supply-chain efficiencies

THE importance of a good monsoon was brought to our attention as a stark reality this
season. Over 60% of India’s total cultivable area depends on the monsoon, while the
rest is irrigated. Several states in India have struggled to receive a good monsoon with
scanty rain in parts of UP, Haryana, Bihar and West Bengal. Sowing of paddy, the
largest foodgrain grown during the kharif season, has dropped by almost 70 lakh
hectares as compared with the same period last year. Many districts have been
declared drought hit. But the fundamental challenge is not the scarce monsoon or
drought. These are natural eventualities that cannot be controlled. The greater
challenge is how to be prepared for and manage such situations. 

Having now established our cash-and-carry business in India and studied the supply
chain in great detail both on the food and non-food value chain, I am even more
convinced that the solution lies in eliminating waste and inefficiencies. 
India is the world’s second largest producer of fruits and vegetables. But it loses
between 30% and 40% of its fresh produce annually due to wastage along the supply
chain. India wastes more fruits and vegetables than it consumes. Gaps such as poor
infrastructure, insufficient cold-storage capacity, unavailability of cold storages in
close proximity to farms and poor transportation infrastructure are all contributing
factors. The result is instability in prices, farmers getting unremunerative prices and
rural impoverishment. 

Till now, the focus has been on the pre-harvest stage for boosting the levels of
production by techniques like crop rotation, soil conservation, pest control, fertilisers
and irrigation. But the unaddressed challenge is post-harvest. About 30-35% of the
losses can be reduced by transporting the freshly harvested fruits and vegetables in
refrigerated containers. But operating costs for Indian cold-storage units are believed
to be over $60 per cubic metre per year compared to less than $30 in the west. Energy
expenses make up about 28% of the total expenses compared to 10% in the west.  
To overcome the debilitating impact of wastage, it is crucial that three supply chain
issues are addressed in earnest: Reduction of food miles; development of a truly
world-class supplier base; and fixing the infrastructure. 

Create regional supply chains to reduce food miles: Regional food tastes and habits
are a crucial component of the Indian middle class food baskets. Food tastes and food
habits change every 200 km. Not all products sold in Punjab necessarily sell in Delhi
or Mumbai. So, Bharti Walmart’s focus has been on reducing the food miles — how
much distance food products have to travel before reaching the consumers’ plate —
by developing local and regional supply chains instead of national supply chains. 
We conduct regular surveys and studies among consumers who walk into our stores to
understand their preferences, based on which we identify and develop local food
suppliers and cater to local tastes. That is why Bharti Walmart sources all produce,
meat, milk and eggs for stores within 150 km of the stores. We work with local milk
producers to improve milk quality and make it healthier for the customer. Products
such as pickles, papads, snacks/namkeens are tailored to local tastes and preferences  
By developing local suppliers, we reduce costs and bring in a greater degree of
predictability, quality and focus. We have a pilot programme in Punjab where we
work with 65 farmers to cultivate safe, high-quality seasonal vegetables. Our field
agronomists visit the farmers and guide them at every stage from cultivation, nursery
and nutrient management, to harvest and post-harvest practices. Today, they supply 16
vegetables daily to Bharti Walmart and get a regular, predictable monthly income. 
Develop a world class supplier base: Walmart is well known for its ability to procure
goods at a lower cost than other companies. This is mistakenly assumed to be because
of our scale and negotiation skills. In fact, it is because Walmart works with its
suppliers to “save their money” by reducing excess cost and wastage out of the
system, so suppliers can give us better prices. 

We partner with our suppliers to improve their business processes by upgrading their
technology and equipment, providing them market access, helping improve their
product quality and leveraging Walmart’s global procurement base to get suppliers
better raw materials at a lower cost. All factories of our private brand manufacturing
are audited both by an internal team for food safety, ethical and social compliance and
by an external third party such as ITS/TUV. As a result, all private brand products that
we source from suppliers go through rigorous product development specifications and
follow legal procedures such as Food Safety-PFA procedures and weight & measure
compliance procedures before bulk manufacturing or packaging. 

Suppliers are kept abreast of the latest trends such as carbon credits/energy audits and
they learn how to profit from them. We are already working with large responsible
suppliers such as Welspun whom we helped move from polluting oil generation to
gasbased turbines and Abhishek Industries to reduce their waste water output and
plant trees to save the environment. We are also working with various small and
medium suppliers on enhancing their capabilities and quality, and putting systems in
place to build a better supply chain. 

For instance, there is a honey supplier in Punjab who always had access to good
honey but did not know how to package it. Due to low volumes, he could not offer
quality packaging at competitive prices. The PET bottles used for packaging the
honey were leaking. This is when Walmart’s packaging expert stepped in and helped
the supplier negotiate a good price for quality PET bottles with Pearl Polymers, a PET
packaging company. The supplier gained access to better packaging at a lower price
and in turn could offer Walmart a superior product at a very competitive price. We
sell his honey but importantly, his honey is now good enough to be sold to other
buyers. Similarly, we have developed suppliers for food items such as papad, jam and
pickle. They have been encouraged and guided in upgrading quality standards,
including meeting ISO 22000 standards, food safety management, and automating
their manufacturing processes which helps eliminate risks of product inconsistencies
and contamination. 

Fix the infrastructure: India’s infrastructure challenges and priorities are well
documented and the Planning Commission has rightly given it a priority focus. The
challenge for India will be to ensure its plans for infrastructure remain on schedule or,
even better, are fast tracked. Better road and rail connectivity will mean goods and
fresh produce can move faster and more efficiently with minimal waste while better
energy infrastructure will enable setting up of more cold chains and much less
wastage. 
While infrastructure will be fixed over time, it is also important to adapt and work
around the current limitations. By procuring locally, we are overcoming longer-
distance transportation issues. Our distribution centres are located close to the stores
we serve. Our endeavour is to constantly look for ways to build consistency and
timeliness in the supply chain to optimise inventory holding costs and bring down
prices of products for customers. 

Optimising the supply chain is no longer an option — it’s a necessity: The post-
harvest development of a robust supply chain for farmers must be a top priority and
every effort made to encourage its development from farm to fork. Unless the lot of
the farmer improves, 60% of the workforce will continue to remain underperformers
denying their children the opportunity of education, denying their families the
opportunity to live better and thereby slowing down the overall economic growth. 
By enabling an environment that fosters greater investments along the food chain,
farmers can plan and cultivate their crops based on consumer demand using
techniques and methods that allow them to reinvest and prepare for unforeseen
situations such as a poor monsoon or drought. 

Drought is undoubtedly a challenge. But wastage in the supply chain compounds the
problem. The current drought situation is, in many ways, a wakeup call to spur the
necessary changes that can transform our supply chain so that we are better equipped
and better prepared for the best and worst of times.