FMCG sector opts for one-two punch of hardware and ERP

Hardware continues to account for the biggest portion of the average FMCG majors IT budget. ERP is a hot favourite with nine out of ten respondents planning investments to extend or upgrade their ERP systems. Chirasrota Jena reports A strong MNC presence in the FMCG (Fast Moving Consumer Goods) sector, the existence of a wide distribution network, intense competition, the availability of key raw materials, lower labour costs, and a presence across the entire value chain have resulted in a thriving market for FMCG companies. The sector will grow by over 50 percent in rural and semi-urban India by 2010. With the opening up of the Indian market to foreign players, Indian companies have increased their use of IT as a business tool. Indeed, it has become an essential element for these companies to understand the needs of their customers and handle their employees. Many FMCG companies need to consolidate their information base thats been accumulated from different sources. As these companies have operations spread across India, the major problem they are facing is data integration. In order to bring efficiency to their processes, they are deploying different IT solutions to keep online information about their manufacturing plants, distribution points, distributors and retailers. After identifying the need for integration, companies are deploying software to increase operational efficiency. IT solutions expose weak links in the value chain, increase departmental inter-action, improve processes, and speed-up decision-making. Talking about the Indian FMCG sector, A Rajendran, Director, Information Services, Team Computers says, FMCG companies generate large amounts of data, and the need for data analytics is very high in this sector with an extremely high level of flexibility of analysis. Agrees Anupam Sharma, Director, Business Consulting, SSA Global India: The Indian ERP market, serving discrete and process industries, is growing robustly. Various analyst firms have indicated that the size of the ERP software and services market is more than $85 While companies are looking at ERP million, and growing at a CAGR of approximately 25 solutions that are quick to percent. Some of the factors that are contributing to this implement and are affordable, they growth are competitive pressure, contract manufacturing, have also started evaluating the solutions on another parameter - A Rajendran and the growth of emerging industries such as food, the total cost of ownership. Director FMCG and beverages. Consolidating retail markets and Information Long implementation cycles and fewer opportunities for growth are just some of the Services complex customisation procedures Team Computers trends compelling organisations to change and optimise raise the cost of ERP ownership, so it is important for ERP software and business processes, not just in functional areas but service providers to design across the entire enterprise. A reliable world-class solutions provider is products that can be quickly one who not only understands the business and competitive implemented and easily customised environment but also its impact on information requirements. While companies are looking at ERP solutions that are quick to implement and are affordable, they have also started evaluating the solutions on another parameterthe total cost of ownership. Long implementation cycles and complex customisation procedures raise the cost of ERP ownership, so it is important for ERP software and service providers to design products that can be quickly implemented and easily customised.
"FMCGs generate large amounts of data, and the need for data analytics is very high in this sector"

Hardware comes first

Enterprise hardware continues to keep its lions share of IT spending by FMCG companies. According to the survey, the FMCG sector spent 36 percent on enterprise hardware during 2005-06 and will invest 40 percent in the present fiscal. This has benefited PC sales, along with that of peripherals such as tape drives, printers, MFDs and power conditioning devices. Business applications have a direct impact on the demand for peripherals; with the workforce in this segment becoming increasingly mobile, sales of notebooks have also gone up. The trend of laptops replacing desktops is also gaining momentum. Another area in the enterprise hardware segment is networking, the demand curve of which is also moving upwards. Many FMCG companies are using PDAs for capturing data either from the supply chain or from retail outlets, especially in rural areas. Arup Choudhury, General Manager, Information Technology, Eveready Industries, tells of the situation at his company. The major share of our IT investment goes in acquiring desktops, networking products and peripherals, as well as maintenance of the IT infrastructure. Growing ERP market As per the survey, 27 percent of FMCG companies invested in ERP last year, while 93 percent are planning to invest in the coming fiscal. Companies are deploying ERP systems to optimise the distribution network and improve delivery mechanisms. Implementing IT solutions has led to an improvement in the service levels of these companies vis--vis their dealers through the redressal of potential stock-out situations. This has also been made possible due to better visibility of sales, inventory and production in progress data. While companies such as HLL, Eveready, Britannia and Samsung India are depending on vendors to implement the solutions, LG Electronics has deployed solutions developed in-house. Meanwhile, Britannia recently upgraded its SAP application to mySAP, and integrated the same with Lotus Notes. Adds Choudhury: We recently implemented Oracle eBusiness Suite. This is an end-toend solution that takes care of our complete business cycle from demand planning to procurement, from manufacturing and sales to financials. A major problem faced by Indian FMCGs is that data is available only up to the distributor level; they cant drill down to data at the retailers level. Manufacturers in this segment therefore have to depend on distributors to keep tabs on product demand. Observes Debdeep Sengupta, Director, Business Development, SAP India, Companies are moving away from adopting a best-of-breed approach (individual ERP, SCM and CRM products) to a best-of-suites approach, which means integrated solutions. These solutions are tuned to cater to the challenges of each vertical. SAP focusses across 28 verticalsour solutions address the different requirements of different customers. Two drivers for implementing enterprise applications are the need to consolidate data and the need to understand the market and customer demand. Take the case of Samsung India. It has been using a SAP R/3 system for its core operations for the last eight years. The company has Web-based applications for connectivity with vendors, service franchisees and important IT dealers. Samsung has also implemented systems for SCM, forecasting, business intelligence (BI) and quality. T S Purushothaman, Britannias Corporate Manager for IT and Systems says, The factors that we focus on while taking the decision to purchase are financial strengths, experience, team strength, customer base and references from others. Choudhury of Eveready reveals that before deciding on any IT solution his company looks for a strong financial record, reliability, industry experience, stable internal processes, and customer references; the vendor who is able to meet most of these criteria will get the order.

Outsourcing down Maintenance of IT infrastructure is the principal area of outsourcing among FMCGs, but the trend has gone down. Last year 30 percent of respondents from this sector had outsourced their IT activities; this time around only 22 percent of them intend to do so. The most important factor influencing outsourcing is the desire to reduce costs and focus on core competencies. The factors that companies look at while deciding to outsource are the consultants specialisation, vendors specialization and reputation, and also the expenditure involved in the process. While the decision to outsource is generally the CEOs, the CIO and CFO are also involved. LG Electronics IT Manager, Daya Prakash says, Our data centre management work is outsourced to different companies as the data centre is in Noida. We also outsource the desktop maintenance work to another company as it helps us to reduce the total cost. Nowadays, most enterprises are outsourcing their network to different companies or system integrators, while in the next fiscal desktop, network and application development are the major intended areas of outsourcing. Low penetration of storage devices As far as storage management is concerned, keeping a lid on the cost of managing infrastructure is a major problem. Perhaps for this reason there is very low penetration of storage devices in the FMCG sector. Only 21 percent of the respondents invested in storage in 2005-06, and 23 percent would like to invest in 2006-07. There is a need for vendors to adhere to common standards; this will simplify the management of storage hardware. Elaborates Avijit Basu, Marketing Manager, ESS, HP India, Enterprises need to utilise their storage infrastructure more efficiently by improving storage performance. It has become important for enterprises to allocate storage as per the priority of the data, and then replicate it as per the monetary tag attached to it on the basis of data priority. For data protection, enterprises are looking at better management of their tape libraries and back-up operations. Adds Rajesh Chopra, Head of Information Systems at Samsung India, The lifespan of operational data is very limited in consumer goods companies. BI systems have been extensively deployed by them. We at Samsung have been using a high-capacity tape library from HP, and Ultrium drives with capacity more than 800 GB to back-up operational data using HP OpenView. FMCG organisations are using storage for SAP-based applications. As in any other industry, storage is being used as a part of IT consolidation so that data can be managed from a centralised location. Other applications, including BI and data mining, are used to gain better understanding of customer profiles, usage, trends, etc. Customers such as Dabur, Pepsi and HLL use storage for such applications. Opines Purushothaman: The appropriate storage includes faster and high-availability disc array solutions with faster and specialised back-up solutions. On the anvil is an increasing use of appliances to speed up data flow across depots and warehouses, as well as a combination of discbased appliances with offline tape solutions for faster back-up and retrieval. Other areas of IT spending Software licences, training employees and security devices are other areas of IT expenditure. Informs Prakash, Though we have mainly invested in hardware, a

significant portion of our IT spending goes into licencing of software and in knowledge management tools and infrastructure management tools. As far as operating systems are concerned, we are using only Windows. Almost half the enterprises are using Linux because of its reliability and low cost. Only 12 percent of respondents invested in the procurement of security devices during the previous financial year, while 19 percent would like to invest in the present fiscal. Heres what Choudhury of Eveready has to say: We have implemented anti-virus solutions from Symantec to protect our organisation against virus threats and spam, and are planning to invest in some more security solutions. We have also implemented the Oracle Balanced Score Card for management dashboards, and are performing what-if analysis. Besides, we have a sales reporting system developed by TCG Ivega for capturing market information Research Highlights through SMS from our field sales force; this system 27 percent of the FMCG integrates with our management information tools. sector invested in ERP in Only 12 percent of the respondents have invested in IT training programmes. To get the most from their IT implementations, or to popularise initiatives such as enterprise-wide automation or security, companies need to expand their training programmes. But only 15 percent would like to invest in training their employees. Prakash of LG Electronics speaks about the company policy: We provide regular induction programmes on the new technologies deployed. Its done on a month-on-month basis for our employees. However at Britannia the training programme is not regular, and the company imparts training only as and when required.
2005-06, while 93 percent are planning to invest in 2006-07. 18 percent of FMCGs will invest in security devices during the present fiscal. 72 percent of the large enterprises have a security policy in place. 40 percent of the FMCGs will invest in enterprise hardware in 2006-07.

Informs Purushothaman, To increase the sales efficiency of our field staff we have implemented SMS solutions. We have also deployed the Blackberry to keep track of secondary sales, but we have not implemented RFID. There is a decrease in investment in bandwidth as far as the FMCG sector is concerned. Future demand According to the IMRB survey, 66 percent of the respondents have expressed their desire to focus on security. In data warehousing, data mining and the BI segment, FMCG enterprises invested 20 percent in the previous financial year and 47 percent intend to do so this fiscal. Says Sengupta, The FMCG sector has been very technology-savvy, and is an early adopter of IT. Today, on one hand, we have global companies operating in India, but on the other hand we also have many Indian companies operating globally. Business application solutions have enabled these companies to globalise rapidly, and roll out processes which are fine-tuned to the requirements of each geography. In the CRM segment, 20 percent of FMCGs have invested and 33 percent will invest in this fiscal. 20 percent have invested in SCM and 47 percent going to invest in 2006-07. Most FMCG giants are investing in SFA. Purushothaman of Britannia continues, Technology remains an integral part of our business. We need to upgrade our technology in line with the constant changes that occur. As compared to the investments made in 2005-06, we are planning to invest 2025 percent more in 2006-07. Our business aspirations invariably necessitate investments in technology. Our customer demand and business growth have invariably been serviced with periodic technology upgrades. We are confident that technology will continue to help us ramp up business volumes while keeping operational costs low.

On its part, Eveready spent nearly Rs 6 crore last year and would like to increase the investment this year. Elaborates Choudhury: We are planning to implement Stocky from Botree for our distributors. This solution will help us get the secondary markets pulse on a daily basis, and would be a significant step in understanding our vast distribution network consisting of 4,000 distributors and two million retail outlets. It would also integrate with our management information tools and help us understand which markets are doing well and which need improvement.
Because 72 percent of large enterprises already have a welldocumented security policy in place, only 18 percent want to invest in security devices, hence there will not be much demand for them in the coming financial year

As 72 percent of large enterprises have a well-documented security policy in place, only 18 percent want to invest in security devices, hence there is not much demand for such devices in the coming financial year.

But ERP vendors should come up with new solutions to tap the growing market as 93 percent of the respondents to the survey said they would invest in the coming year. Elaborating on the strategy Team Computers is working on to tap the market, Rajendran says, We are trying to reach out to existing customers by presenting the solutions. Simultaneously, we are conducting road-shows about our products, identifying code-less technologies to perform any customised extensions to the existing solutions, and adding BI front-end tools on top of the ERP/CRM/SCM solutions to provide an easy and useful interface for the top management of the companies.