Opening and closing stores has become a norm in the organised retail segment because of inefficiencies that have crept into retailer supply chains. Pumping money into computerisation and automation won’t do retailers any good if they do not change their outdated management practices, say experts from Vector Consulting Group.

The consultancy has come up with Theory of Constraints (TOC), its formula for efficient management of retail chains and is now working with over 20 clients including Bajaj Electricals, L&T and Liberty Shoes to overhaul their supply chains. The theory is in principle similar to the Toyota Model of working closely with suppliers with lean inventory. But, TOC also enables variation in supplies according to customer requirements unlike the Toyota Model, say company officials.

“Many sales people believe that having huge inventory at the point of sales or at the distributors can avoid unavailability. But in reality, in cases where many SKUs (stock keeping units) are to be managed, high inventory at distributors and retailers leads to unavailability,” asserts Puneet Kulraj, a founding director of Vector.

He explains the contradiction by stating: “Sales forecasts are mostly not accurate at the retail end because forecasting is done at least four months in advance in order to achieve discounts for bulk placements. Sales people tend to push available stocks to meet targets. The inventory at the distributor and retailer, though high, is mismatched. Consequently, the limited cash of these trading partners is stuck mostly in SKUs that are not going to sell immediately while those selling are not stocked out.”

Either the distributor waits for cash to be unlocked or the company does not supply due to credit limits. In both cases, unavailability is created though the company has enough stocks in warehouses. According to Satyashri Mohanty, another founding director of Vector: “The entire spurious market (for goods including auto spare parts and pharma) in India today has come into existence because of inventory problems of suppliers. The required inventory is lying somewhere else unused. This has become the norm as no solution has been found.”

Companies pump in money to keep operations going despite heavy losses. While they keep closing stores, retailers are also opening new ones to meet expansion targets. The problem is conceived to be lack of automation in supply chains but in reality, lack of thought is the primary issue, Mohanty stresses.