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Shampoo Industry

Lecturer: Mr. Daniel Vidal

Batch: MBA – `83

Module No: 4.702 Managing Information & Technology

Assignment Due Date: 22nd July 2008.

Name: Keyurkumar Shukla (20080542)

Rakesh Modi (20080524)

Shaurin Patel (20080541)

Yaseer Arafat (20071229)

(Word Count: 3346)

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Executive Summary:

The purpose of carrying out the Shampoo Industry Analysis is to study the ICT used by

them internally and externally. Shampoo Industry uses various ICT’s effectively for the

purpose of Growth and development. For this analysis, we have analyzed Shampoo

Industry by using Porter’s 5 Force Model and showed the Positive and Negative forces

with High and Low Power. We have also done Implications of ICT in the 5 Force

analysis.

After that we have done Internal Analysis of this Industry by using Porter’s Value Chain

Model. We have analyses Linkages in the value chain and further marked the ICT’s for

increasing the value of the Industry.

We than finally Concluded our Report on a note that Industry is reaching at the saturation

point but they are fighting hard with the help of ICT’s for survival and managing profit

with the race of Innovation and Imitation. Further more we have given our

Recommendations to finish the Analysis.

Objectives:

• How to convert Negatives into Positives by using ICT’s in Porter’s 5 force

Analysis.

• How to add Value by showing linkages using ICT’s

• How to sustain for long run in the rat race of Innovation and Imitation.

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Table of Contents:

1) Introduction……………………………………………………………………….

2) Porter’s 5 Force Analysis with Implications of ICT’s……………………………

3) Value Chain Analysis………………………………………………………………

4) Conclusion………………………………………………………………………….

5) Recommendation…………………………………………………………………...

6) References…………………………………………………………………………

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Introduction:

History:

The word “Shampoo” was originated from Hindi (Indian) word “champi” which on

purpose means “to massage”. It was originated way back in the year 1762. To begin with

it was actually Hair and scalp massage provided in British Saloons. The first detergent-

based hair product was innovated in Germany in the 1890s; it was this innovation that

give shampoo identity as a cleaning material. (Dave D, 2008)

The first powder shampoo was developed by a famous company of Germany named

Schwarzkopf Professional in 1903. Another Innovation in this industry was seen in 1927

by the same company was the first liquid shampoo in front of the world. (Schwarzkopf,

2007)Further Innovation entered this industry with the use of the technology and in 1960s

the real form of shampoo that we are using today was first time ever introduced. (JRank,

2007)

The Industry:

Shampoo is part of Fast Moving Consumer Product (FMCG). FMCG are the products

that consumer use on frequent basis. Shampoo is one of the most frequently moved

products which are used for cleaning of hair. With the world Shampoo Industry, New

Zealand also plays a part in Manufacturing of Shampoo. Some Industry in New Zealand

is in Manufacturing of main surfactants like alkanolamides, betaines, cocoamidopropyl

betaines, amine oxides that are used in Shampoo. New Zealand also imports the same

product from countries like Australia, Asia and rest of the world. (Foster I)

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Furthermore, FMCG goods are also said to be the goods that has low manufacturing and

low consuming cost that’s why they are called quick movers. This Industry is also as

other FMCG Industry is both adaptable and responsive. Proctor & Gamble, Unilever are

couple of best example of the FMCG Industry as they are in the top 5 organization

operating in the FMCG arena. (Mingrong Li, 2007)

Industry Analysis:

Porter’s Five Force Model:

Potter’s five forces for Shampoo Industry

Power of Buyer
Threat of New
Threat created by entrants that decreases
(-ve)
New Entry in the Firm’s effectiveness

Same field

Power of Supplier Competitive Rivalry


Competitors in the Power of Buyer
(+ve) (-ve) (-ve)
same product

Substitutes implicate
Supplier apply products Threat of substitutes
(+ve)
Same or better alternative
which cease or decrease
product
Firm’s power

The above mentioned figure shows the Porter’s 5 Force Model which is used in analyzing

the Industry. Here, we use it to analyze the Shampoo Industry. This is actually the first

step of the industry analysis. If a strategist wrongly delineates any of this strategy in the

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analysis, the Industry analysis is blemished. This analysis provides the viable advantage.

Now we will peep in the Shampoo Industry using the Porter’s 5 Force Model.

Porter’s 5 Force Analysis:

(Insinuation of the use of ICT in Shampoo Industry)

Threat of New Entrants:

The threat of New Entry is quite high in the Shampoo Industry. This is the Perfect

competitive Market, so it is open for any body. So entry is quite easy. But there are many

back foots as well such as, in this Industry if there is a new entrant trying to enter this

industry he can’t justify himself or measure himself in Economies of Scale. He can’t do

mass production to start of with! The current players in the industry i.e. if we talk about

UniLever or Proctor & Gamble (P & G), a small player can’t compete with them as they

are big brands. This is the product that deals in the FMCG market hence; it would not be

easy to switch cost for the new entrant. There would be a huge amount of Capital

requirement to compete to this big brands so it’s not easy to invest right from the word

go. Hence, Threat of New Entrant is high and the Force that’s why is Positive for the

Shampoo Industry.

Implication of ICT:

Here current firms that are operating in the Industry spend so much time and money

power in the Research & Advancement Program. This kind of R & D increase the value

for an industry as it improves the product that results into the extension of the product life

cycle. For new Entrants this is not easy. They can’t directly come and compete with these

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players to start of with in the firm with well established and Hi tech complied technology

of established players.

Power of Buyer:

In today’s high competitive era Buyer is the most attentive part for the Industry. In

Shampoo Industry buyer are the retailers/distributors of the product. Buyer always looks

out for the extra bit that they can acquire than the real time. Buyers always play for the

dilution of an Industry. In Shampoo Industry the Power of Buyer is certainly high which

makes this force –ve for the firm. Buyers have certain variety and likings of the products.

They always look out for the cost effectiveness and in good quantity. They sometimes go

for less quality but some are also interested in that. This thing forces a firm to switch their

costs. They always look out for Incentives. They also have their own liking for particular

brand. Hence all these makes Buyer power high which makes this force –ve.

Implication of ICT:

ICT can be used to lower down the buyer’s power in the following ways. Implementation

of cost effective sachets instead of shampoo bottles to attract buyers was the best example

of ICT implication. It cut the cost of production and buyers gets good and better incentive

on selling that. And because of less quantity in sachets the sales also zooms up. Also now

with the use of Internets the ordering has also become easy and due to this the buyers has

in time delivery of stocks. The company using ICT to manage all this can decrease

buyer’s power to some extent.

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Competitive Rivalry:

Shampoo Industry has the enormous growth rate as it is the FMCG product. In this

industry the competitive rivalry is quite high and it is always negative for a firm

operating under this kind of Perfect Competitive market. There are number of players in

the industry. They all are competing with the same kind or imitative products so the

competition level is quite high. More over in the present time of mall culture, every

product is kept side by side so the rivalry becomes more extreme. A plus point is there is

fast movement in the product so there are high chances of survival as well.

Implications of ICT:

There could be much done with the use of ICT in the Shampoo Industry to achieve

advantage. Firstly as some of the big player dose can eat up or merge small firms to gain

advantage. Now with the use of ICT big players plays an important role in R & D as and

improve technology cut down cost add features and differentiate their product to gain

advantage. The journey of Shampoo Industry from “Chumpi” in 1762 to ‘Soap Powder”

in 1890’s and from “soap Powder” in 1890s to Normal liquid shampoo in 1960s and still

innovations are going on for different kind of hair different shampoo like non-sticky one

to thin hair shampoo, etc. this innovation give a firm advantage. (Schwarzkopf, 2007)

This give advantage but other firm also imitate and competition get more intense. So

Innovation cycle further carries on and on and industry keeps on going.

Power of Supplier:

Power of Supplier is low as far as the shampoo industry is concerned and it is + ve for the

Shampoo Industry. As it is a perfect competitive market there are heaps of suppliers in the

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market. If the producer wants to switch on with the supplier they can do it easily. As we

have seen above in the Introduction in New Zealand Shampoo Industry firms has its own

supply unit. They prepare their own surfactants and use it to prepare shampoo. Thus this

gets the Supplier power down. So in this Industry Firm Concentration is higher than

Supplier concentration. The only threat in the Supplier power is if the supplier is

supplying to more than one firm and if a big firm integrates him, than other firms has to

look out for new supplier and it can cost their couple of months time. Hence this is the

only threat.

Implications of ICT:

As there are number of small to big supplier in the Industry the supplier power is low and

the force is + ve for the industry. So there is nothing much to do with this force as If big

company produces there own surfactants, they are their own suppliers. Hence by using

Technology and Market Information they can easily cut down their production cost to

gain extra edge. Moreover Bottle manufacturer, sachet manufacturer remains the other

supplier, but they are also lots in number as plastic Industry of New Zealand is good in

Packaging and also Plastic is easily available in different countries. Though in many

countries Plastic usage is banned but still with the usage of ICT the suppliers has

overcome the problem by using Recyclable or Bio Degradable plastics.

Threat of Substitute:

In Shampoo Industry the threat of Substitute is not high. As a result of constant

Innovation and wide range of cheap shampoo to the costly one it is easy for the customer

to select one of there choice. And the quality provided is quite significant, so there are

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none or just couple of Substitutes for this Industry. If we peep in further, In India and

many Asian countries, some few people uses some herbal powder like Avala, Aretha,

Beda, etc that are believed to be strengthen the hair and some herbal soaps like Shikakai,

A M Amla No 1, etc. But they haven’t affected the Shampoo industry at all. Hence the

threat of Substitute is very low and the power is + ve for Industry.

Implication of ICT:

In the threat of Substitute the power is already low so nothing much to do, but Shampoo

Industry is already doing enough to cut short the chances as if any Substitute tries to

threaten them. They used ICT and mixed all these Herbal powder in the shampoo and by

using ICT the Industry comes out with yet another option or innovation of Herbal

Shampoo. Vatika Shampoo of Dabur company in India is the best example of that. So

people who have shifted to that herbal powders before returns back to the shampoo again,

so like this they have kept the threat of Substitute down by the usage of ICT.

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Value Chain Analysis:

Value chain is important for gaining competitive advantage for any firm and how to gain

that advantage. By this analysis firm can identify the value adding activities and can also

detect the non value adding activities. There are primary and support activities in the

value chain. Generic ingredients of,

Primary activities:

Inbound logistics, Operations, Outbound logistics, Sales and Marketing support, and

service.

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Support activities:

HR management, Firm infrastructure, Technology development, and Procurement. (Dr.

Akkermans H.)

As the industry goes back to 1762 that is around 250 years and the industry has

continuously improved its value chain and tried to giving its customers the best value

added product. Most of the changes have been made by improvements various value

adding activities of the industry. Impact of ICT’s on the business environment is good.

Internal Value Chain Linkages:

An analysis of primary activities in the value chain.

Primary activity Inbound logistics and Supportive activity Procurement have internal

linkage. These activities include warehousing of raw materials, ordering materials, etc.

Internally in the firm Inbound logistics and Procurement activities have linkage regarding

raw material handling. As procurement department works out the purchasing of raw

material, machinery and mainly choosing the best supplier for the company. As inbound

logistics is the primary activity they need help of the procurement department whenever

they need raw material, machinery, etc. So the procurement department in the shampoo

industry is important value adding activity. Shampoo manufacturing companies use

intranet/internet to handle raw material efficiently.

Use of ICT in industry:

Some firms use intranet to provide the supplier as well as the assigned persons for that

job to access the real time data about material. For example, P&G uses the inventory

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optimization process to improve the inventory management process and technology. The

ICT software (Multi-Echelon Inventory Software) gives planner the information about

the inventory across places. By using the system both departments can work more

efficiently together. The software provides the probabilistic demand forecast so both

activities can access to those data and procurement department can order according to

that data. By this way company will improve its inventory handling cost, storage cost,

improved customer service, etc. They got 99% order filling rate by using ICT. P&G also

improved relation ships with the suppliers to cut inventory materials so that it can add the

value to the company. Unilever is also planning e-procurement in few years for nippy

growth. (Kerr J, February 2008)

The Operation one of the primary activity is linked to HR department. The operation

includes machining, manufacturing, etc. which is related to manufacturing processes

which demand technical knowledge. So that activity links to HR department so that

operations department of the firm can ask HR department to recruit the personnel with

the specific knowledge for that manufacturing process. The operation activity is linked to

the one of the support activity Technology Development which deals with R&D, and

product and process improvements. An operation which is related to manufacturing the

technology development activity could benefit by doing some R&D to find better

shampoo products. The shampoo industry also uses CAD/CAM for the manufacturing of

shampoo. Infect it is the first industry to use the CAD/CAM for manufacturing.

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Using ICT in industry:

It is by using ICT company carries out the computer enabled manufacturing processes.

By the use of ICT the company produces on the mass scale to achieve economies of

scale. By using the new technology the companies are making shampoo from the

polymers, silicones and surfactants so that the shampoo will not be much irritating, it will

save the cost of production, it would be more environmentally friendly and provides

better functionality and performance. One of the R&D result is Paper shampoo which is

sign of innovation, in the shampoo industry which shows that products are transforming

continuously. (Trei M, June 2008)

As we know the shampoo has been transformed from the soap to the shampoo by use of

technology. (JRank, 2007)

For example, P&G has made “preventive codes” where by the company identifies the

dangerous or harmful substances which are not good for the body, environment, etc. and

by that law the company prevents them. Talking about HR,Unilever has outsourced its

HR operations to Accenture which provides HR solution like IT learning, IT training,

recruitment, payroll administration, performance management, etc. by which they employ

the right person to the shampoo units. (Finlaw J, Johns T, Payne B, June 2006)

Primary activity outbound logistics is linked to the firm infrastructure which is a support

activity. Outbound logistics handles activities such as warehousing finished products,

distribution of products, etc. For those activities the firm must have sufficient

infrastructure for storage, vehicles for distribution, etc. The outbound logistics also links

to the marketing and sales activity. For example sale and marketing gives its forecast of

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the demand to the warehouse and the distribution of shampoo products to be made to

other retailers or customers using a database.

Use of ICT in industry:

The intranet and the central database are used to access the information about the

warehousing and distribution. They use systems such as electronic scheduling of

deliveries and managing the shampoo products. They use automated shipment system for

the distribution of the shampoo products. So that firm must have the infrastructure like

computer systems, software, enough finance to support the activities.

There is linkage between sales and marketing with the technology development which is

one of the support activities. Sales and marketing activity deals with the functions like

advertising, promotion, pricing, and channel relations. The technology department which

provides help to marketing and sales activities in terms of providing faster systems to get

the data’s of the stock in warehouse. IT department provides access to the data of the

other departments to the marketing and sales. There should be enough flow of the

information at each stage of the value chain so that marketing and sales can access that

data and can decide about promotion for that product.

Use of ICT in industry:

E-business is one way of improving brand awareness and cutting costs on promotion and

advertising. Now a day for fast growth e-business is very essential for the firms to gain

competitive advantage over the competitors. For example Unilever is using e-business to

enhance its growth plans. For enhancing its e-business activities the company jointly

announced strategic alliance with i-village, AOL, Microsoft, Excite@home, WOWGO to

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improve the communication of the shampoo brands. The company by using its IT

facilities developed the integrated regional networks to support their brands and better

ordering system for the retailers.

By e-business the company can provide e-catalogues to the retailers. By using e-business

the company will develop e-consumer by which the company will provide personal

portals which will aim to the specific customer group e.g. woman’s portal for women

customer. They will do online advertising on alliance partner. They will use e-commerce

to enhance the supply chain of the company. They developed the ECR (existing efficient

customer response) by which they will develop relations with existing customer and find

new customers through them. By using the intranet company shares the information

about innovation projects and enhances global marketing through that system. (Unilever,

2008)

The last primary activity which is service is not applied here because it is FMCG product.

But companies do try to provide after sales service like if the customer is not satisfied

with the shampoo, company do give them their money back. For the customer’s benefit

the industry players introduced the ‘sachets’ which is very cheap for the consumers to

buy. They also study the consumer behavior at some intervals and continuously introduce

new shampoos which are health friendly.

(Anderson J, & Markides C, 2006)

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Conclusion:

The Shampoo Industry has a significant role in the FMCG Industry. It is one of the fastest

moving goods with cheap price. The Industry has a major contribution in the FMCG

sector. There is Intensive Rivalry in the Shampoo Industry this has caused these Industry

to the penetration period. But Shampoo Industry Players are effectively using ICT’s to

their potential in developing the strategy for survival and sustainable profit and growth.

There has been constant rat race among the rival firms in Innovation and Imitation

process in Research and Development to eat each other’s profit by using ICT. They have

also eliminated threat of Substitute by constant Research and Development. We have also

seen the affectivity in usage of ICT’s in the Value Chain linkages that adds value in the

Internal Chain system of the firm.

So in all the players of Shampoo Industry have effectively followed the big sayings,

“Imagination is not the limit, Strategies (ICT’s) that follows Innovation through R&D is

the key to success for any firm”.

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Recommendation:

Shampoo Industry undoubtedly has maintained its sustainability as on of the most

popular selling product in the FMCG Industry. Shampoo Industry continuously keeps on

Innovating from Soap Powder to Shampoo. Shampoo industry should continuously find

new ways of innovation. It should use ICT to find new developments in products to avoid

the threat of substitutes. Strategic innovation in future will help the industry to overcome

the gaps in the industry, by gaps we mean

• Identifying new customers

• New ways of manufacturing shampoos

(Anderson J, & Markides C, 2006)

The use of ICT can help the industry to manufacture in a cost-effective way. By more use

of ICT industry could attract new customers and it could provide the products in

economically and innovatively. As some large manufacturers like P&G and Unilever

have moved strategically towards use of ICT in raw material handling, finding new

customer, customer relationships, e-catalogue, etc. They can even give their employees

rest at home and allowing employees to work from home. The ICT can help industry

players to provide efficient and on-time delivery of shampoo products. Shampoo industry

players can use ERP (Enterprise Resource Planning) and CIM (Computer-Integrated-

Manufacturing) for effective supply chain of product, to deliver the value added shampoo

products. (Wikipedia, March 2007)

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References:

1. Dave D, 24/7/2008, Shampoo, Industry sector Cosmetics & Hygiene, Retrieved on

July 17, 2008 from

http://www.industryplayer.com/licenceinfo.php?licid=021026

2. Schwarzkopf, 2007, A remarkable history of innovation, Retrieved on July 16,

2008 from

http://www.schwarzkopf-professional.com/?id=1295

3. JRank, 2007, How products are made :: Volme-3, Retrieved on July 17,2008 from

http://www.madehow.com/Volume-3/Shampoo.html

4. Foster I, The Cosmetic Industry, Retrieved on July 18,2008 from

http://www.nzic.org.nz/ChemProcesses/detergents/11B.pdf

5. Mingrong Li,2007, Introduction to FMCG, Retrieved on July 19,2008 from

http://www.shentrepreneur.org/news/2007_05_06_intro_FMCG/fmcg.html

6. Dr. Akkermans H, Porter’s Competitive Forces and Value chain Models, Retrieved

on July 16, 2008 from

http://e3value.few.vu.nl/docs/misc/Porter.pdf

7. Kerr J, February 2008, Procter and Gamble takes inventory up a notch, Retrieved

on July 18, 2008 from

http://www.scmr.com/article/CA6531989.html?q=shampoo+industry

8. Trei M, June 2008, Paper shampoo lets you travel with clean hair without being

branded a terrorist, Retrieved on July 18, 2008, from

http://dvice.com/archives/2008/06/paper_shampoo_l.php

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9. Finlaw J, Johns T, Payne B, June 2006, Accenture to help Unilever transform

Human Resources Operations, Retrieved on July 18, 2008 from

http://newsroom.accenture.com/article_display.cfm?article_id=4358

10. Unilever, 2008, Unilever Plans Faster Growth , Retrieved on July 17,2008 from

http://www.unilever.com/ourcompany/newsandmedia/pressreleases/2000/growth.a

sp

11. Anderson J, & Markides C, 2006, European Journal of Innovation Management,

Retrieved on July 18, 2008 from

http://www.jamieandersononline.com/uploads/ANDERSON_EJIM_Creativity_is_

Not_Enough_2006.pdf

12. Wikipedia, March 2007, Enterprise resource planning, Retrieved on July 17, 2008

from http://en.wikipedia.org/wiki/Enterprise_resource_planning

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