Supply Chain Management In FMGC Sector In India Commerce Essay

The Rs.85000 crore FMCG market in Indian is growing at a quick speed despite of the economic downslide. The raising disposable earnings and enhanced lifestyle in most tier II and tier III cities are having an influence on the FMCG development across the nation.

Over the years organizations like HUL, ITC and Dabur have enhanced efficiency with innovation and strong distribution channels. Their key products have strengthened their existence and outperformed competition in the FMCG segment. Moreover organizations have been effective in refreshing their existence in the semi-urban and rural marketplaces.

This report examines the supply chain management for FMCG companies in India. This starts with an overview of the FMCG sector in India and goes on to explain how the supply chain in such companies across the nation have added value to the industry and how further betterment in the system can add onto the growth of the industry. The report also contains a summary of the key players, including their product portfolio, business operations, and strategies. The report concludes with an industry outlook section.

Introduction

Statement of Problem

The current issues that are affecting supply chain performance in FMCG are:

Distributor Performance Inadequate efficiency of Suppliers and Transporters may cause low levels of client satisfaction and excessive route to Market costs. Although there are factors that Manufacturers cannot influence, especially poor infrastructure, there are many ways in which Distribution and Transport expectations can be considerably improved. Thus managing availability in complex distribution set ups is a challenge

Improving Distributor Performance Companies look at improving distribution and transportation through improving current processes and systems.

Logistics Some companies operate with owned warehouses, distribution centers and trucks and are not sure whether this is the best option.

Growth & Supply Chain Limitations For all companies a key concern is to evaluate all areas of the provide cycle for ways to improve productivity, customer satisfaction and reduce supply chain operational costs and capital put in the supply chain. One common concern is a lot of completed products kept by the maker compared with the relatively low levels of finished products kept by the distributor.

Planning Poor forecasting and demand planning is causing production planning issues by continuously changing production plans on a weekly and sometimes daily basis. Production Planning tools are generally felt to be inadequate and either not available within the ERP system or used stand-alone spreadsheets and manual workaround solutions.

The other taxation structures, dealing with counterfeit goods, infrastructure, emergence of third party logistics provider and reservation for the small scale sector are some of the other challenges faced by FMCG industries.

Purpose of Study

India is going through a retail revolution. All the big business homes are coming into this Segment and it is growing at a very fast speed. Worldwide leaders in this sector like Wal- Mart, Tesco and Carefour are also trying to get into the Indian market. Retail is providing incredible possibilities in career. However, our nation also poses a big challenge to organized large retailers particularly in the FMCG sector. Food being perishable item, for the retailer to be successful the key is proper supply chain management. The task comes from a number of factors, e.g. huge size and inhabitants of our nation, different lifestyle and hence different preference, very inadequate infrastructure like inappropriate roadways, bad connection between production centers and markets, lack of proper cold chain facility like refrigerated transportation, ware-housing etc. Under these conditions it is interesting to find out how huge structured retailers are dealing with these problems. In this paper a relative study is made in supply chain management adopted by different players in FMCG segment.

Review of Literature

Defining Supply Chain Management

Supply chain management (SCM) is the process of planning, employing and controlling the operations of the supply chain as effectively as possible. Supply Chain Management ranges all activity and storage of raw materials, work-in-process stock, and finished goods from point-of-origin to point-of-consumption.

In other words Supply chain management (SCM) is the art and science to improve the way a company manages its raw components and final output in terms of a product or a service and offers it to customers. Supply chain can be identified as the physical, financial and information networks for the logistic activity of materials, funds and related information. It starts from the acquisition of raw materials to distribution of finished products to the end users. Participants of supply chain include all vendors, service providers and customers. In essence, Supply Chain Management incorporates supply and demand administration within and across companies.

Some experts distinguish Supply Chain Management and logistics, while others consider the terms to be interchangeable. It is useful to remember that these are the terms that are used intertwine to define and distinguish between these related terms.

Although Supply chain management is no longer a business school concept, but a track proven technology appropriate to just about every company, regardless of the industrial sector. It is a sequence of complicated data that optimize enterprise plans within given set of constraints, backed up by a fully integrated suite of financial, distribution, and human resource management system. Supply Chain Management features planning and management of all activities involved in sourcing, procurement, conversion and logistics management activities. Often, it also includes co-ordination and collaboration with channel partners and customers. Supply Chain Management integrates supply and demand within and across companies. Supply Chain Management execution is handling and co-ordination of the activity of materials, information and resources across the supply chain.

Thus, Supply Chain encompasses all activities associated with the flow and transformation of materials and information from the raw material stage through to the end user.

Fast Moving Consumer Goods (FMCG) goods are commonly named as consumer packaged goods. Items in this category include all consumables (other than groceries/pulses) people buy at regular periods. The most common in the list are toilet soaps, detergents, shampoos, toothpaste, shaving products, shoe polish, packaged foodstuff, and household accessories and extends to certain electronic goods. These items are meant for daily of frequent consumption and have a high return.

The FMCG Industry is on a high growth curve with the overall demand expected to multiply over the next decade. This high growth is most likely to be accompanied by significant structural shifts such as changing customer preferences, emergence of modern retail dimensions, growing rural spend tendency.

The resultant new challenges that need to be addressed for an efficient and effective supply chain are:

Managing generation of different varieties.

Aligning to the outstart of new channels.

Managing the challenges of reach.

Companies are now realizing that current supply chain configurations need to evolve to enable them to participate in achieving growth. This requires fresh thinking on the ways in which an organization would structure itself in terms of its key supply chain processes and drivers.

With the presence of 12.2% of the world population in the villages of India, the Indian rural FMCG market is something no one can overlook. Better infrastructure facilities will improve their supply chain.

A qualitative study conducted in the past has captured information about the supply chain management in major FMCG Industries in India.

Major Players in the FMCG Market in India

Domestic players

Britannia India Ltd (BIL)

BIL is a major player in the Indian biscuit/cookie industry, with famous brands such as Tiger glucose, Mariegold, Fifty-Fifty, Good Day, Pure Magic, Bourbon etc. The company holds a 40 per cent market share in the overall structured biscuit market and has a capacity of 300,000 tonne annually.

Indian Tobacco Corporation Ltd (ITC)

Indian Tobacco Corporation Ltd is an affiliate of British American Tobacco with a 37 per cent stake. While ITC is an excellent market leader in its traditional businesses of cigarettes, hotels, paperboards, packaging and agro products, it is rapidly getting business even in its nascent businesses of branded apparel, greeting cards and packaged foods and confectionary.

Marico

Marico is a leading Indian Group came into existence in 1990 and operating in consumer products, aesthetics services and worldwide ayurvedic businesses. The organization also markets food products and distributes third party products. Marico owns well-known labels such as Parachute, Saffola, Sweekar, Shanti Amla, Hair & Care, Revive, Mediker, Oil of Malabar and the Sil range of processed foods. The organization plans to capture growth through steady change of selection along higher margin lines and focus on volume development, consolidation of market shares, building up brands and new product promotions.

Multinational players

Cadbury India Ltd (CIL)

Cadbury Indian Ltd is a 93.5 per cent subsidiary of Cadbury Schweppes Plc, UK, and a global major in the chocolate and sugar confectionery market. CIL is currently the largest player in the chocolate market in India with a 70 per cent market share. The organization is also a key player in the malted foods, cocoa powder, drinking chocolate, malt extract food and sugar confectionery segment. CIL had also entered the carbonated drinks market with brands like ‘Canada Dry’ and ‘Crush’, which were subsequently sold to Coca Cola in 1999. Established brands include Dairy Milk, Perk, Crackle, 5 Star, Éclairs, Gems, Fructus, Bournvita etc. The company plans to increase the number of retail stores for future growth and market expansion.

Colgate-Palmolive India

Colgate Palmolive India is the market leader in the Indian oral care industry, with a 51 per cent market share in the toothpaste segment, 48 per cent market share in the toothpowder market and a 30 per cent share in the toothbrush market. The company also has a presence in the premium toilet soap segment and in shaving items, which are sold under the Palmolive brand. The company plans to launch new products in dental and personal care segments and is prepared to continue spending on advertising and marketing to gain market share. Profit margins are being targeted through efficient supply chain management and bringing down cost of operations.

Hindustan Unilever Ltd (HUL)

Hindustan Unilever Ltd is the nation’s largest and most significant consumer goods company. The product portfolio of the company includes household and personal care products like soaps, detergents, shampoos, skin care products, colour cosmetics, deodorants and perfumes. It is also the market leader in tea, processed coffee, branded wheat flour, tomato products, ice cream, jams and squashes. HUL enjoys a solid distribution network masking over 3,400 distributors and 16 million outlets.

Nestle India Ltd (NIL)

Nestle India Ltd a subsidiary of Nestle SA, Switzerland, is a leading manufacturer of food products in India. Its products include soluble coffee, coffee blends and teas, condensed milk, noodles (81 per cent market share), infant milk powders (75 per cent market share) and cereals (80 per cent market share). Nestle has also established its presence in chocolates, confectioneries and other processed foods. Soluble drinks and dairy products are the major contributors to Nestle’s total sales. Some of Nestle’s popular labels are Nescafe, Milkmaid, Maggi and Cerelac. The company has entered the cold milk products segment with the launch of Nestle Dahi. Nestle has also made a venture in non-carbonated cold beverages segment through placement of Nestea iced tea and Nescafe Frappe selling machines.

PepsiCo

PepsiCo is a world leader in convenient foods and beverages. PepsiCo brands are available in nearly 200 markets worldwide. PepsiCo entered India in 1989 and is working on three focus areas – soft drink concentrate, snack foods and vegetable and food processing. PepsiCo’s success is the result of excellent products, high standards of performance and unique competitive strategies.

Procter & Gamble Hygiene and Health Care Limited

The overall portfolio of Procter & Gamble Hygiene and Health Care Limited includes healthcare; feminine-care; hair care and clothing care businesses. PGHH operates in just two business segments – Vicks range of cough & cold remedies and Whisper range of feminine hygiene. The parent company has declared its plan to discover further external collaborations in India to meet its global innovation and knowledge needs.

Gap Analysis

Indian organizations are still keeping up with among the Material Resource Planning (MRP-II), Enterprises Resource Planning (ERP), Logistics and Supply Chain Management (SCM). However, it is quite apparent that Indian corporate sector is fast realizing the need of SCM, which can integrate all other practices and procedures. SCM in India offers one of the fastest growth areas in revenues as well as employment.

India started a little overdue for restructuring and reformulating the strategies relevant with supply chain. However, there is no doubt that Indian industries are fast catching and preparing for meeting the new business environment. A study of available literature related with Indian business practices after 1991’s liberalization guidelines show that organizations are concerned about their value chain and identifying that competition is shifting towards the efficiency and performance of entire supply chain activities. The traces of SCM adoption by Indian organizations are given as:

Until 1990, logistics was treated as the management of transportation, inventories and warehousing and organizations had to perform these activities individually in an efficient manner.

Before opening of Indian market, Indian business giants were enjoying the single play with stable development of capacities. Later on when they heard the music of competition, they found themselves with excess capacities with huge cost burdens. This required organizations to control the cost factor for the survival at marketplace.

At the same time of 1990’s, Indian companies got fascinated by Business Process Re-engineering (BPR). Organizations treated BPR as remedy of their illness across the organizations’ processes and functions by eliminating the non-value adding activities and streamlining the operations with a guarantee of higher returns.

Fast growth and development of telecommunication networks and wide spread of information technology tools and techniques after mid 1990s presented the biggest challenge in managing well-informed clients. Nevertheless, these changes also provided the most significant boost to Indian industries because organizations discovered themselves able to reach out vendors or suppliers on one end, and clients to the other. Due to this revolution only, ERP-II integrated the internal departments into a seamless organization, whereas, SCM attempts to integrate the exterior factors and processes into the internal procedures.

Research Methodology

The methodology used for this study is that of primary research. Surveys were given out to 30 FMCG stockiest.

By collecting and analysing the results of the surveys we arrive at conclusions for each of the considered questions. In the survey we consider 12 questions.

Sampling

The sampling plan for the study decides the work area that is the population, which has to be surveyed. A Brief idea about the sampling for this research consisting of its different parameters is given below:

The research methodology comprises of the following:

Sampling Method (Judgment sampling)

In this type of the sampling the researcher uses his judgment to select population members who are good source for accurate information.

Sampling Universe

The sample universe taken is Andheri (W), Mumbai.

Sample size

In this study sample size is of 30 FMCG stockiest. Due to the shortage of time the research size is taken short so that the research can be done easily.

DESCRIPTIVE RESEARCH

The research is primarily descriptive as the problem is very specific and a certain set of answers only while provide the insight to the solution.

EXPLANATORY RESEARCH

This stage develops a precise theory which is used to explain empirical generalizations that are derived from descriptive stage.

DATA COLLECTION

The data has been primarily collected from the various customers, their opinions and answers are recorded in the form of an excel sheet.

DATA ANALYSIS (ACTIVITIES AND TECHNIQUES)

There are three different activities in data analysis:-

Data Reduction- in this data is selected, focused, simplified, abstracted and transformed. The data is organized.

Data Display- data is compressed, reduced and organized.

Conclusion Drawing and Verification.

Questionnaire And Analysis

Level of awareness towards Supply Chain Management in the FMCG sector

Degree of willingness to accept Supply Chain Management for better profitability achievement

Choices for a better Supply Chain Solutions

Insufficient funds affecting the implementation of Supply Chain Management

Satisfaction level with Supply Chain Solutions

Level up to which new emerging technologies are beneficial in providing better Supply Chain Solution

Most preferred option of the advantages of implementation of Supply Chain Solution

Role of Supply Chain in the Total Performance of a business

Willingness level for outsourcing Supply Chain services

Importance of Supply Chain solutions in FMCG sector compared to other commodities

Objectives of the FMCG Companies

Challenges shaping the startegies of FMCG companies

Findings and Conclusion

Most of the stockiest across Andheri(W) are well aware about the Supply Chain Management fundamental but approximately 20 % stockiest are not aware about the same; they follow traditional way to deliver good to their customers.

Supply chain management is known to be one of the most important tools to increase total profitability. Particularly in case of stockiest business supply chain contribution forms major part of total profit. But in Andheri(W) 28 % stockiest don’t believe that supply chain helps form major part of their total profit. Willingness level to accept the supply chain management advantage of better profitability achievement is also not very satisfactory.

On the basis of above response, most of the stockiest have many options for alternative Supply Chain Solutions, some have moderate level of options for the same. But 35% stockiest have very few options for alternative Supply Chain Solutions. Those who have very few options for Supply Chain feel trouble when they want to increase supply chain performance.

Supply chain cost contributes to the major part of the total cost in the FMCG stockiest business. But effective supply chain management would be helpful in reduction of cost and increase profit. In the survey 22% stockiest respondents feel cost deficiency does not hinder the implementation of supply chain solutions.

Satisfaction level among respondents towards Supply Chain Solutions is high. 50% of the respondents feel so.

In survey 22 % stockiest fell emerging technologies are not beneficial in providing better supply chain solutions which shows that either they are not aware or not interested in using emerging technologies in their business process.

48% of the stockiest feel that Better lead time is the most preferred option of the advantages of implementation of Supply Chain Solution.

According to the survey respondents feel that Supply Chain plays a major role in uplifting the total performance of the business.

Respondent Stockiest don’t like to outsource supply chain solutions because their business is all about supply chain. Outsourcing supply chain solutions from third party supply chain service provider would directly impact their total profit. But 24% stockiest feel they would like to or are currently outsourcing their supply chain solutions.

Supply Chain solutions hold a high importance in the FMCG sector as compared to other commodities’ sector in India.

Reduce out-of-stocks/increase shelf availability has been rated it as the first priority by the respondents. Followed by Lower sourcing/procurement costs, Improve service offered to customers, Reduce investment in inventory and Lower warehousing and distribution costs.

As far as challenges in the FMCG sector are concerned, the picture is somewhat more practical and tactically oriented. The ongoing struggle to make the supply chain demand-driven and lean is the regarded as a serious and critical challenge to the FMCG sector.

So the need is to create a better promotional awareness by FMCG key players to offer different version of SCM solutions because stockiest feel that they can offer better time bound delivery of product to their customer and can manage their inventory in a better way such that it poses out to be a strategic advantage to their business.