Redington- A study on SCM solutions

Nature of Supply Chain- Margins

Redingtons Profile
Amongst the largest supply chain service providers. Large distribution network of more than 24,200 channel partners, 7200 SKUs. Market penetration of more than 16 countries. Tie-ups with 100 leading manufacturers across IT, Telecom, Lifestyle and consumer electronics products. Highly integrated automated distribution centres. Provides 3rd party logistics services.

Redingtons Value Chain

Procurement & Warehousing

Warehousing, logistics & Distribution

Credit to Sellers

After Sales Service

Logistics Company

NBFC

Services Company

Primary Activities
Physical Management- Distributors of reputed IT and non-IT products. Financial flows Management- Working capital management, investments on assets. Information Management- Using ERP/Automated distribution centres.

Challenges
Statutory norms for movement of goods between states and union territories. Higher warehousing and transportation costs. High manpower costs. Absence of trained manpower. Insistence on efficient supply chain management by manufacturers to reduce costs.

Key Success Factors:

Risk Management Capability Supply Chain infrastructure management Management information systems
Ability to cope with contingencies eg. Insurance cover. Ability to build trustworthy channel partners.

Maintenance and setting up of warehouses, SKUs. Ability to build and maintain distribution network through intermediaries. Large distribution network.

Ability to share valuable information that includes forecasts, inventory, transportation, potential collaboration. Ability to closely monitor the distribution of goods through the channel partners.

Internal Appraisal
Reputed IT and Non-IT vendors Reliable channel partners IT integration

Efficient Warehouse management

Efficient Supply Chain

Efficient Risk management Strategy

Forward and reverse logistics capabilities

Decentralised operation

External Appraisal
Opportunity Threat
Risk of economic slowdown.

Emerging Indian economy to drive the demand of consumer products.

IT hardware industry to grow at CAGR of 20.3% Increase of MNCs in India, Opportunities in overseas market. Opportunities in overseas market

Forex Risk

Geo-Political Risk

Large number of unorganized players

Financial Ratios
Ratios Return on Assets Return on Equity Total Asset Turnover Ratio Fixed Asset Turnover Net working capital Turnover FY09 8.92% 1.04 6.70 FY08 8.17% 0.86 7.02 FY07 4.98% 0.54 5.53 FY06 5.14% 0.46 6.51 FY05 4.03% 0.285 5.84

109.89 11.71

115.72 12.88

158.62 8.08

178.90 10.02

167.74 9.82

Gross profit Margin

Net profit Margin Overheadcost ratio

2.04%
1.33% 2.9%

1.8%
1.16% 2.48%

1.4%
0.9% 2.12%

1.21%
0.8% 1.83%

1.08%
0.7% 1.68%

Analysis on performance
There is an efficient utilisation of assets.
Increase in performance owing to automated distribution centres, efficient warehouse management. The ability to turnover the working capital in the system has been fairly good over the years. However during the FY09, it has shown a decrease from that of FY08. Also, the companys overhead expenses as a fraction of sales are on rise over the years.

The companys net profit margin and return on capital employed are fairly good. However, the ROCE has a decline from the FY08s. Reduction in overhead cost is critical to this business as the margins are very low. Redington should concentrate on reducing its overhead cost.

Important Parameters
Strength Assets * Weakness Comment Optimum performance of assets. * * Need to decrease the overhead cost Should maintain the working capital in the system. Shows that there is a right balance in average collection and payment period.

Overhead cost Working capital

Assets and Working capital needs

The investments on assets has been increasing year after year. Also, the working capital in the system has been on the rise. The ability to turnover the increasing working capital has been fairly good. The company has a bad debt of only 0.11%. This shows that it has effective working capital management.

Critical Success Factors in 3PL industry

Relationships

Industry Specific Valueadded services

Ownership/ Control over assets

Challenges

Manpower

Systems and Processes

Efficient Operations

Redingtons Sophistication for 3PL

Relationships
Has long-term relationships with IT/Non IT vendors Cross referrals are possible.

Ownership over assets

Efficient warehouse management. Strong relationship with value chain partners. Important to combat cost challenges on manpower and transportation. Needs improvement.

Manpower
Huge investment in operations including manpower. Needs improvement to emerge as a strong supply chain player globally.

Industry specific value-added services

Redington already provides after-sales service. Remote infrastructure management services for its corporate customers. However it has to venture in to other markets as well and develop specificcompetencies for those markets.

Efficient Operations
Decentralised operations at distribution centres to have minimum delay. Automated distribution centres.

Systems and processes

Efficient warehouse management ERP integration.

References
www.nseindia.com/content/corporate/eq_RE DINGTON_base.pdf. http://www.valuenotes.com/uploads/article_ pdf/A957651301817716.pdf www.kpmg.com/IN/en/IssuesAndInsights/.../F inal_with_CII.pdf Redington(India) Limited- Case Study.

Thank You
- Aravind K K