Benchmarking Supply Chain Practices in FMCG Industry

Case Analysis The case talks about the FMCG sectors and the importance of Supply chain Management to sustain the business and maintain the leadership. The case includes the issues, challenges, distribution networks, trends in the supply chain management and the importance of SCM directly from the executives speech. The case also highlights the impact of benchmarking the supply chain management in the organisation by comparing the practices of two giants in the industry i.e. HUL (Hindustan Unilever Limited) and P&G (Procter and Gamble) The case begins with the introduction of the FMCG industry and its future prospects. According to the case FMCG sector is one of the largest sectors in the Indian economy relevant from the revenues generated and its future prospects is bright due to the rising household incomes and the spread of modern retail in India. FMCG is also less capital intensive and demands immense skill and expenditure on branding, distribution and supply chain management. The top 5 companies being in this sector i.e. HUL, ITC, Nestle, P&G and GSK (GlaxoSmithKline) contribute to nearly 70% of the total revenue generated in this sector. However the massive proliferation of SKUs has complicated the business of FMCG firms. Issues and Challenges of FMCG supply chain The competition in the sector had an immediate effect on the margin which was noticed to be dropping. This left only two option to marketers i.e. either increase the prices and maintain the margins or cut the cost and improve the margins where neither of the two was attractive. With the increasing competition hiking the price would have been a risk to the company so the only option left was cost cutting to maintain the margins. By analysing the each aspect of the cost in the FMCG business, the best and the most effective measure was controlling the costs of the supply chain. The hypothesis behind this of the market leaders i.e. control over costs in the supply chain can prove to be the crucial difference between the market dominance and failure. The case also reveals the various concerns for the FMCG supply chain regarding the key information required and the SC elements taking the following as the parameters: Order fulfilment and Replenishment Inventory Forecasting Distribution Reach Transport management

Distribution networks Distribution and its costs are the crucial factors for the success of any FMCG firm which also needs to be focused on along with best price, best advertising and highest margins of the product. This factor has been explained by taking the examples of companies like Amul, HUL, Godrej, P&G, Nirma and Wipro where these have adopted to various strategies to strengthen their networks. But the distribution cost seems to be rising because of the ignorance of logistics and rising of various issues related to distribution. Conventionally HUL had the best network but Nirma adopting the lost cost strategy is the classic example of distribution efficiency. Nirma uses the direct method in which it supplies the products to the dealers directly from the plant unlike the traditional FMCG set ups using C&FAs. Another remarkable transformation is of paan shops emerging as mini general stores keeping products in various categories like beverages, chips, biscuits, noodles, shampoos etc are becoming prominent as retail sales channels for FMCG companies. The importance of which has been said by the top executives of various companies.

FMCG supply chain trends The traditional and the basic structure of the supply chain i.e. from the stack to the rack has remained the same since years. But what has changes is the attitude and efficiency of each element in the process. Also the increasing competition has led to the emergence of several business models like e-tailing, B2C, B2B, Internet, extranet, ERP systems, direct marketing, contract manufacturing etc. Some other trends have been in the aspects of Retailer SKU variety Inventory at Plant SKU analysis Replenishment Distribution Forecasting Information Manufacturing Practise Technology etc.

According to the research conducted by Economic Times Intelligence Group (ETIG) most of the companies had initiated the cost cutting measures, during the industry downturn, the major cutting being the control of supply chain costs followed by longer credit periods to vendor, faster collections, cutting back on advertising spend etc. The effects of the slowdown were also seen on the inventories of raw materials and finished goods.

Corporate Executives Speech The case then points out the importance of the supply chain management and the costs associated with it with the help of words of the top executives of top FMCG companies. Some of the examples being of: D.Sundaram, Finance Director, HUL who says that the cetrepeice of an organisation is the effective supply chain which is also of utmost importance for a FMCG companies and also explained the policy of ALFA followed at HUL. A- alertness to the response of the market needs , L-leanness of supply chain, F- Freshness of stock, and A- Availability of products on the shelf. S. Sivakumar, Chief Executive, agribusiness, ITC who says that the dynamics of SCM offer immense scope for sophistication even in rural India, quite counter- intuitively, in spite of the weak physical, social and institutional infrastructure. Benchmarking FMCG Supply Chain Practices The case lastly talks about how the two companies HUL and P&G have managed SC creating a benchmark in the FMCG industry. Also the processes have been compared and pros and cons of both the processes have been highlighted. It also explains how this have helped the companies to emerge as the market leaders in the FMCG sector. The Parameters that they have been compared on are as follows: Sales Gross profit Operating Profit Net Profit

The comparison showed that the sales volume of P&G is almost the half of HUL but the profits are almost equal. P&G follows the distribution model of Golden Eye i.e. few distributors take on the task of direct distribution to the A-class and some B-class outlets, while the wholesale channel takes care of the C-class outlets. As a result, P&G distributors achieves economies of scale based on the higher volumes generated through bigger categories. HUL has taken a new initiative of consolidating the distribution systems unlike the traditional model of having separate RS (redistribution stockists) for foods, soaps and detergents, personal care and beverages. Further the replenishment policy of HUL is largely driven by the sales targets, demand forecasting and push strategy by piling up the inventory supported by forward buying policy whereas P&G adopts a simple system of JIT.

Also overall SC comparison of the two companies was done on the following parameters: Product availability Over stocking or stock out Replenishment Working capital and space needed Business Transactions Channel relationships Information sharing Decision mechanisms Marketing strategies Product age at retailers end Margin Dumping Returns Paper work and claims etc

The comparison showed that though HUL is the market leader in India it still adopts to the traditional methods of SCM which is different to the modern and more simplified techniques of P&G. This has helped P&G to emerge as a market leader in less duration as compared to HUL. The tools and techniques t HUL needs to be refined and improved to meet the needs of the changing world, cater to the increasing competition and maintain its position in the market. The comparison on the basis of the wholesalers perspective and the Retailers perspective is done in the case which again pinpoints the positive and the negative aspects of the company which can be used by the companies to perform better and sustain its position in the market.