.

The total area of the warehouse was 66,000 square feet. The store had the capacity to serve around 80 stores. Around
200 people worked in the warehouse. The warehouse did not have any fancy fittings, flooring, and air-conditioning
unit.

It operated on a lease contract for 15 years (which was renewable) and open 24 hours a day (backend). Average
business volume per year was Rs. 80 crore with Rs. 1-crore investment in the inventory at the warehouse. Total cost
of managing the warehouse was Rs. 2.4 crore/year. Transport costs were significant (Rs. 1 crore/year), while rental
cost was not high (Rs. 25 lacs). Security was managed by an external agency.

The warehouse was divided into different parts according to the storage and operations performed. Each SBU had its
own storage locations. Further there were separate areas for segregation and batch making, private label processing,
and loading and unloading operations. A small section of the warehouse was allocated for the office. Products were
assigned to the bins based on the similarity. For example, the entire 'cleaning-related products were assigned to the
same bin.

Warehouse Operations

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Subhiksha Managing Store Operations Page 8 of 22

Indents raised by the manual indenting module were electronically dispatched to the warehouse in the late evening.
The following day, both the total and store-wise requirements for each SKU (FMCG and grocery products except
rice and wheat) list was given to the segregation and batch-making unit. The required number of units for each SKU
was withdrawn from the FMCG and grocery bins. Remaining units from open boxes were immediately transferred
to the retain bins where the products were more closely watched. Store-wise dispatch list was used for batch making.
The withdrawn units of each SKU were divided into different batch-making groups who allocated and subsequently
put them into the boxes for the respective stores. If a SKU was not available in sufficient quantities, the demand was
met in the order of ABC stores such that each store obtained at least five units. The store classification had been
done based on the sales performance. The boxes were packed and sealed and then shifted to the area allocated for
the corresponding store in its belt. A small sheet which displayed the name of the store was stapled to each box. The
SKUs were ready for dispatch to the store in the late evening and the same were dispatched to the store in the
afternoon of the next day. Loading, unloading, internal product movements, sorting, and batch-making operations
were manual in nature.


Transportation Management

The F & V SKUs were dispatched to the stores in the early morning (6 a.m.). The truck returned to the warehouse at
11 am. About 14 vehicles were used for transport. In the afternoon at 1 pm, the FMCG and grocery boxes waiting in
the belt area were dispatched to the stores. A few additional vehicles were needed for FMCG dispatch.

A typical vehicle served the demand of 34 stores (called as the belt). The belt area layout, loading, and unloading
processes were sequenced to increase speed and reduce interference and hence reduce the damage possibilities. The
first unload, last load rule was followed. Stores were combined into belts so that vehicular transportation was
reduced. The transportation was managed by a third party that could provide additional vehicles at short notice. The
transport agreement consisted of minimum commitment plus additional rupees/km clause. Vehicle shutters were
locked before it left the warehouse and opened when it reached the store unloading area in front of a security person
and ROM. The keys were not with the transport agency.

Grocery Processing

The warehouse purchased some grocery as raw material (for example, rice from the mills) and processed it to
produce private label products. Some private label processes were manual while some operations were done using
machines. For example, a worker filled lentils in a private label bag and then sealed it after weighing it. Raw
materials were checked for quality at the warehouse as per the standards that had been set to measure the quality.
For example, rice cooking time should be 5 minutes on a medium flame. Also, some samples were sent to Chennai
for quality checks. These finished products were kept in private label bins. Bar code technology was not used for
private labels instead the price and the product information was printed on the bag at the warehouse. As grocery
items were procured in bulk, it contributed to some amount of the inventory.

Supply Management

Around 40 suppliers (10 are major) supplied to the warehouse as per the supply norms. For example, Hindustan
Lever Limited supplied every day. Most of the suppliers supplied the products from their depots in Karnataka. As a
result, the warehouse did not incur sales tax. Some suppliers expected a minimum order quantity. Nestle supplied
once in a week (from Chennai depot) to manage the transportation costs. Average supplier lead time varied between
1 and 5 days. Exhibit 12 shows the supermarket supply chain. Similar to store operations, at the warehouse, SKU
reviewed the schedules followed to meet the review norms. Closing stocks at the warehouse were reported and
compared with the MBQ (of the warehouse) to raise the indents from the warehouse for suppliers. Fill rate was a
major problem that affected the warehouse operations. Warehouse manager, Rajendra adds:
Unfortunately, service levels most of FMCG suppliers are in the range of 70% to 85% and we do
not know which items would not be supplied and lack of supply from FMCG players can directly
translate into stock outs in our stores because we work with very lean stores. FMCG players have
started reserving stock for organized retail; still we feel that some of the FMCG players have still
not geared themselves to handle organized retail like us who would like to run a tight ship.

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Subhiksha Managing Store Operations Page 9 of 22

Mobile Retail Logistics Management

The warehouse did not stock mobile products and instead acted as a cross-docking point as shown in Exhibit 13.
Five hubs were set up in Bangalore to store the products and to feed different regions of the city. The hubs raised
indents and the suppliers delivered the products to the warehouse where the receipts were recorded. The products
were segregated as per the hub requirements and immediately delivered to the hubs. Hubs delivered the products to
the stores mainly using motorcycles. Because the hubs were located in the city, the transportation time and cost to
the store was small.

Human Resource Management

The workers were supplied by a contractor based in Delhi who could supply additional workers at a short notice.
There was a lot of uncertainty in the truck arrivals. Most of the workers were not familiar with retail business.
Training was provided to them on a continuous basis to increase their understanding of warehouse processes. Some
important training areas included product handling methods, batch making and segregation process information, and
product quality check methods.

Inventory Management

According to the Subhiksha philosophy, a warehouse should operate as a cross-docking point and should not keep
much inventory. Its warehouse inventory for mobiles and F & V products lines was close to zero. In grocery, as it
bought materials in bulk and also had some processing lead-time, it maintained some amount of inventory. Given
that the service levels offered by FMCG suppliers were not at a desirable level, the warehouse ended up maintaining
some amount of stock for FMCG products. Within FMCG products, it maintained stocks for A to D category of
items. For other categories, it acted as a cross-docking point.

The total inventory in a region (inventories at the stores within a region and the warehouse) was very tightly
controlled. There was a hard limit within which the region was supposed to operate. Category-wise inventory levels
were monitored by RS himself.

Information Technology

The MIS and the warehouses used the existing backend IT system (Microsoft Office). Top management felt that
these tools took a long time for routine operations and manual report generations. Stress levels also increased
considerably. Subhiksha planned to implement the SAP R3 system to manage the backend operations and store
indenting and purchasing operations. The store would continue to use and further develop the existing internally
developed 3V2 software. This software was continuously improved to build customer intelligence. Loyalty cards
were used to understand individual customer shopping behavior and preferences. The backend system would
however be made compatible with the store system. Also, 1 MBPS line would be used to connect both the front and
backend operations.

Future

On his way home, Aravindan was reflecting on the kind of question that RS was likely to raise on Monday:

Competition in the organized retail in Bangalore has been increasing. Reliance,
Birla, and Tata groups are adding stores. As a result, retaining existing
customers will become even more important. In addition, we must increase the
number of footfalls and the average bill size. After all, being discount retailers,
we need to increase the business volume. Are our marketing, category
management, and business planning activities heading in the right direction? It`s
good that our business in Bangalore has been growing. But, are our SCMs really
efficient? Can we further improve them? Are we scheduling and planning our
staff in a right manner?

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2014.

Subhiksha Managing Store Operations Page 10 of 22





APPENDIX
Exhibit 1

Subhiksha Store at Indiranagar, Bangalore


















Supermarket entrance Checkout counters
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2014.

Subhiksha Managing Store Operations Page 11 of 22




Exhibit 2
Location of the Indiranagar Store













100 ft main road, Indiranagar
Food
World
More
Nilgiris
Subhiksha
6
th

1
st

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2014.

Subhiksha Managing Store Operations Page 12 of 22




Exhibit 3
Distribution of the FMCG and Grocery Sales at the Indiranagar Supermarket for a Peak
and a Non-peak Day
One Peak Day (February 3, 2008) One Non-peak Day (February 20, 2008)
Time No of Bills Sales Time No of Bills Sales
910 am 9 1134 910 am 4 95
1011 am 7 3748 1011 am 10 1330
1112 am 17 8415 1112 am 9 965
121 pm 10 1654 121 pm 16 1313
12 pm 9 4270 12 pm 11 791
23 pm 20 2833 23 pm 3 848
34 pm 7 3081 34 pm 3 277
45 pm 16 8350 45 pm 7 426
56 pm 15 7802 56 pm 16 4640
67 pm 28 4430 67 pm 17 2939
78 pm 22 3509 78 pm 19 3827
89 pm 25 11717 89 pm 14 1854
910 pm 9 4631 910 pm 4 917
Total 194 65574 Total 133 20222









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Subhiksha Managing Store Operations Page 13 of 22


Exhibit 4
Distribution of FMCG-grocery and F & V sales in the Indiranagar Supermarket for a
Month (February 2008)
FMCGGrocery Fruits and Vegetables
Day No of Bills Sales Day No of Bills Sales
1 145 32522 1 190 10060
2 180 52249 2 216 11375
3 194 65575 3 230 12625
4 160 52309 4 216 10254
5 159 29411 5 205 9388
6 155 32759 6 217 10650
7 163 36688 7 199 10242
8 155 29410 8 186 9438
9 164 37328 9 235 13968
10 153 33245 10 198 11764
11 119 16741 11 177 8511
12 88 17444 12 178 8134
13 136 21811 13 216 9050
14 134 25030 14 190 7793
15 137 25242 15 206 10434
16 181 38133 16 246 14203
17 123 22161 17 205 11917
18 115 24042 18 206 9744
19 128 32296 19 207 9834
20 133 20222 20 215 9458
21 142 25725 21 208 8513
22 152 23549 22 197 7271
23 187 40498 23 228 12758
24 153 30112 24 203 11933
25 151 26598 25 217 9665
26 119 28615 26 129 7105
27 119 23340 27 177 6741
28 152 28073 28 178 7746
29 149 29553 29 182 7315

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Exhibit 5

Supermarket and Fruits and Vegetables Area





Exhibit 6

Price Comparison Display (on a shelf and on a SKU)

























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Exhibit 7
Indiranagar Store Subhiksha Bill


SUBHIKSHA TRADING SERVICES LTD.,
#259, 6
TH
CROSS, 1
ST
STAGE, INDIRANAGAR

TIN:29030386569 DL NO. KA/BNG.20/21/877


-------------------------------CASH BILL-----------------------------
Bill No. : INV\16345\till
Date : 13/04/2008 12:22
User ID :BM
-------------------------------------------------------------------------------
KA 100021506
-------------------------------------------------------------------------------
S No Pro. Name MRP Rate Qty Amt Del
-------------------------------------------------------------------------------
1 TOOR DAL REGULAR 60.00 45.45 1 45.45
1KG
2 MOONG WHOLE 16.00 10.45 1 10.45
200 GM
3 RAJMA WHITE 500 GM 34.00 28.45 1 28.45
4 SUBHIKSHA WHOLE 140.00 102.00 1 102.00
WHEAT ATTA 5 KG
5 SURF EXCEL 80.00 74.00 1 74.00
MATIC
6 COLGATE TOTAL 59.00 57.65 1 57.65
500 GM
7 RED LABEL TEA 108 102 1 102.00
8 SPRITE 600 ML 20.00 18.50 1 18.50
9 VIM BAR 17.00 15.60 1 15.60
10 BRITANNIA 12.00 10.00 1 10.00
ORANGE CREAM 100 GM
------------------Items 10------------------------Tot. Qty 15.00
Total: 464.10
Serv. Chg: .00
Round Off: .00
Net Amt: 464.10
---------------------------------------------------------------------------
Indian Rupees Four Hundred Sixty Four and Ten Paisa
Only
---------------------------------------------------------------------------
Today`s savings Ior you 81.90
---------------------------------------------------------------------------
ALL CREDIT/DEBIT CARDS ACCEPTED
FOR FREE HOME DELIVERY CALL:
INCLUSIVE OF ALL TAXES: THANK YOU VISIT
AGAIN


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Exhibit 8
Price Comparison Chart for Select FMCG and Grocery Products in Indiranagar Stores
(April 13, 2008)
Item Subhiksha More Nilgiris Kirana
Sprite 600 ml 18.5 20.00 * 20.00
Vim Bar 15.6 17.00 17.00 17.00
Red Label Tea 500 gm 102 111 * 111
Colgate Total Toothpaste
150 gm
57.65 59.00 59.00 59.00
Surf Excelmatic 500
gm
74 80.00 80.00 80.00
Britannia Orange Cream
100 gm
10.00 12.00 12.00 12.00
Rajma 500 gm 28.45 (SP) 33.00(MP) 25.00(NP) 26.00
Toor dal 1kg 45.45(SP) 51.00(MP) 55.50(NP) 50.00
Whole Wheat Atta 5 kg 102 (SP) 115(MP) 98 (NP) 140(AA)
Moong 200 gm 10.45(SP) 14.00(MP) 8.50(NP) 11.00

SP Subhiksha Private Label, MP More Private Label, NP Nilgiris Private Label, AA Ashirwad Whole Wheat
Atta 5 kg * either not stocked or out of stock.
















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Subhiksha Managing Store Operations Page 17 of 22




Exhibit 9
Organization Structure for the Karnataka Region Supermarket Operations















President, Karnataka Region, Aravindan
Business Development
Manager-Supermarket (78
Stores)
Retail Outlet Manager Mr.
Santosh
Assistant Retail
Outlet Manager
Cashier (4) CSR (4) Sales Assistant (4)
VP-Operations Telecom-Head Pharmacy-Head
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Exhibit 10
Subhiksha Promise


Lowest Prices & Great Savings Everyday!
Subhiksha offers all goods at sharply discounted prices so that consumers can genuinely save in every transaction.
Unlike other stores, the low prices at Subhiksha are not limited to a few goods or to a few specific days. Customers
can get the same discounted prices on all items, on all days and irrespective of whether they make a small or a big
purchase. In fact, the discounts and customer savings at Subhiksha are 45 times that offered by other small and big
retailers.
Wide Selection of Goods

Subhiksha offers consumers a wide selection to choose from:

Supermarket
Quality groceries, packaged foods, cosmetics and toiletries, household provisions etc., sourced from the best
brands in India all available at the lowest prices.
Fruits and vegetables
A large range of fresh fruits and vegetables is sourced directly from farms on city outskirts and made
available to consumers at very reasonable prices. Consumers get the freshest produce at the best prices.
Pharmacy
All medicines are made available to consumers at a flat 10% discount. This is especially helpful for elderly
consumers and those who are on continuous medication.
Telecom
Subhiksha is now India's largest mobile retailer and offers handsets, accessories and charge cards from all
leading brands including Nokia, Motorola, Sony Ericsson, LG, Samsung, etc., at the lowest prices. You do not
just get genuine company warranty but also amazing exchange offers on old phones, spot finance offers and
much more.
Guaranteed Delivery
Subhiksha guarantees to deliver the exact product you have selected. In case you have received a different
product, or if the product was damaged in transit, please contact us within the stipulated time period and we
will ensure that we replace it or refund you for it. Please note, we will deliver goods within the committed
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2014.

Subhiksha Managing Store Operations Page 19 of 22

time period, but there could be occasional delays. We will contact you, in case deliveries are expected to get
delayed.


Our Simple Return Policy
If you have purchased something at Subhiksha and are not satisfied with its quality, then you can return the
same to us; no questions asked, as long as it is in its original packaging and accompanied by its invoice. We
will even make the return process simple for you just contact our call center number or nearest Subhiksha
outlet from where the stock was delivered to you and we'll arrange to pick up the product from your home.
Alternately, you could drop it off at the nearest Subhiksha store.
Real Customer Support
For any information that you require you could contact our call center at 60607777. Be assured that when you
call us, you can talk to someone who will be able to help resolve your problems.

















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2014.

Subhiksha Managing Store Operations Page 20 of 22

Exhibit 11

Opening Stocks, Receipts and Sales of Three SKUs (February 2008)

Maggi Noodle Masala
400 gram MBQ-30
Pepsodent 2in-1
MBQ-15
Gemini Sunflower oil
1 Litre MBQ-70
Date Sales OS Sales OS Sales OS
1 9 19 1 21 10 19
2 10 10 2 15 17 410
3 5 0 3 13 14 393
4 9 2 1 10 21 86
5 5 5 1 9 14 65
6 0 0 0 8 15 51
7 0 0 1 7

18 207
8 0 5 1 7 10 188
9 3 5 0 6 18 178
10 4 2 1 6 10 160
11 0 0 1 5 12 150
12 0 0 2 4 14 138
13 0 0 1 2 7 124
14 10 15 0 1 13 117
15 5 5 2 6 11 104
16 0 0 2 4 14 93
17 0 0 2 2 14 79
18 0 0 2 0 15 65
19 0 0 0 11 26 50
20 9 9 0 11 1 1
21 9 12 0 11 4 12
22 5 10 0 17 1 140
23 8 0 4 17 11 72
24 9 21 0 13 13 61
25 5 12 2 13 2 48
26 5 32 0 11 10 41
27 7 22 2 21 8 39
28 1 19 0 19 7 31
29 0 27 0 19 5 24

OS Opening Stock (physically checked)
Opening Stock = Opening Stock (yesterday) + receipts (yesterday) sales (yesterday)
Negative receipt means transfer of Indiranagar store stock to other stores
* counting error (opening stock should have been 8)

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Exhibit 12
Subhiksha Supermarket Supply Chain



























FMCG
manufacturers
Finished
grocery
producers
Raw grocery
suppliers
Warehouse
(Hoskote)
(Hub) Store,
Indiranagar
Other Bangalore
stores
Lead time = 3 days
Lead time =15 days
Other Bangalore stores

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2014.

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Exhibit 13

Subhiksha Mobile Retail Supply Chain










Mobile supplier
1
Mobile
supplier 2
Mobile
supplier N
Cross-docking (Hoskote
warehouse)
Hub 2 Hub 1

Hub 5

Stores Stores Stores
This document is authorized for use only in LSCM by Prof. Arun Natarajan at GLIM from November 2013 to May
2014.

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