M S RAMAIAH INSTITUTE OF TECHNOLOGY

(AUTONOMOUS INSTITUTE, AFFILIATED TO VTU) M S R I T POST, BANGALORE 560054

PAPER ON

Supply Chain management in Rural Marketing

By SANDEEP NANDY III Sem, MBA MSRIT

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SUPPLY CHAIN MANAGEMENT IN RURAL MARKETING

ABSTRACT
Rural supply chains are the next big issue for researchers and businesses in India. The reasons are simple: the urban areas are congested with deteriorating quality of life and saturated markets. Nearly 60 per cent of Indias population live in rural areas, and forecasts indicate that these numbers will remain the same, even in 2050. There would be 800million people living in Indian rural areas in the 2040-50s, providing the scale and the markets for commodity supply chains to thrive. Thus, there is a need for transforming rural India into a group of sophisticated vibrant activity centres. Rural retailing is portrayed as the next sunrise segment in retailing space. This paper explains the various supply chain issues in rural sector and some basic suggestions to address this situation.

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INTRODUCTION
What is SCM?
A supply chain is the stream of processes of moving goods from the customer order through the raw materials stage, supply, production, and distribution of products to the customer. Supply chain management (SCM) is the oversight of materials, information, and finances as they move in a process from supplier to manufacturer to wholesaler to retailer to consumer.

Why is supply chain necessary in rural marketing?

Rural supply chains are the next big issue for researchers and businesses in India. The reasons are simple: the urban areas are congested with deteriorating quality of life and saturated markets. Nearly 60 per cent of Indias population live in rural areas, and forecasts indicate that these numbers will remain the same, even in 2050. There would be 800million people living in Indian rural areas in the 2040-50s, providing the scale and the markets for commodity supply chains to thrive. Thus, there is a need for transforming rural India into a group of sophisticated vibrant activity centres. Rural retailing is portrayed as the next sunrise segment in retailing space.

SCOPE OF SUPPLY CHAIN MANAGEMENT IN RURAL MARKETING

The Indian rural market is so far a highly underexploited sector with opportunities that are yet to be grabbed. With a slow but steady rising demand of good in these areas, the marketers need to focus their attention to the rural market and start creating a base in these areas rather than trying to bite a small chunk of profit in the urban region.

SIGNIFICANCE

With over 70 per cent of the economy centred around the rural parts of the country, logistics players are now seeking ways to address this issue as about $100 billion worth potential is latent in the rural parts of the country.

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ASSESSING RURAL MARKETS Coverage status in rural markets An IMRB (Indian Market Research Bureau) study, rural market probe 1990, while attempting to draw up a development index for villages, found that large village (2000+ pop) is likely to be more developed than a small village. RURAL VERSUS URBAN SHOPS URBAN 1.68 Million outlets Spread over 5000 towns and cities Source : ORG 2002 RURAL 3.5 million outlets Spread over 6 lakh villages

Channels of distribution
Urban areas have a variety of distribution outlets, ranging from large supermarkets and superstores to the smaller neighbourhood retail stores. In contrast, in villages small shops alone are the backbone of the local retail network. There are 5 layers of distribution channels for the movement of products from the company depot to the interior village markets. Layer Layer 1 Layer 2 Channel partner Company depot / C & FA Distributor / van operator / super stockist / rural distributor Sub distributor / retail stockist/ sub-stockist / star seller / Shakti dealer Wholesalers Retailer Location National/ state level District level

Layer 3

Tehsil HQ / towns and large villages Feeder towns, large villages, haats Villages haats

Layer 4 Layer 5

Most companies have direct representation upto level 3 in the form of sub-distributors. But, to achieve an advantage in rural markets, marketers need to maximise direct flow and control of stocks from layer 3 to layer 5.

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Evolution of rural distribution systems Historically, the rural distribution system has included wholesalers, retailers, mobile traders, vans and weekly haats. Wholesaling The Indian wholesaler is typically food grain merchant, who sustains the belief that business is speculative rather than distributive in character. He is more of a trader than a distributor. Rural retail system Rural India counts for 65% of retail outlets in the country. But the logistics of feeding the 35 lakh retail outlets in the country spread over 6 lakh villages is not easy. The average monthly sale per village shop is less than Rs. 5000 and despite the same products being available in village shop, around 58% of villagers prefer to buy the products from haats because of better price, quality and variety. Vans Mobile vans play an important role in the distribution and promotion of products in the villages. Here the salesman loads the van with stocks from the nearest stockist or company stock point and works the surrounding markets. Although it is an effective method, it can be expensive if the company has to invest in all the vans.

Rural mobile traders: the last mile distribution Mobile trading is an age old, direct to home, unorganised distribution system in rural India. They sell a variety of daily need products, mostly local brands, ranging from detergent, cosmetics and personal care products to garments and footwear. They carry the products on bicycles, mopeds, hand carts or on foot. Visiting one or two villages and 30 40 households per day they keep a retail margin as profit. Haats / Shandies Haats /Shandies are the oldest marketing channel in India. Despite the development of permanent shops, haats continue to play a vital role in the rural economy. It provides opportunity for: 5|Page

 Purchasing consumer goods  Sell surplus agricultural and allied products  Each haat caters the needs of 10 to a maximum of 50 villages, drawing around 4000 people who come to buy and sell a range of daily necessities and services. Melas Over 25,000 melas are held every year all over the country. Out of these, 5000 are commercial melas, 2,000 are cultural melas and 18,000 religious melas. The following facts regarding melas will help us to understand their importance to marketers: On an average, 850 outlets are set-up in every mela. Average sale per day in a mela is Rs. 25 Lakh. Number of visitors per mela is approximately 7.5 lakh.

Public Distribution System PDS means distribution of essential commodities to a large number of people through a network of FPS on a recurring basis. The commodities are as follows :- Wheat, rice sugar, kerosene etc. PDS evolved as a major instrument of the Governments economic policy for ensuring availability of foodgrains to the public at affordable prices as well as for enhancing the food security for the poor. It is an important constituent of the strategy for poverty eradication and is intended to serve as a safety net for the poor whose number is more than 330 million and are nutritionally at risk. PDS with a network of about 4.99 lakh Fair Price Shops (FPS) is perhaps the largest distribution network of its type in the world.

Co-operative societies
Co-operatives occupy and important place in Indias rural economy in terms of their coverage of population and their share in the total supply of agricultural inputs. India has the largest network of Co-operatives in the word consisting of more than 400,000 Co-operatives spread across the country.

DISTRIBUTION MODELS OF FMCG COMPANIES DISTRIBUTION MODEL 1

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In this model the rural distribution has been separated from urban distribution to create a specific focus on the rural market. Company appoints a sub-distributor (SB) under rural distributor (RD). the RD covers a large area with poor road network and low volume per outlet. The RD services the wholesale market in his area. This model focuses more on distributors and sub-distributors rather than wholesale channel. The generalised model DM1 has a larger number of points appointed in the rural areas because the locations are scattered all over the region. This ensures that the companys products reach the maximum number of areas. DISTRIBUTION MODEL 2 Channel structure There is no separate channel for distribution here. This model minimises distribution costs allowing companies to offer better margins to the distributors and other channel partners. It is mostly companies with a limited number of SKUs and high sales volume that adopt this model. Channel partners are few and the distributor is given a large territory.in addition to higher margins, distributors and other channel partners also sell large volumes and earn good money. This model is preferred by new entrants who lack the infrastructure required to have a wide distribution network. E.g. ghari detergent, Parle G biscuits etc. PROBLEMS ASSOCIATED WITH RURAL DISTRIBUTION THE RURAL ACCESSIBILITY PROBLEM Poor transportation in the rural areas poses a great challenge to rural development efforts in India as it has continued to make most of the rural areas isolated from the main stream of the modern society. This has resulted in low productivity, low income and a fall in the standard of living of rural residents and high rate of poverty. Companies today are either unwilling to spread to these backward areas or are unable to do so because of one common reason- inaccessibility. With a very limited number of companies and distributors willing to go to these areas the rural sectors in India continue to be deprived of the basic necessities, be it goods or be it services.
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DATA COLLECTION Collecting data to map the rural requirements has always been tough job and often it has been inaccurate. With low literacy rate and the rural population relying on their leaders has created obstacles in obtaining the accurate information to act upon. The companies, hence, has to rely on their intuition most of the time and regulate the supply of goods according to speculated demand rather than actual demand. RELUCTANCE OF BANKS FOR GRANTING LOANS Banks are often in a dilemma whether to extend loans to the rural sector where they often have to forego the amounts given out or whether to help them grow which in turn will lead to better rural conditions in the long run. WIDELY SCATTERED POPULATION The rural population as discussed earlier is widely scattered all over the country with villages that may have only a few hundred population. This makes it difficult to effectively concentrate in a particular area to distribution. ABSENCE OF ALL-WEATHER ROADS The roads in rural India are mostly kaccha, which make is difficult for transport vehicles to supply goods during rainy season. The roads that are being built now to access the rural population do not last long nor are they made for large vehicles. So these roads are proving almost ineffective in making road transport easier. DISTRIBUTION COST The distribution costs are significantly high in this scenario as the target market is far from the production centre; spread or scattered in small numbers across a large geographical area. Reaching this rural population has to be attained by breaking the supply amounts in several small parts, investing on vehicles and other supply systems which increases the total cost to the company or distributor. This system also increase pilferage and wastes which is again a cost to the company.

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POOR SUPPORT FOR STAFF The workforce present in supply chain system do not want rural areas to be assigned to them and are reluctant to visit rural areas due to lack of basic amenities or preference of urban areas over rural ones. This leaves the companies and distributors with very reduced option of support staff who need to be deployed to the rural areas. Even the pay scale is often lower than the urban jobs, which is also a demotivating factor.

STRATEGIES TO OVERCOME THE DISTRIBUTION PROBLEM

FIX THE ROAD The road transport being the primary channel to reach the rural markets, has to be looked upon with more importance. Proper roads need to be built by the responsible authorities with priority. DEVELOP INFRASTRUCTURE Developing the infrastructure which includes roads, hospitals, pharmacies, availability of electricity in backward areas, proper water supply are the few basic elements that need to be dealt with promptness. STAFF The support staff in the supply chain management should be given incentives and salaries at par with their urban counterparts.

CONCLUSION
Supply chain management in rural marketing is definitely a challenge to the marketers the market is spread over 0.6 million + villages and 3.3 million sq. km. but the saturation of urban markets and the growth potential of rural markets have has forced marketers to come out of their comfort zones and think out of the box for new and innovative strategies and solutions and make sure their products reach the untouched lot that have been lying dormant all along.

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