Supply Chain - Reliance Fresh

Executive Summary
The grocery industry is an ideal example for examining extended supply chains that is at
once universal—we all shop and eat—and also the most challenging supply chain environment.
The industry has unique characteristics like hyper completion with avg. profit margins of 1-2%
of sales, fragile products, highly perishable and customers are choosy on tastes and have a high
demand for low price. For all these reasons, extending the supply chain for groceries (so that
consumers have an experience that is more service-oriented) provides a unique opportunity for
companies to differentiate themselves. For example, customers can place orders online from the
comfort of their homes, and have their orders filled and delivered to their doorstep. There are
substantial costs involved in extending the supply chain into consumer homes, which does not
seem to fit with an extremely price-sensitive industry. And yet, it is precisely by turning this
reasoning on its head that there is a quiet insurrection occurring. Extending the supply chain for
groceries works, despite its challenges. It provides a means of enhancing the customer's
experiences and breaking away from the crushing "price, price, price" strategy exploited by
leading retailers, such as Wal-Mart. It creates the type of customer experience that leads to
greatly increased customer loyalty. The idea is to re-forge links with customers that have been
severed by decades of price promotions that have eroded customer loyalty to specific brands and
to individual stores. If extending the supply chain can be used to create a loyalty effect in the
ultra challenging world of retail grocers, there are important lessons for a broader range of
retailers and manufacturers.

Reliance Fresh
Reliance Fresh is the convenience store format which forms part of the retail business of
Reliance Industries of India which is headed by Mukesh Ambani. Reliance plans to invest in
excess of Rs 25000 crores in the next 4 years in their retail division. The company already has in
excess of 560 reliance fresh outlets across the country. These stores sell fresh fruits and
vegetables, staples, groceries, fresh juice, bars and dairy products. A typical Reliance Fresh store
is approximately 3000-4000 square feet and caters to a catchment area of 2–3 km.
Chain Management is a comprehensive approach to manage Reliance interactions with the
organizations that supply goods and services.
 The goal of Supply Chain Management (SCM) is to streamline and make more effective
TRANSPARENT processes between RIL and its suppliers.
 SCM practices create a common frame of reference to enable EFFECTIVE COMMUNICATION
between RIL and suppliers by encouraging online activities.
 SCM increases the EFFICIENCY of processes associated with acquiring goods and services,
managing inventory and processing materials.
 SCM ensures BETTER QUALITY BUT LOWER PRICED end product.

Merchandise details
 Product width: Fruits, Vegetables, Juices and other FMCG Products
 Product length: Fruits and vegetables both Indian and imported are available
 FMCG Product length includes detergents, hair products, perfumes, cosmetics, household
products etc

Daily Operations of the Store

 Store opens by 5:30 AM with the help of an armed guard and the supervisor
 Daily indent of fruits, vegetables and milk products reach by 5:30 AM
 Merchandise are received by the customer associates and the store is made ready for customers by
6:30am
 Store manager updates the opening stock
 He Revises the rate list sent by the head office
 He updates the discounts and the promotions on various product categories
 Perishable merchandise are put on discount of 20% after 4 pm
 The merchandise is checked properly from time to time by the supervisor
 The house keeping people clean the outlet at least 7 times a day’s span
 Refrigeration and temperature are checked regularly by the store manager
 In the latter half of the day, indent of the next day merchandise is prepared by the store manager
with the help of the supervisor
 At the end of the day the closing stock is checked and further details of replenishment are
forwarded to the head office by the supervisor
 The cash manager checks the balance and compares it with the sale
 The store winds up for customers around 10 pm
 The accounting procedures are completed and the operators shut down the outlet at 11 pm

Store Operators and their responsibilities

 STORE MANAGER – Responsible for day-to-day operations of a particular outlet
 VISIUAL MERCHANDISER – Setup merchandise so as to maximize sales
 CATEGORY HEADS – Responsible for promotion schemes, Discount rates, Gather information
related to performance of various products
 SUPERVISIOR – Co-ordinates Cash Manager, Customer Associates, Guards, and House Keepers
 CASH MANAGER – Works at Point-Of-Sale (POS) by receiving payments and issuing receipts
 CUSTOMER ASSOCIATES – Arrange merchandise, Set price tags, Help customers, Inform
customers about discounts and promotions, and Check temperature, etc.
 HOUSE KEEPER – Ensure Cleanliness and Hygiene at all times in the outlet by cleaning
frequently
 GAURDS – Work in 2 shifts by aiding locking, unlocking the outlet and also checking the bills
when customers exit the outlet

Supply Chain Strategies at Reliance Fresh

Procurement
Grocery industry is unique in terms of suppliers, in this industry suppliers are fragmented and
produce usually in smaller quantities.
Reliance Fresh makes most of its procurement for vegetables, fruits, dairy products, bakery items
directly from the suppliers based on the pre-negotiated contracts. By procuring directly they
weed out the middleman commissions, costs of loading and unloading, transportation costs and
wastage due to exchange of hands. They provide the farmers with high quality seeds and
technical knowhow and later buy their produce and prices higher than the wholesale market
prices. They make the farmers aware of the market prices of different crops to enable them to
choose the crops that provide them best yield on their investment and hard work. The prices for
the produce are determined based on the quality of the produce and the prevailing wholesale
market prices.
They source the perishable produce from the areas which are near to their distribution centers
which enables them to maintain lower price and maintain short cycle times. Non-perishable
produce as FMCG products which have longer shelf life are procured centrally by their
merchandising department. This allows them to procure in bulk and bargain a better price from
the supplier.
In certain areas where demand exceeds supply, their model includes the following
 Procure the produce from the suppliers by grading their produce and offering them a better than
market price

 Procure good quality produce directly from the wholesale market in bulk
Their distribution centers not only provides to their retail stores but also to other business
concerns. This ensures whatever has been bought from the supplier is sold ensuring the assured
demand to the supplier and reliance fresh has the benefit of locked in suppliers.
The perishable produce like fruits and vegetables is not kept for more than 2 days, whatever is
left over is sold back in the wholesale market and prices lower than the market price. This
strategy allows them to consistently maintain quality of produce in their stores and also get rid of
the unsold produce before it becomes waste. The non-perishable products like FMCG goods are
kept till their expiry and after that usually returned to producers.
The farmers are made payment on the spot when their produce is bought at their farms. The
perishable goods like fruits and vegetables once bought are moved through sophisticated cold
chain of cold storages and special trucks.
Large distribution centers are established to economize on the cold storage infrastructure costs
and minimize inventory levels.

Supplier Contracts
Reliance fresh procures most of its perishable produce through contract farming with farmers
from nearby areas of their collection/distribution centers. The contracts involve a pre-agreed
price, payment term, measures of quality, quantity and duration of the contract
Dairy products are procured from the dairy cooperatives or locally operating vendors such as
Amul in Gujarat, Nandini and Heritage in Karnataka etc. The cooperatives act as partners and are
provided with the daily demand forecasts to supply directly to their distribution centers. Bakery
items are sourced from multiple suppliers located in the vicinity of the collection or distribution
centers. These products are usually contracted such that they are returned to suppliers after the
products expiry date.
The merchandising department procures the non-perishable goods from the suppliers using
variety of contracts. This includes the contracts to return goods at lower price on expiry, bulk
purchase at lesser prices, minimum purchase contracts etc.

Logistics – Perishable
The produce from the farmers is collected at the collection centers. Which are smaller and do not
have cold storage facilities. A preliminary quality check is done here.
Then the produce is moved to the distribution centers where they are sorted, graded and
packaged. Here, the data (product type, quantity, grade, cost price etc.) is entered into the SAP
system for easier tracking of the inventory.
Every day the retail store manager raises a purchase order for the next day based on the
estimated demand, which is received by the cluster manager at the distribution center. Based on
the availability of the products the ordered items are delivered to the area manager daily in full or
proportionately when overall demand exceeds availability.

Logistics – Non-Perishable
Items are collected from the manufacturer or national level distributor and delivered directly to
the various distribution centers. Each store has the minimum order quantity level for each type of
product which is tracked by SAP system. Based on the sales data, as soon as the product level
goes below its minimum order quantity the SAP system automatically places the order.

Inventory
Most of the inventory is kept at the distribution center level to minimize the overall inventory
across the supply chain. Perishable items are stored usually in cold storage, and are supplied
based on first in first out basis. Non-perishable items are stocked and reordered based on the
minimum order quantity levels.
However, retail stores are usually provided with small storage facility based on the forecasted
demand at that store. Store inventory is usually to store the nonperishable items. Perishable are
usually kept for more than 2 days, and after that period they are thrown provided they perish.

Distribution Center
Reliance Fresh has strategically placed their distribution centers taking in to account both
collection centers and retail stores. Replenishment of the stock to the stores has a lead time of 2
days, that means each store has to provide a forecast 2 days in advance.
Perishable goods, once arrived at distribution center, are graded into different lots based on the
quality of the produce and then data is entered into SAP system. Based on the demand they are
shipped to reliance retail stores and other party stores. Left over is moved to cold storage or sold
back in the wholesale market.
Certain produce like pulses, porridge, rice, sugar are procured in bulk, graded and packaged and
then sold as private labels under the name “Reliance Select”. The powerful brand of Reliance
provides them good margins on their private labels than other brands.

Retailers
A typical reliance store is ranges from 2000 to 4000 sq.ft. And layout is done to maximize shelf
space taking into account the ease of movement within the store. Product arrangement is done in
a way that similar items are stocked together on the shelves. Due to better margins stores provide
better and larger shelf space to private labels and restocking is done based on the forecasted
demand.
They provide customers with a variety of fresh fruits, vegetables, dairy products and bakery
items. Pulses and staples are available both under reliance and other company labels. The stores
are well lit and kept clean to provide a world call ambience to the customers.
Stores do not extensively use IT systems and almost all of the restocking requirements are
inspected and forecasted manually. However, they have implemented SAP systems to enter the
sales data as and when the sales happen.
Pricing
Reliance fresh follow the everyday low price policy for most of the products. Usually the private
labels are priced a little lesser than the popular brands for the same product.

Problems encountered at Reliance Fresh

R-fresh has a problem of holding inventory as most of the FMCG goods mainly fruits and
vegetables that R-Fresh holds doesn’t get consumed the same day, which leads to wastage and
later the branch has to dump the goods leading to extra cost to the branch with regards to
inventory. It was noted that there was an average of 800 customers who used to walk in daily to
the mart, and more than 1000 during weekends.
Stock does get consumed during the weekends but there was a problem of holding inventory
during weekdays. Bringing in less stock during weekday could not be done as R-fresh did not
want a lack of inventory in case of a larger sale during the weekdays.
Most often, the stock held in by R-Fresh (FMCG) needed to be dumped and the cost of dumping
came out to be at par with the profits earned by R-fresh but this continued. R-fresh increased the
preservation cost so that it could hold the inventory for a longer time but this was not a feasible
solution due to quality constraints and still the problem with regards to inventory holding
continues, R-fresh has now reduced its inventory to some extent so that there is inventory
available for all its customers based only on their demand and it avoids extra stock.

Problem in Detail
Inventory is nothing more than a cost until it is sold. The larger inventory, the less money we
have available for marketing, for new equipment, or simply drawing interest in a bank account.
Major manufacturers and retailers work very hard to keep inventory levels low and constantly
moving. Retail outlets like reliance fresh lose money through poor inventory management.
Industry sources say Reliance Retail's has managed its front expansion to 600 stores across
various retail formats extremely fast, its supply chain leaves a lot to be desired, with customers
not being able to find adequate supplies at goods on Reliance's food and grocery outlets.
Following are some of the complaints given by some customers of reliance fresh.
1. Reliance Fresh is NO MORE FRESH and is NO MORE COOL either.
2. Stale and expired items are the problem with reliance stores. Their inventory management is
really poor and you need to check every item before adding it to your cart.

Questions

How Reliance fresh should address their Inventory issue?

What replenishment strategies would you recommend for R fresh?

Recommendations for improving efficiency & effectiveness of R fresh Supply Chain

How do you convert R fresh into a profitable business?