SAP Case Study

mySAP™ SUPPLY CHAIN

MANAGEMENT
AT MARICO

AT A GLANCE: mySAP™ SUPPLY CHAIN
MANAGEMENT AT MARICO
Strategic Goals:
• Enhance long-term value of company brands by
achieving excellence in distribution performance
• Maintain market share growth in a competitive
environment with much larger, offshore rivals
• Scale supply chain operations to sustain customer
service as the business grows
• Reduce total delivered cost
Approach:
Marico shortened its planning cycle from 30 days to about
15 days; revised its demand planning process to forecast
“sales out” (shipment from distributors to retailers); and
implemented an improved process to replenish its distrib-
utors. The company focused on achieving relatively even
shipment levels throughout each month and developed
internal collaborative processes to support planning. This
approach was enabled by mySAP™ Supply Chain Manage-
ment software, which includes demand planning and supply
network planning capabilities coupled with SAP® R/3® and
SAP® Business Information Warehouse (SAP® BW).
Results (achieved during 3Q01 to 1Q02):
• Decreased stock-outs associated with distributor
sales to retailers by 33%
• Reduced lost sales due to stock-outs by 28%, thereby
improving total revenue by 1.5%
• Lowered excess distributor inventory by 33%
• Reduced late deliveries to distributors by 37.5%
• Reduced costs associated with supply chain exceptions
by 25% (for example, intracompany stock transfers,
truck detention costs)
• Positioned the company for a vendor-managed inventory
implementation and further performance improvements
ENHANCING BRAND EQUITY
BY IMPROVING DISTRIBUTION
PERFORMANCE
Marico Industries, Ltd. is a leading India-based consumer
goods company with sales of Rs 6.96 billion (approximately
$142 million) for the fiscal year ending March 2002. With 6
factories and about 1,000 employees, it has maintained steady
revenue and profitability growth throughout the past 10 years.
Marico offers a range of products to the local and export
markets (primarily South Asia and the Middle East), including
refined edible oils, food products such as jams and sauces, niche
fabric care products, and hair oils.
Marico was incorporated in 1988 and began commercial opera-
tions in 1990 when it acquired the consumer products division
of Bombay Oil Industries. Since its inception, a key strength of
the company has been its ability to build brands.
Marico has pursued a rigorous approach to creating and sus-
taining its brands, focusing on understanding and anticipating
consumer needs, innovating in distinct ways, developing adver-
tising campaigns to reinforce value delivered to consumers, and
tracking metrics that support product positioning strategies.
The company’s approach has enabled it to pioneer polyethylene
packaging for coconut oils, a cold-water clothes starching
product, and other unique developments. Marico faces com-
petition from large, well-capitalized international rivals such as
ConAgra Foods and Unilever, domestic brands, and non-brand-
ed products. Nevertheless, Marico’s approach has enabled the
company to create unique value for consumers and thereby to
build significant market share in many product categories. Of
Marico’s nine brands, three are market leaders.
A key attribute of Marico’s brands is the widespread availability
of the company’s goods throughout India. Marico’s distribution
network is key to ensuring that its products reach about 100
million people throughout the Indian subcontinent each
month. Marico produces 125 SKUs at its own factories and
through 15 subcontracting manufacturers. It stores products at
32 warehouses and sells to 3,500 distributors. These distributors
in turn provide products to 1.6 million domestic retail outlets.
Marico’s peer companies in other countries recognize its
strength in distribution; consequently, Marico has secured a
distribution alliance with Indo Nissin Foods and a distribution
agreement with Procter & Gamble.
Though Marico experienced robust expansion throughout
the 1990s, the company realized that it would face challenges to
continued profitable growth. Greater rivalry in its core markets
meant it had to increase marketing expenditures. The company
also was unable to sustain the performance of its supply chain
as its scale of operations grew. Marico was increasingly experi-
encing inaccurate forecasts, excess inventory, stock-outs, and
delays in response to market requirements. These supply chain
performance issues were reducing Marico’s cash flow and did
not support the product brand images the company had taken
care to develop.
In order to achieve sustained profitable growth, given market
factors and the need to maintain its distribution effectiveness,
Marico determined that it must improve its supply chain
capabilities. Specifically, the company focused on customer-
facing business processes as well as on its internal operations.
After a careful analysis of alternatives, Marico selected mySAP™
Supply Chain Management (mySAP™ SCM) to enable the re-
engineering of its associated planning and execution processes.
Marico’s goals included improving forecast accuracy and
delivery performance in order to sustain the widespread avail-
ability of its products in the market and the associated positive
perceptions of its brands. By concentrating on internal opera-
tions, Marico has been able to lower inventory and supply
chain operating costs, particularly those expenses that could
be reduced through better planning in areas such as intracom-
pany stock transfers. The company has achieved improved cash
flow to fund future growth, sustained the viability of its inde-
pendent distributor network, and maintained those elements of
its brands’ images that are tightly coupled with high availability
of its products to its customers.
CHALLENGES AND OBJECTIVES
Although Marico had achieved a compound annual growth
rate of about 18% during the 1990s, the company recognized in
the latter part of the decade that it must renew its focus on
profitability in order to participate in long-term growth
opportunities. The company had become highly dependent on
its three leading brands for generating revenue and earnings,
and was facing increasing competition in the associated edible
oil markets as well as in other product categories. This meant
that Marico would have to increase its advertising expenditures
to defend the market positions of its various products and con-
tinue to invest in product development to ensure continued
growth.
Moreover, even though distribution was a core strength for
Marico, the performance of its supply chain network was not
keeping pace with the growing scale of its operations. For
example, the company had a planning cycle of 30 days, and,
during this period, was unable to respond to changes in
demand. The bucketed time horizons for manufacturing and
distribution were not synchronized and distribution levels were
uneven, with a weighting of 15%, 32%, and 53% for the first,
second, and final third of each month. This suboptimal skewing
of distribution activity over time, coupled with low levels of
forecast accuracy, led to a mismatch of supply and demand,
inventory build-ups at Marico and at its distributors, expired
products, and stock-outs – all of which adversely affected end-
consumer perceptions. Total delivered costs were increasing
due to storage capacity constraints, which often required inter-
warehouse stock transfers, temporary renting of additional
storage space, and truck demurrage. Also, spreadsheet-based
planning methods and multiple, nonintegrated transaction
systems inhibited widespread visibility into essential data,
further compounding planning-process problems.
Thus, key goals for Marico included improved forecast accuracy
and more uniform distribution levels throughout each month.
It also needed to reengineer its planning processes to more
effectively match supply and demand. As a result, costs would

be more in line with best-in-class operations in the consumer
industry. Inventory carrying costs and total supply chain costs
would be reduced, freeing cash flow to reinvest in growth-
generating activities. Marico targeted improvements in stock-
out reductions and on-time delivery that would be a conse-
quence of better planning processes. These actions would
support the company’s branding initiatives as well as help
ensure the profitable operation and continued viability of its
distributor network.
IMPLEMENTATION
In 1999, Marico initiated a detailed evaluation of its supply
chain operations to determine how best to reduce costs, satisfy
customer needs, support its brands’ images, and position the
company for long-term growth. The company concluded that
sourcing and manufacturing were straightforward, while its dis-
tribution operations were the key source of opportunity. Marico
procured only a few commodity raw materials (for example,
vegetable oils and safflower seeds), had no major manufacturing
capacity constraints, had no sales seasonality associated with its
products, and minimized artificially induced demand surges by
avoiding the use of promotions. However, the distribution net-
work was complex, with SKU/distribution point combinations
numbering in the millions.
Marico focused on business processes that addressed internal
collaborative forecasting between its manufacturing sites and
warehouses. The company defined clear responsibilities to
ensure that distribution from its warehouses to distributors
would meet service level and inventory objectives. Also, the
company implemented policies to distinguish the relative
priority of SKUs and of distributors.
After a careful evaluation, Marico selected mySAP SCM to en-
able the associated planning and execution processes. These
processes included calculation of monthly shipment require-
ments from its plants to its warehouses to support make-to-
stock operations, electronic transfer of stock level data from the
distributors to Marico, and push distribution of products from
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Marico to distributors based on forecasted retail-level demand
and distributor inventory levels.
Implementation of SAP® R/3® capabilities in finance, cost
accounting, materials management, production planning,
quality management, and sales and distribution was started in
June 2000 and went live quickly in a “big bang” implementation
in April 2001. Implementation of the demand planning and
supply network planning capabilities of the SAP® Advanced
Planner & Optimizer of mySAP SCM – along with the SAP®
Business Information Warehouse (SAP® BW) – began in August
2000 and went live in a “big bang” implementation in May 2001.
Twenty-six staff members and 20 consultants assisted in the
project, using AcceleratedSAP™ (ASAP™) methodologies to en-
sure a rapid implementation. The scope included all company
factories, warehouses and business offices; distributors; and
contract manufacturers, and the implementation achieved
systems integration that efficiently supported the new planning
and execution processes.
The implementation produced quick results. By early 2002,
forecast accuracy was improved by 14%, and the levels of ship-
ment activity through each third of a month had become more
even (25%, 32%, and 43%). The planning-cycle time was reduced
from 30 days to 15-20 days, and enhanced reporting facilitated
management decision making. These results led to reduced
internal and distributor inventory, fewer stock-outs, lower levels
of lost sales, and reduced supply chain exception-handling costs.
In the future, Marico plans to implement vendor-managed
inventory (VMI) processes by making use of Internet-based
integration of distributors’ stock levels into the company’s
SAP R/3 system. This VMI implementation will enable Marico
to further reduce the planning cycle to 10 days and ensure
greater visibility into distributor operations, reduced inventory,
lower supply chain management costs, and higher levels of
delivery performance. These results will continue to reinforce
the company’s branding initiatives and position Marico for
long-term, profitable growth.