Operations managementGroup 7PGPM 1013 Batch

A Case on Leveraging VMI Implementation for SCM

1

AGENDA

2

Marico

Profile and

Company

Synopsis

Problem

with

Marico ‘s

supply

chain

Options

Available

and the

approach

taken

Benefits

and Impact

of the

change on

MARICO

Industry

parallels

and

Potential

Pitfalls

1 2 3 4 5

1.COMPANY PROFILE AND SYNOPSIS

3

About Marico

FINANCIALS

FACTORIES

No of SKUs

GLOBAL

PRESENCE

BRANDS

EMPLOYEES

4

Revenue : 2003/04-888 Cr 2013-14- 4687 Cr

Profit : 2003/04- 59 Cr,2013-14- 485 Cr

1938 employees

SOUTH AFRICA , MIDDLE EAST, EGYPT ,

BANGLADESH VIETNAM , MALAYSIA

16 Globally

125

The Evolution

Marico incorporated

Goes International

Listed in BSE

Venture into Skin care solutions

IPO in Bangladesh

5

1988

1996

2002

2009

1992

FMCG Industry

Market Break Up of FMCG Industry

6

43%

22%

12%

8%

4%

3%

3%5%

Food Products

Personal Care

Fabric Care

Hair Care

Households

OTC Products

Baby Care

Others

The future: FMCG market is set to treble from US$ 11.6 billion in 2003 to US$

33.4 billion in 2015.

Source: http://www.ibef.org/industry/fmcg-presentation (Indian Brand Equity Forum)

Market Share of Marico Products

31%

13%

5%

51%

Market Share for Edible Oil

Ruchi Soya India

Adani Wilmar Ltd

Marico

others

7

Dabur45%

Marico32%

Bajaj Corp20%

Others3%

Market Share for Hair Oil

•Mediker- P&G.

1999

• KanmoorFoods

2000

• SundariLLC

2003

• Fianceeand

Haircode

2006

• Derma Rx

2010

• ParasPharma

2012

Acquisitions by MARICO

8

2.PROBLEM WITH MARICO’s SUPPLY CHAIN

9

Distribution Network

PAIN POINTS

- Low ROI at Distributor.

- Low sales of small SKUs in the first 22

days of the month.

- High stock outs and lost sales at

distributor end.

- Poor working capital management. Raise

cash for month end sales.

- Loss of shelf life, leakages and damages.

- Detentions and extra space requirements.

- High mis-distributions.

10

Poor Stock Visibility

Low forecast accuracy

High distributor Inventory

Low ROIHigh sales

skew: Primaries

Stock Outs

Lost salesHigh Logistics

cost

The Cascading Effect

11

Need for SCM initiative

Absence of detail SKU level planning.

Forecasting and planning done is silos. No visibility to customer demand.

No way to track lost sales.

Non-Compliance to distribution and inventory norms

Frequent replenishments in small lots.

High inventory at the month end.

12

Alternatives

13

• Uniform Distribution System for All SKUs through the month.

• Focusing more on logistics front – More FTLs (say 80%) than LTLs

• Trying fixed inventory ordering system for SKUs and clustering them as per

replenishment needs.

• Introducing Vendor Managed Inventory

• Upgrading technology to have greater access to Point of Sales data.

3.ALTERNATIVE CHOSEN & ACTIONS TAKEN

14

Solutions Implemented

VMI

APO

MINET

ERP

ERP, APO, BW – Used for Marico

MIDAS for Distributors

MINET :- The face of all the above to users in the field

Outcome - Stock visibility of depot and distributor real time

MiNET Functions

MiNet is a portal that links all the distributors of Marico spread across the country to

the company

MiNet enables the company to get daily sales updates at the distributor level

Integrated with MIDAS that generates distribution plan.

MiNet collates historical sales data , simulates stock out levels.

Scientific calculation of Maximum stock norm generated

Advance Planner & Optimizer (APO), forecasted the sales more accurately with the

sales data captured in MiNet.

The “MIDAS” Touch

The company has also put in place a software called the Marico Industries Distributor

Application Software (MIDAS) which is akin to an ERP (enterprise resource planning)

software to capture “secondary sales” data

Every morning the distributor logs on to MiNet and uploads information from MIDAS and we

pass on the information regarding invoices, running schemes etc to the distributor

This means that the distributor can keep feeding his data on MIDAS and then dial in

periodically and feed the information on MiNet. He doesn’t have to be online all the time

Marico IT System - Overview

R3

APO

Warehouse

MIDAS

MIDAS

MIDAS

USERS

MI-Net

Distributor

Distributor

Distributor

USERS

VENDOR MANAGED INVENTORY (VMI) – A

PARADIGM SHIFT

Places order

Distributor Marico

Replenishment

based on order

EARLIER

VMIDistributor Marico

Replenishment based on

norms

Orders are automatically generated with

past data from distributor and right

forecasting methods

4.BENEFITS AND IMPACTS OF THE CHANGE

20

Operational Benefits (distribution channel)

21

50% reduction More than

50% reduction

More than 60% reduction

More than 50% reduction

The Benefits: Quantified

22

50% reduction in sales skew

Tangible Benefits For Marico

23

21%

13%

9%

0%

5%

10%

15%

20%

25%

2003 2004 2005

Stock Out at Marico in %age

Lesser Pressure on Sales andOperations Team

30%

20%

15%

10%

15%

20%

25%

30%

35%

2003 2004 2005

Distributor Stockouts in % of SKUS

Variability of SKUs managed better

70%

80%

90%

40%

50%

60%

70%

80%

90%

100%

2003 2004 2005

Forecast Accuracy %

POS Info resulting inbetter

29

26

22

10

15

20

25

30

2003 2004 2005

Inventory in Marico in Days

Better Cash flowas a result

Brand Country Level

Key Performance Indicators

Improvement in Sales Metrics

(11.4% in crease in Sales)

Double Digit Growth Earnings

(12% increase in PBT)

Availability of right qty and right amount

of SKUs at Distributors

Better Productivity of Sales Team and greater focus on secondary sales

Improved ROI for Distributors with

better stock utilisation

Uniform requirement across month and hence savings on

Infrastructure

24

5.INDUSTRY PARALLELS AND POTENTIAL

PITFALLS

25

Industry Parallels For VMI Implementation

GSK

• Used EDI in 1990s to

exchange

replenishment

information

• Extended it to

upstream and

downstream

networks

• Implemented in R & D

supply chains to

save valuable

research time

Logistics and Supply Chain Management26

WALMART

• Helped managed them as

many as 200,000 store

stock items

• Set KPI to Vendors based

on GMROII

• Achieved 8 or more

inventory turns per year

and GMROII at best in

class level of 2.0+

GMROII =

Gross Margin

generated through

Sell through

Average

Inventory Cost

MAXIM INTEGRATED

• Provided better product

availability for strategic

customers like Apple ,

Samsung and HTC

• Significant reduced order

lead times.

Challenges relating to VMI

LOgistics and Supply Chain Managment 27

• Size of Retail Operations. Larger and Unstructured Retail Operations in India make it a challenge

to implement . Also it makes sense when the scope of business is large to make financially viable.

• Building the Trust Factor at Supplier or Distributor’s end.

Questions like

Will the supplier deliver as required

Will the consumer consume as expected

Has the right products selected

• Heavy Reliance on Technology. Cost and reliability become bigger concerns.

• Willingness to Implement VMI by vendors and distributors. Might see as an intrusion on their

responsibilities. Barilla Spa case classically showed this point

• Vendors willing to take higher responsibility is an absolute ingredient. Frequent demand of

goods will be a need Vendors must agree to implement.

• Close working of Supplier and customer to develop accurate forecasts is am absolute must.

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Thank You