DISTRIBUTOR AUTOMATION: FAUJI CEREALS PAKISTAN

LETTER OF TRANSMITTAL
April 21, 2012

Mr. Rafay A Khan Course Instructor Supply Chain Management Institute of Business Management Dear Sir: We have been assigned to draft a report on supply chain management issues & possible solutions of an organization, for which we have selected Fauji Cereals Pakistan. This report leads us to explore downstream supply chain of the company & possibilities of ERP based integration with upstream supply chain of the company. Evaluating supply chain perspective of real work environment had been an exhilarating experience for both of us and is going to help in our professional career. We express our deep gratitude to you for giving us such great deal of learning opportunity.

Best Regards, Salman Saleh (10992) Muhammad Misbah-ul-Haq Siddiqui (10979)

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LETTER OF ACKNOWLEDGEMENT
April 21, 2012 Dear Readers: We are thankful to Almighty Allah for giving us the strength and capability to complete this report on Distributor Automation at Fauji Cereals Pakistan.. We would like to thank our course instructor of Supply Chain Management course Mr. Rafay A. Khan for putting in all the hard work in this course to make it a memorable experience for all of us. We appreciate his guidance and shall appreciate the valuable feedback on this report as well. We are highly obliged to Mr. Hassan Naeem & Mr. Kashif Mujhtaba from Fauji Cereals Pakistan who shared their valuable time from busy schedule in order to guide us through the report and provide the relevant information.

Sincerely, Salman Saleh (10992) Muhammad Misbah-ul-Haq Siddiqui (insert your id here) MBA IoBM

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S. NO. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. Abstract

TOPIC

PAGE NO. 4 4 5 11 14 15 16 17 18 19 23 25 26 28

Introduction: FMCG Over view About Fauji Cereals Pakistan Pakistani Breakfast Cereal Industry Literature Review Fauji Cereals Supply Chain Distributors Automation Project Better Market Opportunities Implementation Process Findings & Discussions SWOT as Conclusion Similar Implementations: Kohinoor Soap & Detergent (Pvt) Ltd Recommendations References

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ABSTRACT:
With the increasing awareness of integrated chain management, demand of implementation of Information Technology based ERP software in producing industries specially is on an increase. It is not solely integrates many to all business processes within the organization; however the most advantage of integration of suppliers & customers in the light of Extended Supply Chain concept. In this paper, we are analyzing importance of integration of distributors with such IT based technologies with taking the case of a FMCG based food company Fauji Cereals. Well analyze how their downstream offer chain related issues will be addressed by ERP implementation.

INTRODUCTION:
FMCG Overview
Products that have a quick turn over and comparatively low value are referred to as Fast Moving Consumer Goods (FMCG). FMCG products are those that get replaced at intervals a year. samples frequently of FMCG usually embody a good vary of soap, cosmetics, tooth

purchased client product like toiletries,

cleaning product, shaving product and detergents, additionally as alternative nondurables like glassware, bulbs, batteries, paper product, and plastic merchandise. Pakistans FMCG sector is one among the biggest sector within the economy and creates employment for more than one million people in downstream activities. The whole FMCG market is currently growing at double digit growth rate and is predicted to take care of a high growth rate. The FMCG sector is dominated by each MNC and domestic players. Institute of Business Management- SCM Term Report Spring 2012 Page 4 of 28

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The FMCG sector in Pakistan is engaging attributable to the subsequent reasons: There could be a low level of penetration additionally as low per capita consumption for many of the product. An average Pakistan spends 40% of his monthly income on groceries and 8% on personnel care product. Large population base of Pakistan.

The problems faced by the FMCG sector are as follows: High deviation in forecasted and actual sales due to inaccurate demand prediction Inability to realize operational excellence due to multiple level of sales knowledge tracking within the offer chain Over production, higher occurrences of stock outs due to the bullwhip result (lack of information sharing among the members of the provision chain) Due to random changing purchasing power, the consumption pattern of average Pakistan is changing continuously. Some of the articles have seasonal demands and demand prediction becomes troublesome for them.

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About Fauji Cereals Pakistan

Fauji Cereals was established in 1954, a totally owned Project of Fauji Foundation and began production at the beginning in collaboration with Quaker Oats England in 1956. Its the pioneer business venture of Fauji Foundation. Its the most important producer of breakfast cereals in Pakistan with big selection of product. Its Pakistans most prestigious and largest cereal processing unit, having the newest modernized machinery, extremely hygienic environses for production of Halal Food product. Fauji Cereals is the number one consumer and trade-preferred brand in Pakistan with a really sturdy brand equity and client following. The corporate enjoys over 80% of the market share in the category of Breakfast Cereals and Porridge Food product. The company has achieved ISO 9001-2008 Certification by adopting the International normal Procedures for manufacturing top quality food product. 100% Halal ingredients are utilized in the producing method of all products. The company has additionally penetrated in International Market and exporting its product to varied countries. Its additionally a provider to World Food Programme and UNICEF.

Products Categories
Fauji Cereals has three main product categories,

Breakfast Cereals Desserts Other Products

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Breakfast Cereals
Ready to eat Cereals -(Flakes)

Fauji Flakes product are produced on automatic plant manufactured by Buhler Switzerland underneath strict from very best hygienic conditions. Flakes are manufactured and flaking quality Corn/Wheat/Rice with ancient cooking

methodology to relinquish best style and quality which might not be duplicated by the other technique. The products are carried on automatic packaging machines to conserves their property of being pure, fresh and crispiness in all atmospheric condition. Flakes owe their popularity among customers thanks to their crisp texture, fresh flavours and their ready-to-eat characteristic. The marque enjoys a clear-cut market leadership attitude in Flakes with over eightieth market share.

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Ready to cook Cereals-(Porridge)

Barley Porridge or Rolled Pearled Wheat Porridge and Porridge Food are more desirable cholesterol free able to cook cereals. The Wheat/Barley after cleaning is half-cooked and rolled. It might be outlined as rolled, enjoys gelatinized, dried Wheat/Barley product and share. planate. The marque a clear-cut market

leadership position in Wheat and Barley Porridge with over seventieth market

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Desserts
Jelly fast Set, Custard Powder family and Kheer combine are one dessert foods. among the In-spite

foremost standard and

favorite

of alternative established brands of competitors, Kheer Mix, Fauji Custard, Jelly and Firni Khas have created substantial inroads into the competitor's market share and are currently the quantity two client most well-liked marque in Pakistan.

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Other Products
Besides its powerful presence in Breakfast Cereals and Desserts classes, Fauji Cereals is additionally producing numerous alternative quality product like Corn Flour, Rice Flour, Pearl Barley, Laundry Kalaf, Ice Cream Powder, Fauji Atta, Fauji Basmati Rice and Instant Porridge.

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Pakistani Breakfast Cereal Industry

With an estimated market size of Rs. 200 million a year and an estimated growth rate of 20% every year, the breakfast class in Pakistan was experiencing tremendous growth. The breakfast class in Pakistan, includes product like cereals, cornflakes etc with popular brands like Fauji, Kellogs and alternative imported brands. Focus on Health as a trend was gaining ground. Further, the distinction between good food and food thats smart for you is turning into a lot of dominant with a larger proportion of customers falling in line with the new trend. A lot of players have additionally entered their own cereal variants. Another issue into propelling the this space. expansion of health Besides some established ones, native players also are testing the grounds with food, particularly in Pakistan, is that the changing lifestyle of various individuals. Worldwide, the issues are high concerning wrong eating habits, health disorders like obesity and diabetes and Pakistan is not any exception.

Still the Pakistan Breakfast Cereal business is facing challenges Pakistan population not used to consuming processed foods Easy availability and low-price of ancient breakfast Low awareness concerning processed foods Habit of eating significant breakfast Low awareness of the need of healthy eating and calorie intake

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Price sensitive customers

Changing Mind set of the Consumers

People are getting aware of healthy & hygienic. Theres an amendment within the mind-set of the buyer and currently viewing Money for Value instead of Value for Money. We've seen willingness in customers to maneuver to evolved products/ brands, due to changing lifestyles, rising disposable income etc. customers are switching from economy to premium of product water even we've witnessed a and water purifier. pointy increase within the sales packaged

Information Technology in FMCG

Market share movements indicate that company like UniLever Pakistan Ltd and Nestle Pakistan Ltd, with domination in their key classes, have improved their market shares and outperformed aided by the peers within the FMCG sector. This has to significantly been employment of data technology

facilitate varied processes and logistics demand. A competitive edge in sales and distribution provides abundant required muscle to the corporations to compete in market place as has been epitomized by companies. Use of IT in sales and distribution guarantees to produce a regular supply of competitive advantage which will go an extended approach in enhancing the power of company in market place. Sales and Distribution in Pakistan suggests that a collection of levels- wholesalers, Stockists, transporters, retailers etc. Automation of S & D guarantees the reduction in storage prices, administrative prices, communication prices, lesser wastage and Institute of Business Management- SCM Term Report Spring 2012 Page 12 of 28

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lesser

transportation price due

to higher route designing.

It

enhances

the

revenue due to higher selling designing, demand volatility management, responsive product development. The individuals productivity is additionally enhanced due to effective use of sales knowledge, improved communication flows and pc assisted ordering. Considering of these blessings, it's prefer to be a natural candidate to be utilized in sales and distribution.

Fauji Cereals, as a corporation, has forever been related to healthy food and this changing shopper mind-set indicates that its poised to grow at a comparatively higher rate in Pakistan with its massive product portfolio. To be able to exploit this chance, the sales and distribution network ought to be capable enough to handle the increased masses with reduced logistics price. Information technology is the answer to needed potency in S&D and would undoubtedly act as an enabler.

LITERATURE REVIEW:
Primary Objective
One of the first objectives is to know the Distributor automation project that aims at connecting all the distributors on a standard platform named DBA Manufacturing Sales & Distribution Module. The main aim of the Distributor Automation study is to try to an intensive analysis of the project comparing it with alternative such initiatives from alternative FMCG companies and supply recommendations to confirm successful implementation of the platform. Institute of Business Management- SCM Term Report Spring 2012 Page 13 of 28

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This report will also study the vital success factors that make sure the success of IT automation in sales and distribution networks. Finally the report ends with a collection of recommendations to be followed for the project.

Fauji Cereals Supply Chain

The manufacturing for Fauji Cereals is done in production plant. After that the finished merchandise are transported to Carry and Forward Agents (CFA) who further deliver it to the distributors and super distributors.

Primary Sales
The requirement for smart delivery comes from the distributor who sends out a mail to the CFA primarily based on this inventory levels and therefore the delivery is sometimes done twice for each distributor.

Secondary Sales

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DVSM (Salesman) sometimes goes to a collection of outlets in a day (called a Beat) and records the inventory levels in the slightest degree the retailers in that beat. Then he notes the requirement for new stock based on the average turnover and retailers suggestion for each retailer that he additional notifies the distributor. The bills are created at the distributor end and therefore the delivery is either done on same day or the next one. Currently most of the distributors use one or the opposite proprietary software to record all the invoices, stock keeping, payment settlement et cetera. In majority of the cases, its the DVSM who truly operates the system to make invoices and prints the outline beside alternative reports needed for the delivery.

Distributors Automation Project

For Visibility in Forward Supply Chain
Project plans to automate most of the aspects of the provision chain using the IT platform from SAP Sales & Distribution module. The implementation of the software needs that the MicroERP gets installed on all the distributor sites that shall aid in day-to-day operations of the distributors like Invoicing, Stock Keeping, Payment settlement, Claims handling etc. The MicroERP shall be needed to upload sales knowledge on a daily to a central server from where knowledge is fetched by an application known as the Sales Portal that shall offer MIS reports to the sales team on a true time basis concerning the sales knowledge and connected trends.

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Better Market Opportunities

OBJECTIVES Distributors point of view Improved sales due to higher call creating Better inventory management resulting in perceivable price reduction Problem of stock out (being faced by several distributors) will certainly be
benefited to a good extent Better turnaround time for Claims processing Purchase order processing: Reduced effort

Fauji Cereals Companys point of view

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Improve logistics and warehouse act of managing - Absence of secondary

and tertiary level data blurs the demand-supply graph.

In-depth market understanding - Dealer's/retailers purchase reflects

the buying pattern of assistance of a outlets. Tracking Sales secondary Tracking sales data with the helps you to totally integrated System

grasp that section, region, and products mix have high and low demands.

Formulating

and

evaluating

distribution

strategies

Recognize the

distribution channel's performance and strategize ensuing distribution cycles accordingly. You can plan-out remunerative schemes for distributors who are under-performing or who are less motivated to sell your product.

Better stocking: Elimination of lost sales and mal-distribution of stock due

to stock outs or massive inventory levels.

Sales Teams point of view

Reduced manual effort in terms of collecting data from the distributor, collating and processing action at the it to right extract time for meaningful info. maximum results. Real-time data helps keeping a detailed watch on the sales performance on a daily facilitating

MIS for improved conclusion making and performance appraisal.

Implementation Process
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Installation of the software

Loading the masters Item, Customer etc.

Initializing the system with opening inventory and other dealer specific details like Userdefined codes, printing formats etc. Providing sufficient training to the distributor to ensure usage of the system

FINDINGS & DISCUSSIONS:

Process Related Issues
Parallel Billing
There are two possible primary reasons for the distributors indulging in parallel billing:

Lack of trust in ERP Software:

Unskilled personnel of Fauji Cereals who will do the installation at the distributor site and operate the software are found to be not properly equipped to handle the job at hand. These personnel should be trained properly in the ways of how they

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are supposed to interact with the distributors as well as well-versed with the software to be able to respond to their queries.

Possible Solution
This problem is being taken care of and the condition is improving with better response mechanisms put into place which will help develop the required trust among the distributors.

Consolidated Financial Statements:

The need for consolidated financial statements to be maintained under single software is one of the primary reasons. The rationale is that most of the distributors have more than one agency of different companies and invoicing the bills for different companies in different software makes it very difficult for them to obtain consolidated financial statements for purposes like tax filling, VAT return etc. If the distributor makes sure that if he is doing parallel billing then he enters all the bills manually as well as in ERP software then as a company Fauji Cereal shouldnt have any problem with that. A possible roadblock here would be that as the volume of the business grows, this method of operation shall become unsustainable and the whole purpose will get defeated.

Batch Numbers and Packaging Date (PKD) Not Being

The purchase invoice received from the CNF does not contain Batch no's and PKD and thats the reason that none of the distributors are in a habit to record them when they receive stock from the CNF.

Possible Solution
Once all distributors & CNF get integrated with the organization, computer readable Batch numbers & PKD are required to be pasted on the products when they are leaving manufacturing site to CNF. Radio-frequency identification (RFID) or bar coded labels can be used for this purpose.

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Installation/Training Issues
Inexperienced and Unskilled Personnel
Unskilled personnel of Fauji Cereals who will do the installation at the distributor site and operate the software are found to be not properly equipped to handle the job at hand. These personnel should be trained properly in the ways of how they are supposed to interact with the distributors as well as well-versed with the software to be able to respond to their queries.

No Representatives from Fauji Cereals to Oversee the Installation Process

One major disconnect here is the fact that the ERP software installation personnel cannot be expected to understand the business process assuming that they are technical people who only understand the software part. Absence of any person from Fauji Cereals who understand the sales processes and the distributor requirements makes the whole process very slow when distributor raises issues on site and the ERP software person cannot answer them satisfactorily.

Learning is an Outgoing Process

We cant expect the distributor to understand the whole software at the time of training. Once the basic understanding is there, the distributor will try to explore the software more and will definitely come up with queries regarding the technicalities of software. Right now the only way they can get information is by calling ERP software call centre representatives which causes inconvenience for the distributor hampering extensive use of the software.

Possible Solution
A comprehensive Usage Manual for ERP Software should be documented and provided to all the distributors using the system. We should ensure that the
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manual should be easy to understand from a distributors point of view and the language used in it should not be too technical.

Distributor Specific Concerns

Tech Savvy Distributors
The more tech-savvy a distributor is, the more he wants to explore the system. These are the kind of distributors who willingly accept a superior system and further explore it to provide valuable suggestions. Good thing about their raised issues is that they give pretty detailed suggestions on the software which can be incorporated into the system from a convenience point of view. In the long run, these suggestions shall help to refine the system for maximum performance. But in the short run, such issues cannot be entertained since these are just too specific to be resolved right now when other bigger issues are still pending. This creates a problem since distributors start losing trust in the system and the processes driving the implementation of this project just because either they have not been properly attended to or their queries have not been satisfactorily answered.

Possible Solution
The solution lies in effective relationship management. We should be the first ones to appreciate the effort spent by the distributor to understand the system and to raise issues. After all he deserves it having spent so much time on it and the only way to keep him engaged is to show that the inputs by him are considered valuable and highly regarded.

Financially Constraints Distributors

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One thing realized is the fact that not all distributors are capable enough to be able to invest extra time and money to be able to use the system. There might be some distributors who do a monthly business of around Rs 15-20 Lacs from Fauji Cereals and do not make enough money to justify the additional cost that the incur in getting financial statements audited from two different ways. Also some of the low volume distributors take out only one bill for a particular retailer in a day to keep his printing costs low. This is how they have been running their business and its definitely not cost-effective for them to start using the new system.

Change Management
Gaining Trust of Partners
Supply chain automation is uniquely difficult because its complexity extends beyond your company's walls. People will need to change the way they work and so will the people from each distributor that company adds to its network. Most of the larger FMCG players have also faced issues trying to force such radical changes down distributors throats.

Possible Solution
Distributors have to be convinced that the system just does not sit to benefit the company, rather theres something in it for the distributors as well. Increased ROI with reduced stock outs, and better managed inventory should be something that can be highlighted here.

Internal Resistance to Change

If selling supply chain systems is difficult on the outside, it isn't much easier inside. Sales people are accustomed to dealing with phone calls, faxes and hunches scrawled on paper, and will most likely want to keep it that way. If we our sales people cant see the benefits that it has for them and using the software will be Institute of Business Management- SCM Term Report Spring 2012 Page 22 of 28

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worth their time, they will easily find ways to work around it. Also they wont have the conviction to convince the distributors to use the system.

SWOT ANALYSIS AS CONCLUSION OF THE REPORT:

STRENGTHS
Fauji Cereals' experience with DBA Manufacturing software as an ERP application for upstream supply chain from supplier to manufacturing products is a great leverage point to understand distributor's preferences and that knowledge should be used to improve the system. DBA Manufacturing is a matured software with most of the features at par with the other software which are available in the market. User friendliness of the software will go a long way in driving the usage among the distributors.

WEAKNESSES
Dissatisfaction among the distributors while adopting ERP software should be well & timely taken care of in order to win their trust. Due to the money and effort required, it might not be possible to bring all the distributors online easily especially the ones who do not do enough business from Fauji Cereals to justify the costs.

OPPORTUNITIES
Auto-replenishment of stock at the distributor end shall help manage the inventory well.

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Use of ERP software at downstream supply chain will give company accurate information about the tertiary sales which can be used for market research understanding consumer behavior

Sales forecast module can be used to make it a pull based selling rather than the currently used push based

Ability to introduce dealer specific schemes can be a great feature to push sales for specific products in selected areas as per the trend

Automatic data upload eliminates the need for manual data retrieval saving time for other activities

Centralized upload of price lists leaves no room for manipulations at the distributor end

Real time sales data facilitates intervention at the right time for declining sales

THREATS
Current trend of Parallel billing might not be sustainable in the future as the volume grows Lack of exposure to the ERP software among the distributors might require addition efforts in the future to get the necessary support.

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OTHER SIMILAR IMPLEMENTATIONS

Kohinoor Soap & Detergents (Pvt.) Ltd

Managing Change
The company went along the philosophy of that possession brings the initiatives out a way of

responsibility in

a person. One

for making a

way of possession among staff was the appointment of practical heads of assorted departments, because the process-owners, of the combination. The difficulty of managing the whole method was on these process-owners and to feature to the seriousness of the effort was taken into thought for their performance appraisals.

Key Success Factors

The success of this initiative can even be attributed to the thorough designing that backed the project at the time of implementation. The primary step was to involve the channel partners from the beginning.

The channel partners and therefore the entire organization had active roles in defining the functionality of the solution. Considerations raised by partners were addressed and far of the functionality desired by them was included within the solution. Next was allocation of adequate resources for the project. The core team consisted of line managers moreover as members of the systems team. They were free of their regular roles to consider the deliverables of the project. To extend the main

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target of the team on the task at hand, a separate workplace was created for the length of the project separate from the head office. Finally, an intensive analysis of all the danger factors was distributed as a part of the planning method for the implementation. Clear mitigation plans were developed and deployed for each of the danger factors.

RECOMMENDATIONS:
We need to make sure that distributors trust the system and the processes behind it. One thing which is most important behind successful implementation is the involvement of the channel partners and the critical role of top management in ensuring that. Another important thing is to take care of trying to be responsive to the queries raised by the distributors in a prompt and satisfactory manner. This is not to suggest that we fix all the issues as they come but probably a convincing reply as to assure them that we understand the issue, and will go a long way in maintaining a healthy relationship. Just as distributors need to be convinced about using the system, the same effort needs to be put into training the sales team as well. This is very important since the translation of all these efforts into results will only come if they use the system to its potential and are committed to it. Financially constrained distributors (Ref. Distributor Specific Concerns) will be given a differential treatment initially as it would not be possible for them to be able to use the system from the start. The low volume
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nature of the business does not justify the extra cost incurred to use the system. Such distributors would not be part of the system right now but would be brought online as and when their sales exceed a particular threshold level. Re-implementations are being done at all the distributor sites so that everyone is on the latest version of the software and also includes refresher training on it. From now on, the usage of the software shall be strictly monitored and distributors would be required to maintain the daily usage. Regular audit of sale and channel partners should be done to identify improvement like reduction in inventories, reduction in stock outs increase in sales owing to availability, increase in coverage, expiry of perishable items etc. The first reaction of some of the distributors would be to continue with the parallel billing. But once the distributors will have command on the software in the specific time then the distributors are asked to compulsorily use the system, they wont have any choice but to use it.

REFERENCES
http://www.erp.asia/scm-implementation.asp http://www.faujicereals.com.pk/

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http://en.oboulo.com/information+technology+as+an+enabler+of+sales+and+ distribution http://www.dbamanufacturing.com/contact/ http://fmcg-marketing.blogspot.com/2007/12/maricos-distributionnetwork.html http://howtogetfasteratrunning.com/botree-software-international-bags-orderfrom-nestle-globe/ http://eng.hi138.com/? i261762_Distributor_of_FMCG_industry_how_to_make_money http://books.google.co.in/books? id=orimz5E6IO4C&pg=PA88&lpg=PA88&dq=marico++MidAs&source=bl&ots=tl9DR4Ksa&sig=VexQsXyiHT0sChGAfHghxBm2-xM&hl=en&ei=9wPJTf3mIJStgfjrayECA&sa=X&oi=book_result&ct=result&resnum=9&ved=0CFcQ6AEwCA#v =onepage&q=marico&f=false http://www.itcinfotech.com/CPG/mobility-application-service.aspx http://www.slideshare.net/WayneGoodrich/how-automation-can-help-fmcgsales-managers http://en.wikipedia.org/wiki/Fauji_Cereals_Company

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