emerging market retail supply chain
TRANSCRIPT
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Abstract
Consumer-driven companies eyeing the pot of gold at the end of the emerging
market rainbow face a wide spectrum of challenges in reaching it. Demand and
competitive dynamics, fragmented supply chains and complex logistics are some
of these. To add to these, visibility is even harder to achieve in diverse emerging
markets that are at various technology maturity levels in terms of business
processes and execution. Adopting a demand-driven strategy that gears the entire
supply chain to actual consumer demand can help better sense and respondto consumer purchases and behavior. In light of the considerable opportunities
these markets offer, companies that put in place a demand-driven supply network
for retail execution in such markets with the right strategy, technologies and
implementation will emerge ahead of the pack.
Your Emerging Market Retail Supply Chain:Is it Demand Driven?
VIEWPOINT
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Adoption by
distributors
Maturity ofERP system
Systemreadable
input dataformat
Follow-upcalls to send
data
SLA
adherenceto send data
Multiple
changes inagreed
format
Data quality
Marketmetadata
variance
India China Russia LatinAmerica
Africa MiddleEast
**Dimensions
In Chinareadiness for
adoption washigher
Multiple ERPsystems in India
with varying levelsof maturity
In India there are
varying file formats.China formats are
more consistent
System and manual
follow-ups andreminders are typically
required higher in theinitial few cycles
SLA compliancemoderate to start and
improved over a periodof time
Formats were
changed frequentlyduring the initial few
cycles. Stabilizedafter few cycles
Measured throughrejected files or
records based onbusiness rules set-up
Metadata like
hierarchies were seento moderately vary
across countries
For e.g.
Introduction
Emerging markets can prove to be
veritable gold mines for consumer-driven
product companies that face slowing
growth in developed markets. Mining
that gold profitably, however, is a whole
new ballgame compared to their existing
operations.
Even in developed markets, consumer-
driven companies are today grappling
with fast-changing consumer demand,
availability of a wide range of alternative
and substitute products, and shortened
product lifecycles. This is true across
consumer packaged goods (CPG),
fast-moving consumer goods (FMCG),
pharmaceuticals and medical devices,
consumer electronics, and high-tech
equipment.
Measures like moving manufacturing to
low-cost locations improve margins is
extending already stretched supply chains.
To add to the complexity, organizations
must work with a wide and ever-growing
network of partners to improve operational
efficiencies. Managing raw materials
and energy procurement costs in such a
scenario is another monumental challenge.
In emerging markets, the opportunities are
immense they account for 40% of sales
and 60% of growth for CPG companies.
However, the challenges of retail execution
too are magnified manifold. These markets
are typically characterized by economies
that are opening up, young and growing
populations driving a new consumption
culture, low value but high volumes of
transaction, and intermediary-driven
fragmented supply chains.
As more companies turn to these regions
for future growth, there is clearly a strong
case for better understanding emerging
markets, improving visibility and reach, and
supporting government initiatives such
as financial inclusion drives and health
coverage.
It is critical to put visibility on priority
especially in such multi-level fragmented
supply chains considering the low
margins involved a couple of missteps can
erase the profitability of an operation. The
upside is that companies can build a strong
physical supply chain in such markets
without owning most of it given the coststructures involved, very often there is a
surfeit of intermediaries willing to handle
part of it for relatively modest returns.
Retail in emerging markets
The innovative approach in these markets
involves taking this diverse and
fragmented physical infrastructure and
putting on top of it a highly evolved
information technology infrastructure
to ensure enhanced visibility, agility and
reach.
A word of caution: Even with similarities
between the emerging markets, there are
stark differences in the business processes
and execution across different markets
such as India, China, Russia, Latin America,
Africa, Middle East, etc. The table below
shows the technology maturity levels of
retail supply chains in these developing
economies.
Table-1: Technology maturity levels in developing and emerging markets based on
experience
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To capitalize on the opportunity presented
by these markets, consumer-driven
product companies need to optimize
business processes such as demand
visibility and planning, supply chain
optimization, order and claim (dispute)
management, product management,
trading partners operations, channel
management, product promotions, loyalty
management, buyer space integration,
payment gateway services, mobile
payments, digital promotions, and mobile
financial services. While technology
solutions are available to drive these
initiatives, successful implementation
requires customizing global best practices
to meet local compliance requirements
and providing flexibility for multi-
country processes, languages, reporting
requirements, and currencies.
Such technology initiatives can deliver
tangible results such as increased order
fill rates to stores, ability to execute trade
plans tailored to different channels,
improved effectiveness of the field sales
teams, and reduced un-productive costs
(e.g., distributor inventory) across the value
chain.
In todays regime of shortened product
lifecycles, an organization can end up with
costly inventory or lost revenues owing to a
mismatch between demand forecasts and
the order fulfillment processes potentially
fatal for fledgling operations in developing
markets. Hence it is critical for distributors,
retailers, vendors and manufacturers to
work cohesively in order to prevent stock-
outs or expensive inventory pile-ups.
A Demand Driven Supply Network (DDSN)
ensures that all supply chain activities
are based on actual consumer demand.
By adopting this strategy, companies
can accurately sense and respond to
actual consumer purchases and behavior,
resulting in lower inventory management
costs. It also ensures that the consumer
finds the right product in the right place at
the right time.
Experts see demand-driven retailing as a
system to continuously capture consumer
behavior through technologies and
processes. By aligning demand, supply and
product to fulfill customer expectations, it
helps improve operational performance. It
further enables quick response across the
entire network.
Further, organizations can optimize the
entire front-end value chain system
(CPG-Distributor-Retailer), increase sales
and release precious capital for market
expansion.
Demand-driven approach to
retailIndustry research shows that organizations
that adopt demand-driven retail have
demonstrated success in understanding
and responding to consumer demand
signals, building value networks, and using
the supply chain to support product and
services innovation.
To manage uncertainty, especially in hard-
to-predict emerging market scenarios,
businesses need to enhance their ability
to anticipate and respond to unplanned
events. This necessitates evolving the
supply chain strategy from push to pull
driven. Organizations that develop the
capabilities to redistribute, reallocate and
reroute inventory in response to real-time
consumer demand will emerge as industry
leaders.
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For new operations in emerging markets,
such issues can imperil the entire initiative.
DDSNs can address these challenges that
consumer product companies face today.
They help empower local leadership to
respond to changing market conditions
through better coordination between
sourcing, manufacturing, distribution,
and warehousing. They make actionable
insights available across the entire value
chain.
Leveraging collaboration and workflow
tools, DDSNs facilitate joint planning and
execution with upstream suppliers and
downstream customers. This enables
organizations to receive timely data from
distributors with the desired accuracy, to
deliver the market insights for decision-
making.
An effective DDSN will provide companies
with the following capabilities:
DDSN for your emerging
market operations
Consumer-driven product companies need
to maintain very high service levels. This
is because consumers will not wait if their
preferred product is not on the shelf. They
will simply go to another retailer or choose
a competitors product.
Industry data shows that reduced demand
visibility at retail stores leads to out-of-
stocks, higher markdowns, sub-optimal
product allocation, and higher product
returns. It is worth considering that:
Nearly 30% of out-of-stocks leads to
CPG manufacturer losses
Nearly 45% of out-of-stocks leads to
retailer losses
Connected front-end supply chain that
provides consumer product companies
timely and improved channel visibility
services such as demand, paired with
actionable insights
Smart selling aids that enable the
frontline sales force to carry out a
perfect sales call at each point of sale Optimized trading partners operations,
all with ability to rapidly expand
services as well as coverage
Mobility solutions to expand reach and
improve services
Data consolidation from multi-tier
distribution channel partners
Validation and reconciliation of
consolidated sales and inventory data
Enriched POS data with granular view
of reseller and end user records
Managing and enabling channel
incentive programs
Driving loyalty for value chain partners
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Engage with digital
consumers and evolving sales
channels
Mobile devices have become the preferred
medium for almost all interactions, from
social networking and sharing information
to shopping and entertainment. Digital
consumers have embraced the Internet,
telecom, media and social space, changing
how they communicate, transact and make
purchase decisions. This new breed of
active, informed and assertive consumers
are making themselves seen and heard
by their need for participation and
uniqueness. A successful DDSN strategy
cannot afford to ignore or treat them
lightly.
Organizations must adapt to the newdigital media to acquire such consumers
ahead of the competition. Further, merely
acquiring these consumers is not enough
winning their loyalty is a major challenge
for many businesses.
By enabling self-service mechanisms,
offering personalized products, customized
service, and rich experience, businesses
can redefine the rules of engagement.
Engaging successfully with the digital
consumer offers the following businessadvantages:
Better integration and collaboration
with consumers and partners based on
consumer insights
Improved supply chain visibility and
efficiency
Improved service levels
Increased revenue growth
Financial inclusivity for consumers
Global, scalable managed service
offerings
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Conclusion
Emerging markets hold the promise of
enormous opportunities for consumer
product companies. They also present
significant challenges in terms of retail
execution. Fragmented physical supply
chains and limited visibility can be serious
obstacles for companies considering
expansion in such markets.
Many CPG companies have poor or no
visibility into the demand and inventory
at intermediaries which is crucial for
success of demand-driven supply network.A well thought-out strategy to build a
demand-driven supply network (DDSN)
on the back of new technologies with the
right implementation approach can help
overcome these challenges.
An effective DDSN spans the entire supply
chain from manufacturing, warehousing
and logistics, to promotions, distribution,retail and consumer touch-points including
digital and social media. It enables
clear visibility into consumer needs and
behavior, accurate demand forecasting and
efficient product lifecycle management.
A well-implemented DDSN drives greater
collaboration across the entire supply chain
and helps companies:
Reduce cost through productivity
enhancements
Reduce cycle times for processes such
as order acquisition
Reduce inventories in chain to increase
stock turn-around
Standardize terms of trade with trading
partners
To successfully implement DDSN initiatives,
consumer product companies need to
consider the following factors carefully:
Implementing IT systems and
facilitating data synchronization
Deploying global solutions serving
local market needs at various levels of
maturity
Defining processes that use time-
phased planning methodologies across
the supply chain
Using demand estimates for operations
and strategy planning Creating agile supply chain processes
to enable quick response to demand
changes
Establishing control of processes and
activities between CPG manufacturers
and retailers
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About authors
Sanjay Nambiar,
MicroCommerce Platform Head, Global Markets - Infosys
Sanjay has 17+ years of experience in various roles across Strategy, Consulting, Technology Implementation, Execution of
business outcome services and Sales. He currently leads the MicroCommerce business platform team at Infosys. He has
been instrumental in setting up and running the business platform service by enabling digitization of the order-to-cash
value chain in the micro commerce space.
Bhupesh Luthra,
Principal Consultant Business Platforms, Infosys
Bhupesh has more than 13 years of consulting experience in retail, CPG, logistics, and distribution processes across multiple
industry verticals. He has functional expertise in retail execution, front-end supply chain, demand planning, and secondary
sales visibility solutions across emerging and developing markets. He is currently leading the business platforms consulting
team responsible for incubation and adoption across retail, CPG, manufacturing, hi-tech, automobiles, pharmaceuticaland consumer product driven companies. He provides guidance for platform roll-out and implementation across multiple
clients and the expansion of platform services to leading consumer product-driven companies across industry verticals.
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