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