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Product Recalls (or the lack of it! ) in India November 29, 2007

Posted by Ramnath Rangaswamy in Business, Emerging Markets, India, Logistics, Supply Chain.

untitled3.jpgI just read that Ranbaxy had recalled 7 million tablets of gabapentin because of higher levels of impurities. That set me thinking ……

India will not witness product recalls. Not because the products in India are of high quality. But because of many other reasons- poor law enforcement, weak consumer groups, callous companies and the typical ‘chalta hai’ attitude of Indians. From a supply chain standpoint, most Indian companies do not have the information systems and supply chain processes to carry out a product recall.

I have had a few experiences with recalls- good and bad. The pleasant example first.
My father owns a Santro and I took it for servicing. During the servicing the technician told me that he had to replace a part because the Santro was of a batch which required replacement of a part [ I forget whether the part was of the electrical system or cooling system]. Once the part was replaced, he filled a form noting the engine# and chasis # of the car. I was impressed.
A not so positive experience was with a food company which had no process to trace and track products once they left the plant. The company had implemented a costly ERP system!

Batch# information
To do a recall the information from raw materials to retail shelf has to be maintained and should be easily retrievable.

The batch# of every raw material that goes into a product must be maintained. In an ERP system, this means that batch# must be one of the fields when the matreials, as per the BOM [ Bill of Mateials], is released for production.

Once the product is produced the batch# should have details which help in retrieving the product and helping in isolating the root cause of the defect. A batch# consisting of (i) name of factory/plant where product is produced, (ii) shift, (iii) line# / cell# and (iv) date of production would be sufficient to recall the product and help isolate the cause and origin of the issue.

The batch# that is allocated at the Plant should be used right upto the retail shelf. The batch# should be recorded when the product is transfered from the Plant/ Factory to the DC/ Mother Warehouse/ Mother Depot and recorded when the stock is transferred to the depots and then again recorded when the stock is invoiced to stockists/customers. This way an audit trail is maintained.

Warehouse Processes
At the warehouse the stocks should be physically checked for batch#s against the documents and information in the system.

The stocks should be stored as per batch#s to facilitate (i) FIFO and (ii) despatch by batch#s.To facilitate this batch# must be written on the outer cartons/cases. An inkjet printer or rubber stamp at the plant/ factory can do this.

The Plant/ Factory, DC/ Mother Warehouse/ Mother Depot and the depots should do monthly mock recall exercises. This ensures that the supply chain has the capability to recall products, in the unfortunate situation of having to do a recall.

A mock recall involves choosing a batch# of any 1 or 2 products and doing the audit trail. In a mock recall the quantity produced at the Plant, the quantity received at the DC/ Mother Warehouse/ Mother Depot, the quantity despached to the Depots and then the quantity despatched to the stockists/customers should be noted and verified. Doing this exercise every month ensures that the people have the skill and knowledge to do a recall are kept on their toes.

Pictorially, the Mock Recall process is as ffs;

Factory/ Plant records despatch quantity by despatch point –> DCs/ Mother Warehouses/ Mother Depots record quantity received–> DCs/ Mother Warehouses/ Mother Depots record quantity despatched by depots–> Depots record quantity received–> Depots record quantity despatched to stockists/ customers
If possible cycle counts/ IRA [Inventory Record Accuracy] should be done at a batch# level.

It would be good to see companies have a robust process for tracking and tracing products from the raw material vendor to the customers so that if and when, god forbid, a recall becomes a necessity, the supply chain does not become a reason for not being able to execute the recall.

“The more you sweat in peace, the less you bleed in war”
Asian proverb

Small Retailers take on Modern Retail Chains November 26, 2007

Posted by Ramnath Rangaswamy in Business, Emerging Markets, India, Indian Economy, Logistics, Retailing, Supply Chain.
1 comment so far

untitled2.jpg I read this article in a business newspaper about retailers in Kochi joining together to take on the modern retail chains. This is a great move and I appreciate their positive attitude.

Some pointers on what these retailers should do, as they wage their battle.

Optimize inventory levels to free up working capital:
Analyze the sales data and decide on the inventory levels for each sku.

The inventory level for a sku depends on;

  • frequency of visit of the salesperson
  • reliability of the salesperson [how reliable is th salesman’s coverage, does he sometime skip a visit]
  • number of pieces sold between visits of the salesperson
  • is there a difference in sales between weeks of the month and during festive seasons

The inventory levels should be such that the sku should not be out-of-stock

Buying when there are discounts or ‘schemes’
When buying on schemes ensure that the financials are favourable.

What this means is that the quantity of stocks you buy depends

  • the discount given
  • cost of the working capital
  • opportunity cost
  • probability of expiry, damage or obsolescence

Assuming a cost of capital of ~ 3%-4% per month for every 4% discount the retailer could buy 1 month extra inventory.

Review the assortment and get rid of the ‘dog’ skus
Review the sku assortment regularly.

Analyze what skus has not sold or moved for the last 3 months. Stop buying those skus. Return the unsold skus to the salesperson.

This releases working capital to invest on fast moving skus.

For these analysis to happen the shop should have a PC and billing done on it. Else, it is difficult to even gather the data, let alone analyze the data.

FIFO to give customers fresh products
Follow FIFO [ First-in,First out]. This reduces the probability of damages and obsolescence.

Organize the backroom
Stocks should be kept where they can be reached easily if a customer asks for it. At he same time it should be arranged so that stocks do not get damaged and remain hidden till they become obsolete.

Stock counts to reduce shrinkage
The store should take steps to reduce shrinkage. Typically shrinkage losses are ~1% of COGS. This can be done by doing daily stocks counts of 20-30 high value or A skus, chosen at random.

Home delivery
This is a big advantage for small retailers since the modern retail chains cannot provide this service.

For families with both husband and wife working and the pressure on time, home delivery is a valuable service that small retailers can provide.To ensure that they capture this advantage they should have a strong and reliable process to deliver timely and accurately . At the time of taking the order, they should be able to share details like MRP and whether the sku is available or not.

Quick and Efficient Billing
The store should provide a decent customer experience. Billing should be quick and efficient. The stores should accept credit cards and coupons.

Phone Orders

Phone calls should be answered within 3 rings.

Store Ambience
The store should be clean, stocks neatly arranged, dusted and brightly lit. Soft music would be a big plus!

To summarize, the retailers should follow some of the good and efficient practices [ optimal levels of inventory, efficient assortment, pleasant ambience] that modern retail chains follow and at the same time leverage their unique strengths[ like home delivery and knowing their customers very well].

In all fighting,
the direct method may be used for joining battle,
but indirect methods will be needed in order to secure victory.

Sun Tzu “Art of War”

Warehouse Fire Safety November 20, 2007

Posted by Ramnath Rangaswamy in India, Indian Economy, Logistics, Supply Chain.

untitled1.jpg Warehouse Safety!

In the newspaper 2 days back there was a news item about a fire in a warehouse. Hence, I decided to write about safety in warehouse operations.

Unlike developed markets, there are no statutory warehouse safety standards in India. In developed markets, sprinklers and quick closing firewalls are mandatory in warehouses.

In India, most warehouses are 4 walls and a floor!. [ that is slowly changing but the majority of warehouses are godowns/ storerooms ] Warehouses in India are nothing more than godowns or store rooms. They are not accorded any importance and seen as a ‘necessary evil’ to do business. Hence no planning goes into the layout design, material flow, calculation of number of loading docks required, space required for picking and staging and parking area for trucks. It is no surprise that safety is not given any thought.

Fire-extinguishers are a must. The thumb-rule is one fire-extinguisher for every 3000 square feet of storage space. These fire-extinguishers should be of Type A. The fire-extinguisher should be placed on the wall and spread throughout the warehouse. The fire-extinguisher location should be marked on the wall at eye-level.

There should also be a Type C Fire-extinguisher for electrical fires. This should be kept close to he switchboard.

If the warehouse has a generator then there should be Type B fire-extinguisher close to the generator room

The fire-extinguishers should be checked and refilled every year. During the checking and refilling, the opportunity should be taken to give hands on training to all the warehouse employees. The gas/ liquid is changed. Rather than pouring it out, better to use it to give some practice to the people who will use the fire-extinguishers in case of a fire.

Have first-aid box in the warehouse. In the first-aid box, we had specified that anti-dotes for the pest-control chemicals should be kept.

In warehouses where forlifters and high-reach trucks are used, the operators had to undergo a safety lesson every year. I remember we used to show a forklift safety video with some ‘hardhitting scenes’. That video was extremely effective and did the job of putting some safety sense into the operators!

As part of our consulting work, we visit warehouses. Most of them do not have any fire extinguishers. The warehouses store material worth Crores [ 1 Crore = 10million] but do not have a single fire extinguisher.

As quality of warehouses in India improves, hope warehouse safety improves!

Outstanding service concept and service delivery by Ginger Hotels! November 13, 2007

Posted by Ramnath Rangaswamy in Business, Emerging Markets, India, Supply Chain.
1 comment so far

untitled.jpg Ginger Hotels is an example of an outstanding supply chain in the service sector.

Ginger Hotels is a new concept in India. It is a budget hotel with a help-yourself concept.
Ginger Hotels is a subsidiary of Indian Hotels , which runs the Taj group of hotels. The service concept has been designed in association with the legendary Prof CK Prahalad.

Target Costing
It is clear that the Ginger Hotel concept would have been designed using the ‘target cost’ concept.
As with all target costing exercises- be it the Rs 100000 car, trucks, houses, shampoo in sachets- the consumer’s requirement and needs would have been determined first.
Then the target cost for each of the services- room capital cost, room maintenance cost, hotel’s common area capital cost, hotel’s common area maintenance costs, security, kitchen, housekeeping front office- would have been allocated This is an iterative process requiring a multi-functional team. It requires a very strong finance support – data, analysis, ABC [ Activity Based Costing].
Once the cost for each service [ or you could call it cost element or cost head] is allocated different teams would have worked to develop a service/ product at the target cost.

Self Service Concept right from the entrance
Right from the time you enter the gate of the Ginger hotel, you cannot help notice the self-service and budget concept.
There are no valets to park your car. Only parking lots marked, where you go and park your car.
There is no porter to lug your luggage to the room. There are airport style trolleys to help you transport your luggage to your room.
There are no durwans to open the door; only an automatic sliding glass door.
The lobby is functional with attractive marbonite tiles. No grand high ceilings with chandeliers. The staff is dressed in black jeans and T-shirt; very different from the formal coat and tie that front office team wears at a star hotel.

Rooms and room service
There is no room service!
There are coffee and tea making kits with a electric kettle in the room. There is a vending machine in the lobby which dispenses snacks, drinks, soap, toothpaste. For water, there is an Aquaguard in the restaurant where you can fill your water bottle, yourself.

There is no iron in the room. There is a common iron on each floor for those who want to press their clothes.

The room size is just about right. The lights and fans are functional and part of the building. There are no brass and fancy table lamps and lights.No brass and fancy lights means no polishing the brass, cleaning and dusting them The intent is to keep maintenance costs low and save on manpower costs.

Similarly, the bathroom is functional. It has a bathing area with a shower curtain. It has liquid soap dispensers. The intent is to save on cost of soaps which never get utilized fully and consequently get wasted. The bathroom does not have all the paraphernalia- moisturizer, shaving kit, toothpaste, comb- one expects of a full service hotel.

Restaurant and food
The restaurant serves only buffets. They serve a buffet breakfast, lunch and dinner.
The food is simple, tasty and affordable. The coffee and tea at breakfast are served from a vending machine and the ice cream is branded [ in the hotel I stayed in, it was Joy Ice Cream].
If you do not want to eat from the buffet, they have the menu from the take-away restaurants nearby.

Impeccable 5 star quality hotel staff
One thing which was 5 star quality was the service. Impeccable, Taj standard service. The staff was courteous, helpful, cheerful, efficient and prompt. We wanted directions to a bookshop and a few places to visit and the staff was very helpful.

Supply Chain and Ginger
Supply chain concepts applied successfully in Ginger are;

  • Target costing: Understanding the need of the target consumer and giving the right service at the right price.
  • Service delivery process: The processes were very detailed and thorough. For example, there were road signs with directions to the hotel. The TV volume was just right and all the small details which differentiate between good and great service delivery.
  • Training: The staff at the hotel was trained very well. A self-service hotel is a new concept in India. Training the team to acheive the fine balance between enforcing the self-service concept and being helpful is a difficult task. Ginger seems to done that very well.

Who says there is no money at the bottom of the pyramid??!!!!