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NSHM Business School

Supply Chain in Retail Business Hidden Factor for Success 1


Peanaky Mridha
Assistant Professor
NSHM Business School, Kolkata

Address for Correspondence


Peanaky Mridha
NSHM Business School
60(124) B.L.Saha Road
Kokata-700053
e-mail_id: peanaky.mridha@nshm.com

The author would like to thank Dr. Rajlakshmi Mallik for her valuable suggestions right from the initial stages of giving structure to the

paper in a presentable format to final stages of including pertinent examples and references to increase the credence of exposition
made in the paper.

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Abstract
This paper identifies the key concepts in the domain of customer focused supply chain management, which is
relevant for sustainable growth of organised retail sector in Indian context. It explores the important factors in
the customers decision making process, involved in choosing a retail outlet and choosing a product brand. It
then analyses the hidden mechanism for a successful retail operator - viz. an efficient supply chain. It is
essential for a retailer to have an efficient and effective supply to maintain a sustainable competitive
advantage. This paper is an analytical presentation of concepts in the field of marketing and supply chain
management applicable to major retailers with facilities across big cities, in India.

Key Words: Customer, Delight, Cost, Infrastructure, Information & Inventory.

1. Introduction

The organised retail revolution that is being witnessed by India is here to stay for better. Like every other new
concept or paradigm there is euphoria about this format of business too, and everybody wants to join this
bandwagon. May be there is an element of first mover advantage and big business houses want to capitalise
on this aspect. But that does not mean that customers wont move out to new offers, made by new players at a
later stage. Customers will not remain with them just because of inertia, or relationship with the existing player.
At any later stage, if they are wooed with a better product and services by competitors they will switch loyalties
at the drop of a hat. As there is intense competition, viability of retail players is very difficult. The players are
required to implement best practices in all areas of operations, to provide extra value to customers, and at the
same time maintain a low cost of operations. This article tries to illustrate the importance of supply chain
effectiveness that is crucial for success for this format of business too.

2. Customer orientation
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Customer is King is not a concept; it is a fact, and organisations which have focused on this aspect, have
performed better than their rivals. Therefore, it is important to listen to the voice of the customer and design
product and services as per their needs and expectations. Listening to the voice of customer brings about a
degree of customer orientation. With respect to retail sector this customer orientation can be understood in
terms of the 3 Cs, namely, Convenience, Cost and Choice offered to them.

2.1 Convenience
Experience
This refers to how comfortable a customer feels while he or she is shopping. Is it a satisfying experience? Is it
a delightful or a mundane experience? How courteous is the sales person to the customer? How do they
entertain the customer? How do they attend to the requests of the customer? All the touch points are
important where the customer comes into contact with the service provider. How the customer is treated at
these touch points? What are the experiences that the customer takes home from these touch points? The
sum of these small experience elements comprises of the total shopping experience that creates a
differentiation in the minds of the customer, in terms of service provided by the retailer.

For example when a customer asks for a particular product, how quickly, and accurately does the sales person
identifies what the customer wants, and leads him or her to the right section to enable him/her to decide on
purchase. Does the sales person guide or accompany the customer to the right section, or pays a lip service
vaguely indicating the location where he is likely to find the product? Spencers has dedicated sales persons
undertaking this role, and they often push different brands which might be beneficial to both the buyer and the
seller. This is because sales persons are more aware about the latest brands. They are more informed about
the availability new and improved products. They can suggest an alternative and ask customer to reconsider
their original brand choice, which might enable them to make a better choice. If the customer gets a better
choice and a better value for their money, they are satisfied and visit that place again to experience similar
service again. In certain cases the sales persons push brands where they get better margins and exploit the
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customers. This short term gain is short-lived as customer dissatisfaction creeps in and results in customer
defection.

In case of certain outlets of Future Groups Big Bazaar, attractive promotional campaigns are undertaken
regularly, due to which there is over-crowding of customers. Attending to all individual customer requests by
the sales people becomes difficult, in-spite having plenty of sales people at service. Customers feel neglected
as they see only few are being attended to. Dissatisfaction of this kind can too result in increase in customer
defection rate.

Offering high entertainment value while shopping, is the Unique Selling Proposition of organised retail sector. It
is a measure of how much pleasurable the shopping experience can be made. Hence retailers catering to this
segment of the market woo the customer by appealing to them with high visual content displays, bright lighting,
and perfect ambiance to lure them to be part of this experience, and in the process do some shopping as an
additional activity. Some of the players who fit this description of retail business perspective are South City
Mall-Kolkata, City Centre-Kolkata, Orbit-Mumbai, The Millennium Mall-Mumbai, Forum-Bangalore etc. These
are designed to induce hedonistic shopping culture in this segment leading to impulsive buying and burn a hole
in the pocket.

Delight
When a customer arrives at a shopping mall he or she, has a set of expectations in his/her mind. These are
formed through past experience, word-of-mouth publicity or impressions gathered the media commercials. For
instance, past experience will form a preconception on the format of presentation of the products which they
would be purchasing; are they neatly stacked based on principles of planogram2. Are they from fresh stock? Is
the package damaged or deformed? Are the labels intact and unhampered, etc? Unbranded items should be
presented in such a manner such that it is easy for them to check its worth without tampering the contents.
This perception is compared with the actual buying experience.

Planogram: It is a visual diagram, or drawing, that provides in detail where every product in a retail store should be placed.

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Actual buying experience is the perception of the shopping experience received by the customer at the retail
outlet. If this perception of received value is greater than the expectation then the customer is delighted. Hence
actual shopping experience is one of the main areas in which the retailer can delight the customer. Besides
there are other areas like after sales services where the customer delivered value can exceed expectation. For
example, are there assurances for exchange on goods or return of goods (without warranty), if some items turn
out to be defective. What if the customer has opened the packaging, and wants to exchange the product for
some shortcoming in the product? Can the retailer provide customer with wide variety of flexible payment
options and not limited to a few alternatives of credit/debit cards only? Are there bonus points which make a
customer eligible for privileged services?

A retailer should deploy his resources wisely and ensure that they are directed towards exceeding the
customers expectations. This increases the customer retention proportion. It is not sufficient, to just satisfy the
customer, but to offer them with a delightful experience, because that will make them to revisit their place
again, i.e. increase customer loyalty and improve customer lifetime value.

2.2 Cost
It is the amount of efforts and resources that the customer has to invest in terms of time, energy, psychic 3 and
of course the monetary cost. This is the bargain that the customer is looking for; the value he receives from of
the whole shopping experience against the total cost as mentioned above, that he has to incur, and not just the
price of the product or service that he is paying for. The value offer comprises of the whole infrastructure that
has been created for a customer to make this shopping experience a pleasurable one. It consists of the sate of
art building, the air conditioning, the visual display, the trail rooms, the sales people, parking space etc.
3

It denotes the mental energy spent by the customer to acquire the product or service.

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Investment requirements of speciality outlets or boutique like that of Barista, Raymonds or Crossword would
be very different than those of discount stores like Apna Bazaar & Subhiksha. Care should be taken so that
investment in facilities is made in accordance to needs of the market segment it is catering to.

Delivered value to the customer can be enhanced by either, increasing the perceived value received by the
customer like enumerated above, or by reducing the cost that the customer has to incur to buy a product or
service. This can be in terms of incentives or discounts on certain level of purchases or gifts for members
which reduces outflow of cash for the customer, thus adding a dimension to the value gain the customer
receives. Shoppers Stop has various gift voucher schemes for corporate & personal gifting, it also has elite
membership scheme known as First Citizens for high lifetime value customers, and they can avail express
billing, and check out faster by using these separate billing counters maintained exclusively for them. This
increases the proportion of loyal customers in the form of elite or exclusive members. High degree of loyalty
leads to repeat purchases, and hence increase in customer lifetime value. Pyramid Megastore, Mumbai on the
other hand does not have an effective membership schemes that fosters customer loyalty and hence looses
out to Shoppers Stop on this count in-spite of having similar infrastructure.

Sometimes visually appealing displays, and or the incentives (exciting promotional offers) acts on the psyche
of the customer that appeals on the now or never opportunity kind of offer, and spurs them into impulsive
buying. This might be a viable alternative approach to induce buying, rather than approaching it purely from the
rational cost-benefit dimension.

2.3 Choice
The last C refers to options that a customer gets to choose from. Its about freedom of choice. Excellent
options offered to customer make him feel like the king. He or she should be in a position to select and decide
form wide variety of options. This is especially true for females who account for majority of the purchase
decisions made by a family on which brand to buy.
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Customers should be able to see the entire range of a product category of different brands and variants,
preferably at a single glance. To provide this (wide varieties of options) retailers need to invest heavily in
inventory. This is because reliability of replenishment on time, at short notice, through transportation for smaller
lots, is not good in Indian context. Moreover, there is a viable limit to investment in inventory that a retailer can
undertake to give customer the entire gamut of options. And so some players like Spencers do not stock items
of all brands for a product category, instead they offer more variants of few select brands only. Similarly
Reliance Fresh and Big-Bazaar provide more options in their own private labels in-terms of display and
promotional offer especially in food section. This is where the concept of segmentation becomes crucial for
deciding on the brands to stock. Considering the overall business strategy the retailer has to select a target
market segment and cater to this niche with specific attention to their preferences. Customer Relationship
Management technologies like data-warehousing and data mining can be used to get insight on the fast
moving brands, most profitable product mix for any outlet at a particular location or across locations.

3. Supply Chain Imperative

Most important thing in retail business is that besides the 3 Cs one has to manage the supply chain efficiently
and effectively. Retail out let is just the last part of the whole supply chain that is engaged in business process
of satisfying the customer needs. It is just the tip of the ice berg that is visible and much lies beneath the
water, the analogy is true for other functions of the supply chain that lies hidden and is involved to make the
final offering at the retailer end.

Since retail outlet is the place where the customer interfaces with the organization, it is of vital importance and
the service he experiences here is result of collaborative effort of the entire supply chain. Hence, managing the
supply chain in an efficient and effective manner is the most critical factor that provides a retailer with a
significant competitive advantage over other players.
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With globalization the complexity of supply chain has increased many folds. Sourcing from suppliers those are
spread across the world is a necessity for most of the retailers. Customers are more informed and more
demanding than ever before, and their demands can comprise of a basket of brand choices originating from
any corner of the globe. In fact, any large or midsize retail chain could be easily dealing in few lacs to millions
of SKUs4, sourced from few thousand suppliers all situated at different locations, spread all over the world.
International retail players with such global scale of operations like Wal-Mart has already made foray into our
domestic market, other foreign operators like Carrefour SA, Europe's largest retailer and Tesco Plc, the UK's
largest retailer, are also keen to enter into this lucrative market despite regulatory hurdles. With the global
financial meltdown, that has affected Indian market sentiments adversely; the retail sector investment
decisions by these players had been kept in abeyance for a while. Gradually this sector is coming out of the
downward spiral.
All retail outlets with global operations should be supported by a flexible and efficient Supply Chain that will
enable them to maintain a cutting edge over the competition.
The strategy is to manage 3Is - the Infrastructure, Inventory & Information effectively. Dynamics of each one of
them with different elements of the Supply Chain are shown in the illustration.

Information

Supplier

Infrastruct
ure
Distributio
Manufactur
er

n Centre

Retailer

Information Technology, Material Handling & Transportation

Inventory

3.1 Infrastructure
4

SKU Stock Keeping Unit: Independent inventory item considered for decision making.

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Physical Resources
It is mainly involving long term decisions as the investment in physical resources or the infrastructure is largely
irreversible in nature. Normally all the elements of infrastructure (suppliers, manufactures, distribution centres
and retail outlets) would not be under a same management or ownership, and this is generally true for retailers
with global operations. It is thus a collaborative effort of all of them put together that has to answer to these
questions, such as - where to locate the distribution centres, warehouses and retail chains outlets or which
ones to choose from like franchisee5 options? What should be the size of each of these facilities? What
should be the capacity, and what product-mix should be handled or sold at a particular location? What is the
material handling technology, and equipments that should be utilised? What kinds of data communication are
required for these product and service at each stage? What should be the mode of transportation that will be
used for moving these products across the various facilities? Do they need to invest in dedicated fleets, or is it
appropriate to use the services of a third party logistics (3PL) service provider. What kind of storage systems is
required? If one is dealing with perishable items what kind of technology is required to preserve the goods in
usable condition before it is sold / consumed? For instance, a retailer in fast food business requires to invest in
technology to preserve goods while in transit, and at storage locations. It needs to have connectivity to reach
each service outlet from production units every day. (Could be even three times a day!). Brands like Monginis
and Vadilal have their own fleet of vehicles equipped with facility for preserving food in good condition and
undertaking this replenishment activity on a daily basis at their franchise outlets at customised frequency
suitable to the group.

Conversely, if one is in the business of selling of garments and clothing which has a relatively higher shelf life
one can alter the replenishment frequency to weekly basis or at a frequency that suits its consumption pattern.
Future Logistics of Future Group caters to all its transportation and logistical needs for all types of goods.
Wal-Mart in USA, has a state of art technology for its fleet of vehicles. These are equipped with on board
computers and global positioning system connected via satellites; it is always in sync with the present status of
inventory at any location, and can adjust to any requirement changes till just before making the delivery. India
5

Franchise is a permission given by a person or entity permitting the distribution of goods or services under
his trademark, service mark or trade name by an agreement to another person or entity.

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has poor road infrastructure compared to developed nations, and hence reliability of on time delivery is
relatively lower. This acts as a deterrent for retailers in investing in these kinds of technology for transportation
facilities. Instead they need to build in some flexibility for uncertainty and increase inventory in terms of safety
or buffer stock.
Location of distribution centres are a tricky issue as it determines the responsiveness of the retailer. Whether to
locate them centrally in geographical sense relative to the markets catered or should it be more nearer to the
customer? Locating them in non metropolitan cities generally reduces the cost of investment but that comes at
the cost of responsiveness. Besides taking care of decisions regarding the locations of distribution centres one
can use cross docking so as to minimise the storage space requirement. In case of Wal-Mart this concept of
cross docking where the goods coming in trucks or trailers from the manufacturing location is unloaded at a
distribution centre. And instead of taking these goods inside the warehouse they are then loaded on to the
trucks moving out thus eliminating the need for storage at these distribution centres. By using the concept into
practice Wal-Mart saves as much as 2 percent of cost of operations.
Investment in sate of art buildings like those of City Centre and South City Mall in Kolkata, Orbit and
Millennium Mall in Mumbai, Forum in Bangalore are justified by the premium they recover by catering to these
high end customers who are not very price sensitive. In most cases, a shopping malls productivity is judged by
sales or revenue generated per square foot of floor space of the retail outlet. So, it is essential to utilise every
bit of available space effectively, still this does not deter some operators like Shoppers Stop to invest in
exclusive cash counters for high value customers - First Citizen, they also provide these members with
exclusive areas of parking.

Human Resources
Besides the brick and mortar with all its aesthetic appeal, retailer has to invest in Human Resources. A retailer
has to build a structure of skilled, trained and knowledgeable people to provide the service to the customer.
Persons with required qualification and traits should be recruited, and then they should be subjected to
induction programme making moulding them into the unique culture of that retail operator. Gaps in their skills
required should be identified and then they should be given training in those areas to transform them into
talented and capable personalities to carry out their roles effectively. In Indian context, in certain regions there
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are compulsions to recruit the local talent. Most of the players like Big Bazaar of Future Group or Spencers
employ a lot of local people as sales people who are conversant in local language and culture. Then they are
provided with the training to equip them with the required skills required to carry out their roles are effective
sales person. Local employees understand the local customer needs better, but they require further training to
ingrain its separate corporate culture and to provide better customer service.

Trained personnel make lot of difference in the way the customer experiences the shopping experience.
Customer should be able to approach any sales person or any person who is in touch with a customer and get
his demands satisfied amicably. In situations of handling requests or complaints that is beyond the purview of
his responsibility, the matter should be immediately escalated to the right person who is authorised to deal with
such issues, and care should be taken that customers requirement is met in full at the least possible time. Most
retail operators have people with multi-tasking roles and responsibilities, where as some players like West
Side of Tata Group has this elaborate structure of service persons who are at the beck and call of the
customer. Feed back to the customer about the progress of the request or complaint is also important; a
customer should be apprised of action taken so as far, to give them the satisfaction that his concern areas are
being attended to.
There should be adequate number of sales people at the Point of Sale counter because when a person has
completed shopping he or she would like to check out fast after billing. Shoppers Stop does provide this
service to its exclusive members who earn the First Citizen status.
3.2 Inventory
This is the main object for which the other 2 Is (infrastructure & information) are required. In case of organized
retail sector, depending upon on the size, any particular retail outlet could easily be handling few lacks of
SKUs, to millions in case of large format outlets. Many sourced from suppliers situated in disparate
geographical locations. It is because of this complexity, a highly sophisticated system is required so that the
right product can be moved to the right place at the right time. Imagine a situation where a retailer is stuck with
slow moving inventory occupying the self space, and the goods in high demand are not available on the shelf
due to poor supply chain management. Shoppers Stop has implemented applications like Material
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Merchandising System (MMS) and Perpetual Inventory Control Systems (PICS) of JDA 6 for reducing their
inventory levels and improving their service levels.

Service levels can be improved by increasing the levels of inventory, but that reduces the inventory turnover
ratio, and this result in lot of working capital tied up in idle inventory as under-performing assets. This adversely
affects the cash flow of operations and its utilisation. Shoppers Stop, Big Bazaar, Wal-Mart and many other
retailers are operating on vendor managed inventory which enables them to reduce investment in inventory,
and at the same time manage the service level to acceptable levels just by allowing the vendor a certain
degree to transparency into its operations. The vendor is benefited from this as he becomes a partner in the
whole process, there by increasing the level of collaboration required for an efficient supply chain. Managing
inventory involves operational decisions, and it is this operational efficiency in terms of aggregate planning
across the supply chain which is crucial for an effective supply chain.

As per Paretos law only vital few products account of major proportion of sales revenue and profits, this fact
should be used for using selective inventory control principles to manage these large number of inventory item,
and reduce the focus group of items to a select few. It translates into reduction in wastage of efforts by the
executives, in terms of monitoring the entire range of inventory items. Inspite of having very large variety of
inventory, Wal-Mart by using selective inventory control methods, boasts of the highest inventory turn over ratio
per square foot there fore making it most profitable in terms of utilisation of space.

In case of fashion industry the products becomes obsolete within few weeks, garments goes out of fashion and
the retailer is stuck with non-moving inventory that it has to liquidate through discount. To deal with this high
rate of obsolescence conventional inventory management principles are not useful. One has to look beyond
the conventional classification of inventory and then managing the inventory based upon its value or criticality.
One has to look into all stages of inventory across the supply chain, like the Spanish retailer Zara delays the

JDA-James D. Armstrong formed JDA Software Services in 1978, which went on to become one of Canada's
largest IBM midrange software providers.

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manufacturing process of its garments so as to respond to changing tastes of customer. It simultaneously
reduces the extent of obsolete inventory that one ends up with.

3.3 Information
Information Technology has been developing at a very rapid pace. IT has increasingly become the most
important tool to gain the competitive advantage for all sectors of businesses. As mentioned earlier number of
SKUs can run into several millions units and the number of suppliers also could go up to few thousands, and
number of customers served could be even more, which implies that there is enormous amount of data that is
required to be exchanged or processed between different facilities at each stage. It is therefore important to
have accurate and timely information about the inventory levels at each of the facility at different stages so that
the replenishment planning for the right inventory, at the right location, at the right time can be done.
Companies like Wal-Mart have the ability to track all details about its product as soon as it is picked up by a
customer and the stock position is communicated across to all its facilities like warehouse, factory & head
office. Even the trucks or trailers of Wal-Mart are connected through v-sats and mobile tracking devices to
monitor levels of inventory, and take desired corrective actions based on the latest position of inventory at the
service outlet.(pipeline inventory or in-transit inventory is also factored in). Onboard computers on the trucks
provide information to the drivers about the possible congestion on the way and direct them to take alternative
routes to reach desired destination safely on time.

Connectivity is another area of concern as any disruption in connectivity can jeopardize the whole supply
chain. It is important to have alternate channels of communication as back up, to take care of unexpected
failures, and it also ensures greater reliability of business processes. This redundancy of standby facility is
essential for customer centric organisations.

Data security systems are very important because - if any hacker breaches in through the firewall7 into the
main data sever; besides unlimited access to the confidential data, he can potentially jeopardise the whole
7

Firewall refers to a network device which blocks certain kinds of network traffic, forming a barrier
between a trusted and an untrusted network.

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operations. With the increase in proportion of financial transactions over the wire, secured and safe wire
transfer technology is very critical. Compliance with Payment Card Industry Security Standards Council (PCI
SSC) is beneficial. Even a single instance of faulty-transaction highlighted by media, can lead to credibility loss
of the brand image of the Retailer, and this in turn can result in substantial loss of customers goodwill. WalMart uses SSH Tectia security solutions to enable safe data transfer across international network.

Surveillance is now perhaps become most requirement for all business organisations in the aftermath of series
of terrorists attack in up-market public utility locations in India. For example Future Group is pilot testing with
applications from Cisco Systems for Video surveillance on a Wi-Fi platform that would help analyse real time
information either on consumer purchase, on-the-shelf management of stocks or general store security.
Cisco will also deploy RFID8 technology for the Groups state level warehouse on the outskirts of Mumbai.

Codification of inventory enables fast and accurate identification of products and facilitates its movement to the
right place at the right time. The latest in this field is application of bar coding & RFID technology. With this
technology one can capture complex inventory movements accurately in detail. Most players like Big bazaar &
Pantaloon of Future group, Shoppers Stop of Rahejas, West Side of Tatas, Wal-mart, Spencer, Reliance Fresh
etc. all use bar coding technology to a great extent. It improves the Point of Sale operations significantly.
Potential benefits of using RFID technology in the retail supply chain are immense, and Wal-Mart leads the
bandwagon of eligible retail operators in the application of this innovative technology.
ITC Lifestyle Retailing has implemented RFID and is reaping benefits from this initiative. Now it takes 20-30
seconds to inventory 30-35 garments from between five and eight minutes. On a yearly basis that jumps in
efficiency translates to Rs 15 lakh a year in savings. It also gives garments more time in the stores leading to a
1 to 2 percent uptick in sales. Whereas Raymonds has not implemented any such technology in its distribution
network and is incurring a relatively higher cost of operations in its distribution channel.

4. Conclusion
8

Radio-frequency identification (RFID) is an automatic identification method, relying on storing and


remotely retrieving data using devices like tags or transponders.

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Much literature in the magazines and other publications, are devoted to debate on classification of retail format
on the basis of floor space like speciality store, discount store, department store, hypermarket, super store, or
convenience store, etc. Classification can be based upon market segments catered to, or based on type of
product assortment carried. A consumer is not affected by all this. It is the retailers focus towards exceeding
customers expectations in terms of the 3 Cs, which improves the top line of a company. And this is reflected
by consumers purchase behaviour. A clear cut strategy of living up to customer expectation and surpassing
expectations in select areas will definitely attract customers and give them delightful experience. This alone
may not be sustainable and a profitable proposition over a longer period of time, in case the back operations
are not efficient and effective. Hence, management of 3 Is of - the hidden activity of managing the supply chain
effectively is imperative. This will give the organisations the required competitive advantage to maintain a good
return on investment on a sustainable basis.

References:
Chopra, Sunil and Peter Meindl (2003), Supply Chain Management-Strategy, Planning, and Operation,
Prentice Hall.
Prasanna Chandra, (1997), Financial Management-Theory & Practice, Tata McGraw-Hill.
Philip Kotler, (1999), Marketing Management: Analysis, Planning, Implementation, and Control, Prentice Hall.
Donald.J.Bowersox, David J. Closs, (2006) Logistics Management, The Integrated Supply Chain Process, Tata
McGraw-Hill.

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