Tuesday, January 2, 2007

Reliance Supply chain: national 'farm to fork' delivery system.


1. Procurement

· Reliance's "agri-intervention model" envisages establishing links with farms across several acres in Punjab, West Bengal, Maharashtra and elsewhere with rural centres (district centres) providing goods for farmers and handling their produce

· By tying up with hundreds of farmers, (signing a lease) the company is not only assuring them a fixed return, but also promising to buy up all their produce at pre-determined prices.

· plans to buy 900,000 tons of food grains and 200,000 tons of horticultural produce a year, apart from 700,000 liters, or 185,000 gallons, of milk a day.

· ITC’s e-Choupal model could be used in the future to establish competitive pricing

· Reliance is offering farmers new technology as well as new techniques to increase yields and quality.

· Reliance has promised to keep prices of staple vegetables uniform through the year, partly through storage and also by working closely with farmers and encouraging them to change the cropping cycles.

· Ambani plans to create 1,600 farm-supply hubs across India, providing technical know-how and credit, selling seeds, fertilizer and fuel, and buying produce.

2. Cold storage and processing(rural business hubs)

· Reliance is establishing local receiving centers, where produce is collected, cleaned, and polished. From there, it will be shipped - often in fleets of new, cooled trucks - to one of 68 distribution centers nationwide. At the distribution centers, each fruit or vegetable will get its ideal climate: lettuce at 36 degrees F, carrots at 46 degrees, bananas at 68 degrees.

o The cold storage will also allow Reliance to sell produce out of season. For example, Indians eat 80 percent of the apple crop during four months of the year. Reliance will be in the unique position of being able to sell apples all year long.

o leafy vegetables grown in foothills of the Himalayas will be on store shelves 24 hours after harvesting. The current delivery time for most markets is three to four days, he estimates.

· Suppliers send bulk supplies to the distribution centers where retail store-wise re-aggregation is done. In many cases, the incoming trucks are used for back-loading of materials to retail centers, thus intensifying the utilization of the truck.(walmat model)

· Breaking the stranglehold of middlemen and loan sharks who not only exploited the farmers, but also routinely marked up prices by as much as 60% without actually adding any value.

· eliminate the wastages that have for long plagued the procurement system

3. Transport

· 85 logistics centers to move food to retail outlets and to ports and airports for export

4. Retail format (front-end)

Reliance must operate on a low-margins-high-volume business model. Such operations are very costly and require unprecedented volumes to break-even.

· The Reliance Retail blueprint envisages a nation-wide chain of hypermarkets, supermarkets, discount stores, department stores, convenience stores and specialty stores at an investment of over Rs 25,000 crore in the next five years.

§ Fresh stores will span 4,000-sq ft

§ Fresh Plus stores, which will retail grocery and consumer goods apart from vegetables, will be larger formats ranging between 4,000-sq ft and 10,000-sq ft.

§ Its first hypermarket in Ahmedabad, Reliance Mart, is expected to open in March 2007.

· Across 784 cities and 6,000 towns in the country.

· By selling in massive volumes and cutting delivery times, Reliance says it can ensure better quality and still compete on price

· Of the 11 outlets (2,000 sq.ft. to 4,000 sq.ft) opened in hyderabad, most of them are franchisees. The company plans to have outlets in five other cities in AP — Vijayawada, Guntur, Warangal, Tirupati and Vizag.

· The 3,000 square feet store at banjarahills sells a range of vegetables (many exotic from the average Hyderabadi's point of view) --leek, celery, Brussels, sprouts, zucchini, pak choy, Chinese cabbage and imported fruit like kiwi, avocado and grapefruit-- at astonishingly affordable rates.

· The Mukesh Ambani-spearheaded venture is bidding to buy out smaller competitors such as Adani Retail and also has plans to gobble up other well-known brands including Subhiksha and Landmark, the book and music store chain in which corporate behemoth Tata has a controlling stake through its retail arm Trent.

Problems

· interstate taxes drive up prices(solution According to media reports, Reliance is planning to set up these distribution points at Special Economic Zones created by the government that include huge tax breaks.)

· middle men delay delivery times, (solution e-choupal model)

· roads as pitted as moonscapes slow things to a crawl.

· Low productivity (solution: An efficient supply chain can also have a salutary effect on agricultural productivity, which has been stagnant in India for the past several years, especially in wheat and rice. A template for transformation already exists. By building a network that connects more than 12 million farmers with consumers in 750 cities and towns, Indian milk cooperatives have, over the past four decades, turned an importing nation into the world's biggest dairy producer. )

IT

Of all the changes that have been part of this new green revolution, perhaps the one that has made the biggest difference to the lives of the smaller farmers has been the induction of information technology. It was cigarette major lTC's e-Choupal model that broke new ground in the early 2000s, showcasing the power of IT to the farmers. By delivering real-time information about market prices and customised knowledge and resolving the crop related problems of farmers through its IT kiosks and information database, it has managed to build tremendous equity among farmers across the country. The Internet-based system already covers 3.5 million farmers and allows ITC to buy directly from them, bypassing the inefficient village marketplace.

The Internet allows all farmers to access prevailing soybean prices in several nearby markets at a computer maintained by one of them - a coordinator. The coordinator also quotes an indicative one- day price for the farmer's crop based on a sample. The farmer can then decide whether he wants to sell to ITC, in the open market, or wait.

Even after reimbursing the transportation cost to the farmer, ITC saves 2.5 percent of what it would have paid to procure the crop in the open market. The farmer gains a similar amount, according to a University of Michigan case study.

Will reliance cause the Walmat effect ?

The company's retail format for selling vegetables, fruits and groceries, offers an opportunity for neighbourhood stores and even push cart sellers to source supplies at competitive rates making it a win-win situation for both RIL and the Kirana stores [1]

[1] (source: "They (Kirana stores and push cart sellers) will benefit from us... the argument that they will be affected is not supported by numbers," RIL President and CEO (Operations and Strategy) Raghu Pillai told reporters just before the inauguration of the first Reliance Fresh retail outlet in the upmarket Banjara Hills in Hyderabad……Reliance retail arrives in Hyderabad, http://www.rediff.com/money/index.html, November 03, 2006)

Strategy

Reliance has plans to launch many more in-house brands to retail its own produce rather than too much of branded products. Right now its private label for grocery is Reliance Select and it will be shortly launching Fresh Plus, a bigger version of Reliance Fresh, which is to cater to food and grocery, pharmacy and apparel.

Competition

Spencer's, run by RPG Group

Bharti's Field-fresh too has ambitious plans to set up retail outlets in the country

lTC's International Business Division has plans to develop Choupal Fresh, a fresh food fruit and vegetable initiative for sophisticated metro dwellers.

Godrej Agrovet, a part of the Godrej group, was the first of the block to sell fresh fruits and vegetables in the urban market through its Nature's Basket retail outlets. These outlets, in turn, started sourcing some of their products from Aadhar, Godrej's rural outlet. Not only does Aadhar act as a retail outlet for the farmers-selling animal feeds, agricultural appliances, pesticides, fertilisers and consumer durables-but it also is a sourcing base of fruits and vegetables from nearby villages.

PepsiCo is currently growing citrus near Jalandhar, the seeds for which operation come from Tropicana (a Pepsi company) in the United States

…………….Amey kantak

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