marico industries sap_group 3

2011

10EX-001 – Aditya Rawat 10EX-027 – Monideepa Saha 10EX-036 – Priyabrata Banerjee 10EX-044 – Sankha Mandal

[MARICO INDUSTRIES] [Type the abstract of the document here. The abstract is typically a short summary of the contents of the document. Type the abstract of the document here. The abstract is typically a short summary of the contents of the document.]

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Acknowledgement

The group extends its sincere note of thanks to everyone who supported it during the course of

project execution. It is with the due support, as well as co-ordination between the group

members and our esteemed faculty Dr. VK Gupta, that the project has been completed

effectively and met deadlines.

Dr V K Gupta has been instrumental in guiding and supporting us in different matters regarding

the case review. Supply Chain is an exhilarating domain that offers lot to learn from an

Operations Management perspective. Dr Gupta has been very kind and patient while

suggesting us the outline of this review and correcting our doubts. The phenomenal insights

that he imparted in class for the relevant matters for the project conceptualization cleared

initial ambiguities that acted as bottleneck.

Last but not the least, we would like to thank our classmates who helped us a lot in gathering

information, collecting data and guiding us from time to time in making this project . Despite of

their busy schedules, they gave us different ideas in making this project unique.




Marico Industries overview:

Marico's distribution width and penetration is acknowledged as one of the best in the industry and is a leverage able strength.

Every month, 56 million consumer packs are sold to about 1.8 million households through 1.6 million retail outlets spread across the country. Marico's distribution network covers almost every Indian town with a population of over 20,000. The chart below depicts Marico's distribution network in the urban & rural markets:

Distribution Alliance: Our distribution strength has been recognized by Indo Nissin Foods Ltd. through their association with us for the distribution of Top Ramen products on a national basis. Rural Sales & Distribution: Marico's parallel rural sales and distribution network ranks among the top three in the industry and contributes 24% to the company's topline. Their infrastructure comprises 882 direct distributors, 153 super distributors, catering to 2393 small stockists and 4523 van markets. A dedicated team of Territory Sales Executives and Pilot Sales Representatives distribute Marico's as well as alliance brands through this vibrant network. Sales Capacity: They have made significant progress in the areas that enhance sales capacity. Quality of our distributors Quality and number of the distributor field force Upgradation in the role of the company's front-line sales force. Technology (IT) in Sales: Marico has been making investments in IT to ensure: Supply Chain efficiencies Availability of the SKU at the right distributor point, at the right time in right quantities Timely availability and reliability of Sales MIS, which help in taking prudent decisions on a real time basis. In order to reap maximum benefits from its sales and distribution network, Marico embarked on an internet-enabled application - MI-Net - to establish a network between Marico and its distributors through a web interface. This project is aimed at providing real time information on




the status of various business operations between Marico and its distributors. This initiative is expected to provide business benefits in the form of increased penetration by the sales force, reduced communication costs, reduced working capital requirements, etc. The project went live on April 1, 2002 with connectivity to 330 urban distributors, who together account for about 3/4th of Marico's domestic turnover. The business benefits are expected to accrue over a period of time.

The company has two types of distribution chains, the urban chain and the rural chain. Its business process is divided into three business divisions: nature care, health care and the international division. The company registered a turnover of Rs 700 crore, with a profit of about Rs 50 crore in the last fiscal.

However, the company faced one big problem. On one hand product promotion calls for a lot of creativity, but on the other a full-fledged ERP system in an organisation requires tremendous amount of discipline. “Psychologically, creativity and discipline move in opposite directions and so the management realised that the ERP implementation would reflect a complete paradigm shift in terms of attitude and that issue had to be tackled effectively,” says Satish Pendse, general manager, information systems, Marico Industries. Keeping this in mind, the company began a brainstorming session highlighting the benefits of the implementation. Once the company realised the possible return on investment through ERP it decided to go ahead with the plan, and set the ERP ball rolling.

Developing an extensive supply chain is unarguably one of the breakthrough B2B achievements of the company. Going by the KPMG survey, the company made plans to build a tool that would put them on par with other FMCG firms. An additional investment of about Rs 4 crore was made for a customised software package called MI-NET (Marico Information Network). Internet initiatives

Though Marico has basic Internet connectivity, it is solely used for the purpose of e-mails, while data transfer largely happens through PAMA VSATs. Modems were installed in 50 depots in various locations. After the company started working on its ERP operation it realised the need for a better connectivity environment. Finding that a mix of VSAT and VPNs gave it the best cost advantages, the company opted for these options. Out of 50 locations, 25 are integrated through VPN connections and the rest are connected through 8 PAMA and TDMA VSATs. “Though VSATs are more expensive they are known for high uptime as compared to VPNs. We have tried to strike a balance between the two to adopt a cost-effective approach,” says Pendse.




MARICO-SUPPLY CHAIN TRANSACTIONS




Nature of Challenge faced in Supply Chain of Marico

• Nature of FMCG market : Aggressive strategy

• More brands and more products incur costs: This entails more sales and markets to track,

• More forecasts to make,

• More production to plan,

• More SKUs to track,

• More pallets and truckloads to configure and route. The SKU/distribution point combinations run in millions.

• The distribution network became more costly and complex, exposing many process inefficiencies.

• The resulting growth strained Marico’s highly regarded distribution network and exposed shortcomings in its forecasting, planning, and supply chain processes.

• Forecast accuracy was at 70%.

• Distributors were suffering stock-outs and loss of sales on 30% of Marico SKUs.

• Excess inventory

• The costs of errors in shipments to remote depots were mounting.

• Penetrate areas with less than 20, 000 population.

• No secondary sales data.

• Peak / Min Sales Ratio - across months

• Skew of Sales with in a month

• Order placement process

• Distribution network complexity




INTERNAL OPERATIONS PROBLEMS

Lack of visibility among transaction systems

Stand alone applications systems

Non-Integration: Departments working with conflicting numbers

And coordination problems in supply chain planning and execution

Rationalization and Consolidation of data for monthly financial statements

Excel spreadsheet based application

Only one planner qualified

Data Gathering-Indicative Plan-Production Department-Final Production Plan took 30 days




MARKET PLACE PROBLEMS

DISTRIBUTION PROBLEMS

Reliability on PRIMARY DATA- suboptimal visibility

Next best option- Distributor’s sales to Retailers

MARICO operated with a PUSH METHOD

Severe skewing of sales

Synchronization between MARICO and distributors- different bucketed time horizons

PC-supported legacy systems – use of relational database libraries

Struggling to meet increased logistics needs

Poor visibility into depot stocks-no prioritization rules in place in configuring for optimal truck loads

Excess stock- hire temporary spaces and demurrage charges

Stock-outs

Maldistribution of goods- higher delivery costs




THE VICIOUS CYCLE

Solution Adopted for Supply Chain Challenges

IMPLEMENTATION METHODOLOGY




HOW MiNET WORKS?

• MiNet is a portal that links 800 distributors and 110 super distributors of Marico spread across the country to the company. MiNet also enables the company to get daily updates at the stockist level

• At the backend, Marico has installed the SAP R3 transaction handling modules for sales, finance and materials management

• The company has also installed the Advance Planner & Optimizer (APO), a supply chain module, which works right from demand forecasting to materials management and production planning. Marico claims to be the first APO installation for SAP in India

• The company has in place a Business Information Warehouse (BIW) which is the repository of every bit of information relevant to the company. This backend is linked to the outside world comprising scores of business associates for Marico, through MiNet.




Marico IT Systems SAP:

Distribution Automation Software package- MIDAS (MARICO INDUSTRIES DISTRIBUTION AUTOMATION SOFTWARE) Received distributor stock and sales data in offline mode through floppy transfers But for VMI- real time data needed Internet based system MI-NET in which distributors could log in and supply data online Application which could automatically transfer data from distributor’s PC to MARICO’s central servers

Potential Primary developed using mySAP Business Intelligence Average sale of the previous three months Develops and reports brands and regional sales potential that should be targeted by the sales group Cumulative actual sales to date—mySAP provides daily updates through Primary Potential Proactive work rather than Postmortem analysis

Marico’s Extended Supply Chain System:




The Approach

Big Bet- Big Bang Approach in 2000-2001.

All resources and management

commitment to redesign the

process.

Fully integrated system consisting of

• Enterprise Resource Planning (ERP) business application

• SAP R/3, a Supply Chain Management (SCM) suite.

• The Advanced Planning and Optimization (SAP APO) component of my SAP Supply Chain Management (my SAP SCM)

• My SAP Business Intelligence Solution for Supply Chain Performance Management.

Implementation Deadlines- 9

months

All started a few months apart.

SAP R3- went live in April, 2001

SAP APO in May, 2001

Groundwork for major developments•Technology supported partnerships with major distributors

•Vendor Managed Inventory (VMI)

•Online exchange of distributor sales and other information.




Results

Key Accomplishments

• Increased funding for advertising, brand innovations and expansion

• Greater sales productivity

• Improved win-win situation with the distributors

• Continued double-digit growth in earnings and revenues

Using mySAP SCM and SAP R/3 ERP modules in the

first 2 years

Improved visibility of

internal operations

Improved visibility of the market place- VMI

Visibility and tools provide by SCM & ERP yielded:

Improved forecasting accuracy

from 70% to 80%

Reduced Planning

Production Cycle Time-

30 days to 10 days

Improved planning and operations of

the distribution

network

Reduced Sales Skew and balanced distribution levels

Decreased SKU stock outs by 50%

Reduced Excess Inventory at Distributors by 50%

Reduced Marico’s Average Total Inventory by 25%

Reduced Supply Chain exception-handling costs by more than 60%




Impact and Benefits

VENDOR MANAGED INVENTORY (VMI)

SAP APO

Not used for Sourcing and

Manufacturing

•few commodity raw materials•no manufacturing capacity constraints•no sales seasonality- no promotions and minimize artificially induced demand surges

Demand forecasting and

Supply Chain Planning

•Improve internal Collaborative forecasting between manufacturing sites and warehouses.

•Assigned and accountable ownership- distribution from warehouses to distributors met service levels




OPERATIONAL IMPROVEMENTS




THE LAST MILE…WHAT IT IS NEXT? With its ERP and SCM implementation in place, what are Marico’s future IT plans? Explains Pendse, “We are in the process of building a knowledge platform, which will enable the group members to share information and knowledge across the entire group.” In short, Marico aims to create the infrastructure for future collaboration and convert it into a virtual knowledge community. Also on the anvil is the introduction of payment gateways within the system to speed up the payment process. Marico also realizes that the IT infrastructure in terms of the SAP suite of products or MI-NET or the data-communication network has good potential for further exploitation. “When the users start basic use of IT tools, they uncover more areas where the same set of tools can deliver more benefits. The same applications can be used for different sets of internal customers who are not tapped till now,” says Pendse.

Marico is now working on the last mile—capturing data at the tertiary or retailer end. The company plans to arm its distributor sales representatives with handheld devices with a customised application that will allow them to record the stock position at the retailers’ end on a weekly basis and then feed it into MiNet at the distributor office. Consumer complaints can also be fed in and acted upon in record time. But the most important aspect of capturing this data for the company lies in the market data generated and the potential to link the entire supply chain to consumer off-take




marico industries sap_group 3

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