Supply Chain Management in FMCG HUL ITC Godrej Prepared by Jeetesh Kumar
ITM Chennai
FMCG Sector FMCG are products that have a quick shelf turnover, at relatively low cost and don't require a lot of thought, time and financial investment to purchase ‘Fast Moving Customer Goods’ is in opposition to consumer durables such as kitchen appliances that are generally replaced less than once a year FMCG is characterized by strong presence of MNC and well established distribution network. The intense competition between the organised and unorganised segments operating at low operational cost.
Marketer Point of View Product Analysis – – – –
Product Price Place Promotion
Market Analysis – – – – –
Size ( Past , Present and Future) Growth ( Expected Trends ) Profitability Risks / Threats Distribution Channels
Market Analysis
SIZE
Growth Distribution Channels
Risk
Profit
FMCG Sector Size
(cont.)
Fast moving consumer goods has gained importance with retailing gaining prominence. Over the last one decade the market is growing at the rate of 18.7 %. Total market size in excess of US$ 13.1 billion Availability of key raw materials, cheaper labour costs and presence of highly effective supply chain system gives competitive advantage.
Growth Prospects The FMCG market is set to treble from US$ 11.6 billion in 2003 to US$ 33.4 billion in 2015. The FMCG sector will witness more than 50 per cent growth in rural and semi-urban India by 2010. Penetration level as well as per capita consumption in most product categories is low indicating the untapped market potential , hence the market potential of growth is very high. Burgeoning Indian population, presents an opportunity to makers of branded products to convert consumers to branded products. With the retail gaining momentum, the FMCG prospective growth can be realized with increase in sales volumes.
Growth Prospects There is an increase in the disposable incomes and altered lifestyle which is being fueled by the increase in the per capita income. The increase the population will increase the demands many fold.
Profitability of the sector Hindering ( Down) – Increase in competition resist the growth of the profit margin. – Margins remain under pressure due to unprecedented rise in input costs.
Pushing (Up) – FMCG sector depends upon bulk sales only. High the volume of the sales , higher is the profit.
Balancing (Up/Down) – Small packaging typically known as ‘Sachet’ - Is a two edged sword. Helps in trapping the bottom segment of the Customer Pyramid . – But it decreases the profit margin per unit sale. – In the long run increases the volume of sales. – Thus must be used very wisely.
Profitability of the sector • Balancing (Up/Down) – Small packaging typically known as ‘Sachet’ - Is a two edged sword. Helps in trapping the bottom segment of the Customer Pyramid . – But it decreases the profit margin per unit sale. – In the long run increases the volume of sales. – Thus must be used very wisely.
Threats / Risks • Due to cut throat competition there is severe pressure on margin for the manufacturers of FMCG products. • The rural and semi urban population is growing but the problem faced by the FMCG manufacturers is the logistics. • Some problems associated with rural markets is acute dependence on the vagaries of the monsoon, seasonal consumption linked to harvests, festivals and special occasions, poor roads and power problem.
Threats / Risks • Once the product fails its not easy to revive it back. • When the company launches a new product its competitor will also launch the new product in the same line, within the short span. • Hopping from one product to another is too high , due to very large pool of products. Customer Loyalty is big issue. • Tolerance level in the customer satisfaction is quite low , due to easy availability of other options.
Distribution channel Existing distribution channels Can be described by how direct they are to the customer in other words how many channels it take the goods to reach customer.
Trends and emerging channels New channels can offer the opportunity to develop a competitive advantage shorten the channel length.
Channel power structure For example, in the case of a product having little brand equity, retailers have negotiating power over manufacturers and can capture more margin.
Supply Chain Management “..Supply Chain Management is Getting the right things to the right places at the right times, for profit ..” New information and communications technologies have revolutionized today’s supply chains, making them extraordinarily better, faster, and
HUL Supply Chain Management This is example of FMCG company HUL
Introduction HUL SCM Earlier known as Hindustan Lever Limited Was formed in 1933 as Lever Brothers India Limited. Headquartered in Mumbai, HUL is the market leader in Indian products such as tea, soaps, detergents etc. The company’s statement of corporate purpose is to “meet the everyday needs of people, everywhere.”
Introduction HUL SCM Some of its brands include Kwality Wall's ice cream, Lifeboy, Lux, Breeze, Liril, Hamam, Pureit Water Purifier, Lipton tea, Brooke Bond tea, Bru Coffee, Pepsodent and toothpaste and brushes and many more.
Introduction HUL SCM The company was renamed in late June 2007 to "Hindustan Unilever Limited“, to provide the optimum balance between maintaining heritage of the company and future benefits. HUL holds 100 factories across India for manufacturing its diverse product range.
Distribution System of HUL HUL's products, are distributed through a network of about 7,000 redistribution stockists covering about one million retail outlets. The general trade comprises grocery stores, chemists, wholesale, kiosks and general stores. Hindustan Unilever provide tailor made services to each of its channel partners.
Distribution System of HUL HUL is using the point of purchase method for much higher level of direct contact, through in-store facilitators, sampling, education and experience. It has developed customer management and supply chain capabilities for partnering emerging self-service stores and supermarkets. 2,000 suppliers and 7,500 distributors serve HLL’s 100 factories which are decentralized across 2 million square miles of territory.
Distribution at the Villages The company has brought all markets with populations of below 50,000 under one rural sales organisation. The team comprises an exclusive sales force and exclusive redistribution stockists. The team focuses on building superior availability of products. In rural India, the network directly covers about 50,000 villages, reaching 250 million consumers, through 6000 sub-stockists.
E- Shakti (HUL) Enhancing livelihoods 75000 poor women have benefited with an additional income of Rs.18.75 crore through a livelihood enhancement programme established by a unique corporateNGO partnership
Distribution at the Supermarkets HUL has set up a full-scale sales organisation, for this channel to serve modern retailing outlets. Product tests and in-store sampling is provided to consumers.
Harnessing Information Technology An IT-powered system has been implemented to supply stocks to redistribution stockists. The objective is to make the product available at the right place and right time in the most cost effective manner. For this, stockists have been connected through an Internet-based network, called RS Net, for online interaction. RS Net is part of Project Leap, HUL's end-to-end supply chain.
Pioneering New Channels Hindustan Unilever is simultaneously creating new channels, designed on the same principle of holistic contact with consumers. 1) Project Shakti :HUL's partnership with Self Help Groups of rural women. Started in 2001, Project Shakti has already been extended to about 50,000 villages in 12 states - Andhra Pradesh, Karnataka, Gujarat and others.
Pioneering New Channels 2) Hindustan Unilever Network (HUN): it is the company's arm in the Direct Selling channel. It presents a range of customised offerings in Home & Personal Care and Foods. 3) Out-of-Home : this deals in providing vending machines for hot beverages like tea and coffee. HUL’s alliance with Pepsi Co. has significantly strengthened the channel. 4) Health and Beauty services : Lakme Salons provide specialised beauty services and solutions, under the recognised authority of the Lakme brand. The Ayush Therapy Centres provide easy access to authentic Ayurvedic treatments and products.
Conclusion Hindustan Unilever, which once pioneered distribution in India, is today reinventing distribution - creating new channels, and redefining the way current channels are serviced. In the process it is converging product availability, with brand communication and brand experience.
ITC Supply Chain Management This is example of FMCG company ITC
ITC Limited – Imperial tobacco Ltd. Turnover of US $ 4.75 billion Registered office in Kolkata Employs over 20,000 people More than 60 locations across India Listed on Forbes 2000 Cigarettes, Hotels, Paperboards, Packaging and Agri-Exports Packaged Foods & Confectionery, Branded Apparel and Greeting Cards.
ITC FMCG Supply chain Consists of diverse categories with different priorities More than 1000+ SKUs Buying Value $68 MM Warehousing space of more than 3.5m SFT around 55+ Locations Products manufactured at 45+ plants More than 650 trucks moved every day Direct distribution from factories to Distributors. Indirect movement through RDCs Combination of Rail/Road/Sea movement within the country depending on the product type. (Target is Safer, Faster, cost effective
E-Choupal SCM Process
Positioning of ITC A leading FMCG player in India
VPN providing SCM, ERP & CRM capability
F e-choupal rural two-way A fulfillment capability R M Cigarette Trade Marketing capability E R Expanded FMCG distribution capability S Brande d Foods
Lifestyl e retailin g
Educatio n Stationer y
Matches & Agarbat tis
M A R K E T S
Personal Care Product s
A basis for strategic partnerships with other FMCG brand owners
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Godrej
Key Businesses
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Godrej Consumer Product Supply Chain Management
Supply Chain for GCPL It consists of movement of Goods from the Plants (Factories)to the Plant warehouse (PWH) to Regional warehouse (RWH). From RWH, the Goods move to CFA and then to Distributor and then to Retailer and finally to the Customer.
Supply Chain Management SAMPARK: New initiative connecting distributors. SAHAYOG: connect to the suppliers. 1200 distributors. 400-450 are A-class distributors contributing 75-80% of the total business. 750-800 distributors are B & C class.
SAP in Godrej SCM SAP is robust as it would be based on centralized system. The implementation of SAP was started around December, 2005 SAMPARK: Software cost=Rs 4.5 mn (0.1 mn USD); Hardware cost= Rs 10 mn. (0.02 mn USD) SAHAYOG: Rs 2 mn (0.04 mn USD)
Sampark & Sahayog Concept based on – Replenishment – Monitoring Inventory levels – Information on current stock levels and Goods-intransit flows
Benefits – – – – – – –
Sales orders generated on same day slashing delays. Convenient Data Flow Portal framework - cutting edge concept Daily visibility of Retailing information. Lower carrying cost to distributors. Reduced Product Stagnation. Better Decision Making about forecasting.
Key learnings from this study In todays economic scenario cost saving is what companies are focusing majorly. Which an FMCG firm can get by focusing on 3 important aspects Facilities, Information collection, Software. By this Study of 3 Major FMCG player’s SCM, we can conclude following points: Relations with distributors, suppliers & retailers will give an competitive edge in a long run. Effective software like SAP will ease the flow of information. Godrej getting a edge by connecting close with the Suppliers, Distributors & Retailers (Sampoorna in process). HUL Dominating the market with huge margin due to effective SCM . ITC making diverse products and growing rapidly in the markets. All 3 majors are equally focusing on the UNTAPPED RURAL markets, where the Business of tomorrow lies.
ITC – E-Choupal HUL – E-Shakti Godrej – Major distributors are of B & C Class
