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Marico: Supply Chain Management
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Marico: Supply Chain Management

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This presentation deals with Marico's inbound and outbound supply chain. We discuss here the supply chain problems that Marico faced and the remedial steps it took to solve the problems. Use of IT …

This presentation deals with Marico's inbound and outbound supply chain. We discuss here the supply chain problems that Marico faced and the remedial steps it took to solve the problems. Use of IT (ERP/SAP solution) and disintermediation in supply chain appear as notable steps Marico undertook to solve its Supply Chain problems.

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  • Quotes were accepted only in the auction window. No purchase was made at other times even if the price offered were attractive. Marico did not ever renege on high priced contracts- a strategy traders adopted initially to break Marico’s auction system. Eventually unable to break Marico’s auction process, Kerala traders first striked for few months but later accepted the process when they saw no let-up in Marico’s policy

Transcript

  • 1. A study of inbound and outbound supply chains
  • 2. 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 SetWet, Livon, Zatak , and other personal care brands
  • 3. 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.
  • 4. 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
  • 5. Outbound Supply ChainTransactionsOutbound Supply chain for rural markets
  • 6. NatureoftheMarket • Fragmented nature of Indian supply chain • Supply chain can provide competitive advantage BullwhipEffect • 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 KeyStrengths • 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 ManagingSupplyChain • Slow moving SKUs – shipped directly from factories to depots • Fast moving SKUs – shipped to re distribution centre and subsequently to depots • Distribution Alliances
  • 7. 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
  • 8. 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
  • 9. 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
  • 10. 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 brands Excess inventory and stock outs Outbound Supply chain problems
  • 11.  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
  • 12. 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.
  • 13. 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
  • 14. 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 IMPLEMENTATION ENDOF FIRSTYEAR ENDOF SECOND YEAR
  • 15. Marico Mumbai based Brokers Terminal Market Brokers in Kerala Supplier Network inTerminal 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
  • 16. 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 brokers Frequent supply disruptions
  • 17. VariousActors in the Copra SupplyChain
  • 18.  Disintermediation- reducing intermediaries in supply channel. BuyingOffice 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:
  • 19.  To reduce dependency on terminal markets, Marico started sourcing from InteriorTraders- small aggregators who sourced Copra from interior villages
  • 20. Sourcing from terminal markets discontinued completely by 1998 This eliminated transaction fee at Exchange Unnecessary loading/unloading avoided Vendor Development Initiatives: TenVendors identified in N. Kerala and given Copra dryers along with some training Starting 1994, attempts to develop vendor base in Tamil Nadu, other states
  • 21. • 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 CCs unlike large traders who generally would wait for the right quantity and price Further Disintermediation: Share of sourcing through Copra Collection Centers
  • 22. 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.
  • 23. Process Improvement: Institutionalize e-buying • Web Based Auctions:This was the 2nd phase of process improvement after ReverseAuction. • 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 • FastTrack 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
  • 24. • 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 Outbound 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 Marico’s Inbound Supply Chain