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This is a guest article contributed by ABBS, Acharya’s Bangalore Business School. Feel free to share and discuss your opinions about it.

The retail industry is confronted with unprecedented change.  Economic turmoil and technological advances are combining to reshape the retail landscape faster than some retailers are able to react. Today’s customers have vastly different and sophisticated expectations of product, service, value and environment than few years ago.

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An organization needs an end-to-end view of the entire supply chain to improve processes and control inventory. Only if the retailer knows its supply chain at the root level, can it reduce inventory costs while maintaining/improving its service level. Hence, it is imperative to ensure that any attempt to reduce inventory is in harmony with the organization’s vision and strategy. The investment in the retail business has been a challenge in itself.

The key Investment areas for retail business are:

  1. Space /Infrastructure.

 Large format of the retail business requires huge infrastructure to accommodate the operation. It certainly requires an efficient space audit on the periodic basis to ensure optimum space management for ensuring better ROI for the stake holders.

  1. Inventory.

This is probably one of the most crucial attention points for the business as a whole since the optimum and efficient utilization of the entire value chain of the inventory management will ultimately will ensure the profitability /loss of the organization.

Large format of the retail business has been evolving since quite some time and certainly there has been a constant effort to minimize investment especially in Inventory and maximizing the ROI for the various stake holders in the business.

One of the most innovative way to minimize the Inventory investment is not going through the route of direct purchase and own the product but on the contrary to have them get displayed on the retail outlet shelf and once the product gets  sold get a certain percentage of profit is being shared with the supplier as per their agreement. E.g. Hindustan lever supplies soap to Big bazaar and the same gets displayed in Big Bazaar various outlets. Big bazaar does not purchase this from HLL, however once the soap gets sold then a percentage of profit comes to big bazaar and the balance of the sale price is due to HLL. This way the working capital requirement of the retailer becomes minimal and reduces the operating cost drastically.

In way, the whole way of doing retails business has to change. Is there another way to reduce operational cost? What’s your say...?





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