FMCG – Supply Chain Management -...
Transcript of FMCG – Supply Chain Management -...
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FMCG – Supply Chain Management Challenges posed to retailers and other stakeholders in FMCG are many: time-to-market reductions are necessary and aggressive due to shorter and shorter product life cycles, need for greater product variety resulting in rapid fluctuations in demand, need for high responsiveness, and the ever increasing need for shorter lead times. This write-up focuses on the supply chain management (SCM) in FMCG world, challenges faced by retailers in terms of SCM to compete in consumer markets, and emerging opportunities and solutions.
Supply Chain Management
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TABLE OF CONTENTS
1. FMCG – Indian Context ......................................................................................................................................... 2
2. Supply Chain Management in FMCG .................................................................................................................... 3
classification of FMCG Supply Chain ......................................................................................................................... 3
Components of a Supply Chain in FMCG company ................................................................................................... 4
Supply Chain as competitve Advantage in a FMCG company ................................................................................... 4
challenges in Supply Chain strategy in a FMCG company ......................................................................................... 6
3. Evolution AND Major Changes in FMCG Industry ................................................................................................. 9
4. Balanced Scorecard ............................................................................................................................................. 11
Application of Balance Score Card in Supply Chain Management .......................................................................... 11
Sample Balance Score Card ..................................................................................................................................... 13
5. FMCG Supply Chain ............................................................................................................................................. 13
Characteristics of supply chain for fmcg products in india ..................................................................................... 14
The Role & Challenges faced by the Producer ........................................................................................................ 14
The Role & Challenges faced by the Distributor ..................................................................................................... 14
The Role & Challenges faced by the retailer ........................................................................................................... 15
6. Business Intelligence in SCM – FMCG ................................................................................................................. 16
Current BI Trends in FMCG ...................................................................................................................................... 16
Advantages of BI in SCM ......................................................................................................................................... 17
Popular KPIs affected by BI ..................................................................................................................................... 17
BI System Framework .............................................................................................................................................. 17
BI Architecture – ITC Ltd .......................................................................................................................................... 19
References ................................................................................................................................................................... 21
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1. FMCG – INDIAN CONTEXT
The Indian FMCG sector is the fourth largest in the Indian economy and has a market size of $13.1
billion. This industry primarily includes the production, distribution and marketing of consumer
packaged goods, that is those categories of products which are consumed at regular intervals. The
sector is growing at rapid pace with well-established distribution networks and intense competition
between the organized and unorganized segments. It has a strong and competitive MNC presence
across the entire value chain. The FMCG’s promising market includes middle class and the rural
segments of the Indian population, and give brand makers the opportunity to convert them to branded
products. It includes food and beverage, personal care, pharmaceuticals, plastic goods, paper and
stationery and household products etc.
Though the FMCG market consists of a large number of product categories, the food category is by far
the largest with 43% of the total revenue of the sector. The personal care products category is the
second largest with 22% revenue.
The primary driver of the FMCG market is the urban segment. The rural segment is lagging but it is
catching up fast. Primary reason for this disparity is distribution channel presence and purchasing power
of buyers in the urban areas compared to the rural areas.
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2. SUPPLY CHAIN MANAGEMENT IN FMCG
Supply Chain is a system of organizations, people, technology, activities, information and resources involved in moving a product from supplier to consumer. In FMCG (& SMCG) industry the supply chain management gets more complex due to larger product portfolio which requires sourcing raw material from multiple suppliers, converting it into product by manufacturing in multiple locations, then distributing it to several distributors and finally delivering to consumers of varying needs, varying cultures and varying locations. In India, in the past suppliers, manufacturers, distributors and retailers used to work in silos. As the market was growing, each of these organizations could increase their bottom line by many conventional techniques such as increase in volume, reducing price etc. These techniques were straight forward implementation of demand supply paradigm of general theory of economics. Today the context has changed in Indian market. It has become saturated thus limiting the growth opportunities through conventional techniques. Therefore companies started looking at process optimization, both internal and external. While the concepts of Lean, Six Sigma, CRM, CE Score, analytics based demand forecasting, statistics based order management etc. started gaining dominance in internal management, the concepts of upstream & downstream partnership, revenue sharing, buy-backs etc. started to make presence in external management.
CLASSIFICATION OF FMCG SUPPLY CHAIN
Food & FMCG supply chain can be classified as perishable and non-perishable. A typical consumer good value chain is given in the figure below –
Source - http://www.rolandberger.com/expertise/industries/CGR/
A perishable item can be characterized by shorter shelf life, food safety and regulations whereas non-perishable FMCG products have shelf life ranging from 3 to 18 months thus need stringent monitoring of FEFO so that consumers receive products with enough shelf life.
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COMPONENTS OF A SUPPLY CHAIN IN FMCG COMPANY
The key components that make these supply chains function effectively can be categorized as follows –
Location
Transportation and Logistics
Inventory and forecasting
Marketing and channel restructuring
Sourcing and supplier management
Information and communication technology (ICT)
Flexible manufacturing systems
Product design and new product introduction Product Assortment
Merchandising at retail joints
Pricing strategy Services and after sales support
Reverse logistics and green issues
Outsourcing and strategic alliances
Metrics and incentives
Customer profiling
Supply Chain costs
Supply chain coordination (Partnership, Integration, and Risk & Revenue Sharing etc.)
Global issues
SUPPLY CHAIN AS COMPETITVE ADVANTAGE IN A FMCG COMPANY
Different FMCG companies optimize processes related to some or all of afore said supply chain elements so that they become source of their competitive advantage. We will look at some of the examples of such optimizations and see how different companies fit their respective supply chains as per their custom needs. HUL achieves high supply chain effectiveness by
Highly customized distribution model o Hub and Spoke model o 2000 suppliers o 40 manufacturing plants o 35 Carrying and Forwarding Agents o 4000 redistribution stockists o Project Shakti, where HUL utilizes the reach of Women Entrepreneurs and Self Help
Groups in distant villages to sell its brands o Project Shaktimaan to overcome last mile challenge specifically in villages with
population less than 2000 – HUL provided sellers (called Shaktimaan) with products and bicycles
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Adopting technology o Geo-Tagging to understand how far villages are from highways and its nearest
distributors o Wireless technology to collect POS data to get real time updates on demand pattern at
every node of its supply chain – Project Leap and RS Net , HUL’s back end system for end to end supply chain management
o Partnering with Tata Teleservices to utilize mobile technology to increase communication with Rural wholesalers, Distributors and retailers
Optimizing supply chain risk and cost o Providing direct coverage only to Urban centers o Covering rural centers indirectly using local expertize and making local people partners
Retailers from villages close to Urban centers were made to be covered by nearby Urban Stockists
Villages afar were made to have sub-stockists who would coordinate with stockists in villages close to urban centers
Making rural women SHGs (Project Shakti) and rural men (Project Shaktimaan) a part of last mile selling network
Implementing direct-to-consumer and cash and carry models in remote rural centers
Introducing Mother Depot and Just-In-Time depot concept to reduce inventory
The whole distribution model helps HUL to keep control of what an end retailers buys – so the product mix is total controlled by the company and it can decided when to PUSH what kind of products in what market based on demand pattern and consumer behavior
P&G manages to achieve supply chain effectiveness and in turn competitive advantage by
Sharing information across supply chain partners – Case: P&G – Walmart information sharing using Big Data Technology
Improving inventory churn and reducing out-of-stock through Collaborative Planning, Forecasting and Replenishment (CFPR) model which
o Involves all supply chain partners in supply chain management thus improving relation among partners
o Integrates planning and forecasting process and thus improves accuracy o Improves replenishment process o Increased consumer demand responsiveness o Increases sales o Reduces supply chain cost
Closing the gap between actual sales and supply chain forecast using Consumer Driven Supply Network (CDSN) which
o Employed supply chain management driven by actual demand Collaborated across partners to capture real time demand and collect that
information from the point of sales Web order management to enable retailers to connect to P&G and sync with its
planning. Forecasting, scheduling etc. Intelligent daily forecasting – Software that takes Daily order data, Daily Shipment data and Weekly shipment forecast as inputs and gives Daily estimates for next 6 weeks
Optimizing rate, route, mode and method of transportation using Control Tower Program
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Marico achieves supply chain efficiency and in turn competitive advantage by
Utilizing its rich distribution network of more than million outlets in Indian and overseas
Using low commodity raw materials
Having strong control on raw material sourcing o Moving Copra buying office from Mumbai to Kozhikode to be near to raw material
source o Developing alternate Copra sourcing location in Tamil Nadu (Risk Hedging) o Developing Vendors locally in Kerala and Tamil Nadu o Setting up company owned Copra collection center in Perambra, Kerala (Dis-
intermediation) o Introducing Web Based Auction, Reverse Auction, SMS based Auction in the buying
process (Transparency) o Setting up one stop shop for Copra collection in Kochi – Farmers will directly sell their
coconuts in this center (Backward integration)
ERP (SAP) implementation across the supply chain network and setting up e-marico.com Copra e-portal
ITC achieves upselling by reutilizing existing distribution channels
ITC utilizes the distribution channel utilized for cigarettes to sell match boxes, agarbattis, candies, potato chips etc.
It also uses channel established for ATTA (Annapurna) category to sell biscuits (Sunfeast)
Zara, Spain, manages to attend high level of supply effectiveness by
Closely monitoring point of sales data to make accurate forecasting
Dispatch from Warehouse on replenishment basis
Making manufacturing more responsive Asian Paints manages to create competitive advantage through
Technology development which helps them to achieve delayed differentiation Dell Computers manages to achieve competitive advantage by
Proper market segmentation – Tech Savvy, Customization sensitive and price sensitive
Mass customization at lower cost Amazon and Flipkart manages to achieve high profitability by
Lowering inventory cost through marketplace model Using effective Customer Relationship Management
Here we saw how one or more supply chain optimization leads to competitive advantage for such well-known companies.
CHALLENGES IN SUPPLY CHAIN STRATEGY IN A FMCG COMPANY
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Finally, we will look into some of the common issues companies face while trying to manage their respective supply chain
Managing availability of products/services in the complex distribution set up o Marico has to maintain consistent reach to its 1.6 million retailers spread throughout
country in order to ensure uniform availability of last stage distribution
Working with smaller pack sizes which increases transportation and packaging cost o HUL successfully markets Sunsilk and Lux in small sachet. The key here is to offset all the
extra cost incurred through category penetration and volume sale
Managing fresh product category which comes with shorter shelf life for being perishable o AMUL effectively set up cooperative societies in milk farming villages and made them
collaborate for centralize milk processing. Further established an effective cold chain to dispatch the packaged milk to entire nation while strictly adhering to food safety norms
Managing complex Taxation structure o Federal nature of Indian governance makes each state to act as independent taxation
regime which increases the variability in supply chain cost and in turn product cost across different states. With TAX reform currently under process (GST and such) FMCG companies stand to get better stability in their respective supply chain cost structure
Dealing with counterfeit goods o P&G recently found that there are as much as 54% of counterfeit Vicks Veporub in the
market. An estimation says in India FMCG companies lose as much as Rs. 300 million of sales through counterfeiting. FMCG companies need much more control over its distribution net work
Distributor opportunism o It is a well-known fact that at best 50% of promotion budget allocated to distributor
channels actually being utilized. Unscrupulous distributors try to grab significant portion of the budget for themselves
Poor infrastructure o Poor roads and other form of unreliable connectivity make supply chain inefficient. 3PL
is typical way of risk hedging in this section of supply chain but a lack of consolidation and modernization in logistic sector makes it difficult In Indian scenario to implement 3PL effectively
o Electricity issues makes it difficult for cold chains to be highly effective o There are examples of effective coordination through public infrastructure but in limited
area – Example : Mumbai dubbawalas
Emergence of modern retailers o Traditionally modern retailers look for better deals from FMCG manufacturers, but
Indian distribution networks work under small margins. Therefore they are unable to offer deep discounts that modern retailers thrive on. In a longer run they may come up with their own product thus increasing competition for conventional FMCG manufactures. For example in Big Bazaar their private label “Clean Mate” out sells “Harpic” from established FMCG player Reckitt Benckiser
Low Customer Loyalty for FMCG products o For low margin products customer switching cost is low hence customer loyalty is low
Competition for better Category Management and Higher in Retail shelf space
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o Due high competition in every category and low control of merchandising in retailer’s end FMCG companies normally get into negotiation with big organized retailers for better merchandising, category management and higher shelf space
Marico and Big Bazaar collaborated for better category management of former’s merchandising
Cadbury and Food bazaar collaborated for similar reasons
Complexity of Assortment planning o Companies always need to evaluate the demand pattern, cyclicality etc. and formulate
the amount of a product to make available in the shelf. Companies try to cater to all feasible segments as per their preferences. The facts that customer preference vary from time to time, place to place and even customer profile for different products vary make the assortment planning a must for FMCG companies in order to avoid cost of over/under stocking and protect brand image
ITC maintains two brands Wills Life style and John Players for two premium and mid-market segments. As Premium segment is highly differentiating in demand so Wills offer wider assortment with shorter life cycle (6-8 weeks against 3-4 months earlier). Therefore ITC supply chain also needs to procure and supply to front retail stores accordingly
Café Coffee Day and Starbucks sell an assortment of products but the need (taste) of the customer in the breakfast is completely different to those in lunch or snacks time, therefore it is important for them to have accurate daily assortment plans as per footfall in these times of a day. Their supply chain also needs to tune accordingly
Price war among FMCG companies and price pressure from smaller private labels o Pricing is a highly strategic area in case of FMCG and companies find it absolutely
difficult to gauge competitors plan ahead of time. Therefore companies take decisions based on their own situations but the outcome may not match due to competitors’ subsequent move and the company may end up losing market share in no time
In 2009 HUL observed that the main reason behind consistent decline in market share is their decision to increase prices of the products due to increasing input cost (In past two years). So they decided to cut the prices in price sensitive categories (e.g. for products such as Rexona, Hamam, Liril, Pepsodant). But the success of such a move again would depend upon whether the competitors are also reducing prices or not
Also HUL wanted to manage the situation through bundling products Recently in 2013, HUL again observed that Soaps and Detergent category losing
customers to smaller domestic rivals such as Rohit surfactants, Bharti Soap Works and Ayur herbals. The segment is highly price sensitive so in order to recapture the market HUL decided to cut the prices in these categories by 15-18 percent in one month
Multi-price point for versioned products and brand equity o In 2009 P&G observed that its sales growth rate is increasing in a decreasing rate and
they attributed it to their focus on premium products sold under premium price points. Private labels were taking benefit out of this and eating away P&G’s market share. P&G decided one way to manage the situation would be to expand the product portfolio and sell multi-versioned products under multiple price points (to cater to all segment of the market for that category)
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o Nestle already successfully managed such pricing strategy. They have multiple veterinary food products (for Dogs, Cats etc) at different price points
o Not every company can do it as managing a larger portfolio with varying prices is always difficult. Nestle and P&G can manage to do it as their respective Brand Equities help them in generating interest/awareness/trust and pushing the products off the shelf
So we will conclude suggesting that even though big Indian FMCG power houses have been able to optimize their supply chain elements but due to the continuous evolving nature of the internal and external environment of the business these companies need to continuously monitor their supply chain processes and try out innovative solutions for further optimization.
3. EVOLUTION AND MAJOR CHANGES IN FMCG INDUSTRY
FMCG products by their nature are low priced products (low price per unit). However these products are
an essential requirement of nearly the entire population. With a population of over 1bn people, India is
a prime FMCG market. An increasing population ensures that the market will almost always grow larger,
discounting for periodic macro and micro economic factors.
Post-independence, the FMCG market was not very established in India. The purchasing power of the
common man was very low. The first major changes occurred in the 1980s and 1990s. Improving
standards of lifestyle, improved media penetration etc. led to major growth in the FMCG industry. It also
led to a slight discontent amongst people with the existing array of FMCG products offered.
After liberalization,
the situation
changed drastically.
Now Indian
consumers were
exposed to new
products including
those from outside
India. Large MNCs
were encouraged
to enter the Indian
FMCG scene and
established their
presence. Whereas
earlier there was only one major company (HUL), the late 1990s saw the entry of a huge number of
players.
The FMCG sector witnessed rapid growth through the 2000s. Even during the 2009 recession period the
Indian FMCG sector grew at 12% to about 86000 Crores accounting for roughly 2.2% of the GDP. Double
digit growth rates are not uncommon in the FMCG sector.
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Pre 1990, there were few major player like HUL. Present day there are several dozens
A Booz-Allen-CII report in 2010 identifies the following key trends In the Indian FMCG evolution story :
Accelerating Premiumization: Improved income leading to improved purchasing power will mean
consumers will look for higher quality products. Supply chains will need to manage premium (read
expensive) goods and deliver them safely and securely to consumers
Evolving Categories: Producers will no longer have to just satisfy basic needs of consumers. Consumers
will demand products from the beauty, health and wellness categories also (e.g. beauty soaps as
opposed to bating soaps)
Goldmine at BOP: Although the living standards of India as a whole will significantly improve, a large
number of people will continue be BPL or near it. This category of consumers will expect highly
affordable and Value – For – Money (VFM) goods. This is a key market to be tapped. Supply chains must
penetrate deep into the rural areas of India to serve this key segment. For example, the use of sachet
quantities of popular products allows the BOP consumer to use FMCG products
Rapid Globalization: The entry barriers to imported goods is now pretty low. MNCs can easily make
their products available to the Indian consumers. Supply chains now span across borders and even half
way across the world. It requires the supply chain to be extremely coordinated across time zones
Many Indians: since most FMCG
producers concentrated on the urban
population, India was seen as a
homogenous market. There was
little need to differentiate the product or tailor it for certain segments. Increased spending power will see
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fragmentation of the markets across products, brands and operating structures. Supply chains will need to
cater to the demand for various SKUs for example for specific markets.
Growing Modern Trade: Modern supermarket/malls etc. will increasingly compete with traditional stores.
They may account for up to 30 percent of the trade volume by 2020. Thus, the bargaining power in this
supply chains will slowly shift towards the retailers (bulk buying etc.) and will need to be taken into
account
Eco-consciousness: Pressure on the environment is a key concern nowadays. With the growth of
Information technology, existing and potential consumers are more likely to be aware of the
environmental implications of their products. Thus, supply chins will need to be perceived as ecofriendly
too (e.g. Green Supply Chain certifications)
Game-changing Technologies: Scientific and technological advances will
only increase in pace. Supply chains will need to incorporate technologies
like Bar Codes, Infrared technologies etc.
Enabling Policies: Government policies are expected to become more
liberal, if only to improve their standing among the people. The modern
consumer demands the latest products and easy availability and supply chains must cater to that demand.
4. BALANCED SCORECARD
SCM captures the notion of organization and coordination of activities from procurement of raw materials to the final customer. For any business activity, such as supply chain management (SCM), which has strategic implications for any company, identifying the required performance measures on most of the criteria is essential and it should be an integral part of any business strategy. Many methods have been suggested over the years for SCM evaluation of any organization. Unfortunately, evaluation methods that rely on financial measures are not well suited for newer generation of SCM applications. These complex supply chains typically seek to provide a wide range of benefits, including many that are intangible in nature. As a result, we suggest that it may be appropriate to use a balanced scorecard approach to measure and evaluate supply chains.
APPLICATION OF BALANCE SCORE CARD IN SUPPLY CHAIN MANAGEMENT
A balanced SCM scorecard measures can be used to measure key metrics of SCM like
It points out the importance of key players in the performance measurement of SCM
A balanced performance evaluation of SCM
It focuses on critical factors that are likely to contribute for the successful performance measurement of SCM
Many companies are adopting the BSC as the foundation for their strategic management system. Some managers have used it as they align their businesses to new strategies, moving away from cost reduction and towards growth opportunities based on more customized, value-adding products and services.
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In order to put the balanced score card to work, companies should articulate goals for time, quality, performance and service and then translate these goals into specific measures. Firms should stop navigating only by financial measures but with combination of operational measures for day-to-day business operations too. It is essential to have a common understanding of the SCM related tasks in the organization and also the well-defined specific goals and objectives before developing the balanced SCM scorecard. The metrics included in the balanced SCM scorecard should meet three criteria. They should be quantifiable, easy to understand, and ones for which data can be collected and analyzed in cost-effective manner. The balanced score card can be applied to the supply chain management metrics with the intent to evaluate supply chain management performance comprehensively. The different supply chain management metrics are fitted into four different perspectives of BSC as follows
Performance metrics for the customer perspective
Performance metrics for the financial perspective
Customer query time Level of customer perceived value of product Range of products and services Order lead time Flexibility of service systems to meet particular customer needs Buyer–supplier partnership level Delivery lead time Delivery performance Effectiveness of delivery invoice methods Delivery reliability Responsiveness to urgent deliveries Effectiveness of distribution planning schedule Information carrying cost Quality of delivery documentation Driver reliability for performance Quality of delivered goods Achievement of defect free deliveries
Net profit vs. productivity ratio Rate of return on investment Variations against budget Buyer–supplier partnership level Delivery performance Supplier cost saving initiatives Delivery reliability Cost per operation hour Information carrying cost Supplier rejection rate
Performance metrics for the internal business perspective
Performance metrics for the innovation and learning perspective
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Total supply chain cycle time Total cash flow time Flexibility of service systems to meet particular customer needs Supplier lead time against industry norms Level of supplier’s defect free deliveries Accuracy of forecasting techniques Product development cycle time Purchase order cycle time Planned process cycle time Effectiveness of master production schedule Capacity utilization
Supplier assistance in solving technical problems Supplier ability to respond to quality problems Supplier cost saving initiatives Supplier’s booking in procedures Capacity utilization Order entry methods Accuracy of forecasting techniques Product development cycle time Flexibility of service systems to meet particular customer needs Buyer–supplier partnership level Range of products and services Level of customer perceived value of product
Source: Performance measurement of supply chain management: A balanced scorecard approach Rajat Bhagwata, Milind Kumar Sharmab; Computers & Industrial Engineering Volume 53, Issue 1, August 2007, Pages 43–62
SAMPLE BALANCE SCORE CARD
The following is a demonstration example of a Balanced Scorecard of business KPIs. While many are indeed Supply Chain related you need only look at Sales Forecast Accuracy to see how other departments can influence that measurement to a far greater extent. KPIs are designed (usually 2 or 3 per scorecard quadrant) and presented within the company Scorecard. Target performance threshold levels are agreed (RAG – Red, Amber, Green) and presented monthly within the S&OP process.
5. FMCG SUPPLY CHAIN
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The supply chain of an FMCG product primarily tries to meet the following objectives.
Cost efficiency
On shelf availability
Stock Efficiency
Lead time reduction The biggest supply chain challenge for any FMCG product in India is that, India has over 15 million retailers, the highest anywhere in the world, supplying products to these retailers becomes a huge challenge. This is one of the major reasons why distributors form a part of the value chain in India. It is only through distributors that suppliers are able to increase their reach and penetration in to the Indian market.
CHARACTERISTICS OF SUPPLY CHAIN FOR FMCG PRODUCTS IN INDIA
In India an FMCG product normally transacts through the following chain before reaching the customer. • Supplier • Clearing and forwarding agent • Distributor • Retailer In some cases the clearing and forwarding agent may be removed and the company may move the stocks themselves. In India the producer ships the products to the distributor through a clearing and forwarding agent. The goods are the responsibility of the producer till the goods are transferred to the distributor.
THE ROLE & CHALLENGES FACED BY THE PRODUCER
The major challenges for the producer at this stage of the supply chain are
Logistics o Primarily transported through road-any increase in fuel prices could increase overall
cost of the supply chain. o Very difficult to increase quantity transported-hence difficult to meet peak season
demand without adequate inventory.
Infrastructure o Very poor road conditions. ( Hence Kms covered/day is very small) o Corruption o Number of check posts
As can be seen due to the above constraints producers generally have to store a large amount of goods, hence it increases their overall inventory. The overall logistics scenario in India can be said to be very inefficient and hence even a minor increase in diesel prices can increase the overall cost of the product. Once the goods are shipped to the distributor, the goods become the property of the distributor or the company has made its sale. But in most cases the company or producer continues to support the distributor in achieving the required level of sales and also in some cases for new products may go in for a buy back option with the distributor.
THE ROLE & CHALLENGES FACED BY THE DISTRIBUTOR
The distributor plays a vital role in the Indian context, as already stated without the distributor the company may not have the desired reach that it wants. Some of the other roles of a distributor in the supply chain are as follows
Breaks the bulk ( Large quantities are broken down to consumers requirements)
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Shares the risk of the Supplier or manufacturer
Provides a form of storage for goods before it is moved to the retailer
Ensures supply of goods to the retailer even the interior parts of the region
Provides information required by the firm The challenges faced by a distributor are
Transportation damages o Leakages- (Beverages) o Packaging damages
The firm or the producer faces several challenges while dealing with a distributor
Lack of education of the distributor o May not understand the customers’ needs.
Selling of new products a huge challenge o Procured number of SKU’s will be less initially
As can be seen from the above said points the distributor plays a vital role in the overall supply chain of the product. In fact in the Indian context it can be said that without the distributors the firm will not have the reach of their products and their overall supply chain cost could increase dramatically. The final cog in the supply chain is the retailer. As already stated there are over 15 million retailers in India today. More than 80% of these are run by small family businesses which use only household labor. Organized retail is only about 7% in India, it is expected to grow to about 21% (BCG report).
THE ROLE & CHALLENGES FACED BY THE RETAILER
The challenges faced by the firm with relation to the retailer are as follows
Buy in small quantities (Transportation costs go up)
Does not have the skills to predict customer demand
Difficult to gather accurate sales data
Difficult to gather customer data. From the above points it is clear for a company to have a distinct advantage it would need to have a very good relationship with its distributors and retailers. Only then can it avoid the problem of “Bullwhip”. There would also need to be an effective IT software which ensure smooth flow of information across the supply chain. Most FMCG companies’ face a huge challenge of forecasting their demand for new products and this is one of the reasons why firms have to keep very high inventories. Unlike in many developed countries the cost of supplying goods to the consumer is very high. But the retailer plays a very important role in the Indian context.
Provides time and place utility- for a FMCG product which is associated with more of a picking behavior the only consideration is convenience. The retailer provides exactly that, people will not bother to go to major retail outlet if they can their daily and monthly requirement from a local kirana store nearby.
As per the recent Nielson survey, Indian customers prefer the traditional retail outlets to new modern retail outlets
Growth in the FMCG sector will come only through greater penetration for distribution in rural areas
Growth in rural markets can happen only through rural retailers and hence manufacturers need to ensure their part of their supply chain.
Retailers in India enjoy a very special relationship with their customers, since most of their customers are regular customers, they understand their buying behavior and can ensure that certain products are pushed in to the market.
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Because of the huge power of the retailer all companies give them certain incentive to stock their products and also to ensure their sales are taking place. But it is still a fact that most retailers are not making profits and just managing to make ends meet through the credit cycle.
6. BUSINESS INTELLIGENCE IN SCM – FMCG
CURRENT BI TRENDS IN FMCG
In this Information age, no industry is left untouched by the Digital Revolution. Supply chains are very
complex in nature, with myriad internal processes such as procurement, purchasing, inventory
management etc… All these activities must be seamlessly coordinated, with automated workflows and
unhindered sharing of real time information across the value chain among all supply chain partners.
Major Indian FMCG players are making significant investments and rapid progress in enabling Business &
Competitive intelligence to gain competitive advantage in the market.
Most of the large FMCG companies can afford to and are centralizing BI as a shared service on a
common platform across its businesses and brands with a sharp focus on getting maximum supply chain
efficiency and high effectiveness in terms of customer responsiveness. Indian retail conglomerate ‘ITC
Ltd’ is one such example. Emerging technologies such as Cloud, Analytics, Mobility and Internet of
Things are being game changers in this domain.
Below picture gives brief information on current trends
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ADVANTAGES OF BI IN SCM
Some of the advantages that any FMCG player would get by adopting BI in supply chain are below
Ability to collect, aggregate and analyze information across the supply chain. This would provide
vital insights that are timely, valuable and accessible across supply chain partners.
Improve workflows or process designs to achieve maximum efficiency.
Accurately assess the performance of entire supply chain.
Monitor costs and discover pain areas which need improvements, savings.
True strength of BI can be seen only when firms surge ahead of using BI just to generate reports and
focus on deep data integration and sharing. Global players are even further ahead in fully exploiting the
benefits of BI in supply chain such as Trade Promotion Analytics, Segmentation based promos, supply
chain bottleneck alerts, route optimization and advanced forecasting and predictive demand models.
POPULAR KPIS AFFECTED BY BI
Some of the important KPIs on which BI can throw light, if adopted nto Retail Business are
Sales compared to budget / target
Current Sales compared to historical sales
Sales per square foot
Wage cost recovery
Average Sale per Customer or Transaction
Units per Customer or Transaction
Conversion Rate
Sales per hour
Time spent on stores
These KPIs are defined in SCOR model in below attributes as adopted by SCC,
Performance Attributes L1 Metric
Reliability Perfect Order Fulfillments
Responsiveness Order Fulfillment Cycle Time
Flexibility Capacity changes
Costs COGS
Asset Management C2C Cycle and ROA
BI SYSTEM FRAMEWORK
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Strong BI implementations in supply chain depend on availability of complete information at all parts of
the value chain. On a higher level, below listed steps happen sequentially to finally generate business
reports to help in decision making at various stages in the chain.
1. At the extreme end of the system, Point of Sale (POS) systems, Suppliers, Logistics and other
stakeholders input the data into the systems as the activities happen on the field. Mobility plays
a crucial role here in enabling this kind of information capturing by fields agents into the
centralized system.
2. This information will be stored in centralized databases, accessible by all partners.
3. Cut-throat analytics will be applied at this stage with any of the clearly defined objectives listed
in the previous sections, such as ‘Sales per hour’, ‘Time spent on stores’ to predict the future
trends in the value chain.
4. These insights will be captured in interactive reports for business to make informed and
intelligent decisions.
Below is the pictorial representation of the same.
Belos is a sample Business Report generated to know Raw material Vendor Performance where Lot
rejection, Quantity Rejection data would help in assessing vendor in a better way
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BI ARCHITECTURE – ITC LTD
ITC Ltd is one of the major players in Indian FMCG industry, which is using BI and Supply Chain analytics
in big way to optimize its entire chain. Below is the Architecture of the typical BI system created for ITC
Supply Chain
A common data set populates the entire model enabling:-
Scalability
o EPM, Data, BI Model
o System Performance
Integration
o data linkages
o business rules
The date from various legacy IT systems such as SAP, Sales(CRM) etc will be loaded to ETL(Extract,
Transform, Load) Layer to convert the data into format compatible with Data Warehouse software. DW
layer stores the information to enable it for insight generation from BI Layer. Finally this information is
shared among all stakeholders for maximum benefits.
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REFERENCES
http://aminemekkaoui.typepad.com/business_intelligence/supply-chain/
http://www.itcportal.com/businesses/information-technology.aspx
http://shodhganga.inflibnet.ac.in/handle/10603/11321
Kaplan, R., & Norton, D. (1992). The balanced scorecard: Measures that drive performance. Harvard
Business Review, 70(1), 71–99.
Kaplan, R., & Norton, D. (1996). Using the balanced scorecard as a strategic management system. Harvard
Business Review, 74(1), 75–85
Rajat Bhagwata, Milind Kumar Sharmab; Performance measurement of supply chain management: A
balanced scorecard approach; Computers & Industrial Engineering Volume 53, Issue 1, August 2007, Pages
43–62
http://www.myrbopportunity.com/2010/06/07/supply-chain-in-fmcg-companies-the-need-to-be-
dynamic
http://www.futuresupplychains.com/food_fmcgsupplychains.html
Sinha; Supply Chain management; pp 351 – 362
www.scribd.com/doc/67777650/SCM-in-FMCG-Sector-Pramod-Patil-for-Review#scribd
http://www.cfr-
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http://www.slideshare.net/AnuragGupta18/hul-distribution-model
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innovation?page=1
http://www.slideshare.net/kunal2k3/pg-supply-chain-management
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major-marico-supply-chain
http://www.slideshare.net/shiveshr1/maricos-supply-chain
Supply Chain Challenges for the Indian FMCG Sector – Research paper by RINOJ P K; FACULTY MEMBER,
CENTRE FOR MANAGEMENT STUDIES, KANNUR UNIVERSITY, MAIN CAMPUS, MANGATTUPARAMBA,
KANNUR-KERALA 670567
http://trendwatching.com/trends/SACHET_MARKETING.htm
http://kanvic.com/assets/kanvic_article_a-wake-up-call-for-fmcg-players-in-india_2012-01.pdf
http://www.slideshare.net/madhusudanpartani/itc-distribution-channel
http://articles.economictimes.indiatimes.com/2005-12-14/news/27504183_1_food-bazaar-marico-big-
bazaar
http://www.livemint.com/Home-Page/WmJtXuSu7Ydzj55j6PTU9M/HUL-will-focus-on-pricing-to-check-
market-share-erosion.html
http://www.firstpost.com/business/price-wars-huls-strategy-to-reverse-four-quarters-of-slowing-sales-
737769.html
https://iterativepath.wordpress.com/2009/06/13/procter-and-gamble-multi/
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http://articles.economictimes.indiatimes.com/2009-03-10/news/28381608_1_wills-lifestyle-itc-hotels-
lifestyle-retailing
http://articles.economictimes.indiatimes.com/2014-06-08/news/50420986_1_cafe-coffee-day-
amalgamated-bean-coffee-india-s