Environmental, social and governance (ESG) is a framework used to assess an organization’s business practices and performance on various sustainability and ethical issues. It also provides a way to measure business risks and opportunities in those areas. In capital markets, some investors use ESG criteria to evaluate companies and help determine their investment plans, a practice known as ESG investing. While sustainability, ethics and corporate governance are generally considered to be non-financial performance indicators, the role of an ESG program is to ensure accountability and the implementation of systems and processes to manage a company’s impact, such as its carbon footprint and how it treats employees, suppliers and other stakeholders.
admin
September 12, 2016
Suneera Tandon, Quartz
New Delhi, 12 September
2016
The Platonic ideal
“Efficiency
is doing better what is already being done.” – Peter Drucker,
Innovation & Entrepreneurship: Practices and Principles
The practice
Research
firm Gartner defines supply chain as, “…the processes of creating and
fulfilling demands for goods and services. It encompasses a trading
partner community engaged in the common goal of satisfying end
customers.”
Sounds simple? But it hardly is. In fact, the
supply chain can be one of the most complex structures in a business,
piecing together design, development, sourcing, manufacturing, and
distribution. It gets even more complex when it relies on rural India,
which is scattered over 640,867 villages and are often hard to access.
Fabindia, a chain of retail stores, has spent close to five decades
scoping India’s hinterland to connect rural Indian artisans to urban
shoppers. Here’s how they did it.
Fabindia began its India
sojourn back in 1960 when John Bissell, who was first introduced to the
country in 1958 while on a two-year grant from the Ford Foundation,
decided to set up an export shop to sell home furnishings to overseas
customers. Bissell, whose work at the foundation involved advising
government-based craft organizations on handloom fabrics, spent a lot
of time traversing the length and breadth of the country.
In
1976, the export house diversified into retail through a small store
that sold leftovers from export orders in Delhi’s tony market of
Greater Kailash. It took another two decades for retail to became the
mainstay of the company’s business.
Fifty years later, Fabindia,
managed by John’s son William Bissell, is a widely recognized global
brand, known for handwoven and hand-made goods that connect some 55,000
artisans from the country to consumers worldwide. In the process, it
has achieved two broad goals: to market the handloom tradition of India
to the rest of the world and to provide sustained employment to
artisans in rural areas.
The chain sells everything from
handwoven saris, rugs, apparel, home d�cor, and organic food in its 220
stores across 83 cities in India, including eight stores in overseas
markets such as Dubai, Singapore, Malaysia etc. It also retails its
products online to 33 countries. For the fiscal year 2014-15, Fabindia
had a turnover of Rs1,148 crore (approximately $170 million).
But
behind the red and black Ikat-printed scarves, Kalamkari prints from
south India, and block-printed Bagru fabric from north India is an
extensive and complex supply chain that runs from villages across the
country, covering a third of India’s over 650 districts.
The
retailer has successfully taken its founder’s vision to enable social
change at the grassroots level while engaging in a profit-making
business for urban shoppers. It does this while building systems that
encourage not just fair remuneration to India’s rural artisans, but
also provides infrastructure, access to technology and systems, quality
guidelines, and timely payments to these craftsmen. Fabindia also
offers access to capital and raw materials to artisans working with the
retailer.
As William Bissell puts it in a Harvard Business
School case study: “It seems contradictory that we pursue both a social
goal and a profit, but I believe that is the only way to do it.”
Through most of the ’90s and early 2000s, Fabindia grew as a retail chain expanding modestly in the country’s top metros.
Since
the opening of the Indian economy through the economic reforms of 1991,
Fabindia’s interaction with artisans scattered across the country has
grown significantly (pdf). The complexity of the company’s supply chain
is far different from that of a regular manufacturer that works through
designated factories.
The company’s interaction with these
artisans is very localized since it works with them through multiple
associations. The retailer deals directly with individual artisans who
work out of their homes and also with clusters of crafters and rural
NGOs and organizations that have a crafts supply base.
In
addition, the company uses its 11 production hubs across the country,
which are basically aggregation points, to centralize orders and pair
up vendors with artisans. Each hub has a number of field offices
attached to it.
“The production hubs and field offices act as
nodal points for interaction with the artisans that constitute the
supply chain, which is one of the most unique in the world,” said
Prableen Sabhaney, head of communications and public affairs at
Fabindia Overseas.
While most artists have the skill and the
craft, they don’t have the acumen to decipher fashion trends for the
season. So Fabindia acts like a conduit between their crafts and the
market.
At Fabindia, a large proportion of products carry some
element of the handmade, which requires an ability to communicate with
artisans and institute quality control as most artisans work largely in
India’s hinterland. For instance, an 18-step process is required to
create a simple pattern in Bagru print, a traditional form of
block-printing using natural dyes perfected in the northern state of
Rajasthan.
And the company has spent years putting processes to
ensure newer collections reach the stores on time. Recently, the
product range has become more diversified as well.
As for
remuneration, Fabindia follows a bottom-up structure. It asks artists
what it costs them in terms of—time, energy, skills, and raw material
to hand-make a certain fabric or accessory and pays accordingly.
Analysts
who track the sector believe that Fabindia’s unique model sets it apart
from other domestic or export-focused handicraft companies purely
because of the sheer volume of artisans it works with.
“In
handicraft, there are several companies that have created substantial
export-led supply bases, which tap into craft both from the rural
artisans as well as those based in smaller urban centers,” Devangshu
Dutta, chief executive at consulting firm, Third Eyesight said.
“Among
these, Fabindia has certainly had the most visible success in terms of
size and brand profile domestically. Fabindia has achieved scale by
working through artists, intermediaries and supplier companies who have
acted as anchors in the rural communities,” said Dutta.
Sabhaney
offers that challenges span from co-creating contemporary products
while using traditional techniques to quality issues, since the
products are created in environments that are very different from where
they are finally used. The company also works hard to provide access to
raw material and capital across many hard-to-access areas—and doing all
of this at scale.
“The ability to do this and not lose anything
in translation has been and will continue to be Fabindia’s strength,”
added Sabhaney.
The takeaways
As
the market evolves with e-commerce and the entry of foreign brands,
which has altered consumer preferences and style-cycles, Fabindia knows
it needs to quicken its response to these changes.
Not all of
the innovations the company has tested remain. In a unique ownership
structure created by Bissell, Fabindia set up supplier regional
communities (SRCs), which were community owned companies, self-managed
by a group of artisans, weavers and craft workers in a particular
geography back in 2007. According to a case study by INSEAD (pdf),
these SRC’s “offered artisans joint ownership of resources and access
to common facilities. It also trained artisans and developed new
handicrafts. The SRC allowed Fabindia to consolidate supply capacity
instead of dealing with single-loom weaver units, and to implement a
standard system for production and delivery control.”
The 2010
book, The Fabric of Our Lives reveals how production worked under the
SRC model. A number of dedicated designers and sourcing officers worked
closely with rural artists giving them design inputs in tandem with the
latest trends in the market and order quantities through dedicated
distribution centers in key villages. These designers worked with the
weaver to develop samples. They were then shown by the designers that
refer it to a product selection committee. The fabric was then approved
and the cost price finalized. The quantity of fabric to be produced the
first time was pre-determined by software based on a minimum stock
requirement ratio and an order is given to the weaver to make the
product. The weaver produced the requisite amount of fabric in a month
and brought it into the distribution centers.
But the SRC model has now been diluted as the company looks more innovative ways to engage rural artisans.
In
the company’s next vision plan, it is focusing more on cluster
development that will basically help bring artisans up to speed with
the processes and market trends.
“There are plans for a greater focus on the handloom and hand-craft sector,” Sabhaney said.
“There
is a much bigger focus on the social aspect, there are going to be
significant investments in developing clusters and bringing them up to
what is required around the country,” she added.
(Published in Quartz)
Devangshu Dutta
October 25, 2014
These are thoughts shared in an emailed interview with the AgriBusiness and Food Industry magazine (published in the November 2014 issue.)
A Perspective on the Indian market:
Our first word of advice to companies that are looking at India as an evolving and large market, is to acknowledge the fact that that it has very diverse cuisines and food cultures.
Both Indian and international companies wishing to enter this market for the first time need to understand and acknowledge that one-size certainly does not fit everyone.
The variety of finished products needed requires food companies to address smaller quantities and to have flexible production.
Therefore, suppliers of capital equipment and technology also need to be able to think about how they can make their solutions more flexible to adapt to changing market needs, and also to price them appropriately for the Indian market. Simply extending solutions that work in large, developed markets such as Western Europe and North America is not the best approach.
I would use the example of one of our clients, a manufacturer of bakery automation equipment, who have approached the market with an open mind. After initial investigations they have gone back to the drawing board and created production lines that have smaller capacity, can produce multiple products including Indian specialities, and which are techno-commercially more feasible for an Indian customer to adopt.
There is no reason to think that India’s food industry should follow exactly the same development curve as the west. The population is much larger, with significantly lower income, and needs that are far more diverse and changing far more rapidly than in most other economies. The technical and technological models for India need to be strongly focussed on four major attributes:
Agricultural, horticultural and animal husbandry practices and technologies, as well as those in the downstream sectors such as food processing, need to perhaps even look at setting new benchmarks for accessibility and long-term sustainability.
Food processing and the Indian consumer market:
Food processing has been part of human history since we learned to transform hunted, gathered and farmed raw products into new foods through curing, cooking, culturing etc. This processing has been driven by mainly two major factors: to make the raw material into a product that is more palatable and easily consumed (for example, from raw grains to bread), or to extend the storage life of the raw material (for example, in the form of cheese, pickles, or sweets, or using cooling and freezing).
However, during the last century, processing has been driven mostly by “convenience” by providing partly or fully cooked options, to reduce the time spent by individuals in cooking and to instead apply that time to activities outside home. Social structures in India are changing, as individuals are migrating out of their home-towns to other locations within the country. The number of households is increasing dramatically, while cooking time and cooking skills are both declining. With this, out-of-home consumption as well as partially or fully-cooked packaged foods are bound to rise, leading to greater need of food processing capacities.
Also, with increasing industrialisation of food manufacturing, standards have become important both for efficiency and for safety. We’re seeing signs of such development happening in recent years in India as well – expectations of both consumers as well as regulatory authorities are higher with each passing year. The industry needs to invest proactively in better technology and processes in all areas – cultivation, handling, processing, packaging, storage and transportation – to raise the standards of hygiene, safety, traceability etc.
Food productivity needs urgent attention:
India is among the largest producers of many agricultural products. However, our yields per head of workforce, per animal, per hectare, or per litre of water consumed can be improved significantly. Not only is the population growing, but per capita consumption of most products will rise as the economic situation of each family unit changes. Better practices, technologies and know-how need to be acquired and applied to dramatically improve Indian agricultural productivity.
An interesting model of development to look at is the “golden triangle” approach followed by the Netherlands – active and intensive cooperation between the government, academic institutions and the private sector.
So far, by and large, academic institutions in India have limited themselves to “teaching” and have stayed away from actively collaborating with industry. Academic institutions and the industry typically connect only for the occasional “lecture” by senior individual from industry, or during the time of recruitment of fresh talent. Government largely limits itself to creating macro-level policies. More effective communication and coordination between these three legs could help to dramatically improve the standards in the agricultural and food sector in India and make the nation not just self-sufficient but significantly more competitive in both cost and quality of the final products.
Similarly, active collaboration within the industry itself is important to achieve combined growth, which can only happen if companies step beyond the usual industry association framework.
Local production and service of food processing equipment is an important factor:
In cases where the market is large enough, local production of the equipment should certainly be investigated because it can help to bring down the initial capital cost for customers, and also provide a quicker service and support base.
A first step that a company takes is to create a local presence, either through a distributor or agent, or by directly opening a sales and service office of its own. However, most international companies need to gain a certain degree of confidence in the market, both in terms of sustained demand and in terms of operating conditions, before they would invest in manufacturing in India, since it takes a whole different level of management commitment as well as financial involvement.
With the announcement of the government’s “Make in India” initiative, hopefully more international companies will come forward to take advantage of the changing operating environment in the country.
Devangshu Dutta
May 17, 2014
(If you’re in a hurry, go to the Slideshare presentation, and bookmark this post for a complete read later.)
These pages usually focus on the consumer and retail sector, its constituents, its problems and the opportunities therein.
The consumer and retail sector is all about choice, and it is worth noting that we’ve just concluded what was possibly the most massive consumer event in the world. I’m referring, of course, to the Indian elections, where more than 500 “consumers” were bombarded with above-the-line and below-the-line marketing by various organisations pushing their brand, product (candidate) and services (ideology and manifesto).
The sum total of analyses of India’s 2014 election results already exceeds what one sane person can read in a lifetime. The BJP and its allies have won a majority of seats unprecedented among non-Congress alliances, in the first-past-the-post system. While opinions may be fractured, the Parliamentary mandate is clear.
In this context and in this spirit, it is also relevant for us to take the big picture view. Retail is a sector that touches the lives of virtually every citizen of this country on a daily basis. So anything that affects their lives and their aspirations have a direct bearing on the retail business as well.
India’s citizens are creative and entrepreneurial. They are hungry for growth. While they are respectful of heritage, they are also devastated by the decline that has come about over decades, centuries, and are determined to change this situation. What they need is the government to shoulder its responsibilities.
If there is one narrative that can pull diverse, divided strands of opinion together, it is “inclusive growth”. Throughout his campaign Narendra Modi has repeated the mantra: “Sabka Saath, Sabka Vikas” (literally “all together, development for all”). In recent weeks, on more than one occasion he has extended this to mean pulling together the efforts of leaders across the political spectrum as well. At the time of this writing, the Prime Minister elect Modi has already set out to manage expectations. He has positioned himself as “mazdoor (labourer) no. 1”, and is asking the electorate for 10-years, making it amply clear that there is no magic broom to remove the dirt of corruption overnight, nor a magic hand that will conjure out ever-increasing incomes out of bottomless magic pockets.
While there are many problems to be tackled at the macro and the micro-level, I think the “business of government” can be captured broadly in an 8-point agenda, and each of these has a significant bearing on the consumers of this country, and the businesses they transact with:
1. Healthcare: While India’s average life-expectancy has improved steadily since Independence it still hangs in the mid-60s while China’s and Brazil’s is over 73. India offers less than one bed for every thousand of its citizens, while both China and Brazil are well over 2. The United Kingdom, whose National Health Service is constantly lambasted as being “overstretched”, offers about 4 hospital beds per 1000 people, and the average for former British colonies is also around 4. Public healthcare infrastructure in India – from primary to speciality – remains critically under-funded, and the public hospitals that exist are chronically under-equipped and under-staffed. Where equipment exists, it is underutilised, as commission-seeking individuals refer patients to the burgeoning private clinics and hospitals. Over the last decade or so private healthcare providers have achieved prominence in the media and among investors, and concessional access to public infrastructure and assets such as land, but they have proved to be consistently out of reach of the general public. Livelihoods and family savings are routinely destroyed in the search for better-quality healthcare in the new, profit-maximising business models. Health should be every citizen’s fundamental right, as one of the foundation stones of a strong nation. It is a right that is denied daily to hundreds of millions. Providing health support is the core business of the government, and needs urgent attention and substantial investment dispersed nationally.
2. Power: India’s power consumption average is about one-third of the Chinese average and less than a tenth of the USA, and this is not only because Indians have smaller homes or live more frugally, but because hundreds of millions of Indians spend most of their days and nights without electricity. If you think you can get a sense of the deprivation from a household that gets power a few hours a day, you actually have to visit one where power availability has improved due to grid power or micro or off-grid availability through solar or biomass units – the enormous impact that the improved power availability has on the lifestyle, livelihood and quality of life can only be truly gauged then. Across the nation, private participation has been invited into the power sector at different times, but the execution has been mixed. Private companies would also like to serve those areas where population concentration and decent financials allow the private provider to create a profitable business. Large swathes of the Indian population lie outside of such areas, and the onus is upon the government to provide the required electricity for households to live a fuller life, for students to complete their lessons, for healthcare and administrative facilities to run effectively, for small entrepreneurs to be able to grow their businesses.
3. Clean water: Imagine one train crash every day of the year, each killing all passengers on board. Sounds catastrophic, doesn’t it? Wouldn’t that get some serious attention? Well, it is estimated that around 1600 deaths are caused every day by diarrhoea alone (higher than the train wreck fatalities), and that 21% of communicable diseases in India are related to unsafe water. The problem is not only in far flung villages, but acute even in the largest cities of the country. Both those numbers are shamefully high for a nation that wants to see itself as a global superpower. There are no technological gaps for effectively harnessing the existing water resources, and for maintaining cleaning, distribution and recovery systems – only management gaps.
4. Transportation infrastructure: While India has one of the largest rail networks in the world, at about 20 kilometres per 1,000 sq km of land area it compares unfavourably to highly industrialised European countries (Germany: 115 km per thousand sq. km., UK: 65, France: 53) or even the large less densely populated USA (26 km per thousand sq. km.). On road development India’s picture has improved in the last 15 years, but it still trails world-leading economies in terms of length as well as quality. Poor transportation systems cut people off from economic opportunities, and force them to migrate to already overloaded cities, perpetuating problems in both urban and rural areas. Historically, all strong nations, democratic or otherwise, have flourished due to extensive, superior transportation networks. Where people and goods can move quickly and freely, both trade and culture flourish, and build the strongest ties that bind people together.
5. Education: This is another area which has systematically been under-invested in by the government. From pre-schools to universities, the growth of educational institutions for the last 30-40 years has predominantly been in private hands, where affordability is not the prime driver. The number of seats in government-run institutions has not grown in proportion with the population, let alone in correlation with the demand. Access remains a problem, as does the quality. There is no reason why government-run educational institutions need to be bad – there are enough examples around the country within government schools and colleges, where organisational systems and individual intent produces excellence. Without immediate and adequate government focus on education, the massive young population of India will go waste, at worst it would be a ticking time-bomb of under-skilled frustrated underachievers.
6. Environment: This might seem like a strange inclusion in this “development-oriented” list. However, it is essential that the environment should be on a list of core items that the government needs to manage well. The government is usually in the news for either not doing enough (such as not monitoring the systematic encroachment in and destruction of the Aravalli Hills) or, at the other extreme, getting in the way by holding back environmental approvals to development projects. Another term for the environment is “the commons”, reflecting that the natural resources belong to the people, together. The commons need not just protection, but regeneration, resurgence. Defence and political experts around the world list climate change and clashes over natural resources as among the highest conflict risks in coming years, and the evidence is frequently visible. When “growth” is measured only by those activities that extract and deplete the common resources, support and encouragement is provided for those individuals and companies that do this the “best”. It is short-termism and selfishness of the worst sort. Evidence of large scale climate-related changes and the debilitating impact on civilisations exists around the world and across the span of history; the closest might be the Ganga-Saraswati civilisation that is said to have dispersed due to the depletion of one of its greatest rivers. We don’t even need to forecast huge impacts far into the future. Millions of Indians increasingly are born and live with chronic diseases that are related to deteriorating air quality, depleted water resources, polluted soils and disappearing vegetation. Indigenous natural species of plants and animals are declining, mostly invisible to the nation at large. A comprehensive, evolving framework is needed that goes beyond short-term planning and management by knee-jerk reactions.
7. Competition: This is an area which requires little investment, relative to the other items on this list, but a huge amount of intent and follow-through. No economic system is perfect and, indeed, it is the imperfections and discontinuities that provide business opportunities. When the imperfections are exploited by many, competitive forces balance each other out. The need to diversify is well-understood by people who care to think about risks. Concentration of efforts, resources, power behind a few initiatives or organisations can bring about disproportionately good results, but also creates the risk of wipeout. Diversity is a challenge because it creates fragmentation, but it is also an essential source of innovation, combating not just present risks but future threats as well. Self-moderation is too much to expect from even the most enlightened of large business leaders and even the most progressive of industries. Anti-competitive and customer protection frameworks have improved in recent years, but are still understaffed and underequipped. As the economy grows, so does the need to provide oversight against unethical behaviour by large organisations.
8. Accountability: None of the above can truly happen without transparency in governance, and productivity in public service i.e. respect for schedules, budgets and commitments. Measures such as Right to Information (RTI) have moved the country several steps up the transparency ladder, but accountability to “service deliverables” is still missing in a vast number of people employed in government departments. Entry into “government service” is seen as a ticket to a reasonably comfortable employment if you are inclined to not rock the boat. The idea is to not question the status quo as far as possible, and to ensure that the outcomes for the “overclass” are taken care of. This attitude needs to change. In fact a small start could be made by replacing the phrase “government service” with “public service” – the business of government is to serve the public at large, and this needs to be recognised and acknowledged by everyone involved in it. Efforts in all the other areas will fall flat if accountability and productivity are not embedded into the money and efforts invested. (Imagine if we could sign SLAs – service level agreements – with each and every individual hired for public service roles!) The roles that accountability brings with it include “upholding the law” and “enabling an environment where each citizen has a fair chance of success”.
Someone else might come up with a slightly different list – this is mine, the seven pillars and the overarching beam. I’ve not listed the areas in any specific order of priority. Some of them need more government intervention, some need less private intervention, a few (such as education) need both. These are all areas that are the foundation on which everything else is built. These are the areas which, to a very large extent, determine the levels of dignity with which a country’s citizens lead their lives.
In this day and age, the government is not needed to run steel mills, airlines or even handicraft retail stores. But without high quality and high availability ensured by the government in the above areas, even the most capable individual will find it easier to build a life and even the best private enterprise will find it more profitable to do business elsewhere in the world.
A much-followed new-generation business leader recently rhetorically asked in a social media post that, if we have an economy swinging towards services with a large chunk of it being technology, “Why do we need government?”
The reasons above, my friend, are why and where we need government, because business is not delivering on these areas in an equitable manner, and these are areas where technology will not necessarily provide all the answers. We have years of evidence of this, in some cases decades, and it is time we choose to move.
By and large, most people would rather choose to move something, than move somewhere (else). And the retail business will be one of the first to benefit.
Tarang Gautam Saxena
October 30, 2011
The operating environment for the fashion retailers in India is only moving towards a more challenging and competitive direction even though the market is yet to mature. The market has grown over the last two decades on account of brand proliferation and developing retail network and more recently due to new product category creations. High consumer awareness and exposure to international trends has cut the product life cycles short. Topping this up, the last 12-18 months has witnessed the growth of the online platform offering an alternate, convenient and cost effective shopping option for consumers.
It is necessary that fashion retailers manage their operations efficiently both in terms of managing a complex and responsive supply chain at the back end and delighting the customers at the store with great product offers and customer service. Adopting lean practices can help fashion retailers to achieve significant improvements in store profitability and customer satisfaction, making their retail business sustainable through a positive impact on bottom-line.
The concept of lean philosophy, pioneered by Toyota, is built on the premise that inventory hides problems. The basic tenet of this philosophy is that keeping the inventory low will highlight the problems that can be dealt with and fixed immediately instead of maintaining inventory in anticipation of any bottlenecks.
“Lean retailing” is an emerging concept and has already been adopted by retail organisations in the Western countries using technology such as barcodes, RFID (across the product value chain from raw material sourcing through production through final delivery at the retail store) and item-level inventory management and network architectures.
In an ideal scenario a retail organization would be lean at both the store and the distribution center. The organization would leverage technology such as RFID to uniquely identify the movement of its inventory accurately and use fulfillment logic as per the store’s merchandizing principle to have replenishments in tune with customer demand.
Some international retailers that have adopted lean retailing techniques include Wal-Mart, Macy’s, Bloomingdale’s, The Gap and J. C. Penny. Applying lean philosophy to fashion retail in India may sound like an avante garde concept as of now. However, there are some leading large retailers in India such as the Future Group who are early adopters and have already adopted lean practices in their retail supply chain.
An understanding of what lean retailing is and some of its principles can help in appreciating how this concept can make the apparel retail business more sustainable. Lean retailing aims to continuously eliminate “waste” from the retail value chain, waste being defined as any activity/process that is not of “value” to the customer. A fundamental principle of lean retail is to identify customers and define the “value” as those elements of products or service that the customer believes he should be paying for, not necessarily those that add value to the product. Further the value should be delivered to the customer “first-time right every time” so that waste is minimized.
Lean retailing requires simplifying the workflow design in delivering products to customer. Given that the connotation of value is customer-centric, simplifying the workflow design requires streamlining the core and associated processes so that any kind of waste is eliminated. Further pull-system drives replenishment at the stores (and the shelf) based on what customers want “just-in-time” (neither before nor after the time customer demands). This results in a value flow as pulled by the customer.
Those practising lean retail have invested in information technology that allows the stores to share sales data in real time with their suppliers. New orders for a given product maybe automatically placed with the supplier as soon as an item is scanned at the check-out counter (subject to minimum order size criteria). Smaller stores may use visual systems wherein the sales staff can gauge through the empty shelf space the products that have been sold and that need to be re-ordered.
Removing bottlenecks throughout the supply chain is another principle driving lean retail. It entails redesigning processes to eliminate activities that prevent the free flow of products to the customer. Further, lean retail requires following a culture of continuous improvement. Continuous improvement (or “Kaizen”) focuses on small improvements across the value chain that rolls up into significant improvements at an overall level. Kaizens not only can lead to elimination of wasted effort, time, materials, and motion but also focus on bringing in innovations that lead to things being done faster, better, cheaper and easier. Involvement of staff at the lowest levels is very important in Kaizen activities and that means that companies must invest in training, up-skilling their talent pool in Lean Principles.
In the context of apparel retail business, lean retail can help in improving organisational responsiveness to customer needs, the speed with which the products are delivered to them and meet their expectations as per the latest trends. Systematic application of lean principles translates in increased throughput (Sales), with lower Work in Process (Investments) and as per customer requirements of Quality, Design, Trends and Time. Improved information visibility across the chain leads to reduced instances of out of stock and excess inventory at the same time, minimising inventory control costs and reducing shrinkage. At the front-end lean retail may lead to redesigned in-store processes and systems for consistency in frontline behaviors to provide standard customer experience.
With the focus on training and involvement of the workforce, Lean principles have resulted in improving employee satisfaction without increasing labour costs that in turn positively impacts revenues and profitability. Some retailers in the West have reported reducing their store labour costs by 10-20 percent, inventory costs by 10-30 percent, and costs associated with stock outs by 20-75 percent on account of lean retail.
In addition to top-line and bottom-line impact, lean retailing by enhancing the enthusiasm and motivation of the frontline staff creates distinctive shopping experiences for customers.
Inditex, the world’s largest clothing retailer with Zara as its flagship brand, has successfully achieved supply chain excellence following lean principles. It targets fashion conscious young women and is able to spot trends as they emerge and deliver new products to stores quickly thereby establishing its position as the leading fast fashion retailer. The product development processes is based on customer pull-system. Its design team reviews the sales and inventory reports on a daily basis to identify what is selling and what is not. Additionally, regular visits to the field provide insights into the customers’ perceptions that can never be captured in the sales and inventory reports. Critical information about customer feedback is widely shared by store managers, buyers, merchandisers, designers and the production team in an open plan office at the company’s headquarters. Frequent, real time discussions and interactions within the team help them to understand the market situation and identify trends and opportunities.
Further, Zara manufactures the products in small lots and many styles are typically not repeated. Style cues for replenishments are derived from real time customer demand. At the back end, Zara holds inventory of raw materials and unfinished goods with its supply partners which may be local or offshore manufacturers. Typically, the fashion merchandise is produced at the local manufacturing base and quickly delivered while the staple low-variation range is produced offshore at cheaper costs.
Following lean retail practices implies a higher stock turn and frequent replenishments by the suppliers based on real-time sales. Building and maintaining reliable and responsive suppliers through win-win partnerships, is imperative to realize the success of lean retail implementation as high stock turns and frequent replenishments involves the commitment and involvement of the entire supplier base.
Like in any transformational effort, change management plays a critical role in reaping the benefits of lean retail. The whole philosophy requires paradigm shift in attitudes, behaviors and mind sets of those involved upstream and downstream across the value chain. Training, communicating and inspiring the front end staff is thus an important aspect in the overall success and companies need to device a compelling vision that is shared by employees across functions and hierarchy across the entire chain.
admin
June 21, 2010
By Saumya Roy, Shloka Nath
FORBES INDIA
Jul
21, 2010
Indian farmers have been selling their fair trade produce to developed markets for years by getting certified by the Fairtrade Labelling Organizations International (FLO). Now the FLO wants to invert that model. It will introduce a fair trade label for the Indian market next year. The Spice Board of India is looking to follow suit with a fair trade label for the domestic spice market.
First, let’s understand what fair trade is. Fair trade is an organised movement that helps producers in developing countries get a premium for their products if they follow better social, labour and environmental standards.
More than $4 billion worth of fair trade products were sold internationally in 2008, up 22 percent since the previous year. While sales of products like fair trade tea, coffee, flowers, wine and beer have grown in double digits for the last several years, cultivation has outpaced demand, according to reports.
If the fair trade movement is implemented in India, it could open up a huge new market for fair trade farmers, giving them stability against foreign exchange fluctuation.
For the movement to be successful, however, it requires the customers to be sensitive about this. “The size of the market is very small because Indians are not really concerned about this,” says Arvind Singhal, chief executive of retail consulting company KSA Technopak. “Companies are trying to create fair trade brands for their own reasons but if the customer is not sensitive then this will have only a limited impact.”
The Indian market and other domestic markets in producing countries are increasingly important for the fair trade movement because they could each be larger than the European market, which is the largest market for fair trade products. For instance, take Chetna Organic Farmers Association, which works with 9,000 cotton farmers in the Vidarbha region of Maharashtra, Telangana in Andhra Pradesh, and Koraput, Bolangir and Kalahandi region of Orissa. It sells most of its cotton in Europe at a premium of Rs. 320 a quintal. But even now it is able to sell only half the produce; the rest gets sold in India without any premium.
It is no wonder then that Seth Petchers, chief executive of Shop for Change, a marketing and labelling organisation for domestic fair trade products, is trying to launch this movement in India. Shop for Change launched a range of fair trade clothes along with designer Anita Dongre’s prêt label AND. The collection featured an ad campaign that starred fair trade cotton farmers along with former Miss India, Gul Panag.
This collection was made with fair trade cotton from Chetna’s farmers in Orissa, who were paid Rs. 35 per kilo of cotton rather than the market price of Rs. 30 per kilo. The FLO also fixes a fair trade price, which includes a minimum price for the product and a fair trade premium. Says Reykia Fick, external relations co-ordinator, FLO, “On top of stable prices (usually the fair trade minimum price), producer organisations are paid a fair trade premium — additional funds to invest in social or economic development projects.”
Farmer members of Chetna, in Andhra Pradesh’s Karimnagar district, have used this premium along with an international grant to build a storage warehouse for their cotton. During the off-season, they rent out the warehouse as a marriage hall and distribute earnings for the co-operative. Another farmer group in Maharashtra’s Akola district has used the premium to build a school. In Kerala’s Kannur district, the premium is used to create a fund for distressed farmers. It has also allowed the community to set up solar sensing technology as a benign blockade warding wild elephants off the cashew nut trees. Their cashew produce is labelled Jumbo Cashews in the European market.
All of this may or may not result in a price premium for a consumer depending on whether a retailer chooses to crunch its margins. Increasingly, retailers have started selling fair trade products without a price premium for consumers. Dongre’s fair trade collection sold at the same price as her other clothes. Cadbury’s launched a fair trade version of its Dairy Milk chocolate internationally at the same price as the rest of its Dairy Milk chocolates.
In case of fair trade products “it is the imagery which is different rather than a product differentiation,” says Shital Mehta, COO of premium menswear brand, Van Heusen. Right now fair trade numbers are small. Companies want to portray themselves as fair employers but are just experimenting with a small percentage of their products. Will they ever get all their products under the fair trade umbrella?
That change will come when it becomes a civil society movement as it has in the West, says Tomy Mathews, founder of Fair Trade Alliance of Kerala. Mathews’ alliance has been supplying through the FLO for years and he says, “Attempts to create independent labels diverting from the uniform global message on global trade justice is doing disservice to the philosophy of fair trade. I don’t look fairly on [the] Spice Board initiative or the Shop for Change initiative. The moment you confuse market with different logos you’re already losing the game before it begins.”
Retailers that have included more equitable conditions for artisans and weavers, such as Fabindia and Anokhi, have done well here already and this movement can get extended to farmers as well, says Roopa Mehta, president of the Fair Trade Forum of India.
But there may still be some distance between promise and scale in the market. Devangshu Dutta, CEO of retail consulting company, Third Eyesight, says he sees a market developing for fair trade products, albeit slowly. “Things will change. But that change will have to come from the customer side. Currently, it is a very limited market but it could be a business proposition for a few companies.”
Find this article in Forbes India Magazine of 30 July, 2010
