Download - Marico: Supply Chain Management
A study of inbound and outbound supply chains
Company profile
FMCG company providing consumer products and services in the areas of
Health and Beauty based in Mumbai.
Sales revenue:2012: INR 4596 Cr
Net Profit: INR 396 Cr
Leadership positions in most categories- Coconut Oil, Hair Oils, Post wash
hair care, Anti-lice Treatment, Premium
Refined Edible Oils, niche Fabric Care etc
Brand portfolio: Parachute, Saffola, Hair &
Care, Nihar, Mediker, Revive. Marico also owns popular brands like Set Wet, Livon, Zatak , and
other personal care brands
Markets
Little sales seasonality
Strategy: Expand continuously into
even smaller locales through even more
brands.
Every month, over 70 Million consumer packs
from Marico reach approximately 130 Million
consumers in about 23 Million households
Widespread distribution network
of more than 2.5 Million outlets in India
and overseas.
Marico’s Strategy & Impact on Supply Chain
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 ,Innovative promotion schemes –
Advertising expenditure increased steadily
Expansion strategy – introduced more brands
and tried to increase reach – created Supply
Chain problems
Outbound Supply Chain Transactions
Initial Outbound Supply Chain
Outbound Supply chain for rural markets
Features of the Outbound Supply Chain
Natur
e of the Marke
t
• Fragmented nature of Indian supply chain
• Supply chain can provide competitive advantage
Bullwhip
Effec
t
• 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
Key
Strengths
• 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 re distribution centre and subsequently to depots
• Distribution Alliances
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
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
Problems with outbound supply chain
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
•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
Problems with outbound supply chain
Planning issues
•Planning cycle: 30 days•Different bucketed time horizons for manufacturing and distribution•Manufacturing: 2 weeks•Distribution: 1 week•Only one qualified planner•Spread sheet based planning•Result:•Inventory problems •Eroded distributor confidence•Expired products•Unresponsive to market changes
Business impact
•Supply chain not in tune with the marketing strategy•Losing competitive advantage•Losing image among supply chain components•Poor performance affected cash flows•Supply chain hindered expansion strategy of growth through more brands•Affected consumer’s image of company
Poor data visibility
Low forecast accuracy Long planning cycle
Unreliable unresponsive
production data
Poor response to market changes
Skewing of sales
High inventory and stock outs
High delivery costs
Low attention to smaller brandsExcess inventory
and stock outs
Outbound Supply chain problems
Outbound Supply chain redesign
Solution: mySAP business Intelligence
Big bang approach for SAP implementation At Company factories, warehouses,
business offices, contract manufacturersSAP APO implemented for: Not implemented for:
Demand forecasting Sourcing
Supply chain network planning
Sales
Manufacturing
Implementation stages
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.
Benefits of redesign
Operational improvements• Reduced planning cycle
• From 30 days to 10 days• Improved forecasting accuracy• Improved delivery reliability
Improved forecasting
• Both primary and secondary sales figures were available
Improved distribution
• VMI implemented for C&FA• 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
Outbound Supply chain performance improvements
Distributor stock-outs
30% of SKUs
20%
15%
Marico stock-outs
21% of SKUs
13%
9%
Excess inventory at distributors
29days
26 days
22 days
Excess inventory at distributors
43m Rs
29m Rs
22m Rs
Annual supply chain costs
13.5m Rs
8.1m Rs
4.8m Rs
BEFORE IMPLEMENTATIO
N
END OF FIRST YEAR
END OF SECOND YEAR
Marico’s Inbound Copra Supply Chain:
Marico
Mumbai
based
Brokers
Terminal
Market
Brokers in
Kerala
Supplier Network
in Terminal Market
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, vandikkaran, Copra Converters, farmers)
Copra buying is approximately 50% of Marico’s purchase portfolio
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 discrepancie
s
Price and Payment terms
were dictated by brokers
Frequent supply
disruptions
Various Actors in the Copra Supply Chain
Remedial Action: Disintermediation & IT
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:
Making it work To reduce dependency on terminal markets, Marico
started sourcing from Interior Traders- small aggregators who sourced Copra from interior villages
Making it work
Making it work
The IT push:
• 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)
Further Disintermediation:
• 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 CCs unlike large traders who generally would wait for the right quantity and price
Share of sourcing through Copra Collection Centers
Making it work
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.
Making it Work
Making it work
Process Improvement:
Institutionalize e-buying
•Web Based Auctions: This was the 2nd phase of process improvement after Reverse Auction.•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
Conclusion
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