An Overview Of FMCG Industry And Warehousing Information Technology Essay

The FMCG (Fast Moving Consumer Goods) industry is extremely competitive. Consumers have high demands on price and quality, and are increasingly disloyal to brands, quickly choosing a different brand or product if the other offer appears better. The recent rise of private-label goods has led to increased competition within the FMCG industry. A focus on bringing high volume products at lower prices to the market has created greater demands on all actors. Producers must differentiate their products and quickly bring them to market. This has spurred the rise of many more product variants and a frequent replacement of products, in order to achieve the best positioning in the current market.

Manufacturers must adapt and be able to produce products in smaller batch sizes to win the battle on the shelf. It is necessary to have the freshest product. Additionally, demand for FMCG can be very seasonal, meaning manufacturers must be very flexible to produce different goods. It also means that fast time to market with an innovation is crucial to win customers. A very fast setup and installation of a production line is necessary to achieve this.

Since products are consumed shortly after they are produced, it is imperative to keep production uptime at its high at all times. Any stop in production can cause empty shelves and lost market share. So line uptime must be on a high level and MTBF (Mean Time Before Failure) must be as long as possible. Who buys a damaged or dented product? Consumers have the right to expect good quality and easily reject a damaged or dented product. Products and packaging are not allowed to be damaged during the manufacturing process.

In the FMCG industry, improved production logistics solutions are major drivers of productivity development. Warehouse can play a key role in the integrated logistics strategy and its building and maintaining good relationships between supply chain partners.

Warehousing affects customer service stock-out rates and firm’s sales and marketing success. A warehouse smoothens out market supply and demand fluctuations. When supply exceeds demand, a demand warehouse stores product in anticipation of customers’ requirements when demand exceeds supply the warehouse can speed product movement to the customer by performing additional services like marking prices, packaging products or final assembling etc.

Warehousing is an integral part of any logistics system, where they are actively involved to feed the demand of inbound and outbound of supply chain. Warehouses should perhaps be better thought of as undertaking sorting and not storing products. The warehouse is a link between producer and customer. Warehouses are planned space for the storage and handling of goods and materials with the appropriate equipment equipped. The activities of warehouses include transportation consolidation, break bulk, product mixing, cross-docking, protection against contingencies, smoothing of supply chain and provide value added services.

Warehouses can be called distribution centres as well. Most companies set up distribution centres to perform just-in-time concept to increase the customer service level. This is to coordinate better between the connection of manufacturers and consumers in supply chain. Warehouses are also needed to perform high speed in term of cycle time performance and also to achieve zero defects in term of inventory errors in supply chain logistics. However, warehouses have imposed 2 to 5% on the cost of goods sales. Minimizing the cost of warehouses but in between increasing performance of warehouses has become an important business issue.

Warehousing can be defined by three functions: i) receiving goods from a source; ii) storing goods until they are needed by a customer (internal or external); iii) retrieving the goods when requested.

Storing material for an internal customer implies the need for work-in-process storage, whereas storing goods for an external customer may imply the need for finished products storage. However, the functions of warehousing remain the same and successful warehouse layouts must accomplish the following objectives, regardless of material being stored:

maximize the use of space,

maximize the use of equipment,

maximize the use of labor,

maximize accessibility to all items,

maximize protection of all items.

Although the objectives of warehouse layout and operation are easily recognized, warehouse layout problems are often complicated by a large varieties of products needing storage, varying areas of required storage space and drastic fluctuations in product demand. Optimal approaches to warehouse layout problems often consider a single objective (e.g. maximize floor space utilization) and/or provide a solution to a static problem. Warehouse design problems are further complicated by alternative storage methods and equipment.

Need for Warehousing

Warehousing is necessary due the following reasons.

(i) Seasonal Production- You know that agricultural commodities are harvested during certain seasons, but their consumption or use takes place throughout the year. Therefore, there is a need for proper storage or warehousing for these commodities, from where they can be supplied as and when required.

(ii) Seasonal Demand- There are certain goods, which are demanded seasonally, like woollen garments in winters or umbrellas in the rainy season. The production of these goods takes place throughout the year to meet the seasonal demand. So there is a need to store these goods in a warehouse to make them available at the time of need.

(iii) Large-scale Production – In case of manufactured goods, now-a-days production takes place to meet the existing as well as future demand of the products. Manufacturers also produce goods in huge quantity to enjoy the benefits of large-scale production, which is more economical. So the finished products, which are produced on a large scale, need to be stored properly till they are cleared by sales.

(iv) Quick Supply – Both industrial as well as agricultural goods are produced at some specific places but consumed throughout the country. Therefore, it is essential to stock these goods near the place of consumption, so that without making any delay these goods are made available to the consumers at the time of their need.

(v) Continuous Production- Continuous production of goods in factories requires adequate supply of raw materials. So there is a need to keep sufficient quantity of stock of raw material in the warehouse to ensure continuous production.

(vi) Price Stabilization- To maintain a reasonable level of the price of the goods in the market there is a need to keep sufficient stock in the warehouses. Scarcity in supply of goods may increase their price in the market. Again, excess production and supply may also lead to fall in prices of the product. By maintaining a balance of supply of goods, warehousing leads to price stabilization.

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Types of Warehouses

On the basis of Ownership:

i. Private Warehouses – The warehouses which are owned and managed by the manufacturers or traders to store, exclusively, their own stock of goods are known as private warehouses. Generally these warehouses are constructed by the farmers near their fields, by wholesalers and retailers near their business centres and by manufacturers near their factories. The design and the facilities provided therein are according to the nature of products to be stored.

ii. Public Warehouses – The warehouses which are run to store goods of the general public are known as public warehouses. Anyone can store his goods in these warehouses on payment of rent. An individual, a partnership firm or a company may own these warehouses. To start such warehouses a licence from the government is required. The government also regulates the functions and operations of these warehouses. Mostly these warehouses are used by manufacturers, wholesalers, exporters, importers, government agencies, etc.

iii. Government Warehouses -These warehouses are owned, managed and controlled by central or state governments or public corporations or local authorities. Both government and private enterprises may use these warehouses to store their goods.

Central Warehousing Corporation of India, State Warehousing Corporation and Food Corporation of India are examples of agencies maintaining government warehouses.

iv. Bonded Warehouses – These warehouses are owned, managed and controlled by government as well as private agencies. Private bonded warehouses have to obtain licence from the government. Bonded warehouses are used to store imported goods for which import duty is yet to be paid. Incase of imported goods the importers are not allowed to take away the goods from the ports till such duty is paid. These warehouses are generally owned by dock authorities and found near the ports.

v. Co-operative Warehouses – These warehouses are owned, managed and controlled by co-operative societies. They provide warehousing facilities at the most economical rates to the members of their society.

On the basis of benefits realized:

Benefits realized from strategic warehousing

ECONOMIC BENEFITS SERVICE BENEFITS

(5 basic economic benefits) (Five basic service benefits)

a) Consolidation 1) Spot Stock

b) Break bulk 2) Assortment

c) Cross dock 3) Mixing

d) Processing/postponement 4) Production Support

e) Stock pilling 5) Market Presence

Economic Benefits

Economic Benefits result when overall logistical costs are reduced by utilizing by one or more facilities. It is not difficult to quantify the return on investment of an economic benefit because it is reflected in a direct cost to cost trade-offs.

Service Benefits

It may or may not reduce the cost. A warehouse justified on service basis allows improvement in the time and place capability of overall logistical system. It is difficult to quantify the return on investment of such a benefit because it involves cost-to-cost trade-offs. Such a facility would be added only if the net effect would be profit-justified.

On the basis of locations/positions

1. Market-positioned warehouses

Market-positioned warehouses are located near to the customers and markets (point of product consumption) with the objective of serving them. These generally have a large variety and low volume of items to service local requirements. Such warehouses reduce cost by providing place utility. A Market-positioned warehouses functions as a collection point for the products of distant firms with the resulting accumulations of product serving as the supply source for retail inventory replenishment. This approach allows large and cost-effective shipments from the manufacturer with lower-cost, local transportation providing service to individual retailers. Market-positioned warehouses may be owned by the firm or the retailer (private warehouses), or they may be an independent business providing warehouses service for profit (public).

2. Manufacturing-Positioned Warehouses

Manufacturing positioned warehouse are located near to the manufacturing facilities in order to support manufacturing on the inbound side and to facilitate assortment-creation and shipping on the outbound side. Improve customer services and manufacturing support achieved through type of warehouse which acts as the collection point for products needed in filing customer orders and material needed for manufacturing.

3. Intermediately-Positioned Warehouses

Intermediately-positioned warehouses are those located between manufacturing and market-position warehouses. These help in consolidation of assortments for shipments from different manufacturing facilities. A firm may have many manufacturing plant located, for economic reasons, near the sources of raw material. Under these conditions the cost-effective warehouse may be at some intermediate point.

Others:

Automated Warehouse – With advances in computer and robotics technology many warehouses now have automated capabilities. The level of automation ranges from a small conveyor belt transporting products in a small area all the way up to a fully automated facility where only a few people are needed to handle storage activity for thousands of pounds/kilograms of product. In fact, many warehouses use machines to handle nearly all physical distribution activities such as moving product-filled pallets (i.e., platforms that hold large amounts of product) around buildings that may be several stories tall and the length of two or more football fields.

Climate-Controlled Warehouse – Warehouses handle storage of many types of products including those that need special handling conditions such as freezers for storing frozen products, humidity-controlled environments for delicate products, such as produce or flowers, and dirt-free facilities for handling highly sensitive computer products.

Distribution Center – There are some warehouses where product storage is considered a very temporary activity. These warehouses serve as points in the distribution system at which products are received from many suppliers and quickly shipped out to many customers. In some cases, such as with distribution centers handling perishable food (e.g., produce), most of the product enters in the early morning and is distributed by the end of the day.

Characteristics of Ideal Warehouses

Any warehouse is said be an ideal warehouse if it possesses certain characteristics, which are given below:

i. Warehouse should be located at a convenient place near highways, railway stations, airports and seaports where goods can be loaded and unloaded easily.

ii. Mechanical appliances should be there to loading and unloading the goods. This reduces the wastages in handling and also minimizes handling costs.

iii. Adequate space should be available inside the building to keep the goods in proper order.

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iv. Warehouses meant for preservation of perishable items like fruits, vegetables, eggs and butter etc. should have cold storage facilities.

v. Proper arrangement should be there to protect the goods from sunlight, rain, wind, dust, moisture and pests.

vi. Sufficient parking space should be there inside the premises to facilitate easy and quick loading and unloading of goods.

vii. Round the clock security arrangement should be there to avoid theft of goods.

viii. The building should be fitted with latest fire-fighting equipments to avoid loss of goods due to fire.

Steps in designing warehouses for FMCG goods.

1) Goal setting.

Before you design the warehouse, it is better to understand what your warehousing needs are and set some goals for the new design.

Is your main objective to reduce your warehouse costs, or to offer better customer service (e.g., faster shipping or delivery of products)? Perhaps you simply want to get the most space you can out of your facility at the lowest price possible.

The Goal setting should be in align with the company’s objectives. For example FMCG consumer durable company (Sony, LG) whose objective is to offer good service to their customer. The Logistics Manager should design larger warehouse to keep more stocks and deploy material equipment handling for faster shipment of goods.

2) Information gathering and analysis.

Now that you are aware of your goals, it’s time for a fact-finding mission about your operation. You’ll want to gather information regarding:

Types of items that must be stored. For example Hindustan Unilever manufacturing food products like Tea, coffee, Kwality Ice cream, Annapurna Atta and Toiletry products like Domex, Vim bar, Rin etc. In the warehouse food products should be kept separately from toiletry products. Warehouse Manager should follow the guidelines issued by Food & Drug Authority while stacking the food items. In the FMCG company freebies are provided along with items to promote sales. HUL may plan to give ordinary Cricket bat autographed by Sachin Tendulkar during IPL cricket match along with Annapurna Atta to promote their products. In such case the warehouse need to stores not only Annapurna Atta but also cricket bats.

Frequency and volume of shipments and deliveries. Items like Tea, Rin, Vim bar will have high frequency and huge volume of shipments and deliveries whereas Items like Annapurna Atta and Domex will have low frequency and low volume shipments and deliveries.

Month to month fluctuations in inventory. Demand for Kwality ice cream fluctuate according to season. During summer season the demand for Ice cream is high and hence the warehouse should keep more inventory in cold storage and during Winter the ice cream sales will be less and hence one should keep low inventory.

Projected data for growth in the company is expected to change storage needs. Warehouse storage area is planned not only to meet current volume requirement but also future expected growth for next two to three years. If the company project good growth for existing products and plan for new product launches in the coming years the Logistics Manager should plan to have enough space at warehouse to meet the future growth plan.

Keeping current warehouse layout plan is important. If you plan to continue use of certain machinery or processes in new warehouse you may require to include these details in your new report, as well as including any safety concerns for the operation.

3) Layout planning.

You have to create the new layout after gathering all the data on your company’s warehousing space and requirements, as warehousing needs are hugely differ, there are many different storage models/options to accommodate every type of item. It’s important to consider the different options and decide on the best storage methods as well as the most efficient design for your space.

Layout plan should also include

product type (size, weight, solid / liquid/ gas, perishable),

storage type (Vertical or Horizontal) and

the material handling equipments.

If your products are slightly heavy in nature like UPS/Inverter and stored in racks, it require Fork lift for speed storage / retrieval and movement. These fork lift require adequate passage (aisles) in the warehouse for movement. Again selection of fork lift (manual or Electric operated) depends upon the product nature and the type of storage. If you keep stocks in vertically (height) rack then you may require electrically operated fork lift to lift the stocks from the height which involves more investment on equipment and require less investment on space utilization due to vertical storage pattern. If you keep stocks in Horizontal rack then you may require manually operated forklift which require less investment in machine and require more investment on space utilization due to horizontal storage.

If you plan to have warehouse in major locations like Bangalore, Delhi, Mumbai where square foot (Sq.Ft) space cost is more, then you can work out optimal cost by selecting various option (i) by choosing vertical storage facility with Electrically operated fork lift or (ii) by choosing horizontal storage facility with manually operated fork lift and choose the most benefitted model.

If your warehouse operations are more complex due to different product nature [example Reliance deals with Fresh stores for Vegetables require cold storage facility to preserve vegetables, Reliance Mart for consumer goods require general warehouse with huge space, Petro Products and chemicals and require specialized storage facility], there are companies that specialize in warehouse supplies and equipment often offer planning services along with quotes for the materials required. Their knowledge of warehousing equipment, design and safety is a major asset during this process.

4) Implementing.

Implementation is major task. Setting up or re-organizing an existing warehouse can be a very big job. Fortunately, many industrial equipment companies offer this as part of their services as well and they able to assist you in proper execution of the design you have selected. They can also suggest better method to adopt which will be beneficial to the company.

5) Maintenance.

Part of the plans for your warehouse must include how the facility will be maintained on an ongoing basis. Procedures for taking regular inventory, continuing excellent safety procedures and maintaining equipment in top condition are necessary to keep your organization running smoothly.

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It is clear that there are a lot of factors involved in an efficient, cost effective warehouse design that maximizes available storage space.

Points to be considered while deciding a warehouse location (Selecting location of a warehouse):

(Market/ Production/ Intermediary Positioned)

Cost of the warehouse

Order cycle time

Desired customer service level

Nature of the products (seasonal/ perishable)

Market service area and cost of distribution

Cost and availability of transport facilities

Location of competitors warehouses

Availability of basic infrastructure such as power, water, etc.

Labor supply situation and wage structure

Government rules, taxes, levies, etc.

Potential for further expansion of warehouse

Re-sale value in future

Possibility of change in the use of facility at later stage

Geographical hazards like flood, earthquakes, etc.

Factors determining Area of Warehouse:

Desired customer service level

Size of market to be served

Number of products marketed

Types, size and shape of the products to be stored and for what period

Material handling system to be used

Product throughput (sales volume) present and future

Production lead time

Economies of scale

Stock layout arrangements

Aisle and gangways required for movement of goods

Office area requirement

Fluctuations in demand (high inventory required to meet erratic demand)

Activities to be performed in warehouse

Factors determining warehouse layout (design):

Types of products to be stored

Company’s financial resources

Competitive environment

Warehousing storage principles:

Grouping by product compatibility

Grouping by complimentarily (functionally rated items)

Grouping by physically similar items

Grouping by popularity (fast moving items to closer exit points and slow moving items at remote place in warehouse)

Working stocks and buffer stocks are to be kept separately

To minimize workload (time) for order picking and shipping aisles are redesigned to facilitate more efficient flow of products to and from dock areas

Advantages of layout:

Increase in output

Improved product flow

Reduced cost of operations

Improvement in customer service level

Provide better employee working conditions

Basic warehousing decisions

Warehousing management involves a number of important decisions, including ownership, number, size stocking and location that is what type organization, how many, what size, what products and where.

The decisions related to warehouse are involved at Strategic Level, Tactical Level and Operational Level.

Strategic Level Decisions : These decisions are taken by the company top management, have the long lasting impact on the operation of the warehouse and involve major investment. For example decisions like

• Warehouse Ownership Decision (Role of Private, Public or Contract operations)

• How many warehouses and where to be located ?

• Material Handling Equipment selection

Tactical Level Decisions : Tactical Planning is the process of taking the strategic plan and breaking it down into specific, medium term actions and plans which involves significant investment.

• Facility Layout (Sizing of the warehouse areas and storage Layout) and its equipment

• Stacking Norms, Replenishment schemes and batch sizing

Operational Level Decisions : Decision and policies related to the real-time operation of the warehouse.

Warehousing strategy

The figure presents a strategy continuum ranging from private to contract to public. Qualitative considerations, listed on the vertical dimensions, are (1) presence synergies, (2) industry synergies, (3) operating flexibility (4) location flexibility and, (5) Scale economies. Each consideration and its rationale are discussed.

(1) Presence synergies: Presence synergies refer to the marketing benefits of having inventory located nearby in a building that is clearly affiliated with the enterprise (e.g., the building has the firm’s name on the door). It is widely thought that customers are more comfortable when suppliers maintain inventory in nearby locations. Products and customers that benefit form local presence should be served from private or contract facilities.

(2) Industry synergies: Industry synergies refer to the operating benefits of collocating with another firm serving the same industry. For example, firms in the grocery business often receive substantial benefits when they share public warehouse facilities with other suppliers serving the same industry. Reduced transportation cost is the major benefit since joint use of same public warehouse allows frequent delivery of consolidated loads from multiple suppliers. Public and contract warehousing increases the potential for industry synergy.

(3) Operating flexibility: Operating flexibility refers to the ability to adjust internal policies and procedure to meet product and customer needs. Since private warehouses operate under the complete control of the enterprise, they are usually perceived to demonstrate more operating flexibility. On the other hand, a public warehouse often employs policy and procedures that are consistent across its client to minimize operating confusion. While conventional wisdom would suggest that private warehouses can offer more operating flexibility, there are many public and contract warehouse operations that have demonstrated substantial flexibility and responsiveness.

(4)Location flexibly: Location flexibly refers to the ability to quick adjust warehouse location and number in accordance with seasonal or permanent demand changes. For example, in-season demand for agricultural chemicals requires that warehouses to be located near markets that allow customer pickup. Outside the growing season, however, these local warehouses are unnecessary. Thus, the desirable strategy is to be able to open and close local facilities seasonally. Public and contract warehouses offer the location flexibility to accomplish such requirements.

(5)Scale economies: Scale economies refer to the ability to reduce material handling and storage cost through application of advanced technologies. High volume warehouse generally have a greater opportunity to achieve these benefits because they can spread technology’s fixed cost over larger volumes. In addition, capital investment in mechanized or automated equipment and information technology can reduce direct variable cost. Public and contract warehouses are generally perceived to offer better scale economies since they are able to design operations and facilities to meet higher volumes of multiple clients.

Warehouse Design Strategies

One key to effective design is the relative dominance of picking or storage activity. These two warehouse functions have opposing requirements.

Techniques that maximize space utilization tend to complicate picking and render it inefficient while large storage areas increase distance and also reduce picking efficiency. Ideal picking requires small stocks in dedicated, close locations. This works against storage efficiency.

Automation of picking, storage, handling and information can compensate for these opposing requirements to a degree. However, automation is expensive to install and operate.

The figure below shows how different transaction volumes, storage requirements and technologies lead to different design concepts.

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