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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 corporate-
NGO 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 M
A e-choupal rural two-way A
R fulfillment capability R
M Cigarette Trade Marketing capability K
E E
R
Expanded FMCG distribution capability T
S S

Brande Lifestyl Educatio Matches Personal


d e n & Care
Foods retailin Stationer Agarbat Product
g y tis s

A basis for strategic partnerships with other FMCG brand owners 31


Godrej
Key Businesses

33
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-in-
transit 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