FoodSupplyChaininIndia InIndia,about60percentoffoodqualityis InIndia,about60per centoffoodqualityislostinthesupplychain lostinthesupplychainfromthe fromthe farmtothefinalconsumer.Consumers actuallyenduppayingapproximatelyabout35 actuallyenduppaying approximatelyabout35percentmorethanwhatth percentmorethanwhattheycould eycould bepayingifthesupplychainwas improved,becauseofwastageaswellasmultip improved,becauseofw astageaswellasmultiplemarginsinthecurrent lemarginsinthecurrentsupplys supplys tructure.ThefarmerinIndiagets around30percentofwhattheconsumerpaysat around30percentofw hattheconsumerpaysattheretailstore.Compar theretailstore.Comparethiswi ethiswi ththesituationobtainingintheUSA, wherefarmerscanreceiveupto70percentof wherefarmerscanrece iveupto70percentofthefinalretailpricean thefinalretailpriceandwastage dwastage levelsareaslowas4to6percent.One caneasilyunderstandthebenefitsthatcould caneasilyunderstand thebenefitsthatcouldbegeneratedfromemulati begeneratedfromemulatingthose ngthose practicesandtappingthatexpertisefor thesupplychaininIndia. AssupplychainManagementinvolvesprocuring AssupplychainManage mentinvolvesprocuringtherightinputs(rawmat therightinputs(rawmaterials,c erials,c omponentsandcapitalequipments); convertingthemefficientlyintofinishedprod convertingthemeffici entlyintofinishedproductsanddispatchingthem uctsanddispatchingthemtothef tothef inaldestinations;thereisaneedtostudy astohowthecompany'ssuppliersobtaintheir astohowthecompany' ssuppliersobtaintheirinputs.Thesupplychain inputs.Thesupplychainperspect perspect ivecanhelptheretailersidentify superiorsuppliersanddistributorsandhelpt superiorsuppliersand distributorsandhelpthemimproveproductivity, hemimproveproductivity,whichul whichul timatelybringsdownthecustomers costs.Atthesametime,Marketlogisticshelp costs.Atthesametim e,Marketlogisticshelpsplanningtheinfrastruc splanningtheinfrastructuretom turetom eetdemand,thenimplementingand controllingthephysicalflowsofmaterialand controllingthephysic alflowsofmaterialandfinalgoodsfrompointo finalgoodsfrompointoforigin forigin topointsofuse,tomeetcustomer requirementsataprofit. TillnowmostretailersinIndiahaveinvested Tillnowmostretailer sinIndiahaveinvestedmajorlyintothefronte majorlyintothefrontend,butr nd,butr elativelylittleonthebackendandsupply chain.EvenincountriesliketheUSA,Germany chain.Evenincountri esliketheUSA,GermanyandEngland,whereorgan andEngland,whereorganizedreta izedreta ilishighlydeveloped;supplychain efficiencyisamajorconcern.Thenatureofr efficiencyisamajor concern.ThenatureofretailsectorinIndiais etailsectorinIndiaisdifferent different fromothercountriesaroundtheworld.The organizedretailsectorinIndiaishighlyfra organizedretailsecto rinIndiaishighlyfragmentedandtherearehug gmentedandtherearehugeineffic eineffic ienciesinthesupplychain. Themostimportantpartofretailingbusiness Themostimportantpar tofretailingbusinessistofindabalancebetw istofindabalancebetweeninves eeninves tinginfront-endandback-end operations.Thechanneldynamicsisgoingtoc operations.Thechanne ldynamicsisgoingtochangeovernextcoupleof hangeovernextcoupleofyearsas yearsas theretailersstartgrowinginsizeand theirbargainingpowerislikelytoincrease. theirbargainingpower islikelytoincrease.Probablythatwouldbring Probablythatwouldbringsomekin somekin dofmutualunderstandingbetween manufacturesandretailerstodevelopstrongs manufacturesandretai lerstodevelopstrongsupplychainnetwork.Ins upplychainnetwork.Insuchasce uchasce nario,boththeexistingoperatorsand newoperatorsmustputcollaborativeeffortst newoperatorsmustput collaborativeeffortstophaseoutinefficiencie ophaseoutinefficienciesinthe sinthe supplychainnetwork. Now,letustrytofindoutwhateffortsareb Now,letustrytofin doutwhateffortsarebeingtakenupbythebig eingtakenupbythebigretailers retailers inIndialikeFutureGroupwithretail storeslikeBigBazaarandPantaloons,Relianc storeslikeBigBazaar andPantaloons,RelianceRetailandWal-Mart&B eRetailandWal-Mart&Bhartito hartito improvetheefficiencyand effectivenessofsupplychainandlogistics.W effectivenessofsuppl ychainandlogistics.Wewillalsotrytofindo ewillalsotrytofindoutthech utthech angedroleofAgricultureProduce MarketingCooperativesandthirdpartysourcingfirms. FutureGroup FutureGroupisthecountry'sleadingretailb FutureGroupistheco untry'sleadingretailbusinessgroupthatcaters usinessgroupthatcaterstothee tothee ntireIndianconsumptionspace.It operatesthroughsixverticals:FutureRetail operatesthroughsixv erticals:FutureRetail(encompassingalllineso (encompassingalllinesofretail fretail business),FutureCapital(financial productsandservices),FutureBrands(allbra productsandservices) ,FutureBrands(allbrandsownedormanagedbyg ndsownedormanagedbygroupcomp roupcomp anies),FutureSpace(management ofretailrealestate),FutureLogistics(mana ofretailrealestate) ,FutureLogistics(managementofsupplychainan gementofsupplychainanddistrib ddistrib
ution)andFutureMedia(development andmanagementofretailmediaspaces). Thegroup'sflagshipcompany,PantaloonRetail Thegroup'sflagshipc ompany,PantaloonRetail(India)Limitedoperates (India)Limitedoperatesover5m over5m illionsquarefeetthrough450stores in40cities.Someofitsleadingretailforma in40cities.Someof itsleadingretailformatsinclude,Pantaloons,B tsinclude,Pantaloons,BigBazaar igBazaar ,Central,FoodBazaar,HomeTown, EZone,Depot,Health&BeautyMallsandonlineretailformat. Thegroup'sjointventurepartnersincludeIta Thegroup'sjointvent urepartnersincludeItalianinsurancemajor,Gen lianinsurancemajor,Generali,Fr erali,Fr enchretailerETAMgroup,US-based stationaryproductsretailer,StaplesandUK-b stationaryproductsre tailer,StaplesandUK-basedLeeCooperandIndia asedLeeCooperandIndia-basedTa -basedTa lwalkar's,BlueFoodsandLiberty Shoes. FutureGroupisworkingonthevendornetwork FutureGroupisworkin gonthevendornetworkaswellasthelogistics aswellasthelogisticsnetwork. network. Thecompanyhasidentifiedupto40 anchorvendors,eachwithturnoversofUS$45m anchorvendors,eachw ithturnoversofUS$45million,toachieveeconom illion,toachieveeconomiesofsc iesofsc ale.Thegroupisalsokeentoensure thatitssmallervendorsareabletoreachtur thatitssmallervendo rsareabletoreachturnoversofaroundUS$1mil noversofaroundUS$1millionand lionand agrowthrateof40%annually,tobe abletopassonthebenefitsofscales.Theco abletopassonthebe nefitsofscales.Thecompanyisalsoworkingtow mpanyisalsoworkingtowardsbrin ardsbrin gingits1,200vendorsonline,likeWalMart. Goingfurtherinthisdirection,theFutureGr Goingfurtherinthis direction,theFutureGrouphasalsolaunchedFut ouphasalsolaunchedFutureLogis ureLogis ticsinitiallyaimedathandlingthe supplychainlogisticsofthegroup.However, supplychainlogistics ofthegroup.However,sensingimmenseopportuni sensingimmenseopportunityinthi tyinthi sarea,thecompanyisnowlookingto offeritsservicestoits1000-oddvendors,sp offeritsservicesto its1000-oddvendors,spreadacrossconsumerrela readacrossconsumerrelatedgoods tedgoods ,toreachatargetedturnoverofabout Rs.700croreby2010.Thethrustatpresentwil Rs.700croreby2010.T hethrustatpresentwillbeonmodesofsurface lbeonmodesofsurfacetransport transport likeroadsandrailonly.However,ata laterstage,seaandairmodesmightalsobec laterstage,seaanda irmodesmightalsobeconsideredaspertherequ onsideredaspertherequirement, irement, saidsources. InIndia,Futuregroupderivessignificanteco InIndia,Futuregroup derivessignificanteconomiesofscaleinmanagi nomiesofscaleinmanagingtheir ngtheir supplychain.Withmorethan170000 products,thecompanymaintainsastrongsuppl products,thecompany maintainsastrongsupplierrelationshipinapar ierrelationshipinapartnership tnership mode,avoidingtheexploitativesupplier buyertransactionalphilosophy.TheITenabledb osophy.TheITenabledback-endoperationsandsu ack-endoperationsandsupplych pplych buyertransactionalphil ainmanagementincreasesthe reliabilityandefficiencyofthebusiness. Aspartoftheoperation,FutureGroupisalso Aspartoftheoperati on,FutureGroupisalsoundertakingtoreduceit undertakingtoreduceitswarehou swarehou singcoststhroughaconsolidation process.InacountrylikeIndia,wheremostr process.Inacountry likeIndia,wheremostretailstoresarelocated etailstoresarelocatedinthehe inthehe artofthecitywhererentsarehighand storagespaceisscarcesupplychainmanagementhasevenmoreseriousbusinessimp lications.FutureLogisticsnow handlestwo-and-a-halfmillionSKUs(orstock handlestwo-and-a-half millionSKUs(orstockkeepingunits)adayacro keepingunits)adayacrosstheFu sstheFu tureGroup'svariousretailformats aroundthecountry.By2010,thisnumberisex aroundthecountry.By 2010,thisnumberisexpectedtoincreasetomor pectedtoincreasetomorethan30 ethan30 millionSKUsaday.Evenwith98% accuracy,some600,000pieceswillnotbedeli accuracy,some600,000 pieceswillnotbedeliveredcorrectly,resultin veredcorrectly,resultinginane ginane stimatedsaleslossofmorethanRs4 croreaday. Thebiggestdriverinconsumerlogisticsisgo Thebiggestdriverin consumerlogisticsisgoingtobezerodefectin ingtobezerodefectinmanaging managing thesupplychain.Whileinfrastructure, technology,automation,processesandpeoplew technology,automation ,processesandpeoplewillallplayanimportant illallplayanimportantrole,ze role,ze rodefectcanonlybeachievedthrough verticalintegrationacrosstheentiresupplychainfromrawmaterialsupply,prod uction,wholesaleandretail.The differentpartsofthesupplychainwillnolo differentpartsofthe supplychainwillnolongerbeabletoworkins ngerbeabletoworkinsilosast ilosast heydotoday. RelianceFresh
ution)andFutureMedia(development andmanagementofretailmediaspaces). Thegroup'sflagshipcompany,PantaloonRetail Thegroup'sflagshipc ompany,PantaloonRetail(India)Limitedoperates (India)Limitedoperatesover5m over5m illionsquarefeetthrough450stores in40cities.Someofitsleadingretailforma in40cities.Someof itsleadingretailformatsinclude,Pantaloons,B tsinclude,Pantaloons,BigBazaar igBazaar ,Central,FoodBazaar,HomeTown, EZone,Depot,Health&BeautyMallsandonlineretailformat. Thegroup'sjointventurepartnersincludeIta Thegroup'sjointvent urepartnersincludeItalianinsurancemajor,Gen lianinsurancemajor,Generali,Fr erali,Fr enchretailerETAMgroup,US-based stationaryproductsretailer,StaplesandUK-b stationaryproductsre tailer,StaplesandUK-basedLeeCooperandIndia asedLeeCooperandIndia-basedTa -basedTa lwalkar's,BlueFoodsandLiberty Shoes. FutureGroupisworkingonthevendornetwork FutureGroupisworkin gonthevendornetworkaswellasthelogistics aswellasthelogisticsnetwork. network. Thecompanyhasidentifiedupto40 anchorvendors,eachwithturnoversofUS$45m anchorvendors,eachw ithturnoversofUS$45million,toachieveeconom illion,toachieveeconomiesofsc iesofsc ale.Thegroupisalsokeentoensure thatitssmallervendorsareabletoreachtur thatitssmallervendo rsareabletoreachturnoversofaroundUS$1mil noversofaroundUS$1millionand lionand agrowthrateof40%annually,tobe abletopassonthebenefitsofscales.Theco abletopassonthebe nefitsofscales.Thecompanyisalsoworkingtow mpanyisalsoworkingtowardsbrin ardsbrin gingits1,200vendorsonline,likeWalMart. Goingfurtherinthisdirection,theFutureGr Goingfurtherinthis direction,theFutureGrouphasalsolaunchedFut ouphasalsolaunchedFutureLogis ureLogis ticsinitiallyaimedathandlingthe supplychainlogisticsofthegroup.However, supplychainlogistics ofthegroup.However,sensingimmenseopportuni sensingimmenseopportunityinthi tyinthi sarea,thecompanyisnowlookingto offeritsservicestoits1000-oddvendors,sp offeritsservicesto its1000-oddvendors,spreadacrossconsumerrela readacrossconsumerrelatedgoods tedgoods ,toreachatargetedturnoverofabout Rs.700croreby2010.Thethrustatpresentwil Rs.700croreby2010.T hethrustatpresentwillbeonmodesofsurface lbeonmodesofsurfacetransport transport likeroadsandrailonly.However,ata laterstage,seaandairmodesmightalsobec laterstage,seaanda irmodesmightalsobeconsideredaspertherequ onsideredaspertherequirement, irement, saidsources. InIndia,Futuregroupderivessignificanteco InIndia,Futuregroup derivessignificanteconomiesofscaleinmanagi nomiesofscaleinmanagingtheir ngtheir supplychain.Withmorethan170000 products,thecompanymaintainsastrongsuppl products,thecompany maintainsastrongsupplierrelationshipinapar ierrelationshipinapartnership tnership mode,avoidingtheexploitativesupplier buyertransactionalphilosophy.TheITenabledb osophy.TheITenabledback-endoperationsandsu ack-endoperationsandsupplych pplych buyertransactionalphil ainmanagementincreasesthe reliabilityandefficiencyofthebusiness. Aspartoftheoperation,FutureGroupisalso Aspartoftheoperati on,FutureGroupisalsoundertakingtoreduceit undertakingtoreduceitswarehou swarehou singcoststhroughaconsolidation process.InacountrylikeIndia,wheremostr process.Inacountry likeIndia,wheremostretailstoresarelocated etailstoresarelocatedinthehe inthehe artofthecitywhererentsarehighand storagespaceisscarcesupplychainmanagementhasevenmoreseriousbusinessimp lications.FutureLogisticsnow handlestwo-and-a-halfmillionSKUs(orstock handlestwo-and-a-half millionSKUs(orstockkeepingunits)adayacro keepingunits)adayacrosstheFu sstheFu tureGroup'svariousretailformats aroundthecountry.By2010,thisnumberisex aroundthecountry.By 2010,thisnumberisexpectedtoincreasetomor pectedtoincreasetomorethan30 ethan30 millionSKUsaday.Evenwith98% accuracy,some600,000pieceswillnotbedeli accuracy,some600,000 pieceswillnotbedeliveredcorrectly,resultin veredcorrectly,resultinginane ginane stimatedsaleslossofmorethanRs4 croreaday. Thebiggestdriverinconsumerlogisticsisgo Thebiggestdriverin consumerlogisticsisgoingtobezerodefectin ingtobezerodefectinmanaging managing thesupplychain.Whileinfrastructure, technology,automation,processesandpeoplew technology,automation ,processesandpeoplewillallplayanimportant illallplayanimportantrole,ze role,ze rodefectcanonlybeachievedthrough verticalintegrationacrosstheentiresupplychainfromrawmaterialsupply,prod uction,wholesaleandretail.The differentpartsofthesupplychainwillnolo differentpartsofthe supplychainwillnolongerbeabletoworkins ngerbeabletoworkinsilosast ilosast heydotoday. RelianceFresh
RelianceRetailisalsogoingtoopenonestoreforevery3,000familie RelianceRetailisalsogoingtoopenonestor eforevery3,000familieswithin swithin aradiusof2kmacrossalllocationsby 2011.Thecompanyiscompetingdirectlywitht 2011.Thecompanyisc ompetingdirectlywiththelargenumberoftradit helargenumberoftraditionalloc ionalloc alprovisionstores.RelianceRetailis eithergoingtosetupnewstoresintheident eithergoingtosetup newstoresintheidentifiedareasortakeover ifiedareasortakeoverexisting existing stores.Thecompanyhasalreadydonethat inMumbaiandothercities. Ofthefourmillionsqftofretailspacetob Ofthefourmillionsq ftofretailspacetobecreatedunderthe"Reli ecreatedunderthe"RelianceFres anceFres h"brand(forgroceries),onemillionwill bethroughacquisitions.Theretailerisalso bethroughacquisition s.Theretailerisalsomovingintolaundry,pers movingintolaundry,personalcare onalcare andapparelproductlines,inwhichit planstolaunchprivatelabels.Relianceispl planstolaunchprivat elabels.Relianceisplanningtorolloutitssp anningtorolloutitsspecialtyf ecialtyf ormatstoresthisyear,beginningwith consumerdurables,forwhichithasstrucksou consumerdurables,for whichithasstrucksourcingdealswithcompanie rcingdealswithcompaniesinHong sinHong Kong,theChinesemainlandand withVideoconinIndia. Tostrengthenitslinkswithfarmers,thecomp Tostrengthenitslink swithfarmers,thecompanyissettingupintegra anyissettingupintegratedagritedagriretailbusinesscentres,whichinclude threeprocessinganddistributioncentres,51 threeprocessingandd istributioncentres,51retailoutletsforfarmer retailoutletsforfarmersand75 sand75 ruralbusinesshubs,allwithaninvestment ofUS$445million.Manycompanies,lookingat ofUS$445million.Man ycompanies,lookingattheretailboominfooda theretailboominfoodandgrocer ndgrocer y,aresettingupventurestohelp retailerssourcethesegoods. RelianceLogisticsLtdpartofRelianceIndust RelianceLogisticsLtd partofRelianceIndustriesLtd,currentlyhandl riesLtd,currentlyhandlesRelian esRelian ceRetail'slogisticsservices. Wal-MartandBharti ThesuccessofWal-Martiswellknownallacro ThesuccessofWal-Mar tiswellknownallacrosstheworld.Oneofthe sstheworld.Oneofthemajorfac majorfac torsbehindtheirsuccessistheright implementationofsupplyandlogisticsmanagem implementationofsupp lyandlogisticsmanagement.NowthesameSupply ent.NowthesameSupplyChainand Chainand LogisticsManagementtakea frontseathereandthat'swhyWal-Martiscom frontseathereandth at'swhyWal-MartiscomingtoIndiainajointv ingtoIndiainajointventurewi enturewi thBhartiGroup.Here,Wal-Martis goingtomanagethebackendoperation,while goingtomanagetheba ckendoperation,whileBhartiwillmanagethefr Bhartiwillmanagethefrontendo ontendo perations. Wal-Marthasalsostatedthatitwouldreplica Wal-Marthasalsostat edthatitwouldreplicateitsglobalsupplychai teitsglobalsupplychainmodeli nmodeli nIndia,whiletakingintoaccountthe uniquefeaturesoftheIndianmarket.Theyare uniquefeaturesofthe Indianmarket.Theyarealsogoingtoemphasise alsogoingtoemphasiseonlocal onlocal sourcingofgoods.Besidessourcing locally,Wal-Mart,throughitsinternationalo locally,Wal-Mart,thr oughitsinternationaloperationsisalsoinapo perationsisalsoinapositionto sitionto sourceglobally.Thecompanyissettoroll outitsfirstsetofstoresbythefirstquart outitsfirstsetofs toresbythefirstquarterof2008,incitiestha erof2008,incitiesthathavea thavea populationofonemillion.Wal-Martclaimsit willtake35%oftheIndianretailmarketby2015. Itisthesheerimportanceofthelogisticsma Itisthesheerimport anceofthelogisticsmanagementthatWal-Mart's nagementthatWal-Mart'sfully-own fully-own edlogisticsarmGazeleyhasalready confirmeditsIndiaforayandisgoingtolook confirmeditsIndiafo rayandisgoingtolookaftertheWal-MartandB aftertheWal-MartandBhartiret hartiret ailventure.Theyarecloselystudying variouslogisticsproviderslikeRadhakrishnan variouslogisticsprov iderslikeRadhakrishnanFoods,beforetheyfinal Foods,beforetheyfinallycloses lycloses onitsIndiamodel.Again,Bharti Enterprisesisdirectlynegotiatingwithther Enterprisesisdirectl ynegotiatingwiththerailauthoritiesinsteado ailauthoritiesinsteadofnegotia fnegotia tingwithalogisticsprovider. Wal-MartandBhartiFieldFresh JustlikeRelianceFresh,BhartiGroupinajo JustlikeRelianceFre sh,BhartiGroupinajointventurewithNMRoths intventurewithNMRothschildis childis launchingFieldFreshtoprovide premiumqualityfreshproducetomarketsworld premiumqualityfresh producetomarketsworldwide.Ithasover5,000a wide.Ithasover5,000acresofl cresofl andundercultivationalloverthe countryproducingmanyvarietiesoffruitsand countryproducingmany varietiesoffruitsandvegetablesandisplanni vegetablesandisplanningtodou ngtodou blelandundercultivationbytheendof 2007. Thecompanyistosupplyfreshproducetothe Thecompanyistosupp lyfreshproducetotheBharti-Wal-Martventure. Bharti-Wal-Martventure.Toensure Toensure
bestqualitiesandvarieties,Field FreshhasengagedACMChina,anindustryleade FreshhasengagedACM China,anindustryleaderinbuildinggreenhouses rinbuildinggreenhouses,toset ,toset upstate-of-the-artglass-based greenhousesattheFieldFreshAgriCentreof greenhousesattheFie ldFreshAgriCentreofExcellenceinthePunjab. ExcellenceinthePunjab.FieldFr FieldFr eshisalsoplanninginvestmentstothe tuneofUS$220millioninthebackend,includi tuneofUS$220million inthebackend,includinginvestmentsincoldch nginvestmentsincoldchainsand ainsand warehouses.Bharti'sFieldFreshwill enterthissegmentwithinthenextthreemonth enterthissegmentwit hinthenextthreemonths.Anumberofcompanies s.Anumberofcompaniesarealso arealso venturingintothissegmenttoservice thebackendneedsofretailers. AgricultureProduceMarketingCooperativesinIndia TheIndianRetailRevolutionisalsochanging TheIndianRetailRevo lutionisalsochangingthewayfarmproducewas thewayfarmproducewasmarketed marketed inIndia.Noweventhefarmersare gettingbenefitedduetolessornomiddlemen gettingbenefiteddue tolessornomiddlemeninvolvedinthesellingp involvedinthesellingprocess.T rocess.T illnow,theIndianfreshproduce marketingwascontrolledbystate-ownedAgricu marketingwascontroll edbystate-ownedAgricultureProduceMarketingC ltureProduceMarketingCooperativ ooperativ es(APMCs).Nowitisalso changingwithreformsintheAPMCActinmany changingwithreforms intheAPMCActinmanystates.Thishasopenedu states.Thishasopenedupthespa pthespa ceforprivateplayers,andallmajor retailersaresettingupprivate'mandis'(mar retailersaresetting upprivate'mandis'(marketplaces),fromwhereth ketplaces),fromwheretheycandi eycandi rectlysourcetheirrequirementsoffresh foods.Almosteveryoneintheretailsectorli foods.Almosteveryone intheretailsectorlikeReliance,FutureGroup keReliance,FutureGroup,Bharti ,Bharti Wal-Mart,Subhikshaaresettingtheir basesattheplacesoffarmproducetosource basesattheplacesof farmproducetosourcevegetable,fruitsandoth vegetable,fruitsandotherfarmp erfarmp roducts. SourcingFirms Besidesthepresenceofretailersinthecount Besidesthepresenceo fretailersinthecountrysideforfarmproduces rysideforfarmproducesourcing, ourcing, nowtherearealsofewplayers;whoare helpingvariousretailchainsfortheirsourci helpingvariousretail chainsfortheirsourcingrequirements.Forinst ngrequirements.Forinstance,DCM ance,DCM ShriramConsolidatedLtd(DSCL)is intheprocessoftyingupwiththemtosource intheprocessoftyin gupwiththemtosourcefruitsandvegetablesfr fruitsandvegetablesfromfarmer omfarmer sandsupplytotheretailchains.DSCL isalreadydoingthisforFutureGroup'sFood isalreadydoingthis forFutureGroup'sFoodBazaar,southbasedSubhi Bazaar,southbasedSubhikshaand kshaand RPG'sSpencer.Thenewtie-ups wouldhelpthecompanytooperateoneconomies wouldhelpthecompany tooperateoneconomiesofscale,andtooperate ofscale,andtooperateallover allover thecountry. OrderingProcess:?TeamMemberstomaintainthelogbookforth ?TeamMemberstomain tainthelogbookfortheirsection(asgivenin eirsection(asgivenin'orderlo 'orderlo g book'sheet) ?StockisttochecktheWarehousequantity. ?TeamLeaderstoseetherequirementforthe ?TeamLeaderstosee therequirementforthestock&raiseapurchase stock&raiseapurchasequantity quantity & fillinthelogBook.TLwillplacetheorderi fillinthelogBook.T LwillplacetheorderinlinewiththeMBQfixed nlinewiththeMBQfixed. . ?Vendorwiselogfiletobepassedtocatalog ?Vendorwiselogfile tobepassedtocataloguersforgeneratingthef uersforgeneratingthefinalPO inalPO ?Cataloguerstosigntheregisterwhilerecei ?Cataloguerstosign theregisterwhilereceivingtheorderinglogboo vingtheorderinglogbook&while k&while givingbacktoTL/DM. ?DMauthorizesthefinalPO ?ForthestockliftingofpromotionalofferA ?Forthestockliftin gofpromotionalofferASMtobeinvolved. SMtobeinvolved. Abigchallengeinretailorganizationstokno Abigchallengeinret ailorganizationstoknowsupplychainmanagement wsupplychainmanagement.Often, .Often, the functionsmergewithpurchasingandinventorymanagement. So,asapurchasingprofessional,youmustund So,asapurchasingpr ofessional,youmustunderstandinventorymanagem erstandinventorymanagementprinc entprinc iples toremainvaluable. *First,youmustknowhowmuchinventorytoh *First,youmustknow howmuchinventorytohaveonhandtoensurecon aveonhandtoensurecontinuityo tinuityo f supplyintheeventofanuncharacteristicinc supplyintheeventof anuncharacteristicincreaseineitherdemandan reaseineitherdemandand/orlead d/orlead time.This quantityofinventoryiscalledthesafetysto quantityofinventory iscalledthesafetystock.Thereisnouniversal ck.Thereisnouniversallyusedf lyusedf
ormulafor determiningsafetystockquantity,butPurchaseTipssuggestedariskadverseca lculation. *Second,youmustknowwhentoreordermaterialsforinventory.Generally,this pointin timeisdeterminedwhenthequantityofmaterialsinstockdecreasestoacertai nlevel, calledthereorderpoint.Thereorderpointisdeterminedbytheformula: ROP=SSQ+(QUDxALT) Where,ROP=ReorderPoint SSQ=SafetyStockQuantity QUD=QuantityUsedDaily ALT=AverageLeadTime(indays) Third,youmustknowhowmuchtoorder.Acomplexmathematicalequationdetermin es theEconomicOrderQuantity,orEOQ.Theequationrecognizesthetugofwarbetw een acquisitioncostsandinventorycarryingcosts:whenyouorderbiggerquantities less frequently,youraggregateacquisitioncostsarelowbutyourinventorycostsar ehighdue tohigherinventorylevels.Conversely,whenyouordersmallerquantitiesmoreo ften, yourinventorycostsarelowbutyouracquisitioncostsarehigherbecauseyoua re expendingmoreresourcesonordering.TheEOQistheorderquantitythatminimiz esthe sumofthesetwocosts. HeretheEOQformula: Where: EOQ=EconomicOrderQuantity ACPO=AcquisitionCostsPerOrder AUU=AnnualUsageinUnits UC=UnitCost CCP=CarryingCostPercentage Example So,ifyouknowthatitcostsyou150Rs.inoverheadperorder,youuse5,000w idgetsayear, youpay200Rsperwidget,andyourFinanceDepartmenttellsyouthatannualcar ryingcosts areequalto20%ofthevalueofthegoodsinstock,youshouldorder... Whatisthevalueofthemarginalrevenuewhentotalrevenueincreasingwhenrev enue totalsismaximumwhentotalrevenuedecrease? Marginalrevenueistheamountofrevenuewhichcomesfromeveryincreaseofuni t sales.Takeanexample.5mangoessoldat60Rs.6mangossoldatRs70.Thusth e marginalrevenuefor6thmangois10/-Rs. Formulaofmarginalrevenue=totalsalesvalue/noofunits(-)totalsalesva lue/no ofunits(afteraddingtheunits) 4 Food&Groceriestodrivetoplinegrowth TheentireretailindustrycanbedividedintotwosegmentsValueretailing,whichistypicallya lowmargin-highvolumebusiness(primarilyfoodandgroceries) andLifestyleretailing,ahigh margin-lowvolumebusiness(primarilyapparel,footwear,etc.). Pantalooniscurrentlytheonly
listedplayerintheretailindustrythatcaters significantlytoboththeValueandLifestylebusiness segments.Despitebeingalowmarginbusiness,Value retailinghasbeenabletoattractmuchgreatercustomer trafficatretailmallsandhashelpedretailcompanies, suchasPantaloon,torecordastupendoustoplinegrowth overthelastfewyears.ForPantaloon,thecontribution oftheValueretailingbusinessrosefrom52%ofthe toplineinQ1FY05(quarterendingSep04)to72%in Q1FY07(quarterendingSep06). NewentrantsintheIndianretailindustry,suchasRelianceandthe upcomingBharti-WalMart,are alsoaimingtotaptheValue-retailingsegmentinabigwayandexpect foodandgroceriesto contributearound40%tothetopline.BothRelianceandBharti-WalMart havealreadytaken initiativesforregularsupplyofgroceriesandfood itemsandareintheprocessofenteringinto agreementswithbigfarmersfordirectprocurementof theirfoodproductionatapricethatisslightlyhigher thantheprevailingmarketprice.Suchagreements betweenfarmersandretailerswillcreateawin-win situationforboththeparties,astheformerwillobtain abetterpricefortheirproduction,whilethelatterwill beabletoattractincreasedcustomersbyproviding lowcostproducts.Theonlyloserswillbethe intermediaries. Marginpressuretocontinueintothefuture Ahighercontributionfromthelowmargin Valueretailingsegmentwillmaintainthe pressureonthemarginsofretailersinthe comingyears.Moreover,higheroperating expenses,primarilyemployeecost,lease rentalsandsellinganddistributionexpenses willfurtherincreasethepressureon marginsinthecomingyears.Therisein employeecostisprimarilyduetoshortage oftalentedandskilledmanpowerinthe industry,whichistypicalofafastgrowth industry.Moreoverwithanincreaseinthe numberofretailplayersinthedomestic industry,boththeexistingaswellasthe Despitebeingalowmarginbusiness, Valueretailinghasbeenableto attractmuchgreatercustomertraffic atretailmallsandhashelpedretail companies,suchasPantaloon,to recordastupendoustoplinegrowth overthelastfewyears BothRelianceandBharti-WalMart havealreadytakeninitiativesfor regularsupplyofgroceriesandfood itemsandareintheprocessofentering intoagreementswithbigfarmersfor directprocurementoftheirfood productionatapricethatisslightly higherthantheprevailingmarketprice AhighercontributionfromthelowmarginValue retailingsegmentwillmaintainthepressureon themarginsofretailersinthecomingyears.
Moreover,higheroperatingexpenses,primarily employeecost,leaserentalsandsellingand distributionexpenseswillfurtherincreasethe pressureonmarginsinthecomingyears withanincreaseinthenumberofretailplayers inthedomesticindustry,boththeexistingaswell asthenewentrantswillbeforcedtoincurhigher sellinganddistributioncosttowardsbrand promotionandefficientsourcingofgoods FIRSTGLOBALwww.firstglobal.in IndiaResearch EBIDTAMargin(%)trend 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% Q1FY05Q2FY05Q3FY05Q4FY05Q1FY06Q2FY06Q3FY06Q4FY06Q1FY07Q2FY07 Shopper'sStopPantaloonTrent newentrantswillbeforcedtoincurhighersellinganddistributioncost towardsbrandpromotionand efficientsourcingofgoods.Thefactthatthemarketisunlikelyto growfastenoughtoabsorbthe investmentsbeingmadeintheindustry(seeTheFirstGlobals SeriesontheIndianRetail Sector,Part-I)onlymeansgreatercompetitiontogetthe consumersattentionandshareof wallet. Source:CompanyFinancials,FirstGlobal Evenhistorically,suchariseinoperatingexpenseshaskeptmargins underpressureandwebelieve thatafurtherriseisinevitable,whichwilltherefore,meana continuedmarginsqueeze..Webelievethatmarginpressure willbecommonfeatureforalltheindustryplayers,asplayers intheLifestylesegment,suchasShoppersStopandTrent, whohaveminimumpresenceintheValueretailingsegment, willalsofacetheproblemofhighemployeecostandselling &distributioncost,aswellascompetitionfrombothnationwide, aswellasmoreregionalchains. Evenhistorically,sucharisein operatingexpenseshaskept marginsunderpressureandwe believethatafurtherriseis inevitable 9 companiesahead Tillnow,thebigFMCGgiantsandconsumerdurablecompanieshadmuch greaterbargaining power,whichprovidedthemenoughmuscletoarm-twistthesmall unorganisedretailers.However, withtheconversionofunorganisedretailto organizedretail,severallargeorganizedretail playerswillemerge,whichwillleadtoadeclinein thebargainingpoweroftheformerandmayhave anadverseimpactontheirmarginsand/orworking
capital.Thisissomething,whichisalreadyvisible indevelopedeconomies. Thesuccessofbothorganizedretailcompaniesas wellastheFMCG/Consumerdurablescompany arecomplementarytoeachother.Forinstance, bothRelianceandHLLarecomplementaryfor eachotherssuccess,sinceaReliancestore withoutanyHLLproductmaynotbeabletoattractmuchcustomersand similarlyHLLmaymissan opportunityifitsproductsarenotavailableinaReliancestore,especially consideringitsfast-pace expansionplan.WebelievethatsincetheFMCG/Consumerdurable companieswillnotbeableto Withtheconversionofunorganised retailtoorganizedretail,severallarge organizedretailplayerswillemerge, whichwillleadtoadeclineinthe bargainingpoweroftheformerand mayhaveanadverseimpactontheir marginsand/orworkingcapital.Thisis something,whichisalreadyvisiblein developedeconomies FIRSTGLOBALwww.firstglobal.in IndiaResearch enjoythesamehighbargainingpowerwithorganizedretailers,asearlier withtheunorganised (primarilyKiranastores)retailplayers,theywilldefinitelyfacemargin pressureinthecomingyears. Theextentofsuchmarginpressurewilldependuponthebargaining powerofbothorganizedretail playersaswellastheFMCG/Consumerdurablescompanies,sinceboth arecomplementarytoeach other.Themorelikelyimpactwillbeonworkingcapital management,wherethenegativeworking capitalhistoricallyenjoyedbymajorFMCGcompanies,which couldarm-twisttheirdistributors topaycashinadvance,maybeathingofthepast. forIntegratedLearninginManagement,NewDelhi. DaburIndiaWorkingCapitalandCostManagement NarenderL.Ahuja SwetaGupta Afterrunningasafamilybusinessforover100years,wheninlate1990s,the managementoftheDabur washandedovertoateamofprofessionalmanagers,thenewmanagementfaceda gigantictaskofimproving performanceinseveralcriticalareas.Inparticular,workingcapitalandcostm anagement requiredurgent attentionasthecompanysperformanceintheseareashadbeenfarfromsatisfacto ry. Thethenprevailing currentratioof3:2andquickratioof2:4wereconsideredtoohighandindicat iveof heavyunnecessary investmentsinworkingcapitalthatwouldhaveanegativeeffectoncompanys profitability. Effortstoimprovetheworkingcapitalefficiencyweremetwithstiffresistance from variousquarters, butfinallyyieldedresults.Thecasestudydiscussesthemeasurestakentoimpr
ovethe workingcapitaland costmanagementperformance,andhowwithconcertedeffortsthemanagementturne d aroundahighlyinefficient workingcapitalmanagementintooneofthemostefficientintheFMCGsectorof the Indianindustry. Infact,thecompanyseemedtohavetakenthemattertotheotherextremeofneg ative workingcapital,with thecurrentratiodecliningto0:8andthequickratiotojust0.4in200405. In200506asthecompanywasreadytolaunchitselfintothenextphaseoffastg rowth, severalcritical issuesrelatedtotheliquidityandsolvencyofthecompanyconfrontedthemanag ement whicharealsodiscussed inthecasestudy. companysstaffcanteen.Bo(nicknamed forBose)hadspentthemorningstudying thecompanysbalancesheetsfortheyears 200304and200405andwassurprisedto seethatthecompanyscurrentliabilitiesexceeded itscurrentassets.Heremembered readinginhistextbooksthatsuchasituation GLOBALBUSINESSREVIEW,8:2(2007):335350 SAGEPublicationsLosAngeles/London/NewDelhi/Singapore DOI:10.1177/097215090700800210 byonNovember20,2008http://gbr.sagepub.comDownloadedfrom 336_NarenderL.AhujaandSwetaGupta GlobalBusinessReview,8:2(2007):335350 indicatedthatthecompanycouldfacedifficulties inmeetingitsshort-termliabilities. Idontknowaboutthat,Sharadreplied, butIthinkitisahighlyprofitablecompany. Sure,noproblemwiththecompanysprofitability. Infactthenetprofitin200405 jumpedbyasmuchas46percenttoRs148 crorefromRs101crorelastyear. Wow,thatsalotofincreaseinoneyear, Sharadsaid,infactIamtoldthatthecompany hasanimpressivemarketshareinits productlineandisthefourthlargestFMCG companyinIndia.Butifthecompanyis makinghighprofitsandhasagoodmarket share,thenwhereistheproblem? Bowasreadywithhisreply,Theway Iunderstand,thatcouldbeacommontrap fortheprofitablebutfastgrowingcompanies. Liquidityandprofitabilityaretwo separateissuesanditisnaïvetoassumethat aprofitablecompanywouldnecessarilybe liquidtoo.See,whathappensisthatinorder toprovidefinanceforexpansionanddiversification projects,acompanycouldcutdown oninventories,reducethecreditperiodto customerswhileatthesametimeseekextended creditfacilitiesfromitssuppliersof rawmaterials,othergoodsandservices.
Also,ittriestomanagewithniloraslittlecash inhandaspossible.Asaresult,thecurrent assetsrepresentedbyinventories,debtors andcashwouldbereducedandcurrent liabilitiesrepresentedbycreditorswould increase,culminatinginasituationwhenthe companymightnothaveenoughcurrent assetstopayforitscurrentliabilitiesifall creditorswantedthemtobesettledatonce, whattotalkaboutleavingsomesurplusto continuewithitsnormalbusinessoperations. Bosaidemphatically. DaburIndiascorporateofficewashoused inabeautifullylandscaped,imposingsix storiedglassbuildingsetonseveralacresof primelandatKaushambiadjacenttoNew Delhi.Well,ifthecompanycanmakeits workingcapitalmoreefficient,Idontsee anybodyshouldhaveaproblemwiththat. Butdontforgetwehaveanorientationmeeting withthefinancedepartmentinalittle whilefromnow. Bowastooengrossedwithhisown thoughtstobeaffectedbysuchinterruption, andcontinued,Thetraditionalwisdomof havingapositivenetworkingcapitalmeans thatatleastsomepartoftheworkingcapital financeshouldcomefromthecompanys longtermsourcessothatatanytime,evenif thecompanyhastosettleallitscurrentliabilities atonce,itwouldstillbeleftwithsome minimumcurrentassetswithwhichitcould continuetodoitsnormalbusiness.Intechnical terms,theysayacompanyneedssome permanentworkingcapitalandafluctuating workingcapital.FromwhatIhaveread, ideallythepermanentworkingcapitaland maybesomepartofthefluctuatingworking capitalalsoshouldbefinancedoutofthe companyslong-termsourcesinordertoensure goodliquidityandavoidthethreatto itssolvency. Sharadlookedathiswatch,Myfriend, timesarechanging.Reductionininventory anddebtorscouldaswellbeamanagement strategy.TheJapanesehaveshowntheworld howtomanagewithzeroinventories.Asfar asdebtorsareconcerned,whenafirmcan selloncashornearcashterms,whyshould itselloncreditjusttomakethebalancesheet fitintoyourtraditionalwisdom?Modern byonNovember20,2008http://gbr.sagepub.comDownloadedfrom DaburIndiaWorkingCapitalandCostManagement_337 GlobalBusinessReview,8:2(2007):335350 enterpriseshavetobeefficient,leanand mean,ifwecouldputitthatway,toremain competitive. Bodidnotlikethisargumentandsaid, Youdontgetthepoint,doyou?Onceacompany defaultsonpaymentofanyofitscurrent
liabilities,thewordspreadslikewildfire andaffectsthecompanysimageandcredit rating.Withlowercreditrating,notmany lenderswouldcomeforwardifitwantedto borrowmore,andeveniftheydo,itwould costthecompanydearer.Allthismightjust startarollercoasterthecompanymightnot havebargainedfor. SharaddidnotlikeBoshabitoflecturing, andfirmlysaid,Bo,comeoutofthetextbooks. Ithinktheresmoretoliquiditythan justtheratioofcurrentassetsandcurrentliabilities. Thengettinguphesaid,Anyways, letsnotbelatefortheorientationmeeting. Wecancontinuewithourdiscussionlateron. Thestagewasalreadysetfortheorientation meetingbythetimeBoandSharad walkedin.Themeetinghadatouchofprofessional perfectionandwasmoredetailed andthoroughthantheyhadanticipated. MrD.K.Chhabra,AdditionalGMFinancial Planning,madeanimpressivePowerPoint presentationanddealtwithmanyaspectsincluding thecompanyshistory,handingover ofthemanagementtoprofessionalteam,current challengesandfuturestrategy.Some PowerPointslidesarereproducedinthe annexure. TheCompany ThestoryofDaburbeganwithavisionary endeavorbyDrS.K.Burmantoprovide effectiveandaffordablenaturalcuresforthe killerdiseasesofthosedayslikecholera, malariaandplagueforordinarypeoplein far-flungvillagesinBengal.SoonDaktar (Doctor)Burmanbecamepopularforhis effectivecures,andthatishowhisventure Daburgotitsnamederivedfromthe DevanagrirenditionofDaktarBurman. Dr.BurmansetupDaburin1884toproduce anddispenseAyurvedicmedicines,withthe visionofgoodhealthforall. Morethanacenturylater,by1990sDabur hadgrownmanifold.Overtheyears,the familyhasunderstoodtheneedforincorporating aprofessionalmanagementteamthat wouldbeabletolaunchDaburontoahigh growthpathintheemergingcompetitive environment.Therefore,in1998,theBurman familystartedhandingoverthemanagement ofthecompanytoprofessionalsanddownscaled itsdirectinvolvementinday-to-day operations. In2003,withtheapprovaloftheDelhiHigh Court,thecompanydemergeditspharmaceutical businesstoanewcompany,Dabur PharmaLimited,tounlockvalueinboth pharma&FMCGbusiness.Asaresult,the entirepharmabusinesswastransferredtothe saidcompany.
By2005,DaburIndiahademergedasa leadingnature-basedhealthandfamilycare productscompanywitheightmanufacturing units,5,000distributorsandover1.5million retailoutletsspreadalloverIndiaand abroad.DaburcrossedaturnoverofRs1,000 croresinyear200001,andfurtherRs1,300 crorein200405;therebyestablishingitsmarket leadershipinitslineofactivity.Itsmain productlinesinclude: Hair-care:Vatika,DaburAmlaHairOil byonNovember20,2008http://gbr.sagepub.comDownloadedfrom 338_NarenderL.AhujaandSwetaGupta GlobalBusinessReview,8:2(2007):335350 Healthsupplements:Glocose-D,Dabur Honey,Chyawanprash,Real Digestivesandconfectionaries:Hajmola, AnardanaChuran Oralcare:DaburLalDantManjan, DaburRedToothpaste Babyandskincare:DaburTel,Gulabari TheNewManagement Withtheprofessionalmanagementteam takingoverin1998,therewasasignificant changeinthefocus,approachandstrategy ofmanagingthecompany.Earlier,thecompany usedtofocusmainlyonbottomline growth,thatis,onimprovingtheprofits, whilethenewmanagementstressedon improvingefficiencyandperformanceinall areas.Withthehelpofmanagementconsultants fromMckinsey,thecompanychanged itsorganizationalstructureforbetterresponsibility accounting.Variousdepartments wereintroduced/rationalizedincludingthe supply-chain,salesandmarketing,purchase/ procurementetcandtheirfunctionswere clearlydefined.Theplanningandbudgeting activitywasstrengthened,performanceoriented incentiveswereputinplaceandthe financedepartmentwasmadethecustodian ofallMIS.Thefinancedepartmentinstituted asystemofregularcomparativeevaluation ofthecompanysperformancevis-à-visother FMCGcompetitorsusingdetailedfinancial ratiosanalysis;thisaspectwassomehownot givendueimportanceintheearliermanagement regime.Themainideabehindintroducing suchchangeswastoimprovenotonly thebottom-lineofthecompanybuttoinduce competencyinallfunctionalareas. Oneareawhichthenewmanagementconsidered asfullofpotentialwasthemanagement ofworkingcapital.Alotofinvestment seemedblockedininventoriesanddebtors, whichwaspullingdowntheoverallreturn oncapitalemployed(ROCE).Therewasan opportunityandaneedtotrimdowninvestment inthisarea.Therefore,thecompany focusedonreducingtheworkingcapital
neededfortheoperations.Thecompanyset atargetofachievingzeronetworkingcapital byyear200001andaimedatfurtherreducing ittonegativelevelsinthelongterm.A numberofinitiativesweretakentoreduce thecostofdifferentcomponentsofworking capital.However,itwasnotaneasytaskas themanagementfacedstiffresistanceand oppositionfromitsbulkcustomersand stockists,suppliersofrawmaterialsandother services,aswellasinternaldepartments. InventoryManagementandCostReduction Giventhelargevarietyofproductsthatare manufacturedandmarketed,andhundreds ofdifferentrawmaterialsusedbythecompany, accurateforecastingofinventoryis veryimportantforeffectiveworkingcapital management.Awrongforecastcanleadto pilesofinventory,thusblockingunnecessary investmentandincreasingstoragecostas wellastheriskofdamageassociatedwith perishableitems. Afterthenewmanagementtookover,an inventorymanagementsystemwasinstituted involvingallrelateddepartmentslike procurement,manufacturing,marketing, salesandsupplychain.Thefinancedepartment isinvolvedthroughouttheprocessand byonNovember20,2008http://gbr.sagepub.comDownloadedfrom DaburIndiaWorkingCapitalandCostManagement_339 GlobalBusinessReview,8:2(2007):335350 helpsinlinkingalloperationsandcontrolling flowofinformationthroughvarious departments. Theannualplanningprocessbeginsin NovemberDecembereachyearwiththe objectiveoffinalizingthecompanysannual budget,beforethestartofthenextaccounting yearfromApril.Thesalestargetsforthe forthcomingperiodaresetbyMANCOM (ManagementCommittee),whichcomprises theheadsoffunctionalareaslikeSales, Marketing,HumanResource,Commercial, Supplychain,andProductionandFinance takingthecompanysproduct-packaging mixofapproximatelyonethousand(1,000) SKUs(StockKeepingUnits)intoconsideration. Thesalestargetstakeintoaccountthe salestrendsandspecialpromotionschemes. Onthebasisofsalestargetssetforthe forthcomingperiod,thesalesdepartment establishesproduct-wiserequirementsofthe finishedgoods.Thisinformationisusedby theproductiondepartmenttopreparearolling productionplanandestablishthequantity ofeachtypeofrawmaterialrequiredfor meetingtheproductiontargets.Thisinformation onrawmaterialrequirementsisthen communicatedtothepurchase/procurement department.
Astheproductiondepartmentitselfestablishes therequirementsofrawmaterialsto bepurchased,itpreventsexcesspurchases andhelpsinreducingthestoragecostaswell asthecostoffundsblockedininventories. Foreachitempurchased,asafetystockis identifiedandmaintainedtotakecareofany fluctuationsinlead-timeandusageofraw materialsbeforefreshsupplieswouldarrive. Suitablesafetystocksaremaintainedfor finishedgoodstoo. Rawmaterialshavebeenclassifiedonthe basisofvalue,quantityrequiredandlocation ofprocurement.Whilepurchasesofmore valuableitemsaretakencareofbythecentral procurementunit,low-valueand/or low-numberitemsmaybelocallypurchased onadecentralizedbasis.Themainaimisto minimizethecostoftherawmaterialsincluding transportationcost.Specializedprofessionals (calledCategoryManagers)are appointedtolookaftertheprocurementof varioustypesofrawmaterials. Asfaraspossible,thecompanyprocures materialsonback-to-backbasisfollowingthe Just-in-Time(JIT)approach.However,JIT inventorysystemisnotapplicableforallinputs. Manyofitsinputsareagricultural productsthatareavailableatcheaperprices seasonallywhenfreshcropsarriveintothe market.Iftheannualrequirementofrawmaterials isnotpurchased/tied-upduringthis period,thecompanymayhavetopaymuch higherpriceswhichcouldrisebyasmuch as50percentto75percentintheoff-season months.Asaresult,thecompanymustprocure suchrawmaterialswithintheperiodof theirseasonalabundance(typicallyjust45 65days)andpreservethemforlateruse. Often,enoughstocksareprocuredtopartly usetheminthecurrentyear(40percent)and partly(60percent)nextyear. Fortunately,withthestartoftheCommodities ExchangeinIndia,thecompanyhasan alternativewayofmanagingrawmaterial cost,andthatisbytakingapositioninthe derivatives(futuresandoptions)market.For example,supposethecompanycanbuyacall optionfor1millionkgofmaterialXatan exercisepriceofRs15perkgwithamaturity byonNovember20,2008http://gbr.sagepub.comDownloadedfrom 340_NarenderL.AhujaandSwetaGupta GlobalBusinessReview,8:2(2007):335350 of3months.Thecalloptiongivesthecompany aright(butnotobligation)tobuythe statedquantityofXattheagreedexercise price.Tobuyacalloptionthecompanywill havetopayacost,calledpremium(say Rs0.50perkg),butatthesametimethecall optionwillhedgeitagainstpossiblelosses
ifthemarketpriceofXrisesbeyondtheexercise pricebeforethematurityoftheoption. Forexample,ifthepriceofXrisestoRs18 perkg,thecompanywillfinditadvantageous toexerciseitsoptiontobuyitatRs15. Usually,thecompanyentersintofuturesand optionscontractsforperiodsrangingfrom 3to9months.Hedgingcombinedwith e-procurementhassignificantlyhelpedthe companyincostcontrolandreduction. AccordingtotheCFO,MrRajanVarma, Wemanagedtocutcoststhroughour e-procurementsystem.Weasacompany mayormaynothavecontrolovercommodity prices,butourmarketingandpurchase guysaretakingfuturisticpositionsandeven thoughthispracticeconstitutesabusiness riskitisbeginningtoshowresults. Anothersignificanttoolofcostreduction usedbyDaburIndiaisvalueengineering toidentifyanddevelopmorecosteffective materials.Forexample,thishasresultedin reducingthecostofpackagingforseveralof thecompanyproducts.Researchanddevelopment activitieshavealsohelpedinreducing thetimeofprocessingwhichhas increasedproductivity. Innon-manufacturingareastoo,the companyhasbeenlookingforopportunities tocutdownthecosts.In2003,thecompany appliedforandgotthecourtapprovalfor de-listingofitssharesfromseveralregional stock-exchangesincludingAhmedabad, Bangalore,Delhi,Jaipur,Ludhiana,Magadh andUttarPradeshstockexchanges.Thetrading volumesofthecompanyssharesatthese stockexchangeshadbeennegligiblefor manyyearsandbyde-listingitssharesfrom theseregionalstockexchanges,thecompany saveditselffromconsiderablecostsaswell asregulatoryprovisions. DebtorsManagement Thecompanyhasmainlythreetypesofcustomers: stockists,institutionsandinternational/ exportcustomers.Thecompany doesnothaveastandardcreditpolicythat couldbeappliedtoallcustomers.Instead, distinctcredittermsareofferedtoeach groupdependinguponvariousfactorssuch astheproduct,place,price,demandand competition. 1.Stockists:In2005,thecompanyhad about1.5millionstockists.Thecredit termstothestockistsvaryfrom110 daysdependinguponfactorsstated aboveaswellastheirlocationsvis-àvis thedepottowns.Depottownsare mostlythestatecapitalsorothercommercial towns/citieswherethecompany hasitsownsalesdepotsoperating.
Stockistsintowndepots:70percent ofthecompanysstockistsarelocated
inoraroundthedepottowns. Attheseplaces,thecompanyuses theCashManagementSystem (CMS)offeredbybanks;stockists chequescollectedtilltheendofaday byonNovember20,2008http://gbr.sagepub.comDownloadedfrom DaburIndiaWorkingCapitalandCostManagement_341 GlobalBusinessReview,8:2(2007):335350 aredepositednextmorningintothe companyslocalbankaccountfrom wherethefundsaretransferredto thecorporatebankaccount. Earlierthesestockistsusedtoenjoy fivedayscreditperiodbutnowthe companyhasdecreasedthetime frametooneday.Fornewstockists, salesarenormallymadethrough demanddrafts.Ifastockistscheque bounces,thenthepartyhastomake paymentonlybydemand-draft.If apartydefaultsonpayment(ora partyschequesbounce)morethan once,thenforallitstransactions withDaburIndiainthecomingyear, thepartywouldberequiredtomake paymentsonlybydemand-drafts. Stockistsinremoteareas:Therest 30percentoftheturnoverwith stockiststakesplaceatremoteplaces awayfromdepottownswithnoeasy accesstobankssothattheanywhere chequesystemislogisticallynotpossible. Suchstockistsmaybeallowed acreditperiodofupto10days.On theaverage,themoneyiscredited incompanysbankaccountin37 days. 2.Institutions:Institutionslikecanteen storesdepartment(CSD),largestores, hotelsandmodernmallsareoffered softpaymenttermsthatmayrange from15to90days.Thoughsuchinstitutions areslowerinmakingpayments, thehigherprofitmarginsonsuchsales morethanmakeupthecostofextended credit. 3.InternationalCustomers:Similarly, credittermsnegotiatedwithexport customerswoulddependontheinternational competitionandproduct pricing. Wherelongercredittermsmustbeoffered asapartofthemarketingstrategy,thecompany oftenresortstofactoringasameans offinancingdebtors.Thefactoringarrangements aremadewithbanksorspecialized factoringcompanies.Inthesecases,thecompany makessurethatprofitmarginsfrom
suchsalesarehighenoughtocoverthecost offactoring. CashManagement Asstatedabove,thecompanymaintains bankaccountsatalldepotstowns.Cheques/ draftsreceivedfromcustomersinnearby placesaresentforlocalclearingtoinitially collectfundsinthesebankaccounts.This reducestheaveragecollectionperiod(as comparedtothetimeitwouldtakeifcustomer chequeswerefirstreceivedatheadoffice andthensentforout-stationclearing); therebyincreasingthevelocityofcashinflows. Fundsthuscollectedatthedepottowns areeachdaytransferredtothecompanys head-office(orcorporate)bankaccount.The companyhasasweepingarrangement withthebankathead-officebywhichany fundstransferredfromthedepottownsare automaticallyappliedtowardssettlingthe companyscashcreditloanfromthebank andreducingitsdebitbalance.Thesesteps haveresultedinreducingandcontrollingthe costofinteresttothecompany. Whenthecompanyhassurplusfunds,the companyinveststhesameinshort-term byonNovember20,2008http://gbr.sagepub.comDownloadedfrom 342_NarenderL.AhujaandSwetaGupta GlobalBusinessReview,8:2(2007):335350 investmentsorinstrumentslikemutual fundsandgovernmentsecurities. Suppliers Thecompanyhasmorethen1,000suppliers inclusiveofserviceproviderslikeadvertisement companies.Outofthese,100150are regularsuppliers.Mostsuppliersaresmall businessunitswithannualtradingvolume ofRs23crorewithDaburIndia. Thecompanyenjoyscreditperiodsranging fromsevento90daysfromthecreditors, whichcanattimesbeextendedupto120days. Thesuppliersusethebillsdiscountingto availbankfinancingagainsttheirreceivables fromDaburIndiaandbearthebankcharges aswell.However,ifthecreditperiodisextended beyond120days,thebillsdiscounting chargesarebornebyDaburIndia. FinancingWorkingCapital:Thecompany makesanaggressiveuseofallethicalmeans toincreasethevelocityofcashinflowsfrom customersandtriestoslowdownthecash outflowstocreditors.Creditfacilitiesfrom suppliersofrawmaterials,othergoodsand servicesarethereforethemainsourcesof financingworkingcapital.However,ithas notbeeneasyforthecompanytonegotiate favourabletermswithitsdebtorsandcreditors. TheDaburmanagementspendsconsiderable timeandefforttotraindebtorsand suppliersinmodernwaysoffinancingsuch
asfactoringorbillsdiscounting,andhelps thembybankintroductionsetc.Whenapolicy changeincredittermsseemsnecessary, itisfirstnegotiatedwiththebigcreditorsand debtorsbeforebeingimplementedforall suppliersandcustomers. Discussionswithsupplierstakeplacein ahighlytransparentmanner.Amongthe methodsusedtocontrolcreditaretechniques suchasregression,progression,slaporstandardized terms.Themanagementidentifies andbridgesthecommunicationgapsthrough educatingthesuppliers. SupplyChainManagement ThesupplychainmanagementinDabur Indiaisakeyfactorimpactingsales,profitability andworkingcapital.Exhibit1shows thesupplychainflowchart. Anefficientsupplychainsystemhelpsin valuecreationforthebusinessinfourimportant ways.Theseare:(i)Positiveimpact onsales:createdbyimprovedservicethrough reliableandregularflowofqualitygoodsto retailersandend-usecustomers.(ii)Reducing investmentininventoriesandincreasing accountspayables,(iii)Costmanagement: lowerinventorylevelsresultinlowercarrying cost,whichisapproximately10percent perannumontheaverageinventoryheld. Thus,ifinventoryholdingreducesbyRs10 million,itwillleadtoasavingincarryingcost ofaboutRs1millionperannum.Costsavings alsoresultfromthebettercoordination betweeninventoryplanning,acquisition andusagedepartmentsand(iv)Facilitating optimumuseofthefirmsfixedassets andinfrastructurebyincreasinginventory turnover. RoleoftheFinanceDepartment Thefinancedepartmentisinvolvedinall aspectsoffinancialplanningandcontrol.It maintainsaquarterlyscorecard,whichhelps byonNovember20,2008http://gbr.sagepub.comDownloadedfrom DaburIndiaWorkingCapitalandCostManagement_343 GlobalBusinessReview,8:2(2007):335350 thecompanytoevaluatetheperformance ofemployeesintermsofcosttocompany (CTC).Managerialremunerationconsistsof afixedsalaryplusbonusesbasedonperformance onavarietyofparametersincluding maintenanceofinventorylevelsand otherworkingcapitalitemswithinagreed limits.ThedepartmentalsopreparesMIS andcommunicatesthesametoalltheconcerned departments.Italsocontinuously monitorsthemanagementofinventory, debtorsandcreditorstoensurethatthenet workingcapitalremainswithinthebudgeted levels.If,forexample,theinvestmentininventory exceedstheplannedlimitsdueto
someunavoidablecircumstances,itmustbe offsetbyeitheranincreaseincreditorsora reductionindebtors. Theorientationmeetingwascomingtoa close.TheAGMconcludedbysaying,Ever sincetheprofessionalmanagementtookover thereignsofthecompany,effortshavebeen madetoupgradeefficiencyinallaspectsof businesstobuildacompetitiveedgeand improvethereturnoninvestment.Imayadd herethat,inmypersonalopinion,thebalance sheetasperthecurrentprovisionsof theCompaniesActdoesnotshowatrue pictureofthecompanysliquidity.Thisisbecause thecompanysinvestmentinmarketable securitiesisatpresentnotallowedtobe includedinthecurrentassets.Therefore,the companyactuallyhasabetterliquidityposition thanreflectedbythenetworkingcapital asshowninthebalancesheet. Bowassoabsorbedinthepresentation thatheremainedseatedevenafteritwasover andothersstartingleavingthesmallbutwell furnishedconferencehall.Hewasshakenout ofhisthoughtswhenheheardSharad, Exhibit1 SupplyChainFlowChart byonNovember20,2008http://gbr.sagepub.comDownloadedfrom 344_NarenderL.AhujaandSwetaGupta GlobalBusinessReview,8:2(2007):335350 Wow,Ididntknowmanagingworking capitalinvolvedsomanyaspects.Whatdo youthink? Well,definitelyithasbeenalearning experience.IguessIhavetostartanalysing thecompanyperformancealloveragain.To fullyunderstandtheevolvingfinancialstrategy, maybeIshouldbeginwithacomparative analysisofDaburIndiasperformance againstitscompetitors,sayHLL,forsome yearsbeforeandafter1998whenthechange inmanagementtookplace.Bosaidasthey followedothersoutofthehall. Questions 1.Assumethisis199899.Thenewmanagement wantstoidentifyareaswith potentialforimprovingperformance, particularlyintheareaofworkingcapital. Forthispurpose,takingHLLfinancial performanceasabenchmark,carry outafinancialratiosanalysisforDabur Indiafortheperiod1995to1998,and identifytheareaswherethereisneed forimprovingperformance.Usethe summarizeddatainExhibits2and3 forthispurpose. 2.UsingdatainExhibit4,calculatevarious workingcapitalratiosforDabur Indiafortheyears200304and2004 05.Comparethesewithsimilarratios
fortheyears1995to1998.Identifythe trendsanddiscusstheirimplications oncostmanagementandotheraspects. 3.Whatdoyouthinkaretheadvantages anddisadvantagesofanegativenet workingcapitalpolicy?Ifyouarethe CFOofacompany,whichpolicywould youliketofollowandwhy? 4.Whatistheimportanceofcostcontrol andreductionintheemergingbusiness environment?UsingDaburIndiasexperience asanillustration,discussthe techniquesormethodsthatacompany couldusetoreducecosts. 5.Whatishedgingandhowcanfutures andoptionscontractsbeusedtohedge againstadversepricerises?Prepare anoteonCommoditiesFuturesand OptionsmarketsinIndia.(Skipthis questionifnotrelevanttothespecific traininggroup). 6.Usinginternetandotheravailable sourcescollectlatestfinancialinformation onmajorcompetitorsintheFMCG sectorandcarryoutadetailedfinancial ratiosanalysiscoveringasmanyaspects aspossible. byonNovember20,2008http://gbr.sagepub.comDownloadedfrom DaburIndiaWorkingCapitalandCostManagement_345 GlobalBusinessReview,8:2(2007):335350 Exhibit2a HLLSummarizedP&LAccounts:199598 (Rs.Crore) 1995199619971998 Salesandotherincome3434671880049727 Expenditure Operatingexpenses3018600170628466 Depreciation245558102 Interest20573429 TotalExpenditure3062611371548597 Profitbeforetax3726058501130 Taxfortheyear133192270293 Profitaftertax239413580837 Source:AnnualReportsofHLL. Exhibit2b HLLSummarisedBalanceSheets:199598 (Rs.Crores) 1995199619971998 SourcesofFunds Shareholdersfunds816117012611713 ShareCapital146200199220 Reservesandsurplus67097010621493 Loanfunds160259187264 Total976142914481977 ApplicationofFunds NetFixedassets3967227941054 Investments122328532697 CurrentAssets1337182922012609 Inventories68590410451146 Receivables563722582803
Cashandbankbalances89203574660 CurrentLiabilitiesandProvisions879145020792383 NetCurrentAssets458379122226 Total976142914481977 Source:AnnualReportsofHLL. byonNovember20,2008http://gbr.sagepub.comDownloadedfrom 346_NarenderL.AhujaandSwetaGupta GlobalBusinessReview,8:2(2007):335350 Exhibit3a DaburIndiaSummarisedP&LAccounts:199598 (Rs.Crores) 1995199619971998 Salesandotherincome436.6608.6716.2835.3 Expenditure Operatingexpenses379.3530.6629.4745.9 Depreciation8.112.111.316.2 Interest18.324.532.029.4 TotalExpenditure405.7567.2672.7791.5 Profitbeforetax30.941.443.543.8 Taxfortheyear7.07.01.10.3 Profitaftertax23.934.442.443.5 Source:CMIEsoftwareProwess. Exhibit3b DaburIndiasSummarisedBalanceSheets:199598 (Rs.Crores) 1995199619971998 SourcesofFunds Shareholdersfunds135.2161.0194.8227.3 ShareCapital28.528.528.528.5 Reservesandsurplus106.7132.5166.3198.8 Loanfunds144.2191.1214.0271.4 Total279.4352.1408.8498.7 ApplicationofFunds NetFixedassets72.2105.6160.6206.0 Investments35.524.534.143.1 CurrentAssets246.1317.2290.5327.3 Inventories62.8107.596.8118.1 Receivables176.8203.3187.2188.8 Cashandbankbalances6.56.46.520.4 CurrentLiabilitiesandProvisions77.497.878.885.7 NetCurrentAssets168.7219.4211.7241.6 Misc.expensesnotw.off3.02.62.48.0 Total279.4352.1408.8498.7 Source:CMIEsoftwareProwess. byonNovember20,2008http://gbr.sagepub.comDownloadedfrom DaburIndiaWorkingCapitalandCostManagement_347 GlobalBusinessReview,8:2(2007):335350 Exhibit4a DaburIndiaBalanceSheetsasat31stMarch2005and2004 byonNovember20,2008http://gbr.sagepub.comDownloadedfrom 348_NarenderL.AhujaandSwetaGupta GlobalBusinessReview,8:2(2007):335350 Exhibit4b DaburIndiaProfit&LossAccountfortheyearsended31stMarch2005and2004 byonNovember20,2008http://gbr.sagepub.comDownloadedfrom DaburIndiaWorkingCapitalandCostManagement_349 GlobalBusinessReview,8:2(2007):335350 ANNEXURES DabursVisionandPhilosophy 1.Ownership
2.PassionforWinning 3.PeopleDevelopment 4.ConsumerFocus 5.TeamWork 6.Innovation 7.Integrity Thisisourcompany.Weacceptpersonalresponsibility,andaccountabilitytome etbusinessneeds. Weallareleadersinourareaofresponsibility,withadeepcommitmenttodeli verresults.Weare determinedto bethebestatdoingwhatmattersmost. Peopleareourmostimportantasset.Weaddvaluethroughresultdriventraining ,andweencourage &reward excellence. Wehavesuperiorunderstandingofconsumerneedsanddevelopproductstofulfill thembetter. Weworktogetherontheprincipleofmutualtrust&transparencyinaboundary-l essorganisation. Weare intellectuallyhonestinadvocatingproposals,includingrecognizingrisks. Continuousinnovationinproducts&processesisthebasisofoursuccess. Wearecommittedtotheachievementofbusinesssuccesswithintegrity.Weareh onestwith consumers,with businesspartnersandwitheachother. DaburMileStones 1884:ThebirthofDabur 1986:RegisteredasaPublicLimitedCompany 1972:ThecompanyshiftstoDelhifromKolkata 1994:Companygetslisted 1995:FirstAyurvedicCompanytogetISO9002Certification 1998:ProfessionalCEOinducted 2000:DaburreachesaturnoverofRs1000crores 2001:Boardrestructured,moreprofessionalsinducted 2003:De-mergerofPharmaceuticalsbusiness 2005:ProfitexceedsRs150crores byonNovember20,2008http://gbr.sagepub.comDownloadedfrom 350_NarenderL.AhujaandSwetaGupta GlobalBusinessReview,8:2(2007):335350 DaburBusinessStructure byonNovember20,2008http://gbr.sagepub.comDownloadedfromFASTMOVING CONSUMERGOODS www.ibef.org WHYINDIA3 INDIACOMPETITIVENESSANDCOMPARISONWITH7 THEWORLDMARKETS POLICY9 TRENDSANDPLAYERS12 MARKETOPPORTUNITIESFORINVESTMENT32 ANNEX:APEXCONTACTSAGENCIES38 AreportbyPricewaterhouseCoopersforIBEF FASTMOVING CONSUMERGOODS TheIndianFMCGsectoristhefourthlargestsectorintheeconomy withatotalmarketsizeinexcessofUS$13.1billion. IthasastrongMNCpresenceandischaracterisedbyawellestablished distributionnetwork,intensecompetitionbetween theorganisedandunorganisedsegmentsandlowoperationalcost.
Availabilityofkeyrawmaterials,cheaperlabourcostsandpresence acrosstheentirevaluechaingivesIndiaacompetitiveadvantage. TheFMCGmarketissettotreblefromUS$11.6billionin2003 toUS$33.4billionin2015.Penetrationlevelaswellaspercapita consumptioninmostproductcategorieslikejams,toothpaste,skin care,hairwashetcinIndiaislowindicatingtheuntappedmarket potential.BurgeoningIndianpopulation,particularlythemiddleclass andtheruralsegments,presentsanopportunitytomakers ofbrandedproductstoconvertconsumerstobrandedproducts. Growthisalsolikelytocomefromconsumer'upgrading'inthe maturedproductcategories.With200millionpeopleexpectedto shifttoprocessedandpackagedfoodby2010,Indianeedsaround US$28billionofinvestmentinthefood-processingindustry. Executivesummary FASTMOVINGCONSUMERGOODSPAGE3 WHYINDIA Largedomesticmarket Indiaisoneofthelargestemergingmarkets,withapopulationof overonebillion.Indiaisoneofthelargesteconomiesintheworld intermsofpurchasingpowerandhasastrongmiddleclassbaseof 300million. Ruralandurbanpotential Rural-urbanprofile UrbanRural Population2001-02(mnhousehold)53135 Population2009-10(mnhousehold)69153 %Distribution(2001-02)2872 Market(Towns/Villages)3,768627,000 UniverseofOutlets(mn)13.3 Source:StatisticalOutlineofIndia(2001-02),NCAER Around70percentofthetotalhouseholdsinIndia(188million) residesintheruralareas.Thetotalnumberofruralhouseholdsare expectedtorisefrom135millionin2001-02to153millionin 2009-10.Thispresentsthelargestpotentialmarketintheworld. TheannualsizeoftheruralFMCGmarketwasestimatedataround US$10.5billionin2001-02.Withgrowingincomesatboththe ruralandtheurbanlevel,themarketpotentialisexpectedto expandfurther. India-alargeconsumergoodsspender AnaverageIndianspendsaround40percentofhisincomeon groceryand8percentonpersonalcareproducts.Thelargeshare offastmovingconsumergoods(FMCG)intotalindividualspending alongwiththelargepopulationbaseisanotherfactorthatmakes IndiaoneofthelargestFMCGmarkets. Consumptionpie Source:KSATechnopakConsumerOutlook2004. Evenonaninternationalscale,totalconsumerexpenditureonfood inIndiaatUS$120billionisamongstthelargestintheemerging markets,nextonlytoChina. Consumerexpenditureonfood(US$billion) Source:Euromonitor. FASTMOVINGCONSUMERGOODSPAGE5 Rapidurbanisation,increasedliteracyandrisingpercapitaincome, haveallcausedrapidgrowthandchangeindemandpatterns, leadingtoanexplosionofnewopportunities.Around45percent ofthepopulationinIndiaisbelow20yearsofageandtheyoung populationissettorisefurther.Aspirationlevelsinthisagegroup havebeenfuelledbygreatermediaexposure,unleashingalatent demandwithmoremoneyandanewmindset. Demand-supplygap
Currently,onlyasmallpercentageoftherawmaterialsinIndia areprocessedintovalueaddedproductsevenasthedemand forprocessedandconveniencefoodisontherise.Thisdemand supplygapindicatesanuntappedopportunityinareassuchas packagedform,conveniencefoodanddrinks,milkproductsetc. Inthepersonalcaresegment,thelowpenetrationrateinboth theruralandurbanareasindicatesamarketpotential. ChangeintheIndianconsumerprofile ConsumerProfile 199920012006 Population(millions)8461,0121,087 Population<25yearsofage480546565 Urbanisation(%)262831 Source:StatisticalOutlineofIndia(2002-03). FMCGCategoryandproducts CategoryProducts HouseholdCareFabricwash(laundrysoapsandsynthetic detergents);householdcleaners(dish/utensil cleaners,floorcleaners,toiletcleaners,air fresheners,insecticidesandmosquitorepellents, metalpolishandfurniturepolish). FoodandHealthbeverages;softdrinks;staples/cereals; Beveragesbakeryproducts(biscuits,bread,cakes);snack food;chocolates;icecream;tea;coffee;soft drinks;processedfruits,vegetables;dairy products;bottledwater;brandedflour;branded rice;brandedsugar;juicesetc. PersonalCareOralcare,haircare,skincare,personalwash (soaps);cosmeticsandtoiletries;deodorants; perfumes;femininehygiene;paperproducts. FASTMOVINGCONSUMERGOODSPAGE7 INDIACOMPETITIVENESSAND COMPARISONWITHTHEWORLD MARKETS Materialsavailability Indiahasadiverseagro-climaticconditionduetowhichthereexists awide-rangingandlargerawmaterialbasesuitableforfood processingindustries.Indiaisthelargestproduceroflivestock,milk, sugarcane,coconut,spicesandcashewandisthesecondlargest producerofrice,wheatandfruits&vegetables. Indiaalsohasanamplesupplyofcausticsodaandsodaash,theraw materialsintheproductionofsoapsanddetergents-India produced1.6milliontonnesofcausticsodain2003-04.Tata Chemicals,oneofthelargestproducersofsyntheticsodaashinthe worldislocatedinIndia.Theavailabilityoftheserawmaterialsgives Indiathelocationaladvantage. Costcompetitiveness Labourcostcomparison Source:DIPP. Apartfromtheadvantageintermsofamplerawmaterialavailability, existenceoflow-costlabourforcealsoworksinfavourofIndia. LabourcostinIndiaisamongstthelowestinAsiancountries.Easy rawmaterialavailabilityandlowlabourcostshaveresultedinalower costofproduction.Manymulti-nationalshavesetuplargelowcost productionbasesinIndiatooutsourcefordomesticaswellas exportmarkets. Leveragingthecostadvantage Globalmajor,Unilever,sourcesamajorportionofitsproduct requirementsfromitsIndiansubsidiary,HLL.In2003-04,Unilever outsourcedaroundUS$218millionofhomeandpersonalcare
alongwithfoodproductstoleverageonthecostarbitrage opportunitieswiththeWest. Totakeanothercase,Procter&Gamble(P&G)outsourcedthe manufactureofVicksVaporubtocontractmanufacturersin Hyderabad,India.ThisenablesP&GtocontinueexportingVicks VaporubtoAustralia,JapanandotherAsiancountries,butat morecompetitiverates,whilstmaintainingitshighqualityandcost efficiency. Presenceacrossvaluechain Indianfirmsalsohaveapresenceacrosstheentirevaluechainofthe FMCGindustryfromsupplyofrawmaterialtofinalprocessedand packagedgoods,bothinthepersonalcareproductsandinthefood processingsector.Forinstance,IndianfirmAmul'sproductportfolio includessupplyofmilkaswellasthesupplyofprocesseddairy productslikecheeseandbutter.ThismakesthefirmslocatedinIndia morecostcompetitive. FASTMOVINGCONSUMERGOODSPAGE9 POLICY Indiahasenactedpoliciesaimedatattaininginternational competitivenessthroughliftingofthequantitativerestrictions, reducedexciseduties,automaticforeigninvestmentandfoodlaws resultinginanenvironmentthatfostersgrowth.100percentexport orientedunitscanbesetupbygovernmentapprovalanduseof foreignbrandnamesisnowfreelypermitted. FDIPolicy Automaticinvestmentapproval(includingforeigntechnology agreementswithinspecifiednorms),upto100percentforeign equityor100percentforNRIandOverseasCorporateBodies (OCBs)investment,isallowedformostofthefoodprocessing sectorexceptmaltedfood,alcoholicbeveragesandthosereserved forsmallscaleindustries(SSI).24percentforeignequityis permittedinthesmall-scalesector.Temporaryapprovalsfor importsfortestmarketingcanalsobeobtainedfromtheDirector GeneralofForeignTrade.TheevolutionofamoreliberalFDIpolicy environmentinIndiaisclearlysupportedbythesuccessfuloperation ofsomeoftheglobalmajorslikePepsiCoinIndia. PepsiCo'sIndiaexperience AfteranotsosuccessfulattempttoentertheIndianmarketin 1985,Pepsire-enteredin1988withajointventureofPepsiCo, Punjabgovernment-ownedPunjabAgroIndustrialCorporation (PAIC)andVoltasIndiaLimited.By1994,Pepsitookadvantage oftheliberalisedpoliciesandtookcontrolofPepsiFoodsby makinganoffertobothVoltasandPAICtobuytheirequity.The Indiangovernmentgaveconcessionstothecompany,Pepsiwas allowedtoincreaseitsturnoverofbeveragescomponentto beyond25percentandwasnolongerrestrictedbyits commitmenttoexport50percentofitsturnover.The governmentapprovedmorethanUS$400millionworthof investmentofwhichoverUS$330millionhasalreadybeen invested.ThegovernmentalsoallowedPepsiCotosetupanew companyinIndiacalledPepsiCoIndiaHoldingsPvtLtd,awholly ownedsubsidiaryofPepsiCoInternational,whichisengagedin beveragemanufacturing,bottlingandexportsactivitiesasPepsi FoodsLtd. Sincethen,thecompanyhasboughtoverbottlersindifferent partsofIndiaalongwithDukes,apopularsoft-drinkbrandin westernIndiatoconsolidateitsmarketshare.Thiswasfollowed byanintroductionofTropicanajuiceintheNewDelhiand Bangaloremarketsin1999. Currently,softdrinkconcentrate,snackfoodsandvegetableand
foodprocessingarethekeyproductsofthecompany.Pepsi considersIndia,alongwithChina,asoneofthetwolargestand fastestgrowingbusinessesoutsideNorthAmerica.Pepsihas19 companyownedfactorieswhiletheirIndianbottlingpartnersown 21.Thecompanyhassetup8greenfieldsitesinbackwardregions ofdifferentstates.PepsiCointendstoexpanditsoperationsandis planninganinvestmentofapproximatelyUS$150millioninthe nexttwo-threeyears. RemovalofQuantitativeRestrictions andReservationPolicy TheIndiangovernmenthasabolishedlicensingforalmostallfood andagro-processingindustriesexceptforsomeitemslikealcohol, canesugar,hydrogenatedanimalfatsandoilsetc.,anditems reservedfortheexclusivemanufactureinthesmallscaleindustry (SSI)sector.Quantitativerestrictionswereremovedin2001and UnionBudget2004-05furtheridentified85itemsthatwouldbe takenoutofthereservedlist.Thishasresultedinaboominthe FMCGmarketthroughmarketexpansionandgreaterproduct opportunities. FASTMOVINGCONSUMERGOODSPAGE11 Centralandstateinitiatives VariousstatesgovernmentslikeHimachalPradesh,Uttaranchal andJammu&Kashmirhaveencouragedcompaniestosetup manufacturingfacilitiesintheirregionsthroughapackageoffiscal incentives.JammuandKashmiroffersincentivessuchasallotmentof landatconcessionalrates,100percentsubsidyonprojectreports and30percentcapitalinvestmentsubsidyonfixedcapital investmentuptoUS$63,000.TheHimachalPradeshgovernment offerssalestaxandpowerconcessions,capitalsubsidiesandother incentivesforsettingupaplantinitstaxfreezones.Five-yeartax holidayfornewfoodprocessingunitsinfruitsandvegetable processinghavealsobeenextendedintheUnionBudget2004-05. Wide-rangingfiscalpolicychangeshavebeenintroduced progressively.Exciseandimportdutyrateshavebeenreduced substantially.Manyprocessedfooditemsaretotallyexemptfrom exciseduty.Customsdutieshavebeensubstantiallyreduced onplantandequipment,aswellasonrawmaterialsand intermediates,especiallyforexportproduction.Capitalgoods arealsofreelyimportable,includingsecondhandonesinthe food-processingsector. Foodlaws Consumerprotectionagainstadulteratedfoodhasbeenbroughtto theforeby"ThePreventionofFoodAdulterationAct(PFA),1954", whichappliestodomesticandimportedfoodcommodities, encompassingfoodcolourandpreservatives,pesticideresidues, packaging,labellingandregulationofsales. TRENDSANDPLAYERS Thestructure TheIndianFMCGsectoristhefourthlargestsectorintheeconomy andcreatesemploymentforthreemillionpeopleindownstream activities.WithintheFMCGsector,theIndianfoodprocessing industryrepresented6.3percentofGDPandaccountedfor13per centofthecountry'sexportsin2003-04. AdistinctfeatureoftheFMCGindustryisthepresenceofmost globalplayersthroughtheirsubsidiaries(HLL,P&G,Nestle),which ensuresnewproductlaunchesintheIndianmarketfromthe parent'sportfolio. CriticaloperatingrulesinIndianFMCGsector Heavylaunchcostsonnewproductsonlaunch advertisements,freesamplesandproductpromotions.
Majorityoftheproductclassesrequireverylowinvestment
infixedassets Existenceofcontractmanufacturing Marketingassumesasignificantplaceinthebrandbuilding process Extensivedistributionnetworksandlogisticsarekeyto achievingahighlevelofpenetrationinboththeurban andruralmarkets Factorslikelowentrybarriersintermsoflowcapital investment,fiscalincentivesfromgovernmentandlowbrand awarenessinruralareashaveledtothemushroomingof theunorganisedsector Providinggoodpricepointsisthekeytosuccess FASTMOVINGCONSUMERGOODSPAGE13 Penetrationandpercapitaconsumption Rural-urbanpenetration(2002) CategoryMarketSizeUrbanRuralTotal (US$million)PenetrationPenetrationPenetration (%)(%)(%) HighPenetrationcategories>50%:Driveupgradationand consumption FabricWash121089.682.984.9 Personal Wash93897.990.792.8 PacketTea63591.282.284.9 Lowpenetrationcategories:Drivepenetration Toothpaste40969.832.343.5 Skin31236.619.824.7 HairWash23040.116.323.3 Talcum Powder1486636.845.1 BrandedAtta1074430.234.3 DishWash10254.611.524.4 InstantCoffee55--R&GCoffee30--Ketchups2512.50.74.2 Deodorants19--Jams13--Source:HLL,IndianReadershipSurvey. Penetrationlevelinmostproductcategorieslikejams,toothpaste, skincare,hairwashetcinIndiaislow.Thecontrastisparticularly strikingbetweentheruralandurbansegments-theaverage consumptionbyruralhouseholdsismuchlowerthantheirurban counterparts.Lowpenetrationindicatestheexistenceof unsaturatedmarkets,whicharelikelytoexpandastheincomelevels rise.Thisprovidesanexcellentopportunityfortheindustryplayers intheformofavastlyuntappedmarket. Moreover,percapitaconsumptioninmostoftheFMCGcategories (includingthehighpenetrationcategories)inIndiaislowas comparedtoboththedevelopedmarketsandotheremerging economies.Ariseinpercapitaconsumption,withimprovementin incomesandaffordabilityandchangeintastesandpreferences,is furtherexpectedtoboostFMCGdemand.Growthisalsolikelyto comefromconsumer"upgrading",especiallyinthematuredproduct categories. Detergentpercapitaconsumption(inkg)(2001) Teapercapitaconsumption(inkg)(2001) FASTMOVINGCONSUMERGOODSPAGE15 Personalwashpercapitaconsumption(inkg)(2001) Toothpastepercapitaconsumption(inkg)(2001)
Skincareproductspercapitaconsumption(inRs)(2001) US$1=Rs47.2 Icecreampercapitaconsumption(inlitre)(2001) Shampoopercapitaconsumption(inkg)(2001) Fabricwashpercapitaconsumption(inkg)(2001) FASTMOVINGCONSUMERGOODS Theruralurbanbreak-up Source:IndianMarketDemographicReport,NCAER. IndianFMCGmarket-urban IndianFMCGmarket-rural PAGE17 MostIndianFMCGcompaniesfocusonurbanmarketsforvalueand ruralmarketsforvolumes.ThetotalmarkethasexpandedfromUS$ 17.6billionin1992-93toUS$22billionin1998-99atcurrent prices.Ruraldemandconstitutedaround52.5percentofthetotal demandin1998-99.Hence,ruralmarketinghasbecomeacritical factorinboostingbottomlines.Asaresult,mostcompanies'have offeredlowpriceproductsinconvenientpackaging.These contributethemajorityofthesalesvolume.Incomparison,the urbaneliteconsumesaproportionatelyhighervalueofFMCGs,but notvolume. Ruralmarkets:smallisbeautiful BytheearlyninetiesFMCGmarketershadfiguredouttwothings Ruralmarketsarevitalforsurvivalsincetheurban marketsweregettingsaturated Ruralmarketsareextremelyprice-sensitive Thus,anumberofcompaniesfollowedthestrategyoflaunching awiderangeofpackagesizesandpricestosuitthepurchasing preferencesofIndia'svariedconsumersegments.Hindustan Lever,asubsidiaryofUnilever,coinedthetermnano-marketing intheearlynineties,whenitintroduceditsproductsinsmall sachets.SmallsachetswereintroducedinalmostalltheFMCG segmentsfromoil,shampoo,anddetergentstobeverages. Colamajor,Coke,broughtdowntheaveragepriceofits productsfromaroundtwentycentstotencents,thereby bridgingthegapbetweensoftdrinksandotherlocaloptionslike tea,buttermilkorlemonjuice.Italsodoubledthenumberof outletsinruralareasfrom80,000during2001to160,000the nextyear,therebyalmostdoublingitsmarketpenetrationfrom 13percentto25percent.Thisalongwithgreatermarketing, ledtotheruralmarketaccountingfor80percent ofnewCokedrinkersand30percentofitstotalvolumes. Theruralmarketforcolasgrewat37percentin2002,againsta 24percentgrowthinurbanareas.Thepercapitaconsumptionin ruralareasalsodoubledduring2000-02. FASTMOVINGCONSUMERGOODS Source:HLL,NCAER. Householdincomedistribution-2003 Householdincomedistribution-2015 PAGE19 Consumer-classboom DemandforFMCGproductsissettoboombyalmost60percent by2007andmorethan100percentby2015.Thiswillbedriven bytheriseinshareofmiddleclass(definedastheclimbersand consumingclass)from67percentin2003to88percentin2015. Theboominvariousconsumercategories,further,indicatesalatent demandforvariousproductsegments.Forexample,theupperend ofveryrichandapartoftheconsumingclassindicate asmallbutrapidlygrowingsegmentforbrandedproducts. Themiddlesegment,ontheotherhand,indicatesalargemarketfor
themassendproducts. TheBRICsreportindicatesthatIndia'spercapitadisposableincome, currentlyatUS$556perannum,willrisetoUS$1150by2015anotherFMCGdemanddriver.Spurtintheindustrialandservices sectorgrowthisalsolikelytoboosttheurbanconsumption demand. Source:Euromonitor,BRICsReport(GoldmanSachs). RiseinIndiandisposableincome(US$/annum) FASTMOVINGCONSUMERGOODS IdentifyingthesegmentsinFMCG AbriefdescriptionoftheIndianFMCGindustryisgiveninthetablebelow. SegmentUnitSizeKeyPlayersShareof market leader (%) Householdcare62 FabricwashmarketMntonnes50HLL,P&G,Nirma,SPIC38 Laundrysoaps/barsUS$mn1102 DetergentcakesMntonnes15 WashingpowderMntonnes26 DishwashUS$mn93HLL59 Personalcare58 Soap&ToiletriesMntonnes60HLL,Nirma,Godrej PersonalwashmarketUS$mn989HLL,Nirma,Godrej OralcareUS$mn537ColgatePalmolive,HLL40 Skincare&cosmeticsUS$mn274HLL,Dabur,P&G58 HaircareUS$mn831Marico,HLL,CavinKare,54 Procter&Gamble,Dabur,Godrej FemininehygieneUS$mn44Procter&Gamble,JohnsonandJohnson FoodandBeverages BakeryproductsMntonnes30Britannia,Parle,ITC Tea000tonnes870HLL,TataTea31 Coffee000tonnes20Nestle,HLL,TataTea49* MineralwaterMncrates65ParleBisleri,ParleAgro,CocaCola,Pepsi SoftDrinkMncrates284CocaCola,Pepsi Brandedatta000tonnes750Pillsbury,HLL,AgroTech,NatureFresh,ITC15 Healthbeverages000tonnes120SmithKlineBeecham,Cadbury,Nestle,Amul MilkandDairyproductsUS$mn653Amul,Britannia,Nestle ChocolatesUS$mn174Cadbury's,Nestle CulinaryproductsUS$mn326HLL,Nestle78 EdibleoilMntonnes13RuchiSoya,Marico,ITCAgrotech28 Note:*R&GSource:ORGMarg,ACNielson,FICCI,IndiaStat andHLL. Productwiseproduction(2004) PAGE21 Householdcare ThesizeofthefabricwashmarketisestimatedtobeUS$1billion, householdcleanerstobeUS$239millionandtheproductionof syntheticdetergentsat2.6milliontonnes.Thedemandfor detergentshasbeengrowingatanannualgrowthrateof10to11 percentduringthepastfiveyears.Theurbanmarketprefers washingpowderanddetergentstobarsonaccountofconvenience ofusage,increasedpurchasingpower,aggressiveadvertisingand increasedpenetrationofwashingmachines.Theregionalandsmallunorganised playersaccountforamajorshareofthetotaldetergent marketinvolumes. Personalcare ThesizeofthepersonalwashproductsisestimatedatUS$989 million;haircareproductsatUS$831millionandoralcareproducts atUS$537million.Whiletheoverallpersonalwashmarketis
growingatonepercent,thepremiumandmiddle-endsoapsare growingatarateof10percent.Theleadingplayersinthismarket areHLL,Nirma,GodrejSoapsandReckitt&Colman.Theoralcare market,especiallytoothpastes,remainsunderpenetratedinIndia (withpenetrationlevelbelow45percent)duetolackofhygiene awarenessamongruralmarkets.Theindustryisverycompetitive bothfororganisedandsmallerregionalplayers. TheIndianskincareandcosmeticsmarketisvaluedatUS$274 millionanddominatedbyHLL,ColgatePalmolive,GilletteIndiaand GodrejSoaps.Thissegmenthaswitnessedtheentryofanumberof internationalbrands,likeOriflame,AvonandAvianceleadingto increasedcompetition.Thecoconutoilmarketaccountsfor72per centshareinthehairoilmarket.Inthebrandedcoconuthairoil market,Marico(withParachute)andDaburaretheleadingplayers. ThemarketforbrandedcoconutoilisvaluedatapproximatelyUS$ 174million. FASTMOVINGCONSUMERGOODSPAGE23 FoodandBeverages Food AccordingtotheMinistryofFoodProcessing,thesizeoftheIndian foodprocessingindustryisaroundUS$65.6billionincludingUS$ 20.6billionofvalueaddedproducts.Ofthis,thehealthbeverage industryisvaluedatUS$230billion;breadandbiscuitsatUS$1.7 billion;chocolatesatUS$73millionandicecreamsatUS$188 million. Thesizeofthesemi-processed/readytoeatfoodsegmentis overUS$1.1billion.Largebiscuits&confectioneryunits,soyaprocessing unitsandstarch/glucose/sorbitolproducingunitshave alsocomeup,cateringtodomesticandinternationalmarkets. Thethreelargestconsumedcategoriesofpackagedfoodsare packedtea,biscuitsandsoftdrinks. Beverages TheIndianbeverageindustryfacesoversupplyinsegmentslike coffeeandtea.However,morethanhalfofthisisavailablein unpackedorlooseform.Indianhotbeveragemarketisatea dominantmarket.Consumersindifferentpartsofthecountry haveheterogeneoustastes.DustteaispopularinsouthernIndia, whilelooseteainpreferredinwesternIndia.Theurban-ruralsplitof theteamarketwas51:49in2000.Coffeeisconsumedlargely inthesouthernstates.Thesizeofthetotalpackagedcoffeemarket is19,600tonnesorUS$87million.Theurbanruralsplit inthecoffeemarketwas61:39in2000asagainst59:41in1995. Thetotalsoftdrink(carbonatedbeveragesandjuices)marketis estimatedat284millioncratesayearorUS$1billion.Themarket ishighlyseasonalinnaturewithconsumptionvaryingfrom25million cratespermonthduringpeakseasonto15millionduringoffseason. Themarketispredominantlyurbanwith25percent contributionfromruralareas.CocacolaandPepsidominatethe Indiansoftdrinksmarket. MineralwatermarketinIndiaisa65millioncrates(US$50million) industry.Onanaverage,themonthlyconsumptionisestimatedat 4.9millioncrates,whichincreasesto5.2million duringpeakseason. Exports Indiaisoneoftheworld'slargestproducersforanumberofFMCG productsbutitsexportsareaverysmallproportionoftheoverall production.TotalexportsoffoodprocessingindustrywasUS$2.9 billionin2001-02andmarineproductsaccountedfor40percentof thetotalexports.ThoughtheIndiancompaniesaregoingglobal, theyarefocusingmoreontheoverseasmarketslikeBangladesh,
Pakistan,Nepal,MiddleEastandtheCIScountriesbecauseofthe similarlifestyleandconsumptionhabitsbetweenthesecountriesand India.HLL,GodrejConsumer,Marico,DaburandViccolaboratories areamongstthetopexportingcompanies. InvestmentintheFMCGsector TheFMCGsectoraccountsforaround3percentofthetotalFDI inflowandroughly7.3percentofthetotalsectoralinvestment.The food-processingsectorattractsthehighestFDI,whilethevegetable oilsandvanaspatisectoraccountsforthehighestdomestic investmentintheFMCGsector. Source:SIANewsletter,DIPP. InvestmentsintheFMCGsector(August1991-April2004) FASTMOVINGCONSUMERGOODSPAGE25 Domesticplayers BritanniaIndiaLtd(BIL) BritanniaIndiaLtdwasincorporatedin1918asBritanniaBiscuitCo LtdandcurrentlytheGroupeDanone(GD)ofFrance(aglobal majorinthefoodprocessingbusiness)andtheNusliWadiaGroup holda45.3percentequitystakeinBILthroughAIBHLtd(a50:50 jointventure).BILisadominantplayerintheIndianbiscuitindustry, withmajorbrandssuchasTigerglucose,Mariegold,Fifty-Fifty,Good Day,PureMagic,Bourbonetc. Thecompanyholdsa40percentmarketshareintheoverall organisedbiscuitmarketandhasacapacityof300,000tonneper annum.Currently,thebakeryproductbusinessaccountsfor99.1 percentofBIL'sturnover.ThecompanyreportednetsalesofUS$ 280millionin2002-03.BritanniaIndustriesLtd(BIL)plansto increaseitsmanufacturingcapacitythroughoutsourcedcontract manufacturingandagreenfieldplantinUttaranchaltoexpandits shareinthedomesticbiscuitandconfectionerymarket. DaburIndiaLtd Establishedin1884,DaburIndiaLtdisthelargestIndianFMCG andayurvedicproductscompany.ThegroupcomprisesDabur Finance,DaburNepalPvtLtd,DaburEgyptLtd,DaburOverseas LtdandDaburInternationalLtd.Theproductportfolioofthe companyincludeshealthcare,foodproducts,naturalgums &alliedchemicals,pharma,andveterinaryproducts.Someofits leadingbrandsareDaburAmla,DaburChyawanprash,Vatika, Hajmola,LalDantManjan,PudinHaraandtheRealrangeoffruit juices.ThecompanyreportednetsalesofUS$218millionin200304.Daburhasfirmedupplanstorestructureitssalesand distributionstructureandfocusonitscorebusinessesoffast-moving consumergoodproductsandover-the-counterdrugs.Underthe restructuredset-up,thecompanyplanstoincreasedirectcoverage togapoutletsandgaptownswhereDaburisnot present.Aroadmapisalsobeingpreparedtorationalisethe stockists'networkindifferentregionsbetweenvariousproductsand divisions. IndianTobaccoCorporationLtd(ITCL) IndianTobaccoCorporationLtdisanassociateofBritishAmerican Tobaccowitha37percentstake.In1910thecompany'soperations wererestrictedtotradinginimportedcigarettes. ThecompanychangeditsnametoITCLimitedinthemidseventies whenitdiversifiedintootherbusinesses.ITCisoneofIndia's foremostprivatesectorcompanieswithaturnoverofUS$2.6 billion.WhileITCisanoutstandingmarketleaderinitstraditional businessesofcigarettes,hotels,paperboards,packagingandagriexports, itisrapidlygainingmarketshareeveninitsnascent businessesofbrandedapparel,greetingcardsandpackagedfoods andconfectionary.AfterthemergerofITCHotelswithITCLtd,the
companywillrampupitsgrowthplansbystrengtheningitsalliance withSheratonandthroughfocusoninternationalprojectsinDubai andtheFarEast.ITC'ssubsidiary,InternationalTravelHouse(ITH) alsoaimstolaunchnewproductsandservices bywayofboutiquesthatwillprovidecompletetravelservices. Marico MaricoisaleadingIndianGroupincorporatedin1990andoperating inconsumerproducts,aestheticsservicesandglobalayurvedic businesses.Thecompanyalsomarketsfoodproductsanddistributes thirdpartyproducts.Maricoownswell-knownbrandssuchas Parachute,Saffola,Sweekar,ShantiAmla,Hair&Care,Revive, Mediker,OilofMalabarandtheSilrangeofprocessedfoods.Ithas sixfactories,andsub-contractfacilitiesforproduction.In2003-04, thecompanyreportedaturnoverofUS$200million.Theoverseas salesfranchiseofMarico'sbrandedFMCGproductsisoneofthe largestamongstIndiancompanies. ItisalsothelargestIndianFMCGcompanyinBangladesh. FASTMOVINGCONSUMERGOODSPAGE27 Thecompanyplanstocapturegrowththroughconstantrealignment ofportfolioalonghighermarginlinesandfocusonvolumegrowth, consolidationofmarketshares,strengtheningflagshipbrandsand newproductofferings(2-3newproductlaunchesareexpectedin 2004-05).Italsoplanstoexpanditsinternationalbusinessto Pakistan. NirmaLimited NirmaLtd,promotedbyKarsanbhaiPatel,isahomegrownFMCG majorwithapresenceinthedetergentandsoapmarkets.Itwas incorporatedin1980asaprivatecompanyandwaslistedinfiscal 1994.Associatecompanies'NirmaDetergents,ShivaSoapsand Detergents,NirmaSoapsandDetergentsandNilnitaChemicals weremergedwithNirmain1996-1997.Thecompanyhasalsoset upawhollyownedsubsidiaryNirmaConsumerCareLtd,whichis thesolemarketinglicenseeoftheNirmabrandinIndia.Nirmaalso makesalfaolefin,fattyacidandglycerine.Nirmaisoneofthemost successfulbrandsintheruralmarketswithextremelylowpriced offerings.NirmahasplantslocatedinGujarat,MadhyaPradeshand UttarPradesh.ItsnewLABplantislocatedinBarodaandthesoda ashcomplexislocatedinGujarat.Nirmahasstrongdistributor strengthof400andaretailreachofover1millionoutlets.The companyreportedgrosssalesofUS$561millionin2003-04.It planstocontinuetotargetthemidandmasssegmentsforfuture growth. Foreignplayers CadburyIndiaLtd(CIL) CadburyIndianLtdisa93.5percentsubsidiaryofCadbury SchweppesPlc,UK,aglobalmajorinthechocolateandsugar confectioneryindustry.CILwassetupasatradingconcernin1947 andsubsequentlybeganitsoperationswiththesmallscale processingofimportedchocolatesandfooddrinks.CILiscurrently thelargestplayerinthechocolateindustryinIndiawitha70per centmarketshare.Thecompanyisalsoakeyplayerinthemalted foods,cocoapowder,drinkingchocolate,maltextractfoodand sugarconfectionerysegment.Thecompanyhadalsoenteredthe softdrinksmarketwithbrandslike'CanadaDry'and'Crush',which weresubsequentlysoldtoCocaColain1999.Establishedbrands includeDairyMilk,Perk,Crackle,5Star,Éclairs,Gems,Fructus, Bournvitaetc.ThecompanyreportednetsalesofUS$160millionin 2003.Thecompanyplanstoincreasethenumberofretailoutlets forfuturegrowthandmarketexpansion. Cargill
CargillIncisoneoftheworld'sleadingagri-businesscompanieswith astrongpresenceinprocessingandmerchandising,industrial productionandfinancialservices.Itsproductsandgeographic diversity(over40productlineswithadirectpresenceinover65 countriesandbusinessactivitiesinabout130countries)aswellasits vastcommunicationandtransportationnetworkhelpoptimise commoditymovementsandprovidecompetitiveadvantage.Cargill IndiawasincorporatedinApril1996asa100percentsubsidiaryof CargillIncoftheUS.Itisengagedintradinginsoyabeanmeals, wheat,edibleoils,fertilisersandotheragriculturalcommodities besidesmarketingbrandedpackagedfoods.Ithasalsosetupitsown anchoragefacilitiesatRosynearJamnagarinGujaratforefficient handlingofitsimportandexportconsignments. FASTMOVINGCONSUMERGOODSPAGE29 CocaCola Coca-ColastarteditsIndiaoperationsin1993.TheCoca-Cola systeminIndiacomprises27whollycompany-ownedbottling operationsandanother17franchisee-ownedbottlingoperations. Anetworkof29contract-packersalsomanufacturearangeof productsforthecompany.LeadingIndianbrandsThumsUp,Limca, Maaza,CitraandGoldSpotexistintheCompany'sinternational familyofbrandsalongwithCoca-Cola,DietCoke,Kinley,Spriteand Fanta,plustheSchweppesproductrange.Duringthepastdecade, theCoca-ColasystemhasinvestedmorethanUS$1billioninIndia. In2003,Coca-ColaIndiapledgedtoinvestafurtherUS$100 millioninitsoperations. Colgate-PalmoliveIndia ColgatePalmoliveIndiaisa51percentsubsidiaryofColgate PalmoliveCompany,USA.ItisthemarketleaderintheIndianoral caremarket,witha51percentmarketshareinthetoothpaste segment,48percentmarketshareinthetoothpowdermarketand a30percentshareinthetoothbrushmarket.Thecompanyalso hasapresenceinthepremiumtoiletsoapsegmentandinshaving products,whicharesoldunderthePalmolivebrand.Otherwellknown consumerbrandsincludeCharmisskincreamandAxiondish wash.ThecompanyreportedsalesofUS$226millionin2003-04. Thecompany'sstrategyistofocusongrowingvolumesby improvingpenetrationthroughaggressivecampaigningand consumerpromotions.Thecompanyplanstolaunchnewproducts inoralandpersonalcaresegmentsandispreparedtocontinue spendingonadvertisingandmarketingtogainmarketshare.Margin gainsarebeingtargetedthroughefficientsupplychainmanagement andbringingdowncostofoperations. HJHeinzCo AUS$8.4billionAmericanfoodsmajor,HJHeinzCocomprises 4,000strongbrandbuffetininfantfood,saucesandcondiments. Thecompanywasthefirsttocommencemanufacturingandbottling oftomatoketchupin1876.InIndia,Heinzhasapresencethrough its100percentsubsidiaryHeinzIndiaPvtLtd.Heinzacquiredthe consumerproductsdivisionofpharmaceuticalmajorGlaxoin1994. Heinz'sproductrangeinIndiaconsistsofComplanmilkbeverage, healthdrinkGlucon-D,infantfoodFarexandNycilpricklyheat powder,besidestheHeinzketchuprange. HindustanLeverLtd(HLL) HindustanLeverLtdisa51percentownedsubsidiaryofthe Anglo-DutchgiantUnilever,whichhasbeenexpandingthescopeof itsoperationsinIndiasince1888.Itisthecountry'sbiggest consumergoodscompanywithnetsalesofUS$2.4billionin2003. HLLisamongstthetopfiveexportersofthecountryandalsothe biggestexporterofteaandcastoroil.Theproductportfolioofthe
companyincludeshouseholdandpersonalcareproductslikesoaps, detergents,shampoos,skincareproducts,colourcosmetics, deodorantsandfragrances.Itisalsothemarketleaderintea, processedcoffee,brandedwheatflour,tomatoproducts,icecream, jamsandsquashes.HLLenjoysaformidabledistributionnetwork coveringover3,400distributorsand16millionoutlets.Inthefuture, thecompanyplanstoconcentrateonitsherbalhealthcareportfolio (Ayush)andconfectionarybusiness(Max).Itsstrategytogrow includesfocussingonthepowerbrands'growththroughconsumer relevantinformation,crosscategoryextensions,leveragingchannel opportunitiesandincreasedfocusonruralgrowth. NestleIndiaLtd(NIL) NestleIndiaLtda59.8percentsubsidiaryofNestleSA, Switzerland,isaleadingmanufactureroffoodproductsinIndia. Itsproductsincludesolublecoffee,coffeeblendsandteas, condensedmilk,noodles(81percentmarketshare),infantmilk powders(75percentmarketshare)andcereals(80percent marketshare).Nestlehasalsoestablisheditspresenceinchocolates, confectioneriesandotherprocessedfoods.Solublebeveragesand milkproductsarethemajorcontributorstoNestle'stotalsales. SomeofNestle'spopularbrandsareNescafe,Milkmaid,Maggiand Cerelac.Thecompanyhasenteredthechilleddairysegmentwith thelaunchofNestleDahiandNestleButter.Nestlehasalsomadea forayinnon-carbonatedcoldbeveragessegmentthroughplacement ofNesteaicedteaandNescafeFrappevendingmachines.Exports contributeto23percentofitsturnoverandthecompanyreported netsalesofUS$440millionin2003. FASTMOVINGCONSUMERGOODSPAGE31 PepsiCo PepsiCoisaworldleaderinconvenientfoodsandbeverages, withrevenuesofaboutUS$27billion.PepsiCobrandsareavailable innearly200marketsacrosstheworld.Thecompanyhasan extremelypositiveoutlookforIndia."OutsideNorthAmericatwo ofourlargestandfastestgrowingbusinessesareinIndiaandChina, whichincludemorethanathirdoftheworld'spopulation" (Pepsico'sannualreport).PepsiCoenteredIndiain1989andis concentratingonthreefocusareas-softdrinkconcentrate,snack foodsandvegetableandfoodprocessing.PepsiCo'ssuccessisthe resultofsuperiorproducts,highstandardsofperformanceand distinctivecompetitivestrategies. Procter&GambleHygieneandHealthCareLimited RichardsonHindustanLimited(RHL),manufactureroftheVicks rangeofproducts,wasrechristened'Procter&GambleIndia'in October1985,followingitsaffiliationtothe'Procter&Gamble Company',USA.Procter&GambleHygieneandHealthCare Limited(PGHHCL)acquireditscurrentnamein1998,reflectingthe twokeysegmentsofitsbusiness.P&G,USAhasa65percentstake inPGHHCL.Theparentalsohasa100percentsubsidiary,Procter &GambleHomeProducts(PGHP).Theoverallportfolioofthe companyincludeshealthcare;feminine-care;haircareandfabriccare businesses.PGHHoperatesinjusttwobusinesssegments-Vicks rangeofcough&coldremediesandWhisperrangeoffeminine hygiene.Thedetergentandshampoobusinesshasbeenrelocated globallytoVietnam.Thecompanyimports andmarketsmostoftheproductsfromSouthEastAsiancountries andChina,whilemanufacturing,marketingandexportofVicksand sanitarynapkinshasbeenretainedinIndia.Thecompanyreported salesofUS$91millionin2002-03.Theparentcompanyhas announceditsplantoexplorefurtherexternalcollaborations inIndiatomeetitsglobalinnovationandknowledgeneeds.
MARKETOPPORTUNITIES FORINVESTMENT Measuringtheopportunity:DomesticFMCG markettotreble Source:HHPaneldata AccordingtoestimatesbasedonChina'scurrentpercapita consumption,theIndianFMCGmarketissettotreblefrom US$11.6billionin2003toUS$33.4billionin2015.Thedominance ofIndianmarketsbyunbrandedproducts,changeineatinghabitsand theincreasedaffordabilityofthegrowingIndianpopulationpresents anopportunitytomakersofbrandedproducts,whocanconvert consumerstobrandedproducts. Theinvestmentpotentialinruralmarkets TheIndianruralmarketwithitsvastsizeanddemandbaseoffersa hugeopportunityforinvestment.RuralIndiahasalargeconsuming classwith41percentofIndia'smiddle-classand58percentofthe totaldisposableincome.Withpopulationintheruralareassettorise to153millionhouseholdsby2009-10andwithhighersaturationin theurbanmarkets,futuregrowthintheFMCGsectorwillcome FMCGMarketSize(US$billion) FASTMOVINGCONSUMERGOODSPAGE33 fromincreasedruralandsmalltownpenetration.Technological advancessuchastheinternetande-commercewillaidinbetter logisticsanddistributionintheseareas.AlreadyIndiancorporates suchasHLLandITChaveidentifiedtheopportunityandhave initiatedprojectssuchas'ProjectShakti'and'e-Choupal'tofirst, expandruralincome,andthen,topenetratethismarket. Boostingruralincome-novelexperimentsby Indiancorporates PROJECTSHAKTI FMCGgiantHindustanLeverinitiated'ProjectShakti'tospur growthandincreasethepenetrationofitsproductsinrural Indiawhilechanginglivesandboostingincomes.Througha combinationofmicro-creditandtraininginenterprise management,womenfromself-helpgroupsturneddirect-tohome distributorsofarangeofHLLproductsandhelpedthe companytesthithertounexploredruralhinterlands.Theproject waspilotedinNalgondadistrictinAndhraPradesh(AP)in 2001,ithassincebeenscaledupandextendedtoover5,000 villagesin52districtsinAP,Karnataka,Gujarat,Chattisgarh, OrissaandMadhyaPradeshwitharound1,000women entrepreneursinitsfold.Thevisionistocreateabout11,000 Shaktientrepreneurscovering100,000villagesand100million ruralconsumersby2010. ForHLL,greaterpenetrationinruralareasisalsoimperative sinceover50percentofitsincomesforseveralofitsproduct categorieslikesoapsanddetergentscomefromruralIndia.The projecthasbornefruitforHLL.InAndhraPradesh,sofar,since theexperimentbegan,HLLhasseen15percentincremental salesfromruralAndhra,whichcontributes50percentto overallsalesfromAndhraofHLLproducts. e-CHOUPAL AnexampleofthesuccessfulapplicationofITisthee-Choupal experimentkickedoffbydiversifiedtobaccogiantITC.ITChas designedandsetupinternetkioskscallede-Choupalsto supportitsagriculturalproductsupplychain. Thee-ChoupalsaretotallyownedandsetupbyITCwith theoperatorsnothavinganyinvestmentorriskoftheirown. Therearefourkindsofe-Choupalstailoredforshrimps,coffee, wheatandsoyabeans.Thefocusisoncreatinginternetaccess
forglobalmarketinformationtoguideproductionandsupply decisions.Itprovidespriceinformationandthus,pricecertainty tothefarmers.Inaddition,thefarmersgetaccessto operationalinformation,developedbyITCexperts,pertaining tocropping,seeds,fertilisersetc. TheinitialbenefitsoftheITCeffortincludeasubstantial reductionintransactioncosts,from8percenttojust2per cent.ThesegainsaresharedroughlyequallybetweenITCand individualfarmers.Thelonger-termgoalistouse e-Choupalsassalespointsforsoyabeanoilandarangeof otherconsumergoods.ITChasalsosetupitsfirstruralmall nearBhopal,whereitdistributesproductsofotherFMCG majorsaswell.Hence,incomesgeneratedthrough e-choupalswillbetargetedbytheFMCGmajortodrivetheir productsales. Exportpotential Indiahasalocationaladvantagethatcanbeexploitedtouseitas asourcingbaseforFMCGexports.Exportofpre-preparedmeals withIndianvegetablesforlargeAsianethnicpopulationsettledin developedcountriesisaverybigopportunityforIndia.SouthEast Asia,whichispresentlybeingcateredtobyUSAandEU,canbe sourcedfromIndiaduetoitslowerfreightcost. FASTMOVINGCONSUMERGOODSPAGE35 InvestmentscanalsobemadeinIndiandairyindustriesto manufactureandpackagedairyfood(throughcontractorlocal collaboration)forexporttoMiddleEast,Singapore,Malaysia, Indonesia,Korea,ThailandandHongKong.Commoditieslikedry milk,condensedmilk,gheeandcertaincheesevarietiesthatare utilisedasingredientsinforeigncountriescanalsobeexported. Thesemarketscanbeexpandedtoincludevalue-addedingredients likepackagedcheesesauceanddehydratedcheesepowders.Large exportpotentialalsoexistsinthesoyaproductsindustry. Sectoralopportunities AccordingtotheMinistryofFoodProcessing,with200million peopleexpectedtoshifttoprocessedandpackagedfoodby2010, IndianeedsaroundUS$28billionofinvestmenttoraisefoodprocessing levelsby8-10percent.Inthepersonalcaresegment, thelowerpenetrationratesalsopresentsanuntappedpotential. Keysectoralopportunitiesarementionedbelow: Staple:brandedandunbranded:Whiletheexpenditure onmass-based,highvolume,lowmarginbasicfoodssuch aswheat,wheatflourandhomogenisedmilkisexpectedto increasesubstantiallywiththeriseinpopulation,thereisalso amarketforbrandedstaplesisalsoexpectedtoemerge. Investmentinbrandedstaplesislikelytorisewiththepopularity ofbrandedriceandflouramongurbanpopulation. Dairybasedproducts:Indiaisthelargestmilkproducer intheworld,yetonly15percentofthemilkisprocessed. TheUS$2.4billionorganiseddairyindustryrequireshuge investmentforconversionandgrowth.Investmentopportunities existinvalue-addedproductslikedesserts,puddingsetc.The organisedliquidmilkbusinessisinits infancyandalsohaslargelong-termgrowthpotential. Packagedfood:Onlyabout8-10percentofoutputis processedandconsumedinpackagedform,thushighlighting thehugepotentialforexpansionofthisindustry.Currently,the semiprocessedandreadytoeatpackagedfoodsegmenthasa sizeofoverUS$70billionandisgrowingat15percentper annum.Growthofdualincomehouseholds,wherebothspouses areearning,hasgivenrisetodemandforinstantfoods,especially
inurbanareas.Increasedhealthconsciousnessandabundant productionofqualitysoyabeanalsoindicatesagrowingdemand forsoyafoodsegment. Personalcareandhygiene:Theoralcareindustry,especially toothpastes,remainsunderpenetratedinIndiawithpenetration ratesbelow45percent.Withriseinpercapitaincomes andawarenessoforalhygiene,thegrowthpotentialishuge. Lowerpriceandsmallerpacksarealsolikelytodrivepotential uptrading.Inthepersonalcaresegment,accordingtoforecasts madebytheCentreforIndustrialandEconomicResearch (CIER),detergentdemandislikelytoriseto4,180,000metric tonnesby2011-12withanannualgrowthrateof7percent between2006and2012.Thedemandfortoiletsoap isexpectedtogrowatanannualrateof4percentbetween 2006-12to870,000metrictonnesby2011-12.Rapid urbanisationisexpectedtopropelthedemandforcosmetics to100,000metrictonnesby2011-12,withanannualgrowth rateof10percent. Beverages:TheUS$2billionIndianteamarkethasbeengrowing at1.5to2percentannuallyandislikelytoseeafurtherriseas Indianconsumersconvertfromlooseteatobrandedtea products.Intheaerateddrinkssegment,thepercapita consumptionofsoftdrinksinIndiais6bottlescomparedto Pakistan's17bottles,SriLanka's21,Thailand's73,thePhilippines 173andMexico's605.Thedemandforsoftdrink inIndiaisexpectedtogrowatanannualrateof10percentper annumbetween2006-12withdemandat805millioncasesby 2011-12.PercapitacoffeeconsumptioninIndiaisbeing promotedbythecoffeechainsandbytheemergenceofinstant FASTMOVINGCONSUMERGOODSPAGE37 coldcoffee.AccordingtoCIER,demandforcoffeeis expectedtoriseto535,000metrictonnesby2012,with anannualgrowthrateof5percentbetween2006-12. Edibleoil:ThedemandforedibleoilinIndia,according toCIER,isexpectedtoriseto21milliontonnesby 2011-12withanannualgrowthrateof7percent perannum. Confectionary:Theexplosionoftheyoungage populationinIndiawilltriggeraspurtinconfectionary products.Inthelongruntheindustryisslatedtogrowat 8to10percentannuallyto870,000metrictonnesby 2011-12. ANNEXURE:APEXCONTACTAGENCIES IndianDairyAssociation(IDA) Establishedin1948,IndianDairyAssociationistheapexbody ofthedairyindustryinIndia.ThekeyfunctionsofIDAare transmissionoftechnical/scientificinformationtothemembers,both individualsaswellasinstitutions,toorganiseperiodicconferences, seminarsandworkshopsonsubjectsofcurrentinterestandto undertakeconsultancyprojectsbothoverseas aswellasinthecountrywheneversucharequestisreceived fromanycentralministryoftheGovernmentofIndia.IDAalso intervenesonthepolicyissueslikepresentationofpre-budget memorandum,addressingissuesarisingoutofthetariffrates,import/ export,sanitarystandardsincludingPFAissuesetc. IndianDairyAssociation(IDA) SectorIV,R.K.Puram(NearSyndicateBank), NewDelhi-110022 India Tel:+911126165355/26165237/26170781
Fax:+911126174719 Web:http://www.indairyasso.org/ TheSolventExtractors'AssociationofIndia(SEA) TheSolventsExtractors'AssociationisanallIndiabodyofsolvent extractionindustryhavingwiderepresentativemembership consistingofprocessorsofricebran,oilcakes,minoroilseedsand soybean.SEAistheTradePromotionOrganisationfortheexports ofvariousde-oiledmeals(feedingredients),animalandpoultryfeeds andminoroils(fats)fromIndia.SEAactsasacatalystbetween internationalbuyersandlocalexportersandisresponsibleforexport promotionandperformsvarious exportpromotionfunctions. FASTMOVINGCONSUMERGOODSPAGE39 TheSolventExtractors'AssociationofIndia PremierAssociationofVegetableOilIndustry&Trade 142,JollyMakerChambersNo.2, 14thFloor,225NarimanPoint, Mumbai400021 India Tel:+912222021475/22821692 Fax:+912222021692 Web:www.seaofindia.com E-mail:
[email protected] OTHERS IndianSoap&ToiletriesManufacturersAssociation RahejaCentre,6thFloor,RoomNo.614,BackbayReclamation, Mumbai-400021 India Tel:+91222824115 Fax:+91222853649 E-Mail:
[email protected] VanaspatiManufacturersAssociationofIndia 903,AkashdeepBldg, 26-A,BarakhambaRoad,NewDelhi India Tel:+911123312640,23310758 Fax:+9111011-65521 E-mail:
[email protected] AllIndiaFoodPreserversAssociation 206,AurobindoPlaceMarketComplex HauzKhas,NewDelhi-110016 India Tel:+911126510860/26518848 Fax:+911126510860 Web:http://www.aifpa.com/ AllIndiaBreadManufacturersAssociation CommercialComplex, 9A,ConnaughtPlace,NewDelhi India Tel:+911123327421 Fax:+911123324483 FederationofBiscuitManufacturersofIndia 9A,ConnaughtPlace,NewDelhi. India Tel:+911126863801 Fax:+911126863135 IndianSoftDrinksmanufacturers'Association NewDelhi. India Tel:+911123716782
Fax:+911123327747 DISCLAIMER ThispublicationhasbeenpreparedfortheIndiaBrandEquityFoundation(IBEF). Allrightsreserved.Allcopyrightinthispublicationandrelatedworksisowne dbyIBEF. Thesamemaynotbereproduced,whollyorinpartinanymaterialform(includin g photocopyingorstoringitinanymediumbyelectronicmeansandwhetherornot transientlyorincidentallytosomeotheruseofthispublication),modifiedor inany mannercommunicatedtoanythirdpartyexceptwiththewrittenapprovalofIBEF. Thispublicationisforinformationpurposesonly.Whileduecarehasbeentaken duringthecompilationofthispublicationtoensurethattheinformationisacc urate tothebestofIBEFsknowledgeandbelief,thecontentisnottobeconstruedin any mannerwhatsoeverasasubstituteforprofessionaladvice. IBEFneitherrecommendsnorendorsesanyspecificproductsorservicesthatmay have beenmentionedinthispublicationandnordoesitassumeanyliabilityorrespo nsibility fortheoutcomeofdecisionstakenasaresultofanyrelianceplaced onthispublication. IBEFshallinnoway,beliableforanydirectorindirectdamagesthatmayaris edue toanyactoromissiononthepartoftheuserduetoanyrelianceplaced orguidancetakenfromanyportionofthispublication. TheIndiaBrandEquityFoundationisapublic-privatepartnership betweentheMinistryofCommerceandIndustry,GovernmentofIndiaand theConfederationofIndianIndustry.TheFoundation'sprimaryobjective istobuildpositiveeconomicperceptionsofIndiaglobally. IndiaBrandEquityFoundation c/oConfederationofIndianIndustry 249-FSector18 UdyogViharPhaseIV Gurgaon122015Haryana INDIA Tel+911245014087Fax+911245013873 E-mail
[email protected] Webwww.ciionline.org Benefits: Helpreducepurchasingand inventorycosts.Connectinventory control,purchasing,andsalesorder processingwithdemandplanning andhelpreducecosts,improvecash flow,andhelpensurethatyouhave therightstockavailablewhenyou needit. Gainvisibilityintoinventory processes.Effectivelybalance availabilitywithdemandandtrack itemsandtheirpossibleexpiration datesthroughoutthesupplychainto helpminimizeon-handinventory, optimizereplenishment,andincrease warehouseefficiency. improvecustomersatisfaction. Makemoreaccurateorderpromises andintelligentlast-minuteexceptions
withaccesstoup-to-dateinventory information.Respondquicklyand knowledgablytocustomerqueries forimprovedcustomerservice. Reducetimetomarket.With integratedorder,inventory,and distributionprocesses,aswellasitem trackingcapabilities,yourbusiness canreducemanualdataentryand getyourgoodstomarketfast. Tighteninventorymanagementprocessestohelpincreaseoperational efficiencyacrossyourbusiness,improvecustomerservice,andreduce inventoryanddistributioncostswithInventoryManagementin MicrosoftDynamicsTMNAV. Increasedautomationanditemtrackingcapabilitieshelpyouimproveinventory accuracyandbettermatchthegoodsyouhaveonhandwithcustomerdemand. Quicklyidentifydiscrepanciesinyourinventorybycomparingactualquantities with systemrecords. InventorycostingUnderstanditemcoststhroughoutyourwarehouseandproduction processes, including inventory,work-in-process(WIP),andcostofgoodssold(COGS),tohelpefficie ntly managesalesandpurchasepricesandlinediscountswithcustomersandvendors. Break downcostsaccordingtocategoriessuchasmaterials,capacity,subcontracting, and overhead.Tightencontrolofclosingprocesses,improvebatch-jobcosting,ands treamline reconciliationwiththegeneralledger. AutomatedDataCollectionSystem (ADCS) Helpincreasetheaccuracyandefficiencyofyourwarehousemanagementpickingand puttingawayofitems,physicalinventorycounts,andmovingitemsfrombintob inwith ADCS. Radiofrequencyidentification (RFID)enablement ComplymoreeasilywithcustomerorsupplychainmandatesforRFID. OrderprocessingProvidecustomerswithaccurateitemavailabilityanddelivero ntimewith supportfor available-to-promise(ATP)andcapable-to-promise(CTP)insight. ReturnsmanagementProcessreturnedinventoryandaccountforadditionalcosts. Automatically organizecredit memos,replacementgoods,returnstovendors,andpartialorcombinedreturnof shipmentsorreceipts.Exactcostreversalhelpsincreaseinventoryaccuracy. ItemtrackingTracelotorserialnumberstoquicklydeterminewhereitemswere purchased, processed, orsold.Helpeliminatewasteduetoexpirationofgoodswithsupportforfirst expired/first out(FEFO)handling. ItemsubstitutionOffercustomersalternativeitemswhenthosetheywantareout ofstock,orif the alternativescanbeprovidedlessexpensivelywithahigherprofitmargin. Itemcross-referencesIdentifywhatyourcustomerswantbycross-referencingany