A Review Of The FMCG Sector Information Technology Essay

Introduction

Products having a quick turnover and of relative low cost are called as (FMCG)Fast Moving Consumer Goods. Mostly FMCG goods are perishable in nature. Examples of FMCG products are personal care, household care products, food and beverages, pharmaceuticals etc.

FMCG sector in India is fourth largest sector in Indian economy and almost creates employment opportunities for around 3 million people in indirect activities. The total FMCG market is around Rs. 1,00,000 crores and the growth rate is double digit and is expected to grow in future with high growth rate

FMCG sector can be characterized by properly established distribution networks, low per capita consumption, low operating cost and highly competitive between the organized retail and unorganized retail.

Company Background

Hindustan Unilever Limited which was earlier known as Hindustan Liver Limited is India’s biggest fast moving consumer goods (FMCG) company. It has it’s headquarter in Mumbai, India and the employee strength is around 15000 and considering indirect employment the count reaches 52,000.

HUL distribution covers almost 1 million retail outlets directly but shelf presence is in over 6.3 million outlets i.e. almost 80% of the total outlet in India.

HUL has a presence in more than 20 consumer categories of home and personal care and food and beverages, such as detergents, tea, shampoos, soups, jam, ice creams etc.HUL has many brands in the most trusted list.

HUL Supply Chain

HUL had 23 offices 2 research centre, almost 1,000 suppliers and 7,000 stockist and almost 1 million retail outlets, 100 factories, 13 sales branches, 121 warehouse depots and 93 manufacturing sites.

So the integration between all the departments of the organization the suppliers, distributor the stockist was a big problem for the company.

HUL Supply Chain

The Carry and forward agent (C&FA) distributor plans the distribution as per the demands raised by the stockist and these stockist were given 60-90 days credit period for the products.

HUL needed to handle the differing needs of the supply chain and wanted to achieve high penetration of their distribution channels and as the products were frequently purchased and of small value availability near the consumer through this distribution network was an critical factor.

The net current asset as per the capital invested was almost 44 percent and the inventory was 24 percent of the total divisional turnover from the personal care products and 20 percent of the turnover from detergents which indicated that some changes were needed to the system.

HUL ERP system

HUL objectives for implementation of ERP

The initial selection was mainly driven by the company’s requirement to integrate the supply chain and to the re-engineering needs.

The main objective was to reduce the channel inventory in its distribution network and also standardizing the business processes across the business units. MFG/PRO had many good supply management tools and helped in synchronizing the distributed operation, and hence was selected by HUL though not being the market leader.

Major modules of MFG/PRO

MFG/PRO Distribution

MFG/PRO Manufacturing

MFG/Pro Financial Services

Purchasing

Sales Quotations

Sales Orders and Invoices

Inventory & Physical Inventory

Sales Analysis

Configured Products

EMT (Enterprise Material Transfer) and EOP (Enterprise Operations Plan)

Product Structures

Routing/Work Centers

Formula/Process

Work Orders

Repetitive

Advance Repetitive

Shop Floor Control

Quality Management

Forecasting/Master Production Scheduling

Material Requirements Planning

Capacity Requirements Planning

Distribution Requirements Planning

General Ledger

Accounts Receivable

Accounts Payable

Multiple Currency

Cost Management

Cash Management

Fixed Assets

Global Tax Management

HUL after MFG/PRO (ERP Suite)

The initial outcome of the system was the workflow automation of the entire supply chain and a strong integration between the business processes and business units.

The stock replenishment cycle reduced drastically from 2 weeks to 3.5 days as the manual planning was replaced by automated planning, which helped in reducing the inventory cost.

The current assets as to the capital invested was reduced to 8% and the inventory held was to down to almost 5-6%.

The channel inventory in the distribution network was reduced as the demand forecasting could be done on a weekly-daily basis, and also the level of finish good stock at distribution centre was reduced from 3 weeks to 1 week.

HUL through its ERP infrastructure took e-commerce initiatives to extend the company through the web connecting it s all partners, vendors, suppliers and customers. This system spanned to almost 240 sites related to supply chain and it handled some functionality such as planning, order processing, invoicing and many financial tasks throughout the entire enterprise

HUL distribution network after the implementation of the ERP system

Key Challenges with the existing ERP

Modern Trade Challenges

The business infrastructure and the existing legacy system were not able to meet the process capability requirements and the transactional requirements which were due to the arrival of modern trade practices.

As with the emerging markets the customers wanted the response time of their orders to decrease and the issues of product availability in market were raising certain issues to the existing system.

The biggest challenge to the company was the distribution of the goods diagonally throughout the country at right time, in right quantity and at the very right place. The company needed to target service levels higher than those followed in the industry and to enhance the supply chain to be a leader in the market.

Business Optimization Hurdles

Consolidation of branch offices and the warehouse was the initial part of the strategies made for business optimization. This needed the business systems to be streamlined and this led to identification of the limitation of the existing ERP system.

The company also felt the importance of integration and cohesive communication links with the external entities as all improvements of business process and supply chain flow had external entities as an integral part. But this integration was difficult with the existing ERP system.

The company used an in house developed e-business system mainly to manage all replenishment and order fulfilment process, and it was done by regular exchange and synchronization of the data between the company and its distributor. But these distributor had their own systems so integration with then led to compatibility issues. The e-business suite developed in house was not so scalable as per the changing business needs.

Further the company used a standard centralized distributor management system to implement extended supply chain and so the operations of the distributor needed to be highly integrated with the existing ERP system so the new ERP system should be backward compatible and should be able to integrate properly with the back office application as the company wanted to leverage the existing system in future too.

Process Centric Collaboration

HUL decided in 2004 to revamp its existing IT system with SAP and it was in line with the Unilever’s decision to implement SAP as it standard IT solutions supplier and HUL wanted to use all rich features of SAP for enterprise solution and its vast experience in FMCG sector and which would in turn help to align themselves with the global visionary strategy. This system was aimed at mainly

SAP Project Objectives

To optimize the business operations and to simplify the management of the IT systems.

To consolidate the process internally and across the extended supply chain.

Preserving their investment in the legacy cash to order management and the inventory systems for the existing business partners.

Integrating with the IT infrastructure of the business partners regardless of their existing systems.

Implementation in Phases

Phase 1:

SAP ERP Central Component

5.0, SAP NetWeaver PI (Process Integration)

SAP Solution Manager

SAP NetWeaver Portal

SAP SCM (Supply Chain Management)

SAP NetWeaver BI (Business Intelligence)

SAP NetWeaver CE Composition Environment

Phase 2:

SAP CRM (Customer Relationship Management)

SAP Advanced Planning

SAP Transportation Planning and Vehicle Scheduling

Optimisation Production Planning and

Detailed Scheduling

Key Benefits after SAP Implementation

It helped in standardizing and streamlining the business processes across its global operations which in turn accelerate business performance and simplify the IT systems.

Process centric collaboration not only internally but throughout the value chain including suppliers and end users.

Exchange of data and information between multiple platforms application with the partners IT infrastructure.

SAP NetWeaver Portal has replaced existing e-business system and helped in customer collaboration and it has abilities to cope with the changing needs of the market.

Quoted Statement

“We are happy with the results. With SAP NetWeaver PI, we have finally streamlined, advanced and integrated our process capability. This goes a long way in enhancing HUL’s ability to meet the demands of the modern trade,”

KS Arunkumar, IT Group Manager, Hindustan

Unilever Limited

Conclusion:

The FMCG sector has been an early adopter of the ERP system and packages if we consider the S-Curve. It has brought about a radical change in the business workflows with IT initiatives in it. The data and information management has become an easy task as compared to the legacy system.

Using ERP we can rationalize the cost drivers across the entire supply chain, including input costs, inventory cost, distribution cost and manufacturing cost.

ERP implementation helped in enhancing relations with the business partners and creating value for the customer.

A successful ERP implementation can give an edge over the competitors and with the changing market needs and wants proper technology implementation in necessity.

ERP implementation is not only for improving the performance of a organization, or increasing ROI but it’s an integration of the existing system with newer technologies for sustainable business development.

As the margin per product is very less in FMCG sector the margin lies in reducing the cost at each stage of the value chain which can be achieved using such technological implementation.