CHAPTER I

INTRODUCTION

1.1 INTRODUCTION TO THE STUDY

Logistics is concerned with getting the product and services where they are needed and
when they are desired. It is difficult to accomplish any marketing or manufacturing without
logistical support. It involves the integration of information, transportation, inventory,
warehousing, material handling, and packaging.

The operating responsibility of logistics is the geographical repositioning of raw materials,

work in process and finished inventories where required at the lowest cost possible support
no activity can be performed to meet defined goal. The current challenge is to perform
logistics scientifically in order to optimize benefits to the organization. Logistics is
planning function of management. Logistics function is concerned with taking products and
services where they are needed and when they are needed.

The American Council of Logistics Management defines logistics as “the process of

planning, implementing and controlling the efficient, cost effective flow and storage of raw
materials, in-process inventory, finished goods and related information from point of origin
to point of consumption for the purpose of conforming to customers’ requirements”.

The logistics system consists of the following components: Customer service, Inventory
management, Transportation, Storage and materials handling, Packaging, Information
processing, Demand forecasting, Production planning, Purchasing, Facility location and
other activities.

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1.2 NEED AND IMPORTANCE OF THE STUDY

NEED OF THE STUDY

Logistics plays a very crucial role for any organization. Since logistics deals with material
handling of goods from its date of manufacture to the end consumer. The need for logistics
management is vital for any organization as it includes following decisions:

 In maintaining inventory at the optimal level, so that there is no shortage or surplus

of stock and thus achieving the customer needs and wants.
 To evaluate cost optimization by making the pallets or the shipment box denser.
 About the pallet dimensions
 To achieve faster delivery of the goods and the goods are delivered at right time and
at right place by sending more goods at cheaper rate.

IMPORTANCE OF THE STUDY

The logistics management is pervasive in nature, it is not restricted to one particular field.
In manufacturing organization having an integrated structure, activities such as purchasing,
planning and control, warehousing and inventory control are centralized under material
management/ logistics department and distribution of finished goods is done by marketing
department. Benefits of the logistics management include the following:

 Integrates logistical activities

 Gives Competitive edge
 Leads to customer satisfaction
 Supports critical functions like operations.

Hence, this study on logistics Management is undertaken at Big Bazaar, Ameerpet to

understand various operations in the supply chain.

1.3 OBJECTIVES OF THE STUDY

1. To study the logistics activities at big bazaar.

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 2. To study the various distribution and transportation costs involved in supply chain
3. To analyse the optimization of logistics cost.
4. To give the suggestions based on the study

1.4 RESEARCH METHODOLOGY

1.4.1 RESEARCH DESIGN

Descriptive Research was undertaken to study the various logistics activities at big Bazaar.

1.4.2 DATA SOURCES

To full fill the above objectives of the study, both primary and secondary data is taken into
consideration.

Primary Data

Data is collected through personal interviews and discussions with senior logistics manager,
deputy logistics manager and also from assistant warehouse manager.

Secondary Data

The Secondary data is the data which is already collected and stored. The secondary data is
collected from various sources like Internet, manuals, journal and books.

1.4.3 STATISTICAL TOOLS AND TECHNIQUES USED FOR DATA ANALYSIS

The following techniques are used to analyze the logistics cost at big bazaar.

a. Mean
b. Percentages
c. Graphs

1.5 SCOPE OF THE STUDY

The Study is confined to logistics management at Big bazaar Ameerpet, Hyderabad and
optimizing the logistics cost. The study deals with understanding the various logistics
activities and studies specifically transportation costs and distribution cost involved.
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1.5 CHAPTERIZATION

The study is arranged in a logical pattern.

1. First chapter consists of INTRODUCTION to the study includes the need for
study, importance of study, objectives, research methodology-, sources of data, tools
and techniques of analysis, scope of the study, chapterisation with sound
explanation.
2. Second chapter consists of REVIEW OF LITERATURE which reflects the
relevant theoretical and empirical background of the study on Logistics
Management
3. Third chapter consists of the INDUSTRY AND COMPANY PROFILE which
contains a brief historical retrospect about industry and company.
4. Fourth chapter consists of DATA ANALYSIS AND INTERPRETATION based on
the collected data from various primary and secondary sources
5. Fifth chapter consists of FINDINGS, CONCLUSION and SUGGESTIONS along
with LIMITATIONS and is concluded with BIBLIOGRAPHY.

CHAPTER II
LITERATURE REVIEW

2.1 LOGISTICS

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2.1.1 INTRODUCTION TO LOGISTICS

Meaning of Logistics

According to the Council of logistics management: “Logistics is the process of planning,

implementing and controlling the efficient, effective flow and storage of goods, services
and related information from point of origin to pint of consumption for the purpose of
conforming the customer requirements”.

Definition of Logistics

Philip Kotler defines logistics as “planning, implementing, and controlling the physical
flows of materials and finished goods from point of origin to point of use to meet the
customer’s need at a profit”.

Logistics is generally the detailed organization and implementation of a complex operation.

In a general business sense, logistics is the management of the flow of things between the
point of origin and the point of consumption in order to meet requirements of customers or
corporations. The resources managed in logistics can include physical items such as food,
materials, animals, equipment, and liquids; as well as abstract items, such as time and
information. The logistics of physical items usually involves the integration of information
flow, materials handling, production, packaging, inventory, transportation, warehousing,
and often security. In military science, logistics is concerned with maintaining army supply
lines while disrupting those of the enemy, since an armed force without resources and
transportation is defense less.

Military logistics was already practiced in the ancient world and as modern military have a
significant need for logistics solutions, advanced implementations have been developed. In
military logistics, logistics officers manage how and when to move resources to the places
they are needed.

MEANING OF LOGISTICS MANAGEMENT

Logistics management is the part of supply chain management that plans, implements, and
controls the efficient, effective forward, and reverse flow and storage of goods, services,
and related information between the point of origin and the point of consumption in order
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to meet customer's requirements. The complexity of logistics can be modelled, analyzed,
visualized, and optimized by dedicated simulation software. The minimization of the use of
resources is a common motivation in all logistics fields. A professional working in the field
of logistics management is called a logistician.

Fig 2.1: Logistics management in an organization

2.2 ORIGIN OF LOGISTICS

The prevalent view is that the term logistics comes from the late 19th century: from French
logistique (loger means to lodge) and was first used by Baron de Jomini.

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The Oxford English Dictionary defines logistics as "the branch of military science relating
to procuring, maintaining and transporting material, personnel and facilities". However, the
New Oxford American Dictionary defines logistics as "the detailed coordination of a
complex operation involving many people, facilities, or supplies," and the Oxford
Dictionary on-line defines it as "the detailed organization and implementation of a complex
operation". As such, logistics is commonly seen as a branch of engineering that creates
"people systems" rather than "machine systems."

Academics and practitioners traditionally refer to the terms operations or production

management when referring to physical transformations taking place in a single business
location (factory, restaurant or even bank clerking) and reserve the term logistics for
activities related to distribution, that is, moving products on the territory. Managing a
distribution center is seen, therefore, as pertaining to the realm of logistics since, while in
theory the products made by a factory are ready for consumption they still need to be
moved along the distribution network according to some logic, and the distribution center
aggregates and processes orders coming from different areas of the territory. That being
said, from a modelling perspective, there are similarities between operations management
and logistics, and companies sometimes use hybrid professionals, with for ex. "Director of
Operations" or "Logistics Officer" working on similar problems. Furthermore, the term
supply chain management originally refers to, among other issues, having an integrated
vision in of both production and logistics from point of origin to point of production. All
these terms may suffer from semantic change as a side effect of advertising.

2.3 FUNCTIONS OF LOGISTICS

1. Order Processing: Processing the orders received from the customers is an activity,
which is very important by itself and also consumes a lot of time and paperwork. It
involves steps like checking the order for any deviations in the agreed or negotiated
terms, price, payment and delivery terms, checking if the materials is available in stock,
producing and scheduling the material for shortages, and also giving acknowledgement
to the owner, by indicating any deviations.
2. Inventory Planning and management: Planning the inventory can help an
organization in maintaining an optimal level of inventory which will also help in
satisfying the customer. Activities like inventory forecasting, engineering the order
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quantity, optimization the level of service, proper deployment of inventory etc. are involved
in this.
3. Warehousing: This serves as the place where the finished goods are stored before
they are sold to the customers finally. This is a major cost center and improper warehouse
management will create a host of problems.

Fig 2.2: Configuring and managing the warehouse is the core part for business
logistics.

4. Transportation: Helps in physical movement of the goods to the customer’s place.

This is done through various modes like rail, road, air, sea etc.

5. Packaging: According to W.J.Stanton, “Packaging may be defined as the general

group of activities in product planning which helps in value designing and producing the
container or wrapper for a product.” It is a critical element in the physical distribution of
the product, which also influences the efficiency of the logistical system. The basic function
of packaging is to protect the contents from damage, dust, dirt, leakage, pilferage,
evaporation, watering, and contamination and so on. Packaging helps in the protection of
the contents of the products. Seasonal fluctuations in demand may be smoothed out through
packaging. Packaging helps to protect the contents of all the available products.

2.4 PROCUREMENT AND OUTSOUCING OF LOGISTICS

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Procurement is usually done in order to meet the needs of the manufacturing function or
other internal functions for which buying is made. It enables access to external markets,
supplier development and relationship management and also relationship to other functions.
It is the buyers and suppliers who are usually engaged in procurement transactions, which
usually begins with the buyer receiving and paying for the order.

When designing the procurement process, it is important to consider goods that the process
will be used to purchase. The two main categories of purchased goods are direct material
and indirect materials. Direct materials are components like used to make finished goods.
Indirect materials are goods used to support the operations of a firm. Indirect materials are
components used to make finished goods. Indirect materials are goods used to support the
operations of a firm. All procurement processes within a company relate to the purchase of
direct and indirect materials.

Making or Sourcing Decisions

1. Use multifunctional teams: The strategy, which is developed, must be in collaboration

with the various functions like engineering, purchase, manufacturing, engineering etc
which will help in identifying the correct drivers in the total cost.

2. Ensure that there is appropriate co-ordination across regions and business units:
Ensuring that there is enough co-ordination across all the regions and business units, which
will allow a firm to maximize economies of scale.

3. Evaluating the total cost of ownership: Price reduction need not be the sole objective
of an effective sourcing strategy. Total cost of ownership is also influenced by other factors,
which have to be identified and used for selecting suppliers. By focusing on the total cost of
ownership, also allows a buyer to identify opportunities for having a better collaboration in
terms of design, planning, and fulfilment.

4. Building long-term relationships with key suppliers: Basically, when buyer and
supplier work together, more opportunities for saving will be generated that the two parties
working independently. A long-term relationship will encourage the supplier to expand
greater effort on the issues that are key from the point of view of the buyer.

Logistics Outsourcing

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Today, business organizations across the world are struggling for competitiveness, not only
for growth but also for survival alone. The factors responsible for this are liberalized
economies of the countries across the world. Moreover, the customers have become more
demanding and look for value added services from prospective suppliers, as he wants value
for the money he is spending. In such a situation, business organizations across the world
have started reviewing their business processes and have realized that cost cutting and
differentiation in value delivery are solutions to the current problem Outsourcing is the
transfer of a function previously performed in-house to an outside provider.

Outsourced providers are often referred to as contractors or "third parties." When

"outsourced" work is contracted out, the outsourcing business or agency still provides
oversight.

Once it is decided to outsource, identifying a short list of partners can be a daunting task.
Though many options exist it is essential to sort them. The following can facilitate in
sorting them:

1. Identify areas of opportunity

Gaining the ability to enter new markets without building a costly distribution infrastructure
is one great reason to outsource. Establishing a team to look at current and future
requirements of a business, and assess the ability to meet those needs. This team should
consist of key members of the logistics organization and such other areas as marketing and
customer service. These other departments can provide insight into growth projections and
shortcomings in existing processes.

2. Assessing the Strengths and Weaknesses

Having an understanding in what the company is good at and not--will enable to find an
appropriate partner. Potential partners also have distinct strengths and weaknesses. For
example, some logistics partners are better at warehousing than transportation. Others may
be great at managing the import process but less skilled in such functional areas as order
management.

3. Decide what to outsource

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Once a team has identified partnering opportunities, it needs to be determined which
functions to cede to the partner. Such functions as warehousing and transportation affect
how customers view a company’s ability to execute. The success of an outsourcing project
depends, in part, on the company’s comfort level with the partner's ability to execute on the
company’s behalf.

4. Identify a Short List of Providers

Several strategies can help in selecting the right partner. Creating and distributing a request
for information that asks potential partners about their capabilities can be done. A list of
providers who have experience in the industry can be developed. This process will reduce
the number of potential partners quickly. The network infrastructure of the remaining
companies also needs to be examined. It may also be helpful to initiate a logistics network
optimization effort to identify optimal locations for distribution. The company’s geographic
needs may require a nationwide network or be more focused on specific regions.

Benefits of Logistics Outsourcing

In logistics, considerable quantities of materials are required to be transported and stored at

various locations. Raw materials and components are to be moved over long distances from
vendor supply points to production centers. These materials have to be stored for some time
as raw materials and later as finished goods. Finished goods need to be transported to the
point of consumption. With so much to be done, the critical reasons why companies

Outsource logistics activities are:

a. Better focus on core competencies

b. Cost saving resulting from better management of supply chain

c. Cross pollination of better available practices

d. Wider and better geographical coverage by access to specialist world class capabilities

e. Improved re-engineering benefits

f. Lesser internal resources

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2.5 WAREHOUSING OR DISTRIBUTION CENTRE

An element of strategic importance in the logistics system. A proper decision making

regarding warehouse is necessary to ensure effectiveness of marketing. The warehouse acts
as an important link in the supply chain of a manufacturing company. It serves as the
interface area for production, market, customers and suppliers. Functionality of
warehousing covers operations like holding, consolidating break bulk, cross docking,
postponement, mixing, packaging, and information handling. Public, private and contract
storage are the different types of warehousing operations.

While making the warehouse selection, factors like nature of the product, access,
availability, infrastructure, market, regulations and local factors influence.

Warehouse network planning is a complex activity, and whose decision upon the number is
dependent on a number of factors such as product characteristics, objectives of logistics,
and availability of resource. Performance parameter ratios such as stock turnover, cost to
sales, occupancy rate etc enable in successful management of a warehouse.

While focusing on warehouse objectives of improving profit through reducing cost and
enhancing customer service level, the following have to be taken into consideration:

 Utilizing the storage space to the maximum

 Higher productivity of labor
 Reduced material handling
 Reduced order filling time
 Maximum utilization of assets
 Reduced operating cost.

Functions within the warehouse

 Receiving: Collection of activities involved in proper receipt of all materials

coming into the warehouse, providing the assurance that the quantity as well as
quality is as per ordered, and distributing the materials to storage or to the other
organizational functions which require them.
 Pre packing: This is done in the case when products are received in bulk from a
supplier and repacked into single consignments. The entire merchandise, which is
received, may be processed at once, or a portion may be held in bulk for processing
later.

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  Storage: Putting away the inventory received to complement order picking. It can
be explained as the physical holding of merchandise while it awaits demand.
Method of storage depends on the size and the quantity of the items in inventory
and the handling characteristics of the product or its container.
 Order picking: Physical selection of the products from their locations after
receiving the customer orders. In other words, process by which items are removed
from storage in order to cater to a specific demand. A document named Pick List
containing details like sales order number, shipment details, item details, quantity
etc facilitates order picking.
 Packaging and / or pricing: This is basically optional which may be done after the
picking process.
 Sortation and / or accumulation: When a warehouse stores multiple products, this
activity is done.
 Packing and shipping: Performance of tasks related to dispatching an order. This
includes the following tasks like checking whether order is complete or not, packing
material in an appropriate shipping container, preparation of shipping documents,
including packing list, address label, and the bill of lading, weighing the shipments
to determine shipping charges, accumulate orders by outbound carrier, loading
trucks etc.
 Traffic management: Choosing the best mode of transportation for inflow and
outflow.

Benefits of warehousing

Economic: Refers to the overall reduction in the logistical costs by utilizing one of more
benefits. The major benefits are as follows:

a) Consolidation: Material from a number of manufacturing plants destined to a particular

customer on a single shipment are consolidated and received by the consolidating
warehouse which results in reduced transportation cost. The advantage is that it combines
the flow of logistics from several small shipments to a specific market area. Several firms
may also join together and use this consolidation service, which will benefit each shipper
individually.

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b) Bulk Breaking: Various combined customer orders are received from a manufacturer and
shipped to individual customers. A break bulk warehouse sorts or splits individual orders
and delivers them locally.

c) Cross Docking: his facility is similar to bulk breaking but involves multiple
manufacturers. Truckloads of products arrive from multiple manufacturers, which are
sorted customer wise. Then they are loaded into the truck destined for the appropriate
customers. This system is widely used by retailers.

d) Postponement: A warehouse with facilities for light manufacturing activities like

packaging and labelling can enable postponement of final production until the exact
demand is known. The benefit here is a reduced level of risk and lower inventory as the
final labelling and processing activity is done only on knowledge of the actual demand and
thus the basic product is used for a variety of labelling and packing configuration.

e) Stock Piling: Stocks piled in the warehouse act as buffer inventory which help to tide
over situations of material constraints and customer demands.

Warehouse Management System

This is a software solution to control movement and storage of materials within a

warehouse, transportation management, order management, and a complete accounting
system. The following activities are managed through a WMS:

1. Inbound: Functions like addition of a new purchase order, palletisation, receipt of goods,
putting away received goods etc.

2. Inventory Management: Transferring inventory, holding and adjusting inventory,

awareness of inventory balances etc.

3. Outbound: Tasks such as creating an order of shipment, shipping multiple orders,

allocation of orders, shipping order status etc.

Material Handling and Storage Systems

Every operation in materials management involves the raising, lowering or moving an item,
which is termed as materials handling. The management of materials handling activities

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brings about a host of specialty disciplines and responsibilities like mechanical, electrical,
hydraulic means and electronic devices.

Basic Principles of Material Handling

 Best handling is least handling: As handling does not add any value to the product,
it is advisable to keep the handling cost minimum.
 Use of standardized equipment: The material handling equipment must be chosen
in such a manner as to afford flexibility and also be capable of performing multiple
standardized operations.
 Minimum use of specialized equipment’s: Though it is desirable to have
specialized equipment, the cost of acquisition, cost of operation, maintenance, repair
etc needs to be taken into consideration.
 Payload: The selection of equipment needs to be made after careful consideration
of the cost of moving. The economics can be measured by studying the cost of
operation involved in handling in each move.
 Standardized methods: When the methods of picking, carrying and settling down
are fixed, the wastage in time, labor and equipment will be eliminated.
 Capacity of equipment: The capacity needs to be examined carefully, as any over
loading causes undue wear, and also results in excessive maintenance.
Loading and unloading: A major portion of Material handling activity is in the loading
and unloading and thus this function needs a lot of attention.
Material Storage Systems

The storage system in a warehouse has a key role to play in the total cost and the efficiency
of warehouse operations. The manner in which inventories are handled rather than how
they are stored is very important. An efficient usage of material handling equipment is
possible if the storage system allows easy access and retrieval of inventory. Selecting a
storage system for a specific application depends upon the following factors:

1. Nature of the product: Products, which have a higher risk of contamination, will
have to be isolated from other product groups. For example hazardous chemicals
can cause damage to other products.
2. Configuration: While uniform products may be stored in stacks or in an enclosure,
products, which are in odd shapes and sizes, need more space.
3. Perishability: Perishable products are stacked in such a manner that consignments,
which come in first, are distributed first.
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 4. Product variety: When a variety of products are stored together, there needs to be
segregation for easy identification for storage and retrieval.

2.6 PACKAGING

Packaging is a marketing tool related to the performance of marketing function. The basic
objective behind packaging is to prevent damage to the product during storage,
transportation and handling, when it is in movement for distribution in the market. It forms
an important cost element of goods and represents 5 – 30 per cent of the value of goods,
depending on the type of product. It has a significant impact on the cost and productivity of
the logistical system. The main cost elements are the purchase of packaging materials,
introducing automated or manual packing operations, and further the need for disposal of
material. A systems approach is necessary to manage packaging. Any central planning
logic, which is designed to control total distribution costs, must keep in mind the costs
related to packaging.

There are two main types of packaging: Consumer and logistical/industrial packaging

 Consumer packaging
This packaging is done with a marketing emphasis. The packaging design focuses on
aspects like customer convenience, market appeal, shelf utilization, product protection etc.
The proper package design should have its base on a complete assessment of the logistical
packaging requirements, which requires a complete evaluation of how all the components
in the logistical system influence packaging.

 Industrial packaging
The concept of containerization or unitization where the individual products are grouped
into carton, bags, bins, or barrels for handling efficiency. The master cartons are grouped
into larger units for handling, the combination that is referred to as containerization or
unitization. Logistical packaging is designed to meet the distribution objectives.
Determining the degree of protection required to cope with anticipated physical and
element environments is an important issue in package designing.

Functions of packaging

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  Damage Protection
The master carton protects products from damage while movement and storage, in addition
to being a restraint to pilferage. The cost of protection increases according to the degree of
value and fragility of the product. The vulnerability of damage is related to the environment
in which it is stored and transported. The physical environment relates to the logistical
system. When the firm has more control over its physical environment, lesser the packing
precautions are required. An example can be the utilization of privately owned
transportation, which will move the product in a controlled environment. But if common
carriers are used for transportations, more precaution needs to be exercised as the product
may be transported in a variety of vehicles and there is lesser control. Certain situations in
which the product will cause in – transit damage to the product are vibration, compression,
puncture and impact. Securing the package with a tight strap or to load the carrier in a right
pattern can reduce this.

The outside elements also influence the packaging. There are certain factors like
temperature, humidity etc which are beyond the control of logistical management. It has to
be determined in advance how the contents of the packing will react to each of these factors
and design the packing accordingly.

 Utility/Convenience
This refers to how packaging can affect the logistical productivity and efficiency. When
products are packed in certain configurations and order quantities, it increases the logistical
output. Packaging thus provides convenience of handling and storing. Also the concept of
unitization is very significant here. Unitization refers to the process of grouping the master
cartons physically into one restrained load for easier material handling and transportation.

Packaging Cost:

The packaging cost depends upon factors like nature of product, physical dimensions,
value, regulations etc. Delivery of the product at minimum overall packaging cost is
essential. These are the costs included in packaging.

 Unit Package Cost: Basic material or container price. This will depend upon
factors like volume, freight charges, and methods of over packing and development
costs. An increase in the volume attracts lesser price.

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  Operation Cost: The packaging equipment must have the strength and ability to
withstand the stress of high speed filling equipment, in order to make the production
process cost effective and efficient.
 Warehousing: The packed product is shipped to the user’s warehouse for storage
before shipment. Shape of the package and strength of the package are the factors of
key importance here.
 Distribution: Moving the product from the user’s warehouse involve several forms
of transport. The costs of these are referred to as transport costs, which are governed
either by the weight of the finished pack or the volume. They may also depend upon
the shipping distance and value of the item being handled.

Types of packaging material

 Shrink – Wrapping: Form of packing where a pre - stretched plastic sheet or bag is
placed over platform and master cartons. Heating locks the cartons. Advantages of
this packaging are adaptability to various shipment sizes, low cost, and the ease of
identifying contents and damage. A major disadvantage is disposal of waste
material.
 Stretch – Wrapping: The unit load is wrapped with a tightly drawn external plastic
material. Then it is rotated on a turntable to place the stack under tension. Platform
is wrapped directly into the unit load.
 Aluminum: The main area of usage is foil. These are used as a replacement for
beverage cans, stack ability being the main advantage. Metal tubes and molded trays
are the other two forms. While metal tubes are used in pharmaceuticals, crafts, and
cosmetics, molded trays are used in the food industry.
 High – Density Plastic Boxes: Containers with lids similar to those purchased for
home storage applications. These are rigid and sturdy, thus ensuring high protection.
 Plastic Strapping: A load is unitized so that many smaller containers can be
handled as a single larger container. The strapping, which is usually about one to
one and a half inch wide, is bound tightly around the containers.
 Plastic Foam Dunnage: Used to pack irregular shaped products into standard
shaped boxes. These are light and do not increase the transportation cost and also
provide substantial protection. A major issue here is the environmental problems
related to disposal.

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  Film – Based Packaging: This utilizes flexible materials instead of rigid
packaging like corrugated fiberboard boxes. Corrugated fiberboard cases represent
an important part of the paper and board industry, in terms of both tonnage and
value. Corrugated fiberboards are commonly used for television, washing machines,
refrigerators, cigarettes, personal care products, etc among a host of other products.
The advantages here include automatic operation, reduced labor costs of manually
boxing products.
 Blanket – Wrapping: A traditional form of packing, which is generally used in
household packing. This packing is most suitable for irregular shaped products like
chairs, tables and other furniture. Generally household goods carriers use these
services.
 Returnable Containers: These are mostly re – usable packages like steel or plastic
and sometimes corrugated fiberboard boxes. These are used by automobile
manufacturers to pack inter - plant shipment of body parts.
 Intermediate Bulk Containers: Used for granular and liquid product shipment
quantities smaller than tank cars but larger than bags or drums. Resin pallets, food
ingredients, and adhesives are packed in these containers.
 Plastic Pallets: The rapid growth in the utilization of plastic in packaging is
noticeable. These are lightweight and recyclable.
 Pallet Pools: Third – party supplies maintain and lease high – quality pallets all
through the country. Palletization has contributed immensely to logistical
productivity. Advantages include reduced damage, lesser costs of disposal, and
improved use of pallet resources. The disadvantage is the costly investment in
pallets.
 Refrigerated Pallets: A self – contained refrigerated shipping unit, which can be
placed inside a regular dry van as a Less Than Truck Load shipment. This integrates
the demands of environment and unitization.

Factors effecting choice of packaging materials

 Characteristics of Materials to be Packaged

 Destination
 Kind of Transportation
 Handling, storability and storage considerations
 Conditions of usage and distribution
 Cost
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  Availability of the type of package and choice of substitutes

2.7 TRANSPORTATION

Transportation is basically the movement from one location to another as it makes its way
from the beginning of a supply chain to the customer’s hands. Transportation not only
ensures movement of people but also goods from one place to another thus assisting the
economy in the growth of trade and commerce. Being one of the most visible elements in
the logistics operations, this function has gained a lot of importance and interest from the
logistics perspective.

Transportation plays an important role in each and every supply chain because products are
usually not produced and consumed in the same location. The third P in the marketing mix,
‘Place’ is of importance here. In fact, transportation costs occupy a significant part of the
total costs in most supply chains. With the growth in industry and commerce, transportation
facilitates in achieving the social and economic objectives. As times are changing and
according to the requirements, the mode of transportation is changing to keep pace with the
growth of science and technology across the globe. The degree of sophistication of the
various transportation equipment in use varies according to the level of economic condition
and growth of any particular region / country. As the economy has transformed from
subsistence agriculture to commercial agriculture, and also with the spurt of manufacturing
activities, the scope of development of transportation modes has widened. In the olden
days, the various modes of transportation like human beings, camels, horses, donkeys, carts
and ships were being used. Today, these have paved way to newer modes of transportation
to suit the needs of the modern world. In spite of the emergence of sophisticated modes of
transportation, older modes continue to serve the society, but in a smaller way.

Transport, being the main component of logistics, plays an important part in all
management decisions within the organization, from strategic decisions to everyday
operations. Day to day management decisions also relies on transport, as “Just in Time”
methods for both production and distribution have become the standard. With the growth in
e-commerce, resulting in more and more home delivery of products, transportation costs
have become very significant in retailing. Especially for products sold online,
transportation cost is a larger fraction of the total delivery cost.

20
Basically, transportation serves two main purpose

 Product movement: The primary function of transportation is the forward and

backward movement of the product in the value chain. It is necessary that product
be moved only when they are necessary and there is an enhancement in the product
value. This is because transportation utilizes the financial resources for expenditure
like driver’s labour, operation cost of the vehicle, and other administrative
expenditure. The environmental resources are utilized both directly and indirectly.
An example of direct usage can be the fuel and oil costs and an indirect usage can
be the environmental expense caused by air, noise pollution in the environment.
 Product Storage: Temporary storage for in – transit goods is expensive. But in
circumstances where the warehouse space is limited, utilizing the transportation
vehicles may be a better option. One option is where the product is loaded on the
vehicle and then it takes a roundabout or indirect route to its destination. The
vehicle can be used as a temporary storage option where the origin or destination
warehouse has limited storage capacity. Another option is to take a diversion. This is
done when there is an alteration in the shipment destination while the delivery is in
transit. While, telephone was used for diversion strategies originally, today satellite
communication handles this task efficiently.
A transportation strategy to be successful, should recognize the following:

 Customer requirements. The supply chain involves continuous and efficient

movement of product from vendor to manufacturer to customer. Thus the
transportation program must reflect and meet the customer’s needs. The vital
aspects are time and service.
 Timely movement of shipments. Customers demand their shipments be delivered
as they require - on the date needed, by the carrier preferred, both shipped complete
and delivered complete and in good order. A transportation program, which can do
this, can provide customer satisfaction and give a competitive edge.
 Mode selection. Selecting the mode of transport is an important consideration. The
transit time has to be considered while doing so.
 Carrier relationships. Volume catches the attention of the carrier of forwarder. The
carrier attention with volume creates a competitive interest in a business. Another
side to this attention is that the business cannot be divided among many carriers.

21
 The chief reason being that responsive transportation can create a competitive
advantage and this can be done only with a focused relationship with a carrier.
 Measuring/benchmarking. There is a necessity to know about the performance of
the strategy as well as the carriers. Measuring and benchmarking can be of
assistance to this. Measuring means comparing performance versus standards.
Benchmarking means learning what other companies do--the best practices.
Benchmark needs to be done with a company in the same industry.
 Flexibility. As change is happening everywhere, the strategy has to be ready to
change. There is a constant change in the customers, products, business, suppliers
and the overall corporate emphasis, which can dramatically change the company’s
strategy.
Participants in the Transportation Decisions

Primarily there are five key parties in transportation decisions. Each of these parties has a
role in the transportation environment.

Shipper: The party, which requires the movement of the product between the two points in
the chain. The shipper’s objective is to full fill the customer order with responsiveness but
at the minimum cost.

Consignee: The destination party or receiver. The consignee also has the similar objective
of receiving the goods at a lowest cost and with maximum responsiveness.

Carrier: The party, which moves or transports the product with an objective of maximizing
the revenue at the least cost. Carriers have a tendency charge a higher rate and reduce their
costs by trying to consolidate various individual loads into economical loads and thus
would seek flexibility in pickup and delivery with the client. This motive is in conflict with
the manufacturer’s objective of reducing total transportation costs.

Government: The Government has a high interest level in the transactions because a stable
and efficient transportation environment is necessary to sustain economic growth. To
facilitate this, carriers must offer competitive services while operating profitably.

Public: The ultimate determinant of transportation by desiring goods at reasonable prices.

Their concerns are related with the accessibility, expenditure, effectiveness as well as the
safety and environmental standards.

22
Factors affecting carrier decisions

 Vehicle related cost: Cost incurred by the carrier for purchase or lease of the
vehicle to transport goods
 Fixed operating cost: Costs which can be associated with the airport, terminals and
labor which are incurred whether vehicles are in operation or not.
 Quantity – related costs: Usually variable in nature except in circumstances where
labor for loading and unloading is fixed.
 Trip – related cost: Includes the price of labor and fuel incurred for each trip
independent of the quantity transported.
 Overhead cost: Any cost incurred for planning, scheduling a transportation network
as well as the information technology costs incurred.

Factors affecting shipper’s decision

 Transportation Cost: Total amount paid to various carriers for transporting

products to customers.
 Inventory Cost: Cost of holding inventory incurred by the shipper’s supply chain
network.
 Facility cost: Cost of various facilities in the shipper’s supply chain network.
 Processing cost: Cost of loading / unloading orders and the other processing costs
associated with transportation.
 Service level cost: Cost of not being able to meet delivery commitments. This cost
to be considered in strategic, planning and operational decisions.
Modes of transportation

 Air
Air cargo has to be specially prepared or modified to enable the cargo to fit into the
aircraft. The upper and lower deck configuration, mass and dimension limitations,
pressure and air
Temperature variations and the floor load factors must be taken into consideration
by the shipper of the cargo. All aircraft have limited carrying capacity, and loading
beyond the safety limit in terms of the mass and volume of the cargo is not
permitted. The actual limitations vary from one type of aircraft to another. To
facilitate quicker and safer loading, airline personnel group all air cargo into larger
units on pallets or containers. These are collectively known as Unit Load Devices or

23
 ULD’s. ULD’s play an important part in the loading and discharging of aircraft. The
floor of an aircraft is equipped with roller beds for ease of movement of the ULD’s.
Since the introduction of Unit Load Devices into the air freight industry, cargo is
discharged quicker and theft and damages have been greatly reduced. Airlines that
are members of the International Air Transport Association (IATA) are bound by
their membership to comply with tariffs issued by IATA. However, since 11th
September 2002, airfreight rates are now extremely negotiable. Airfreight rates
cover transportation from the airport of loading to the airport of discharge. This is
the least hazardous in nature when compared to all other modes of transport. Air
transport is expensive, and is very suitable for products having high value or
extreme perishability. The prohibitive aspect of this mode is its high cost. From the
operator’s point of view, though the fixed cost is low compared to other modes like
rail, water and pipeline, variable costs are very high as a result of fuel, maintenance,
and the labour for crew.
Though the cargo handled by air is growing at a fast pace, it is still not important
when compared to the cargo handled by other modes of transportation. Air, by
whatever type of airline, is generally considered a premium means of transportation.
The best justification for the high cost can be an emergency situation, which
necessitates the service of air transport. Technological developments like new
cargo-handling equipment at air terminals and the use of larger containers have been
beneficial.
 Sea / Water
The oldest mode of transportation. Water transport, due to its nature, is limited to
certain areas. It is the slowest modes of all the modes and a lot of delays also occur
at ports and terminals. Water transport is generally suited for carrying very large
loads at low cost. Usually the shipping fleet across the globe comprises of tankers,
dry bulk carriers, container ships and special vessels. Some of the problems
encountered with this mode are rough weather characterized by storms, ice, high
waves etc in – transit. Also there is a disadvantage of a limited range of operation
and speed.

 Railways
Generally capable of transporting large quantities of freight over long distances very
economically. These are the principal carriers of men and material, and play a major

24
 role in the country’s trade and commerce activities. It is the main source of supply
of essential commodities, which are transported across the length and breadth of the
country. Road traffic is relieved to a certain extent and also air pollution caused by
trucks can be eliminated. The railways also charge competitive freight rates.
 Roadways
Most popular mode of transport. With the manifold growth in industrial and
agricultural activities, this mode has achieved a lot of importance. The various
advantages of this mode are flexibility, faster turnaround, lesser risk of delays or
strikes, door-to-door service, reach to remote places and through movement from
consignor to consignee.

Transport Economics: The factors which influence transport economics:

1. Distance: This is a major influence on the cost as it is a direct contributor to variable

costs like labour, fuel, and maintenance. The tapering principle, where the cost curve
increases at a decreasing rate as a result of the distance function is relevant here.

2. Volume: It is viable to consolidate smaller loads into larger loads to take advantage of
the economies of scale.

3. Density: The product density or weight is discussed here, where the product density can
be increased within a truckload for better capacity utilization.

4. Storability: This refers to the product dimensions and how they affect the vehicle space
utilization. It is easier to stow standard shaped items than odd – shaped items, which
occupy more space.

5. Handling: While loading or unloading trucks, railcars, or ships, there is a necessity for
special handling equipment’s like trolleys, forklift trucks, conveyors etc to load or unload
trucks, railcars or ships.

6. Liability: These are product characteristics, which basically affect the risk of damage
and the resulting incidence of claims.

25
7. Market Factors: Factors like lane volume and balance. A transportation lane refers to
the movements between the points of origin and destination. When a vehicle is sent from
the point of origin, it may return empty-handed or may bring back load. Due to the
imbalances in demand in both the manufacturing and consumption locations, a balanced It
is the responsibility of the logistics managers to understand the influence these factors have
on the transportation cost and minimize such expense.

Documents in Transport Decision Making

 Bill of Lading: A computerized, basic document, which is, utilized in purchasing

transport services. This serves as a receipt of the commodities and quantities
shipped. It also serves as the basis for damage claims in case of loss, damage, delay
etc. The terms and conditions of the carrier liability and gives in documentation
form the responsibility for all possible causes of loss or damages.
 Freight Bill: This is how the carrier charges for the transportation services he
performs. The information contained in the bill of lading is utilized for preparation
of this.
 Shipping Manifest: This document is used when multiple shipments are placed on
a single vehicle. The document provides a comprehensive list, which informs the
entire load content, making it unnecessary to view individual bills of lading as all
details relating to the stops, bills of lading, weight, case count etc for each shipment
are listed in this manifest.
Transportation Management

Factors like globalization and technological improvements in the past years have changed
the logistician’s view of transportation. The logistics manager is expected to be more
proactive in identifying the desirable combination of carrier services and also the suitable
pricing structures in order to meet the objectives of the firm. Transportation, when managed
independently of other value added logistics operations often represents the weaker
elements. Transportation decisions, which are made in co-operation with, related functions
remove this weakness. The two main fundamental principles in transportation management
and operations are economy of scale and economy of distance. Economy of scale means
the transportation cost per unit of weight decreases with an increase in the size of shipment.
Economy of distance implies that there is a decrease in the transportation cost per unit with

26
an increase in the distance. These principles are essential while evaluating alternative
transportation strategies or operating practices.

Thus transportation management is an important activity for the organization which

involves the following process:

a) Analysis and Understanding of environment: There is a necessity to understand the

transport environment, to make sound transport decisions. The environment consists of the
five parties – shipper, consignee, carrier, government and public.

b) Clarity in objectives: The order of preference in performance of transportation

functions has to be decided. The manufacturer must determine his objectives at a level at
which service can be performed and the levels at which customers expect, the amount of
trade – offs that can be expected. Such setting of objectives can enable the company to
choose an efficient mode of transport.

c) Selecting mode of transportation: A choice between single mode and intermodal

transport has to be made to achieve objectives efficiently.

d) In source or outsource: After selecting the mode, the company must decide whether to
in source the activity or outsource to third parties. According to the mode selected, the
company must perform the functions.

e) Evaluation and Control: The efficiency of the transport system can be ascertained by
measuring the customer satisfaction.
2.8 MERITS / DEMERITS OF LOGISTICS MANAGEMENT
MERITS
 Allows focus on core competences
 management capabilities
 Save costs and time
 Reduce heavy assets investment
 Increase flexibility and agility
 Increase efficiency
 Value-added services and service variety
 Increase global inventory visibility
 Share responsibilities and reduce risks

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  Economies of scale
 Share knowledge and experience
DEMERITS
 Poor worker quality
 Poor service levels
 Misleading feedbacks
 Coordination problems
 Environmental responsibilities
 Power of control

2.9 ARTICLES REVIEWED

Fernie and Spark (1998) in their article titled “logistics and retail management: insights
into current practice and trends from leading experts” explained the importance of
technology in enhancing logistics efficiency. They highlighted the way in which
breakthroughs in technology and IT have contributed in facilitating logistical efficiency in
the distribution network. They mentioned that technological innovations in material
handling and communication can substantially improve the flow of information through
the supply chain.
Stock, and Lambert (2001) explained in their article titled “strategic logistics
management” the importance of logistics and logistics cost savings of firms. They
suggested that logistics costs savings can have a greater impact on firm`s profitability than
increase in sales volume can. Logistics also plays an equally important role in generating
value advantage by the creation of product’s time and place utilities.
Krishnaveni Muthiah (2002) mentioned in his article titled “logistics management and
world seaborne trade” that cargo handling infrastructure at the major airports in India is
severely crippled by factors such as lack of modernization, particularly inadequate space,
lack of proper cold storage facilities, outdated equipment, pilferage and theft.
Sahay and Mohan R (2003) discussed in the article titled “logistics and supply chain
management in India” about the spending of India on logistics costs. They stated that the
Indian industry spends an exceptionally high amount of its gross domestic product (GDP)
on logistics. India’s logistics cost has been estimated to be around 14 per cent of its GDP,
out of which 40 per cent can be attributed to transportation alone.
Andreea Popescu (2006) in the article titled “conducting case study research on
operations management” provided valuable strategies for more efficient management of
28
revenues and capacity for airlines and freight forwarders. The objective of his study was to
develop methods to improve both freight forwarders and airlines, action when dealing
with air.
Sahay B.S (2006) studied in his article titled “the integrated supply chain management
system” the current state of supply chain management practices followed in Indian
organizations. The objective of the study is to identify the important areas that need
improvement in order to gain competitive advantage. The findings of the study revealed
that most of Indian organizations have aligned their supply chain objectives with their
business objectives.

Chiu (1995) examined in the article titled “analyzing customer satisfaction and service
using ai techniques” the critical success factor in effective logistics management. He opined
that the critical success factors in logistics management include good planning of the
logistics system, a well-designed distribution organization, the prudent selection of allied
companies, a close relationship with trading partners, good logistics investment analysis,
the elimination of barriers to logistics management, commitment of top management and
continuous improvement in logistics.
Stock and Lambert (2001) in their article titled “a knowledge based system to support
procurement decisions” explained the importance of logistics and logistics cost savings of
firms. They suggested that logistics costs savings can have a greater impact on firm`s
profitability than increase in sales volume can. Logistics also plays an equally important
role in generating value advantage by the creation of product’s time and place utilities.
Vijaya raghavan (2001) in the article titled “impact of transportation infrastructure on
logistics in India” focused on the importance of transportation in logistics. He stated that
transportation is the backbone of the entire supply chain. Transportation makes it possible
for a company to achieve the well- known seven ‘R’s—the Right product in the Right
quantity and the Right condition, at the Right place, at the Right time for the Right
customer.
Kemthose P. Paul (2003) in the article titled “real time value chain management”
identified IT as the mainstay of supply chain management. Planning and control functions
performed by logistics managers rely on quick, accurate and relevant data. So building an
information system for data capture, storage, and use is a pre-requisite of any good modern

29
supply chain management system. He also recommends an efficient software system to
support a well-designed supply chain system.
Mc. Kinnon (2004) in the article titled “air traffic control of logistics during
transportation” identified certain features pertaining to airports competition viz. 1)
location, airports located closer to shipper enjoy the advantages of time and cost, 2) airport
infrastructure including runway capacity, terminal setup and transport connectivity,3)
airport charges, 4) customs rules and charges 5) congestion and lack of slot availability 6)
Choice and quality of freight forwarders 7) environmental restrictions such as noise limits
and night curfew and 8) regulatory restrictions.

Satish C Ailawadi & Rakesh Singh (2005) in their article titled “integrated supply chain
management” pointed out that the concept of logistics was introduced due to the need for
planning and coordinating the material flow from source to user as an integrated system
rather than as a series of independent activities. They also pointed out that the objective of
logistics is to provide higher levels of service to the consumer at more affordable costs by
linking the market place, the distribution network, the manufacturing process and
procurement activity. They mentioned that the logistics competency is achieved by
coordinating the fundamental areas such as network design, information, transportation,
inventory, warehousing, material handling and packaging.
Morrell (2011) in his article titled “air cargo logistics in India” pointed out that Air
transport provides a suitable way of transport for special types of freight such as emergency
freight (spare parts, documents), high-value freight (e.g. gold, currency, and artwork) and
perishables (pharmaceuticals, fresh food, cut flowers). Because these products have very
short shelf life, they benefit from fast transit times.
Shaw (2007) in his article titled “air transport of primary products in logistics” pointed
out that Air transport is also responsible for most of the value added. As stated by Boeing,
even though air freight accounts for fewer than 2 per cent of total tonnage transported, it
represents almost 40 percent of aggregate value of total world trade, proving that it is a link
of paramount importance for the global supply chains. This shows the very high value to
weight ratio that characterizes air freight shipments, a fact that is expected when one

30
considers that the transport costs by air can be up to ten times higher than those of other
modes.

CHAPTER III
INDUSTRY AND COMPANY PROFILE

3.1 INDUSTRY PROFILE

3.1.1 INTRODUCTION TO RETAIL INDUSTRY

Retailing in India is one of the pillars of its economy and accounts for about 10 percent of
its GDP. The Indian retail market is estimated to be US$ 600 billion and one of the top five
retail markets in the world by economic value. India is one of the fastest growing retail
markets in the world, with 1.2 billion people.

As of 2003, India's retailing industry was essentially owner manned small shops. In 2010,
larger format convenience stores and supermarkets accounted for about 4 percent of the
industry, and these were present only in large urban centers. India's retail and logistics
industry employs about 40 million Indians (3.3% of Indian population).

Until 2011, Indian central government denied foreign direct investment (FDI) in multi-
brand retail, forbidding foreign groups from any ownership in supermarkets, convenience
stores or any retail outlets. Even single-brand retail was limited to 51% ownership and a
bureaucratic process.

In November 2011, India's central government announced retail reforms for both multi-
brand stores and single-brand stores. These market reforms paved the way for retail
innovation and competition with multi-brand retailers such
as Walmart, Carrefour and Tesco, as well single brand majors such as IKEA, Nike,

31
and Apple. The announcement sparked intense activism, both in opposition and in support
of the reforms. In December 2011, under pressure from the opposition, Indian government
placed the retail reforms on hold till it reaches a consensus.

In January 2012, India approved reforms for single-brand stores welcoming anyone in the
world to innovate in Indian retail market with 100% ownership, but imposed the
requirement that the single brand retailer source 30 percent of its goods from India. Indian
government continues the hold on retail reforms for multi-brand stores.

In June 2012, IKEA announced it had applied for permission to invest $1.9 billion in India
and set up 25 retail stores. An analyst from Fitch Group stated that the 30 percent
requirement was likely to significantly delay if not prevent most single brand majors from
Europe, USA and Japan from opening stores and creating associated jobs in India.

On 14 September 2012, the government of India announced the opening of FDI in multi-
brand retail, subject to approvals by individual states. This decision was welcomed by
economists and the markets, but caused protests and an upheaval in India's central
government's political coalition structure. On 20 September 2012, the Government of India
formally notified the FDI reforms for single and multi-brand retail, thereby making it
effective under Indian law.

On 7 December 2012, the Federal Government of India allowed 51% FDI in multi-brand
retail in India. The government managed to get the approval of multi-brand retail in the
parliament despite heavy uproar from the opposition (the NDA and leftist parties) some
states will allow foreign supermarkets like Walmart, Tesco and Carrefour to open while
other states will not.

Indian market has high complexities in terms of a wide geographic spread and distinct
consumer preferences varying by each region necessitating a need for localization even
within the geographic zones. India has highest number of outlets per person (7 per
thousand) Indian retail space per capita at 2 sq ft (0.19 m2)/ person is lowest in the world
Indian retail density of 6 percent is highest in the world. 1.8 million Households in India
have an annual income of over ₹4.5 million (US$65,093.00).

The organized retail market has a share of 8% as per 2012. While India presents a large
market opportunity given the number and increasing purchasing power of consumers, there
are significant challenges as well given that over 90% of trade is conducted through
32
independent local stores. Challenges include: Geographically dispersed population, small
ticket sizes, complex distribution network, and little use of IT systems, limitations of mass
media and existence of counterfeit goods.

A number of merger and acquisitions have begun in Indian retail market. PWC estimates
the multi-brand retail market to grow to $220 billion by 2020.

Indian retailers

A 2012 PWC report states that modern retailing has a 5% market share in India with about
$27 billion in sales, and is growing at 15 to 20% per year. There are many modern retail
format and mall companies in India. Some examples are in the following table.

Indian Retail
Market Reach in 2019 and Notes
Group

Pantaloon Retail 65 stores and 21 factory outlets in 35 cities, 2 million square feet space

Shoppers Stop 51 stores in 23 cities, 3.2 million square feet space

Spencers Retail 200 stores in 45 cities, 1 million square feet space

708 mart and supermarkets, 20 wholesale stores in 15 cities, 508 towns

Reliance Retail
₹1,206 crore (US$170 million) per month sales in 2013

Bharti Retail 74 Easyday stores, plans to add 10 million square feet by 2017

Birla More 575 stores nationwide

Tata Trent 129 Westside mall stores, 13 hypermarkets

33
Lifestyle Retail 15 lifestyle stores, 8 home centers

193 stores in 3 cities, one of three largest supermarkets retailer in India

Future Group by sales
₹916 crore (US$130 million) per month sales in 2013

Nysaa Retail Pvt

56 stores in 7 states
Ltd

3.1.2 PRESENT SENARIO OF RETAIL INDUSTRY IN INDIA

The Indian retail industry has emerged as one of the most dynamic and fast-paced
industries due to the entry of several new players. Total consumption expenditure is
expected to reach nearly US$ 3,600 billion by 2020 from US$ 1,824 billion in 2017. It
accounts for over 10 per cent of the country’s Gross Domestic Product (GDP) and around 8
per cent of the employment. India is the world’s fifth-largest global destination in the retail
space.
Retail market in India is projected to grow from an estimated US$ 672 billion in 2017 to
US$ 1,200 billion in 2021F. Online retail sales are forecasted to grow at the rate of 31 per
cent year-on-year to reach US$ 32.70 billion in 2018.
India is expected to become the world’s fastest growing e-commerce market, driven by
robust investment in the sector and rapid increase in the number of internet users. Various
agencies have high expectations about growth of Indian e-commerce markets.
Luxury market of India is expected to grow to US$ 30 billion by the end of 2018 from US$
23.8 billion 2017 supported by growing exposure of international brands amongst Indian
youth and higher purchasing power of the upper class in tier 2 and 3 cities, according to
Assocham.
Investment Scenario
The Indian retail trading has received Foreign Direct Investment (FDI) equity inflows
totaling US$ 1.66 billion during April 2000–March 2019, according to the Department of
Industrial Policies and Promotion (DIPP).

34
With the rising need for consumer goods in different sectors including consumer electronics
and home appliances, many companies have invested in the Indian retail space in the past
few months.
India’s retail sector investments doubled to reach Rs 1,300 crore (US$ 180.18 million) in
2018.
Walmart Investments Cooperative U.A has invested Rs 2.75 billion (US$ 37.68 million) in
Wal-Mart India Pvt Ltd.
Government Initiatives
The Government of India has taken various initiatives to improve the retail industry in
India. Some of them are listed below:
 The Government of India may change the Foreign Direct Investment (FDI) rules in
food processing, in a bid to permit e-commerce companies and foreign retailers to
sell Made in India consumer products.
 Government of India has allowed 100 per cent Foreign Direct Investment (FDI) in
online retail of goods and services through the automatic route, thereby providing
clarity on the existing businesses of e-commerce companies operating in India.

Road Ahead
E-commerce is expanding steadily in the country. Customers have the ever increasing
choice of products at the lowest rates. E-commerce is probably creating the biggest
revolution in the retail industry, and this trend would continue in the years to come. India's
e-commerce industry is forecasted to reach US$ 53 billion by 2018. Retailers should
leverage the digital retail channels (e-commerce), which would enable them to spend less
money on real estate while reaching out to more customers in tier-2 and tier-3 cities.
It is projected that by 2021 traditional retail will hold a major share of 75 per cent,
organized retail share will reach 18 per cent and e-commerce retail share will reach 7 per
cent of the total retail market.
3.1.3 PESTEL ANALYSIS
New forces and trends are shaping the retail landscape. Particularly, it is the technological
and economic trends that are having the deepest effect on it. However, with time the
competitive pressure is also growing which is because of the growth in the number of
players and proliferation of the e-retail. 2015 was a year of whopping growth for e-retail.
Amazon has grown by leaps and bounds. Since the recession passed, retail sales globally
35
have kept growing and by 2020 they are expected to have grown to $28 trillion.
Globally, retail is a major contributor to the GDP of nations and also employs a very large
workforce. However, there are several forces in the macro environment that affect it and are
going to shape its future. So that they can exploit the changing demographic and economic
trends, retailers are expected to make better use of technologies like Cognitive intelligence
and Artificial Intelligence to better serve their customers and grow their market share. Here
is a PESTEL analysis to show how the various forces affect the retail industry.
Political:
Political factors like government policies and regulation of the retail industry affect its
revenue and profitability. The political environment affects so many things including
economic environment of a nation and international supply chains of businesses. Political
stability means better business because political disruption leads to the disruption of supply
chain and sales. Moreover, political issues can also become hindrance to smooth business
operation. The antitrust issues have continued to trouble Amazon and the issue seems to
have reignited with Trump as president. In all the nations, the business environment is
affected by the political landscape. The Asian economy is growing at a faster rate than other
parts of the globe. However, the government and Red tape can be a big problem in the
Asian nations. For the big International retailers it can be quite difficult to expand into the
Asian countries. India still has difficult laws and restrictions on Foreign Direct Investments.
All these factors can make it difficult for the retail brands to operate profitably in the
international environment.
Economic:
Economic factors are always very important in the context of trade and business. The state
of the world economy decides the state of sale and profits for the industry. The world
economy has rebounded and is growing. Economic growth means that people are going to
spend more on shopping. However, even in the time of recession, the retail industry had
maintained impressive sales. In 2015, it achieved global sales of $20.8 trillion. Based on the
economic scenario worldwide, the retail industry is predicted to have grown to $28 trillion
by 2020. The labor market and the economy both are in very good shape and an increase
in disposable income has also boosted consumer confidence. All of these are very good
signs for the retail industry. The better the shape of the economy, the higher will be the

36
revenue and profits for the retail brands. Better economic scenario means a growth in sales
and overall better shape of the retail sector.
Social:
Social trends are also a major impact on the retail sector and its profitability. Demographic
changes and changing consumer preferences are going to have a deep impact on retail
sector. The millennial have different preferences than the previous generation. When it
comes to customer service they want more personalized service. Retailers will have to
change the way they serve their customers and design their service experience better to lure
in millennial in higher numbers. Demographic changes have also affected the popularity of
products. The technological products are in more demand than ever. The demands of the
new generation are much different than the older generations. The importance of customer
service is growing and a lot of retailers’ popularity will depend on how well they have
crafted their customer experience. More focus shall have to be on customer engagement.
Technological:
Technological factors are now all the more important whether in terms of supply chain,
customer service or sales. The growth of digital technology has also increased the number
of players in the retail industry. Technology affects several things including user
experience. If e-retail has enjoyed exponential growth then it is because of the additional
convenience provided by technology. More and more retailers are trying to make better use
of technology to make the customer experience better. A number of new technologies like
AI and cognitive intelligence are going to change the retail landscape in the coming years.
Even cloud computing, IOT and Distributed intelligence are going to have a deep impact
on the retail sector. In the coming years several more things will be determined by
technology which will remain at the center.
Environmental:
Like the other industry sectors, the retail sector is also affected by the sustainability
concerns. Packaging, waste reduction, renewable energy and several other concerns related
to sustainability are there before the retail sector. The big brands like Amazon and Walmart
have already invested a lot in reducing their carbon footprint and in renewable energy.
Apart from that the focus is also on packaging and sourcing in an environmentally
responsible manner. Amazon is always driving improvement in packaging sustainability

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across the entire supply chain. It is focusing not just on reducing its carbon footprint but
also on achieving 100% renewable energy usage in the long term.
Legal:
The legal factors are also just as important for the retail sector. There are so many laws
related to business and employment that affect it. Labor laws are particularly a big pain for
the retailers who have to maintain low prices to remain competitive. Walmart has had so
many tussles with laws over labor related issues. Apart from that, the other laws like
product and packaging related laws also apply to the retail sector. Overall, the legal
scenario is quite complex and retailers have to be cautious since any violation can result in
big fines. Both Amazon and Walmart have had to deal with their fair share of legal issues in
the past. These laws and the level of legal scrutiny differs from nation to nation and
everywhere the retailers have to be cautious about compliance.

3.2 COMPANY PROFILE

3.2.1 HISTORY OF THE COMPANY

Future Group, led by its founder and Group CEO, Mr. Kishore Biyani, is one of India's
leading business houses with multiple businesses spanning across the consumption space.
While retail forms the core business activity of Future Group, group subsidiaries are present
in consumer finance, capital, insurance, leisure and entertainment, brand development,
retail real estate development, retail media and logistics.

Led by its flagship enterprise, Pantaloons Retail, the group operates over 12 million square
feet of retail space in 71 cities and towns and 65 rural locations across India. Headquartered
in Mumbai (Bombay), Pantaloons Retail employs around 35,000 people and is listed on the
Indian stock exchanges. The company follows a multi-format retail strategy that captures
almost the entire consumption basket of Indian customers. In the lifestyle segment, the
group operates Pantaloons, a fashion retail chain and Central, a chain of seamless malls. In
the value segment, its marquee brand, Big Bazaar is a hypermarket format that combines
the look, touch and feel of Indian bazaars with the choice and convenience of modern retail.

In 2008, Big Bazaar opened its 100th store, marking the fastest ever organic expansion of a
hypermarket. The first set of Big Bazaar stores opened in 2001 in Kolkata. Hyderabad and
Bangalore.

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The group's specialty retail formats include, books and music chain. Depot, sportswear
retailer. Planet Sports, electronics retailer. Ezone, home improvement chain, Home Town
and rural retail chain, Aadhar, among others. It also operates popular shopping portal,
futurebazaar.com.

CONSUMPTION COSMOS

The retail formats are geared to capture Consumption Spending in key categories in both
value and lifestyle segment. And specialized businesses backed by capital and investments
in developing the necessary consumption infrastructure is helping build consumption

This empowers Pantaloons Retail to build a comprehensive business model that can capture
a dominant share of the single biggest business opportunity in India - the consumption
space.

Company History

1987 Company incorporated as 'Manz Wear Private Limited'. Launch of Pantaloons

trouser, India's first formal trouser brand.

1901 Launch of BARE, the Indian jeans brand.

1992 Initial public offer (IPO) was made in the month of May.

1994 The Pantaloons Shoppe – Exclusive menswear store in franchisee format

lunched across the nation. The company starts the distribution of branded
garments through multi-brands retail outlets across the nation

1995 John Miller Formal shirt brand launched.

1997 Company enters modern retail with the launch of the first 8000

2001 Three Big Bazaar stores launched within a span of 22 days in Kolkata,
Bangalore

2002 Food Bazaar, the supermarket chain is launched.

2004 Central - India's first seamless mall is launched in Bangalore.

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2005 Group moves beyond retail, acquires stakes in Galaxy Entertainment, Indus League
Clothing and Planet Retail. Sets up India's first real estate investment fund Kshitij to
build a chain of shopping malls.

2006 Future Capital Holdings, Tile Company’s financial is formed to manage over
$1.5billion in real estate, private equity and retail infrastructure funds. Plans
forays into retailing of consumer finance products.

Home Town, a home building and improvement products retail chain is launched along
with consumer durables format, Ezone and furniture chain, Furniture Bazaar.

Future Group enters into joint venture agreements to launch insurance products with
Italian insurance major, General. Forms joint ventures with US office stationery
retailer, Staples.

2007 Future Group crosses $ 1 billion turnover mark. Specialized companies in

Retail media, logistics, IPR and brand development and retail-led technology services
become operational.

Pantaloons’ Retail wins the 'International Retailer of the Year' at US based National
Retail Federation convention in New York and 'Emerging Retailer' of the Year award at
the World Retail Congress held in Barcelona.

3.2.2 VISION AND MISSION OF THE COMPANY

VISION

"To Deliver Everything, Everywhere, Every time, to Every Indian Customer in the
most profitable manner."

One of the core values at Future Group is, 'India ness' and its corporate credo are —
"Rewrite rules, Retain values."

MISSION

 We share the vision and belief that our customers and stakeholders shall be
served only by creating and executing future scenarios in the consumption space
leading to economic development.

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  We will be the trendsetters in evolving delivery formats, creating retail realty,
making consumption affordable for all customer segments — for classes and
masses.
 We shall infuse Indian brands with confidence and renewed ambition.
 We shall be efficient and, cost-conscious and committed to quality in whatever we
do.
 We shall ensure that out positive attitude, sincerity, humility and united
determination shall be the driving force to make us successful

CORE VALUES

 Indianness: confidence in ourselves.

 Leadership: to be a leader, both in thought and business.
 Respect & Humility: to respect every individual and be humble in our conduct.
 Introspection: leading to purposeful thinking.
 Openness: to be open and receptive to new ideas, knowledge and information.
 Valuing and Nurturing Relationships: to build long term relationship
 Adaptability: to be flexible and adaptable, to meet new challenges.
 Flow: to respect and understand the universal laws of nature.

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3.2.3 ORGANISATIONAL STRUCTURE

Fig 3.1 organizational structure of big bazaar

Organizing

Anything is commonly considered organized when it looks like everything has a correct
order or placement. But it's only ultimately organized if any element has no difference on
time taken to find it. In that sense, organizing can also be defined as to place different
objects in logical arrangement for better searching. The entire philosophy of organization is
centered on the concepts of specialization and division of work. The division of work is
assigning responsibility for each organizational component to a specific individual or group
thereof. It becomes specialization when the responsibility for a specific task lies with a
designated expert in that field. The efforts of the operatives are coordinated to allow the

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process at hand to function correctly. Certain operatives occupy positions of management at
various points in the process to ensure coordination.

Organization

When two or more people get together and agree to coordinate their activities in order to
achieve their common goals, an organization has been born. There is really no doubt about
the present meaning of organization. Its purpose is to create an arrangement of positions
and responsibilities through and by means of which an enterprise can carry out its work. An
academic textbook definition of organization can be formulated as follows: “a. the
responsibilities by means of which the activities of the enterprise are dispersed among the
(managerial, supervisory, and specialist) personnel employed in its service; and b. the
formal interrelations established among the personnel by virtue of such responsibilities.”

Types of Organization

Organizations can be divided into four types.

1. Hierarchical Organization

The hierarchical organization is very effective in a relatively stable environment, where the
efficient and predictable delivering of products is its main reason of existence.

2. Market Organization

In a more competitive environment, hierarchical organizations are no longer that effective,

since they are too ‘internal minded’. A more external minded organization is required in
such conditions. This type is called the market organization and is strongly focused on the
result of the production processes. The economical and political environment is perceived
is dangerous and is approached aggressively. The focus in this type of organization lies
primarily on the results and productivity. The feeling that holds the company together is
that feeling of being better than the competition.

3. Family Organization

In a family organization (which is most often a professional bureaucracy) the idea that
success is a consequence of individual development, teamwork and shared norms and

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values is paramount. The freedom of action for the individual employee is cherished. This
type of organization is characterized by a lot of attention for the individual and a strong
sense of solidarity. The culture in this type of company is a personal culture.

4. Adhocracy

In an adhocracy, the temporary character of the organization is the central tenet. This is a
consequence of the central position of innovation and fast adaptation to new situations.
Hierarchical power levels are missing and someone’s influence can strongly fluctuate based
on the problem that is being solved. In cultural perspective, creativity, entrepreneurship and
a dynamical attitude dominate. The overall task is innovation and the production of unique
and original services and products. The dominant culture in this type of organization is a
combination of a task and personal culture.

Departmentation

The process of grouping of activities into units for the purpose of administration is called
depart mentation. It can be defined "as the process by which activities or functions of
enterprise are grouped homogeneously into different groups. “The administrative units are
called divisions, units or departments. The followings are the basis of depart mentation:

(a) When depart mentation is done on the back of functions the departments created are
production, marketing, accounting, finance and personnel departments.

(b) When depart mentation is done on the basis of geographical area, the departments are
known as eastern department, western department, northern and southern department.

(c) Departmentation can be done on the basis of customers.

(d) Departmentation can be done on the basis of product handled.

Centralization

Centralization is said to be a process where the concentration of decision making is in a

few hands. All the important decision and actions at the lower level, all subjects and actions
at the lower level are subject to the approval of top management. According to Allen,
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“Centralization” is the systematic and consistent reservation of authority at central points in
the organization.

The implication of centralization can be :-

 Reservation of decision making power at top level.

 Reservation of operating authority with the middle level managers.
 Reservation of operation at lower level at the directions of the top level.
Under centralization, the important and key decisions are taken by the top management and
the other levels are into implementations as per the directions of top level.

Decentralization

Decentralization is a systematic delegation of authority at all levels of management and in

all of the organization. In a decentralization concern, authority in retained by the top
management for taking major decisions and framing policies concerning the whole concern.
Rest of the authority may be delegated to the middle level and lower level of management.
The degree of centralization and decentralization will depend upon the amount of authority
delegated to the lowest level. According to Allen, “Decentralization refers to the systematic
effort to delegate to the lowest level of authority except that which can be controlled and
exercised at central points.

Decentralization is not the same as delegation. In fact, decentralization is all extension of

delegation. Decentralization pattern is wider is scope and the authorities are diffused to the
lowest most level of management.

3.2.4 SWOT ANALYSIS

Strengths

 Low cost
 Cost cutting by reducing intermediaries
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  Promotional offers on Wednesday
 Location
 Home delivery facility
Weakness

 Low customer loyalty

 Time gap between order and processing
 Low internal warehouse capacity
 Employees not trained
 Less conversion level
 Frauds in retail
Opportunities

 Percolating down
 Rural retailing
 Kids and teens retailing segment
 Organized retail is only 3% of the total retailing market in India

Threats

 Shopping culture
 Uncertainty in market position
 New entrants like reliance

3.2.5 CORPORATE SOCIAL RESPONSIBILITY

Future Retail Limited (“FRL” or “Company”), believe that their business is built
around strong social relevance of inclusive growth by supporting the common man in
meeting their financial needs. They equally believe that creation of large societal
capital is as important as wealth creation for our stakeholders. As a responsible
organization, they are committed towards the above objective and are keen on
developing a sustainable business model to ensure and activate our future growth

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drivers. They have been contributing to the societal wealth creation for the last several
years irrespective of any regulatory compulsions as a realization of our above belief. In
line with the regulatory expectations, they are putting in place a formal policy as a
guide towards social commitment going forward.

OBJECTIVES

The main objective of CSR policy is

 To lay down guidelines to make CSR a key business process for sustainable
development of the society.
 To directly/indirectly undertake projects/programs which will enhance the
quality of life and economic well-being of the communities in and around
our plant and society at large.
 To generate goodwill and recognition among all stake holders of the company.
A) Towards communities
They will involve communities surrounding operations to bring about a positive
change in their lives through holistic, sustainable and integrated development.

B) Towards Customers
They will build gainful partnerships with the customers to understand their
needs and provide right product and service solutions. They will adopt and
actively encourage the best and fair business practices and shall endeavor to
build solid bonds with them.

C) Towards Business Partners

They will support suppliers to cultivate ethical and fair business practices and
give preference over other to those who demonstrate this.

D) As a Corporate Citizen
They reaffirm commitment to conduct our business with environmental
accountability. We will endeavor to adopt environment-friendly technologies
and energy efficiency in our operations while continuously monitoring and
reducing emissions.

E) Responsibilities toward Employees

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 They will foster a work culture with high ethical principles and standards and
encourage employees to perform with total integrity, commitment and
ownership. They recognize that their employees and contractors deserve to work
in safe and healthy work environment and will make it responsibility to ensure
zero harm to people.

CSR ACTIVITIES
The scope of the CSR activities of the Company will cover the following areas but
not limited to the same and may extend to other specific projects/ programs as
permitted under the Act and/or CSR Rules from time to time.

Sr. Area Activities/Initiatives/Programs

No.
1a. Eradicating hunger, poverty and Agro Based livelihoods, Better Cotton
malnutrition Initiatives, Agriculture Development,
Krishi Vigyan Kendra.
1b. Promoting health care including Health and Sanitation Development
preventive healthcare and programs, medical camps, programs for
sanitation HIV Aids etc.
1c. Providing safe drinking water Drinking water programs, construction
Of check dams, dykes, ponds, links,
channels, wells and water storage tanks.
2 Promoting education, including Construction and running of schools and
special education and libraries, vocational training and special
employment enhancing vocation education institutes, providing financial
skills especially among children, assistance and scholarships for higher
women, elderly, and the education. Undertaking and skills and
differently abled and livelihood entrepreneurship programs.
3 Women Empowerment and Setting up centers and institutions for
Facilities for Senior Citizens women & senior citizenship.
Promoting SHGs amongst women for
undertaking income generating
activities.

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4 Ensuring environmental Horticulture plantation, agro farm
sustainability, ecological balance, forestry, afforestation, projects on non-
protection of flora and fauna, conventional energy (biogas), animal
animal welfare, agro forestry, husbandry programs, forest
conservation of natural resources conservation projects, water resource
and maintaining quality of soil, management and soil conservation,
air and water; promoting micro-irrigation etc.
5 Promotion and protection of art & Protection of national heritage, art and
culture culture including restoration of buildings
and sites of historical importance and
works of art; setting up public libraries;
promotion and development of
traditional arts and
handicrafts;
6 Measures for the benefit of armed Activities/programs for benefit of armed
forces veterans, war widows and forces and families.
their dependents;

The scope of the CSR activities of the Company will cover some of the following
areas, but not limited to the same and may extend to other specific
projects/programs as permitted under the Act and/or CSR rules from time to time.
The company reserves the right to choose at its own discretion the organizations
and partners for the implementation of its policies and allocation of funds.

Exclusion from CSR

The following activity shall not form part of the CSR activities of the Company:

1. The activities undertaken in pursuance of normal course of business of a company.

2. CSR projects/programs or activities that benefit only the employees of the
Company and their families.
3. Any contribution directly/indirectly to political party or any funds directed
towards political parties or political causes.

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4. Any CSR projects/programs or activities undertaken outside India.

CSR COMMITTEE
CSR Committee shall be formed as per the applicable laws and the committee shall
be responsible for the implementation/monitoring and review of this policy and
various projects/activities undertaken under the policy. The CSR Committee shall
submit periodical reports to the Board of Directors of the Company.

MONITORING & REPORTING

The CSR Committee will be responsible for the monitoring CSR activities and
report to the Board from time to time. The CSR Committee has the powers to :

1. Seek monitoring and implementation report from the Organizations receiving

funds.
2. Delegate a designated company official to co-ordinate with the Organization
receiving funds to inspect the activities undertaken and ensure information in a
timely manner.
Additionally, the Committee may empower the Managing Director / Joint
Managing Director /Whole Time Director / CFO to spend such amount as they
think appropriate for some other strategic CSR contingencies that may arise during
any financial year. The amount spent as above shall be put up for ratification of the
Committee at its next meeting and shall report to the Board of Directors
accordingly.

(b) Continuous Monitoring

 The Committee Members will receive in a prescribed format, a quarterly
report of CSR spend;
 A presentation on the progress of the CSR projects / activities will be made to
the Committee by the CSR Executives at the Committee meetings held
from time to time;
 An annual presentation will be made to the Committee which will also
include the details of the projects / activities planned for the next year and
its respective budgets
The Board of Directors of the Company shall review the implementation of CSR
on annual basis.
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 DISCLOSURES
The Annual Report of the Company include a section on CSR outlining the CSR
Policy, CSR committee, CSR initiatives undertaken by Company, the CSR spend
during the financial year and other information as required by the prevailing law.

AMENDMENT OF CSR POLICY

The CSR policy of the Company may be amended at any time by the Board of
Directors of the Company on the recommendation of the CSR committee.

3.2.6 ACHIEVEMENTS AND AWARDS

 Big bazaar won the best campaign award in online advertising for India’s first
24hours Facebook live campaign 2018
 Big bazaar won the most admired retailer of the year for digital marketing campaign
2018
 Big bazaars smart search won gold for mobile search campaign 2018
 Big bazaar won silver for midnight sale campaign 2018
 Big bazaars smart search won the best campaign award in fashion, beauty and retail
category 2018
 Big bazaar and bru coffee and future group and Mc Vitie’s won the award for the
most admired brand retail partnership of the year 2018
 Big bazaar won the silver for its grahpravesh campaign at Effie 2018 under retail
section
 Fbb won images most admired retailer of the year innovative retail concept at
images retail awards 2018
 Big bazaar won images most admired food and grocery retailer of the year 2017
 Big bazaars decide your price campaign won silver for best campaign to drive sales
at the maddies awards
 Big bazaar’s smart search won best search marketing campaign at CMO Asia
awards 2017
 Big bazaar’s decide your price campaign won gold for best social media
amplification at BW applause awards
 Big bazaars fast billing campaign won silver for the best use of digital marketing at
BW applause awards
 Big bazaar ranked number 6 in the Brand Asia 2017 survey by market Xcel in
association with Nikkei BP, Japan
 Big bazaar won the images most admired food and grocery retailer of the year in
food and grocery category 2015
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 Big bazaar was awarded with power to the people and from grocery to gift at
esteemed EFFIE awards 2014
 Big bazaar direct retail store of the year honored with e-retailer of the year 2014
 Big bazaar ranked number 3 as the most trusted brand and is the most trusted
retailer of the year 2012

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