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“A CRITICAL STUDY OF CHANGING PHASES OF SCM OF FMCG” FOR BAREILLY CITY
FOR THE PARTIAL FULLFILLMENT OF THE REQUIREMENT FOR THE AWARD OF THE DEGREE OF MASTER OF BUSINESS ADMINISTRATION (2007-2009)
UNDER THE KIND GUIDENCE OF: MR.SHALENDRA SINGH RANA LECTURARE OF RBMI BAREILLY
SUBMITTED BY: ANKUR MEHROTRA MBA 4TH SEM.
RAKSHPAL BAHADUR MANGEMENT INSTITUTE BAREILLY (AFFILATED TO: U.P. TECHNICAL UNIVERSITY LUCKNOW)
I, Mr. Ankur Mehrotra, hereby declare that this project report is the record of authentic work carried out by me during the academic session of MBA 4th semester 2009 and has not been submitted to any other University or Institute for the award of any degree/diploma.
MBA 4th Sem.
It is a pleasure to record my thanks and gratitude to the Director General. Dr. Manish Sharma, Director Dr Neeraj Saxena who provide me the opportunity to conduct this research. I am also thankful to all my responders and my friends whose generous help and support enable me to complete this study with in the stipulated time period. I am very thankful to the Course Coordinator Mr. Shalendra Singh Rana for consult and guidance provides me which I am necessary for completing this study. Lastly, I want to gratitude the god who provide me this opportunity and always help me in life. However, I take the responsibility of all my shortcomings.
MBA 4th Sem.
SCM in a nutshell focuses on these values and enable the creation of an ambience for effective SCM. The world of SCM is progressing very rapidly indeed. There have been technological advancements and high speed evolution that have forced organizations to restructure their business progress. This basic objective of this research is to study impact of changing phases of SCM for FMCG for this I had studied challenges, willingness, limitations, satisfaction level and advantage for FMCG stockiest, so that they can apply better supply chain management solutions.
This research has been proved very beneficial for me to provide practical knowledge towards various aspect of SCM solutions for FMCG stockiest.. It was a great opportunity for me to conduct such type of research. Really, this project research was quite interesting, inspiring, satisfying, knowledge, gaining and academically rewarding for me.
MBA 4th Sem. Roll No-0701670013
TABLE OF CONTENT
PART-A: THEORITICAL FRAMEWORK 1. Introduction of the topic 2. Introduction to the SCM 3. Supply Chain Management Problems 4. Activities and functions of SCM 5. Strategic orientation of SCM 6. Strategic Management in Global context 7. Phases & Development in Supply Chain Management 8. Functional and Scope of SCM 9. An overview of FMCG in India 10. Implementation of SCM Practices in Indian FMCG Industry
PART-B: STUDY OF PRACTICAL 1. Introduction to research topic in the context of Bareilly. 2. Objectives of the study 3. Research methodology 5. Observation and analysis 6. Findings 7. Limitations
9. Conclusions a) Questionnaire b) Bibliography
INTRODUCTION OF THE TOPIC
INTRODUCTION OF THE STUDY
Supply chain management (SCM) (definitions):
Supply chain management (SCM) is the management of a network of interconnected businesses involved in the ultimate provision of product and service packages required by end customers (Harland, 1996). Supply Chain Management spans all movement and storage of raw materials, work-in-process inventory, and finished goods from point-of-origin to point-ofconsumption (supply chain). The definition one American professional association put forward is that Supply Chain Management encompasses the planning and management of all activities involved in sourcing, procurement, conversion, and logistics management activities. Importantly, it also includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third-party service providers, and customers. In essence, Supply Chain Management integrates supply and demand management within and across companies. More recently, the loosely coupled, self-organizing network of businesses that cooperates to provide product and service offerings has been called the Extended Enterprise. Supply Chain Management can also refer to Supply chain management software which are tools or modules used in executing supply chain transactions, managing supplier relationships and controlling associated business processes. Supply chain event management (abbreviated as SCEM) is a consideration of all possible occurring events and factors that can cause a disruption in a supply chain. With SCEM possible scenarios can be created and solutions can be planned.
Supply Chain Management Problems
Supply chain management must address the following problems:
Distribution Network Configuration: Number, location and network missions of suppliers, production facilities, distribution centers, warehouses, cross-docks and customers.
Distribution Strategy: Including questions of operating control (centralized, decentralized or shared); delivery scheme (e.g., direct shipment, pool point shipping, Cross docking, DSD (direct store delivery), closed loop shipping); mode of transportation (e.g., motor carrier, including truckload, LTL, parcel; railroad; intermodal, including TOFC and COFC; ocean freight; airfreight); replenishment strategy (e.g., pull, push or hybrid); and transportation control (e.g., owner-operated, private carrier, common carrier, contract carrier, or 3PL). Trade-Offs in Logistical Activities
The above activities must be coordinated well together in order to achieve the least total logistics cost. Trade-offs exist that increase the total cost if only one of the activities is optimized. For example, full truckload (FTL) rates are more economical on a cost per pallet basis than less than truckload (LTL) shipments. If, however, a full truckload of a product is ordered to reduce transportation costs there will be an increase in inventory holding costs which may increase total logistics costs. It is therefore imperative to take a systems approach when planning logistical activities. These trade-offs are key to developing the most efficient and effective Logistics and SCM strategy.
• Information: Integration of and other processes through the supply chain to share valuable information, including demand signals, forecasts, inventory, transportation, and potential collaboration etc. • Inventory Management: Quantity and location of inventory including raw materials, work-in-progress (WIP) and finished goods. • Cash-Flow: Arranging the payment terms and the methodologies for exchanging funds across entities within the supply chain.
Supply chain execution is managing and coordinating the movement of materials, information and funds across the supply chain. The flow is bi-directional.
Activities/functions of SCM
Supply chain management is a cross-function approach to manage the movement of raw materials into an organization, certain aspects of the internal processing of materials into finished
goods, and then the movement of finished goods out of the organization toward the endconsumer. As organizations strive to focus on core competencies and becoming more flexible, they have reduced their ownership of raw materials sources and distribution channels. These functions are increasingly being outsourced to other entities that can perform the activities better or more cost effectively. The effect is to increase the number of organizations involved in satisfying customer demand, while reducing management control of daily logistics operations. Less control and more supply chain partners led to the creation of supply chain management concepts. The purpose of supply chain management is to improve trust and collaboration among supply chain partners, thus improving inventory visibility and improving inventory velocity. Several models have been proposed for understanding the activities required to manage material movements across organizational and functional boundaries. SCOR is a supply chain management model promoted by the Supply Chain Council. Another model is the SCM Model proposed by the Global Supply Chain Forum (GSCF). Supply chain activities can be grouped into strategic, tactical, and operational levels of activities.
Strategic orientations of SCM: Strategic intent
➢ Strategic network optimization, including the number, location, and size of warehouses,
distribution centers, and facilities
➢ Strategic partnership with suppliers, distributors, and customers, creating communication
channels for critical information and operational improvements such as cross docking, direct shipping, and third-party logistics
➢ Product lifecycle management, so that new and existing products can be optimally
integrated into the supply chain and capacity management
➢ Information Technology infrastructure, to support supply chain operations
➢ Where-to-make and what-to-make-or-buy decisions ➢ Aligning overall organizational strategy with supply strategy
➢ Sourcing contracts and other purchasing decisions. ➢ Production decisions, including contracting, scheduling, and planning process definition. ➢ Inventory decisions, including quantity, location, and quality of inventory. ➢ Transportation strategy, including frequency, routes, and contracting. ➢ Benchmarking of all operations against competitors and implementation of best practices throughout the enterprise. ➢ Milestone payments ➢ Focus on customer demand.
• • • • • Daily production and distribution planning, including all nodes in the supply chain. Production scheduling for each manufacturing facility in the supply chain (minute by minute). Demand planning and forecasting, coordinating the demand forecast of all customers and sharing the forecast with all suppliers. Sourcing planning, including current inventory and forecast demand, in collaboration with all suppliers. Inbound operations, including transportation from suppliers and receiving inventory.
• • •
Production operations, including the consumption of materials and flow of finished goods. Outbound operations, including all fulfillment activities, warehousing and transportation to customers. Order promising, accounting for all constraints in the supply chain, including all suppliers, manufacturing facilities, distribution centers, and other customers.
Supply chain Management (in global context):
Organizations increasingly find that they must rely on effective supply chains, or networks, to successfully compete in the global market and networked economy. In Peter Drucker's (1998) new management paradigms, this concept of business relationships extends beyond traditional enterprise boundaries and seeks to organize entire business processes throughout a value chain of multiple companies. During the past decades, globalization, outsourcing and information technology have enabled many organizations, such as Dell and Hewlett Packard, to successfully operate solid collaborative supply networks in which each specialized business partner focuses on only a few key strategic activities (Scott, 1993). This inter-organizational supply network can be acknowledged as a new form of organization. However, with the complicated interactions among the players, the network structure fits neither "market" nor "hierarchy" categories (Powell, 1990). It is not clear what kind of performance impacts different supply network structures could have on firms, and little is known about the coordination conditions and trade-offs that may exist among the players. From a systems perspective, a complex network structure can be decomposed into individual component firms (Zhang and Dilts, 2004). Traditionally, companies in a supply network concentrate on the inputs and outputs of the processes, with little concern for the internal management working of other individual players. Therefore, the choice of an internal management control structure is known to impact local firm performance (Mintzberg, 1979). In the 21st century, changes in the business environment have contributed to the development of supply chain networks. First, as an outcome of globalization and the proliferation of multinational companies, joint ventures, strategic alliances and business partnerships, there were found to be significant success factors, following the earlier "Just-In-Time", "Lean Manufacturing" and "Agile Manufacturing" practices. Second, technological changes, particularly the dramatic fall in information communication costs, which are a significant
component of transaction costs, have led to changes in coordination among the members of the supply chain network (Coase, 1998). Many researchers have recognized these kinds of supply network structures as a new organization form, using terms such as "Keiretsu", "Extended Enterprise", "Virtual Corporation", "Global Production Network", and "Next Generation Manufacturing System". In general, such a structure can be defined as "a group of semi-independent organizations, each with their capabilities, which collaborate in ever-changing constellations to serve one or more markets in order to achieve some business goal specific to that collaboration" (Akkermans, 2001). The security management system for supply chain is described in ISO/IEC 28000 and ISO/IEC 28001 and related standards published jointly by ISO and IEC.
Developments in Supply Chain Management
Six major movements can be observed in the evolution of supply chain management studies: Creation, Integration, and Globalization (Lavassani et al., 2008a), Specialization Phases One and Two, and SCM 2.0.
1. Creation Era
The term supply chain management was first coined by an American industry consultant in the early 1980s. However the concept of supply chain in management, was of great importance long before in the early 20th century, especially by the creation of the assembly line. The characteristics of this era of supply chain management include the need for large scale changes, re-engineering, downsizing driven by cost reduction programs, and widespread attention to the Japanese practice of management.
2. Integration Era
This era of supply chain management studies was highlighted with the development of Electronic Data Interchange (EDI) systems in the 1960s and developed through the 1990s by the introduction of Enterprise Resource Planning (ERP) systems. This era has continued to develop into the 21st century with the expansion of internet-based collaborative systems. This era of SC evolution is characterized by both increasing value-added and cost reduction through integration.
3. Globalization Era
The third movement of supply chain management development, globalization era, can be characterized by the attention towards global systems of supplier relations and the expansion of supply chain over national boundaries and into other continents. Although the use of global sources in the supply chain of organizations can be traced back to several decades ago (e.g. the oil industry), it was not until the late 1980s that a considerable number of organizations started to integrate global sources into their core business. This era is characterized by the globalization of supply chain management in organizations with the goal of increasing competitive advantage, creating more value-added, and reducing costs through global sourcing.
4. Specialization Era -- Phase One -- Outsourced Manufacturing and Distribution
In the 1990s industries began to focus on “core competencies” and adopted a specialization model. Companies abandoned vertical integration, sold off non-core operations, and outsourced those functions to other companies. This changed management requirements by extending the supply chain well beyond the four walls and distributing management across specialized supply chain partnerships. This transition also re-focused the fundamental perspectives of each respective organization. OEMs became brand owners that needed deep visibility into their supply base. They had to
control the entire supply chain from above instead of from within. Contract manufacturers had to manage bills of material with different part numbering schemes from multiple OEMs and support customer requests for work -in-process visibility and vendor-managed inventory (VMI). The specialization model creates manufacturing and distribution networks composed of multiple, individual supply chains specific to products, suppliers, and customers who work together to design, manufacture, distribute, market, sell, and service a product. The set of partners may change according to a given market, region, or channel, resulting in a proliferation of trading partner environments, each with its own unique characteristics and demands.
5. Specialization Era -- Phase Two -- Supply Chain Management as a Service
Specialization within the supply chain began in the 1980s with the inception of transportation brokerages, warehouse management, and non asset based carriers and has matured beyond transportation and logistics into aspects of supply planning, collaboration, execution and performance management. At any given moment, market forces could demand changes within suppliers, logistics providers, locations, customers and any number of these specialized participants within supply chain networks. This variability has significant effect on the supply chain infrastructure, from the foundation layers of establishing and managing the electronic communication between the trading partners to the more-complex requirements, including the configuration of the processes and work flows that are essential to the management of the network itself. Supply chain specialization enables companies to improve their overall competencies in the same way that outsourced manufacturing and distribution has done; it allows them to focus on their core competencies and assemble networks of best in class domain specific partners to contribute to the overall value chain itself – thus increasing overall performance and efficiency. The ability to quickly obtain and deploy this domain specific supply chain expertise without developing and maintaining an entirely unique and complex competency in house is the leading reason why supply chain specialization is gaining popularity. Outsourced technology hosting for supply chain solutions debuted in the late 1990s and has taken root in transportation and collaboration categories most dominantly. This has progressed from the Application Service Provider (ASP) model from approximately 1998 through 2003 to the On-Demand model from approximately 2003-2006 to the Software as a Service (SaaS) model we are currently focused on today.
6. Supply Chain Management 2.0 (SCM 2.0)
Building off of globalization and specialization, SCM 2.0 has been coined to describe both the changes within the supply chain itself as well as the evolution of the processes, methods and tools that manage it in this new "era". Web 2.0 is defined as a trend in the use of the World Wide Web that is meant to increase creativity, information sharing, and collaboration among users. At its core, the common attribute that Web 2.0 brings is it helps us navigate the vast amount of information available on the web to find what we are looking for. It is the notion of a usable pathway. SCM 2.0 follows this notion into supply chain operations. It is the pathway to SCM results – the combination of the processes, methodologies, tools and delivery options to guide companies to their results quickly as the complexity and speed of the supply chain increase due to the effects of global competition, rapid price fluctuations, surging oil prices, short product life cycles, expanded specialization, near/far and off shoring, and talent scarcity. SCM 2.0 leverages proven solutions designed to rapidly deliver results with the agility to quickly manage future change for continuous flexibility, value and success. This is delivered through competency networks composed of best of breed supply chain domain expertise to understand which elements, both operationally and organizationally, are the critical few that deliver the results as well as the intimate understanding of how to manage these elements to achieve desired results, finally the solutions are delivered in a variety of options as no-touch via business process outsourcing, mid-touch via managed services and software as a service (SaaS), or high touch in the traditional software deployment model.
Supply chain business process integration
Successful SCM requires a change from managing individual functions to integrating activities into key supply chain processes. An example scenario: the purchasing department places orders as requirements become appropriate. Marketing, responding to customer demand, communicates with several distributors and retailers as it attempts to satisfy this demand. Shared information between supply chain partners can only be fully leveraged through process integration. Supply chain business process integration involves collaborative work between buyers and suppliers, joint product development, common systems and shared information. According to Lambert and Cooper (2000) operating an integrated supply chain requires continuous information flow. However, in many companies, management has reached the conclusion that
optimizing the product flows cannot be accomplished without implementing a process approach to the business. The key supply chain processes stated by Lambert (2004)  are:
➢ Customer relationship management
➢ Customer service management ➢ Demand management ➢ Order fulfillment ➢ Manufacturing flow management ➢ Supplier relationship management ➢ Product development and commercialization ➢ Returns management Much has been written about demand management. Best in Class companies have similar characteristics. They include the following: a) Internal and external collaboration b) Lead time reduction initiatives c) Tighter feedback from customer and market demand d) Customer level forecasting
One could suggest other key critical supply business processes combining these processes stated by Lambert such as:
Customer service management
Procurement Product development and commercialization Manufacturing flow management/support Physical distribution Outsourcing/partnerships Performance measurement
a) Customer service management process
Customer Relationship Management concerns the relationship between the organization and its customers. Customer service provides the source of customer information. It also provides the
customer with real-time information on promising dates and product availability through interfaces with the company's production and distribution operations. Successful organizations use following steps to build customer relationships: determine mutually satisfying goals between organization and customers establish and maintain customer rapport produce positive feelings in the organization and the customers
b) Procurement process
Strategic plans are developed with suppliers to support the manufacturing flow management process and development of new products. In firms where operations extend globally, sourcing should be managed on a global basis. The desired outcome is a win-win relationship, where both parties benefit, and reduction times in the design cycle and product development are achieved. Also, the purchasing function develops rapid communication systems, such as electronic data interchange (EDI) and Internet linkages to transfer possible requirements more rapidly. Activities related to obtaining products and materials from outside suppliers requires performing resource planning, supply sourcing, negotiation, order placement, inbound transportation, storage, handling and quality assurance, many of which include the responsibility to coordinate with suppliers in scheduling, supply continuity, hedging, and research into new sources or programs.
c) Product development and commercialization
Here, customers and suppliers must be united into the product development process, thus to reduce time to market. As product life cycles shorten, the appropriate products must be developed and successfully launched in ever shorter time-schedules to remain competitive. According to Lambert and Cooper (2000), managers of the product development and commercialization process must: coordinate with customer relationship management to identify customer-articulated needs; select materials and suppliers in conjunction with procurement, and develop production technology in manufacturing flow to manufacture and integrate into the best supply chain flow for the product/market combination.
d) Manufacturing flow management process
The manufacturing process is produced and supplies products to the distribution channels based on past forecasts. Manufacturing processes must be flexible to respond to market changes, and must accommodate mass customization. Orders are processes operating on a just-in-time (JIT) basis in minimum lot sizes. Also, changes in the manufacturing flow process lead to shorter cycle times, meaning improved responsiveness and efficiency of demand to customers. Activities related to planning, scheduling and supporting manufacturing operations, such as work-inprocess storage, handling, transportation, and time phasing of components, inventory at manufacturing sites and maximum flexibility in the coordination of geographic and final assemblies postponement of physical distribution operations.
e) Physical distribution
This concerns movement of a finished product/service to customers. In physical distribution, the customer is the final destination of a marketing channel, and the availability of the product/service is a vital part of each channel participant's marketing effort. It is also through the physical distribution process that the time and space of customer service become an integral part of marketing, thus it links a marketing channel with its customers (e.g. links manufacturers, wholesalers, retailers).
This is not just outsourcing the procurement of materials and components, but also outsourcing of services that traditionally have been provided in-house. The logic of this trend is that the company will increasingly focus on those activities in the value chain where it has a distinctive advantage and everything else it will outsource. This movement has been particularly evident in logistics where the provision of transport, warehousing and inventory control is increasingly subcontracted to specialists or logistics partners. Also, to manage and control this network of partners and suppliers requires a blend of both central and local involvement. Hence, strategic decisions need to be taken centrally with the monitoring and control of supplier performance and day-to-day liaison with logistics partners being best managed at a local level.
g) Performance measurement
Experts found a strong relationship from the largest arcs of supplier and customer integration to market share and profitability. By taking advantage of supplier capabilities and emphasizing a long-term supply chain perspective in customer relationships can be both correlated with firm
performance. As logistics competency becomes a more critical factor in creating and maintaining competitive advantage, logistics measurement becomes increasingly important because the difference between profitable and unprofitable operations becomes more narrow. A.T. Kearney Consultants (1985) noted that firms engaging in comprehensive performance measurement realized improvements in overall productivity. According to experts internal measures are generally collected and analyzed by the firm including Cost Customer Service Productivity measures Asset measurement, and Quality. External performance measurement is examined through customer perception measures and "best practice" benchmarking, and includes 1) customer perception measurement, and 2) best practice benchmarking. Components of Supply Chain Management are 1. Standardization 2. Postponement 3. Customization
Theories of Supply Chain Management
Currently there exists a gap in the literature available in the area of supply chain management studies, on providing theoretical support for explaining the existence and the boundaries of supply chain management. Few authors such as Halldorsson, et al. (2003), Ketchen and Hult (2006) and Lavassani, et al. (2008b) had tried to provide theoretical foundations for different areas related to supply chain with employing organizational theories. These theories include: Resource-based view (RBV) Transaction Cost Analysis (TCA) Knowledge-based view (KBV) Strategic Choice Theory (SCT) Agency theory (AT) Institutional theory (InT) Systems Theory (ST) Network Perspective (NP)
Supply chain sustainability
Supply chain sustainability is a business issue affecting an organization’s supply chain or logistics network and is frequently quantified by comparison with SECH ratings. SECH ratings are defined as social, ethical, cultural and health footprints. Consumers have become more aware of the environmental impact of their purchases and companies’ SECH ratings and, along with non-governmental organizations ([NGO]s), are setting the agenda for transitions to organically-grown foods, anti-sweatshop labor codes and locally-produced goods that support independent and small businesses. Because supply chains frequently account for over 75% of a company’s carbon footprint many organizations are exploring how they can reduce this and thus improve their SECH rating.
Components of Supply Chain Management Integration
The management components of SCM
The SCM components are the third element of the four-square circulation framework. The level of integration and management of a business process link is a function of the number and level,
ranging from low to high, of components added to the link (Ellram and Cooper, 1990; Houlihan, 1985). Consequently, adding more management components or increasing the level of each component can increase the level of integration of the business process link. The literature on business process re-engineering, buyer-supplier relationships, and SCM suggests various possible components that must receive managerial attention when managing supply relationships. Lambert and Cooper (2000) identified the following components which are: • • • • • • • • • Planning and control Work structure Organization structure Product flow facility structure Information flow facility structure Management methods Power and leadership structure Risk and reward structure Culture and attitude
However, a more careful examination of the existing literature  will lead us to a more comprehensive structure of what should be the key critical supply chain components, the "branches" of the previous identified supply chain business processes, that is, what kind of relationship the components may have that are related with suppliers and customers accordingly. Bowersox and Closs states that the emphasis on cooperation represents the synergism leading to the highest level of joint achievement (Bowersox and Closs, 1996). A primary level channel participant is a business that is willing to participate in the inventory ownership responsibility or assume other aspects of financial risk, thus including primary level components (Bowersox and Closs, 1996). A secondary level participant (specialized), is a business that participates in channel relationships by performing essential services for primary participants, thus including secondary level components, which are in support of primary participants. Third level channel participants and components that will support the primary level channel participants, and which are the fundamental branches of the secondary level components, may also be included. Consequently, Lambert and Cooper's framework of supply chain components does not lead us to the conclusion about what are the primary or secondary (specialized) level supply chain
components (see Bowersox and Closs, 1996, p.g. 93). That is, what supply chain components should be viewed as primary or secondary, how these components should be structured in order to have a more comprehensive supply chain structure, and to examine the supply chain as an integrative one (See above sections 2.1 and 3.1).
Reverse Supply Chain Reverse logistics is the process of planning, implementing and
controlling the efficient, effective inbound flow and storage of secondary goods and related information opposite to the traditional supply chain direction for the purpose of recovering value or proper disposal. Reverse logistics is also referred to as "Aftermarket Customer Services". In other words, anytime money is taken from a company's Warranty Reserve or Service Logistics budget that is a Reverse Logistics operation. SCOPE The scope of SCM is functional and organizational. The functional scope of SCM refers to which traditional business functions are included or excluded in the implementation and the process of SCM. The organizational scope of SCM concerns what kinds of inter-firm relationships are relevant to the participating firms in the implementation and the process of SCM.
Functional Scope of SCM
Since process refers to the combination of a particular set of functions to get a specific output, all of the traditional business functions should be included in the process of SCM. The supply chain concept originated in the logistics literature, and logistics has continued to have a significant impact on the SCM concept (Bowersox, Carter, and Monczka 1985; Dwyer, Schurr, and Oh 1987; Jones and Riley 1985; Monczka, Trent, and Handheld 1998). In this context, Tyndall et al. (1998) propose that "SCM logistics" is the art of managing the flow of materials and products from source to user. SCM-or the logistics system-includes the total flow of materials, from the acquisition of raw materials to delivery of finished products to the ultimate users, as well as the related counter-flows of information that both control and record material movement.
According to Lambert, Stock, and Ellram (1998), however, there exist important differences between the definition of supply chain management and the Council of Logistics Management's (1985) definition of logistics: "Logistics is the process of planning, implementing and controlling the efficient flow and storage of raw materials, in-process inventory, finished goods, services, and related information from point of origin to point of consumption (including inbound, outbound, internal and external movements) for the purpose of conforming to customer requirements." CLM (1998) apparently agreed, since its new definition states, "Logistics is that part of the supply chain process that plans, implements, and controls the efficient flow and storage of goods, services, and related information from the point of origin to the point of consumption in order to meet customers' requirements" (emphasis added). Thus, CLM has also distinguished between logistics and supply chain management, and acknowledged that logistics is one of the functions contained within supply chain management. Ross explains that the role of logistics spans from warehousing and transportation to integrating the logistics operations of the entire supply chain, whereas SCM merges marketing and manufacturing with distribution functions to provide the enterprise with new sources of competitive advantage (Ross 1998). Logistics puts more emphasis on efficient movement and storage to fulfill customer requirements. Customer value and satisfaction that help a supply chain improve competitive advantage and profitability, however, require more than logistics (Giunipero and Brand 1996).
Top Ten Trends in SCM and Logistics
Global supply chains displayed gains in efficiency and customer service during 2007, but many companies took supply chain management (SCM) a few steps further by enhancing flexibility, responding effectively to demand variation, and adopting environmentally friendly practices. As for 2008, AMR Research has identified the top ten trends in SCM and logistics for the coming year. 1. SCM and logistics technology markets will enjoy healthy growth. The average increase on spending this year will be 12 percent.
2. Near-shoring presents a viable alternative to low-cost country off shoring. Companies are reviewing nearby outsourcing to enhance speed. Plus, nearby outsourcing may actually be less expensive when the hidden costs of low-cost manufacturing are factored in. 3. Best-of-breed vendors regain some ground lost to ERP competitors. ERP may be easy, but users still show a preference for best-of-breed. 4. SCM outsourcing alleviates the SCM talent shortage in increasingly complex global supply chains. 5. Companies manage risk for business continuity and competitive advantage. Emphasis on supply chain risk mitigation will grow in 2008. 6. Impressive returns on investment from current projects nudge RFID back into the spotlight. Now that the wave of compelled adoption has passed, RFID is ready to prove its worth on its own terms. 7. Software vendors expand their managed-services offering to deliver results. 8. S&OP technologies – not just processes – take center stage. Expect a wider adoption of sales and operations planning (S&OP) functionality in 2008. 9. Connectivity grows in importance as companies extend their value networks. 10. What-if analysis and simulation-based tools see growing adoption. 1. SCM and logistics technology markets enjoy healthy growth. In our supply chain spending report, twice as many companies say they will increase spending on supply chain technologies, projecting to grow their budgets by nearly 12% for 2008 (See The Supply Chain Management Spending Report, 2007-2008). The 12% growth in supply chain technology spending will target controlling costs, raising productivity, and improving customer service. Companies can no longer make due with their 10-15 year old SCM systems. The research shows that an application replacement cycle is in progress as competition and globalization are driving the move to newer technologies. 2. Near shoring presents a viable alternative to low-cost country off-shoring. AMR believes that the trend of near shoring will continue to gather steam in 2008 for multiple reasons. Companies are discovering hidden costs of low-cost country outsourcing ranging from the loss in their ability to be demand driven or to manage product quality and protect their brand image. Additionally, focus will remain on the goal of protecting domestic producers against unfair trade
practices of countries like China and encouraging US manufacturing through tax incentives, especially in this presidential election year. Expect near-shore sourcing, manufacturing and design in the US and in the western hemisphere to be more closely analyzed as a more costeffective – not just faster – alternative to low-cost country sourcing. 3. Best-of-breed vendors regain some lost ground from ERP competitors. In the same AMR Research spending report, respondents were evenly divided on which category of vendors they will rely on for new technologies and replacement of existing applications. ERP vendors have gained a strong foothold in areas like demand planning and inventory management, but users still prefer best-of-breed solutions – either packaged or custom-built – in areas like transportation management, warehouse management, and network design, as well as for collaborative processes such as Vendor Managed Inventory (VMI) that extend outside of the four walls of the enterprise. 4. SCM outsourcing alleviates SCM talent shortage in increasingly complex global supply chains. When combined, several current industry factors are propelling the growth of logistics and greater supply chain outsourcing. A decade of staff downsizing, the globalization of supply chains, the complexity of operating today’s demand driven networks, and the rise of the offshore, low-cost, back-office outsourcing firms have naturally produced an awareness and, frankly, a new level of acceptance, of outsourcing. 2008 will prove to be a fertile year for outsourcing. Look for a slow expansion of additional supply chain services beyond the traditional transportation and warehousing offerings. 5. Companies manage risk for business continuity and competitive advantage. Whereas cost efficiencies, customer service improvement, inventory reductions, and other fundamental goals will remain top priorities for supply chain organizations, emphasis on supply chain risk mitigation will grow in 2008. Realizing that risk in global supply chains is unavoidable; companies will build a risk-conscious culture, to ensure business continuity. Leading companies will take risk mitigation a step further, building competitive advantage by continuously balancing risk and reward to expand their market presence, improve their profitability, or capture bigger market share from their competitors. 6. Impressive returns on investment from current projects nudge RFID back into the spotlight. Whereas from arm’s length the RFID solution market looks listless, closer examination shows a different picture. Early adopters have been building hands-on experience in implementing RFID, a better understanding of its potential value, as well as limitations, and they are becoming less
concerned about the risk of the technology obsolescence. Technology providers have been working hard to keep pace with end user expectations. Along with ongoing tag and reader development, enterprise software solutions have focused on easier management and distribution of RFID data collected. Look for wider adoption of item level tracking, ranging from pharmaceutical e-pedigree to apparel and footwear inventory management. Having demonstrated value, the use in asset tracking and management will continue to expand. More exciting will be the adoption of RFID in emerging markets such as India and Brazil, where companies are defining their supply chain processes from the ground up with RFID as a foundational technology enabler. 7. Software vendors expand their managed services offerings to deliver results. Software implementations often fail to deliver the benefits expected because oftentimes skills within the organization are insufficient to maximize the value that sophisticated technology can potentially provide. To help companies reach their goals, many software vendors and service providers are coupling domain expertise along with deep application knowledge to not only conceptualize, but actualize the benefits their software and services can bring to an organization. The menu of managed services runs the gamut from B2B electronic connectivity to demand planning, forecasting, and transportation management. In fact, in some of the SaaS transportation networks and managed services, offerings are being adopted by the more mature users, suggesting that increasingly, it does not matter who presses the keys as long as process performance is being achieved. 8. S&OP technologies – not just processes – take center stage. Viewed as the make-or-break process for profitably matching demand with supply, designing S&OP processes and building a supporting organization were high on business priority lists in 2007. But now, more companies are realizing that building S&OP excellence is constrained by their existing S&OP technologies. Look for better definition of the S&OP technology market space and wider adoption of S&OP functionality that enables fast what-if analysis, profitable demand and supply shaping, and structured internal and external user collaboration and consensus building. 9. Connectivity grows in importance as companies extend their value networks. Companies are increasingly realizing that electronic connectivity is necessary to sustain and scale up collaborative relationships with trading partners. But cost and complexity of building this connectivity had traditionally limited the scope of integration to just a small segment of a company’s trading community. In 2008, we expect to see a growing acceptance of third party
networks, created by integration hubs and Software as a Service (SaaS) providers that enable companies to more rapidly and easily connect to a broader segment of their customer, supplier, and service provider bases. We will also see some game-changing strategies in the B2B connectivity market that will alter pricing structures and deployment options. 10. What-if analysis and simulation-based tools see growing adoption. Gone are the days when users’ expected a black-box optimization engine to churn their data, model their problem and generate a definitive optimal solution. User companies are now more interested in decision support tools that – while still leveraging optimization techniques – can allow them to conduct scenario planning, what-if analysis, and compare the trade-offs among multiple options. Similarly, simulation techniques will see wider adoption as the emphasis continues to shift from the ever elusive “single optimal solution” to better understanding of the impact of different supply chain decisions on the top line, customer service levels, and other business priorities.
Traditional supply chain management
Salesperson is becoming an outdated term in today's Internet economy. Before the Internet, before Electronic Data Interchange (EDI), even before the advent of the personal computer, businesses bought and sold raw materials and finished goods through salespeople. Fifteen years ago, your chemical company purchased raw materials by calling up your sales representative of the supplier you wanted to buy from. The salesperson took your order, processed the order internally, and a week or so later your raw materials were delivered. You had a large catalog of items from each supplier and had to manually search to find the items you needed. Most of your frequently ordered items were bookmarked, but to order something new usually required more time. You also did not have a quick, easy way to compare prices and product specifications between your suppliers. It is not that your company has not tried to keep up with technological changes and advancements in supply chain management (SCM). You watched your information technology department deploy a personal computer (PC) to each employee. You were on the team that oversaw the development of an EDI system between your company and your three major buyers. When the Internet became an industry standard, your company gave access to all employees. However, in the early 1990s, the Internet was only seen as an information source. Most web sites were static; they only provided information about a company and its products and a way to contact a company. Some companies began placing their product lines on the Internet, but
customers still had to call or fax their orders. Searching for items became easier, but both the vision and the technology to use the Internet as a business tool were absent. You prefer the personal sales call or the now-familiar EDI technology to manage your supply chain. You do not see the Internet as a potential way to buy and sell for your company. Although EDI can be considered a form of B2B e-commerce, there has been much technological development in modern B2B e-commerce and SCM that takes advantage of the relatively inexpensive and ubiquitous nature of the Internet. The first step to understanding B2B, however, is to take a look at business-to-consumer (B2C) transactions. This is where the business revolution truly began.
An Overview of the FMCG Industry in India
What are Fast Moving Consumer Goods (FMCG)?
Products which have a quick turnover, and relatively low cost are known as Fast Moving Consumer Goods (FMCG). FMCG products are those that get replaced within a year. Examples of FMCG generally include a wide range of frequently purchased consumer products such as toiletries, soap, cosmetics, tooth cleaning products, shaving products and detergents, as well as other non-durables such as glassware, bulbs, batteries, paper products, and plastic goods. FMCG may also include pharmaceuticals, consumer electronics, packaged food products, soft drinks, tissue paper, and chocolate bars. A subset of FMCGs are Fast Moving Consumer Electronics which include innovative electronic products such as mobile phones, MP3 players, digital cameras, GPS Systems and Laptops. These are replaced more frequently than other electronic products. White goods in FMCG refer to household electronic items such as Refrigerators, T.Vs, Music Systems, etc. In 2005, the Rs. 48,000-crore FMCG segment was one of the fast growing industries in India. According to the AC Nielsen India study, the industry grew 5.3% in value between 2004 and 2005.
Indian FMCG Sector
The Indian FMCG sector is the fourth largest in the economy and has a market size of US$13.1 billion. Well-established distribution networks, as well as intense competition between the organized and unorganized segments are the characteristics of this sector. FMCG in India has a strong and competitive MNC presence across the entire value chain. It has been predicted that
the FMCG market will reach to US$ 33.4 billion in 2015 from US $ billion 11.6 in 2003. The middle class and the rural segments of the Indian population are the most promising market for FMCG, and give brand makers the opportunity to convert them to branded products. Most of the product categories like jams, toothpaste, skin care, shampoos, etc, in India, have low per capita consumption as well as low penetration level, but the potential for growth is huge. The Indian Economy is surging ahead by leaps and bounds, keeping pace with rapid urbanization, increased literacy levels, and rising per capita income. The big firms are growing bigger and small-time companies are catching up as well. According to the study conducted by AC Nielsen, 62 of the top 100 brands are owned by MNCs, and the balance by Indian companies. Fifteen companies own these 62 brands, and 27 of these are owned by Hindustan Lever. Pepsi is at number three followed by Thumps Up. Britannia takes the fifth place, followed by Colgate (6), Nirma (7), Coca-Cola (8) and Parle (9). These are figures the soft drink and cigarette companies have always shied away from revealing. Personal care, cigarettes, and soft drinks are the three biggest categories in FMCG. Between them, they account for 35 of the top 100 brands.
THE TOP 10 COMPANIES IN FMCG SECTOR
S. NO. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Companies Hindustan Unilever Ltd. ITC (Indian Tobacco Company) Nestlé India GCMMF (AMUL) Dabur India Asian Paints (India) Cadbury India Britannia Industries Procter & Gamble Hygiene and Health Care Marico Industries
The companies mentioned in are the leaders in their respective sectors. The personal care category has the largest number of brands, i.e., 21, inclusive of Lux, Lifebuoy, Fair and Lovely, Vicks, and Ponds. There are 11 HLL brands in the 21, aggregating Rs. 3,799 crore or 54% of the personal care category. Cigarettes account for 17% of the top 100 FMCG sales, and just below the personal care category. ITC alone accounts for 60% volume market share and 70% by value of all filter cigarettes in India. The foods category in FMCG is gaining popularity with a swing of launches by HLL, ITC, Godrej, and others. This category has 18 major brands, aggregating Rs. 4,637 crore. Nestle and Amul slug it out in the powders segment. The food category has also seen innovations like softies in ice creams, chapattis by HLL, ready to eat rice by HLL and pizzas by both GCMMF and Godrej Pillsbury. This category seems to have faster development than the stagnating personal care category. Amul, India's largest foods company, has a good presence in the food category with its ice-creams, curd, milk, butter, cheese, and so on. Britannia also ranks in the top 100 FMCG brands, dominates the biscuits category and has launched a series of products at various prices. In the household care category (like mosquito repellents), Godrej and Reckitt are two players. Goodknight from Godrej, is worth above Rs 217 crore, followed by Reckitt's Mortein at Rs 149 crore. In the shampoo category, HLL's Clinic and Sunsilk make it to the top 100, although P&G's Head and Shoulders and Pantene are also trying hard to be positioned on top. Clinic is nearly double the size of Sunsilk. Dabur is among the top five FMCG companies in India and is a herbal specialist. With a turnover of Rs. 19 billion (approx. US$ 420 million) in 2005-2006, Dabur has brands like Dabur Amla, Dabur Chyawanprash, Vatika, Hajmola and Real. Asian Paints is enjoying a formidable presence in the Indian sub-continent, Southeast Asia, Far East, Middle East, South Pacific, Caribbean, Africa and Europe. Asian Paints is India's largest paint company, with a turnover of Rs.22.6 billion (around USD 513 million). Forbes Global magazine, USA, ranked Asian Paints among the 200 Best Small Companies in the World Cadbury India is the market leader in the chocolate confectionery market with a 70% market share and is ranked number two in the total food drinks market. Its popular brands include Cadbury's Dairy Milk, 5 Star, Eclairs, and Gems. The Rs.15.6 billion (USD 380 Million) Marico
is a leading Indian group in consumer products and services in the Global Beauty and Wellness space.
Challenges before the Indian FMCG Sector
Markets all over the world have been on a roll in 2003 and the Indian bourses are no exception having gained almost 60% in 2003. During this period, while there are sectors that have outperformed this benchmark index, there are also sectors that have under performed. FMCG registered gains of just 33% on the BSE FMCG Index last year. At the macro level, Indian economy is poised to remained buoyant and grow at more than 7%. The economic growth would impact large proportions of the population thus leading to more money in the hands of the consumer. Changes in demographic composition of the population and thus the market would also continue to impact the FMCG industry. Recent survey conducted by a leading business weekly, approximately 47 per cent of India's 1 + billion people were under the age of 20, and teenagers among them numbered about 160 million. Together, they wielded INR 14000 Cr worth of discretionary income, and their families spent an additional INR 18500 Cr on them every year. By 2015, Indians under 20 are estimated to make up 55% of the population - and wield proportionately higher spending power. Means, companies that are able to influence and excite such consumers would be those that win in the market place. The Indian FMCG market has been divided for a long time between the organized sector and the unorganized sector. While the latter has been crowded by a large number of local players, competing on margins, the former has varied between a two-player-scenario to a multi-player one. Unlike the U.S. market for fast moving consumer goods (FMCG), which is dominated by a handful of global players, India's Rs.460 billion FMCG market remains highly fragmented with roughly half the market going to unbranded, unpackaged home made products. This presents a tremendous opportunity for makers of branded products who can convert consumers to branded products. However, successfully launching and growing market share around a branded product in India presents tremendous challenges. Take distribution as an example. India is home to six million retail outlets and super markets virtually do not exist. This makes logistics particularly for new players extremely difficult. Other challenges of similar magnitude exist across the
FMCG supply chain. The fact is that FMCG is a structurally unattractive industry in which to participate. Even so, the opportunity keeps FMCG makers trying.
The government needs to firm up its FDI plans for retail sector as some of the international chains like Wal-Mart, Carrefour, Tesco and Home Depot are making a beeline for India. The emergence of organized retailing in India presents both opportunities and challenges for leading FMCG companies. The industry must be in a position to effectively tackle price wars, improve distribution, boost exports and sell more in villages. Small regional companies are flooding retail shelves across the country with their brands. The bigger brands must learn to tackle the problem. The industry must focus on villages as they hold the potential to grow to a market size of Rs 70,000 crore by 2010 from Rs 50,000 crore at present. Companies must also ensure better return on their investments and spend money to introduce new products instead of cutting prices to gain market share. The industry needs to explore neighbouring as well as African markets to achieve the full potential that this sector. By focusing more on the operational efficiency, the industry must try to achieve further reduction in expense to sales ratio. Food as well as cosmetic and personal care segment are some of the fastest growing category in the sector and the industry must learn to leverage from this. The industry must further try to bring down supply and distribution costs. Further, it needs to leverage the potential presented by India's agricultural production in areas like food and beverage in order to grow the processed foods part of the business. According to a study the Indian food processing industry requires investments to the tune of $40 billion for upgrading technology and capital expenditure to compete in global markets. FMCG companies must intensify their approach to target the rural markets for their growth.
The number of traditional retail stores grew rapidly, and the trend is likely to continue for the next three years. By 2007, the number of stores is likely to be 7.8 million with bulk of the growth coming from grocers and street corner stores.
Implementation of SCM Practices in Indian FMCG Industry
In recent years, the basis for global competition has changed. No longer are organizations competing against other organizations, but rather supply chains are competing against supply chains. The success of an organization is now invariably measured neither by the sophistication of its products nor by the size of the market share. It is usually seen in the light of the ability, sometimes forcefully and deliberately harnesses its supply chain and to opt for innovative approaches of supply chain flows such as single-piece-flow, to deliver responsively to the customers as and when they demand it.
This paper tries to identify and analyze the importance and adoption of various SCM practices in Indian FMCG industry. The paper is based on empirical study conducted by the author in Indian FMCG industry and various SCM practices are clubbed in different factors through Factor analysis.
It is rightly said that manufacturers now compete less on product and quality – which are often comparable – and more on inventory turns and speed to market . This statement shows the beliefs that supply chain management will increasingly be the principal determinant of the ability to compete. Every link in it can add up to a competitive advantage. There was time when companies looked at their supply chains – the upstream part of their value chain from the company’s perspective as a means of focusing on their own core competencies, and of leveraging those of vendors and lowering their cost to increase their responsiveness towards consumers . Those goals can not be swept away by supply chain but they will be superseded by a single super objective as to compete on the basis of how well organization manage its supply chain – thus the competitive advantage is shifting from the shop floor. The question arises why it is so important to optimize the supply chain. It is so because inefficiencies in the supply chain leads to higher inventories at all points of the chain. This adds costs related to wastages, blocked funds and risk of holding obsolete products with chances of quality depletion.
SCM in Indian Business Scenario
Indian organizations are still juggling among the Material Resource Planning (MRP-II), Enterprises Resource Planning (ERP), Logistics and Supply Chain Management (SCM). However, it is quite evident that Indian corporate sector is fast recognizing the need of SCM, which can integrate all other practices and processes. SCM in India offers one of the fastest growth areas in revenues as well as employment. According to ETIG, there is no reliable estimate of the market opportunities for supply chain and its components exist in India today. Even though, ETIG estimates the Indian market value for supply chain. Logistics at 13 percent of GDP is more than US $50 billion, a lion’s share of which is accounted for by transportation
and warehousing. India started a little late for restructuring and reformulating the strategies related with supply chain. However, there is no doubt that Indian industries are fast catching and gearing up for meeting the new business environment. A study of available literature related with Indian business practices after 1991’s liberalization policies shows that organizations are concerned about their value chain and identifying that competition is shifting towards the efficiency and effectiveness of entire supply chain activities. The traces of SCM adoption by Indian organizations are given as: • Until 1990, logistics was treated as the management of transportation, inventories and warehousing and organizations had to perform these activities individually in an efficient manner. • Before opening of Indian market, Indian business giants were enjoying the solo play with continuous expansion of capacities. Later on when they heard the music of competition, they found themselves with excess capacities with huge cost burdens. This forced organizations to control the cost factor for the survival at marketplace. • At the same time of 1990’s, Indian organizations got fascinated by Business Process Re-engineering (BPR). Organizations treated BPR as remedy of their illness across the organizations’ processes and functions by eliminating the non-value adding activities and streamlining the operations with a promise of higher returns. • Later on, the emergence of Enterprises Resource Planning (ERP) gave boost to BPR. For the first time, organizations could have an integrated view of the various ‘silos’ that existed in their businesses, giving an opportunity to rationalize, remove duplication and speed up the processes. • Rapid growth and improvement of telecommunication networks and wide spread of information technology tools and techniques after mid 1990s posed the biggest challenge in handling well-informed customers. Nevertheless, these changes also provided the biggest boost to Indian industries because organizations found themselves able to reach out vendors or suppliers on one end, and customers to the other. Due to this revolution only, ERP-II integrated the internal departments into a seamless organization, whereas, SCM attempts to integrate the external factors and processes into the internal processes. Changes can be implemented easily when tough times reign. Companies in India have been looking at ways of cutting costs and improving process efficiencies, in their quest to become
globally competitive through taking initiatives for supply chain management practices because SCM recognizes that distinct functions like purchases, inventory management, distribution and production planning work best when integrated. At the same time, supply chain management in India seems to be following the path of more advanced industrial countries, involving not only the customers, manufacturers, and vendors but also the third party service providers, consultants, software providers etc.
Indian Fast Moving Consumer Goods (FMCG) Industry
Indian Fast Moving Consumer Goods (FMCG) industry has a long history. However, the Indian FMCG industry began to take shape only the last fifty years. Even today, the Indian FMCG industry continues to suffer from a definitional dilemma as well as the exact estimation of market size. Nevertheless, more than Rs. 43,000 crores ( in organized sector) fast moving consumer goods (FMCG) industry is a critical component of the Indian economy. The actual size of industry is phenomenal, if one adds the turnover of unorganized sector. That is why, this sector has potential to drive growth, enhance quality of life and create jobs. The Indian FMCG sector is primarily a low margin business, where success depends on the volume. Presently, the FMCG sector is one of the largest in the country, which accounts for more than 14.5 per cent of GDP with whooping sum of domestic consumption capacity of nearly 20 billion U.S. Dollar. With the average growth of Indian economy in the range of 6-8% per year will witness a consistence rise in demand and purchasing power of Indian market. Following the trend, the FMCG sector will grow by 5-6% per year in mature categories and 8-10% per year in upcoming categories. However, factors such as low rural penetration, dependence on monsoon, the price sensitivity of the consumers and increased level of competition could result in decreasing profit margins in the industry. The following section examines the different philosophies related to development of SCM. Subsequent sections describe the research construct, which provides details of sample design, design of questionnaire, survey methodology, followed by an analysis of the results and the managerial implications of the study along with the future research directions.
Supply Chain Management: an overview since past
The concept of supply chain management first appeared in the literature in the mid-1980 by Keith and Webber. However, the fundamental assumptions on which SCM rests are significantly older. The management of inter-organizational operations can be traced back to channel research in the 1960’s by Bucklin and systems integration research in the 1960’s by Forrestter. According to Cooper et.al. (1997), the term supply chain management has risen to prominence over the past ten years. La Londe (1997) identified positions at forty-three different companies that carry ‘supply chain’ in their titles. By now, SCM has become such a hot topic that it is difficult to pick up any periodicals on manufacturing, marketing, distribution, customer management, or transportation without seeing an article about SCM or its related topics. Despite the popularity of the term supply chain management, managers and researchers have considerable confusion over the actual meaning of the term. Some authors such as Tyndall et.al. (1998) defined SCM in operational terms involving the flow of materials and products. Ellram and Cooper (1990) viewed SCM as management philosophy and still others as La Londe (1997) viewed it in terms of management process. In fact, some have questioned the existence and benefits of the SCM phenomenon, for example, Bechtel and Jayaram (1997) asked ‘Is the concept of SCM important in today’s business environment or is it simply a fad destined to die with other short-lived buzzwords?’ Research in SCM evolved along three separate paths that eventually merged into a common body of literature, with a primary focus on integration, customer satisfaction and business results i.e. creation or enhancement of value of the products or services. Jones and Riley (1985) stated that supply chain management deals with the total flow of materials from suppliers through end users. Three differences between supply chain management and classical materials and manufacturing control are identified by Houlihan (1988) as: ➢ • The supply chain is viewed as a single process. Responsibilities for the various segments in the chain are not fragmented and relegated to functional areas such as manufacturing, purchasing, distribution and sales. ➢ • Supply chain management calls for and in the end depends on strategic decision making. ➢ • Supply chain management calls for different perspective on inventories which are used as balancing mechanism of last, not first, resort. A new approach to systems is required – integration rather than interfacing.
SCM as a Management Philosophy
The philosophy of SCM emphasized to extend the concept of partnerships into a multiform effort to mange the total flow of goods from the supplier to the ultimate customer. Ellram and Cooper (1990) emphasized that SCM as a management philosophy takes a systems approach to viewing the channel as a single entity, rather than a set of fragmented parts, each performing its own function. Langley and Holcomb (1992) suggested that the objective of SCM should be the synchronization of all channel activities to create customer value. Mentzer et.al.(2001) proposed that SCM as management philosophy has the following characteristics:
• A systems approach to viewing the channel as a whole and to managing the total flow of goods inventory from the supplier to the ultimate customer. • A strategic orientation toward cooperative efforts to synchronize and converge intra firm and inter-firm operational and strategic capabilities into a unified whole and • A customer focused orientation to create unique and individualized sources of customer value, leading to customer satisfaction.
SCM as a Set of Activities For adopting the supply chain management philosophy, organization has to establish management practices that permit them to act or behave consistently. Bowersox and Closs (1996) argued that to be fully effective in today’s competitive environment, firms must expand their integrated behaviour to incorporate customers and suppliers. So supply chain management activities such as mutually sharing information, risks and rewards with chain members (Ellram and Cooper, 1990), integrated behaviour and processes and an effort to build and maintain long term relationship are vital for realization of the management philosophy behind SCM. Gentry and Vellenga (1996) argued that it is not usual that all the primary activities in a value chain – inbound and outbound logistics, operations, marketing, sales and service – are performed by any one of firm to maximize customer value. Thus, forming strategic alliances with channel partners
such as suppliers, customers, or intermediaries e.g. logistics service providers, provides competitive advantage through creating customer value (Langley and Holcomb, 1992).
SCM as a Set of Management Process
Davenport (1993) defined a process as a structured and measured activities designed to produce a specific output for a particular customer or market. La Londe (1997) proposed that SCM is the process of managing relationships, information and materials flow across enterprise borders to deliver enhanced customer service and economic value through synchronized management of the flow of physical goods and associated information from sourcing to consumption. Ross (1998) defined supply chain processes as the actual physical business functions, institutions and operations that characterize the way a particular channel system moves goods and services to market through the supply pipelines. The same idea was reflected by Cooper, Lambert, et al. (1997), a process is a specific ordering of work activities across time and place, with a beginning, an end, clearly identified inputs and outputs and a structure of action. Lambert et al. (1998) suggested that the key processes would typically include customer relationship management, customer service management, demand management, order fulfilment, manufacturing flow management, procurement and product development and commercialization.
SCM Practices in Indian FMCG Industry
In a low margin and high volume business like FMCG, it requires a very close attention on the planning and operational part of the entire value chain activities because these minutes details can change the fortune of any organization. While branding differentiates the image of the product, the distribution system will determine the faith of the organization up to a very large extent in FMCG industry. The diversity of India and existence of vast untapped markets of rural areas provide the bundle of opportunities to companies. The best price or quality product offerings combined with heavy promotional and advertising budgets will not help the product succeed if one of the major ingredients of the marketing mix as distribution is not properly focused. The table1 shows the types of FMCG outlets are available across the India. Every organization needed to serve a large percentage of these outlets to reap the economies of the
TYPES OF OUTLETS
PERCENTAGE TERMS (%)
Table-l: Types of Outlets in Indian FMCG Retail Industry (Source: ORG-MARG, 2003) Figure 1: The Basic Supply Chain of Indian FMCG Industry Supply Chain Planning & Management Own Manufacturing Contract Manufacturing / Imports Outbound Transportation Depots Carrying and Forwarding Agents Stockists / Distributors Retailer Customer
The traditional basic structure of FMCG supply chain has not changed over the years. The basic supply chain related with distribution side of FMCG industry is shown in Figure 1. The competitive scenario has changed the importance of each element of the chain operation i.e. a detailed planning and analysis of every activity of the chain so that to make the same efficient and effective. Despite the importance and theoretical development of SCM, there is little empirical research on how practitioners define and incorporate SCM practices into overall corporate strategy and functioning. Similarly, little is known about the specific practices or concerns of successful SCM implementation in Indian FMCG organizations. This research paper investigates these issues by means of empirical data.
The clubbing of various SCM practices of Indian FMCG organizations emerged as few exclusive factors through research study, which were different on agreement continuum and adoption continuum from each other. The result of study revealed that supply chain partnership and supply chain networking are considered to be dominating factors for Indian FMCG organizations. This seems to be quite true with the rapid spread and development of IT and telecommunication tools and techniques throughout India, which is facilitating the bi-directional flow of information and enhanced level of coordination and collaboration. Besides that leanness or operational efficiency factors have high degree of agreement but low level of adoption. The reasons behind the same are basically infrastructural bottlenecks and the presence of unskilled and semi-skilled suppliers at backend and distributors at front end of the supply chain. However, cross functionality and strategic outsourcing are leading on adoption continuum. A truly integrated supply chain requires a huge amount of commitment by all members of the supply chain. The focal firm might require to overhaul the purchasing process and integrate suppliers’ R&D teams directly into its own decision making processes so as to leverage on it’s own core competency and partners’ core capabilities. Integrating the purchasing and logistics processes with other key corporate processes creates a closely linked set of manufacturing and distribution processes. It further allows focal firm to deliver products and services to both internal and external customers in a more timely and effective manner
OBJECTIVE OF THE STUDY
OBJECTIVE OF STUDY
To diagnose the limitation faced by different FMCG stockiest of Bareilly city in the utilizing the full advantage of supply chain management.
To study the strategic advantage of supply chain management among FMCG stockiest
To study the willingness among different FMCG stockiest to apply better supply chain
To know the satisfaction level of supply chain management services among FMCG stockiest
To know the challenges in the field of supply chain management under changing technological scenario.
RESEARCH METHODOLOGY USED IN THE STUDY
Research methodology is a description explanation and justification of various methods of conducting research.
TYPE OF RESEARCH USED IN THE STUDY
Market research has a broad scope and includes all aspects of the business environment. It asks questions about competitors, market structure, government regulations, economic trends, technological advances, and numerous other factors that make up the business environment. Sometimes the term market research refers more particularly to the financial analysis of companies, industries, or sectors. In this case, financial analysts usually carry out the research and provide the results to invest advisors and potential investors.
The sampling plan for the study decides the work area that is the population, which has to be surveyed. A Brief idea about the sampling for this research consisting of its different parameters is given below:
TYPE OF SAMPLING METHOD USED IN THE STUDY
In this type of the sampling the researcher uses his judgment to select population members who are good source for accurate information
The sample universe is taken Bareilly and nearby areas.
In this study sample size is of 40 FMCG stockiest. Due to the shortage of time and unavailability of expert team the research size is taken short so that the research can be done easily.
METHOD OF DATA COLLECTION
The research was carried out through surey method with the help of a QUESTIONNAIRE consisting of closed ended question.due to flexibility , questionnaire method is ideally suited for collection of primary data.
OBSERVATION AND ANALYSIS
Awareness Level towards Supply chain Management Fundamental
Options for a better Supply chain Solutions
Maximum Moderate Minimum
37.50% 27.50% 35%
Willingness level to accept the Supply chain Management.
High Average Low
42.50% 32.50% 25%
Level the cost deficiency hinders to implement Supply chain solution.
High Average Low
30% 47.50% 22.50%
Level of conservative approach hinder to implement Supply chain solutions.
High Average Low
40% 17.50% 42.50%
Level the unavailability hinder to implement Supply chain solutions.
High Average Low
60% 30% 10%
Level of satisfaction with Supply chain solutions.
High Average Low
50% 30% 20%
Observation level of the Supply chain solution is advantages for the scope of business.
Option preferred as advantages in implement Supply chain solutions.
Better time delivery Better Inventory management Better cost Effectiveness
42.50% 20% 37.50%
Level new emerging technologies are beneficial in providing better Supply chain solutions.
High Moderate Low
45% 35% 20%
Role SCM play in the total performance.
Good Average Poor
55% 27.50% 17.50%
Level of desire to ask for supplier for much better Supply chain solution
High Moderate Low
50% 20% 30%
Which option is most important for much better Supply chain solution.
Better Inventory Management Transportation Decision
Level of willingness to go for outsourcing Supply chain services
High Moderate Low
25% 20% 55%
Level of requirement for FMCG sector in comparison with other commodity for a supply chain solution
High Moderate Low
55% 25% 20%
1. People are not well aware about SCM scope because still 20% dealer is having poor awareness level. 2. Dealer are not having much opinion as a supply chain solution services because this service sector is not well incorporated by service sector icons In the area of bareilly so well. 3. Willing level is also not very satisfactory. 4. 4. Still in days globalized scenario cost play a major hindrance agent in the better SCM options by a dealer. 5. The approach is now future looking but still 40% dealers are conservative. 6. Better SCM providers are not available in the Bareilly region. 7. Satisfaction level is quite balances with still 205 people are not well satisfied. 8. Dealers feel SCM may provide advantage to them and there prospects in business. 9. Timely delivery of product is most important advantage factor. 10. Dealer is technology focus and they feel that emerging technologies are beneficial to them. 11. Role of SCM as a strategy is high. 12. Level of desire is good but still 20% are not having better mindset. 13. Inventory management is most important component felt by the dealers of the SCM. 14. Willingness for the outsourcing is not quite satisfactory. 15. FMCG dealers feel that there need urgency is quite higher in comparative to other factor.
➢ Good results depend upon FMCG stockiest willingness to give good and fair response then we can say concretely the result is good. ➢ Results of this study and findings are applicable only for Bareilly city and near by areas. The results may be different of this study in another place. ➢ One of the limitation of this study is that of time limitation due to which it is not possible to do the detailed study. ➢ The sample size was taken only 40; it is difficult to say anything concretely. ➢ Absence of professional researcher and team was another limitation of the study.
Still the FMCG dealer is not well aware they are conservative and believe in traditional SCM practices. Their approach is now changing but cost factors and unavailability of better SCM solutions provided hinder their chances of better SCM services accessibility. So need is to crate a better promotional measurement by FMCG key players to offer different version of SCM solutions because dealer feel that they can offer better time delivery of product to their customer an manage their customer can manage their inventory in a better and a strategic advantage to their business.
This questionnaire is prepared to study the project title “A Critical Study of Changing phases of Supply chain Management of FMCG” as a compulsory part of Project Report For two year full time MBA program from Rakshpal Bahadur management institute Bareilly. Your opinion and suggestion shall be kept confidential and will be used for academic purpose.
Name of Stockiest
Q1.What is your awareness Level Towards Supply chain Management Fundamental as a Strategy to take the advantage in supply of FMCG products? a. Good b. Average c. Poor
Q2.How many option do you have for a better Supply chain Solution? a. Many b. Moderate c. Minimum
Q3. What is your willingness level to accept the Supply chain Management advantage for Better profitability achievement? a. Higher b. Average c. Low
Q4. Up to what level the cost deficiency hinder you to implement Supply chain solution? a. Higher b. Average c. Low
Q5. Up to what level your conservative approach hinder you to implement Supply chain solution? a. Higher b. Average c. Low
Q6. Up to what level the unavailability hinder you to implement Supply chain solution? a. Higher b. Average c. Low
Q7. Up to what level you satisfied with Supply chain solution? a. Good b. Average c. Poor
Q8.what is the your observation level of the Supply chain solution is advantages for the scope of business?
Q9.Which option do you prefer as advantages in implement Supply chain solution? a. Better time delivery c. Better cost Effectiveness b. Better Inventory management
Q10. Up to what level new emerging technologies are beneficial in providing better Supply chain solution? a. Higher b. Moderate c. Low
Q11.In your business strategy what role SCM play in the total performance? a. Good b. Average c. Poor
Q12. Level of your desire to ask for your supplier for much better Supply chain solution? a. Higher b. Moderate c. Low
Q13.Which component do you feel is most important for much better Supply chain solution? a. Better Inventory management c. Better transportation Decision b. Better location Decision
Q14. Level of your willingness to go for outsourcing Supply chain services? a. Higher b. Moderate c. Low
Q15.What is level of requirement for FMCG sector in comparison with other commodity for a supply chain solution? a. Higher b. Moderate c. Low
Kotler Philip; Marketing Management”; Pearson Education, New Delhi;
Shiffman, Kanuk; “Consumer Behavior”; Prentice-Hall, New Delhi 8th Edition
Kothari, C.R. “Research Methodology”
Mendel, peter “Supply Chain Management and Logistics”
Saxena, Anurag “Logistics and Supply Chain Management”
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