“GROWING RELEVANCE OF MARKETING IN

INDIA-WITH REFERENCE TO FMCG INDUSTRY”

RESEARCH REPORT

2004-2006

SUBMITTED IN THE PARTIAL FULFILLMENT FOR THE

AWARD OF THE DEGREE

OF

MASTER OF BUSINESS ADMINISTRATION

SUBMITTED BY :

SHUBHAM CHAUHAN

MBA-IV SEMESTER

ROLL NO. 0409670040

VISHVESHWARYAINSTITUTE OF ENGINEERING & TECHNOLOGYP.O. Dadri, Gautam Budh Nagar (Up) –203207

Ph. : 91-120-2662173/74/75/67, Telefax : 2662166Website : Http : www.viet.ac.in

ACKNOWLEGEMENT

Research, a course module of MBA; plays a major role in shaping one’s

career to at most perfection. Hence, as a management student this

research on the topic “Growing Relevance Of Marketing In India-With

Reference To FMCG Industry” enabled me to acquire the knowledge about

importance of salesperson.

With due respect & sincere gratitude, I am very thankful Mr. Surendra Tiwari Faculty-

MBA for his proper guidance & encouragement during my research. Without her help

and guidance it will be very difficult for me to complete my research in time.

Shubham Chauhan MBA-IV SEM.

1. ACKNOWLEDGEMENT

2. INTRODUCTION

3. RESEARCH OBJECTIVE

4. RESEARCH METHODOLOGY

5. PROFILE OF THE FMCG INDUSTRY

6. MARKETING CHANNELS OF VARIUOS FMCG INDUSTRIES

7. DATA ANALYSIS OF VARIOUS FMCG INDUSTRIES

8. SUGGESTIONS & RECOMMENDATIONS

9. CONCLUSION

10. BIBLIOGRAPHY

CONTENTS

INTRODUCTION

In the heydays of 1980's the business Mantra was distribution reach. Every distribution manager believed the way to market dominance was by reaching the greatest number of brands to the maximum number of outlets across India. The large scale and geographical diversity in retail outlets spread across the country meant that all FMCG markets needed to service a large percentage of these outlets to really reap economics of scale. Over the period companies like HLL, Godrej, P&G along with recent entrants like Nirma and Wipro have build their distribution networks diligently. Distribution is the crucial success factor for FMCG, but distribution at best cost, is vital.

For Company's like GCMMF (Amul) distribution is literally all, since it deals in perishables like milk and milk products. For all higher product visibility and lesser inconvenience for the customer in obtaining the product results in more sales.

CHANGING FACE

The Basic structure of FMCG supply chain has not changed in many years. What has changed is the attitude of efficiency of each element. The end of 1990's revealed a different way of looking at distribution. A new movement called SCM had been slowly redefining the distributor's role in channel. The market was changing and distributors were expected to corporate with suppliers and customers to decrease total channel costs. While increasing customer expectations were nothing new, they were unfolding at an alarming rate. The tasks required of distributors in order to satisfy customer expectations were not necessarily the ones that distributor's would have chosen.

DISINTERMEDIATION MYTH

Disintermediation is the term that means elimination of distributor; it was first suggested for distributors in the early 1990's no a response to new technology and increasing pressure on the supply chain to cut costs. Distributors were perceived as middlemen who added cost to supply chain through redundant inventory, services and information handling. It scared logical that if suppliers and end users could "Automatic out in efficiency" they could eliminate the distributor. This logic follows from the reasoning that a shorter supply chain is inherently more inefficient

Until recently, most distributors described their core competency as 4G relationships". The statement covers the need for the following two

roles. First is that of a channel leader, who determines where the sources of supply are and how to access them. The second role is that of a manager of customer information for manufactures. As such the classical relationship of these functions (Inventory management, financing for small customer, supplying technical info) became unchanging or "frozen", the classic business-relationship has become "unfrozen" by business forces like Just in Time (JIT). The technological revolution caused by the Internet and advanced information system. Traditional relationships are in flux. It is unclear now new channels and new bus models will be structured. To eliminate the distributor from supply chain, channel members must eliminate the services the distributor currently supplies. Thus this means eliminating some services following others.

All in all, distributors sound like a rather noble bunch-always rising to occasion for customer, willing to deal with uncertainty, provide flexibility and focus as customer service

THE ECONOMICS OF DISTRIBUTION AND THE TRANSITION

The foundation for developing a successful channel arrangement rests in fully understanding the underlying economics of distribution. The economic aspects of channel relationships extend beyond issues of logistical operations. Several distinct functions must be completed to achieve effective distribution.

Early scholar grouped functional requirements for effective distribution under 3 headings: Exchange, physical distribution and facilitating

BuyingExchange Function

ServingTransportation

Physical Distribution FunctionStorageStandardization

Facilitating Function Market FinancingRisk BearingMarket Information and Research

FIG. 1

The exchange functions involved broad activities related to buying and selling. As such exchange concerns activities required to transfer ownership's. The physical distribution functions are the origin of what is referred to as logistics. The essential activity consists of getting the right products to right place at the right time. Facilitating functions include standardization, Market Financing, Risk Bearing and Market Information and Research Activities.

In contemporary logistics the scope of operational concern is significantly broader than transcending broad supply chain arrangements, logistics is viewed as encompassing all work related to inventory positioning, which can also involve aspects of satisfying firm and possession requirements.

Thus there is supply chain integration, below figure illustrates an overall supply chain focussing on integrated management of all logistical operations from original supplier procurement to final consumer acceptance.

Inventory Flow

Customers Physical Distribution

ENTERPRISE

Manufacturing Support

Procurement

Suppliers

Information Flow

Fig. - 2

TRANSITION FROM PUSH TO PULL ENVIRONMENT

Starting in 1980's customers began demanding faster deliver with narrower delivery windows. In addition many customers were unable and unwilling to assist distributors by providing more accurate forecast information. This narrow time window on the front end and wide

window on the back end is referred to as the "Distributors Dilemma" and contributes to increases in distributor inventories.

The supply chain was transitioning from "Push" to a "Pull" environment. A Push environment is the traditional environment in which the manufacturer produces to a schedule that makes economic sense and entices other members of the supply chain to buy through discounts (or) other means.

Distributor's Dilemma

A sequence on Time Windows

Supplier Distributor Customer

Fig. - 3

The push model assumes that customer outstrips capacity and can be manipulated to optimize equipment utilization that changed in 1970's and the more to a pull environment (such as JIT) has been accelerating ever since.

Push Method

Inventories pushed

to the distributor

through any means

necessary

(discounts etc.)

Inventory is pushed

to the customer

through any means

necessary

(discounts etc.)

P

ush

Distributor Push

Purchasing

Push

Sales

Overbuys and pushed to

the sales force to disperse

of excess absolute

inventory

Fig. 4

The pull environment is a situation in which the customer places the order and the entire supply chain responds immediately. Commonly called just in time, the system is dependent on flawless communication delivered in real time and without any system failures (machines, trucks, communication networks etc). This expectation was nearly impossible to achieve with the technology of the 1990's. However many firms believed that JIT could be approached with e-bus. Such a belief was major contribution to the dotcom craze in the late 90's. After dot corn crash, the next phase involved distributors as well as other members of the supply chain pursuing the objective of JIT.

Supplier Customer

Pull Method

Need is instantly

(electrically) delivered

to supplier who makes

the item immediately

and ships

Through good

forecasting and rapid

communication

customer prenotifies

distribution of needs.

P

ull

Distributor Pull

Purchasing

Pull

Sales

Sales through automation of processes notified purchasing immediately of customer needs.

Fig. -5

Unfortunately, the challenges at the beginning of the 2000's were deviating. Customers increased their expectations for JIT delivery, but the forecasting, sales, automation and communication tools needed were either not in place for most distributors (or) not even invented yet. This led to manufacturers protecting their scheduling from variable distribution forecasts and distributor inventories rising to meet increasing customer expectations in a supply chain that could not adjust to meet them through any means other than inventory. The distributor was caught in between manufacturer push and customer pull strategies. The resulting inventory increases led to margin compression and forced distributors to seek other solutions to the lead time/forecasting dilemma.

Supplier Customer

Unfortunate Reality

Supplier employs the push method to assure an accurate forecast of needs for its suppliers

Customer requires JIT delivery from distributor in order to minimize inventory

Push

Distributor Push

Purchasing

Push

Sales

Sales through automation of process notified purchasing immediately of customer needs

Fig. - 6

Other lead-time components are more controllable for distributors but frequently get caught up in the general confusion and are not separately addressed and minimized. Lead-times associated with transportation through tracking system offered by many providers and by choosing providers will the most stable systems. Another area is those lead times that fall directly under the distributors control. Receiving and quality control are internal processes that often get caught up in overall times. If the item is not available for sale the planning group must assume that the product is somewhere in the delivery pipeline and treat it as additional lead-time associated with these internal processes. The e-business movement offers great promise of improving forecast error and thereby alleviating lead-time problems. If the distributor achieves a better forecast and users it to improve supplier planning, both problems will be reduced simultaneously. The lead time problem necessitates that great many distributors achieve the same forecast accuracy improvements at the same time, which is unlikely, but an improvement on the part of a lone distributor will enable that distributor to improve activities under its

Supplier Customer

control and negotiate with the suppliers for favoured treatment in exchange for better forecasting information (Jennings, et. al, 2002)

CURRENT STATUS

As already stated that FMCG supply chain has not been changed in many years. What has changed is the attitude and efficiency of each element. Also several new business models have developed in the recent past like Direct Marketing, e-retailing, B2C, B2B, intranet and extranet. The increasing competition in the market place caused several changes through the chain.

CURRENT TREND OF FMCG INDUSTRY IN INDIA

FMCG (CURRENT) SCM TRENDS IN INDIA (Table - 1)

Supply chain element

Status today Trends towards

Retailer Dispersed, unorganised, not much buyer power

Larger retail outlets; more number of SKUs, concentration of buyers, retailer power increases

SKU Variety High numbers of SKUs of various sizes, offers and usage

Rationalization of SKUs to optimise costs

Inventory at Plant Push to warehouse Pull from retailers / C & FA’s

SKU Analysis Time-dated Dynamic, Instantaneous & fast corrective action

Production Planning Top down (from parent to vendors); lots of buffer stocks and time

Collaborative but still with some buffer time and inventory

Manufacturing practice

Long production runs, low overheads, fixed stations

Flexible manufacturing, short runs, low change-over times, increased overheads.

Contact manufacturing (outsourcing) / Third Party manufacturing

Contractual, opportunistic

Strategic partnership, alliance, essential cost control element

Information Aggregated at every level and then transmitted upwards loss of time in reacting to change in demand pattern

Instant transmission to hubs, redirected to supply centres, rather than planners; faster response to demand change

Forecasting Historical data based; varying levels of accuracy, person based

ERP, trend data, qualitative field inputs and allowance for force majeure

Replenishment To maintain stock level, on shelf, at stock point, at plant

Dynamic replenishment : mix of products replenished depends on an array of factors, only on which is stock

Distribution systems Traditional liner flow; some hub and spoke

Hub and spoke at more than one level; distributors get their goods directly from C & FAs.

Integrated Data Systems

ERP used internally ERP used with supply chain planning to improve throughput and efficiencies

Technology E-mail, Fax, Telephones V-SATs, leased lines, mobile ordering & automatic

(Source : ETIG, L & SCM 2002)

The emergence of the Internet, ERP systems and contract manufacturing are important trends in India. Each has a clear implication for the FMCG supply chain. All the FMCG companies list logistics above all other issues like price, how to get the product at the right time, in the right quantity, assortment and best cost is the challenge of FMCG logistics.

The supply chain concept in the FMCG business in India really took root during the downturn of the industry in 1995-1996. A look at the FMCG

industry growth trends in distribution, raw materials, finished goods and ad spends clearly shows that the industry, while undergoing strong fluctuations in all aspects, never really suffered a de-growth. Post 1996, while net margins grew by 7 per cent, distribution expenses grew by 7 per cent, but still 50 per cent lower than 1999.

In other words, the same distribution set up was giving an increase in net margins. Most companies confirm they had initiated cost cutting measures, but heading the list was control of supply chain costs. Other measures included longer credit periods to vendors; faster collections, dropping slow moving brands and cutting back on ad spend.(ET knowledge series, 2002)

The key trends emerging from the analysis include:

Increased focus on rural distribution has increased logistics spend for the leading companies.

New alliances and re-negotiation with vendors is increasing, with the concept of third party units (TPUs), already well established.

Working capital cycles are already turning negative for most FMCG majors due to tighter control of credit, closer demand matching and SKU rationalization (see table ‘Good Control’).

FMCG industry supply chain today

Vendors

Contract Manufacturers

Ownned plants Imports

Central Warehouse

Regional distribution Centres

C & F Super stockists

Stockists

Retail chain stores

Retailer Local wholesaler

CRM

Consumers

(Sorce : ETIG, L & SCM, 2002)

Supply

chain

planning

and ERP

software

MARKET SHARE OF VARIUOS FMCG PRODUCTS

The Rs. 43,000 crore (listed companies) fast moving consumer goods (FMCG) industry in India, which been on a roll for many years, faces tough times ahead, although many segments still show good growth (see table 'Share Of Personal Care'). Net sales growth in 2003 suddenly decelerated to less than

Share of personal Care

Indian FMCG Industry

Segment Market Value Growth Rate

(Rs. Cr) (%)

Toilet Soaps 4,500 2.4

Fabric Wash 1,600 7-E

Dental Care 2,600 9-1 0

Hair Care (Shampoos) 700 10

Skin Care & Creams* 550 25

Nail Enamel 150 25

lipsticks 70 25

Perfumes 100 20

Deodorants 100 25

Talcum Powders 350 12

Total 13,600 15

Source: ETIG estimates, industry, published literature foundations, lotions and balms

5 per cent, down from the heady 10 percent plus growth of the early 1990s. Although the picture does appear gloomy, it is not entirely dull. The sector has negative working capital of 17 days (CMIE data) and profit after tax has actually gone up to 33 per cent from 22 per cent in 2002. So obviously, the sector is concentrating on the essentials - costs.

What Matters Most

Logistics Parameters

Key Information Required

Supply Chain Element

Key SCM Enablers

Order

Fulfilment and

Replenishment

Primary sales,

stock at various

levels of the

chain

Inventory

Visibility retail

level data

IT; integrated

standardized

data flow;

bottom up

aggregation of

information

Inventory

Management

Stock levels;

agening sales

v/s production

and stock,

possibility of

sales

promotions

Inventory

visibility across

the chain, mfg.

sites and

warehouses

ERP systems,

bar coding.

Forecasting Sales –

historical

current trends,

likely offtake

estimates,

current

inventory level

Data

aggregation,

forecasting

software,

flexible

manufacturing

Data Capture

at all stages;

ERP system,

statistical

analysis ability

Distribution

Reach

Retail universe,

sales returns of

territory, mix of

retail outlet,

product sales,

Replenishment

/ inventory

management,

freight mix,

packaging,

IT, personnel

management,

goods

allocations

distributors, C

& FAs etc.

untilisation GIS (ERP) system

Transport

Management

Number and

mix of

transports

used; fright

costs %

alternative

freight costs, %

loading, transit

time, idle time,

delivery time

Tracking,

palletisation

freight,

scheduling

increase truck

loading, same

day dispatch,

transit times

Larger truck

sizes,

warehouse

locations, third

party providers,

third party

Units (TPUs)

The immediate effect of competition as on margins Net margins for the FMCG industry have been falling. Decreasing margins meant marketers had two choices, neither of which was very attractive. They could increase the prices and maintain their margins; or they could cut costs and improve their net margins. With many prayers fiercely vying for mind share and market share, raising .v. ices was the shortest route to shooting yourself in the foot. That left only the second option and one which most companies had never thought of before: cost control.

To understand why cost control was a difficult choice, as well as the only one the only one, each aspect of the FMCG business. The analysis reveals that of all the measures of cost control, the best one -and the most effective over a period of drastic market changes - is controlling supply chain. The case studies of Hindustan Lever Limited (HLL) and Procter and Gamble support the hypotheses that in a slowdown, control over costs in the supply chain can prove to be the crucial difference between market dominance and failure. The table what Matter Most lists the concerns for the FMCG supply chain.

Retail Universe

The key to the development of the FMCG business in India continues to be retailing. As customers become choosier, are more aware of costs and increasingly fickle in their loyalties to brands, marketers are facing tough decisions about stocks, types of outlets to

serve, delivery agreements, reverse logistics and costs of serving the outlets. Retailers are more aware of the fast moving and slow moving SKUs and are no longer willing to be pushed into selling. The trend towards a pull system has begun although only a small percentage of retailers actually pull stocks on their own. The marketers themselves col-lect primary sales data and then the replenishment is done. The issue would have been simple if retailing in India had been organised and geographically concentrated. In that scenario, most FMCG companies would have been more than happy to directly reach the top 80 per cent of their outlets and leave the remaining 20 per cent for the others to pick on. Unfortunately, FMCG retailing in India is anything but simple. For starters, as many as per cent or all outlets are smaller than 250_s4. ft in size and yield Rs 69,000 per month on an average to the marketer (see table 'Size Matters'). 34 per cent of all retailers are grocers, who by nature carry a wide assortment of SKUs and whose

Size matters

Organised Retailers Served

FMCG Number Share of Monthly

Foods / Outlets Total % Turnover (Rs.)

Over 1000 Sq. R 5,996 0.3 97,000

501-1000 17,248 1.0 95,000

251-500 1,00,327 5.6 69,OO0

>250 16.70,399 92.5 25,000

Total 18,06,733 100

Total 60 00,000- 100

Source: ORG, MARG, ETIG report on retailing, 'Retail 2002-03'

investment capacity and inventory holding capacity is limited (see table 'Stalls To Malls'). The cost of serving all these retailers is prohibitive for mgst companies (when compared to sales turnover from

DISTRIBUTION NETWORKSIn the heyday of the 1980s, the business 'mantra' was distribution reach. Every dis-

tribution manager believed the way to market dominance was by reaching the greatest

number of brands to the maximum number of outlets across India. The large scale and

geographical diversit, in retail outlets spread across the country meant that all FMCG

marketers needed to service a large percentage of these outlets to really reap the

economics of scale.

Over a period of 50 years, companies like HLL, Godrej and Procter and

Gamble along with recent entrants like Nirma and Wipro have built

their distribution networks diligently. The result: India, today, can

boast of one of the best and most cost-effective distribution systems

anywhere in the world. While this meant that the smallest village or

taluka was being served one way or the other by the FMCG companies,

a study of the distribution costs over the past five years shows that

these costs have been rising. Also, the attendant logistics were either

ignored or a patchwork effort was made to reach the consumer.

This, in turn, meant that the marketers very well served whole regions

of ,he country directly, but entire regions were supplied by distant

locations. Inevitably issues like transport costs, inventor.,, holding,

warehousing and network of distributors came into the forefront.

The best price or product offer, the best advertising and highest

margins across the chain will not help the product succeed if one

critical ingredient of the marketing mix is not focused upon:

distribution.

Distribution is the crucial success factor for FMCG, but distribution at

best costs is vital. For companies like the Rs 2,300 crore Gujarat Co-

operative Milk Marketing Federation (Amul), distribution literally is all,

since it deals in perishables like mill,. For HLL, higher product visibility

and lesser inconvenience for th2 customer in obtaining the product

results in more sales.

Today, HLL arguably has the best network, the most aggressive

distribution strategy and the deepest pockets to push it through. It

also has some of the finest managerial talent in India. See HLL's pro-

file for how it organises itself across a vast nation.

A classic case of distribution efficiency is of Nirma. Says Hiren Patel,

Chairman and MD, “We worked on one basis only; Low cost. We have

two models. In our unique principal channel”, we do not use C & FAs,

as traditional FMCG set-ups do. All our dealers, are supplied directly

from our plants. We have 10 standby warehouses, but these are

activated only during times of transport strikes.'

In those days, Nirma supplied these warehouses by rail. From these

warehouse., the dealers are supplied. This direct system allowed

flexibility, speed and economies of scale. Nirma has only 400 dealers

throughout India, which means that each of their dealers has a very

large volume to handle.

This, in turn, meant that even w hen Nirrna reduced margins to 2 per

cent or less, the heaters were still happy. The other channel is for

brands like Nirma. Nima a was launched basically as a response to

competition like HLL's Breeze. It was never meant to be a big brand.

But today, Nima itself is a large and strong brand.

"For this brand, we cannot completely avoid the traditional distribution

chanfiels of C&FAs and depots and stockists," Savs Pate]. Nirma's

overall distribution Costs are today less than 3-4 per cent of sales and

when you see the reach of Nirma even in rural India, you realise the

extent of this model's success.

PRODUCT MIX

The massive proliferation of – SKUs has complicated the business of FMCG companies. The consumer is split for choice

Take your pick

SKUs for FMCG Segments

Segment Pack Size Range (SKUs)

Hair Care (Shampoos) 10m-1 litre

Skin Care & Creams 4Og-100g

Nail Enamel 5mi-17mi

lipsticks log

Perfumes 50mi-loomi

Deodorants 50-100g

Talcum Powder 5Og-soog

Source: ET estimates, industry reports

today and can choose any size depending on his usage pattern, his budget and storage. The easy availability of FMCG products has also made the consumer buy lesser quantities more frequently. All this translates into an overgrowing number of units - from 10 ml to 1,000 ml (see table Take Your Pick').

FMCG LOGISTICSThe basic structure of the FMCG supply chain hasn't changed in many years (see chart 'From The Stack To The Rack'). What has changed is the attitude and efficiency of each element. Also, several new business models have developed over the past few years - direct marketing, e-tailing, B2C, B2B, intranet and extranet. The increasing competition in the marketplace caused several throughout the chain (see table ‘Ripple Effect’) The emergence of the Internet, ERP systems and contract manufacturing are important trends in India. Each has a clear implication for the FMCG supply chain.

All the FMCG companies that ETIG spoke to during this research-listed logistics above all other issues like price, as the table 'What Matters Most' earlier in the chapter shows. How to g product at the r ht time, in the right quantity.

Most companies ETIG spoke to confirm they had initiated cost-cutting measures, but heading the list was control of supply chain costs. Other measures included longer credit periods to vendors, faster collections, dropping slow moving brands and cutting back on ad spend.

The key trends emerging from the analysis include:

* Increased focus on rural distribution has increased logistics spend for the leading companies.

* New alliances and re-negotiation with vendors is increasing, with the concept of third party units (TPUs), already well established.

# Working capital cycles are already turning-negative for most FMCG majors due to tighter control of credit, closer demand matching and SKU rationalisation (see table 'Good Control').

The organised FNFCG business in India (soaps, detergents, cosmetics, hair me, skin care, perfumes and deodorants) Is today worth Rs 4,000 crore in gross sales. Overall, the PMCG business _ cod-1d- LQ around Rs 80,000 crbre. Excise daties@orr manufacturing have remained at around 16 per cent. Import regulations are more relaxed now and contract manufacturing is the industry norm.

VARIOUS TYPES OF CHANNEL MARKETING IN INDIA

Conventional Channels of Distribution

Wholesale channel: In most sectors the distribution channel evolved with the wholesale route. Here the company supplies to the wholesaler collects its revenues and seldom is involved beyond that. The retailer either either buys from the wholesaler or is serviced through a host of other semi-wholesalers. The chain not only lacks pro-activeness but is al so low in responsiveness. Being distanced from the market has its own pitfalls. This chain is prone towards high inventory pile-up. Almost all textile fabric brands like Grasim, Bhilwara and Century are facing the heat because of this factor. Also because of the long chain, price to the retailer is very difficult to monitor and discounting is prevalent.

C&F channel: With functional products in lesser varieties, companies could afford to stock close to the market place and improve on responsiveness. This led to the evolution of C&F channel wherein sales function is separated from distribution. Response is greatly improved in this case, as the marketer himself is involved in selling. The marketer passes on information on distribution of goods to the C&F agent. Companies in products like cement or FMCG's that have staple products and fewer SKUs usually opt for this channel. Arvind Mills used this channel for Newport jeans which was marked as a staple product.

Distributor channel: With increasing launches addressing the mass segment, companies had to look for partnerships which could provide marketing muscle focused to territories as they themselves lacked marketing reach. This led to the evolution of the distributor, a format wherein the distributor buys the products and markets it for the company. A good example, of this has been the mega launch of Peter England by Madura Garments. This channel is high on efficiency as the distributor, who is typically a local selling organisation services the market. However, as there is tier added between the company and the retailer, some amount of responsiveness is lost.

As innovation in product increases, marketers cannot distance themselves from the retailers. Most marketers have recognised the importance of getting information from retailers, almost on a daily basis. It is thus logical, that some innovative players are trying to shorten the chain, bypassing the conventional modes to retail and instead opting for newer channels which offer direct market access.

Direct to retail: Along with innovation in products, differentiation has started appearing in the level of service being provided viz.

· Merchandise in-stock

· Ease of location for a consumer walking in

· Ambience of outlet

· Convenience of location of outlet

· Display fixtures

· Time taken for checkout

Returns policy

To have a common format for all is possible if the brand has its own outlets either franchised or owned. In order to meet the service requirements for such outlets where innovation and service requirement is high, responsiveness is essential. In ready-made clothing for example, this option has been extensively used by Madura Garments in Alien Solly. Arvind Mills in Arrow & Lee, Ambattur Clothing Company for Colourplus. Titan is another good example in this channel. Distribution is usually given to third party contractors like couriers and freight-forwarding companies. Daily download of shop's sales and stock information by e-mail, stock tracking at all points with the help of bar coding are some of the common traits of this channel.

New Approaches

Network marketing: Amway, Avon and Orifiame have made this particular format of non-store retailing popular. They have a host of distributors and dealers, all linked from the top to the grassroots forming a pyramidal structure. The chain upto the final consumer is long with stocking at each point. Owing to the long and unwieldly chain, it is difficult to respond to sudden spurts of demand or over supply. For functional products, however, this chain offers mass penetration possibilities.

Mail orders: This format is at a nascent stage of development in India, however in mature markets, non-store retailing which includes tele-shopping, catalogues, magazines and computer on-line services constitute around five per cent of total consumer goods sales. To counter the lack of thrill/excitement in this kind of a shopping format (so important to an Indian consumer), marketers like Otto Burlington, TSN and ASN are trying to widen their acceptability by introducing innovative products that lack wide availability. Responsiveness would need to be high in this format, as stock-outs and delays would shake

the confidence of consumers using this channel and would deter future purchases. Distribution, after order processing, is undertaken by postal and courier services associated with the mail-order company.

Retail Warehouse: This channel is relatively unknown in India but is extensively used in developed markets like USA & UK. Here, manufacturers ensure delivery to the retailer warehouse from where goods are shipped to individual retail outlets as per their orders. This channel assumes multi-location large retail formats, as yet not present in India. Tailored for mass appeal, these stores usually are for functional products and a very high level of efficiency at low cost is required for the success of the operation.

Being a flat chain, and with economies of scale operation, this channel is also responsive however, as the products handled are largely of functional orientation, efficiency is sought after target. Retailers are now asking for shopfioor ready merchandise from their vendors so as to decrease the operations at the warehouse and hence reduce the time for turnaround. increasingly for very functional products, vendors are resorting to various forecasting systems like Vendor Managed Information Services (VMIS) which requires them to plan their shipments based on forecast.

Today, the job of the logistics manager is not just in selecting a distribution channel but opting for a distribution format which maximises the 'value' to the customer. This is all the more difficult in a scenario wherein the perception of 'value" itself is undergoing a rapid transition - from price and quality, there are now several intangibles viz. Availability, convenience, ambience in the equation.

Thus, it is imperative to understand the very nature of your product and its perceived value to the consumer before opting for a distribution channel.

PROFILE, PRODUCT, LOGISTICS AND DATA ANALYSIS OF HINDUSTAN LEVER LIMITED

HINDUSTAN LEVER LIMITED

(HLL)

You simply cannot think of the FMCG industry in India without Hindustan Lever Limited (HLL). At Rs.10,000 crore plus, it is a personal products behemoth. It is difficult to define HLL's competition on an overall scale. The only way to do it is to go down segment by segment (Nirma in soaps, for example) to find out who can (if at all) challenge HLL.

On any given day, you end up using at least one HLL markets 110 brands with 950 pack sizes across categories as diverse as foods and soaps. The logistics handled vary from the cold chain for its 'Walls' range of products to the open-air cycles in the rural hinterland of India for 'Surf. All possible and feasible modes of transport are used and vast quantities of products and unlimited information zips across from one end of the country to the other.

It is an ethos HLL shares with its parent company, Unilever, which holds 51 per cent of its equity. A Fortune 500 transnational, Unilever sells over 1,000 foods and home and personal care brands through 300 subsidiary companies in 88 countries worldwide with products on sale in a further 70. Individual consumers choose Unilever's foods and home and personal care brands 150 million times a day across the world. Unilever is the number one consumer goods company in the world in market competitiveness, according to a survey of leading international corporations by Prof. Jean-Claude Larreche of the International business school, INSEAD.

A few numbers drive home the scale of operations at HLL 7,500 distributors, 100 manufacturing locations, SKUs varying from 5 ml to 1 litre going to 56 distribution locations. With 36,000 employees and 1,300 managers, it reaches about 1 million retailers across the subcontinent. HLL's distribution network directly covers the entire urban population and reaches as far as villages with over 2,000 people. In the rather smallish Indian market for cosmetics alone, it has 70 brands. This diverse product range is manufactured in close to 100 factories located across the length and breadth of India. The operations involve 2,000 suppliers and associates. About 28 factories are situated in backward areas. Obviously, the company has its financials well under control

HLL is known today for its massive and penetrative distribution set up Many of its products are no different from those manufactured by others, but what sets HLL apart is its unique approach. The company web site explains: "While the distribution system, is quite similar for different businesses, each of the businesses have, over the years, fine-tuned the system to meet their objective of serving their respective customers and consumers in the most efficient manner. The differences, therefore, lie in the manner business use an existing distribution network, and the channel players involved therein, to improve their reach and service to their customers and end users”.

HLL has several lines of business detergents, personal products and foods, the detergents & soaps division is the largest (contributing 18 and 16 percent respectively to turnover), followed by the personal products (16 percent) and foods lines with tea contributing 16 percent. In almost all lines, it holds dominant market shares. Analysis and company estimates suggest that at tight focus on supply chain and usage of IT has saved HLL up to US$ 125 million (Rs.6,000 crore) in inventories right across the various levels of the chain.

INBOUND LOGISTICS

In the mid - 1990s, HLL realised it had too many suppliers for its raw materials. Raw materials procured ranged from chemicals to foods to glass bottles to plastics- a logistical maze. Around 40 odd key raw materials and 60 plus finished goods vendors supplied to HLL's factories. Overall numbers of suppliers were around 1,000 not to mention overseas unilever vendors for products like deodorants and after shaves. Earlier, there was a lot of uncertainty regarding vendors, their abilities and plans leading to a proliferation of vendors, sometimes up to five supplying the same item. This meant not just checking the quality of each supplier, but also five items in the same paperwork. In the 1980s, the inbound side of not just HLL, but all other companies was dominated by paperwork.

Then came the crunch of the 1990s. Several factors combined to help rationalise the inbound side. Foremost was the spiralling transaction costs.

Taking Stock (HLL)

Inventories 1998-2003

1998 1999 2000 2001 2002 2003

Total inventories 685 904 1,045 1,146 1,310 1,182

Raw Materials 298 366 456 535 565 515

Finished Goods 322 470 521 549 674 590

(Source : CMIE Prowess database)

Table : 18

Company figures clearly show an improvement in raw materials inventory with days of raw materials falling continuously from 84 days in 1990 to just 29 days of stock in 2000 (see table Remarkable Result). That's a reduction of over 66 per cent over the past 10 years. This reduction has been made possible largely due to better forecasting data which is now being transmitted throughout the HLL supply chain quickly-and the increasing visibility of business data. HLL has launched a number of e-commerce initiatives that will bring e-business to the heart of the company's operations. HLL's vision is 'Connect, Attract and Fulfil' on a massive scale. In the supply chain for example, the vision is to link in with some 3,000 stockists, 30,000 retailers and 100 suppliers spread over some 1,000 locations. The size of the ambition is based on HLL's unique ability to leverage on scale and technology and the development in the telecom infrastructure. HLL's Internet vision encompasses three opportunity segments- business ,connectivity, consumer connectivity and consumer commerce.

The Net- based e- tailing will work on a combination of HLL's own V-SAT network, that of others, mobile telephony and the public network. HLL is creating an extranet covering its key stockists and retailers to optimise the supply chain right up to the front end. Similarly, an extranet is also being created covering the suppliers, factories and the purchasers with the aim of achieving real time, vendor- managed inventory.

Today, the inbound side of HLL is a very different from what it was even five years ago. There are upwards of 240 supply chain locations- be it own plants around the country, or third party manufacturers, or stock points or transit/transportation points. Almost all are linked by one form of IT or another - from the simple telephone call to V-SATS.

The plants and TPUs are, in fact, linked by V-SATs and HLL's ERP system (MFG-PRO). MFG-PRO today works on more than 220 locations all over the country, including the head office, branch offices, factories, depots and key redistribution stockists. Also, HLL plans to move towards vendor- managed inventory (VMI). "VMI has already been used in the auto sector in India.

Information exchange is critical for HLL. Sales information systems will be linked, eventually, to the retail level. They are already linked at the stockist level. The moment HLL sells 5,000 pieces of Lifebuoy in any one region, a signal traces right back via the stockist to the region depot and the branch office straight through into the production and replenishment plans, and thence onto the factory. It is this backward trace ability, which gives HLL a sharp edge over competition in the one area that is crucial for any FMCG manufacturer stock at the point of sale.

OUTBOUND LOGISTICS

HLL works on the hub and spoke system. The hubs are the mother depots and regional depots, while the spokes radiate from these to the stockists, depots and retailers. But HLL's large number of SKUs and brands demand a more sophisticated version of the hub and spoke system. Fittingly, HLL uses not a one-tier hub and spoke, but a three-tier set up.

HLL has a three-tier system of stocking and order replenishment On the first tier it has the all - India buffer depot, the second level has the regional depots and the last level h has the JIT (just-in-time) depots. From the last level, they supply the products to the brand that needs to travel more than two days goes to this depot. These are sent. from the manufacturing sites to the all India buffer depot where these products are accumulated up to a full truck load for that sales region. Once the truckload is made up, the goods are sent to the regional buffer depot in the states, where break bulk occurs- the load is split into the supply as per area demand. The smaller lots are now sent onto the JIT godowns in the cities or towns and then onto the retailers via the stockists.

The real challenge for HLL begins now when the FMCG industry is in a downturn. Most analysts predict that HLL is well poised to fight it out. HLL itself has started focusing on supply chain as a means to maintaining its leadership profile. How it manages the chain will be the only factor that will ensure its sustained leadership.

HLL’s Distribution network

Raw Materials Suppliers

Packing Materials Supplier

Manufacturing units in-house, third party

Head office All-India buffer depot

Regional offices

Regional buffer depot

JIT godowns

Stockists

Wholesalers Retailers

Consumers

Fig - 22

Rolling sales forecasts & mktg plans

Minor But meaningful

FMCG Logistics Costs Trends

1998 1999 2000 2001 2002 CARG*

Sales (Rs. Cr) 17455 19421 22192 24559 25290 6.0

Cost of production (Rs. Cr)

13882 14953 16828 18592 18335 5.4

Distribution cot (Rs. Cr) 465 483 542 584 653 2.9

Outbound cost/Sales (%) 2.7 2.5 2.4 2.4 2.6 0.6

RM Inventory (Rs. Cr) 876 1108 1150 1104 1042 2.8

FG Inventory (Rs. Cr) 1285 1417 1398 1552 1438 2.7

RM Inventory Holding (Days)

41 50 52 50 49 1.5

FG Inventory Holding (Days)

31 33 30 28 29 1.1

Interest Cost (%) 16.4 14.6 11.9 12.2 11.3 1.4

Inventory Holding Cost (IHC) (Rs. Cr)

355 370 304 323 280 2.4

IHC/Sales (%) 2.0 1.9 1.4 1.3 1.1 1.0

Material Consumption (Rs. Cr)

11016 11800 13174 14537 14055 5.0

Inbound Logistics Cost (Rs. Cr)

294 293 322 346 363 2.3

Inbound Logistics Cost/Sales (%)

1.7 1.5 1.4 1.4 1.4 0.8

Total logistics Cost (Rs. Cr)

1114 1146 1168 1253 1296 2.8

Total Logistics Cost/Sales (%)

6.4 5.9 5.3 5.1 5.1 1.0

(Source : CMIE Prowess database; ETIG analysis)

Marketing Monarch

Key Indicators

Parameter 1997 1998 1999 2000 2001 2002

Net Sales (Rs. Cr) 3337 6560 7736 9426 10116 10588

Freight (Rs. Cr) 138 279 289 345 366 446

Freight / Net Sales (%) 4.1 4.3 3.7 3.7 3.6 4.2

Growth in Net Sales YoY (%) 6.8 4.6 5.4 6.3 12.2 17.7

Growth in Freight Costs, YoY (%)

97 18 22 7 5 5

(Source : CMIE Prowess database; ETIG analysis)

HLL : Gigantic Giant

Market Shares

Personal ProductsFoods & Beverages

Toilet Soaps 59 Tea 36

Detergents 39 Instant Coffee 32

Detergent Bars 47 Roast & Ground Coffee 54

Scourers 59 Ice cream 25

Oral Care 36 Ketchup 41

Shampoo 64 Jams & Squashes 74

Hair Oil 15 Atta 18

Skin Care 55 Salt 17

Talcum Powder 62 Edible Oil & Fats 2

Remarkable Result

HLL Inputs *

Inventory Cycles 1996 1997 1998 1999 2000 2001 2002

R. M. 48.5 47.8 29.6 32.3 31.7 32.1 29.0

WIP 8.4 6.3 3.1 2.4 1.9 2.1 2.4

Finished Goods 33.2 39.2 28.8 27.3 23.9 27.8 23.7

Debtors 17.5 17.2 8.0 6.9 7.5 8.4 9.1

Total 107.6 110.6 69.5 68.9 65.0 70.5 64.2

WC Cycle 16.8 5.7 13.3 26.0 24.8 27.8 33.8

(Source : CMIE Prowess database, ETIG Analysis)

Vital Signs

HLL’s Main Indicators

Growth 1997 1998 1999 2000 2001 2002

Sales 19.3 96.6 17.9 21.8 7.3 4.7

Freight 4.1 4.3 3.7 3.7 3.6 4.2

PAT 35.5 63.1 40.8 42.2 33.2 23.6

(Source : CMIE Prowess database)

The IT Way

HLL has launched a number of e-commerce initiatives that will bring e-business to the heart of the company's operations. HLL's vision is ‘Connect, Attract and Fulfil’ on a massive scale. In the supply chain for example, the vision is to link in with some 3,000 stockists, 30,000 retailers and 100 suppliers spread over some 1,000 locations. The size

of the ambition is based on HLL's unique ability to leverage on scale and technology and the development in the telecom infrastructure.

HLL's Internet vision encompasses three opportunity segments - business connectivity, consumer connectivity and consumer commerce.

Announcing its Internet plans, the Rs.10,918 crore company said the real potential of HLL's e-tailing foray emerges when the company stands to realise Rs 5,000-6,000 crore which are locked with stockists and retailers. Around Rs.1,400 crore of HLL inventory is currently blocked with stockists and retailers and an additional bulk of Rs.3,000-4,000 crore of similarly stuck non-HLL inventory could also be factored in through its Net venture. HLL can buy on B2B basis, bring it to any of its 7,000 stockists and fulfil the transaction. However, the company maintained that its ambitious plan of emerging as the largest e-tailer is likely to be hindered by lack of infrastructure. The Net-based e-tailing will work on a combination of HLL's own V-SAT network, that of others, mobile telephony and the public network.

HLL is creating an extanet covering its key stockists and retailers to optimise the supply chain right up to the front end. Similarly, an extranet is also being created covering the suppliers, factories and the purchasers with the aim of achieving real time, vendor-managed inventory. E-banking initiatives are also being piloted to enable paperless financial settlements. The Aviance business, for example, is being configured to run mainly through the Net.

In consumer connectivity, HLL has already progressed some distance through the Pond's interactive web site, Hello Hindustan and Mera Hindustan initiatives in the detergents business as well as events like Close Up Antakshari on the Net. Interactive kiosks for the Lakme and Pond's ranges are being tested out in a few cities -- these enable a consumer to try out how various beauty products will look on the screen before buying them.

However, increasingly, interactive communication on the Net will be consumer centric, rather than brand centric. Internationally Unilever has announced ventures such as the JV with iVillage, a woman's portal and participation in start-ups such as Wowgo. HLL is exploring similar opportunities in India.

FORECASTING AT HLL

Every sales region in HLL's world has territory-in-charge (TSI) that handles the stockists in his area, and generally makes his HO at one of the stockists. Sometimes he goes along with the stockist's man on his daily order rounds and sometimes on his own to get market feedback. His job is to gauge the movements of the SKUS, track what competitors ate doing and hopefully exert pressure on retailers to push more HLL products.Every month, the area sales manager (ASM) of HLL holds a TSI meet. One of the most vital tasks in this meeting is the review of the past month, assessment of sales potential for the next month and agreement on performance of the TSIs. The TSI s brings their market feedback, while the ASM brings in the interpretation of corporate sales strategy, in the form of schemes, discounts, marketing push, promotions, new products or market intelligence. At the end of the day, a set of sales figures is arrived at: typically more than the TSIs like to commit and less than the ASM would want. These numbers are then aggregated for all sales regions at the branch offices and a sales forecast for the entire region or state is arrived at. Further aggregation of all state demands goes to corporate headquarters, where the planning for production, imports of third party production is done. As can be seen, aggregation of data is done at several levels and if each level adds a margin for sales - either due to lack of skill or lack of faith in production's ability to deliver stocks - the net result at the factory level can be that the actual sales will differ from the production by as high as 25 per cent.Data is crucial for this process. HLL’s MFG-PRO system throws up the sales data of whatever period is asked for, brand, region and person wise. It can also throw up variances between forecast and actuals, collection data and regional, stockist-wise performance. Importantly, there exists transparency throughout what is basically a negotiation between field tactics and corporate strategy.

The ability to forecast demand helps Unilever reduce costs significantly. “There is extreme volatility in demand at the moment. If you're able to call it correctly, you win.”

Wilkins says that since going live with the system, the company has had far greater stability in forecasting. At present, half the products Unilever sells are within 25 per cent of expected demand.

NEW INITIATIVES

Operation Harvest

Around 1989, this was a brand building exercise in rural India, using vans, below the line promotions and signage. This was the first of the operations to drive rural growth of HLL brands. The vans, operated by

third parties would also check out potential distribution sites and areas. Eventually, these vans themselves began to service the hinterland.

Operation Bharat

It was HLL's desire to make 'Fair & Lovely' reach more than 10 per cent of rural India that really prompted this operation. HLL created the 'Bharat Pack' consisting of Fair & Lovely, 'Ponds Dreamflower Talc', 'Pepsodent' and 'Clinic'. A price point of Rs.15 was found comfortable for rural consumers. A team comprising one driver, four salesmen and one supervisor goes from home to home introducing the product to the people. Purchase opportunities are presented by the vans that now reach the villages. Today, HLL claims to reach 36 million households, up from 10 million before Operation Bharat in 1997.

Operation Streamline

Operation Streamline is also one of the major initiatives undertaken by HLL, in recent times, to penetrate the rural markets. In the case of Operation Streamline, the goods are distributed from the C&F Agents to the redistributors, who in turn pass it on to the star sellers. Operation Streamline being a cross-functional initiative, the star seller sells everything from detergents to personal products, etc. For the additional 30,000 villages that HLL wanted to reach, it created a super-stockist-substockist structure. The super-stockist in the bigger towns service these sub-stockists who are paid 1-2 per cent more margins than the retailers. This is to cover the sub-stockist's costs in servicing retailers in his area. HLL believes that once the exercise of building demand is done in the rural areas - not an easy task – offtakes will increase.

MARICO

Marico Industries manufactures and markets nature care and healthcare products. Its 2000 sales turnover was RS 650 crore with net profits of Rs 35 crore. Popular brands include 'Parachute', 'Saffoia' and 'Sweekar'. In 2000, the company entered into an agreement with Procter & Gamble to distribute their brands 'Clearasil', 'Ultra Clearasil', 'Pampers', 'Old Spice', 'Ariel' detergent bar and 'Camay' in India. Manufacturing facilities are situated in Goa, Kanjikode, Jalgaon, Sewree and Saswad. The company exports its products to the Middle East and SAARC countries. Raw/refined oils accounted for 80 per cent of fiscal 2000 revenues; hair oils, 5 per cent; services,

nominal and others 15 per cent. Sunflower oils account for 56 per cent of the 20,000 tonnes edible oils market.

For Marico, supply chain management has two clear -and inventory. These are crucial for both inbound and outbound logistics. Time, -because it affects planning and working capital and inventory because if affects demand fulfilment.

The edible oils supply chain holds keen interest for Marico since 80 percent of its revenues are from the brands Saffol and Sweekar. Sweekar has both sunflow and soybean oils, while Saffola is based on Safflower (both blended with corn oil and as safflower oil itself). "Both these brands have different supply chains, but some parts do overlap," says Mayank Bhardwai, Buying Manager for the healthcare division.

Says Bhardwaj, "While sunflower oil is a transaction issue, safflower oil is a souring issue." The supply chain transactions for sunflower (Sweekar brand) are basically as simple as calling the traders and placing the order at that day's price; while in safflower, supply chain management includes everything from growers to monsoons to crop failures and harvests. The supply chain becomes even more complicated due to price fluctuations, speculations and changing demand patterns across the world. Much higher liquidity and involvement of many stakeholders characterise the sunflower oil market.

To a large extent, the supply chain for Indian companies like Marico is made more complex because no domestic systems have developed and whatever did are now unable to cope up (see table 'Action List'). The Indian edible oils story is a sorry one. Over the past 10 years, a combination of several factors have resulted in India importing up to 50 per cent of its total oils requirement. At one time in the not too distant past, India was one of the largest producers of oils. But better and cheaper quality from the Far East and South ,.America; government inaction and rampant inefficiencies together have made India dependent on imported oils. In fact, after crude oil, edible oils is the second largest commodity imported, crucial enough to shake

governments and make fortunes. Marico, as a leading branded edible oils company, is no exception to the sourcing story.

Since import content is high, inventory management of both safflower an sunflower oils becomes crucial. The worst thing that could happen is to have a stock-out of products which contribute so much to sales! In sunflower, the cost of inventory holding can be managed if you perceive the market trends correctly. Marico sources more than 70 per cent of for sunflower oil from Argentina, Eastern Europe and the European Union. Argentina alone supplies about 85-90 per cent of this import. There are established players in this global business with which Marico has already set up trading relations.

In spite of this rather developed market for prices, there exists no metric for total transaction costs in the deal. Unlike soybean, no official futures exchange exists for sunflower. Marico estimates the costs to be not more than per cent of CIF value. Of course, logistics costs in Buying Plans the form of sea freight; demurrage, inter-modal transport and duties do in the marketplace exist. The oil is shipped by tankers to Mumbai and offloaded using oil loaded onto logistics explained further on (see chart ‘Slick Schemes) ups for Mumbai further on (see time: 30 days) chart 'Slick Schemes')

Marico is India’s largest buyer of safflower oil. The rather small business world in safflower comprises about 10 buyers and sellers. In that context, Marico becomes a major player, but it is still impossible to determine marico share

port silos buyers and sellers. In that context, Marico becomes a major player, but it is still impossible to determine Marico’s share in buying, as not all players by or sell consistently nor are demand patterns the same over time. Bhardwai however, estimates that Marico's share would have varied between 20 and 30 per cent in the past 2-3 years. Safflower can also be bought in seeds. For Marico, the oil to seed ratio has been changing in no particular order and today stands at 70 per cent oil, 30 per cent seeds. In any case, processing has to be done in India.

Marico faces no supply chain issues in soya. There's already a large production base, both domestic as well as international. However, India's consumption of soya in refined oils in consumer packs (ROCP) category is very small as compared to safflower or sunflower.

Marico also sells Saffola refined kardi and corn oil blend. They are the largest buyers of corn oil in India belt unlike other oils, corn oil production is restricted because maize is used for starch and not so much for oil. Corn oil in India is a byproduct. Today, Marico's consumption is just about balanced by production. But as Marico looks at the rising demand of its oils, it may have to look at imports.

INBOUND LOGISTICS

In the edible oils supply chain, time is as critical as stocks. The sailing time from Argentina to India is around 4 weeks, 1 week to 10 days for intermediate storage in the port and a further three (-lays to the factory at jalgaon. That's a total lead-time of 10-12 weeks from the time of placing the order, 7 of which are used in just transactions. "But it's difficult to see where more time can be saved', says Bhardwai. "The ports could clear the cargo faster by providing for more berths, but at present no such signs are visible'. In fact, Bhardwaj says, JNPT is just as efficient as any other port for oils. JNPT has a dis-charge rate of more than 200-400 tonnes per hour. Against this, some of the best ports in the world are in the range of 600700 tonnes per hour. In addition, the losses due to leakage, unclean tanks at the port and theft are very much at par with any world port. The major issue lies in tackling vessel demurrage through providing berthing infrastructure.

According to Bhardwaj, the Government of India placed the end-user condition for import of sunflower oils, which means no traders, only companies like Marico can source oil for their use from overseas. This means that number of buyers has drastically reduced which implies that total order quantity is not large enough to merit frequent shipment from Argentina. As a result, there may be a gap of 10 to 12 weeks between t,Yo sailings for Mumbai which means that inventories have to be held here in India to at least hedge over the times between the two sailings. Add price volatility to this mix and you have a rather murky concoction to handle.

The moment Marico confirms an order for sunflower oil with a trader in Argentina, its well-oiled machinery swings into action. The processing unit(s), which is normally riverside/port side, pumps the oil directly into the ocean vessels. These vessels are loaded either from the Babia Blanca or San Lorenzo ports. The tanker sets sail and advance notifica-tion goes to the buyer, in this case Marico' After a sailing time of 30 days from Argentina along well-travelled routes, the tanker arrives in Mumbai.

This is where the bottlenecks in logistics really start. For starters, the tanker may not get a berth the day it arrives, in which case it waits on the high seas. Waiting charges start from the first day. The demurrage for the cargo could touch USD 1.5 per tonne per day. In case of 7-8 buyers per ship, these charges get divided, but if Marico were to be the only buyer with around 500 tonnes of oils, demurrage itself would touch US$ 20,000. This fortunately has never occurred simply because Marico found a way out. It char-

Oil’s Well

Marico Financial

1995 1996 1997 1998 1999 2000 2001

Net Sales 280 346 406 483 548 646 653

`Purchase of Goods

14 14 24 19 22 59 80

RM Consumed

148.4 180.9 212.7 254.8 308.0 319.8 234.1

Source : CMIE Prowess Database

ters barges with tanks to meet the sea tanker in anchorage and transfers the oil to the barges. These barges cost just Rs 150 per tonne (US$ 3.5). Given this disparity, barges offer the best option. Everything from hiring, to personnel to offloading is included in this charge. Marico can insure the oil till Mumbai at around 0,2 per cent of CIF value. Once the oil is brought by the bares to the dockside, it could be either directly pumped into truck tankers or into shore tanks at the clocks. Ideally, says Bhardwaj, the best way is to pump the oil via pipelines out of the docks into road tankers and transfer it to the factory. Clearance of port dues and documentation takes about 3-4 days. Import duties are currently 75 per cent of CIF price.

But once out of the port, the oil can reach Jalgoan - where Marico processes 80 per cent of its branded oils - within 24-36 hours. The truck tankers can carry up to 10,000 litres. These are ordinary 9-tonne trucks modified to carry the oil tanks. Marico also certifies each tanker for its roadworthiness, history, cleanliness and cost. Marico has had no issues with truck tankers -- for one, supply is more than demand, Yearly contracts at competitive rates has been negotiated and a penalty system is in place to guard against theft or late delivery. In addition, tanker rates have been low, ranging from Rs 700 per tonne to Rs 1,000 per tonne. Total freight bill for a truck of finished goods could touch Rs 12,000 between Mumbai and Delhi and around Rs 4,500 between Mumbal and Jaigaon.

The oil takes three days to reach Jalgaon from Mumbal. This does not pose much of a problem because there is sufficient inventory at the plant. Besides, there are tanks at the port too, for which Marico pays for the whole month. As Bhardwaj says, "If we were to transport all the tonnes of oil we get from the ship nonstop to Jalgaon, our quality assurance people would spend days testing the quality. For those days, inventory would lie at the plant %,;here 1 don't have much space. I'd rather keep refined oil, more value added, than raw oil."

Seen in that context, time does ha-,,c less value in this stage of the chain.

Land transport accounts for just around 1-1.5 per cent and with transaction and inventor holding costs, Matico could be spending 7- 8 per cent on total logistics. A look at Marico's figures over the past 10 years show that expenses on raw materials consumed have risen from

Rs 56 crore in 1991 to Rs 234 crore in 2001 (see table 'Oil's Well'). While this is a rise of over per cent, as a percentage of sales, this figure has remained at around 4 per cent, which seems to tally with Bhardwaj's estimate of inbound logistics costs (see table 'Spill-Over Effects'). Expenses of purchase of goods have also fallen from 16 per cent of sales

Oil’s Well

Marico Financial

1995 1996 1997 1998 1999 2000 2001

Net Sales 20.0 23.2 17.5 16.9 13.4 18.0 1.0

Freight 8.4 1.0 66.2 -19.7 17.6 159.9 35.3

Freight / Sales

3.3` 3.5 3.5 3.8 4.0 3.9 4.8

R.M. / Sales 52.8 52.3 52.3 52.7 56.2 49.5 35.8

Source : CMIE Prowers database, ETIG Analysis

in 1991 to 12 per cent in 2001. Marico believes this is due to efficiencies in purchase and long-term contracts with key vendors.

OUTBOUND LOGISTICS

In the edible oils market, Marico has Sweekar and Saffola, each with two variants. In the healthcare division, there are a total of 17 SKUS, ranging from 0.5 litre to 15 litre (1 litre = 0.91 kg). 80 per cent of Marico's edible oils supply is from the jalgaon plant. It also sources refined oils from other locations like Indore (soybean), Islampur, Hyderabad, Mumbai and Silvassa mainly for sunflower. Jalgaon handles sunflower, corn and safflower oil.

Marico's distribution width and penetration is acknowledged as one of the best in the industry and is a strength that can be leveraged. Its sales orgnization distributes over 100 SKUs through a network of 14,00,000 outlets spread over towns with a population over 5,000. In act, Marico's network is highly reputed and considered to be the third largest in FMCG in India P & G and Indo-Nissin Foods Limited have tied up with Marico for distribution of their brands on a national basis. Marico's parallel rural sales and distribution network contributes 25 per cent to the company's top line. Marico's infrastructure comprises more than 100 super distributors, catering, to 2,300 small stockists and 9,000 van markets.

At 'the- -plants, says Rajeev Ran)an, Manager -- Materials, the inventory management practice is to keep lowest inventory at the stage of manufacturing where value addition is high and relatively higher inventory at the stage where value addition is low. The objective is to be prepared to respond quickly to opportunity at a low cost. FG inventory is lowest, RM/PM is relatively high. Refining and

filling capacities are flexible with respect to SKU mix, capacity and cost.

Raw materials comprise mainly HDPE/MB granules bought from petrochern majors like Reliance. Marico gets the jars at the line at the last possible moments so that space is not blocked unnecessarily. Other inventories are of oils after refining, lids, caps, packaging material like cardboard and labels. All of those are outsourced. In fact, Marico does not own any ancillaries.

In Marico, production batch sizes affect finished goods inventory. The Jalgaon capacity for refining is 145 tonnes per day, while maximum capacity of filling is 190 kilolitres a day.

Currently, stock levels are 8-9 days at the plant, 7-8 days (at peak season to 25 days at lean season) at the stockist and around 25 days at the retailers. Marico wants to bring these levels down by 25-30 per cent to 7-10 days at retailers and 7-10 days at stockists. Jit dispatches, stocks at the factory and bette, forecasting will do this.

Nearly 450-500 trucks are used t(, transport oil from Marico's plants every month. Marico does not see any need to reduce trucks, or to move towards larger tonnage trucks like Volvos. Ranjan says, "We did undertake some surveys and studies, but then found for our demand lot size, 9-tonne trucks offer a balance of servicing and costs". The option of using containerised trucks was considered but not taken as these are 6-7 per cent more expensive than open trucks although they offer the benefits of security, integrity of goods and lower in-transit damages.

'We did look at the third party option,' says Ranjan. "In fact, vendors like Sembcorp have already made presentations to Marico. Unfortunately, all 3Ps we talk to want to cover the entire gamut activities -- from factory to warehold operations to distribution. We felt we were not yet ready for such change in our working philosophy.' So rather thari outsource everything, it might be a good idea to try the concept in a small market because the costs of failure are extremely high. Adds Ranjan, "Besides, the benefits were not clear cut, the value proposition was not good enough.'

What's the way forward for Marico’s supply chain? The Internet is, of course, a key player today. In fact, it has opened up a new channel for most players. However, we believe that the Net can only be suc-cessfully harnessed if the back-end physical delivery systems are in place." In the various areas of supply chain, truck costs, transaction costs and time loss can be reduced only to a certain by the companies themselves. Beyond this, a push has to come from the government by way of infrastructure, easing of import/export procedures and taxes

rationalisation, competition, developing international trade and the development of integrated logistics players. Till then, opines Marico, the supply chain game for Marico remains very much its own.

CAVINKARE

Cavinkare is a predominantly regional CFMCG player in India, based in Chennal and consolidating its. hold across India. It was started up in 1983 as Chik India Private Limited by C K Ranganathan with an investment of Rs 15000 only (@ 300). By 2001 sales were Rs 200 crore staffed by 550 employees. - It services 7.25 lakh retailers from its 2300 distributors. Cavinkare has some of the famous brands in India - Fairever, Nyle, Chik. Spinz, Indica and Meera. Chik and Nyle compete against HLL's Sunsilk and Clinic All clear; and P&G's Pantene and Head and Shoulders. Fairever competes against the market leaders like fair & lovely from HLL and fairglow from Godrej . Other CavinKare brands like Meera hair care remain regional brands.

Supply chain and logistics in CavinKare are altogether simpler than in the other FMCG majors, but complexity still rules (see table 'CavinKare : Top 5 SCM Concerns'). The vital issue to note is that CavinKare has invested in people, technology attitude which will give it a launching pad to go National and make inroads into an FMCG market ruled so far by MNCs and large Indian majors. ETIG studied

CavinKare basically for its regional focus and how the supply chain is being addressed to in a growing company with National ambitions.

In CavinKare, corporate strategy and logistics strategy are interlocked. Several supply chain issues flow from the basic tenets of business that C K Ranganathan set down years ago.

CavinKare's corporate strategy revolves around three cardinal rules. First, Cavinkare’s , will never venture into manufacturing and will only focus on brand building, R&D and distribution management. The company has a line of third partly manufacturers including exclusive producers mostly in the tax haven of Pondichery. "When we refrain and outsource products, we are able to maintain a clear focus on brand building. There is no desperate working capital requirements and above all, we are able to maintain flexibility in juggling with products," he says,

Secondly, CavinKare will never undertake to distribute products of other manufacturers. "We have been receiving offers from both Indian and multinational FMCG companies to distribute their products. But we are firm that we will never do that," says Ranganathan. "Thirdly, we will not let our products be distributed by other people," he adds.

Supply chain and logistic strategy takes priority for Cavinkare, as it plans to cross Rs 5000 crores in sales within 10 years. CavinKare plans to enable its supply chain using predominantly IT initiatives.

The pieces are in place for future complexity in handling its supply chain. Consider this: Cavinkare has no manufacturing of its own. Instead it has 25 Third party units making all its products spread across southern India. It has 3 mother depots, 4 regional offices, 27 depots, and 2300 stockists selling 5 brands and 110 stock keeping units to over 7.25 lakh retailers. As usual, 60 of the 1 10 SKUs are fast moving which need special focus. In its infancy, CavinKare had very rudimentary IT systems to get data. Today it has already felt the need to go in for SAP, and integrate its activities. 45 percent of its annual sales come from south India even today.

"We needed real time information,' Says B.Raiagopalan, Group Vice President, Finance for CavinKare in Chennai. " Even though our sales were Rs 200 crore and analysts said we were regional, we knew today's competitive FMCG market needed action on a real-time basis."

"We asked Productivity Consultants to help us create a totally aligned organization, " Raiagoplan continues. "They recommended a supply chain solution ). The idea was to connect all our different entities and get visibility on what was happening at all levels."

IT'S THE WAY

It is instructive to trace CavinKare's journey through to SAP. Not surprisingly, in its younger days, CavinKare had the simple spreadsheets and Fox Pro based systems to keep track of standard FMCG data like production, sales, returns, outstanding, accounting and so on. For a time this was fine, as business was not so strong to warrant a full-fledged investment into expensive technologies like ERP. " In 1990, our systems were basically designed as a stock ledger and was created for the purpose of preparing statements for the balance sheet.- All other reports had to be culled from it," recalls B Raiagopalan.

But as business expanded and ambitions grew, says Raiagopalan, data requirements also grew. Working capital was vital to handle well. We began to realize we needed to graduate from the simple datasheets to something more sophisticated - and more importantly-, which gave us the flexibility to react to a changing situation.

CavinKare came to the conclusion that it needed an ERP solution. After 7-8 months of deliberation and discussions, Cavinkare finally settled upon SAP R/3 as its ERP. This itself was a rather surprising decision for most analysts. It was conventional wisdom that a Rs 200 crore compa-ny did not really need an expensive and sophisticated ERP like SAP R/3. " But our logic and focus were clear," says Raiagopalan. we had our company expansion , diversification and growth ambitions in mind.

We felt SAP would give us the discipline and the platform from which we could scale up."

CavinKare started off with SAII R/3 implementation in January 2000. Like many other companies, it went in first for the Sales and Distribution and Material management modules. These could be used along with the Fox Pro systems that CavinKare already had.. Within SAII, CavinKare also implemented the Controlling module, which oversaw operations of product sales, distribution and budgeting. Work first started in the Chennai Head office. By September 2000, SAP went live there, reportedly the fastest ever implementation of the SAP any-where. The next phase was to roll out SAP to the other regions. But by 2001, CavinKare was fully on SAP. Things were

GCMMF (AMUL)

The Gujarat Co-operative Milk Marketing Federation (GCMMF) is the largest food marketing company in India today with sales turnover of Rs. 2,500 crore. While there are a host of other players in the foods market, GCMMF reigns in the milk and milk products and perishables segments.

GCMMF has come a long way. It is the largest organised collector and distributor of milk and its value added products are marker leaders under the brand names of Amul (cheese, butter, milk, powder) and Dhara, Lok Dhara (oils). Amul's brands of paneer, ice cream and sweets like Gulab Jamun and Shrikhand are fast catching up with the market leaders in various segments. Among with a sustained brand-building exercise over the past two decades. GCMMF is today in a position to leverage all its assets for exports. Some thing not even considered some years ago.

GCMMF owes its market dominance to several factors. Crucial amongst these is its milk procurement system, which gives it access to a vast reservoir of milk at massive economies of scale. The logistic of milk are considerably more difficult than for most other foods products.

INBOUND LOGISTICS

Inbound logistics in milk are governed by time. "Within 2.5 hours, they collect, check, transport and process up to 1 million litres of milk every day - 365 days a year, non stop." "Amul is committed to accepting every drop of milk it is offered, whether they have use for it or not.

GCMMF and the National Dairy Development Board, under the able guidance of Dr. Verghese Kurien and Tribhuvnadas Patel, formed what is today called the Anand Pattern of Co-operatives. In the Anand pattern of co-operatives, the farmer - in most cases the small marginal, non-landed farmer with 2.3 cows in his herd - sells directly to the cooperative society and then by extension to the dairy. The traditional middlemen the brokers, the consolidator, the trucker - who are so potent in other agriculture markets, are conspicuously absent here. The direct implication of this structure is on costs of [Procurement, fair returns to the producer and quality of the milk.

So how does GCMMF procure milk? The farmers tip over their milk into a standard container that the village society has. The computer linked to the scale electronically notes the weight of milk and container. The

same computer automatically deletes the weight of the container from the total to give the weight of the milk.

At the same time, another man at the counter (again an employee of the society) takes a small sample of the milk into a machine called the lactometer. This machine determines the fat content of the milk and automatically transmits the result to the computer. The price to be paid to the farmer is predetermined based on the fat content. The computer then generates a pay slip for the farmer who is paid either in the evening or the next morning, as the case may be. There is no credit period and the disbursements are completed within one day of selling the milk to the society. Rationalisation of vendors is not necessary. At the farmer level, the aggregation is low - from 1 litre to 1 0 litres/. But at the society level, the total volume of milk may touch more than 5,000 litres a day. GCMMF found a way out by developing village chilling centres or VCCS.

Having collected the milk at the VCC and ensured its quality level, the milk now has to be transported to the chilling centre or the dairy. Each dairy has 4-5 chilling centres. Earlier, the vehicles used were either matadors or jeeps or 9-tonne trucks. Today, the 9 tonne truck and the insulated truck are the norm. The insulated stainless steel truck-tanker, with capacities up to 10,000 litres, goes from society to society and collects the milk. The trucks reach the dairy by 9 am and the 'milk run' is completed. The next run is in the evening around 7 pm.

At the dairy, the milk is either processed into butter, cheese or powder, or is pasteurised. GCMMFs priority is for liquid milk, which has a shelf life of a hours at the dairy, while the powder has a life of anything up to 18 months.

Take a peek into the scale of Amul Dairy 120 trucks arrive daily at the gates with milk from the societies. Around 1.5 to 2 lakh litres come from other dairies, either due to excess at their ends, or for further processing at Anand into powder. Each truck can carry up to 10,000 litres in its tank, chilled and ready for processing. On an average, the milk travels 150 to 160 km. every day the whole year around, all of these arriving in a span of 4 hours upto 9 am.

OUTBOUND LOGISTICS

As Critical As The Inbound Side Is For Amul, the outbound is just as complex with 108SKUs - all at various levels of perishability. Amul butter, cheese, shrikhand, curd, ice cream and mithaee all are perishable and time-bound products. This means they have to be sold

within a very tight window from the date of production. GCMMFs reach extends nation-wide, so accounting for packing time, transfer times and delivery to retail outlets time, the net time available for sale can be as low as four days for curd and is less than one day for milk. this, in turn, means that inventory management is of prime importance in GCMMF. Unlike other products, the inventory of milk is practically one day. So GCMMF follows a strategy where plans of procurement and production are made for 12 months rolling forecasts and inventories of butter and others are built up during flush season for the following summer.

Too much milk is also a problem, says Vyas. "I have to have an outlet for all the milk that 1 collect and process. This means that a vast sales and distribution network is almost imperative". GCMMF certainly has spread its wings. Today, it directly reaches half a million retailers and aims to expand its reach to a million by 2005 (see table 'Wide Reach'). Its products need a rather different set-up than a typical FMCG company, due to the requirement of the cold chain. Says Sodhi, "we reach 4,000 distributors across India, serviced from our 48 offices nation-wide. These distributors invest in facilities like freezers, cold rooms and insulated vans." Sodhi claims GCMMF has had no problems in all these years with this set-up.

Fig. – 23

Farmer

1.5 hours

Society 6 - 7.30 am

Milk weighing Fat content

check payment slip

Milk into VCC

Society 2 – 3 hours by 9 am

collection sent by truck to DCC

for dairy

GCMMF today uses 35-40 transporters to ferry its products nation-wide to 2,500 distributors of butter and 1.5 lakh outlets for refrigerated products. Along with the butter, cheese and other products can also be sent, but temperature requirements are different. For example, ice cream needs freezing t temperatures (below zero), while chocolate can be maintained at 4 degrees Celsius. This requirement drove another change in transportation - the refrigerated truck.

Today, 125 refrigerated trucks ply on the routes. These cost up to Rs. 3 lakh to configure and have higher running costs but the net result is very desirable. Ultra Heat Treated (UHT) milk is sent daily by refrigerated trucks to Vashi where it is processed further for sale in Mumbai. These trucks have enabled GCMMF to leverage both its products as well as its distribution. Highly perishable goods like ice cream and curds are sent to Mumbai - GCMMFs largest market for these products - and stored at chilled temperatures at Goregaon, the Fruits and Vegetables godown.

GCMMF also encourages containerised cargo. It pays up to 6-7 per cent more than usual open truck rates. Today, up to 40 per cent of GCMMF's cargo goes by such trucks.

GCMMF estimates that vehicle costs have gone up to Rs.6 lakh from Rs. 3-4 lakh some years ago and fuel rates have also increased substantially to nearly Rs. 20 per litre from Rs. 12 five years ago. Petrol is today Rs. 28 per litre in the metros. But relative to these increase, freight rates haven't gone up in the same ratio put together, this adds up to considerable sayings for a leading company like GCMMF.

GCMMF Inventory Norms

Level Inventory Days

Dairies 90* to 5.7*

Distributors 7

Retailers 3-4

* Summer ** Winter

Table - 19

GCMMF Network

2000 2005 Targets

Distributors 4000 7,000 (including Cold chain)

Offices 48 100

Retailers Served 500,000 10,00,000

Table - 20

On the marketing side, GCMMF already has a formidable distribution network. Not only does this give GCMMF vital access into the vast rural market. It also gives it the advantage of introducing new products into the same system at little extra costs. Unlike other companies, GCMMF use a legacy system for ERP designed by Tata Consultancy Systems (TCS) in the early 1990s. This system is still used to track business data. The orders booked by the branches are compiled and stocks and sales are monitored daily. The data is received from the depots and branches by email/fax/phone and these are collated everyday. Then dispatch department breaks down the demand into product groups and decides which dairy (member union) should supply the goods. The dispatch department coordinates the flow of information to truckers to pick up their goods at the respective dairies and deliver. The goods are taken to the C&FA's who manage the depots in the zones. Today this set-up is considered the most robust and penetrative in India. The Internet is a key ingredient in GCMMF's marketing strategy. GCMMF was, in fact, one of the firsts to launch shopping (amul.com shoppe) on its web site. GCMMF accepts the order placed through the 'shoppe', relays it to the nearest dealer of Amul in that area who then delivers and collects payment. Hence, the system uses the existing network, but has created a new channel for sales.

CGMMF order Replenishment System

Order booking (Mumbai)

Branches (Mumbai) Depots (Mumbai)

Head Office (Anand)

Demand breakdown into products / destination at Anand

Demand allocation to various member unions (decided at Anand)

Dispatch from member unions to depot (Coordinated from Anand)

Order received at depot; stocks updated; into sent to Anand

Stocks breakdown into stockist wise demand

Dispatch to stockist

Retailers

Fig. – 24

NESTLE.

INBOUND LOGISTICS

Nestle India's inbound supply chain is similar to most companies in the business, using tankers, collections and so forth to bring the milk into the plants. As early as 1999, Carlo Donatti, Nestle India's CEO, had talked about Nestle's foray into tetra packed milk which needed a basic shift in supply chain. In an interview to a business magazine, Donatti acknowledges that, if Nestle launches milk in tetra packs, its milk production facilities will have to be close to its customers. "You must have satellite factories and manufacturing facilities close to the market," he says. Nestle has a giant operation going at Moga in Punjab - set up in 1962, the plant processes 800,000 litres of milk that's collected from 71,000 farmers, every day. But to be close to customers, the equivalent of the Moga plant may have to be set up around the country, with perhaps smaller plants at the district level. So Nestle may have to eventually invest huge sums in setting up plants, though it won't have to invest in freezers for shops because milk in tetra packs have a shelf life of up to six months.

The coffee supply chain is of course more volatile dictated by global pricing, which in turn affects inventory planning. Nestle has no major issue with either milk or coffee inbound logistics.

Trace ability in the entire chain was crucial. Nestle India demarcated trace ability of goods into two types - reactionary (trace and point the goods after an event), and preventive (ensuring the goods are a high quality right from the start). In this regard, Nestle's views are very similar to those echoed elsewhere in India. Both these, needs information back up. Firstly, regarding the type, speed, format and ease of data collection; and secondly on the IT system back up". In all these, it's the people that will make the difference. Today, Nestle uses MRP and ERP for internal planning and processes, but our folloups with vendors and others still remain on phone, fax and email. Some vendors share data, others don't.

OUTBOUND LOGISTICS

The longer the supply chain, the weaker the demand signal becomes. In India, on retail side as well as the vendor's side, Nestle has too many intermediaries. That adds to time and costs, also badly impacting quality. In India, no feedback comes from retailers. The only source is Nestle's own staff, and the data is limited by sheer size and complexity

of the Indian market. It is in these conditions that initiatives like ERP, SCM software and ECR will greatly help.

In Nestle India, the demand plan using statistical tools the demand plan using statistical tools and sales data is first prepared, then broken down into stocks data - where and when to hold, which in turn gets broken down into a manufacturing plan. This plan is then further broken down into materials plan handed over to the different vendors. For materials like cocoa and coffee, where imports play a role, stock norms could be one month stock, or price based. If prices go down, stock up; if up, maintain the safety stock only. Milk is brought in daily, as detailed above. The finished goods move by truck, containerized trucks and concor (by rail) to far off areas. Nestle has no issue with outbound transport, using very much the same structure as most corporate in India. It spent Rs.87 crore in 1995. Spend on freight has remained well in control at around 5.4 percent of net sales, in spite of increasing sales

IT has been used as a tool in Nestle, but Nestle's is not award by E-Commerce's potential. It simply considers emerging business-to-consumer (B2C) marketplaces as newer channels that argument existing ones. At the same time Nestle's would retain its legacy EDI infrastructure to capture the full value of its investment.

VISION 2005

The firm must recognize that it cannot make this journey alone. Companies that want to be industry leaders realize they must reinvent the total network in which they are merely one player. To achieve such leadership, a firm must cooperative in creating the value chain constellation that will dominate an industry. This network consists of a linked set of agile companies that not only react to market challenges but in fact dynamically anticipate and exploit new opportunities that can sustain profitable revenue growth and exceptional shareholder value well into the next decade.

Considering the importance of targeting markets and consumers, a company must also choose its value chain partners very carefully because they are the key to future profits and competitive advantage. In short, alliances must be built with organizations that are qualified to assist in the process..

With the road map laid out and the destination defined, value chain partners can pursue a jointly determined set of process improvement initiatives based on what works for other networks or on new and innovative designs created by the members of the value chain constellation.

The Value Optimising a Value chain Constellation

Suppose that these revenues are 10 to 20 percent above the business plan. Imagine that profits can be increased by 30 to 50 percent, cycle times reduced by 20 to 50 percent, and inventory as a percentage of revenue cut in half. Add to the dream in fact that shareholder value rises because of a doubling in earnings per share, and customer satisfaction reaches new highs.

These results can be achieve by leveraging the network effort and the enabling technologies to "turbocharge" a particular supply chain. Leading manufacturing and service organizations in the automotive, aerospace, chemical, consumer goods, electronics, and pharmaceutical industries have already increased profits and shareholder value through the supply chain strategies and solutions outlined in this book. They are now seeking even higher levels of success.

United efforts may be used to move an entire industry forward. Efficient health-care response (EHCR), efficient food service consumer response (EFCR), and several industries focus on collaborative planning, focus on collaborative planning, forecasting, and

replenishment (CPFAR) are excellent examples of such a combined effort.

Whether industry sponsored or promoted by a nucleus firm, the value chain constellation emerges as an alliance among organizations with a similar vision. The constellation focuses on meeting the classic supply chain objective; offering the right combination of data, products, and services to customers and consumers at the right time and place and at the right price. Available-to-promise is an important feature of this alliance, backed with the lowest total delivered cost. To achieve this reality, the partners in the alliance must embrace a number of key elements:

A focus on the Internet as a vital medium of communication

Rapid, interactive, and successful product design and introduction.

Global available-to-promise capability with completely visible inventory.

Ability to assemble, builds, or configures diverse components into a finished order.

Features of mass customisation in the finished offering.

A glass pipeline for viewing availability and flow of goods and services.

Analytical and financial feedback loops that accurately measure progress.

Flexible planning and execution to meet customer needs.

Zero working capital.

Continuous learning and improvement.

NEW CONCEPTS AND NEW APPROACHES TO BUSINESS

The value chain constellation must introduce new consumable products and services in the shortest possible time with a high probability of success. The constellation supports such innovative collaboration through information technology that provides the right data, in the right format, to the right places at the right times.

Figure below illustrates an interlinked infrastructure focused on ringing new design and products to market quickly and effectively. Design and engineering changes driven by customer or consumer preferences are entered into a simulation model. Prototype designs are generated with help from key suppliers and other external sources, all transmitting ideas quickly and efficiently through high-speed electronic links. Product developers guide the introductions at every critical step, particularly where totally new products are required, but they work closely with constellation partners to speed the process and ensure higher probabilities of success. Designers work closely with purchasing managers to keep parts suppliers linked into the process to minimize delays and share design and production issues openly. Most important, planning time is condensed throughout the design and prototyping process through constant on-line feedback.

RAPID DESIGN, DEVELOPMENT AND CHANGE

Design Engineering changes

Where are we changing?

Situation tools

Cost, time, Feasibility

Prototype

Product Development

Release to production

Ship Orders

Buy parts, work with purchasing

Orders

Orders Production Ship Orders

Fig. - 25

Information technology is now inter enterprise, linking all constellation partners' intranet systems to meet customer needs and actual consumer demand. Internet and message-based extranet communications allow the total planning and delivery system to respond rapidly and efficiently, without waste. The driver becomes consumption-driven supply chain response. Systems are integrated and work from actual consumption data, not forecasts. At every point in the network, optimized techniques (for example, dynamic and collaborative supply planning, business resource planning, sales force automation, and order configuration) are applied to control and speed delivery of the right products and services to the right consumers and the right time.

Electronic commerce now enables an advanced supply chain with clear advantages:

Customers, suppliers, manufacturers, retailers, and distributors are connected in a virtual electronic enterprise that appears seamless to the ultimate consumer.

Technology facilitates both information sharing and the necessary business transactions, without error.

Technology changes the way constellation partners communicate and conduct business, creating new levels of understanding and trust.

Companies in a virtual supply chain maintain technological superiority together to sustain competitive superiority.

These benefits can be achieved with almost zero working capital The ability to reduce necessary working capital almost to zero begins with dedication to a total pull system.

Zero Working Capital

The following benefits of this new method of advanced supply chain management:

Rapid product introduction and differentiation, with the best times to market.

Almost total flexibility in the chain of supply, with almost no static capital.

Customers, suppliers, manufacturers, distributors, and retailers sharing information vital to their mutual success in a secure and reliable manner.

Minimized need for working capital, facilitated by optimal inventory levels.

Simultaneous and ongoing improvement of all areas of the inter enterprise network.

Total visibility across the pipeline connecting the network constituents.

Multidirectional feedback loops for rapid response and improvement.

Virtual alliances with key constituents in a business framework that ensures future profits, growth, and competitive success.

Now, stop imagining and go out and turn the turbocharged supply chain into a reality.

FINDINGS & SUGGESTIONS

Following Are The F'indings Of My Study On The Topic Dynamics Of Distribution In FMCG Industry - Vision 2005

India is still in its infancy in the logistics and supply chain business.

FMCG industry is in doldrums and as such must look for ways to save costs. Thus the most drastic end effective way is controlling the distribution or in bigger perspective supply chain.

Today distribution systems have a linear flow and some hub and spoke, whereas the trend is moving towards Hub & Spoke at more than one level and multidimensional flow of information.

With the passage of time use of sophisticated software tools- ERP, Trend Data, Qualitative field inputs will increase and as a result forecasting would be better.

One major finding is that, while branding differentiates the image of the product, the distribution will determine its success to a large extent.

Rural markets would be the cornerstones of all FMCG strategies in the near future and this difficult markets will only be cracked by companies that form partnerships across their value and supply chains.

FMCG companies are now realising that change will come faster and harsher than ever before, so why not change before change is thrust upon. Therefore, Distribution has suddenly emerged from the background of the business to the very forefront.

Last but definitely not the least with all attention now being centred on Supply chain and logistics specifically in FMCG sector, this could well turn out to be the business to be in.

CONCLUSION

On the basis of the project done and the before said analysis we may

conclude that the distribution management has emerged from the

back-benches of the marketing discipline and is all set to become a

specialized area of expertise, critical to the success of any brand. Till

date the distribution strategies of FMCG companies were

evolutionary, but from now onwards the strategies would be

revolutionary and in this regard HLL is leading from the front.

In recent years the profile of distributors has been changing. No

longer are they old style traders, sitting in dusty godowns and

keeping track of inventories with hand written account books. Those

distributors had mostly been appointed in the pre-liberalization era of

low competition, where supply was what mattered. Business was a

matter of delivering - and usually rationing - products to a finite

number of retailers and ensuring that money flowed reliably to the

company.

These distributors still exist, but increasingly a younger more

professionally minded breed of local enterpreneurs, who couldn't care

less about the company or its managers, is supplanting them. Their

sole interest is growing their business and increasing returns.

However it is worth noting that role of distributors in this sector is

ever-changing i.e. dynamic and as such to be a leader always a close

watch on changing paradigm is must.

Today it seems that IT cannot be separated from any discipline or

function, so is the case with distribution. Information technology has

enabled distribution as key competitive tool in today's business

environment. It removes the degree of uncertainty that simply existed

because information was not being shared. IT enables integration of

disparate processes successfully.

The concepts of distribution or SCM started filtering in India in late

80's and early 90's and now they are beginning to acquire momentum

over the broad business landscape. Thus this study has scope for

further researches.

BIBLIOGRAPHY

1. Marketing Management – Philip Kotler

2. Marketing Research – C. R . Kothari

3. Business Today

4. The Economic Times

5. www.hll.co.in

6. www.amul.com

7. www.google.com

OBJECTIVE OF THE STUDY

Marketers help design products, finding out what customers want

and what can practically be made available given technology and

price constraints.

Marketers distribute products—there must be some efficient way

to get the products from the factory to the end-consumer.

Marketers also promote products, and this is perhaps what we

tend to think of first when we think of marketing. Promotion

involves advertising—and much more. Other tools to promote

products include trade promotion (store sales, coupons, and

rebates), obtaining favorable and visible shelf-space, and

obtaining favorable press coverage.

RESEARCH METHODOLOGY

The non-exploratory research methodology will be used for the thesis writing

Research design:-

The research design has been prepared with sufficient care by keeping in mind the research objectives. The research has been conducted by going through books, journals, magazine and information available on Internet .The research has been conducted by visiting various existing retail outlets and knowing the actual trend in the market. Strategies adopted by the retailers, and problem faced by the them.

Research Instruments:-

The primary data for the study are collected through market

screening by means of unstructured interaction with various retailers

at different places.

The secondary data are collected through, Text Books and the

Materials published in Journals and Magazines etc