Supply Chain Management Assignment

FMCG Industry
Group 5

Rohit Chopra (164)

Sanchit Govil ( 167)
Shubham Tayal (186)
Sumedha Deogharia (202)

Supply Chain Performance Attribute for FMCG Industry

Introduction

FMCG industry is a quick, agile industry with a wide range of products.

Such a huge industry is recognized by its customers, and its supply chains are seen as
role model for other industry.
FMCG supply chain is faced with unique issues like Bullwhip effect and high return &
transit losses.
In order to achieve the organizational goal of making money , supply chain managers
try to find cheaper suppliers, low-cost manufacturing facilities, strategically located
distribution centres and highly profitable or high-volume customer markets

Introduction
Pillars for value enhancing FMCG & retailing
Supply Chain management
Customer Service Management
Agenda

Situations of competitive
advantage
Cases
Supply Chain Challenges
and Issues
Supply Chain
Performance Attribute for
FMCG Industry

Situations of competitive advantage

Asian Paints
Paint tinting machines

By acquiring a technology that enabled mixing of colors and base paints to get the appropriate
shade in a few minutes, Asian Paints obtained a competitive advantage by delaying the
differentiation
Retail inventory costs have come down, while at the same time, product availability went up

Delayed differentiation and Technology development

Logistics
Distribution strategy

Created a Large Network of Dealers

Established a Network of Company
Depots
Created a Marketing Organization that
matched its Distribution Intensity
Successfully Resolves the Cost-Service
Conflict in Distribution
Strong Commitment to Distribution
Cost Control

The warehousing facilities are well maintained

The company is adapting eco-friendly production
methods
Maintains low inventories in off seasons, and high
inventory in festival seasons
The company has huge base of raw material suppliers,
giving company bargaining power resulting in higher
profit margins than competitors
The company has succeeded in establishing themselves in
rural parts of India by large distribution network, retail
outlets etc.

Technology adaption

Asian Paints has deployed SAP R3, i2 supply chain planning suite, ERM employee platform formula
management, product lifestyle platform, SAP HANA CRM etc. with positive results

Situations of competitive advantage

HUL Ltd

HUL has generally sought competitive advantage through a continuous reengineering of the
supply chain

Horizontal differentiation and vertical integration, non departmentalized management

cadre
Shakti Amma - Inclusive business
strategy

Targeting low income consumers in

rural Indian villages
Commission based model with free
training in hygiene
Created a Marketing Organization that
matched its Distribution Intensity
Successfully Resolves the Cost-Service
Conflict in Distribution
Strong Commitment to Distribution
Cost Control

Supermarkets
HUL has set up a full-scale sales organisation,
exclusively for retailing outlets in metros
The business system delivers excellent customer
service, while driving growth for the company and
the store
At the same time, innovative marketing initiatives are
taken to provide consumers with experience of our
brands at the store itself, through product tests and
in-store sampling

Technology adaption

An IT-powered system has been implemented to supply stocks to redistribution stockists on a continuous
replenishment basis
Stockists have been connected with the company through an Internet-based network, called RSNet, for
online interaction on orders, despatches, information sharing and monitoring
RS Net is part of Project Leap, HUL's end-to-end supply chain, which also includes a back-end system
connecting suppliers, all company sites and stretching right upto stockists

Situations of competitive advantage

Marico
Enhance long term value of company brands by achieving excellence in distribution
performance
Reduce total delivered cost

882 direct distributors, 153 super

distributors, catering to 2393 small
stockists and 4523 van markets
Every month, 56 million consumer
packs are sold to about 1.8 million
households through 1.6 million retail
outlets

Approach

Just-In-Time
Global Sourcing
Shorten its planning cycle to 15 days from 30 days
Revised its demand planning process
Leveraged IT System
ERP system: MI net
Vendor Managed Inventory

Results

Decreased stock-outs associated with distributor sales to retailers by 33%

Reduced lost sales due to stock outs by 28% thereby improving revenue by 1.5%
Lowered excess distributor inventory by 33%
Reduced late deliveries to distributors by 37.5%

Situations of competitive advantage

ITC
E-Choupals
Link directly with rural farmers via the Internet for procurement
E-Choupal tackles fragment ed farms, weak infrastructure and the involvement of
intermediaries

Installs computers with Internet access in rural areas of India to offer farmers up-to-date marketing
and agricultural information
Farmers can directly negotiate the sale of their produce with ITC Limited
Each ITC Limited kiosk having Internet access is run by a sanchalak a trained farmer
Each installation serves an average of 600 farmers in the surrounding ten villages within about a
5 km radius
The warehouse hub is managed by the same traditional middle-men, now called samyojaks

Results
Helping ITC in creating strong connect with villagers
Enhancing its supply distribution network
Entry-level soap brand, Superia, widely available in the village because e-Choupal
Sanchalaks were helping in local marketing
Greater pricing power to the company
Good quality output
Farmers get real-time information

Supply Chain Challenges and Solutions

Supplier/partner relationship management

Different organizations, even different departments within the same organization, can have
different methods for measuring and communicating performance expectations and results.

Managers must let go of internal biases and make a conscious choice to follow mutually agreed
upon standards to better understand current performance and opportunities for improvement.

Using a common language and framework makes it easier for teams to communicate, speeds
benchmarking efforts, and enhances the evaluation of best practices.

For example, SCOR provides a common language for supply chain classification and analysis.

Supply Chain Challenges and Solutions

Talent Management

As experienced supply chain managers retire, and organizations scale up to meet growing demand
in developing markets, talent acquisition, training, and development is becoming increasingly
important.

Supply chain leaders need a thorough understanding of the key competencies required for supply
chain management roles, specific job qualifications, methods for developing future talent and
leaders, and the ability to efficiently source specific skill sets.

Develop Multi Functional, non departmentalised Management Cadre

Recruitment of well qualified management trainees.

Inculcating a professional learning culture

Supply Chain Challenges and Solutions

Downward Flow of Information

Supply Chain Challenges and Solutions

Sales and Operations

All companies were operating S&OP at some level but reported not to the levels of discipline and
standards required to utilise the process as the companys one operational planning process
utilising one set of numbers.

Improved use of IT and more standard reports available from ERP

Reduced and more focussed S&OP meetings

More discussion and focus on exceptions rather than regular issues
Improved accuracy of demand planning

Integrating Distributors within the S&OP process

Supply Chain Challenges and Issues

Sustainability

Sustainability has become a key priority in design and operation of supply chains.

Customers becoming more environment conscious and thus increasing importance to develop
sustainable supply chains.

Reducing risk and improving financial performance.

Making world more sustainable.

Most concrete actions have been in reducing risk and improving financial performance.

While much needs to be done, many companies have reported success in improving sustainability.

Firms should measure and report on four main categories Energy consumption, Water
consumption, Greenhouse gas emissions, Waste generation.

Switching to a more efficient light bulbs at stores, adding skylights for natural light.

Reducing packaging, banning plastic bags etc.

Key Financial Metrics

ITC
Net Income ( Crore Rs.)

Asian Paints

HUL

Marico

31775.8

10657.8

29035.0

3682.0

790.2

95.9

216.3

64.5

Cost of Goods Sold

14468.6

6640.0

16377.0

2189.0

Sales Revenue

29901.3

10418.8

28019.0

3682.0

6600.2

1665.1

2747.5

664.0

4.2

6.9

9.9

5.6

31.6

26.6

34.6

352.8

13.3

30.6

15.2

15.2

15.2

32.6

13.8

14.3

13.9

40.2

111.1

134.3

57.1

Average shareholder equity

Inventory

Financial Metrics
Inventory turnover
Number of Days In Working Capital

37.8

ROA

29.3

Operating Margin

35.3

Gross Margin
ROE

Inferences from financial metrics

Inventory Turn Over Ratio for ITC is minimum i.e. 4.2 , and highest for HUL i.e. 9.9 which means that ITC
sells only 4.2 times its average inventory and there is a scope of substantial improvement as per other
FMCG companies.

No. of days in working capital is a measure of how many days a company will take to convert its working
capital into revenue. This is a measure of companys efficiency and shows efficiency of HUL in FMCG
sector.

ROA is a measure of how efficient a company is at utilizing its assets. ROA being high for Asian Paints
depicts efficient utilization of assets by this company.

ROE is a measure of companys profitability w.r.t. the investment made by shareholders. Asian Paints and
HUL are most profitable for shareholders.

With reference to drivers above most of the drivers of operational efficiency are better for HUL, thus
depicting that operations of this company is most efficient.