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FMCG and Organized Retail supply

chains Current trends and challenges

Situations of competitive advantage


Nestle

Nestl is the first company to operate in hundreds of countries in the same manner as if it operated as one
Cold Supply Chain
Focus on building sustainable supply chain for long term growth

Sourcing Strategy
With Farmer Connect, Nestle built direct contacts with
producers to:
Ensure traceability up to farmers level
Assure quality, safety and volume growth of raw
materials
Mitigate price volatility exposure
Reduce transaction costs and serving our brands
guaranteeing access to specific raw materials

Situations of competitive advantage


General Mills
Packing Innovations
Constant attempts are made to reduce the package-to-product ratio
In 2012, lighter weight Yoplait cups were introduced that decreased the cups weight by almost 18%. This innovation
itself saves 8 million pounds or nearly 3600 metric tons of plastic annually.
In the same year, the carton weight was also reduced by 17% by reducing the thickness of paperboard used. This
saved more than 180 metric tons of packaging material per year

Distribution strategy
GM follows Intensive Distribution
because their target is to sell their
products to as many consumers as
possible
Reduced the transport-related fuel
usage and its associated GHG emissions
by almost 47%.
Substituting wooden pallets with slip
sheets and by shifted all the load
movements from trucks to oceanic
transport, hence, allowing the team to
load almost twice as many cases per
container

Sourcing
GM commissioned a cost study to know its
environmental dependence on various natural
resources
2/3rd of greenhouse emissions and 99% of water usage
occurs outside GMs own operations.
4 step sustainable procurement model:

Assessment,
Strategy Formation,
Transformation,
Monitoring and Evaluation.

Situations of competitive advantage


Zara retail
Consumer driven
process

Close connection
between customers
and designers
Internal interfaces to
collect information,
e.g. sales, staff,
leftovers analysis,
complaints etc.

Agility
Zara has developed an
efficient agile supply
chain, with all designers,
buyer experts and
management in one
place and
production facilities
close to them, assuring
full flexibility and agility

Retailer power
Zara owns its store
chain and don't
franchise, in order to
avoid the standard
problems
Its agile supply chain
results in less stock
carried and lower
inventory

Demand seasons
There are more than
40,000 items designed
per year. These are
continuously supplied
to its stores increasing
the number of
seasons radically and
breaking the tradition
two season model

Supplier pressure

Zara is a pioneer in fast fashion with twice a week supply to its stores, keeping them fresh and
interesting for its customers producing small quantities and numerous different outfits throughout the
year
These both aspects help reducing markdowns, sales and outlet to one of the lowest in the industry,
compared to the old fashion retailers

High levels of supply effectiveness by

Monitoring early season retail sales to forecast


Quick response in manufacturing
Continuous monitoring of retail sales
Dispatch from warehouses on replenishment basis

Retail monitoring, coordinated and quick response supply chain

Situations of competitive advantage


Asian Paints
Paint tinting machines

By acquiring a technology that enabled mixing of colors and base paints to get the appropriate
shade in a few minutes, Asian Paints obtained a competitive advantage by delaying the
differentiation
Retail inventory costs have come down, while at the same time, product availability went up

Delayed differentiation and Technology development


Logistics
Distribution strategy

Created a Large Network of Dealers


Established a Network of Company
Depots
Created a Marketing Organization that
matched its Distribution Intensity
Successfully Resolves the Cost-Service
Conflict in Distribution
Strong Commitment to Distribution
Cost Control

The warehousing facilities are well maintained


The company is adapting eco-friendly production
methods
Maintains low inventories in off seasons, and high
inventory in festival seasons
The company has huge base of raw material suppliers,
giving company bargaining power resulting in higher
profit margins than competitors
The company has succeeded in establishing themselves in
rural parts of India by large distribution network, retail
outlets etc.

Technology adaption

Asian Paints has deployed SAP R3, i2 supply chain planning suite, ERM employee platform formula
management, product lifestyle platform, SAP HANA CRM etc. with positive results

Situations of competitive advantage


Asian Paints
Paint tinting machines

By acquiring a technology that enabled mixing of colors and base paints to get the appropriate
shade in a few minutes, Asian Paints obtained a competitive advantage by delaying the
differentiation
Retail inventory costs have come down, while at the same time, product availability went up

Delayed differentiation and Technology development

Many other innovative concepts like Home Solutions (painting solutions Service), Kids World
(painting solutions for kids room), Colour Next (Prediction of Colour Trends through in-depth
research) and Royale Play Special Effect Paints

It has over 27000 direct dealers as opposed to 14000 of the nearest competitor and over 35 % of
dealers are exclusive dealers of Asian Paints.

Maintains low inventories in off seasons, and high inventory in festival seasons. The Average
Inventory level is around 28 days as compared to industry average of 51 days which means 45 %
lower inventory cost.

Technology adaption

Asian Paints has deployed SAP R3, i2 supply chain planning suite, ERM employee platform formula
management, product lifestyle platform, SAP HANA CRM etc. with positive results

Situations of competitive advantage


HUL Ltd

HUL has generally sought competitive advantage through a continuous reengineering of the
supply chain

Horizontal differentiation and vertical integration, non departmentalized management


cadre
Shakti Amma - Inclusive business
strategy

Targeting low income consumers in


rural Indian villages
Commission based model with free
training in hygiene
Created a Marketing Organization that
matched its Distribution Intensity
Successfully Resolves the Cost-Service
Conflict in Distribution
Strong Commitment to Distribution
Cost Control

Supermarkets
HUL has set up a full-scale sales organisation,
exclusively for retailing outlets in metros
The business system delivers excellent customer
service, while driving growth for the company and
the store
At the same time, innovative marketing initiatives are
taken to provide consumers with experience of our
brands at the store itself, through product tests and
in-store sampling

Technology adaption

An IT-powered system has been implemented to supply stocks to redistribution stockists on a continuous
replenishment basis
Stockists have been connected with the company through an Internet-based network, called RSNet, for
online interaction on orders, despatches, information sharing and monitoring
RS Net is part of Project Leap, HUL's end-to-end supply chain, which also includes a back-end system
connecting suppliers, all company sites and stretching right upto stockists

Benetton
Selling casual
garments in 120
countries
Biggest market is
Europe

110 million
garments per year

Its has 5000


stores

Higher quality and


durability with
higher price than
H&M and Zara

produce revenue
of around $2
billion

Manufacturing outsourced model


Thread purchased and Supplied to Contractors by Benetton
Only Dyeing is done In-House as it is Scale Sensitive
High no. of contractors
High capacities
Location of subcontractors :
Close to Benetton factory

Machines: Provided by
Benetton

Builds responsiveness
to supply chain

Supply chain
Outsource those activities where it is unable to achieve inhouse economies of scale.
Investment strategy , operations such as weaving , cutting,
dying & quality control kept internal.

Financial support is also


provided

Retail outlets
It has larger stores like 1500-3000m2 mega
stores that can display the whole range of
Benetton products only and reinforce the
Benetton shopping experience.

Postponement:
Benetton has a
EDI information
controlling share
allows
in its main
manufacturers
suppliers of raw
to delay the
materials, to
dyeing process
ensure fast
up until market
supply to its
requirements
factories
are known.

This eliminates
the build up of
wasteful
inventories,
thereby
reducing costs,
slashing cycle
times and
maximising
efficiencies.

Benetton
Logistics and Warehousing
Single Central Warehouse to serve as finished goods inventory.
Inventory centralization reduces inventory and inventory carrying costs.
Goods shipped directly from warehouse to shops through air/road/ship
depending upon the needs of the customer.
Benetton have invested in highly
automated warehouse, close to their main
production centers that store, pack and
assemble individual orders for their retail
networks.

Controls the supply of raw materials


achieving cost savings in supplier
overheads. It has a very close relationship
with the sub-contractor base, ensuring that
the factories under their control are able to
satisfy market trends at short notice

Information Systems & Technology

POS

IT

Point of Sales (POS) data collected directly


from retailers to discern the products in
demand.
Dyeing & Distribution based on Point of Sales
Geis global integrated network has enabled agents to forward customer
order details to the 500 sub-contractors based in the Veneto heartland
where the manufacturing capability has been located. Within days they are
able to receive multiple orders from various country agents and rapidly set
in motion the manufacturing work by fully exploiting the vast network of
sub-contracted labour.

Use of sophisticated CAD/ CAM technology has


enabled Benetton to gain the upper hand on its
competitors by being quick and flexible at this point in
Technology
the production process

Challenges and Recommendations


Competition from Levis, large retail
chains such as The Limited, Charming
Shops, Petrie etc in US
In addition to their regular distributors ,
Benetton should explore possibility of new
range of distributors
dealing with competitors products.
Benetton should increase the no of stores in
other European counties

Dell
Globally 2nd in
computer
hardware
design,
manufacturing
and distribution
with a market
share of around
16%.

Greater than
$50 Million sales
per day through
the internet with
yearly revenue
of $55.908
Billion with
employee base
of 78,000

1987 --first
computer
systems
company to offer
next-day, on-site
product service .

Direct Value Chain


Push process : Procurement cycle
Pull process : Customer order and manufacturing
cycle
Why SCM is important in PC business
Material costs account for 74%($21 billion) a
year for dell.
Improving SCM by 0.1% has bigger impact than
improving manufacturing process by 10%
Changing technology
obsoletes Materials
value by almost 1% per
week .

With about 2,000 product


transitions a year, the
ability to reduce product
time to market is critical.

Dell SCM Strategy


To provide large variety of customizable
products with reasonable products.
To achieve high flexibility and
responsiveness
Handle a large variety of products and
build highly innovative products

Dell
Dells competitive advantages

90% supplies
ordered
online using
integrated
websites of
supplier and
Dell (B2B).

95% of suppliers
situated very
close to
assembly plant
hence
coordination is
easier.

Dells factories have


only 7 hrs worth of
inventory for most
items whereas
industry wise it is
around 10 days.

Dell chose i2 Technologies for its SCM


system.
i2 serves almost 70% of the SCM
market. Instead of forecasting the daily
supply needed, Dell receives the exact
material every two hours to fulfill actual
customer orders

15
suppliers
provide
almost
85% of all
supplies.

Every 20 sec the S/W aggregates


orders, analyzes material
requirements ,compares Dells onhand inventory with its suppliers
inventory and then creates a
supplier bill of material to meet its
order needs

Competitors Disadvantages
vis--vis Dell
Inventory
Need to hold
inventory at
each step in
value chain

Prepaid
Have to pay
suppliers first
before getting
paid from
customers

Product transition
Stuck with
excess
inventories of
slow selling
products .

Pizzahut
Pizza Hut is one of
the flagship brands
of Yum! Restaurants
International, which
also has KFC, Taco
Bell, A&W and Long
John Silvers under
its umbrella.

It is the worlds
largest pizza chain
with over 12,500
restaurants across 91
countries.

The first Indian outlet


was opened in June
1996 in Bangalore.
In India, Pizza Hut
has 139 restaurants
across 36 cities.

Market Share
32%

Pizzahut

Facilities & Inventory


Production,
As only the base is
The outlets keep the
The base is prepared
storage sites
transferred to the
inventory stock of
in the
and
store, in case of any
only three days
commissionaires and
commissionai
particular item
then transported to because it is a
res in Noida ,
demand is
perishable good
different retail
increased, it does
Mumbai,
Hence, the inventory
outlets.
not create any
Kolkata and
stock cost is reduced.
problem.
Bangalore.
are in Noida
, Kolkata,
Mumbai and
They
use the refrigerated trucks in which the base is kept and there is controlled
Bangalore

Transportation

temperature.
There are 110 trucks to supply the bases across India.

There is also a vacant space in which extra base is kept to fill the demand of a
particular store
The company will not incur any additional transportation costs as the counters are
along the highway or on the trucks route.

48%

20%

Dominos

Others
Information
There was no proper medium of coordination
between the suppliers and the out let managers.
This all happened because of customer database was
not maintained and outlet manager could not recall
the need of customer.
The cost got increased and they were not able to
come across this problem in the absence of
proper information system.
Therefore, commissionaires were created.

Sourcing
The Pepperoni and Mozzarella a cheese is imported
from Australia and Spain respectively.
To compensate an increased cost, they maintain a
local supply chain to reduce the cost like vegetables,
wheat, tomatoes.
This provides the world class facility and taste by
importing its main ingredients from Spain and
Australia but other ingradients from local vendors.

Pizzahut
Outsourcing the ingradients
Wheat

Jalandhar,Punjab

Cheese

Karnal,Haryana

Tomatoes

Bhubaneshwar

Baby Corn

Nepal

Supplier relationship
Strategic suppliers: dealing with issues that are going to make a difference in a
companys competitive success and generally relates to items that one buys, that
are used to create the product or service that a firm sells

In case of Pizza Hut, their strategic decision is to form a chain of local


suppliers to reduce their cost. Now the company buys
95% of the ingredients from the local vendors.

The key suppliers include Bharat Bor Factory Ltd


(for Pizza Hutboxes), Elmac Agro India Pvt
Ltd (for sauce, baby corn and red bean among other ingredients),
Midas Foods (for soups and cornmeal),
and Western Hatcheries and Venkys
(both for chicken toppings, patties and wings

US Retail Product Segment


US Product and Services Revenue Percentage

CDs/DVDs

3.40
Media
Electronics and other general
merchandise
Others

29.30

Magazine subscriptions
Books

67.30

Product focused retailers


Competitors

Online Marketplaces
Mass merchandise

Supply Chain Challenges and Opportunities

Supply Chain Design


Deciding on the no and locations of distribution centers to support a seasonal and growing
business
Ever expanding product line
Warehouse design

Inventory Segmentation and Policy


Which inventory to store in its facilities, versus inventory to be stored in upstream tiers in the
supply chain
which products should not be carried at all, but supplied by third-party affiliates

Order sourcing Cost Minimization


Which internal facility or external partner should be responsible for fulfilling the order

Fulfilment Costs
Reducing variable cost per order

Transportation Balancing Cost and Service


Amazon.com offers free shipping and other options that can enable them to achieve a longer
planning cycle through longer service windows to customers

Operating Models and Supply Chains


Amazon as Seller
The base Amazon.com sales
channel is the web store frontend that serves as the core of
their business.
Customers go to the Amazon.com
website, browse for products,
and place orders
Once an order is placed,
Amazon.com decides which
internal distribution centre or
drop shipper should be
responsible for shipping the
order to the customer

Amazon as Intermediary

Initiated in 2000, the Amazon


Marketplace and Merchants@
programs allow third-party
companies to list their products
on Amazon.com's website.
Marketplace serves individual
sellers and smaller companies.

Challenges
Ownership of the customer
relationship
Owns or purchases the inventory
Executes the logistics of each
order

Amazon as Full Service eCommerce Providers

This model allows retailers to


maintain their brand and
website customer ownership,
while utilizing Amazon.com's
fulfilment network. An
example of this is the website
that Amazon.com
designed and operates for
Target, Inc.

Challenges

Amazon.com does not have a


high degree of control over the
supply chain delivery service that
each partner provides

Challenges

Amazon.com is responsible for


sourcing the order from the
appropriate distribution centres
and delivering the order to
customers

US Supply Chains Network

Retail Outlets
Amazon.com has zero retail outlets.
All sales are generated through the virtual stores created by the Amazon.com website and
affiliate websites. Amazon.com does not have to incur the incremental cost of opening a
new physical retail store to attract new customers.

Distribution Centres (Fulfilment Centres)


Amazon.com operates eight leased distribution centres throughout the
United States
These eight facilities account for a total of 4,465,000 square feet

Location decisions are made based on proximity to customer concentrated


areas and tax implications.

Products that are easily sortable and conveyable are stored in highly
automated facilities
Products that are large or have irregular dimensions are stored in less
automated facilities.

US Supply Chains Network

Transportation Hubs - "Injection Points


Amazon.com operates a number of transportation hubs that they refer to as
injection points
Injection point locations are located in heavily customer concentrated areas

Drop Ship Locations


Amazon.com utilizes the capabilities of its supply chain partners to deliver
orders directly to customers. These shipments bypass the amazon.com
internal distribution centre network

Multi Tier Inventory Model

In this model, Amazon.com IT systems pass information to each tier in the supply chain
model
Physical products can then flow from any tier to the customer
Partners in second and third tier replenish Amazon.com distribution centres with their
inventory

Supply Chain Network

Supply Chain Network

Distribution Channel Network

Value Chain

Procurement Channel

Situations of competitive advantage


Marico
Enhance long term value of company brands by achieving excellence in distribution
performance
Reduce total delivered cost

882 direct distributors, 153 super


distributors, catering to 2393 small
stockists and 4523 van markets
Every month, 56 million consumer
packs are sold to about 1.8 million
households through 1.6 million retail
outlets

Approach

Just-In-Time
Global Sourcing
Shorten its planning cycle to 15 days from 30 days
Revised its demand planning process
Leveraged IT System
ERP system: MI net
Vendor Managed Inventory

Results

Decreased stock-outs associated with distributor sales to retailers by 33%


Reduced lost sales due to stock outs by 28% thereby improving revenue by 1.5%
Lowered excess distributor inventory by 33%
Reduced late deliveries to distributors by 37.5%

Dabur
Maintaining the Oldest supply chain in India
DARE (Driving Achievement of Retail Excellence): Direct Shipment Strategy
Advantages of implementing strategy are
The retailer avoids the expense of operating a distribution centre
Reducing lead time
Reduced transportation cost
Reduced Bull Whip effect
MILK RUN system

Situations of competitive advantage


ITC
E-Choupals
Link directly with rural farmers via the Internet for procurement
E-Choupal tackles fragment ed farms, weak infrastructure and the involvement of
intermediaries

Installs computers with Internet access in rural areas of India to offer farmers up-to-date marketing
and agricultural information
Farmers can directly negotiate the sale of their produce with ITC Limited
Each ITC Limited kiosk having Internet access is run by a sanchalak a trained farmer
Each installation serves an average of 600 farmers in the surrounding ten villages within about a
5 km radius
The warehouse hub is managed by the same traditional middle-men, now called samyojaks

Results
Helping ITC in creating strong connect with villagers
Enhancing its supply distribution network
Entry-level soap brand, Superia, widely available in the village because e-Choupal
Sanchalaks were helping in local marketing
Greater pricing power to the company
Good quality output
Farmers get real-time information

Supply Chain Challenges and Issues


Supplier/partner relationship management

Different organizations, even different departments within the same organization, can have
different methods for measuring and communicating performance expectations and results.

Managers must let go of internal biases and make a conscious choice to follow mutually agreed
upon standards to better understand current performance and opportunities for improvement.

Using a common language and framework makes it easier for teams to communicate, speeds
benchmarking efforts, and enhances the evaluation of best practices.

For example, SCOR provides a common language for supply chain classification and analysis.

Supply Chain Challenges and Issues


Talent Management

As experienced supply chain managers retire, and organizations scale up to meet growing demand
in developing markets, talent acquisition, training, and development is becoming increasingly
important.

Supply chain leaders need a thorough understanding of the key competencies required for supply
chain management roles, specific job qualifications, methods for developing future talent and
leaders, and the ability to efficiently source specific skill sets.

Develop Multi Functional, non departmentalised Management Cadre

Recruitment of well qualified management trainees.

Inculcating a professional learning culture

Supply Chain Challenges and Issues


Downward Flow of Information

Supply Chain Challenges and Issues


Sales and Operations

All companies were operating S&OP at some level but reported not to the levels of discipline and
standards required to utilise the process as the companys one operational planning process
utilising one set of numbers.

Improved use of IT and more standard reports available from ERP


Reduced and more focussed S&OP meetings
More discussion and focus on exceptions rather than regular issues
Improved accuracy of demand planning
Integrating Distributors within the S&OP process

Supply Chain Challenges and Issues


Sustainability

Sustainability has become a key priority in design and operation of supply chains.

Customers becoming more environment conscious and thus increasing importance to develop
sustainable supply chains.

Reducing risk and improving financial performance.

Making world more sustainable.

Most concrete actions have been in reducing risk and improving financial performance.

While much needs to be done, many companies have reported success in improving sustainability.

Firms should measure and report on four main categories Energy consumption, Water
consumption, Greenhouse gas emissions, Waste generation.

Switching to a more efficient light bulbs at stores, adding skylights for natural light.

Reducing packaging, banning plastic bags etc.

Supply Chain Performance Attribute for FMCG Industry


SUPPLY CHAIN PERFORMANCE ATTRIBUTES FOR THE
FAST MOVING CONSUMER GOODS INDUSTRY
MADHU BALA
DINESH KUMAR
Introduction

FMCG industry is a quick, agile industry with a wide range of products.


Such a huge industry is recognised by its customers, and its supply chains are seen as
role model for other industry.
FMCG supply chain is faced with unique issues like Bullwhip effect and high return &
transit losses.
In order to achieve the organisational goal of making money , supply chain managers
try to find cheaper suppliers, low-cost manufacturing facilities, strategically located
distribution centres and highly profitable or high-volume customer markets
The concern lies with the performance indicators the supply chain managers use to
manage and monitor the supply chains , resulting in using inappropriate measures to
tackle the supply chain issues.

Supply Chain Performance Attribute for FMCG Industry


Supply chain activities in a consumer good activity chain

Most of the products are non durables and are consumed within a month
Require well coordinated distribution network
Agile and rapid responsiveness are the key differentiators
Buying and selling are the key functions of FMCG industry
Making, moving and storing are less important functions that are normally outsourced
Manufacturing process is simple but complex distribution networks.

Supply Chain Performance Attribute for FMCG Industry


Typology for FMCG Supply Chain
Functional Attributes
Attributes

Contents

Products procured

Standard (raw material) and specific (packaging)

Sourcing type

Multiple (raw); Single/double (packaging)

Organisation of the production process

Flow line

Repetition of operations

Batch production

Distribution structure

Three to four stages

Pattern of delivery

Dynamic

Deployment of transportation

Unlimited routes (third stage)

Relation to customer

Stable

Availability of future demand

Forecasted

Product life cycle

Several years

Product sold

Standard

Portion of service operation

Tangible goods

Loading restrictions

Chilled & frozen transport

Supply Chain Performance Attribute for FMCG Industry


Issues faced by FMCG Supply Chain
Supply chains own various production plants, including co-manufacturers and co-packers,
which increases complexities in the supply chain
Distribution is handled by specialized firms, which increases the pressure on relationships
The retail sector is pressurising the industry to manufacture and supply at the lowest
possible price and to decrease the response time.
The other concern with the retail sector is the dealer-owned brands, which makes them
not only the FMCG organisations customers, but also their competitors.

Comparison of operation performance model


Criterion

REA

SCOR

BSC

Suitable for FMCG Industry

Not Strong

Very Strong

Strong

Define standard supply chain activities

Not Strong

Very Strong

Strong

Analyse and measure performance at all


levels/all activities

Not Strong

Strong

Very Strong

Provide benchmarking

Not Strong

Very Strong

Not Strong

Suggest best practices

Not Strong

Very Strong

Not Strong

Supply Chain Performance Attribute for FMCG Industry


Definition of Supply Chain performance attributes
Performance Attribute

Performance attribute definition Performance indicator variable

1. Supply chain reliability

The performance of the supply chain


in delivering: the correct product,
to the correct place, at the correct
time, in the correct condition and
packaging, in the correct quantity,
with the correct documentation, to the
correct customer.

1. Perfect order fulfillment

2. Supply chain responsiveness

The speed at which a supply chain


provides products to the customer.

2. Order fulfillment cycle time

3. Supply chain flexibility

The agility of a supply chain in


responding to marketplace changes to
gain or maintain competitive advantage.

3. Upside supply chain flexibility


4. Upside supply chain adaptability
5. Downside supply chain adaptability

4. Supply chain cost

The costs associated with operating the


supply chain.

6.Supply chain management cost

5. Supply chain asset


Management

The effectiveness of an organisation in


managing assets to support demand
satisfaction.

8.Cash to Cash cycle time

6. Component Manager

The operational management of supply


chain components such as supplier &
customers.

10. Supplier Management

7. Cost of goods sold

9.Return on supply chain fixed assets

11. Customer Management