Supply Chain Anagement of Fmcg Companies free essay sample

OVERVIEW OF FMCG SECTOR IN INDIA A Supply Chain is a network of facilities and distribution options that performs the function of procurement of materials transformation of these materials into intermediate and finished products and the distribution of these finished products to customers. It is the process used by the companies to ensure that their supply chain is efficient and cost effective. It also basically a collection steps which a company follows to transform raw materials into finished products the five different stages are Plan Develop Make Deliver and Return Plan A plan or strategy should be developed to address how a given good or service will meet the needs of the customer. A significant portion of the strategy should be on planning in order for the supply chain to be profitable Develop It involves building a strong relationship with suppliers of the raw materials needed in the making the product the company delivers. This stage not only identifying the reliable suppliers but planning for shipping and delivery are also involved. Make In this phase the product is manufactured, tested, packaged and scheduled for delivery Deliver This is the logistics phase the goods ordered by the consumers are delivered according to the delivery plan return . This is the reverse logistics stage where the defective items are returned to the company. GODREJ CONSUMER PRODUCTS LIMITED Overview Godrej also have a strong emerging presence in markets outside India. The major overseas acquisitions include Keyline Brands of the UK, Rapidol and Kinky Group of South Africa and Tura of West Africa. Supply Chain Process Supply Chain process for Godrej begins with the forecast made at the branch level and then the next consolidation of the forecast made at each branch level will be scrutinized in the head office. Once the e Indian FMCG sector is the fourth largest sector in the economy with a total market size in excess of US$ 13. 1 billion. It has a strong MNC presence and is characterized by a well-established distribution network, intense competition between the organized and unorganized segments and low operational cost. Availability of key raw materials, cheaper labour costs and presence across the entire value chain gives India a competitive advantage. According to a study by the McKinsey Global Institute (MGI), Bird of Gold: The Rise of Indias Consumer Market, Indian incomes are likely to grow three-fold over the next two decades and India will become the worlds fifth largest consumer market by 2025, moving up from its 2007 position as the worlds 12th largest consumer market. India ranks second in the Nielsen Global Consumer Confidence survey released on January 7, 2010—an indication that recovery from the economic downturn is faster in India with consumers more willing to spend. The survey showed that in addition to the emerging markets of Indonesia and India, eight of the top ten most confident markets in The fourth quarter of 2009 came from the Asia Pacific region. The FMCG market is set to treble from US$ 13. 1 billion in 2009 to US$ 33. 4 billion in 2015. Penetration level as well as per capita consumption in most product categories like jams, toothpaste, skin care, hair wash etc in India is low indicating the untapped market potential. Burgeoning Indian population, particularly the middle class and the rural segments, presents an opportunity to makers of branded products to convert consumers to branded products. Growth is also likely to come from consumer upgrading in the matured product categories. With 200 million people expected to shift to processed and packaged food by 2010, India needs around US$ 28 billion of investment in the food processing industry. According to a FICCI-Technopak report, despite the economic slowdown, Indias fast moving consumer goods (FMCG) sector is poised to reach US$ 43 billion by 2013 and US$ 74 billion by 2018. The report states that implementation of the proposed Goods and Services Tax (GST) and the opening of Foreign Direct Investment (FDI) are expected to fuel growth further and raise the industrys size to US$ 47 billion by 2013 and US$ 95 billion by 2018. As socio-economic changes sweep across India, the country is witnessing the creation of many new markets and a further expansion of the existing ones. According to Pradeep Kashyap, chief executive officer of MART Rural Solutions, speaking at the Calcutta Management Association Rural Marketing Meet, over 300 million people would move up from the category of rural poor o rural lower middle class between 2005 and 2025 and rural consumption levels are expected to rise to current urban levels by 2017. Functions of Intermediaries: ?To accumulate right kind of goods, aggregating and sorting to meet consumer needs at POP ?To believe in routine and simplified transaction and work with large no of products, so that the distribution costs could g et minimized. ?To buy a large variety of goods and can compare costs and prices and make the right recommendations to their customers ?To be aware of the environment in which they operate and hence isolate companies from the direct impact of these local conditions To reduce the no of touch points. The company will be able to meet demands of thousands of customers directly and hence needs intermediation. ?Help manufacturer to effectively run trade and consumer promotions Provide credit facilities to their buyers SUPPLY CHAIN MANAGEMENT OF HUL: Hindustan Unilevers distribution network is recognised as one of its key strengths. Its focus is not only to enable easy access to our brands, but also to touch consumers with a three-way convergence of product availability, brand communication, and higher levels of brand experience. With nearly 1000 products, HLL distributes them nationally through a network of four warehouses, more than 40 agents, 7,500 wholesalers and a number of large institutional customers. HLL, in its endeavor to move from the existing push-based planning system to a pull-based system, wanted to build a Supply Chain Management (SCM) solution that would ensure informed decisions are made during procurement, manufacturing, replenishment and distribution. Specifically, the distribution operation was suffering because of a high margin of errors. There were frequent instances of excess finished-goods inventory reaching HLL’s distribution centers. This problem was compounded by increasing instances of out-of-stock inventory, which led to demand-supply mismatches. Finally, the system was not able to handle the dynamic nature of the company’s source-destination network, and adversely affected the demand-fulfillment rates. HLL needed a solution that could provide visibility across its supply chain. Considering the diverse nature of the company’s customer base, the solution needed to prioritize the demand-fulfillment process based on individual profiles. The company also required precise vehicle loading plans for the source-destination lane in tune with its dynamic network. Tool Selection In an effort to streamline its distribution network, HLL initiated a comprehensive project to seamlessly integrate its supply chain and promote collaboration. The key objectives of the initiative were: Implementation of a Supply Chain Planning and Optimization Tool. Development and implementation of a Web-enabled solution to extend visibility across the company’s network of wholesalers. Adexa’s iCollaboration Suite 5. (Supply Chain Planner and Strategic Planner) was selected as the tool for production, distribution and materials functions. The Supply Chain Planner’s (SCP) powerful constraint-based planning capability delivers detailed-level plans. On the other hand, Strategic Planner allows HLL to decide on the product mix and manufacturing locations, and optimizes the source-destination network, on a long-term basis. HULs produ cts, manufactured across the country, are distributed through a network of about 7,000 redistribution stockists covering about one million retail outlets. The distribution network directly covers the entire urban population. The general trade comprises grocery stores, chemists, wholesale, kiosks and general stores. Hindustan Unilever services each with a tailor-made mix of services. The emphasis is equally on using stores for direct contact with consumers, as much as is possible through in-store facilitators. At the supermarkets: Self-service stores and supermarkets are fast emerging in metros and large towns. To service modern retailing outlets in the metros, HUL has set up a full-scale sales organisation, exclusively for this channel. The business system delivers excellent customer service, while driving growth for the company and the store. At the same time, innovative marketing initiatives are taken to provide consumers with experience of our brands at the store itself, through product tests and in-store sampling. In the villages: HUL has also revamped its sales organisation in the rural markets to fully meet the emerging needs and increased purchasing power of the rural population. The company has brought all markets with populations of below 50,000 under one rural sales organisation. The team comprises an exclusive sales force and exclusive redistribution stockists, under the charge of dedicated managers. The team focuses on building superior availability, while enabling brand building in the deepest interiors. HULs distribution network in rural India already directly covers about 50,000 villages, reaching about 250 million consumers, through about 6000 sub-stockists. Harnessing Information Technology: An IT-powered system has been implemented to supply stocks to redistribution stockists on a continuous replenishment basis. The objective is to catalyse HULs growth by ensuring that the right product is available at the right place in right quantities, in the most cost-effective manner. For this, stockists have been connected with the company through an Internet-based network, called RSNet, for online interaction on orders, despatches, information sharing and monitoring. RS Net covers about 80% of the companys turnover. Today, the sales system gets to know every day what HUL stockists have sold to almost a million outlets across the country. RS Net is part of Project Leap, HULs end-to-end supply chain, which also includes a back-end system connecting suppliers, all company sites and stretching right upto stockists. Hindustan Unilever, which once pioneered distribution in India, is today reinventing distribution creating new channels, and redefining the way current channels are serviced. In the process it is converging product availability, with brand communication and brand experience. In the end it could be said that HULs SCM is one of the best in the world and it is quite difficult for any company to challenge it. In India if we see, we will find that LUX is vailable everywhere and it is through this SCM only that HUL is able to do that. From sourcing raw materials to delivering the end product, our technologically advanced supply chain underpins our growth, providing service excellence at competitive costs. Customer Service – Front end Understanding customer needs. The main purpose of this area is to understan d customer needs and work together to solve joint logistical challenges such as on shelf availability. Roles include order management, working at the interface between warehousing and transportation, and ensuring the right products arrive in the right place at the right time. Customer Service – Plan Unique individuals. Our Planners are unique individuals who use great analytical and interpersonal skills to help bring innovations to market. Working with all business functions, they are key to our sales and operations planning process. Demand planning uses models as well as market knowledge to determine potential sales. Using this data, supply planning ensures factories are able to meet these sales on time in the most cost effective way. Supply management Intelligent sourcing. This is about optimising the cost and quality of what we buy and how we buy it. Intelligent sourcing of raw materials, packaging and non-production items helps reduce costs and make our business more effective. The team explores new ways of working with suppliers and plays an important role in technology innovation. Manufacturing Output and costs. Our manufacturing record is one of the most envied in the world, with many of our facilities considered the best in their country. You’ll help factories improve efficiencies and adapt to the changing needs of customers and consumers. As a manager, you might be responsible for a team’s quality, output and costs. In engineering, you could be designing and building high-speed production lines. Career progression As one of the worlds largest consumer goods companies, the scale and importance of our supply chain operation offers many fascinating career paths. Access all areas As your career progresses, you’ll have opportunities to work within the full spectrum of disciplines, roles and areas. Youll gain exposure at global, regional and local levels across a broad range of categories, markets and technologies. Youll take on different responsibilities that allow you to directly impact business performance. And through world-class professional learning programmes, you’ll develop the expertise necessary to become highly effective in your specialisation. Qualities skills Youre exceptionally organised with a hands-on approach and excellent IT skills. Youre good at managing people, projects, information and change. You have an entrepreneurial mind when it comes to innovation and cost saving. IN VILLAGES: HUL approached the rural market with two criteria ? the accessibility and viability. To service this segment, HUL appointed a Redistribution stockist who was responsible for all outlets and all business within his particular town. In the 25% of the accessible markets with low business potential, HUL assigned a sub stockist who was responsible to access all the villages at least once in a fortnight and send stocks to those markets. . Evolution over Time The HUL’s distribution network has evolved with time. The first phase of the HUL distribution network had wholesalers placing bulk orders directly with the company. Large retailers also placed direct orders, which comprised almost 30 per cent of the total orders collected. The company salesman grouped all these orders and placed intent with the Head Office. Goods were sent to these markets, with the company salesman as the consignee. The salesman then collected and distributed the products to the respective wholesalers, against cash payment, and the money was remitted to the company. The focus of the second phase, which spanned the decades of the 40s, was to provide desired products and quality service to the companys customers. In order to achieve this, one wholesaler in each market was appointed as a Registered Wholesaler, a stock point for the companys products in that market. The company salesman still covered the market, canvassing for orders from the rest of the trade. He then distributed stocks from the Registered Wholesaler through distribution units maintained by the company. The Registered Wholesaler system, therefore, increased the distribution reach of the company to a larger number of customers. The highlight of the third phase was the concept of Redistribution Stockist (RS) who replaced the RWs. The RS was required to provide the distribution units to the company salesman. The second characteristic of this period was the establishment of the Company Depots system. This system helped in transhipment, bulk breaking, and as a stock point to minimise stock outs at the RS level. In the recent past, a significant change has been the replacement of the Company Depot by a system of third party Carrying and Forwarding Agents (C). The C as act as buffer stock? points to ensure that stock? outs did not take place. The C system has also resulted in cost savings in terms of direct transportation and reduced time lag in delivery. The most important benefit has been improved customer service to the RS. The role performed by the Redistribution Stockists includes: Financing stocks, providing warehousing facilities, providing manpower, providing service to retailers, implementing promotional activities, extending indirect coverage, reporting sales and stock data, demand simulation and screening for transit damages. The distribution network of HUL is one of the key strengths that help it to supply most products to almost any place in the country from Srinagar to Kanyakumari. This includes, maintaining favourable trade relations, providing innovative incentives to retailers and organizing demand eneration activities among a host of other things. Each business of HUL portfolio has customized the network to meet its objectives. The most obvious function of providing the logistics support is to get the company’s product to the end customer. Distribution System of HUL HUL’s products are distributed through a network of 4,000 redistribution stockists, covering 6. 3 million reta il outlets reaching the entire urban population, and about 250 million rural consumers. There are 35 C in the country who feed these redistribution stockists regularly. The general trade comprises grocery stores, chemists, wholesale, kiosks and general stores. Hindustan Unilever provides tailor made services to each of its channel partners. It has developed customer management and supply chain capabilities for partnering emerging self? service stores and supermarkets. Around 2,000 suppliers and associates serve HUL’s 40 manufacturing plants which are decentralized across 2 million square miles of territory Hindustan Unilevers distribution network is recognised as one of its key strengths. Its focus is not only to enable easy access to our brands, but also to touch consumers with a three-way convergence of product availability, brand communication, and higher levels of brand experience. HULs products, manufactured across the country, are distributed through a network of about 7,000 redistribution stockists covering about one million retail outlets. The distribution network directly covers the entire urban population. The general trade comprises grocery stores, chemists, wholesale, kiosks and general stores. Hindustan Unilever services each with a tailor-made mix of services. The emphasis is equally on using stores for direct contact with consumers, as much as is possible through in-store facilitators. At the supermarkets: Self-service stores and supermarkets are fast emerging in metros and large towns. To service modern retailing outlets in the metros, HUL has set up a full-scale sales organisation, exclusively for this channel. The business system delivers excellent customer service, while driving growth for the company and the store. At the same time, innovative marketing initiatives are taken to provide consumers with experience of our brands at the store itself, through product tests and in-store sampling. ?Direct marketing means selling products by dealing directly with consumers rather than through intermediaries. ?Traditional methods include mail order, direct-mail selling, cold calling, telephone selling, and door-to-door calling. More recently telemarketing, direct radio selling, magazine and TV advertising, and on-line computer shopping have been developed. ?The main advantages of selling direct are that there is no need to share profit margins and the producer has complete control over the sales process. Products are not sold nearby those of competitors either. ?There may also be specific market factors that encourage direct selling: ?There may be a need for an expert sales force, to demonstrate products, provide detailed presale information and after-sales service ?Retailers, distributors, dealers and other intermediaries may be unwilling to sell the product Existing distribution channels may be owned by, or linked to, competing producers (making it hard to obtain distribution by any other means than direct) ?However, there are significant costs associated with selling direct which may be higher than the costs associated with using an intermediary to generate the same level of sales. There are several pote ntial advantages of using an intermediary. ? More efficient distribution logistics ?Overall costs (even taking into account the intermediaries’ margin or commission) may be lower ? Consumers may expect choice (i. e. he products and brands of many producers) at the point of sale ?Producers may not have sufficient resources or expertise to sell direct. In indirect distribution It is the system the marketer reaches the intended final user with the help of others. These resellers generally take ownership of the product, though in some cases they may sell products on a consignment basis (i. e. , only pay the supplying company if the product is sold). Under this system intermediaries may be expected to assume many responsibilities to help sell the product. Indirect methods include: Single-Party Selling System Under this system the marketer engages another party who then sells and distributes directly to the final customer. This is most likely to occur when the product is sold through large store-based retail chains or through online retailers, in which case it is often referred to as a trade selling system. Multiple-Party Selling System This indirect distribution system has the product passing through two or more distributors before reaching the final customer. The most likely scenario is when a wholesaler purchases from the manufacturer and sells the product to retailer. New distribution channels Project Shakti This model creates a symbiotic partnership between HUL and its consumers. Started in the late 2000, Project Shakti had enabled Hindustan Lever to access 80,000 of Indias 638,000 villages . HULs partnership with Self Help Groups(SHGs) of rural women, is becoming an extended arm of the companys operation in rural hinterlands. Project Shakti has already been extended to about 12 states ? Andhra Pradesh, Karnataka, Gujarat, Madhya Pradesh, Tamil Nadu, Chattisgarh, Uttar Pradesh, Orissa, Punjab, Rajasthan, Maharashtra and West Bengal. The respective state governments and several NGOs are actively involved in the initiative. The SHGs have chosen to partner with HUL as a business venture, armed with training from HUL and support from government agencies concerned and NGOs. Armed with micro? credit, women from SHGs become direct? to? home distributors in rural markets. The model consists of groups of (15? 20) villagers below the poverty line (Rs. 750 per month) taking micro? credit from banks, and using that to buy our products, which they will then directly sell to consumers. In general, a member from a SHG selected as a Shakti entrepreneur, commonly referred as Shakti Amma receives stocks from the HUL rural distributor. After being trained by the company, the Shakti entrepreneur then sells those goods directly to consumers and retailers in the village. Each Shakti entrepreneur usually service 6? 10 villages in the population strata of 1,000? 2,000. The Shakti entrepreneurs are given HUL products on a `cash and carry basis. The following two diagrams show the Project Shakti model as initiated by HUL. PROJECT STREAMLINE / STREAM LINE DISTRIBUTION: To improve the efficiency of a process, business organization by simplifying or eliminating unnecessary steps, using modernizing techniques, or taking other approaches. To cater to the needs of the inaccessible market with high business potential HUL initiated a Streamline initiative in 1997. Project Streamline is an innovative and effective distribution network for rural areas that focuses on extending distribution to villages with less than 2000 people with the help of rural sub? stockists/Star Sellers who are based in these very villages. As a result, the distribution network directly covers s of now about 40 per cent of the rural population. Under Project Streamline, the goods are distributed from C F Agents to Rural Distributors (RD), who has 15? 20 rural sub? stockists attached to him. Each of these sub? stockists / star sellers is located in a rural market. The sub? stockists then perform the role of driving distribution in neighbouring villages using unconventional means of transport such as tractor and bullock carts. Project Streamline being a cross functional initiative, the Star Seller sells everything from detergents to personal products. Higher quality servicing, in terms of frequency, credit and full? line availability, is to be provided to rural trade as part of the new distribution strategy. DABUR SUPPLY CHAIN MANAGEMENT: Over its 120 years of existence, the Dabur brand has stood for goodness through a natural lifestyle. An umbrella name for a variety of products, ranging from hair care to honey, Dabur has consistently ranked among India’s top brands. Its brands are built on the foundation of trust that a Dabur offering will never cause one’s harm. The trust levels that this brand enjoys are phenomenally high. While Rise and Trout may ask â€Å"What does Dabur stand for—shampoo or digestive tablets? † The answer is fairly simple, it stands for India’s fourth largest fast moving consumer goods company that both consumers and trade respect and trust unequivocally, and which has an annual turnover of over Rs 15 billion. The company has kept an eye on new generations of customers with a range of products that cater to a modern lifestyle, while managing not to alienate earlier generations of loyal customers. Dabur is an investor friendly brand as its financial performance shows. There is an abundance of information for its investors and prospective information including a daily update on the share price (something that very few Indian brands do). There’s a great sense of responsibility for investors’ funds on view. This is a direct extension of Dabur’s philosophy of taking care of its constituents and it adds to the sense of trust for the brand overall. Supply chain management: Chains of intermediaries each passing the product down the chain to the next organization, before it finally reaches the consumer or end-user. This process is known as the distribution chain or the channel. Each of the elements in these chains will have their own specific needs, which the producer must take into account, along with those of the all-important end user. Channels: A number of alternate channels of distribution may be available: †¢ Distributor, who sells to retailers †¢ Retailer (also called dealer or reseller), who sells to end customers â € ¢ Advertisement typically used for consumption goods Channel membership: 1. Intensive distribution Where the majority of resellers stock the product (with convenience products, for example, and particularly the brand leaders in consumer goods markets) price competition may be evident. . Selective distribution This is the normal pattern (in both consumer and industrial markets) where suitable resellers stock the product. 3. Exclusive distribution Only specially selected resellers or authorized dealers (typically only one per geographical area) are allowed to sell the product. Channel motivation: It is difficult enough to motivate direct employees to provide the necessary sales and service support. Motivating the owners and employees of the independent organizations in a distribution chain requires even greater effort. There are many devices for achieving such motivation. Perhaps the most usual is `incentive: the supplier offers a better margin, to tempt the owners in the channel to push the product rather than its competitors; or a competition is offered to the distributors sales personnel, so that they are tempted to push the product. Monitoring and managing channels: In much the same way that the organizations own sales and distribution activities need to be monitored and managed, so will those of the distribution chain. In practice, many organizations use a mix of different channels; in particular, they may complement a direct sales force, calling on the larger accounts, with agents, covering the smaller customers and prospects. Bases on which the data’s are analyzed: I’ve collected numerous data’s regarding- †¢ Sales promotion †¢ Consumer buying behaviour †¢ Availability of various brands †¢ Accessibility of the distribution sources to the distant rural population †¢ Mode of transport the rural consumers opting for purchasing the products Supply chain: Dabur has steadily improved its procurement and distribution systems to achieve a significant reduction in material costs. Dabur has an extensive supply chain and distribution network that has grown and spans 29 factories, 47 stocking points, 4 zonal offices, a dozen manufacturing locations, six mother-warehouses and over 50 Carrying and Forwarding Agents(CFAs) that distribute more than 1,000 SKU’s to several thousand stockists and dealers. MIS: An in-house developed, easy-to-use, Intranet based data-warehouse displays as of-yesterday sales, stock, receivables, banking, and other MIS. Over 5,000 ASP pages meet almost all reporting requirements and make this a single source of MIS for all levels of decision makers. URBAN DISTRIBUTION CHANNEL [STOCKIEST] This is divided into two parts, viz: above 5 lakhs of population and between 1 to 5 lakhs of population. This segment is totally covered by the direct stokist. In the segment of above 5 lakhs there are three ways of covering the market, viz: Beat wise, Line wise Channel wise distribution while in the segment of 1 to 5 lakhs of population there are two ways, viz: Channel wise Beat wise. CHANNEL WISE DISTRIBUTION Here the total product is divided into different channels like, Health care product, Personal care products, Home products etc. LINE WISE DISTRIBUTION Here the total product is divided into different lines like, hair care, body wash, coconut oil, nutrition food and etc. BEAT WISE DISTRIBUTION Here total market is divided into different areas where the total products are served to all the outlets exist in that area. RURAL DISTRIBUTION NETWORK [SUPER STOCKIEST] Under rural distribution network, the whole market is served by three parties, viz: Substokist, Rural Direct Stockiest and by the Dabur network itself. The Sub stockist get the required product through the super stockist who again covers the Dabur itself segment. The Rural Direct Stock segment is covered by the direct stockiest who serves the whole urban distribution. The Substokist uses the Sub van mode of transportation while the Rural direct stockiest uses the Direct Van to cover his area. (See the picture above). Dabur is continuously monitoring its channel members to ensure the speed and accuracy in its service to its ultimate customers. The key customers for Dabur are Whole seller, Small Outlets and the Chemist. Dabur has continuously focusing on these key customers and tried to satisfy them over the years to sustain in this industry. Dabur tackled the secondary supply chain. In 2001, Dabur decided to tackle its extended supply chain of over 30 factories, six key warehouses, and 52 stocking points distributing over 1,000 SKUs to 10,000 stockists countrywide. The company needed a system to accurately control distribution and sales forecasting to reduce inventory in the pipeline. Dabur went ahead and built a system using Visual Basic and ASP with SQL Server 2000 as the database. It decided not to use a packaged SCM solution due to the high cost and relative lack of complications in its supply chain. The initiative: An in-house developed, easy-to-use, Intranet based data-warehouse displays as-of-yesterday sales, stock, receivables, banking, and other MIS. Over 5,000 ASP pages meet almost all reporting requirements and make this a single source of MIS for all levels of decision makers. This success paved the ground for the companys supply chain initiative. Fifty-five Ku Band TDMA VSATs were used to link primary distributors to the system. Factories were hooked up using PAMA (Permanent Assigned Multiple Access) VSATs. At some locations VPNs had to be used because it was not possible to set up a dish. The zonal offices in Mumbai were hooked up in a similar manner. The hardware is mostly owned by the primary CFA (Carry and Forward Agent) except for the networking equipment, which is owned by Dabur. In the case of the secondary systems, stockists wholly own the hardware. The primary rollout began in April 2001 and took 16 months. The first six months were used to create a business model common to all divisions (family products, healthcare, ayurvedic products, and pharmaceuticals), and testing and piloting the same. The Innovation The integrated primary and secondary system has a number of unique features. The features like tight integration of schemes, stockists credit limit control, automated banking of cheques, and online cheque reconciliation have obvious advantages in the primary distribution. These are basically extensions to the MFG/PRO ERP system and not core customizations. Daburs stockists supply to 1. 5 million retailers. Seventy percent of the sales are accounted for by the top 500 stockists. The incorporation of these top stockists into its supply chain is a first for any FMCG company in India. The average sale of each stockist and the current stock are the two parameters. A My Page allows the stockist to see the as-of-yesterday details pertaining to the in-transit shipments, transporter details, back-orders, account statement, cheque status, credit notes, and claim settlements. Details are collected from stockists on a weekly basis. In case of primary distribution points, an incremental backup is sent to the central location when the CFA closes operations for the day. These are computed at night in a process called ‘cubing’. And when managers come into office in the morning the information is ready for them. The integrated system allows each Area Manager to plan for the months sales forecasts, stockists performance, and sales officers performance. The integration allows better control on pipelines in primaries and secondaries, brings down inventories, and offers better control on production and sales against a confirmed forecast. â€Å"The company has added an SMS interface that lets authorized phones query the system for aspects like stock status, credit limits, current outstanding, and division-wide sales. An access control list of mobile phone numbers is used to restrict access to the system. Salespeople can get responses to their queries in a minute with this system, said Gopal Shukla, Chief Information Officer, Dabur India Limited. The problems The Internet connectivity had to be provided to secondary stockists and wasnt always reliable. Daburs solution was to offer the option of downloading software, working offline, and connecting later to send in updates. Power was another issue. The company laid down stringent standards. Every stockist had to have an UPS, and in cases where the power shortages are chronic, a genset. The Benefits By integrating its primary and secondary supply chains, Dabur intends to reduce the days of inventory carried in the pipeline by four days from the present 29 days. It aims to save Rs 5 crore by means of this system. Beyond this, the system lets it forecast seasonal spikes in sales and manufacture accordingly. The aim is to shift focus to the stockists rather than the CFAs to get a true picture of whats happening in the market and react faster. Future Roadmap Schemes based on secondary volumes will help control secondary pipelines and sales. Primary sales will therefore come from a resultant pull from secondary replenishments. Sales order servicing can be further improved by taking orders through the Internet, and by setting stocking norms and replenishing stocks to improve ROI of stockists. Sales officers targets can be set against a measure of secondary sales and pipelines to further improve control and avoid stuffing of CFAs to meet targets. SUPPLY CHAIN MANAGEMENT OF PG: Procter Gamble, a world leader in consumer packaged goods, sells nearly 300 brands in more than 160 countries. It has sales of $40 billion a year and 130 manufacturing sites around the world. PG measures consumer satisfaction at two levels, which it calls the two â€Å"moments of truth. † The first moment of truth occurs when the consumer reaches the shelf and finds that the desired product is, or is not, available. This is a critical moment, because if the product is not immediately available, the consumer usually moves on to buy a rival product. The second moment of truth depends on the buyer’s satisfaction when consuming the product. This, too, has a crucial impact on consumer loyalty, but is beyond the scope of this case study. Detailed consumer surveys in July 2000 told PG that in 55% of cases (75% for promotional items), consumers were not satisfied when they looked on the shelf for the products they wanted. The exact product variant, in the size and packaging the shopper sought, was available less than half the time. Something had to be done. Responsibility for having the product on the shelf every time a shopper wants it used to be seen as purely a matter for the retailer. If retailers got their forecasts wrong and ordered the wrong volumes, the manufacturer was not aware of the problem, or at least otconcerned about it. But, at the end of the day, both the manufacturer and the retailer were losing. PG was ahead of the pack in realizing the significance of this, though other manufacturers are now also focusing on the end consumer, which is one reason why the industry is seeing so many new CPFR (collaborative planning, forecasting and replenishment) and VMI (vendor-managed inventory) programs. Top manage rs in PG began to realize that the company’s supply network needed to be re-engineered so that it was genuinely responsive to consumer demand. This was especially important for promotional items, because of the cost of merchandising and promotional activities, and the long-term negative impact of stock-outs on consumers. After customers have been unable to buy the desired product and have switched to alternatives, it becomes hard to persuade them to return to buying the initial product when they go shopping again. PG decided that sophisticated demand chain management, establishing direct connections between sales and supply chain business processes, could be the key to maintaining its leading position in the consumer packaged goods industry. As a result, a multi-level initiative was launched, which PG calls its â€Å"consumer-driven supply network† (CDSN) program. Retail changes put pressure on the supply chain For the major consumer packaged goods manufacturers, the strategies that are currently being pursued by the world’s most competitive retail chains are changing the game in two important ways. †¢ As consumers come to expect a greater assortment of product options, retailers are responding with greater product differentiation, driving up service level expectations. Cash requirements are creating pressure for shorter order-to-delivery cycles and a move towards flow-through distribution networks. These trends are already beginning to eliminate the safety stocks that used to be held in reserve in the retail supply network. This situation creates several new problems that PG and other manufacturers need to come to terms with. †¢ Reaction times across the supply network have been compressed. †¢ Current processes cannot move fast enough to deliver what retailers need. †¢ Supply decisions require timely, detailed information that is not usually available today. Optimizing supply chain performance demands a radical new look at the way the partners in the supply network collaborate, involving retailers, manufacturers and service providers. PG’s aim has been to create adaptive, responsive supply networks that will link together sales and supply processes, inside and outside the organization, to improve product availability. This will allow it to develop demand chain management capabilities, especially for promotions. Promotional items are the highest priority, because of the large amounts of money involved in marketing programs. If manufacturers cannot deliver the product, they lose all the growth that should be generated by their marketing promotions, however much demand is stoked up. New thinking, new techniques, and new technology PG’s vision of a consumer-driven supply network has two essential elements. †¢ Building collaborative supply chains at several levels (local market and global markets, for example). †¢ Ensuring that manufacturing sites serving both local and global supply networks are highly responsive to changes in demand, based on real-time data from the stores. Links between supply chain planning and supply chain execution processes are critical. In the transportation area, PG expects a lot of change, including improved collaboration with logistics outsourcers and more use of techniques such as cross-docking. This system, under which inbound trucks are unloaded and the goods are sorted and loaded straight onto outbound vehicles, without ever being put into store, can be used to cut inventory and handling costs, as well as delivery times. Daily planning will give way to continuous planmake- ship processes, which will demand improved loading techniques to make efficient use of vehicles as lot sizes become smaller. In the short term, PG expects to see supply networks based on relationships, rather than entirely owned by manufacturers. This kind of collaborative organization offers the flexibility to vary capacity according to short-term or last-minute needs. End-to-end optimization is essential, as there is no point in optimizing one component (e. g. production responsiveness) at the expense of another (e. g. delivery and transport costs). In export markets, with their longer replenishment lead times, this kind of improvement canbe difficult to manage. But these are the very markets that may also offer the biggest rewards in terms of inventory reduction and improvements in availability. In PG’s vision of the consumer-driven supply network, daily demand updates provide timely warning of changes in product consumption. To make the CDSN work, this information must then be rapidly integrated into replenishment plans, internally and for partners and suppliers. PG is also piloting new distribution requirement planning techniques that will make it easier to understand product requirement implications across the distribution network. For the CDSN idea to become a reality, some organizational changes were necessary, asexisting processes could not keep up with the new business targets for customer and consumer service. But it was also clear that there were technology issues that must not be forgotten. The battle cry of â€Å"Business strategy first, technology second† is now accepted wisdom, but changing the business strategy would not have been feasible without changing the technology, too. Achieving â€Å"optimization† across the supply and demand chains requires network collaboration between partners, and a set of tools that will help and facilitate that collaboration. These tools must include a harmonized business applications portfolio, including, in PG’s case, a globally standardized ERP platform predominantly based on SAP software. The final element required to make the CDSN concept work is technology for real-time tracking of products, cases and pallets within a manufacturing operation. PG is one of the sponsors of MIT’s Auto-ID Center, which is working to develop cheap radio-frequency ID tags that can be built into packaging to provide real-time demand monitoring from the retailer’s shelves all the way back through the supply network. Out-of-stocks cost you one sale in nine Though the consumer buys from the retailer, and not directly from the manufacturer, the manufacturer cannot afford to ignore the problem of shortages at the store or shelf level. PG’s direct customers are the retailers, and today’s supply chain structures were originally developed to supply retailers’ warehouses with goods, according to plans laid down and orders placed in advance. But at a time of highly volatile consumer demand, doing this reliably is not enough. Service at the consumer level is becoming the key strategic metric, and out-of-stocks need to be monitored very closely. PG’s research has shown that retailers lose 11% of sales due to out-of-stocks, and that same-brand substitutions win back less than 25% of those lost sales for a manufacturer. From the CDSN pilots it has run so far, PG has already discovered that effective collaboration in non-linear supply chain environments is a demanding discipline—and that it is important to force the pace of change. Systems and technologies may not yet be ideal, but PG has learned that it is not worth waiting for perfection. It has identified the main requirements for successful network collaboration under four headings: †¢ The potential to move large volumes of data fast. Data should be handled automatically, without needing to be transformed or translated on arrival. †¢ An adaptive, dynamic approach that uses new business applications to monitor, alert, evaluate and, where appropriate, trigger action. †¢ The ability to establish connections quickly on demand, if necessary within hours. †¢ Enhanced back-up and recovery strategies for all the systems involved. The technical challenges cannot be ignored, because batch processing windows soon narrow right down. This is especially critical if these harmonized business applications are going to be deployed on a global scale. PG is working with its IT suppliers to develop additional functionality and to resolve thescalability problems inherent in most new applications. But it has also learned the value of assembling and making a firm commitment to a small group of technology partners for such an ambitious global project. Getting down to the practical detail It is still too early for PG to be able to point to business results and ROI figures in connection with this work, but several programs have already been approved and launched. These projects are already contributing tangible business benefits in several planning areas. †¢ Demand planning: PG has launched a new demand planning system, which is now used to forecast 80% of the company’s sales volume. It is already showing that it can produce forecasts with significantly improved accuracy. †¢ Rough-cut capacity planning: PG has introduced a pilot to support rough-cut capacity planning processes in its detergents business. This has already succeeded in cutting out-of-stocks by three-quarters and reducing inventory levels. Distribution requirements planning: Among others, there has been a successful pilot project in PG’s North American cosmetics manufacturing facility, supporting a daunting 10,000 permutations of product and distribution channel. PG has also developed private e-marketplace facilities for both suppliers and customers, allowing its key business partners to see its inventory levels and production plans and perform real-time transactions via Web-enabled front-end systems. This approach has produced inventory savings across the whole supply chain, and allowed the introduction of other improvements, such as automatic invoice processing. Improved responsiveness to events has enabled PG to increase promotional product volumes, but still be left with less residual inventory when each promotion is over. At its manufacturing sites, PG is experimenting with early pilots to support produce-todemand capabilities. These involve superimposing real-time demand signals onto the production plan, and integrating real-time shop-floor and warehouse data. It is also piloting a â€Å"dynamic distribution requirements planning† system, in which the planning cycle is automatically triggered by major events, such as changes in demand or inventory, and could be run many times a day. Though the pilots are still in early stages, incorporating these highly responsive processes into the supply chain will eventually cut costs and lead to real improvements in consumer satisfaction. SUPPLY ITC Overview ITC is one of Indias foremost private sector companies with a market capitalisation of over US $ 22 billion and a turnover of US $ 6 billion. * ITC is rated among the Worlds Best Big Companies, Asias Fab 50 and the Worlds Most Reputable Companies by Forbes magazine, among Indias Most Respected Companies by Business World and among Indias Most Valuable Companies by Business Today. ITC ranks among Indias `10 Most Valuable (Company) Brands, in a study conducted by Brand Finance and published by the Economic Times. ITC also ranks among Asias 50 best performing companies compiled by Business Week. ITC has a diversified presence in Cigarettes, Hotels, Paperboards Specialty Papers, Packaging, Agri-Business, Packaged Foods Confectionery, Information Technology, Branded Apparel, Personal Care, Stationery, Safety Matches and other FMCG products. While ITC is an outstanding market leader in its traditional businesses of Cigarettes, Hotels, Paperboards, Packaging and Agri-Exports, it is rapidly gaining market share even in its nascent businesses of Packaged Foods Confectionery, Branded Apparel, Personal Care and Stationery. As one of Indias most valuable and respected corporations, ITC is widely perceived to be dedicatedly nation-oriented. Chairman Y C Deveshwar calls this source of inspiration a commitment beyond the market. In his own words: ITC believes that its aspiration to create enduring value for the nation provides the motive force to sustain growing shareholder value. ITC practices this philosophy by not only driving each of its businesses towards international competitiveness but by also consciously contributing to enhancing the competitiveness of the larger value chain of which it is a part. ITCs diversified status originates from its corporate strategy aimed at creating multiple drivers of growth anchored on its time-tested core competencies: unmatched distribution reach, superior brand-building capabilities, effective supply chain management and acknowledged service skills in hoteliering. Over time, the strategic forays into new businesses are expected to garner a significant share of these emerging high-growth markets in India. ITCs Agri-Business is one of Indias largest exporters of agricultural products. ITC is one of the countrys biggest foreign exchange earners (US $ 3. 2 billion in the last decade). The Companys e-Choupal initiative is enabling Indian agriculture significantly enhance its competitiveness by empowering Indian farmers through the power of the Internet. This transformational strategy, which has already become the subject matter of a case study at Harvard Business School, is expected to progressively create for ITC a huge rural distribution infrastructure, significantly enhancing the Companys marketing reach. ITCs wholly owned Information Technology subsidiary, ITC InfoTech India Ltd, provides IT services and solutions to leading global customers. ITC InfoTech has carved a niche for itself by addressing customer challenges through innovative IT solutions. ITCs production facilities and hotels have won numerous national and international awards for quality, productivity, safety and environment management systems. ITC was the first company in India to voluntarily seek a corporate governance rating. ITC employs over 26,000 people at more than 60 locations across India. The Company continuously endeavours to enhance its wealth generating capabilities in a globalising environment to consistently reward more than 3,53,000 shareholders, fulfil the aspirations of its stakeholders and meet societal expectations. This over-arching vision of the company is expressively captured in its corporate positioning statement: Enduring Value. For the nation, Shareholder. ITC FMCG Supply chain ?Consists of diverse categories with different priorities ?More than 1000+ SKUs ?Buying Value $68 MM ?Warehousing space of more than 3. 5m SFT around 55+ Locations ?Products manufactured at 45+ plants ?More than 650 trucks moved every day ?Direct distribution from factories to Distributors. ?Indirect movement through RDCs ?Combination of Rail/Road/Sea movement within the country depending on the product type. e-Choupal E-Choupal is an initiative of ITC Limited, a large multi business corporation in India, to link directly with rural farmers via the Internet for procurement of agricultural and aquaculture products like soybeans, wheat, coffee, and prawns. E-Choupal was conceived to tackle the challenges posed by the unique features of Indian agriculture, characterized by fragmented farms, weak infrastructure and the involvement of numerous intermediaries. The programme involves the installation of computers with Internet access in rural areas of India to offer farmers up-to-date marketing and agricultural information. Problems addressed: Commodities were procured in mandis, where the middleman used to make most of the profit. These middlemen used unscientific and unfair means to judge the quality of the product to set the price. Statement of a farmer: Who is a member of E-Choupal: Before ITC introduced us to e-Choupal, we were restricted to selling our produce in the local mandi. We had to go through middlemen and prices were low. Today we are a community of e-farmers with access to daily prices of a variety of crops in India and abroad – this helps us to get the best price. Effects of e-Choupal ITC Limited has now provided computers and Internet access in rural areas across several agricultural regions of the country, where the farmers can directly negotiate the sale of their produce with ITC Limited. This online access enables farmers to obtain information on mandi prices, and good farming practices, and to place orders for agricultural inputs like seeds and fertilizers. Each installation serves an average of 600 farmers in the surrounding ten villages within about a 5 km radius. Since the introduction of e-Choupal services, farmers have seen a rise in their income levels because of a rise in yields, improvement in quality of output, and a fall in transaction costs. Even small farmers have gained from the initiative. At the same time ITC Limited has obtained benefits from the programme: 1. elimination of non value added activities 2. differentiated product through identity preserved supply chains 3. value added products traceable to farm practices 4. e-market place for spot transactions and support services to futures exchange There are presently 6,500 e-Choupals’ in operation. ITC Limited plans to scale up to 20,000 by 2012 covering 100,000 villages in 15 states, servicing 15 million farmers. Manufacturing firms The module in the distribution network of ITC cigarettes are the manufacturing units located at Bengaluru, Muner, Kolkata, and Saharanpur. These manufacturing units use the raw materials and other available resources to manufacture the various brands of cigarettes. Zonal Offices and Warehouses The second level of distribution channel are the zonal offices . Each of the zonal office is situated in different regions like North, South, West, East, North-west region etc. hat are like the branch of organization opened for the smooth functioning of the supply chain management of the product in the market. Main task performed by these offices are acting as an intermediate between the manufacturing firm and local distributors who are involved in actual distribution of products to the different selling points in the market. They invigilate the storage point for the company, i. e. warehouse where large amount of stock is stored depending upon the sales in that particular region. Wholesale Distributors The next level of the channel constitute of distributors. It mainly refers to the agency holders of the company who act as the company representative in the market and supplies the product to the different selling points in the market. They are the most important module in the distribution channel of Cigarettes as on the one hand they are representing company in the market and on the other hand they are involved in promotional activities of the product (due to restriction on advertising and promotion of the Cigarettes using media types). The distributors are available in almost each city and other important areas of the market to increase the availability of the brand in the market and compete against the competitors. Wholesalers The next level of the channel in the distribution is the wholesalers. They help in â€Å"bulk breaking† from the local distributors and also supplies to the retailers in the in and around its periphery. They also help in promoting the company and other promotional activities through various visual merchandising. Retailers The last intermediate that is available before the Cigarette reaches to the customer are the retail outlets. With reference to the Indian perspective, different retail outlets are present in different forms in the market like:- a)Pubs/ Bars: These are not basically the retail outlets of Cigarette but are included under this category because few of the super premium brands are available in each Pub for the facility of the customers coming to that particular place. Also, these places act as point of promotion and launch of new brands. ) Convenience stores (Kirana shops): Small and big shops present in every locality providing the basic necessary products to the nearby people or the locality in which it is located. c) Pan shops: Small corner shops that are known with the name of Pan Shops but contributes large share in total sales of Cigarettes in the market. d) Kiosks: Small outlets in big Malls like Forum, which only sells Cigarettes of different brands of the same company like ITC. Kiosks are being used by the companies to increase the visibility of the brands. ) Large format stores (LFS): It refers to the big retail outlets that are available in the local markets selling the daily need goods and other middle range of products that are required by the customers for the fulfilment of basic needs like vegetables, grocery, kitchen appliances etc. Ex. Spencer’s, C3 etc. f) Multi Branding Outlets (MBO’s): The outlets opened in the Malls and other shopping areas, which are similar to the â€Å"Kiosks† but the only with a difference that products from different companies are also available at one place with addition to different brands. Channel Member Management Monetary and Non Monetary Methods of Rewarding As per the HR policy of ITC ltd there are no monetary or non monetary rewards given to the channel members, they are the distributors and retailers. Target Setting Mechanism ITC Ltd sets target for the distributors in terms of M-S, where 1 M-S is equivalent to 12000 sticks and 1 case is equivalent to 12 M-S. The distributors are given a target of 200 M-S per week. No targets are set for the retailers. Monitoring Mechanisms The distributors are monitored by the Area Sales Manager and the retailers are monitored on by the Area Executives. The parameters on the basis of which the distributors are monitored are (a) Visibility of the products (b) Availability of the products (c) Maintenance of the existing displays (d) Weekly sales. Training and HR Inputs The distributors are not given any training or HR inputs by ITC ltd Field Force Management Monetary Method of Rewarding As per the HR policy of ITC Ltd the field force is monetarily rewarded on the basis of the number of bills drawn on the distributors. Non Monetary Method of Rewarding The field force of ITC Ltd is given unlimited medical benefits in terms of non monetary methods of rewarding. Target setting Mechanism The field force is given targets in terms of the number of bills generated by an individual. Monitoring Mechanism The members of the field force reports to their immediate supervisor and this follows throughout the hierarchy. Training and HR Inputs The sales men of the distributors are under the payroll of ITC ltd. In case of mass recruitment the new sales force is given training by the HR department of ITC Ltd. As per the HR norms, ITC Ltd provides training to its own employees of the distribution network at regular intervals.