changing trends of fmcg in india 1371

DYNAMICS OF DISTRIBUTION IN FMCG INDUSTRY VISION 2005

A RESEARCH REPORT PROJECTON

CHANGING TRENDS OF FMCG IN INDIA

For The Partial Fulfilment Of The Degree of Masters in Business Administration Awarded By UPTU.(Affiliated to Uttar Pradesh Technical University, Noida)

(2012 2014)

IIMT COLLEGE OF MANAGEMENT GREATER NOIDASUBMITTED TO: SUBMITTED BY:

Prof. SANDEEP SHARMA Ravi Kumar (MARKETING)

Roll No.-1215270064

Declaration

I, Ravi Kumar a bonafide student of MIMT, GR. NOIDA. I hereby declare that the research title CHANGING TRENDS OF FMCG IN INDIA, has been done by the undersigned with full devotion for partial fulfilment of degree of M.B.A.

I also declare that the facts mentioned are true to date and best of my knowledge; any discrepancies have been avoided for the same.

Ravi KumarACKNOWLEDGEMENT

Behind every study there stands a myriad of people whose help and contribution make it successful. Since such a list will be prohibitively long, I may be excused for important omissions.

I would like to express my heart-felt gratitude to my faculty Prof. SANDEEP SHARMA , for his invaluable guidance and encouragement.

I would also like to record my sincere gratitude to all those who have helped us directly or indirectly in the fulfillment of this study.Ravi KumarSYNOPSIS

The study taken up by us pertains to the study Dynamics of distribution of FMCG industry. We have tried to study and understand the ideologies of the distribution with regards to FMCG sector and further how much interaction is there, how much feed back is there, how much successful are the companies in utilising distribution network in boosting the sales and establishing its brand equity.

The project can be divided in two parts. In the first part the current or the present status of distribution, its changing face and the transition from push to pull environment and lastly current distribution set up of FMCG sector is studied by means of literature survey.

In the second part -we visited companies like HLL, AMUL, NESTLE, and BRITANNIA and administered questionnaires to the executives of the concerned department and studied the distribution set-up of the respective company. Secondly also studied the implication of the companies in near future i.e. in the era of globalisation and IT. This part was cumbersome as nothing was organised and as such I had to go in a random fashion.

On a whole it was a good learning experience, as one is able to understand distribution dynamics not with the help of books but with the help of real learning in the real world.

TABLE OF CONTENTS

Topic Page No1. DECLARATION......................................................22. ACKNOWLEDGEMENT...........................................33. SYNOPSIS...................................................................44. TABLE CONTENTS......................................................5-65. INTRODUCTION............................................................7-166. LITERATURA SURVEY....................................................17-187. CHANGING FACE...............................................................19-288. FMCG SUPPLY CHAIN.........................................................299. DATA PREPRATION ANALYSIS..............................................30-4410. COMPANY OF FMCG ............................................................45-7511. FEATURE STRATEGIS.............................................................76-8312. OBJECTIVE..................................................................................8413. RESERCH METHOLOGY...............................................................85-8714. LIMITATION.....................................................................................8815. DATA ENTERPRETATION..............................................................89-10316. FINDING..........................................................................................104-10517. CONSULATION..............................................................................10618. SUGGETION.....................................................................................107-10819. BIBLOGRAPHY...............................................................................109-110

INTRODUCTION

RATIONALE FOR CHOOSING THE PROJECT

In the current business environment, which appears to be difficult and unpredictable, Indian industry has found a new avenue to pin its hopes on. Supply chain and logistics management are suddenly under close scrutiny. Between them, they offer companies the best way to sustain their businesses in rough times. Thus studying and evaluating one of the aspect of supply chain management i.e. Distribution and that too of the industry, which is a key component of Indias GDP and is a significant direct and indirect employer, is worthwhile. Having an excellent distribution network is one of the strengths of this FMCG sector, so we tried to carry out an in-depth study in dynamics of distribution in FMCG industry with its relevance in the new millennium.

WHAT IS FMCG?

FMCG refers to consumer non-durable goods required for daily or frequent use. Typically, a consumer buys these goods at least once a month. The sector covers a wide gamut of products such as detergents, toilet soaps, toothpaste, shampoos, creams, powders, food products, confectioneries, beverages, and cigarettes.Typical characteristics of FMCG products

Individual items are of small value. But all FMCG products put together account for a significant part of the consumer's budget.

The consumer keeps limited inventory of these products and prefers to purchase them frequently, as and when required. Many of these products are perishable.

The consumer spends little time on the purchase decision. Rarely does he/she look for technical specifications (in contrast to industrial goods). Brand loyalties or recommendations of reliable retailer/ dealer drive purchase decisions.

Trial of a new product ie brand switching is often induced by heavy advertisement, recommendation of the retailer or neighbours/ friends.

These products cater to necessities, comforts as well as luxuries. They meet the demands of the entire cross section of population. Price and income elasticity of demand varies across products and consumers

The FMCG sector has been the cornerstone of the Indian economy. Though, the sector has been in existence for quite a long time, it began to take shape only during the last fifty-odd years. To date, the Indian FMCG industry continues to suffer from a definitional dilemma. In fact, the industry is yet to crystallize in terms of definition and market size, among others.The sector touches every aspect of human life, from looks to hygiene to palate. Perhaps, defining an industry whose scope is so vast is not easy.

After witnessing booming sales and flooding markets with innumerable products, FMCG companies have had to abruptly apply the brakes and look for various ways to save costs. The RS. 52,000 crore (listed companies) FMCG industry in India, which has been on a roll for many years, faces tough times ahead, although many segments still shows good growth.

Fast Moving Consumer Goods (FMCG) goods are popularly named as consumer packaged goods. Items in this category include all consumables (other than groceries/pulses) people buy at regular intervals. 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 Indian FMCG sector is the fourth largest sector in the economy with a total market size in excess of US$ 13.1 billion.It has a strong MNC presence and is characterised by a wellestablished distribution network, intense competition between the organised and unorganised segments and low operational cost. Availability of key raw materials, cheaper labour costs and presence across the entire value chain gives India a competitive advantage. The FMCG market is set to treble from US$ 11.6 billion in 2003 to US$ 33.4 billion in 2015. Penetration level as well as per capita consumption in most product categories like jams, toothpaste, skin care, hair wash etc in India is low indicating the untapped market ...TRENDS

Global ConcentrationMajor global consumer product companies (such as Unilever, P&G, Colgate, Nestle, Heinz) have a lion's share of the global market. These companies have been established for a very long time and possess a clutch of strong brands with proprietary technology. Most of these companies are cash rich and well managed. Their brands generate strong cash flows and allow them to reinvest in strengthening their brand equity further, with continued promotions/ advertisements. (Harvard Business Review, Sept-Oct, 2004) They also have the financial clout to acquire small local brands to strengthen their position in the category. These companies also make considerable investment in R&D to sharpen and maintain their edge in the business.Growth Is In The Third WorldMost of the global majors have their origins in Europe or USA. They find their home markets saturated and are banking on the third world for future growth. These companies are setting up shop and are aggressively expanding their base in these countries. They also look out for opportunities to acquire local brands to push start or consolidate their position in these markets. (www.web-enable.com/industry/enabling-scm.asp)Value For MoneyDuring the last 4-5 years, particularly after reduced consumer spending during the global recession, the new buzz word is value for money. FMCG companies globally have embarked upon major re-structuring/ cost cutting exercises as the business has become fiercely competitive. Also, several innovations in packaging media have taken place. (CMIE reports)Adapting To Local ConditionsIn the last few years, process of adapting to local conditions has accelerated. MNCs are adapting their products, process and marketing communication to the local conditions. They alter the manufacturing process to maximize use of local raw materials and suit their products to the taste and requirements of local consumers. This process has been necessitated by the imperative to be cost effective and be competitive vis-a-vis strong local players.

PackagingThe role of packaging has increased significantly in recent times, partly due to improvement in packaging technology. Traditionally, packaging was expected to serve the purpose of protection and economy. Then, packaging was expected to fulfill the objective of convenience. (Kotler Philip, 2003)Today, packaging is used as an effective tool for promotion. Besides, new packaging technology has enabled most FMCG companies to significantly reduce their packaging costs.

Rural distribution

Increased focus on rural distribution has increased logistics spend for the leading companies.

INDIAN MARKET PERSPECTIVEBackgroundAt the time of independence MNCs were allowed to operate in India, but the Indian market was too small for global MNCs. HLL had a manufacturing base, Colgate and Nestle mainly undertook only trading activities. In the early '60s, several MNCs set up manufacturing base in the country (www.hll.com). The government policies continued to be protective, modelled on socialistic pattern with strong emphasis on self sufficiency. As a result economic growth was slow (around 3.5% pa which many economists dubbed as Hindu rate of growth) and India's share in international trade was nominal (even today India's share in international trade is only 0.6%). Slow growth was aggravated by major set backs in the late 60's due to drought and in the early 70's due to oil shock. The new Government in power reserved several product categories for small-scale. It also forced MNCs to dilute their equity stake to 40% or leave the country. IBM, Coca-Cola and several others decided to leave. Amongst major MNCs, Unilever (HLL) was the only one which managed to retain 51% foreign stake by complying with the Government conditions of minimum 10% export and 60% turnover from priority sectors. Thus HLL got into the business of fertilizer and chemicals. In the '80s, when the underlying factors for the economy were strong such as major oil discovery at Bombay High, satisfactory monsoon, stable oil prices etc, the economic growth averaged 5% pa, much lower than its potential. (www.hll.com) Several FMCG products such as toiletries and cosmetics which are essentially mass consumption items, became luxury products due to exorbitant burden of excise duties, sales tax (which added up to over 150% on basic price). Local players sans technology and capital were not able to provide good quality products. (www.hydepages.com/news)

Liberalization WaveForeign exchange crisis in 1991 (precipitated by Kuwait war) proved to be blessing in disguise, due to which IMF suggested reform process began. The reforms have continued over the last few years.

The economic growth rate is averaging 5-6% pa which is likely to continue. This growth rate in GDP will imply 4-5% volume growth in mature categories and 8-10% pa growth in upcoming categories where penetration levels are low. More importantly, the organized sector will witness even a faster growth at the cost of the unorganized sector.ABOUT THE INDUSTRY IN INDIAFMCG in India has a strong and competitive MNC presence across the entire value chain.It has been predicted that theFMCG market will reach to US$ 33.4billion in 2015 fromUS $ billion 11.6 in 2003. The middle class and the rural segments of the Indianpopulation are the most promising market for FMCG,and give brand makers theopportunity to convert them to brandedproducts. Most of the product categories likejams, toothpaste, skin care, shampoos, etc, in India, have low per capita consumption aswell as low penetration level, but the potential for growth is huge.The Indian Economy is surging ahead by leaps and bounds, keeping pace with rapidurbanization, increased literacy levels, and rising per capitaincome.The big firms are growing bigger and small-time companies are catching up as well.According to the study conducted by AC Nielsen, 62 of the top 100 brands are owned byMNCs, and the balance by Indian companies. Fifteen companies own these 62 brands

CRITICAL SUCCESS FACTORS:FMCG business rests on the two pillars of brand equity and distribution network.

Brand Equity Brand equity refers to the intangible asset in the form of brand names. The consumer's loyalty for a particular brand is due to the perception that the product has distinctively superior and consistent quality and also satisfies his/ her specific needs. Further provides better value for money than other competing brands. (Kotler Philip, 2003) In FMCG products, brand equities are relatively stronger as the consumer is reluctant to try unknown brands/ unbranded products as most of these products are for personal use. It is often difficult to differentiate a product on technical or functional grounds and therefore little reason to switch from a known brand. A successful brand generates strong cash flow, which enables the owner of the brand to reinvest a part of it in the form of aggressive advertisement/ promotion to reinforce the perceived superiority of the brand. The worth of a brand is manifested in the consumers insistence on a particular brand or willingness to pay a price premium for the preferred brand.

Distribution Network In FMCG sector, one of the most critical success factors is the ability to build, develop, and maintain a robust distribution network. Availability near the consumer is vital for wider penetration as most products are low unit value products and frequently purchased. Distribution network refers to the consumer buying points where products are available (almost always). It takes enormous time and effort to build a chain of stockists, retailers, dealers etc and establish their loyalties. (Poirer C. Charles, 2004) There are entry barriers for a new entrant as a new product is typically slow moving and has lesser consumer demand. Therefore dealers/ retailers are reluctant to allocate resources and time. Established players use their clout to inhibit new entrants. However, when a product offers a strong breakthrough (such as Nirma in late 90s), equity we build up rapidly and so does the distribution network.

Thus we see that distribution is the critical factor that at times even drives the brand equity factor.

Assumption is made that views and suggestion given by the respondent are his own perception and idea.

The study is not free from sampling error

Seasonal changes in sales figures may affect the quantitative data.

My study is based on responses of executives of mentioned companies of concerned department only, which may not give a true picture.

Last but not the least and the most deciding factor paucity of time

LITERATURE SURVEY

Objective:To analyse the present scenario of FMCG industry in terms of emerging opportunities & challenges.

There is only one formula to win a 100-meter race --- run faster than the other guys. To do that, you need to be learner and fitter than the competition. The same applies to business as well. The only way to stay ahead in business is to be faster and fitter. Indian business realized this clearly during the tumultuous decade of the 90s, which changed the rules of the game forever. No longer does any artificial wall protect any business. In the race to get more competitive, an area that is increasingly coming under focus is Distribution i.e. the physical movement of good. Here an attempt is made to study aspects of distribution, along with its changing face. Further the transition from push to pull environment is also studied. Thus in nut shell to study the current status of distribution in FMCG industry.

In the heydays of 1980s the business Mantra was distribution reach. Every distribution manager believed the way to market dominance was by reaching the greatest number of brands to the maximum number of outlets across India (Carvalho, 2002) The large scale and geographical diversity in retail outlets spread across the country meant that all FMCG markets needed to service a large percentage of these outlets to really reap economics of scale. Over the period companies like HLL, Godrej, P&G along with recent entrants like Nirma and Wipro have build their distribution networks diligently. Distribution is the crucial success factor for FMCG, but distribution at best cost, is vital. For Companys like GCMMF (Maul) distribution is literally all, since it deals in perishables like milk and milk products. For all higher product visibility and lesser inconvenience for the customer in obtaining the product results in more sales. (Mitra, 2003).

CHANGING FACE

The Basic structure of FMCG supply chain has not changed in many years. What has changed is the attitude of efficiency of each element. The end of 1990s revealed a different way of looking at distribution. A new movement called SCM had been slowly redefining the distributors role in channel. The market was changing and distributors were expected to corporate with suppliers and customers to decrease total channel costs. While increasing customer expectations were nothing new, they were unfolding at an alarming rate. The tasks required of distributors in order to satisfy customer expectations were not necessarily the ones that distributors would have chosen (Lawrence et. al. 2002)FMCG or the Fast Moving Consumer Goods industry is also known as the CPG (Consumer packaged goods) industry in India. This industry is named so because goods are produced, distributed, marketed and consumed within a short span of time.

Products which are frequently purchased are examples of Fast Moving Consumer Goods. FMCG products mainly include; toiletries, detergents, tooth cleaning products, soaps, cosmetics, shaving products, paper products, glassware, batteries, plastic goods and bulbs. FMCG also includes consumer electronics, pharmaceuticals, soft drinks, packaged food products, tissue paper and chocolates.

In the year 2005, the FMCG Market in India was growing at a rapid rate of 5.3 percent. The value of the industry stood at Rs. 48,000-crore in the same year.

Currently the FMCG Market in India is one of the biggest and is growing at a rapid rate of almost 60 per cent. Despite the economic downturn the FMCG Market in India currently stands at Rs.85,000 crore. The phenomenal growth of the FMCG industry especially in the tier II and tire III cities in India is mostly due to the improvement in the standard of living of the people of such cities and the rise in the level of disposable income. Over the last few years companies like Dabur, HUL and ITC have managed to change the face of the FMCG industry in India by using cutting edge technology in production and a very strong distribution channel. Companies like Colgate Palmolive and Britannia have also managed to penetrate into the urban areas of the country.

The FMCG sector in India happens to be the fourth largest in the world. According to experts this industry will reach US$ 33.4 billion by 2015. Both the organized and the unorgaganized sectors are largely responsible for the success of the Indian FMCG industry. The Indian FMCG market also has a well defined and established distribution network that makes products available even in the most urban areas of the country - See more at: DISINTERMEDIATION MYTHDisintermediation is the term that means elimination of distributor; it was first suggested for distributors in the early 1990s no a response to new technology and increasing pressure on the supply chain to cut costs. Distributors were perceived as middlemen who added cost to supply chain through redundant inventory, services and information handling. It scared logical that if suppliers and end users could Automatic out in efficiency they could eliminate the distributor. This logic follows from the reasoning that a shorter supply chain is inherently more inefficient (Narus and Anderson, 1997).

Until recently, most distributors described their core competency as relationships. The statement covers the need for the following two roles. First is that of a channel leader, who determines where the sources of supply are and how to access them. The second role is that of a manager of customer information for manufactures. As such the classical relationship of these functions (Inventory management, financing for small customer, supplying technical info) became unchanging or frozen, the classic business-relationship has become unfrozen by business forces like Just in Time (JIT). The technological revolution caused by the Internet and advanced information system. (Agawam D.K, 2000). Traditional relationships are in flux. It is unclear now new channels and new bus models will be structured. To eliminate the distributor from supply chain, channel members must eliminate the services the distributor currently supplies. Thus this means eliminating some services following others. (Agawam D.K, 2000)

All in all, distributors sound like a rather noble bunch-always rising to occasion for customer, willing to deal with uncertainty, provide flexibility and focus as customer service (Lawrence, et. al. 2002)

THE ECONOMICS OF DISTRIBUTION AND THE TRANSITION

The foundation for developing a successful channel arrangement rests in fully understanding the underlying economics of distribution. The economic aspects of channel relationships extend beyond issues of logistical operations. Several distinct functions must be completed to achieve effective distribution. (Bowers ox Donald J. et al, 2001)

Early scholar grouped functional requirements for effective distribution under 3 headings: Exchange, physical distribution and facilitating

Buying

Exchange Function

Serving

Transportation

Physical Distribution Function

Storage

Standardization

Facilitating Function

Market Financing

Risk Bearing

Market Information and Research

(Bowers ox Donald J. et al, 2001)

The exchange functions involved broad activities related to buying and selling. As such exchange concerns activities required to transfer ownerships. The physical distribution functions are the origin of what is referred to as logistics. The essential activity consists of getting the right products to right place at the right time. Facilitating functions include standardization, Market Financing, Risk Bearing and Market Information and Research Activities. (Gattorna John, 2002)

In contemporary logistics the scope of operational concern is significantly broader than transcending broad supply chain arrangements, logistics is viewed as encompassing all work related to inventory positioning, which can also involve aspects of satisfying firm and possession requirements.

Thus there is supply chain integration, below figure illustrates an overall supply chain focussing on integrated management of all logistical operations from original supplier procurement to final consumer acceptance. (Bowers ox & Closes, 2001).

ENTERPRISE

CURRENT STATUS

As already started that FMCG supply chain has not charged in many years. What has changed is the attitude and efficiency of each element. Also several new business models have developed in the recent past like Direct Market, e tailing, B2C, B2B, intranet and extranet (McAfee Andrew, 2004). The increasing competition in the market place caused several changes through the chain.

FMCG (CURRENT) SCM TRENDS IN INDIA (Table #1)

Supply Chain ElementStatus TodayTrends Towards

RetailerDispersed, unorganised, not much buyer powerLarger retail outlets; more number of SKUs, concentration of buyers, retailer power increases

SKU VarietyHigh numbers of SKUs of various sizes, offers and usageRationalization of SKUs to optimise costs

Inventory At Plant Push to warehousePull from retailers/C&Fas

SKU AnalysisTime-datedDynamic, Instantaneous & fast corrective action

Production PlanningTop down (from parent to vendors); lots of buffer stocks & timeCollaborative but still with some buffer time and inventory

Manufacturing PracticeLong production runs, low overheads, fixed stationsFlexible manufacturing, short runs, low change-over times, increased overheads

Contact Manufacturing (Outsourcing)/Third Party manufacturingContractual, opportunistic Strategic partnership, alliance, essential cost control element

InformationAggregated at every level and then transmitted upwards loss of time in reacting to change in demand patternInstant transmission to hubs, redirected to supply centres, rather than planners; faster response to demand change

ForecastingHistorical data based; varying levels of accuracy, person basedERP, trend data, qualitative field inputs and allowance for force majeure

ReplenishmentTo maintain stock level, on shelf, at stock point, at plantDynamic replenishment: mix of products replenished depends on an array of factors, only of which is stock

Distribution systemsTraditional linear flow; some hub and spokeHub and spoke at more than one level; distributors get their goods directly from C&FAs

Integrated Data SystemsERP used internallyERP used with supply chain planning to improve throughput and efficiencies

TechnologyE-mail, Fax, TelephonesV-SATs, leased lines, mobile ordering & automatic

Source: ETIG, L&SCM 2007The emergence of the Internet, ERP systems and contract manufacturing are important trends in India. Each has a clear implication for the FMCG supply chain. All the FMCG companies list logistics above all other issues like price, how to get the product at the right time, in the right quantity, assortment and best cost is the challenge of FMCG logistics.

The supply chain concept in the FMCG business in India really took root during the downturn of the industry in 1999. A look at the FMCG industry growth trends in distribution, raw materials, finished goods and ad spends clearly shows that the industry, while undergoing strong fluctuations in all aspects, never really suffered a de-growth. 2001, while net margins grew by 9 per cent, distribution expenses grew by 9 per cent, but still 60 per cent lower than 2003. (www.indiainfoline.com/fmcg/stma/st35.html)

In other words, the same distribution set up was giving an increase in net margins. Most companies confirm they had initiated cost cutting measures, but heading the list was control of supply chain costs. Other measures included longer credit periods to vendors; faster collections, dropping slow moving brands and cutting back on ad spend. (ET knowledge series, 2003)

They key trends emerging from the analysis include:

Increased focus on rural distribution has increased logistics spend for the leading companies.

New alliances and re-negotiation with vendors is increasing, with the concept of third party units (TPUs), already well established.

Working capital cycles are already turning negative for most FMCG majors due to tighter control of credit, closer demand matching and SKU rationalization (see table Good Control).

FMCG INDUSTRY SUPPLY CHAIN TODAY

(Source ETIG, L&SCM, 2004) DATA PREPARATION AND ANALYSIS

QUESTIONNAIRE ANALYSIS

Q1. Please specify the importance of various functions of marketing in the present days competitive scenario in the scale of 1-7: 1 being least important and 7 being most important? FUNCTIONAL AREAHLLAMULNESTLEBRITANNIA

Brand Mgmt.7677

Advertising Mgmt.6356

Sales Promotion Mgt7255

Distribution channel Management7566

Physical distribution/Logistics Management7657

Demand forecasting & Management7745

Sales admn. & Mgt.7145

Q2. Please specify various purposes behind efficient distribution management on the scale of 1-7: 1 being not important & 7 being most important?

HLLAMULNESTLEBRITANNIA

Sustainable Bus. Growth & long term performance7767

Greater market dominance5546

Competitive advantage5676

Total cost containment7555

Dev. & maintenance of harmonious channel relationships 7636

Improvement of economic & social welfare2625

Q3. Please indicate the combination of advertising and sales promotion for the products of the company.


More advertising & less sales promotion**

More sales promotion & less advertising

Both equally^**

Here we see that although HLL stresses that more of advertising should be done and less of sales promotion, yet it is stated that at times both are to be done equally.

AMUL says that advertising should be done more than sales promotion.

On the other hand NESTLE & BRITANNIA believe both should be done equally.

Q4. Please specify the share of trade related schemes meant for channel members out of total promotional budget?


Below 20%**

20 30%**

30 40%

40 50%

Above 50%

HLL & AMUL say that share of channel members in trade related schemes should between 20 30%.

Whereas, NESTLE & BRITANNIA believe it should be less than 20%

Q5. Do you think that in the global competitive scenario and the era of information tecnology, the role of distribution channel members have increased?


Increased****

Decreased

No Change

.

Here every body is of the view that increased competition and advent of IT has imposed greater challelenges for the channel members and has also increased their role immenselyQ6. Do you use Internet to sell your products to consumers directly?


YES*

NO***

Only AMUL has B2C venture over Internet. In fact 9it was one of the first to launch shopping on its web site. (amul.com Shoppe)

Q7. Do you plan to sell your products on the Internet?


YES

NO***

Q8. Do you have web enabled Distribution Channel system?


YES*

NO***

Only HLL has the system where all its stockists and the C&FA are in a web enabled network throughout India.

Q9. In order to have smaller demand chain, if you have been asked to cut down one channel member, which would you like to bypass?


C & F agents*

Stockists/Distributors^

Retailers/Dealers

None***

As talked to Mr. Kharbanda AM (scm), of NESTLE he said that we have already done away with C&FA and as such our sales team directly meets with the retailers/dealers. This helps for demand forecasting.

Again HLL would not like to cut any of its channel members, but if a revolutionary change is to happen then they may bypass stockists.

AMUL& BRITANNIA believe every part of the channel is inevitable and as such they dont think there is any need to bypass any of them.Q10. Do you think that qualitative results of marketing largely depend on contributions made by distribution channel members now a days?


YES*****

NO

Here HLL strongly believes that due to the contributions of distribution channel members overall marketing efforts have a synergistic effect, thus they have given two stars to their YES. AMUL & NESTLE also are of the similar view, but BRITANNIA thinks that it is true but other factors also affect the overall marketing results and that is why half star.

Q11.Is it essential to keep channel members happy, loyal & well motivated towards trade?


YES****

NO

Q12.Rate the role of intermediaries in the era of globalisation and IT? Rate on a scale of 1-7; 1 being least important and 7 being most important.

HLL

FACTORSRole of Intermediaries in the scale of 1 (Not important) to 7 (very important)

C & F Agents Stockists / Distributors Retailers

Logistics and Exchange Functions

Breaking Bulk 566

Assortment

Timely, intact movement and Delivery of Products 673

Availability and proper storage of products 566

Order processing and Fulfilment 643

Marketing Functions

Market coverage and penetration 175

Facilitating Buyers in Information search 047

Supporting Buyers in their Purchase Decision 057

Product Holding and Risk sharing 661

Local Credit (if any)065

Push Effort to generate sales volume 462

Trust Building 277

Information sharing with firms

Product performance 057

Market knowledge 246

Consumer Tastes and preferences 067

Dynamic Price effectiveness 003

Competitors Actions and Reactions 067

Effectiveness of Current promotional strategy 367

NESTLE

FACTORSRole of Intermediaries in the scale of 1 (Not important) to 7 (most important)



Breaking Bulk 42

Assortment 52




Marketing Functions







Trust Building 45



Market knowledge 77





AMUL




Breaking Bulk 643

Assortment 665




Marketing Functions







Trust Building 277








BRITANNIA




Breaking Bulk 642

Assortment 532




Marketing Functions







Trust Building 277








COMPANY OF FMCGABOUT HINDUSTAN LEVER LIMITED

(HLL)

You simply cannot think of the FMCG industry in India without Hindustan Lever Limited (HLL). At Rs. 10,000 crore plus, it is a personal products behemoth. It is difficult to define HLLs competition on an overall scale. The only way to do it is to go down segment by segment (Nirma in soaps, for example) to find out who can (if at all) challenge HLL. (www.hll.com)

On any given day, you end up using at least one HLL markets 110 brands with 950 pack sizes across categories as diverse as foods and soaps. The logistics handled vary from the cold chain for its Walls range of products to the open-air cycles in the rural hinterland of India for Surf. All possible and feasible modes of transport are used and vast quantities of products and unlimited information zips across from one end of the country to the other. (www.indiainfoline.com/fmcg/stma/st35.html)

It is an ethos HLL shares with its parent company, Unilever, which holds 51 per cent of its equity. A Fortune 500 transnational, Unilever sells over 1,000 foods and home and personal care brands through 300 subsidiary companies in 88 countries worldwide with products on sale in a further 70. Individual consumers choose Unilevers foods and home and personal care brands 150 million times a day across the world. Unilever is the number one consumer goods company in the world in market competitiveness, according to a survey of leading international corporations by Prof. Jean-Claude Larreche of the International business school, INSEAD. (http://www.indiainfoline.com/ meet/me516.html)

A few numbers drive home the scale of operations at HLL 7,500 distributors, 100 manufacturing locations, SKUs varying from 5 ml to 1 litre going to 56 distribution locations. With 36,000 employees and 1,300 managers, it reaches about 1 million retailers across the subcontinent. HLLs distribution network directly covers the entire urban population and reaches as far as villages with over 2,000 people. In the rather smallish Indian market for cosmetics alone, it has 70 brands. This diverse product range is manufactured in close to 100 factories located across the length and breadth of India. The operations involve 2,000 suppliers and associates. About 28 factories are situated in backward areas. Obviously, the company has its financials well under control

HLL is known today for its massive and penetrative distribution set up Many of its products are no different from those manufactured by others, but what sets HLL apart is its unique approach. The company web site explains: While the distribution system, is quite similar for different businesses, each of the businesses have, over the years, fine-tuned the system to meet their objective of serving their respective customers and consumers in the most efficient manner. The differences, therefore, lie in the manner business use an existing distribution network, and the channel players involved therein, to improve their reach and service to their customers and end users". (www.domain-b.com/news_review)

HLL has several lines of business detergents, personal products and foods, the detergents & soaps division is the largest (contributing 18 and 16 percent respectively to turnover), followed by the personal products (16 percent) and foods lines with tea contributing 16 percent. In almost all lines, it holds dominant market shares. Analysis and company estimates suggest that at tight focus on supply chain and usage of IT has saved HLL up to US$ 125 million (Rs. 6,000 crore) in inventories right across the various levels of the chain.

PRODUCT OF HLL

Tubal Rings

Hinglact - polyglactin 910

Hidox

Hincryl

HIVAC B

GROWTH OF HLL

HLLs is a journey that started with a single contraceptive unit in 1966. It is today a multi-product, multi-location organisation addressing various public health challenges facing humanity.

With a vast array of innovative products and social programmes, HLL Lifecare Limited is day after day taking a step closer to its vision of Innovating for Healthy Generations.

HLL is the only company in the world manufacturing and marketing the widest range of contraceptives. It is unique in providing a range of Condoms, including Female Condoms, Intra Uterine Devices, Oral.

HLLs healthcare product range include: Blood Collection Bags, Surgical Sutures, Auto Disable Syringes, Vaccines, Womens healthcare Pharma products, In - Vitro Diagnostic Test Kits, Hydrocephalus Shunt, Tissue Expanders, Needle Destroyers, Blood Bank equipment, Iron and Folic Acid Tablets, Sanitary Napkins, and Oral Rehydration Salts

Over the past fifteen years HLL has steadily set up a strong and sound infrastructure for direct marketing. HLL has put in place a vast distribution network covering the length and breadth of the Indian continent.

HLL today reaches out to over half a million-retail outlets, including over 1,00,000 villages, in the remotest corners of India.

HLLs products are today exported to over 70 countries.

The company set up the not-for-profit organisation, the Hindustan Latex Family Planning Promotion Trust (HLFPPT), in 1992 for the purpose of designing and implementing social sector intervention projects, particularly in the area of reproductive health, women empowerment and HIV prevention and control activities, with the objective of creating planned social change. HLFPPT is today one of the top social marketing organization in India.

HLLs association with world leaders include those with Okamoto of Japan; Finishing Enterprises, USA; Female Health Company, UK; and Beijing Zizhu Pharma of China.

HLL has seven state- of -the art manufacturing facilities with quality and environmental management system certifications. Products manufactured at its Plants also have the CE marking.

HLL is today a leading provider of contraceptives and healthcare products to various global public health programmes managed by international agencies like UNFPA, UNOPS, UNHCR, WHO, PSI and IDA.

Nearly 2700 employees and with several world leaders as partners, HLL has over the past four decades stood to uphold its mission to achieve and sustain a high growth path, and focus on five key thrust areas to achieve its vision. These are - customers, employees, business, industry, and social initiatives.

In the future through technical collaborations, marketing alliances and joint ventures, HLL wishes to keep alive the dream of all humanity of a healthier world.

HLL is fully owned by the Government of India. It is managed by Board of Directors appointed by the Government. Presently, it has four Directors and it is being expanded to include independent Directors. The list of Directors in the Board is given below

HLL (formerly Hindustan Latex Limited) clocked a record business of Rs.1,376 crore during the 2012-13 fiscal.

HLL Lifecare chairman and managing director M. Ayyappan presented the cheque to union Minister for Health and Family Welfare Ghulam Nabi Azad at a function in New Delhi last week.

Explaining that HLL has now transformed into a healthcare delivery company after starting out as a single-product initiative, Ayyappan said that the company's growth strategy was driven by innovation.

"The HLL corporate research and development centre, the 60,000 sq ft state-of-the-art facility that started functioning here Jan 1 is an example of this growth story aided by innovation. The key focus area of the research centre will be reproductive health," Ayyappan said.

Elaborating on the firm's expansion plans, the CMD said the construction of the prestigious Rs.594-crore integrated vaccine complex, implemented by HLL's subsidiary, HLL Biotech (HBL) at Chengalpett near Chennai, is progressing per schedule.

"The total annual production capacity of condoms touched at 1,640 million pieces during the last year," he said.

The Department of Public Enterprises (DPE) has rated the performance of HLL as "Excellent" for the third consecutive year.

HLL's range of products includes contraceptives, hospital products, pharmaceuticals, ayurvedic products, vaccines, personal hygiene products and diagnostic kits.

Its services include infrastructure development, procurement consultancy and facility management.

HLL was established in 1966 with the objective of providing quality condoms for the National Family Planning Programme.

HLL, from a single-product company, has transformed into a total contraceptive company and is now also active in the healthcare delivery sector.

At present, HLL has seven state-of-the art manufacturing facilities and 22 regional offices across IndiaINBOUND LOGISTICIn the mid 1990s, HLL realised it had too many suppliers for its raw materials. Raw materials procured ranged from chemicals to foods to glass bottles to plastics- a logistical maze. Around 40 odd key raw materials and 60 plus finished goods vendors supplied to HLLs factories. Overall numbers of suppliers were around 1,000 not to mention overseas unilever vendors for products like deodorants and after shaves. Earlier, there was a lot of uncertainty regarding vendors, their abilities and plans leading to a proliferation of vendors, sometimes up to five supplying the same item. This meant not just checking the quality of each supplier, but also five items in the same paperwork. In the 1980s, the inbound side of not just HLL, but all other companies was dominated by paperwork. Then came the crunch of the 1990s. Several factors combined to help rationalise the inbound side. Foremost was the spiralling transaction costs.

Taking Stock (HLL)

Inventories

200020012002200320042005

Total inventories6859041,0451,1461,3101,182

Raw Materials298366456535565515

Finished Goods322470521549674590

Source: CMIE Prowess databaseTable # 18 Company figures clearly show an improvement in raw materials inventory with days of raw materials falling continuously from 84 days in 1990 to just 29 days of stock in 2005 (see table Remarkable Result). Thats a reduction of over 66 per cent over the past 10 years. This reduction has been made possible largely due to better forecasting data which is now being transmitted throughout the HLL supply chain quickly-and the increasing visibility of business data. HLL has launched a number of e-commerce initiatives that will bring e-business to the heart of the companys operations. HLLs vision is Connect, Attract and Fulfil on a massive scale. In the supply chain for example, the vision is to link in with some 3,000 stockists, 30,000 retailers and 100 suppliers spread over some 1,000 locations. The size of the ambition is based on HLLs unique ability to leverage on scale and technology and the development in the telecom infrastructure. HLLs Internet vision encompasses three opportunity segments- business connectivity, consumer connectivity and consumer commerce.

The Net- based e- tailing will work on a combination of HLLs own V-SAT network, that of others, mobile telephony and the public network. HLL is creating an extranet covering its key stockists and retailers to optimise the supply chain right up to the front end. Similarly, an extranet is also being created covering the suppliers, factories and the purchasers with the aim of achieving real time, vendor- managed inventory.

Today, the inbound side of HLL is a very different from what it was even five years ago. There are upwards of 240 supply chain locations- be it own plants around the country, or third party manufacturers, or stock points or transit/transportation points. Almost all are linked by one form of IT or another - from the simple telephone call to V-SATs. The plants and TPUs are, in fact, linked by V-SATs and HLLs ERP system (MFG-PRO). MFG-PRO today works on more than 220 locations all over the country, including the head office, branch offices, factories, depots and key redistribution stockists. Also, HLL plans to move towards vendor- managed inventory (VMI). VMI has already been used in the auto sector in India. (www.indiainfoline.com/fmcg/stma/st35.html)

Information exchange is critical for HLL. Sales information systems will be linked, eventually, to the retail level. They are already linked at the stockist level. The moment HLL sells 5,000 pieces of Lifebuoy in any one region, a signal traces right back via the stockist to the region depot and the branch office straight through into the production and replenishment plans, and thence onto the factory. It is this backward trace ability, which gives HLL a sharp edge over competition in the one area that is crucial for any FMCG manufacturer stock at the point of sale.

OUTBOUND LOGISTICS

HLL works on the hub and spoke system. The hubs are the mother depots and regional depots, while the spokes radiate from these to the stockists, depots and retailers. But HLLs large number of SKUs and brands demand a more sophisticated version of the hub and spoke system. Fittingly, HLL uses not a one-tier hub and spoke, but a three-tier set up

Like any other company, HLL has slow moving and fast moving brands. It has premium and mass-market products and any other segment that you may think of is catered to. Inevitably, you have the Pareto Principle working 80 per cent of business from 20 per cent of brands. In HLLs case , brands like Lifebuoy, Lux, Hamam, Vim, Rin and Surf are the fast moving ones, while brands like Denim, Rexona, Breeze and a host of others are slow moving by relation.

HLL has a three-tier system of stocking and order replenishment. On the first tier it has the all India buffer depot, the second level has the regional depots and the last level h has the JIT (just-in-time) depots. From the last level, they supply the products to the brand that needs to travel more than two days goes to this depot. These are sent from the manufacturing sites to the all India buffer depot where these products are accumulated up to a full truckload for that sales region. Once the truckload is made up, the goods are sent to the regional buffer depot in the states, where break bulk occurs- the load is split into the supply as per area demand. The smaller lots are now sent onto the JIT godowns in the cities or towns and then onto the retailers via the stockists. The real challenge for HLL begins now when the FMCG industry is in a downturn. Most analysts predict that HLL is well poised to fight it out. HLL itself has started focusing on supply chain as a means to maintaining its leadership profile. How it manages the chain will be the only factor that will ensure its sustained leadership.

HLLS DISTRIBUTION NETWORK

ABOUT GCMMF (AMUL)

The Gujarat Co-operative Milk Marketing Federation (GCMMF) is the largest food marketing company in India today with sales turnover of Rs. 2,500 crore. While there are a host of other players in the foods market, GCMMF reigns in the milk and milk products and perishables segments.

GCMMF has come a long way. It is the largest organised collector and distributor of milk and its value added products are marker leaders under the brand names of Maul (cheese, butter, milk, powder) and Dhara, Lok Dhara (oils). Amuls brands of paneer, ice cream and sweets like Gulab Jamun and Shrikhand are fast catching up with the market leaders in various segments. Among with a sustained brand-building exercise over the past two decades. GCMMF is today in a position to leverage all its assets for exports. Some thing not even considered some years ago.(www.amul.com)

GCMMF owes its market dominance to several factors. Crucial amongst these is its milk procurement system, which gives it access to a vast reservoir of milk at massive economies of scale. The logistic of milk are considerably more difficult than for most other foods products.

Products of Maul

GROWTH OF AMUL

Amul India's growth in revenues has dropped from over 20 per cent a year till about 2011, to 8 per cent in the quarter ended September 2013, which is its last declared results. AAmul Indiaspokesman declined to comment on an email query by ET, stating that since the company was in the 'closed period', it would be unable to comment.

To revive its fortunes in India, industry experts said Nestle could do well to bring in fresh perspective from outside. "One of the best ways forward for Amul could be to become more outwards focused...in terms of people and business partners," Pinakiranjan Mishra, partner and national leader (retail & consumer products) at Ernst & Young, said. Currently it works mostly with its own set of people and consultants, experts said.

Industry peers say the lack of anIndian CEOcould be another reason for Amul comparatively slow growth in the country. After Daraius E Ardeshir quit the company over 'hushedspeculationof financial irregularities' in 1998, the Swiss MNC has never had an Indian head.

"Understanding local consumers and insights, and being in direct contact with market realities are critical," CEO of a top global foods firm said, requesting anonymity. "More so in a high-potential emerging middle-class market like India, with intense competition playing out across categories," the person added.

Most consumer goods multinationals in India includingHindustan Unilever, Coca-Cola, Procter & Gamble,GlaxoSmithKline Consumer HealthcareandPepsiCohave almost always banked on Indians to head their businesses.Amul is an exception, with a string of expatriates heading it for 16 years now.

Under Carlo M Donati, who was incharge from 1998 to 2004, Maggi noodles became a top power brand and the firm kicked off an innovation pipeline of products such as Munch. Martial Rolland led Amul from 2004-09, followed by AntonioHelioWaszyk till October 2013 when MD Etienne Benet took over. Experts consider lack of innovation as Amul biggest problem in India where consumers have increasing disposable incomes and modern trade is growing rapidly.

At a time when most firms are innovating products, analysts and rivals say Nestle doesn't have enough products for the middle class. The firm is also facing increasing competition across its keyproductsegments of noodles, chocolate and dairy.

ITC's Sunfeast Yippee and HUL's Knorr soupy noodles and to a small extent GSK's Foodles have taken away share from its flagship Maggi, although the Nestle brand still dominates with 80 per centmarket share. Newer entrants such as Danone in dairy, Cremica in ketchup and several regional players have been making it tough for Nestle to grow its volume share. All this shows that Nestle needs a new recipe for India and, perhaps, an Indian at the top to prepare that.

INBOUND LOGISTICS

Inbound logistics in milk are governed by time. Within 2.5 hours, they collect, check, transport and process up to 1 million litres of milk every day 365 days a year, non stop. Maul is committed to accepting every drop of milk it is offered, whether they have use for it or not.

GCMMF and the National Dairy Development Board, under the able guidance of Dr. Verghese Kurien and Tribhuvnadas Patel, formed what is today called the Anand Pattern of Co-operatives. In the Anand pattern of co-operatives, the farmer in most cases the small marginal, non-landed farmer with 2.3 cows in his herd sells directly to the cooperative society and then by extension to the dairy. The traditional middlemen the brokers, the consolidator, the trucker who are so potent in other agriculture markets, are conspicuously absent here. The direct implication of this structure is on costs of procurement, fair returns to the producer and quality of the milk.

So how does GCMMF procure milk? The farmers tip over their milk into a standard container that the village society has. The computer linked to the scale electronically notes the weight of milk and container. The same computer automatically deletes the weight of the container from the total to give the weight of the milk.

At the same time, another man at the counter (again an employee of the society) takes a small sample of the milk into a machine called the lactometer. This machine determines the fat content of the milk and automatically transmits the result to the computer. The price to be paid to the farmer is pre-determined based on the fat content. The computer then generates a pay slip for the farmer who is paid either in the evening or the next morning, as the case may be. There is no credit period and the disbursements are completed within one day of selling the milk to the society. Rationalisation of vendors is not necessary.

At the farmer level, the aggregation is low from 1 litre to 10 litres/. But at the society level, the total volume of milk may touch more than 5,000 litres a day. GCMMF found a way out by developing village chilling centres or VCCs.

The milk that is bought from the farmers is filled into these VCCs, which maintain a temperature of 4 degrees Celsius. In the absence of these VCCs, the milk would either get contaminated or spoilt. Moreover, in order to reduce this wastage, the collected milk would have to be transported urgently to the nearest district chilling centre or, it possible, to the dairy directly. In a country like India with massive infrastructure bottlenecks, this short window span of 2 hours ore often than not meant that overall milk quality was low and cost of procurement was much above what it should have been. Lots of things could go wrong the truck would not come, the milk could spill, too much heat or bad roads. These were the issues at the village level.

The development of the VCCs down to the village level could cause several crucial changes in Amuls supply chain. Also, the milk could be held at the village longer, thus smoothening out the morning high capacity utilisation and spreading the receipt and processing of milk evenly over the day. In effect, the window span of two hours to handle 1 million litres of milk was expanded to 4-8 hours. Today, Maul chaims to have upwards of 10,000 VCCs across the state, with average capacity of around 2,000 litres each. At the same time, it must be noted that just about 2-3 per cent of all GCMMF societies have these VCCs. While its success on a small scale is clear, on a state-wide scale, they have a long way to go.

Having collected the milk at the VCC and ensured its quality level, the milk now has to be transported to the chilling centre or the dairy. Each dairy has 4-5 chilling centres. Earlier, the vehicles used were either matadors or jeeps or 9-tonne trucks. Today, the 9-tonne truck and the insulated truck are the norm. The insulated stainless steel truck-tanker, with capacities up to 10,000 litres, goes from society to society and collects the milk. The trucks reach the dairy by 9 am and the milk run is completed. The next run is in the evening around 7 pm. (http://www.indiainfoline.com/meet/me516.html)

At the dairy, the milk is either processed into butter, cheese or powder, or is pasteurised. GCMMFs priority is for liquid milk, which has a shelf life of a hours at the dairy, while the powder has a life of anything up to 18 months.

Take a peek into the scale of Maul Dairy 120 trucks arrive daily at the gates with milk from the societies. Around 1.5 to 2 lakh litres come from other dairies, either due to excess at their ends, or for further processing at Anand into powder. Each truck can carry up to 10,000 litres in its tank, chilled and ready for processing. On an average, the milk travels 150 to 160 km. every day the whole year around, all of these arriving in a span of 4 hours up to 9 amOUTBOUND LOGISTICS

As Critical As The Inbound Side Is For Maul, the outbound is just as complex with 108 SKUs all at various levels of perishability. Maul butter, cheese, shrikhand, curd, ice cream and mithaee all are perishable and time-bound products. This means they have to be sold within a very tight window from the date of production. GCMMFs reach extends nation-wide, so accounting for packing time, transfer times and delivery to retail outlets time, the net time available for sale can be as low as four days for curd and is less than one day for milk. this, in turn, means that inventory management is of prime importance in GCMMF. Unlike other products, the inventory of milk is practically one day. So GCMMF follows a strategy where plans of procurement and production are made for 12 months rolling forecaste and inventories of butter and others are built up during flush season for the following summer.

Too much milk is also a problem, says Vyas. I have to have an outlet for all the milk that I collect and process. This means that a vast sales and distribution network is almost imperative. GCMMF certainly has spread its wings. Today, it directly reaches half a million retailers and aims to expand its reach to a million by 2005 (see table Wide Reach). Its products need a rather different set-up than a typical FMCG company, due to the requirement of the cold chain. Says Sodhi, we reach 4,000 distributors across India, serviced from our 48 offices nation-wide. These distributors invest in facilities like freezers, cold rooms and insulated vans. Sodhi claims GCMMF has had no problems in all these years with this set-up.

Fig # 23

-

GCMMF today uses 35-40 transporters to ferry its products nation-wide to 2,500 distributors of butter and 1.5 lakh outlets for refrigerated products. Along with the butter, cheese and other products can also be sent, but temperature requirements are different. For example, ice cream needs freezing t temperatures (below zero), while chocolate can be maintained at 4 degrees Celsius. This requirement drove another change in transportation the refrigerated truck.

Today, 125 refrigerated trucks ply on the routes. These cost up to Rs. 3 lakh to configure and have higher running costs but the net result is very desirable. Ultra Heat Treated (UHT) milk is sent daily by refrigerated trucks to Vashi where it is processed further for sale in Mumbai. These trucks have enabled GCMMF to leverage both its products as well as its distribution. Highly perishable goods like ice cream and curds are sent to Mumbai GCMMFs largest market for these products and stored at chilled temperatures at Goregaon, the Fruits and Vegetables godown.

GCMMFs butter, frozen foods (Peas) and ice cream need frozen temperatures (below zero degrees Celsius) while products like milk and powder need chilled temperatures (4 degrees Celsius) and chocolate has to maintained at different settings. Each is stored separately with separate, insulated stres and sophisticated temperature controls. From this warehouse, h the stockists withdraw the butter, curds and other products as and when needed. This single warehouse gives GCMMF a winning edge over competitors.

GCMMF also encourages containerised cargo. It pays up to 6-7 per cenmt more than usual open truck rates. Today, up to 40 per cent of GCMMFs cargo goes by such trucks.

GCMMF estimates that vehicle costs have gone up to Rs. 6 lakh from Rs. 3-4 l akh some years ago and fuel rates have also increased substantially to nearly Rs. 20 per litre from Rs. 12 five years ago. Petrol is today Rs. 28 per litre in the metros. But relative to these increase, freight rates havent gone up in the same ratio put together, this adds up to considerable sayings for a leading company like GCMMF. (www.domain-b.com/news_review)

GCMMF Inventory Norms

LevelInventory Days

Dairies90* to 5.7**

Distributors7

Retailers3-4

* Summer ** Winter

GCMMF Network

20002005

Distributors40007,000 (including Cold Chain)

Offices48100

Retailers Served500,00010,00,000

On the marketing side, GCMMF already has a formidable distribution network. Not only does this give GCMMF vital access into the vast rural market. It also gives it the advantage of introducing new products into the same system at little extra costs. Unlike other companies, GCMMF use a legacy system for ERP designed by Tata Consultancy Systems (TCS) in the early 1990s. This system is still used to track business data. The orders booked by the branches are compiled and stocks and sales are monitored daily. The data is received from the depots and branches by email/fax/phone and these are collated everyday. Then dispatch department breaks down the demand into product groups and decides which dairy (member union) should supply the goods. The dispatch department coordinates the flow of information to truckers to pick up their goods at the respective dairies and deliver. The goods are taken to the C&FAs who manage the depots in the zones. Today this set-up is considered the most robust and penetrative in India. The Internet is a key ingredient in GCMMFs marketing strategy. GCMMF was, in fact, one of the firsts to launch shopping (amul.com shoppe) on its web site. GCMMF accepts the order placed through the shoppe, relays it to the nearest dealer of Maul in that area who then delivers and collects payment. Hence, the system uses the existing network, but has created a new channel for sales.

GCMMF order Replenishment System

Order booking (Mumbai)

(

Branches(Mumbai)Depots(Mumbai)

(

Head Office(Anand)

(

Demand breakdown into products/destination at Anand

(

Demand allocation to various member unions (decided at Anand)

(

Dispatch from member unions to depot (coordinated from Anand)

(

Order received at depot; stocks updated; into sent to Anand

(

Stocks breakdown into stockistwise demand

(

Dispatch to stockist

(

Retailers

ABOUT NESTLE.Nestl isthe world's leading Nutrition, Health and Wellness company. Our missionof "Good Food, Good Life"is to provide consumers with the best tasting, most nutritious choices in a wide range of food and beverage categories and eating occasions, from morning to night.

TheCompanywas founded in1866 by Henri Nestl in Vesey, Switzerland, where our headquarters are still located today. We employ around 2,80,000 people and have factories or operations in almost every country in the world. Nestl sales for 2009 were CHF 108 bn. TheNestl Corporate Business Principles are at the basis of our Companys culture, developed over 140 years, which reflects the ideas of fairness,honesty and long-term thinking.Products of Nestle

GROWTH OF NESTLE

Nestle India's growth in revenues has dropped from over 20 per cent a year till about 2011, to 8 per cent in the quarter ended September 2013, which is its last declared results. ANestle Indiaspokesman declined to comment on an email query by ET, stating that since the company was in the 'closed period', it would be unable to comment.

To revive its fortunes in India, industry experts said Nestle could do well to bring in fresh perspective from outside. "One of the best ways forward for Nestle could be to become more outwards focused...in terms of people and business partners," Pinakiranjan Mishra, partner and national leader (retail & consumer products) at Ernst & Young, said. Currently it works mostly with its own set of people and consultants, experts said.

Industry peers say the lack of anIndian CEOcould be another reason for Nestle's comparatively slow growth in the country. After Daraius E Ardeshir quit the company over 'hushedspeculationof financial irregularities' in 1998, the Swiss MNC has never had an Indian head.

"Understanding local consumers and insights, and being in direct contact with market realities are critical," CEO of a top global foods firm said, requesting anonymity. "More so in a high-potential emerging middle-class market like India, with intense competition playing out across categories," the person added.

Most consumer goods multinationals in India includingHindustan Unilever, Coca-Cola, Procter & Gamble,GlaxoSmithKline Consumer HealthcareandPepsiCohave almost always banked on Indians to head their businesses. Nestle is an exception, with a string of expatriates heading it for 16 years now.

Under Carlo M Donati, who was incharge from 1998 to 2004, Maggi noodles became a top power brand and the firm kicked off an innovation pipeline of products such as Munch. Martial Rolland led Nestle from 2004-09, followed by AntonioHelioWaszyk till October 2013 when MD Etienne Benet took over. Experts consider lack of innovation as Nestle's biggest problem in India where consumers have increasing disposable incomes and modern trade is growing rapidly.

At a time when most firms are innovating products, analysts and rivals say Nestle doesn't have enough products for the middle class. The firm is also facing increasing competition across its keyproductsegments of noodles, chocolate and dairy.

ITC's Sunfeast Yippee and HUL's Knorr soupy noodles and to a small extent GSK's Foodles have taken away share from its flagship Maggi, although the Nestle brand still dominates with 80 per centmarket share. Newer entrants such as Danone in dairy, Cremica in ketchup and several regional players have been making it tough for Nestle to grow its volume share. All this shows that Nestle needs a new recipe for India and, perhaps, an Indian at the top to prepare that.

INBOUND LOGISTICS Nestle Indias inbound supply chain is similar to most companies in the business, using tankers, collections and so forth to bring the milk into the plants. As early as 1999, Carlo Donatti, Nestle Indias CEO, had talked about Nestls foray into tetra packed milk which needed a basic shift in supply chain. In an interview to a business magazine, Donatti acknowledges that, if Nestle launches milk in tetra packs, its milk production facilities will have to be close to its customers. You must have satellite factories and manufacturing facilities close to the market, he says. Nestle has a giant operation going at Moga in Punjab set up in 1962, the plant processes 800,000 litres of milk thats collected from 71,000 farmers, every day. But to be close to customers, the equivalent of the Moga plant may have to be set up around the country, with perhaps smaller plants at the district level. So Nestle may have to eventually invest huge sums in setting up plants, though it won't have to invest in freezers for shops because milk in tetra packs have a shelf life of up to six months.

The coffee supply chain is of course more volatile dictated by global pricing, which in turn affects inventory planning. Nestle has no major issue with either milk or coffee inbound logistics.

Trace ability in the entire chain was crucial. Nestle India demarcated trace ability of goods into two types - reactionary (trace and point the goods after an event), and preventive (ensuring the goods are a high quality right from the start). In this regard, Nestls views are very similar to those echoed elsewhere in India. Both these, needs information back up. Firstly, regarding the type, speed, format and ease of data collection; and secondly on the IT system back up". In all these, its the people that will make the difference. Today, Nestle uses MRP and ERP for internal planning and processes, but our folloups with vendors and others still remain on phone, fax and email. Some vendors share data, others don't. OUTBOUND LOGISTICS The longer the supply chain, the weaker the demand signal becomes. In India, on retail side as well as the vendors side, Nestle has too many intermediaries. That adds to time and costs, also badly impacting quality. In India, no feedback comes from retailers. The only source is Nestle's own staff, and the data is limited by sheer size and complexity of the Indian market. It is in these conditions that initiatives like ERP, SCM software and ECR will greatly help.

In Nestle India, the demand plan using statistical tools the demand plan using statistical tools and sales data is first prepared, then broken down into stocks data - where and when to hold, which in turn gets broken down into a manufacturing plan. This plan is then further broken down into materials plan handed over to the different vendors. For materials like cocoa and coffee, where imports play a role, stock norms could be one-month stock, or price based. If prices go down, stock up; if up, maintain the safety stock only. Milk is brought in daily, as detailed above. The finished goods move by truck, containerized trucks and concor (by rail) to far off areas. Nestle has no issue with outbound transport, using very much the same structure as most corporate in India. It spent Rs. 87 crore in 1995. Spend on freight has remained well in control at around 5.4 percent of net sales, in spite of increasing sales over the past five years.

Product strategy also plays a role in Nest's supply chain. Nestle plans to market milk in tetra packs, which gives milk a longer shelf life and in fact helps by increasing the sales window. Because milk can be sold over a longer period of time, it can also be distributed further. Nestle India has a world of experience to draw upon in strategy, implementation and usage of the Net and e-commerce for its supply chains here. At Nestle's the consumer demand chain involves the entire business including people and processes as well as managing the links between them. The importance Nestle places on staff. The human element is crucial.

The keywords for linking people with the technological infrastructure are connect, collaborate, consolidate and compress. The last named involves cutting least times. And in logistics, that refers to eliminating errors in orders. In a recent survey, Nestle discovered the root causes for such problems were: 45%, partner's process, 36% non-aligned systems and 19%, incomplete data and poor communications. The solution lies in setting up coherent information architecture. These include personalizing the methods, searching and classifying data, managing content and validating information and data sources.

IT has been used as a tool in Nestle, but Nestle's is not award by E-Commerce's potential. It simply considers emerging business-to-consumer (B2C) marketplaces as newer channels that argument existing ones. At the same time Nestls would retain its legacy EDI infrastructure to capture the full value of its investment.

ABOUT BRITANNIA

Britannia is the market leader in the organized biscuit and bakery product market in India. Biscuits contribute to more than 80% of Britannia's total turnover. Other products include bread and cakes. Britannia diversified into dairy products in 1997 with processed cheese and dairy whitener. The portfolio was expanded with the launch of butter, pure, flavoured milk in tetra packs and UHT milk.

The biscuit market in India is estimated to be 1.1mn tap, valued at Rs35bn. The unorganized sector accounts for over 50% of the market. The market has been growing at a CAGR of 6-7% pa. Per capita consumption of biscuits is estimated at a low 1.5kgs, reflecting the huge potential for growth. Manufacturing was reserved for small scale up to 1997, which put large players at a disadvantage. In the organized sector, Britannia and Parley are the only national players with dominant market shares. Other organized players include domestic players like Brakemans, Champion, Quality, Praia and MNCs like SmithKline Consumer, Kelloggs, Sara Lee, Heinz, Excelsior (Nestle) and United Biscuits.

Operating margins have been improving despite the fast pace of new product launches in the last 2-3 years. Rationalization of manufacturing operations, and greater contribution of higher margin dairy products has both contributed to the margin gains. Britannia has decided to hive off its dairy business into a joint venture with the New Zealand based Fonterra Cooperative. Britannia and Fonterra will each hold 49% of the Rs2.25bn equity, while the balance business associates will hold 2%.

Again in this case where milk is the main raw material, the inbound logistics is governed by time. But inbound logistics in case Britannia is not as efficient as in the case of Maul, though it works more or less on the same principle as that of Maul.

As it also uses VCCs but it does not matches the scale and reach of Maul. Further the distribution is not very IT integrated, which as per their VP materials management V.K.Rao is going to be implemented very soon. Thus Britannia uses the local Channel means i.e. near and easily accessible to the plant location in the respective city and this is actually done with great care and efficiency.

Products of Brittan

GROWTH OF BRITANNIAThe company said the organisational changes will enhance "Britannia's position to become an all-embracing foods company from a bakery/dairy company".

"We are preparing Britannia for high growth in India operations by catering to the changing food habits of the evolving Indian consumer and pursuing opportunities for growth in the overall food domain, here and abroad," said Chairman Nusli Wadia in a statement.

Britannia's shares rose 16.5% to a lifetime high of Rs 665.80 on Monday after the company announced robust fourth-quarter results late last week.

During Bali's tenure, first as CEO and then as MD, the company's revenues have quadrupled from Rs 1,510 crore in 2005 to Rs 6,185 crore in 2013. But net profit in these eight years has increased from Rs 149 crore to Rs 259 crore, a much slower rate of growth.

This is because the company has had to navigate high costs and ward off competition not just from older rivals such as Parle and ITC in its core biscuits business, but also from relatively new entrants like Cadbury Kraft's Oreo and United Biscuits' McVities.

While biscuits still make up over three-fourths of its total sales, the company has made an aggressive push into other categories such as milk, cheese and ready-to-eat food to earn higher margins. In these segments, too, it is facing stiff competition from MTR, PepsiCo and its erstwhile partner Danone, among others.

The international business currently accounts for less than 10% of Britannia's revenues, with the Middle East being its main overseasmarket. It operates in the region through Dubai-based Strategic Food International and Oman-based Al Sallan Food Industries.

A Mauritius-based wholly owned subsidiary of Britannia is the holding company of Britannia and Associates (Dubai) Ltd, which in turn holds investments in the Middle Eastern subsidiaries.

Analysts expect Britannia to grow its international operations inorganically. "Its international business is very small right now, and there could be some acquisitions to make it large," said Nitin Mathur, consumer research analyst at Espirito Santo Securities.

PLANT LOCATIONS

Britannia's plants are located in the 4 major metro cities - Kolkata, Mumbai, Delhi and Chennai. A large part of products are also outsourced from third party producers. Dairy products are out sourced from three producers - Dynamic Dairy based in Barmaid, Maharashtra, Modern Dairy at Carnal in Haryana) and Thacker Dairy Products at Howrah in West Bengal.

FUTURE STRATEGIES

The firm must recognize that it cannot make this journey alone. Companies that want to be industry leaders realize they must reinvent the total network in which they are merely one player. To achieve such leadership, a firm must cooperative in creating the value chain constellation that will dominate an industry. This network consists of a linked set of agile companies that not only react to market challenges but in fact dynamically anticipate and exploit new opportunities that can sustain profitable revenue growth and exceptional shareholder value well into the next decade.

Considering the importance of targeting markets and consumers, a company must also choose its value chain partners very carefully because they are the key to future profits and competitive advantage. In short, alliances must be built with organizations that are qualified to assist in the process..

With the road map laid out and the destination defined, value chain partners can pursue a jointly determined set of process improvement initiatives based on what works for other networks or on new and innovative designs created by the members of the value chain constellation.

The Value Optimising a Value chain Constellation

Suppose that these revenues are 10 to 20 percent above the business plan. Imagine that profits can be increased by 30 to 50 percent, cycle times reduced by 20 to 50 percent, and inventory as a percentage of revenue cut in half. Add to the dream in fact that shareholder value rises because of a doubling in earnings per share, and customer satisfaction reaches new highs.

These results can be achieve by leveraging the network effort and the enabling technologies to turbocharger a particular supply chain. Leading manufacturing and service organizations in the automotive, aerospace, chemical, consumer goods, electronics, and pharmaceutical industries have already increased profits and shareholder value through the supply chain strategies and solutions outlined in this book. They are now seeking even higher levels of success.

United efforts may be used to move an entire industry forward. Efficient health-care response (EHCR), efficient food service consumer response (EFCR), and several industries focus on collaborative planning, focus on collaborative planning, forecasting, and replenishment (CPFAR) are excellent examples of such a combined effort.

Whether industry sponsored or promoted by a nucleus firm, the value chain constellation emerges as an alliance among organizations with a similar vision. The constellation focuses on meeting the classic supply chain objective; offering the right combination of data, products, and services to customers and consumers at the right time and place and at the right price. Available-to-promise is an important feature of this alliance, backed with the lowest total delivered cost. To achieve this reality, the partners in the alliance must embrace a number of key elements:

A focus on the Internet as a vital medium of communication

Rapid, interactive, and successful product design and introduction.

Global available-to-promise capability with completely visible inventory.

Ability to assemble, builds, or configures diverse components into a finished order.

Features of mass customisation in the finished offering.

A glass pipeline for viewing availability and flow of goods and services.

Analytical and financial feedback loops that accurately measure progress.

Flexible planning and execution to meet customer needs.

Zero working capital.

Continuous learning and improvement.

OBJECTIVES: -

The objectives of the study can be divided in to: -

1. To analyse the present scenario of FMCG industry in terms of emerging opportunities & challenges.

2. To measure the status of distribution in overall marketing mix of FMCG industry.

3. To identify the emerging paradigm of distribution in the era of globalisation & IT.

RESEARCH METHODOLOGYMETHODOLOGY: -

The study conducted to achieve the before said objectives was both exploratory and descriptive in nature and involved personal interviews based on the questionnaire format.

DATA COLLECTION METHOD: -

Primary source

Secondary source

Primary sources: -

The data required for the study would be based on:

Personal interviews based on pre-decided format of structured undisguised questionnaire, which would be administered to the respondents. Personal interview with the Company representatives regarding the various data. Short interviews with the customers. Secondary Sources: -The secondary data consists of information collected from:

Websites

Annual Report of the Companies

CMIE Report

Business magazines

Trade guides

Published data on FMCG industry

QUESTIONNAIRE/TECHNIQUE USED: -

The questionnaire would consist of: -

Open ended questions: - To bring out the ideas and pertinent thinking of the respondents.

Multiple-choice questions: - These questions made answering procedure more convenient for respondents.

Tools: -

Sample constitutes of companies like HLL, AMUL, NESTLE, BRITANNIA.

Use of percentages and bar graphs for analysis

LIMITATIONS

Throughout the study utmost care has been taken to avoid biases, errors so as to ensure authenticity and accuracy. But there is possibility for some discrepancies to come in between due to following limitations:

Respondents may give their biased opinion, as they know the identity of interviewer.

Some questions are quantitative and respondents are answering without understanding it fully.

DATA INTERPRETATION

Q1.

Here we see that almost by all the companies the functional areas of Physical distribution, Brand management and Distribution management were rated as the most Important. Thus we learn how important is distribution these days as it even drives the branding factor.

Q2.

In this graph we see that why companies want efficient distribution management. Thus accordingly respective companies gave ratings. The reason, which was rated as most important by almost all the companies, was Sustainable Business growth & long-term development and subsequently others.

Q12. Role of intermediaries in the era of globalisation and IT.

HLL

1.) LOGISTICS & EXCHANGE FUNCTION

Here the role of various channel members like C&F agents, Stockist and Retailers under the broader function of Logistics & Exchange were rated on a scale of 7, where 7 is the most important. Rest is quite evident from the graph that whic

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Documents

distribution dynamics

study dynamics of distribution

current distribution

distribution setup

trends of fmcg

fmcg sector

fmcg industry vision

utilising distribution