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A CASE STUDY ON SUPPLY CHAIN OF

Submitted By,Richesh Krishnan14MMCC24

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Company Profile Marico’s Inbound Copra Supply Chain Remedial Action Marico Strategy and Supply Chain Impact Marico Outbound Supply chain Improved Outbound supply Chain Conclusions References

3 Company Profile Founded on 1971 Marico is one of India's leading Consumer Products &

Service Industry Brand portfolio: Parachute, Saffola, Hair & Care, Nihar,

Mediker, Revive. Marico also owns popular brands like Set Wet, Livon, Zatak , and other personal care brands.

4 Marico is a FMCG company providing consumer products and services in the areas of Health and Beauty based in Mumbai.

Leadership positions in most categories- Coconut Oil, Hair Oils, Post wash hair care, Anti-lice Treatment, Premium Refined Edible Oils, niche Fabric Care etc

Marico's own manufacturing facilities are located at Goa, Kanjikode, Jalgaon, Pondicherry, Dehradun, Baddi, Paonta Sahib, Perundurai and Daman.

Sales revenue 2012: INR 4596 Cr Net Profit: INR 396 Cr Part of Marico’s business strategy is to expand

continuously into ever smaller locales until its brands are available to most Indian households.

5 Marico’s Inbound Copra Supply Chain:Prior to 1991, Copra purchase unit was in Mumbai

Marico contracted brokers in Mumbai who in turn contracted brokers in Kerala.

Brokers in Kerala had their own trail of intermediaries (local brokers, Copra Converters, farmers)

Copra buying is approximately 50% of Marico’s purchase portfolio

MaricoMumbai based

Brokers

Terminal Market

Brokers in Kerala

Supplier Network in Terminal Market

6 Problems with the Inbound Copra Supply Chain

Increased cost of procurement due to presence of many

intermediaries

Quality of the copra bought from market significantly different from one that reached

Marico factories

Quantity discrepancies

Price and Payment terms were dictated

by brokersFrequent supply

disruptions

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Copra Supply Chain

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Remedial Action: Disintermediation & Interiror Traders

Disintermediation- reducing intermediaries in supply channel. Buying Office set up in Kozhikode in 1991, bypassing 2 layers of primary brokers at Mumbai & Kerala

Factory set up in Kanjikode, Puduchery and Goa. Mumbai factory shut down.

New factories closer to sourcing locations and markets

Terminal markets had strong labour unions

• Ability to dictate terms of payments

High labour charges

• Consequence of unionized terminal markets in Kerala

Separate unions for handling, loading, unloading, drying,

stacking etc.• Increased overheads

and cost

Initial Problems with the initiative:

9 To reduce dependency on terminal markets, Marico started sourcing from Interior Traders- small aggregators who sourced Copra from interior villages

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Vendor Development Initiative

Sourcing from terminal markets discontinued completely by 1998

This eliminated transaction fee at

Exchange

Unnecessary loading/unloading

avoided

Vendor Development Initiatives:Ten Vendors

identified in N. Kerala and given

Copra dryers along with some training

Starting 1994, attempts to

develop vendor base in Tamil

Nadu, other states

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• Big bang ERP implementation in 2001-02

• Marico’s Copra suppliers connected through web portal- Marico Connect

• Institutionalize e-buying in Copra purchase (dealt later)

The IT push:

• To further eliminate traders, Marico started with own collection centers

• This brought more stability to the supplies: Small farmers could sell directly to Marico’s Collection Centers unlike large traders who generally would wait for the right quantity and price

Further Disintermediation:

Share of sourcing through Copra Collection Centers

12Process Improvement: Institutionalize e-buying

Web Based Auctions: Most suppliers were computer illiterate; this challenge was met by:

Opening Rediff email ids for each vendors Training on e-mail usage & tie-up between vendors and cyber cafes

Fast Track Payment (FTP): allowed vendors to rotate their money faster. 3° Phase: Copra e- Portal “e-marico.com” launched in 2005. Enabled placing of bids through SMS.

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Process Improvement:• Daily negotiations with Copra traders was done

away with• Reverse Auction: Buying team would accept

quotes from copra traders only during three one-hour auction slots in a day and the lowest bidder would be selected.

• The initial resistance to Reverse Auction died down in a few months and traders accepted the process.

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15 Marico Strategy and Supply Chain Impact

1995 – Focus on Brand Development

This was in response to the growing International

competition from rivals –Unilever and

ConAgra

For survival -Increased efforts to develop new brands

Reduced reliance on 3 market leader

brands - Parachute coconut Oil ,Saffola

and Sweekar

Introduction of more products and more brands – incur cost

Extensive advertising ,Innovati

ve promotion schemes –

Advertising expenditure

increased steadily

Expansion strategy – introduced more

brands and tried to increase reach – created Supply Chain problems

16Marico Outbound Supply chain

Plants

Depots

Distributor Super Distributor

Retailer

Urban Consumer

Stocklist

Retailer

Rural Consumer

Marico’s Supply Chain

17Initial Outbound Supply Chain

Factory

Depots

Supplier/Super Supplier

Retailer

Consumer

Stock Transfer

Primary Sales

Secondary Sales

Offtakes

Ideal Information

Flow

Marico’s Supply Chain Transactions

18 Features of the Outbound Supply Chain Nature of the Market Fragmented nature of Indian supply chain Supply chain can provide competitive advantage

Bullwhip Effect Only 2% - represents organized retail stores(tiny grocery stores) 95% : Kirana stores Point of sale information – Not readily, directly available from retailers Sales data – collected from field test, customer focus group, well

financed advertising program

19 Key Strength Relatively low commodity Raw material such as Vegetable oil,

safflower seeds. Strong control on sourcing of RM Less variation in sales seasonality No major manufacturing constraints

Managing Supply Chain Slow moving SKUs – shipped directly from factories to depots Fast moving SKUs – shipped to redistribution centre and

subsequently to depots Distribution Alliances

20 Challenges Faced in the outbound Supply chain Supply chain not scalable with Expansion Plan Strategy:

Expand continuously to reach most Indian households Growth through new brands and product lines Penetrate more into rural areas - represents 70% of Indian

population Entails more sales and market to track –more forecast to

make ,more product to plan, more SKUs to track-more truckloads to configure.

To cater to the new areas with existing supply chain – logistic challenge

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Forecasting Errors Low cost products – leading to impulsive buying decisions Product availability – Key to impulse buying Forecast accuracy was 70% Distribution – suffered stock outs leading to loss of sales 30% On one hand – low level of service level due to product

availability Other hand, excess inventory lying at Marico and in the channel Cost of errors in shipments to remote depots increased

22 Un-integrated Application systems Lack of integration among transaction systems

Result Poor visibility into internal operations Did not scale with increased logistics requirements

Inaccurate forecasts, long planning cycles, no transparency of warehouse stock, delayed response to customer needs.

Problems with distribution Shipped only full trucks Obstacles to good distribution:

Random decisions due to Poor visibility into the depot stocks of growing number of SKUs No prioritisation rules for configuring optimal truckloads

23 Monthly distribution levels

First 20 days: 16-32% Last 10 days: 53%

Result Needed to hire extra space when shipment exceeded depot facility Excess inventory for some SKUs, stock-out in others Higher deliver costs Erosion of sales, distributor confidence and customer satisfaction

24 Outbound Supply Chain redesign Solution: mySAP business Intelligence Big bang approach for SAP implementation

At Company factories, warehouses, business offices, contract manufacturers

SAP APO implemented for: Not implemented for:

Demand forecasting Sourcing

Supply chain network planning Sales

Manufacturing

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Stage 1: Lower inventory and supply chain costs

Revamp processes

Technological support through highly integrated applications systems

ERP Big bang rollout in 2001

Stage 2: Resolve forecasting problems, eliminate inventory and stock-out problems

Partner relationship with distributors

Timely sales and inventory information

VMI Manage distributor inventory by replenishing stocks on the basis of distributor’s input of sales to retailers.

Supply Chain Implementation

26CompleteVisibility

Improved Forecast Accuracy

Short Planning Cycle

Reliable and Responsive

production and distribution data

Reduced Inventory and

stockoutsFast response to market dynamic

Uniform scales

Low Inventory and stockouts

Reduction in Delivery Cost

Equal Attention to Smaller

Brands

Improved Outbound supply Chain

27Operational improvements

• Reduced planning cycle• From 30 days to 10 days

• Improved forecasting accuracy• Improved delivery reliability

Improved forecasting• Both primary and secondary sales were available

Improved distribution• VMI (Vendor managed Inventory) implemented• SAP heuristics ensured shipments are sent in full truckloads and that

depot inventories simultaneously remain within prescribed inventory norms

Improved distributor relationship: reduced bullwhip effect• Partnership relation with distributors• Monitor and manage distributor inventory by replenishing stock on the

basis of secondary sales • C&FA supposed to replenish distributors within specified period or face

penalty

Benefits of redesign

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Outbound Supply chain performance improvements

29 Conclusions Marico’s Outbound Supply Chain Forecasting and distribution errors impacted company’s cash flows and hindered

expansion By effective implementation of SAP, forecasting and distributor relationship improved,

costs and inventory levels went down

Marico’s Inbound Supply Chain Marico faced increased costs of procurement and frequent supply disruptions due to many

levels in supply channel Disintermediation and IT assisted process improvement led to reduced costs, procurement

lead time and efficient operations

30 References

Marico Industries: mySAP™ Supply Chain Management

IIM, BangaloreBy, Janat Shah and Angeline Pantages

Economics Times – Appachi Supply Chain Articlehttp://articles.economictimes.indiatimes.com/2013-11-26/news/44486941_1_saugata-gupta-fmcg-major-marico-supply-chain Marico - An Information Update April 26, 2007

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