PAPER ID# 12

Implementation of SCM Practices

in Indian FMCG Industry
(Allocated Paper Code: 12.doc; Category: Competitive)

Submitted By:
ASHUTOSH MOHAN
Working as Lecturer, Centre for Management Studies,
Jamia Millia Islamia,
New Delhi-110025 (INDIA)
Worked as Senior Research Fellow,
Faculty of Management Studies (FMS)-University of Delhi
e-mail: ashutoshmohan@rediffmail.com
Mobile: +91-9899122250

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PAPER ID# 12

Implementation of SCM Practices in Indian

FMCG Industry

Summary
In recent years, the basis for global competition has changed. No longer are organizations
competing against other organizations, but rather supply chains are competing against
supply chains. The success of an organization is now invariably measured neither by the
sophistication of its products nor by the size of the market share. It is usually seen in the
light of the ability, sometimes forcefully and deliberately harnesses its supply chain and
to opt for innovative approaches of supply chain flows such as single-piece-flow, to
deliver responsively to the customers as and when they demand it.
This paper tries to identify and analyze the importance and adoption of various SCM
practices in Indian FMCG industry. The paper is based on empirical study conducted by
the author in Indian FMCG industry and various SCM practices are clubbed in different
factors through Factor analysis.

Introduction
It is rightly said that manufacturers now compete less on product and quality – which are
often comparable – and more on inventory turns and speed to market (John Kasarda,
1999). This statement shows the beliefs that supply chain management will increasingly
be the principal determinant of the ability to compete. Every link in it can add up to a
competitive advantage. There was time when companies looked at their supply chains –
the upstream part of their value chain from the company’s perspective as a means of
focusing on their own core competencies, and of leveraging those of vendors and
lowering their cost to increase their responsiveness towards consumers . Those goals can
not be swept away by supply chain but they will be superseded by a single super
objective as to compete on the basis of how well organization manage its supply chain –
thus the competitive advantage is shifting from the shop floor. The question arises why it
is so important to optimize the supply chain. It is so because inefficiencies in the supply
chain leads to higher inventories at all points of the chain. This adds costs related to
wastages, blocked funds and risk of holding obsolete products with chances of quality
depletion.

SCM in Indian Business Scenario

Indian organizations are still juggling among the Material Resource Planning (MRP-II),
Enterprises Resource Planning (ERP), Logistics and Supply Chain Management (SCM).
However, it is quite evident that Indian corporate sector is fast recognizing the need of
SCM, which can integrate all other practices and processes. SCM in India offers one of
the fastest growth areas in revenues as well as employment. According to ETIG, there is
no reliable estimate of the market opportunities for supply chain and its components exist
in India today. Even though, ETIG estimates the Indian market value for supply chain /

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logistics at 13 percent of GDP is more than US $50 billion, a lion’s share of which is
accounted for by transportation and warehousing.
India started a little late for restructuring and reformulating the strategies related with
supply chain. However, there is no doubt that Indian industries are fast catching and
gearing up for meeting the new business environment. A study of available literature
related with Indian business practices after 1991’s liberalization policies shows that
organizations are concerned about their value chain and identifying that competition is
shifting towards the efficiency and effectiveness of entire supply chain activities. The
traces of SCM adoption by Indian organizations are given as:

• Until 1990, logistics was treated as the management of transportation, inventories

and warehousing and organizations had to perform these activities individually in
an efficient manner.
• Before opening of Indian market, Indian business giants were enjoying the solo
play with continuous expansion of capacities. Later on when they heard the music
of competition, they found themselves with excess capacities with huge cost
burdens. This forced organizations to control the cost factor for the survival at
marketplace.
• At the same time of 1990’s, Indian organizations got fascinated by Business
Process Re-engineering (BPR). Organizations treated BPR as remedy of their
illness across the organizations’ processes and functions by eliminating the non-
value adding activities and streamlining the operations with a promise of higher
returns.
• Later on, the emergence of Enterprises Resource Planning (ERP) gave boost to
BPR. For the first time, organizations could have an integrated view of the
various ‘silos’ that existed in their businesses, giving an opportunity to
rationalize, remove duplication and speed up the processes.
• Rapid growth and improvement of telecommunication networks and wide spread
of information technology tools and techniques after mid 1990s posed the biggest
challenge in handling well-informed customers. Nevertheless, these changes also
provided the biggest boost to Indian industries because organizations found
themselves able to reach out vendors or suppliers on one end, and customers to
the other. Due to this revolution only, ERP-II integrated the internal departments
into a seamless organization, whereas, SCM attempts to integrate the external
factors and processes into the internal processes.

Changes can be implemented easily when tough times reign. Companies in India have
been looking at ways of cutting costs and improving process efficiencies, in their quest to
become globally competitive through taking initiatives for supply chain management
practices because SCM recognizes that distinct functions like purchases, inventory
management, distribution and production planning work best when integrated. At the
same time, supply chain management in India seems to be following the path of more
advanced industrial countries, involving not only the customers, manufacturers, and
vendors but also the third party service providers, consultants, software providers etc.

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Indian Fast Moving Consumer Goods (FMCG) Industry

Indian Fast Moving Consumer Goods (FMCG) industry has a long history. However, the
Indian FMCG industry began to take shape only the last fifty years. Even today, the
Indian FMCG industry continues to suffer from a definitional dilemma as well as the
exact estimation of market size. Nevertheless, more than Rs. 43,000 crores ( in organized
sector) fast moving consumer goods (FMCG) industry is a critical component of the
Indian economy. The actual size of industry is phenomenal, if one adds the turnover of
unorganized sector. That is why, this sector has potential to drive growth, enhance quality
of life and create jobs. The Indian FMCG sector is primarily a low margin business,
where success depends on the volume. Presently, the FMCG sector is one of the largest in
the country, which accounts for more than 14.5 per cent of GDP with whooping sum of
domestic consumption capacity of nearly 20 billion U.S. Dollar. With the average growth
of Indian economy in the range of 6-8% per year will witness a consistence rise in
demand and purchasing power of Indian market. Following the trend, the FMCG sector
will grow by 5-6% per year in mature categories and 8-10% per year in upcoming
categories. However, factors such as low rural penetration, dependence on monsoon, the
price sensitivity of the consumers and increased level of competition could result in
decreasing profit margins in the industry.
The following section examines the different philosophies related to development
of SCM. Subsequent sections describe the research construct, which provides details of
sample design, design of questionnaire, survey methodology, followed by an analysis of
the results and the managerial implications of the study along with the future research
directions.

Synthesis of Supply Chain Management Literature

The concept of supply chain management first appeared in the literature in the mid-1980
by Keith and Webber. However, the fundamental assumptions on which SCM rests are
significantly older. The management of inter-organizational operations can be traced
back to channel research in the 1960’s by Bucklin and systems integration research in the
1960’s by Forrestter. According to Cooper et.al. (1997), the term supply chain
management has risen to prominence over the past ten years. La Londe (1997) identified
positions at forty-three different companies that carry ‘supply chain’ in their titles. By
now, SCM has become such a hot topic that it is difficult to pick up any periodicals on
manufacturing, marketing, distribution, customer management, or transportation without
seeing an article about SCM or its related topics.
Despite the popularity of the term supply chain management, managers and
researchers have considerable confusion over the actual meaning of the term. Some
authors such as Tyndall et.al. (1998) defined SCM in operational terms involving the
flow of materials and products. Ellram and Cooper (1990) viewed SCM as management
philosophy and still others as La Londe (1997) viewed it in terms of management
process. In fact, some have questioned the existence and benefits of the SCM
phenomenon, for example, Bechtel and Jayaram (1997) asked ‘Is the concept of SCM
important in today’s business environment or is it simply a fad destined to die with other
short-lived buzzwords?’

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Research in SCM evolved along three separate paths that eventually merged into a
common body of literature, with a primary focus on integration, customer satisfaction and
business results i.e. creation or enhancement of value of the products or services. Jones
and Riley (1985) stated that supply chain management deals with the total flow of
materials from suppliers through end users. Three differences between supply chain
management and classical materials and manufacturing control are identified by Houlihan
(1988) as:

• The supply chain is viewed as a single process. Responsibilities for the

various segments in the chain are not fragmented and relegated to
functional areas such as manufacturing, purchasing, distribution and sales.
• Supply chain management calls for and in the end depends on strategic
decision making.
• Supply chain management calls for different perspective on inventories
which are used as balancing mechanism of last, not first, resort. A new
approach to systems is required – integration rather than interfacing.

SCM as a Management Philosophy

The philosophy of SCM emphasized to extend the concept of partnerships into a

multiform effort to mange the total flow of goods from the supplier to the ultimate
customer. Ellram and Cooper (1990) emphasized that SCM as a management philosophy
takes a systems approach to viewing the channel as a single entity, rather than a set of
fragmented parts, each performing its own function. Langley and Holcomb (1992)
suggested that the objective of SCM should be the synchronization of all channel
activities to create customer value. Mentzer et.al.(2001) proposed that SCM as
management philosophy has the following characteristics:

• A systems approach to viewing the channel as a whole and to managing

the total flow of goods inventory from the supplier to the ultimate
customer.
• A strategic orientation toward cooperative efforts to synchronize and
converge intra-firm and inter-firm operational and strategic capabilities
into a unified whole and
• A customer focused orientation to create unique and individualized
sources of customer value, leading to customer satisfaction.

SCM as a Set of Activities

For adopting the supply chain management philosophy, organization has to establish
management practices that permit them to act or behave consistently. Bowersox and
Closs (1996) argued that to be fully effective in today’s competitive environment, firms
must expand their integrated behavior to incorporate customers and suppliers. The
philosophy of SCM turns into implementation of supply chain management as a set of
activities. According to Greene (1991), the set of activities as a coordinated effort is
called supply chain management between the supply chain partners, such as suppliers,

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carriers and manufacturers to respond dynamically to the needs of the end customer. So
supply chain management activities such as mutually sharing information, risks and
rewards with chain members (Ellram and Cooper, 1990), integrated behavior and
processes and an effort to build and maintain long term relationship are vital for
realization of the management philosophy behind SCM. Gentry and Vellenga (1996)
argued that it is not usual that all the primary activities in a value chain – inbound and
outbound logistics, operations, marketing, sales and service – are performed by any one
of firm to maximize customer value. Thus, forming strategic alliances with channel
partners such as suppliers, customers, or intermediaries e.g. logistics service providers,
provides competitive advantage through creating customer value (Langley and Holcomb,
1992).

SCM as a Set of Management Process

Davenport (1993) defined a process as a structured and measured activities designed to

produce a specific output for a particular customer or market. LaLonde (1997) proposed
that SCM is the process of managing relationships, information and materials flow across
enterprise borders to deliver enhanced customer service and economic value through
synchronized management of the flow of physical goods and associated information from
sourcing to consumption. Ross (1998) defined supply chain processes as the actual
physical business functions, institutions and operations that characterize the way a
particular channel system moves goods and services to market through the supply
pipelines. The same idea was reflected by Cooper, Lambert, et al. (1997), a process is a
specific ordering of work activities across time and place, with a beginning, an end,
clearly identified inputs and outputs and a structure of action. Lambert et al. (1998)
suggested that the key processes would typically include customer relationship
management, customer service management, demand management, order fulfillment,
manufacturing flow management, procurement and product development and
commercialization.

SCM Practices in Indian FMCG Industry

In a low margin and high volume business like FMCG, it requires a very close attention
on the planning and operational part of the entire value chain activities because these
minutest details can change the fortune of any organization. While branding differentiates
the image of the product, the distribution system will determine the faith of the
organization up to a very large extent in FMCG industry. The diversity of India and
existence of vast untapped markets of rural areas provide the bundle of opportunities to
companies. The best price or quality product offerings combined with heavy promotional
and advertising budgets will not help the product succeed if one of the major ingredients
of the marketing mix as distribution is not properly focused. The table1 shows the types
of FMCG outlets are available across the India. Every organization needed to serve a
large percentage of these outlets to reap the economies of the scale.

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TYPES OF OUTLETS PERCENTAGE TERMS (%)

Total Outlets 100

Grocer 34.6

General Store 12.8

Food Store 7.1

Cosmetic Store 4.5

Chemist 5.9

Paan Bidi 16

Others 19

Table-l: Types of Outlets in Indian FMCG Retail Industry (Source: ORG-MARG, 2003)

Supply Chain Planning & Management

Contract Manufacturing / Imports Own Manufacturing

Outbound Transportation

Depots

Carrying and Forwarding Agents

Stockists / Distributors

Retailer

Customer

Figure 1: The Basic Supply Chain of Indian FMCG Industry

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The traditional basic structure of FMCG supply chain has not changed over the years.
The basic supply chain related with distribution side of FMCG industry is shown in
Figure 1. The competitive scenario has changed the importance of each element of the
chain operation i.e. a detailed planning and analysis of every activity of the chain so that
to make the same efficient and effective.
Despite the importance and theoretical development of SCM, there is little empirical
research on how practitioners define and incorporate SCM practices into overall
corporate strategy and functioning. Similarly, little is known about the specific practices
or concerns of successful SCM implementation in Indian FMCG organizations. This
research paper investigates these issues by means of empirical data.

The Research Construct

Organizations have downsized, focused on core competencies and attempt to achieve
competitive advantage be more effectively managing all internal and external value-
adding activities under the influence of global competitive market. Many firms have
reduced their supply base so they can more effectively manage relationships with
strategic suppliers (Tully, 1995). The literature indicates that buying firms are developing
cooperative, mutually beneficial relationships with suppliers and virtual extension of their
firms (Mason 1996; Copacino 1996). A key element of successful SCM involves the
downstream integration of business customers as well as the management of upstream
suppliers. It is always beneficial to recognize the specific practices that results in
successful SCM implementation while taking into consideration the concerns hindering a
successful supply chain. That is why, for the purpose of this study few commonly cited
SCM practices and concerns from the literature were identified. These included practices
and concerns related to SCM enablement through IT practices, supplier relationships,
manufacturing / operations practices, logistics and warehousing practices and customer
relationship practices. Since this was an exploratory study, no attempt was made to
organize or group various practices into any specific order or category.

The Sampling Plan

The study is focused on the supply chain management practices in fast moving consumer
goods (FMCG) sector, so the population for this study is entire organizations operating in
India under FMCG sector. A simple random sample has been opted for this study. Out of
an initial population of over 120 FMCG companies, 88 companies were selected through
simple random sampling followed by convenience and executive judgment at second
stage. Consequent upon the response rate fifty-two companies have been selected for
study of SCM practices in Indian FMCG industry.
The following criteria have been adopted in selecting the sample units as:

i. The companies under sample should have either fully adopted or partially adopted
or planned to adopt the Enterprises Resource Planning (ERP) or such other
application package.

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ii. The sample company should have demonstrated potential with regard to business
needs and resources to adopt SCM practices or company should be planning the
SCM initiative on a systems basis.
iii. The company should have a manufacturing / processing / assembly unit or head-
office preferably in National Capital Region (NCR) of Delhi and Mumbai and its
sub-urban areas.
iv. The sample company should have a turnover of at least 100 crores.
v. Only the firms which fulfilled aforesaid criteria and were willing to participate in
the study were selected.

Data Collection Methodology

The methodology of data collection for present research is planned in such manner so that
every bit of information pertaining to different aspect of supply chain management
(SCM) in Indian FMCG industry has been collected. The following tools have been used
in data collection for the research work as:

Secondary Data: The secondary data has been tapped to know insight about the Indian
FMCG sector and various SCM practices world-over. Some of the sources which helped
me are such as: Associated Chambers of Commerce & Industry (ASSOCHAM), New
Delhi, Federation of Indian Chamber of Commerce and Industry (FICCI), New Delhi,
Confederation of Indian Industry (CII), New Delhi, ETIG Knowledge Series, 2002,
Supply Chain Council, www.supply-chain.com, www.indiainfoline.com, www.scmr.org,
Council of Logistics Management and various other Libraries as Library of Faculty of
Management Studies, Delhi University, Central Reference Library, Delhi University,
Ratan Tata Library, DSE, Management Development Institute (MDI), IIT-Delhi etc.

Primary Data: The primary data has been collected through structured questionnaire and
individual depth interviews. A survey instrument in the form of a structured questionnaire
was designed based on constructs previously described. For getting the responses to
questionnaire basically, two types of scales were used as Agreement and Adoption to
assess the attitudes and opinions of respondents. Five-point Likert or summated scale
have been used with a maximum rating of 5 and minimum rating of one with equal
interval scale of 1.
The questionnaire was pre-tested by 20 supply chain managers for content validity.
Protocol analysis was also undertaken to help the respondents in answering the questions,
assess their problems in understanding some questions and suggest modifications. A few
pre-test questionnaires were also administered by mail wherein comments were also
invited from respondents. As a part of de-briefing, some of pre-test respondents were also
interviewed after they completed the questionnaire in order to identify areas of
confusions. Finally, pre-test questionnaire was also sent to two SCM experts to suggest
changes in questionnaire with regard to type of questions and scales of measurement used
therein. The pretest questionnaires were not used for subsequent analyses.

Non-response Bias:
To investigate the possibility of non-response biasness in the data, responses of early and
late returned questionnaires were tested separately. The late received questionnaires were

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considered to be representative of non-respondents (Lambert and Harrington, 1990). Each

sample was split into two groups on the basis of early and late survey return times and t-
tests were performed on the responses of the two groups. The t-test yielded no
statistically significant differences between the early and late response group suggesting
that non-response bias was not a problem in this study.

Common Method Bias:

This research collected data from a single respondent from each target FMCG
organization, without collecting and cross validating responses from a second informant
from the same organization. Some researchers can argue that relying on a single
informant to answer complex social judgments about organizational characteristics
increases random measurement error in terms of, strong assessment of discriminant
validity can not be made. However, the cost associated with stipulated time factor for
using multiple informants from each organization is prohibitive. Therefore this research
used data from single respondents while attempting to minimize the extent of common
method variance by targeting the survey to top level executives or senior managers of the
organizations. It was assumed that the senior managers were more objective and
knowledgeable with respect to their organization’s operations.

Analysis and Interpretation:

Reliability Analysis
The reliability of the scales used for survey in questionnaire was evaluated using
Cronbach’s alpha (Cronbach, 1951). For two scales used as Agreement continuum and
Adoption continuum, the value of cronbach alpha came greater than 0.75, suggesting that
scales are reliable.

Factor Analysis
For each of the two item scales i.e. agreement and adoption continuum, exploratory factor
analysis was used to identify a smaller set of factors to represent the relationships among
the variables prudently i.e. to explain the observed correlation with fewer factors. In this
research, principal component analysis with eigenvalues greater than one was used to
extract factors and varimax rotation was used to facilitate interpretation of factor matrix.
The Bartlett Test of Sphericity (value = 1919.451 and significance value = 0.000) was
used to validate the use of factor analysis. The value of KMO came out less than 0.5
because sample size for research was comparatively small. The reason behind small
sample size was that the total size of population as Indian FMCG firms under organized
sector is in itself limited to nearly 120 firms.
Factor analysis with aforesaid method was applied on agreement continuum and
items with factor loading above 0.50 (with a few exceptions) were considered to
determine item representation to a single factor. The exceptions are given as:
• sharing of real time demand and inventory information with suppliers/dealers,
• key suppliers locate personnel within focal firm (JIT-II) and
• CRM is only 20 percent technology and 80 percent successful involvement of
employees
Empirically, the 31 SCM practices were reduced to six underlying factors.

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• Factor 1: Coordination with supply chain partners i.e. suppliers and

customers. This factor comprises the eight practices that address collaboration
among supply chain partners. This factor accounts for 16.4 percent of the variance
in the data.
• Factor 2: Operational networking with suppliers and logistics service
providers. This factor involves the six operating practices related with suppliers
and logistics service providers. The factor accounts for 11.6 percent of the
variance in the data.
• Factor 3: Cross functionality in joint action with suppliers and customers. It
involves four practices, out of which two are directly related with the involvement
of suppliers and customers in new product development process. Rest two are
concerned with costing and manufacturing flexibility. This factor accounts for
8.64 percent of the variance in the data.
• Factor 4: Mechanistics of SCM implementation. This is basically related to
strategic outsourcing and it involves three practices, which comprises 8.06 percent
of the variance in the data.
• Factor 5: Collaborative Forecasting and Sales planning: It involves two
practices and these two practices account for 7.65 percent of the variance in the
data.
• Factor 6: Leanness of Supply Chain: It involves four practices, which indicate
the focal firm’s willingness to reduce waste and streamline the processes through
proper planning. These four practices account for 7.49 percent of the variance in
the data.
These six factors accounted for a total of 59.88 percent of the total variance in the data
shown in table 2.
Table 2: Total Variance Explained
Rotation Sums of Squared
Initial Eigenvalues Loadings
Component
% of Cumulative % of Cumulative
Total Variance % Total Variance %
1 7.951 25.649 25.649 5.085 16.404 16.404
2 3.683 11.881 37.530 3.608 11.640 28.043
3 3.232 10.427 47.957 2.680 8.644 36.687
4 2.114 6.821 54.778 2.498 8.059 44.745
5 1.890 6.096 60.874 2.370 7.646 52.392
6 1.665 5.369 66.243 2.322 7.490 59.882

Extraction Method: Principal Component Analysis.

Rotation Method: Varimax with Kaiser Normalization.

Six prominent factors were extracted through the factor analysis, which is clearly
reflected by Scree plot of the analysis as shown in figure 2.

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Scree Plot
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4
Eigenvalue

0
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31

Component Number

Figure 2: Factor Analysis on Agreement Continuum’s Scree Plot

Various elements of six extracted factors with percentage of variance and factor loading
value of each component are given as table 3.
Table 3: Summary Table of Factor Analysis on Agreement Continuum.
Factor % of Scale Items Factor
Variance Loading
F1:Coordination 16.40% * Outsourcing of non-core competent activities improves .843
with supply chain on-time delivery and lead times.
partners i.e. * Responsiveness towards customer is a critical success .797
suppliers and factor.
customers * Preparation of forecast in collaboration with customer, .760
while taking care of historic & future sales potential is more
reliable & accurate.
* Organization realizes that collaboration and close .712
working relationship with key suppliers are critical to it’s
success.
* Mechanism of customer care and service is tailored .712
around the needs of customer & based on the value of
interactions with customers.
* Customer requirements have been analyzed in terms of .604
design and manufacturing feasibility of the new product
development cycle.
* Customer defined quality & service standards dictate the .599
supply chain operation strategies.
* Sharing of real-time demand and inventory information .507
with suppliers smoothen the flow of supply chain.
F2: Operational 11.64% * Clustering and networking with suppliers near focal .746
networking with firm’s location proves to be advantageous for organization.
suppliers and * Service level agreements with transporters provide .741
logistics service effectiveness & reliability to logistics.
providers * Transporter rating system enhances the performance of .705

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Factor % of Scale Items Factor

Variance Loading
logistics and distribution.
* Organization shares financial risks and rewards of market .682
changes with its key suppliers under SCM.
* Key suppliers locate personnel within focal firm to .479
provide support for activities such as order planning &
technological assistance.(JIT-II)
F3: Functional areas 8.65% * Suppliers are evaluated on total cost, not on unit price of .855
in joint action with product/service.
suppliers and * Suppliers must be involved early in New Product .661
customers development process.
* Customer requirements have been analyzed in terms of .545
design and manufacturing feasibility of the new product
development cycle.
* CRM is only 20 percent technology and 80 percent .492
successful involvement of employees.
F4: Mechanistics of 8.06% * Modularity of system is beneficial for SCM .815
SCM implementation.
implementation * Competition among suppliers is encouraged by the .708
organization to get the benefit of cost and quality.
* Part/ unit outsourcing is advantageous than system .578
outsourcing.
F5: Sales planning 7.65% * Reducing customer lead time and on – time delivery .850
and improving performance would strengthen the customer relationship.
customer service * Real-time demand/inventory (PoS) data obtained from
retailers & sales personnel set the ball rolling for better .635
customer service levels in SCM.

F6: Leanness of 7.49% * Dynamic mode of route selection is effective in reducing .781
supply chain inventory levels and costs.
* Integration of outbound and inbound movements is .552
effective in reduction of waste.
* Formal and accurate demand and supply forecasting .538
system provides integration across supply chain planning
and movement.
* Lean approach of manufacturing leads to operational .484
improvements across the supply chain.
Similarly, factor analysis was applied on adoption continuum and normally items with
factor loading above 0.50 were considered to determine item representation to a single
factor. Some items with factor loading just below 0.50 are also considered to broaden the
scope of the factors, which are given as Part/ unit outsourcing is advantageous than
system outsourcing, Transporter rating system enhances the performance of logistics and
distribution, Suppliers’ are evaluated on total cost, not on unit price of product/service
and Organization shares financial risks and rewards of market changes with its key
suppliers under SCM.
Empirically, the 31 SCM practices were reduced to five underlying factors.
• Factor 1: Collaborative Planning, Forecasting, Customer Service and
Relationship Efforts: This factor comprises the eight practices that address
collaboration among supply chain partners. This factor accounts for 15.07 percent
of the variance in the data.

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• Factor 2: Operational networking with suppliers and logistics service

provisions: This factor involves the six operating practices related with suppliers
and logistics service providers. The factor accounts for 14.49 percent of the
variance in the data.
• Factor 3: Cross Functionality of joint action with suppliers and dealers: It
involves four practices, out of which two are directly related with the involvement
of suppliers and customers in new product development process. This factor
accounts for 11.44 percent of the variance in the data.
• Factor 4: Strategic Partnership and Outsourcing in Competitive
Environment: This involves three practices, which comprises 10.73 percent of
the variance in the data.
• Factor 5: Strategic Supplier Selection, Evaluation and Development: It
involves two practices and these two practices accounts for 10.24 percent of the
variance in the data.
These five factors accounted for a total of 61.97 percent of the total variance in the data
shown in table 4 as:
Table 4: Total Variance Explained
Initial Eigenvalues Rotation Sums of Squared Loadings
Component
Total % of Variance Cumulative % Total % of Variance Cumulative %
1 7.112 22.941 22.941 4.670 15.066 15.066
2 4.015 12.951 35.891 4.493 14.493 29.559
3 3.266 10.536 46.428 3.545 11.436 40.995
4 2.740 8.838 55.266 3.327 10.731 51.726
5 2.078 6.704 61.970 3.176 10.244 61.970
Extraction Method: Principal Component Analysis.
Rotation Method: Varimax with Kaiser Normalization.
Scree Plot
8

2
Eigenvalue

0
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31

Component Number

Figure 3: Factor Analysis on Adoption Continuum’s Scree Plot

Five prominent factors were extracted through the factor analysis, which is clearly
reflected by Scree plot of the analysis as shown in figure 3.

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Various elements of five extracted factors with percentage of variance and factor loading
value of each component are given as table 5.
Table 5: Summary Table of Factor Analysis on Adoption Continuum.
Factor % of Scale Items Factor
Variance Loading
F1: Collaborative 15.07% * Reducing customer lead-time and on–time delivery .860
Planning, performance would strengthen the customer relationship.
Forecasting, * Formal and accurate demand and supply forecasting .820
Customer Service system provides integration across supply chain planning
and Relationship and movement.
Efforts. * Responsiveness towards customer is a critical success .687
factor.
* Preparation of forecast in collaboration with customer, .642
while taking care of historic & future sales potential is more
reliable & accurate.
* Mechanism of customer care and service is tailored .606
around the needs of customer & based on the value of
interactions with customers.
* Real-time demand/inventory/ point-of-sales (PoS) data .563
obtained from retailers & sales personnel set the ball rolling
for better customer service levels in SCM.
F2: Operational 14.49% * Service level agreements with transporters provide .738
networking with effectiveness & reliability to logistics.
suppliers and * Customer requirements have been analyzed in terms of .709
logistics service design and manufacturing feasibility of the new product
provisions. development cycle.
* Clustering and networking with suppliers near focal .691
firm’s location is advantageous for organization.
* Dynamic mode of route selection is effective in reducing .677
inventory levels and costs.
* Part/ unit outsourcing is advantageous than system .479
outsourcing.
* Key suppliers locate personnel within focal firm to .597
provide support for activities such as order planning &
technological assistance.(JIT-II)
* Lean approach of manufacturing leads to operational .536
improvements across the supply chain.

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Factor % of Scale Items Factor

Variance Loading
* Integration of outbound and inbound movements is .521
effective in reduction of waste.
* Transporter rating system enhances the performance of .474
logistics and distribution.
* Suppliers’ are evaluated on total cost, not on unit price of .471
product/service.
F3: Cross 11.44% * Sharing of real-time demand and inventory information .824
Functionality of with suppliers smoothen the flow of supply chain.
joint action with * The readiness of supply chain partners is required for .815
suppliers. adoption of IT practices.
* Outsourcing of non core competent activities improves .605
on-time delivery and lead times.
* Organization realizes that collaboration and close .561
working relationship with key suppliers are critical to its
success.
F4: Strategic 10.73% * Organization prefers strategic partnerships with selected .842
Partnership and suppliers.
outsourcing in * Competition among suppliers is encouraged by the .793
Competitive organization to get the benefit of cost and quality.
Environment. * Modularity of system is beneficial for SCM .574
implementation.
* Organization shares financial risks and rewards of market .462
changes with its key suppliers & dealers under SCM.
F5: Strategic 10.24% * Preferential selection of suppliers depends upon .692
Supplier Selection, customization and flexibility in volume.
Evaluation and * Suppliers must be involved early in new-product .682
Development. development process.
* Formal suppliers performance scorecard should be made .608
available for evaluation of suppliers and dealers under
SCM.

Conclusions:
The clubbing of various SCM practices of Indian FMCG organizations emerged as few
exclusive factors through research study, which were different on agreement continuum
and adoption continuum from each other. The result of study revealed that supply chain

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partnership and supply chain networking are considered to be dominating factors for
Indian FMCG organizations. This seems to be quite true with the rapid spread and
development of IT and telecommunication tools and techniques throughout India, which
is facilitating the bi-directional flow of information and enhanced level of coordination
and collaboration. Besides that leanness or operational efficiency factors have high
degree of agreement but low level of adoption. The reasons behind the same are basically
infrastructural bottlenecks and the presence of unskilled and semi-skilled suppliers at
backend and distributors at front end of the supply chain. However, cross functionality
and strategic outsourcing are leading on adoption continuum.
A truly integrated supply chain requires a huge amount of commitment by all members of
the supply chain. The focal firm might require to overhaul the purchasing process and
integrate suppliers’ R&D teams directly into its own decision making processes so as to
leverage on it’s own core competency and partners’ core capabilities. Integrating the
purchasing and logistics processes with other key corporate processes creates a closely
linked set of manufacturing and distribution processes. It further allows focal firm to
deliver products and services to both internal and external customers in a more timely and
effective manner.

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