Is the cost to serve in heavy disrupted environment, is still applicable?

Introduction

This article doesn’t have any other ambitions than to try to explain you, what I lived in Myanmar during the pandemic and coup together, what are the strategies and tactics set specifically in the Merchandising.

I will not reveal in this article the complete model elaborated and I will not reveal also confidential numbers despite, that it could help you to understand better the impact, positive or negative in our cost to serve, but by detailing different actions we took, I hope you could imagine it.

Important Notice: This article has nothing to do with politic! I wrote it without emotions and without bias. I wrote it based on my experience with facts and only objectives views. I will not tolerate any comments related with politic and if any, I will immediately delete them.

Summary

As all the retailers around the world, we were not well prepared to live this worldwide pandemic and in Myanmar we were even less prepared to live on top of that……a coup, a few months later!

As all the retailers around the world, we removed the dusts from our previous BCP, revised and improved it at the beginning of Covid…We implemented it asap and life continued by navigating between all the issues and restrictions, that everyone knows now!

However, the day that the coup happened, Myanmar suddenly stopped to breath! We became suddenly distraught, completely blind! The previous BCP became out of date and it was a bit difficult to do a new one, as, daily, unpredictable events happened for which we couldn’t imagine.

All the events below started from February 1st, 2021 until December 2021. During this period, some events started after 2 months, some stopped after 1 month, some stopped and started again, some are still true until today. I sorted them chronologically.

1. No more telecommunication. 4G, fiber and Wi-Fi were shut down for days and when it was up, often only a few hours per day, the quality and speed were not far from a disaster,
2. Often no electricity or limited time during the day,
3. Facebook, THE social network in Myanmar banned. Still a possibility to access it through a VPN at its own risk as VPN are not allowed to be used,
4. Curfew from 8pm to 6am, later on from 9pm, 10pm, 12pm to 4am.
5. All the government administrations closed due to CDM (Civil Disobedience Movement),
6. All the banks and DAB closed, as all the people wanted to withdraw their money and also due to CDM,
7. Almost all the stores were opening and closing several times per day depend on the street situation due to the demonstrations and some closed completely temporally for x days, weeks,
8. Stores delivery became hard, as the streets were blocked in a minute and for the same reasons than above,
9. Staff’s attendance was up and down between those who were stuck at home due to the events outside, those who were afraid to come to work and those who decided simply to go back to their home township to be with their family,
10. Delivery from our suppliers became also hard as they were facing the same issues than us,
11. Some vendors shut down temporally their business but without any confirmation when they will operate again,
12. The Myanmar Kyat has been devaluated vs. US$ and was highly fluctuating from one day to another one, and the official Int’l exchange rate was not anymore followed in the market…In January 2021, 1US$ = 1,350Ks and at worst, period of 6 months, the exchange rate reached 2,800MMK. It created also a shortage in this money.
13. The int’l brands started to become out of stock as the principals abroad feared to send their shipments, and due to the daily variation of the $, our vendors were unable to fix a cost price,
14. Borders closed, no more import by land, only airfreight and sea
15. Cleared new shipments were delayed due to the CDM,
16. Some local brands disappeared from the shelves overnight as they were boycotting by Myanmar people,
17. Online and on-demand businesses turned off including ours, due to the telecom issues and the impossibility to commit the last mile delivery
18. The local money (cash) became also rare, as no possibility to withdraw,
19. Cash became the king,
20. The inflation in food retail reached 30%+++

Every day was a new day, without even knowing what will happen after 5 minutes and, what will be the new challenges that we will face!

As food retailer, we knew that by hook or by crook, we had to continue to work hard, we knew, we had to continue to serve our customers, as we are, in the end, essential for the community and we have a social role to play in the Country. And to continue to deliver our commitments, due to the instability of internet (only professional IP’s were stable) & Telecom, we had to go to the office every day despite the street situation and risk taken sometimes.

But operating a food retail in those circumstances has a cost, the COST TO SERVE

Usually, the cost to serve in retail is models provide a better understanding of which products and customers (Stores) are profitable, which ones are not, and how current priorities (events) affect performance across the supply chain. Usually, not a lot of retailers measure it, as it’s a full-time job and it needs data’s, deep analysis and detailed actions by involving all the different departments concerned.

The answer to the initial question is NO as we were focusing only on “how current priorities (events) affect performance across the supply chain” and How to address it.

The question “how to better understand which products are profitable or not, were not anymore, our priority. Being efficient in our supply chain and develop effective ways to reduce our cost to serve were not anymore conceivable.

Promoting products, acquiring, and retaining our customers stopped. Myanmar People became so sensible with the current situation, that they were rejecting any activities, as they were considering them, as an opportunity for whoever do it, to make business during this crisis

Finally, all our decisions taken were always, and despite that some of them were hard to take, to keep in mind that we couldn’t serve our community as before, as we had to protect and keep safe our assets which were, our Teams in Top of the Top priority and our stores, DC, etc.

Actions

1.??????Quick win

As we were still in Covid, one of the previous actions taken was to reduce our stock days, as the volume was down and we were not in position to wait and see. Our overall stock was covering around 15 days. The disruption on our supply chain starts from our vendors.

The merchandising strategy, the one which must deliver the sales & commercial income including the DC Income, became impossible to follow.

Indeed, the questions were not anymore

• How to optimize our supply chain but which products do we need, how to get them and how to deliver them.
• How to continue to support and develop our preferred vendors and keep alive the other ones, but which products do we need, how to get them and how to deliver them,
• How to continue to develop and optimize our products categories but which products do we need, how to get them and how to deliver them,
• How to develop our sales & income through activities but which products do we need, how to get them and how to deliver them.

Based on these 4 questions, we developed a strategy and tactic.

a.??????Selecting essential products

• We identified very quickly the Top 5 sales in value and quantity, (around 7 to 8 products) within categories that we judged essentials during this period.
• We communicated with the vendors concerned to understand at what level they were disrupted and to know their stock position.

b.??????Finding substitution/similar products

• Based on the initial actions and results, we identified substitute or similar products.
• Once products identified, we again communicated with the vendors concerned for the same reasons than above.

c.??????Increase our inventory

As I mentioned earlier, our stock days was low. We had quickly increased our inventory to give us some fresh air by securing stock in our DC, for the products selected and while waiting a better visibility.

d.??????Better forecast

Despite the poor visibility that we had at that time, poor visibility from our everyone, we had no other choice than to take some risks to be sure that we will be serve and secure our stock at DC.?

e.??????Drop the planogram

By limiting voluntary, the choice in our assortment, we decided to drop the planogram for several categories, to give more space in the shelves for the products selected. That help us to increase the availability of the stock in our stores and reduce the delivery frequency of them, as we were also in pain to reach them with our own supply chain.

By taking these actions, we arrived to continue to serve our customers, as best we could, with their essential needs and with pressure less on our supply chain & Operation teams.

However, our total Inbound service level dropped dramatically from 90 to 50%, and our Outbound dropped around 30%, as despite the stock availability, the disruption in the Country was so high during the 1st 3 months, that nobody arrived to maintain an acceptable service level.

2.??????React on unplanned events that drive a dramatic change in the customer’s behaviour

A lot of Companies are plus or less connected with the junta. Myanmar people, as part of their strategy to fight against them, was, to boycott those companies, by not buying anymore their products but also by condemning and boycotting the retailers who continued to sell them in their stores.

a.??????Removing from shelves all the products boycotted with a high risk of affecting our image.

• We were tracking in live, the social networks to understand which brands will become boycotted.

One of the main examples is Myanmar brewery (THE leader) and Dagon beer. These companies through different beer brands, were leading the Country with a market share near 80% of the total beers sales. Overnight, the sales went down to 0.

b.??????List all the companies, brands, and products with a risk of boycott and remove from shelves.

• We had to remove several additional brands from our assortment despite they were not yet boycotted just by precautionary measure. The pressure from the street was so high that we preferred to anticipate than to react and protect our brand image.
• We returned all the stock to our DC and isolated it there, while waiting the end of the boycott if any. Finally, we had to negotiate the return the entire stock with the vendors concerned, as the boycott was well followed (and even till today). The negotiations were hard, as the vendors didn’t want to take back the whole stock, only the inventory by case and not by piece, take it back at lower cost than they sold it us, and our payable was below than the stock value in some cases.

Unfortunately, we were not able to return all the stock. A few months later, we didn’t have other choice to write-off the remaining stock as no sales at all and some near the expiration date.

3.??????“What if”

The idea came out from the boycotts and also, once the future international sanctions from different countries started to be announced. On top of that, we knew that some Int’l companies should/could shut down their Business in Myanmar.

The major risk, if we weren’t preparing, was to lose important brands from our shelves and have nothing to replace them.

The question was, “What if”, an Int’l principal, vendor, distributor shut down is Business in Myanmar, knowing that Myanmar is very dependent on finished goods import?

1. Do we have substitute or similar brands/products?
2. Are they also related with Int’l or local companies?
3. Are they imported or produced locally?
4. Are they leaders, challengers or just players in the country?
5. What should be the impact in our assortment, sales, rentability?

Just to come back with my previous example with the Beers. We know already that Myanmar brewery and Dagon beer disappeared from our shelves. The challengers are Heineken and Carlsberg group and few micro players…If both of these groups decide to shut down their Business?! what will happen? No more beers in the market or almost! Furthermore, in Myanmar, Int’l Beers brands are not allowed to import finished goods. These 2 companies with their brands are available here because they produce their products locally.

We reviewed Sub category by Sub category, item by item and answer to all of these questions.

While doing it, we discovered day after day, major risks in several important categories as, there weren't similar/substitute products. However, as the Country had been closed for years, there was, still, several small local brands with local productions which still survived in the market.

Despite we were not working anymore with the majority of them, we decided to communicate again with them and list them again for the ones which we considered as critical and kept in back-up the others.

4.??????Support our vendors

As I mentioned earlier, one of the disruption in the Country due to the banks closing and CDM was the lack of cash in Local money but also in US$. Indeed, all the banks and DAB were closed and later on, despite the reopening of some, there was a limitation in withdrawing the cash for the companies and also for normal users. It created a shortage in cash, as the companies were not anymore able to get 100% of the value available in their bank accounts and not anymore able to get cash when they were encash their Cheque.

This shortage prevented a lot of companies to pay their suppliers, utilities or even worst, their employees in time.

1. Payment Terms

Very quickly, all our Vendors required us to review and adjust our payment terms (method and type). At that time, Cash was King!

• Payment method

We changed all the payments through bank transfer and Cheque by cash payment.

• Payment type

For some of our suppliers,we reduced our credit terms or even sometimes approved cash on delivery.

It was very important for us to support all our vendors during this period even if sometimes it was also hard for us, as the cash flow was very tense at some points. The cash flow management made it sweat several times the Treasury Team.

2. Concessionaire/consignment

• Reduce fixed rent or even FOC for specific categories which sales was almost nil

As we have in our stores, Shop in Shop directly managed by tenants (concessionaire), we had to find the right compromises to not lose totally our income and help them at the same time.

• Remove Minimum guarantee

Some of our suppliers pay their rent through a % to sales based on a Monthly target with a minimum guarantee. We lifted this minimum guarantee.

3. Advertising boards, space in the shelves, etc

Same than above, we had to find to right compromises with our Vendors to maintain these activities and income.

4. Pickup orders directly to our vendor’s warehouses

Some of our vendors were very struggle with their teams. It happened several time, while our delivery teams were on the way back from the stores delivery, to allow them to make a hook to Vendors warehouses, to load our orders.

Conclusion

Finally, as you have seen during this reading, the initial cost to serve model doesn’t have any more the same meaning in strong disrupted environment than a normal one. The priorities are not anymore the same and it requires to be extremely flexible and resilient to continue to serve our customers while protecting the assets.

Looking backward, we know we did mistakes sometimes, that we have not being perfect but we know also that we have had the ability to react and adapt, what makes us still here today.

Quick update to today

1. No more major demonstrations,
2. CDM still ongoing mainly in the government administrations that cause delays in getting FDA, import licenses, etc…
3. Banks and DAB still closed for the majority of them,
4. No shortage anymore in the local money,
5. Shortage in US$, exchange rate still high and no possibility to buy it,
6. Import still difficult and clearing shipments takes more time,
7. Service level Inbound and Outbound still no yet at the previous level,
8. Curfew from 12am to 4am
9. Operating our stores normally but not yet 24/7 due to curfew,
10. Only one major vendor shutdown is Business (British American Tobacco)
11. Few bankruptcies from local suppliers,
12. Myanmar brewery and Dagon still boycotted…Shortage in Beer, as the few other players don’t arrive to meet the demand due to their production limitation,
13. Marketing activities went back to normal.

Finally, the situation in the main cities become stable (sort of), Offline and Online business start to catch-up and we are again in growing mode, start again our expansion and develop new projects.

Thank you for reading and feel free to comment, as long as it remains in a professional setting.