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A REPORT ON DISTRIBUTION CHANNEL OF HINDUSTAN UNILEVER LIMITED WITH REFERENCE TO TEA AND COFFEE BEVERAGES
DISSERTATION SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENT FOR THE AWARD OF THE DEGREE OF PGDM
BY A.SAGAR (08MO32) (MARKETING AND HR)
DHRUVA COLLEGE OF MANAGEMENT APPROVED BY AICTE, MINISTRY OF HRD, GOVT. OF INDIA MEDCHAL, HYDERABAD-500027
I hereby declare that the dissertation entitled “A REPORT DISTRIBUTION CHANNEL OF HINDUSTAN UNILEVER LIMITED WITH REFERENCE TO TEA AND COFFEE BEVERAGES” that is being submitted by me in partial fulfillment of the requirements for the award of the degree of PGDM in FINANCE & MARKETING to Dhruva College of Management is a record of bonafied work carried out by me. The results embodied in this dissertation have not been submitted to any other university or institution for the award of any degree or diploma.
Date: Place: Signature of the student
Examiner (s) 1 ……………………………… 2 ………………………………
The authorship of a monograph is usually attributed to one person but a report on the internship or a project work like this one is a joint affair. I am indebted to all who have directly and indirectly been of great help to me in doing and writing this internship project report. Firstly, I am thankful to Mr. RATNABABU (TERRITORY SALES OFFICER) HUL OOH who inspired me and guided me throughout the period of my internship Project Work that enabled me to successful completion of the report. I am also grateful to PROF.KUNAL GAURAV, Faculty Dhruva college of management - Hyderabad for his continuous and deliberate discussion on the topic and indeterminable burden taken by him in helping me during the project. I extend my thanks to Dr. S Pratap Reddy (Chairman – dhruva college of management) and for providing all the necessary facilities in bringing out this project report Last, but not least I am thankful to my parents who motivated me throughout this project work, The preparation of this report would not have been an easy task without the help and support of my parents. I am pleased to say that the whole report is just the presentation of the facts that have been found during the internship through different sources and its each sentence is an exact representation of the information obtained thereof.
I hope that I have manifested my sincere attempts to represent all the information and other things to the best of ability. A.SAGAR.
INDEX CONTENTS PAGE
1.1 Objectives of the study………………..…………… 1.2scope of the study………………………………………. 1.3Limitations of the study………………………………… 1.4 Literature Review………………………………………. 1.5 Theoretical background of the study……….………… 1.6 Company profile……………………………………... 1.7Vison and Mission of HUL…………………………… Chapter-2: Distribution channel
7 7 7 8 15 31 l
2.2 Distribution channel in Hul Out of home division………
5 Chapter-3: Suggestions and Recommendations
5.1 Recommendations………………………………….. 5.2 Suggestions………………………………………….
Chapter-3: Results and Findings
3.0 Bibliography…………………………………………………….. Chapter-4: Annexure 4.1Swot analysis…………………………………………… 4.2Turnover &Market leader graphs……………………... 4.3Channel design………………………………………… Learning’s……………………………………………………….... 44 46 47
The main objective of the project is to get the full knowledge of the distribution network of the products of the HUL and how they are using the distribution network as a key differentiating factor from its competitors. This is also to find the preferences of customer and there market knowledge and product information, information about the presence of the rivals of HUL and all the other options they have in the market. HUL are also looking to tap the market in rural sector, so they also taking into consideration the needs and wants of the people there.
OBJECTIVES OF THE STUDY
➢ To understand the distribution network of Hindustan Unilever Ltd. ➢ To find the ways to use the distribution network as the key differentiating factor from its competitors.
SCOPE OF THE STUDY
➢ The scope of the study is confined to distribution networks in Hyderabad only, as the project duration is short time.
LIMITATIONS OF THE STUDY
➢ The distributors showed lack of interest due to time constraint or some other personal issues.
Distribution playas an important role in all organizations, due to Globalization many companies entered into different economies.
CREATING A DISTRIBUTION ADVANTAGE IN INDIA
S0urce: www.bcg.com//CreatingDistributionAdvantageinIndiaMay07 Authors: Vikram bhalla, Abheeksinghi, Sharad varma. India has became world’s largest markets for consumer goods. The country’s market for consumer durables stood at $4.8billion in 2005, it is going to be expecting $ 9.7 billion by 2010. India is attracting attention of consumer companies around the around the world. The consumer durables,
9 stood at $4.8billion in 2005, is expected to grow $9.7billion by 2010.Appearal,at$20billion in 2005,is expected to grow to more than $9.7 billion by 2010.Apparel,at$20 billion in 2005,is expected to grow approximately 18%per year, around 46 billion. The overall retail market worth more than $230 billion in 20005 and growing 6%per year, is projected to reach almost$308 billion by2010. Due to fast growing of retail sector.India has been host to consumer multinational companies for several decades. Indeed, quite a few Indians think of unilever, nestle &Philips electronics as Indian companies. still india is relatively new territory with a number of inter related factors that make distribution channel challenging.Retailing density With more than 12billion retail outlets ,India has highest retailing densities in the world.
Most distribution models India involve many inter me diaries between companies and their retailers. Other distribution involves both retailers and Wholesalers are served directly by the manufacturer. Infrastructure complexity operates. Eg: a soap manufacturers do manufacturing in India where it is cheaper ,first shipment is stored in c&f agent at a ware house next it is transported to district head quarters, later it is transported to village retailers, the village retailers buys few packs from wholesalers. In India only few full service distribution companies
10 Distribution in India varies in number of layers. Choosing right distribution and managing channels carefully are key succeeding India’s complex retail environment. Plan to have more than 1 distribution model for different segments or regions.
ANALYSIS & EVALUATION OF DISTRIBUTION CHANNELS IN VARIOUS
SECTORS Source: http://www.beemanagement. Authors: Bee Management consultancy private limited. Mechanics of Distribution Channels of Sector
11 PRECIOUS AND SEMI PRECIOUS STONES: Precious and semi precious stones industry was divided into organized and unorganized sector, of the distribution channels of the players belonging to these sectors are also been different. Domestically, the branded jewelers of organized sector provide to the consumers via a 1 or 2 level supply chains. Which comprise of either only franchise retail outlets and other retails or wholesalers. The players of the unorganized sector sell their manufactured products to retailers by branch offices in cities where the products are transferred and sold to end consumers. CEMENT: Companies regularly hire c&f agents or transport cements to own or government warehouses either by roadway or railways. Domestically, from c & f agents or warehouses the cement is transported to the dealers/distributors and in turn to sub dealers who finally sell it to the end users. There may or may not be physical ownership of goods. In the second case, dealers and sub dealers take order from buyers and place it to the companies, and monitor the timely dispatch of said orders, transportation of goods and final delivery. Distributor network in cement industry is highly dominating and companies are compelled to hire as they do not really have that relationship and touch with the end consumer of their product. Apart, from this, the distributors have storage facilities as well which help control well in the entire supply chain as they are the ones who bring orders and therefore are directly responsible for the business that a manufacturer will be doing.
WHITE GOODS White goods are heavy commodities and need good distribution as these are high end commodities. Since the plants indulged in manufacturing or assembling is really less, the reach of the company is dictated by the distribution network that it follows.
12 Certain companies which do not have their own warehouses and are completely dependent on the CFAs and other dealers. Products whether they are assembled here or manufactured here are both distributed in the same manner, the first level is the Carrying and Forwarding Agent for every big city, who supplies further to the sub dealers. The physical storage of goods is must as sub dealer mostly sell to the walk in customers and for the institutional sales, orders are taken and supply is made directly from the CFA. Modes of transport are mainly two: roadways and railways, most of them are transferred by roads or railways bogies or a combination of both. The transport is hired; no company can afford its own transport facilities. For exports from the country the sea route is mainly followed.For imports also, once they enter the country through sea route or airways, Thus, distribution plays very significant role in the white goods industry in the absence of many factories at various locations.
FMCG The supply chain of products in the FMCG market in India is one of the longest supply chains an industry could really have. There are as many as 5 levels of intermediaries involved in the entire supply chain through which a product passes before reaching the end consumer. What has been observed is that even though these FMCG companies are big multinationals and Indian but face a major challenge of making their products available in the market in the right quantities and in the right time. This is simply because these companies don’t really have a wide network of sales agents and other force which is required and is ideal for catering their products to the markets. This aspect is taken over by distributors, wholesalers and retailer whose margins on these products actually double the price of these products when a final consumer buys it. The products in this industry are transported from manufacturing units via c&f agencies or warehouse to distributors who further sell the same to wholesalers or stockiest who finally sell it to the retailers in the market. These products are transported either via roadways or railways within the domestic markets and normally don’t take more than a week to reach the retailers. FMCG products are normally a high volume and products
13 have to essentially be available in the market at all given points of time and at all given points of purchase and therefore the distribution activities are highly volatile and dynamic. The supply of products takes place virtually on a daily basis in fixed quotas or otherwise, to retailers as per their requisitions and the expectation of demand and the performance of products in the recent past. All such criteria are taken into consideration before the quantum of products being dispatched to the next level of intermediary. Since it’s a volume game, manufacturers make all possible efforts to boost sales and promote their distributors to earn more and more orders from the retailers and wholesalers. . This activity also helps in finding out drawbacks of the distribution system.
Title3: Rediscovering Distribution: Going the e-tailing way
Source:Scribd.com, Authors: NIhit jain & Saurab bhatt Rediscovering of distribution means re-designing of distribution process in a better way. As the market grows need for efficiency and viability increases. Given an existing distribution process of a product, the need to rediscover it in e-tailing way would lead to man Need of e-tailing · What would happen to current distribution process .Benefit among existing distribution or e-tailing The need for etailing is to provide better entrée to customer along with the instant order placement and convenience for the same. Traditional distribution process can even exist after rediscovering. as an alternative both the distribution model would exist in the product market adding to higher sale by company.
Traditional distribution process normally consists of manufacturer, wholesaler, and retailer Reaching towards final consumers. Such type of distribution was essential due to lack of Technology , better connectivity and wide reach. With the increasing consumer base the need for e-tailing starts generating more income to the organization.
There are certain advantages in Traditional distribution • • • • Reduction in setup cost as company can use the retailers to sell the product. Understanding customer demand and behavior in a better way with the help of retailer. Easy access to rural areas with the help of small retailers located there. Consumers have easy availability of product with the help of retailers.
E-tailing means selling of goods and service through online process with the use of internet. It’s an advanced version of distribution. E-tailing basically deals with retailing that takes place on internet Eg; Dell. It succeeded success fully in on line distribution channel. Model of E-Tailing: Manufacturer Internet Consumer
There are many advantages in E- tailing. An e-tailing does not have to wait for customers because it virtually operates globally. • • • Companies have cost leadership with the elimination of middlemen. Products can be ordered all-round the clock. Chances of product shortage are minimized.
In the current scenario where the market is growing and world is shrinking due to better connectivity, need of e-tailing is highly looked upon. There is huge potential in the world market as the spending of consumer is increasing
THEORTICAL BACK GROUND
WHAT IS A DISTRIBUTION CHANNEL?
The route by which a product or service is moved from a producer or supplier to customers. A distribution channel usually consists of a chain of intermediaries, including wholesalers, retailers, and distributors, that is designed to transport goods from the point of production to the point of consumption in the most efficient way. Complicated Success Factors for distribution: The distribution strategy also needs the support and encouragement of top management to succeed Some of the CSFs could be: Clear, transparent and unambiguous policy and
procedure should require of Serious commitment of the channel partners • • • • • Fairness in dealings Clearly defined customer service policy High level of integrity Equitable distribution at times of shortage Timely compensation channel partners
Channel functions: • • • • • • • Information gathering Consumer motivation Bargaining with suppliers Placing orders Financing Inventory management Risk bearing
After sales support Financial support
Distribution channels should take care of the following 'discrepancies. • • • • Spatial Temporal Discrepancy Breaking bulk Assortment
In this channel system helps reduce the distance between the producer and the consumer of his products. Consumers are spotted Have to be reached cost effectively.
Example: companies produce products in one location even for global needs. MICO makes fuel injection equipment, spark plugs etc in different plants but its dealer will sell the entire products.
The channel system helps in speeding up in meeting the requirement of the consumers Time when the product is made and when it is consumed it is different. Example: Maruti plant in Gorgon - cars and spares are available when the consumer wants
The channel system reduces large quantities into consumer acceptable lot sizes Production has to be in large quantities to benefit from economies of scale Consumption is necessarily in small lot sizes . Eg; India is ultimate example in breaking bulk you can buy one cigarette, one Annacian.
Need for Assortment
The channel system helps aggregate a range of products for the benefit of the consumer - t could be made by one company or several of them. For the same product, it could be a variety of brands and package sizes.
Channel Flows :
Forward flow - company to its customers - goods and services , products, Backward flow - customers to the company – payment for the goods. Returned goods. Flows both ways - information
Zero level - If the product or service is provided to the end user directly by the company. Used mostly by companies delivering service like health, education, banking (also known as service channels) One level - consists of one intermediary. Two level - consists of two intermediaries and is the most common for FMCG products.
Marketing channel system:
1. Vertical 2. Horizontal
3. Multi channel
1. Vertical Marketing system:
Various parties like producers, wholesalers and retailers act as unified system to avoid conflicts. Improves operating efficiency and marketing effectiveness.
3types ➢ Corporate ➢ Administrated ➢ Contractual
Two or more unrelated companies join together to pool resources and exploit an emerging market opportunity Eg: Retail out lets in petrol bunks Coffee day outlets in airports
Multi channel Distribution:
Used in situations where ➢ Same product but different market segments ➢ Size of buyers varies ➢ Geographic concentration of potential consumers varies ➢ Reach is difficult Expectations from channel: ➢ Variety and assortment at one location
➢ Bulk breaking ➢ Close to customer location ➢ Speed of Delivery ➢ Additional services
Distribution organization Functions:
Primary aim: determine who will do what Major Decision points. Extent of company support and outsourcing to be decided Budget for the cost of the distribution effort
Select suitable channel partners - C&FAs, and distributors Setting clear objectives for the partners Agree on level of financial commitments by the channel partners.
TYPES OF INTERMEDIARIES
There is a variety of intermediaries that may get involved before a product gets from the original producer to the final user, they are
Retailers operate outlets that trade directly with household customers. Retailers can be classified in several ways:
➢ Type of goods being sold( e.g. clothes, grocery, furniture) ➢ Type of service (e.g. self-service, counter-service) ➢ Size (e.g. corner shop; superstore) ➢ Ownership (e.g. privately-owned independent; public-quoted retail group ➢ Location (e.g. rural, city-centre, out-of-town) ➢ Brand (e.g. nationwide retail brands; local one-shop name)
Wholesalers stock a range of products from several producers. The role of the wholesaler is to sell onto retailers. Wholesalers usually specialize in particular products.
Distributors and dealers
Distributors or dealers have a similar role to wholesalers – that of taking products from producers and selling them on. However, they often sell onto the end customer rather than a retailer. They also usually have a much narrower product range. Distributors and dealers are often involved in providing after-sales service.
Franchises are independent businesses that operate a branded product (usually a service) in exchange for a license fee and a share of sales.
Agents sell the products and services of producers in return for a commission
Role of Intermediaries in Distribution channel:
Greater efficiency in making goods available to target markets. Intermediaries provide ➢ Contacts ➢ Experience ➢ Specialization ➢ Scale of operation ➢ Match supply and demand.
Functions of Intermediaries
➢ Information ➢ Promotion ➢ Contact ➢ Matching ➢ Negotiation ➢ Physical Distribution ➢ Financing ➢ Risk taking
➢ Manufacturer ➢ Wholesaler ➢ Retailer ➢ Consumer
Channels of Distribution
A brief explanation of different channels of distribution is given below:
1. Manufacturer _ Customer:
This is also known as direct selling because no middlemen are involved. A producer may sell directly through his own retail stores, for example, Bata. This is the simplest and the shortest channel. It is fast and economical. Small producers and producers of perishable commodities also sell directly to the local consumers. Big firms adopt direct selling in order to cut distribution cost and because 274 they have sufficient facilities to sell directly to the consumers. The producer or the entrepreneur himself performs all the marketing activities.
2. Manufacturer _ Retailer _ Customer:
This is one stage distribution channel having one middleman, i.e., retailer. In this channel, the producer sells to big retailers like departmental stores and chain stores who in turn sell to customer. This channel is very popular in the distribution of consumer durables such as refrigerators, T V sets, washing machines, typewriters, etc. This channel of distribution is very popular these days because of emergence of departmental stores, super markets and other big retail stores. The retailers purchase in large quantities from the producer and perform certain marketing activities in order to sell the product to the ultimate consumers.
3. Manufacturer _ Wholesaler _ Retailer _ Customer:
This is the traditional channel of distribution. There are two middlemen in this channel of distribution, namely, wholesaler and retailer. This channel is most suitable for the products with widely scattered market. It is used in the distribution of consumer products like
groceries, drugs, cosmetics, etc. It is quite suitable for small scale producers whose product line is narrow and who require the expert services and promotional support of wholesalers.
Channel Design Decision
Analyzing consumer service needs.
Setting channel objectives and constraints
Identify Major alternatives
Evaluating major alternatives
• • Distribution through every reasonable outlet available - FMCG Strategy is to make sure that the product is available in as many outlets as possible , Preferred for consumer, pharmaceutical products and automobile spares
Multiple, but not all outlets in the market a few select outlets will be permitted to keep the Products Outlets selected in line with the image the company Wants to project Preferred for high value products Tanishq jewelry Keeps distribution costs lower .
Highly selective choice of outlets - may be even one outlet in an entire market - car dealers Could include outlets set up by companies - Titan, Bata Producer wants a close
watch and control on the distribution of his products.
Channel Management Decision
BUSINESS MODEL OF HUL:
Direct marketing means selling products by dealing directly with consumers rather than through intermediaries.
Traditional methods include mail order, direct-mail selling, cold calling, telephone selling, and door-to-door calling. More recently telemarketing, direct radio selling, magazine and TV advertising, and on-line computer shopping have been developed.
The main advantages of selling direct are that there is no need to share profit margins and the producer has complete control over the sales process. Products are not sold nearby those of competitors either.
There may also be specific market factors that encourage direct selling: There may be a need for an expert sales force, to demonstrate products, provide detailed pre-sale information and after-sales service
Retailers, distributors, dealers and other intermediaries may be unwilling to sell the product
Existing distribution channels may be owned by, or linked to, competing producers (making it hard to obtain distribution by any other means than direct)
However, there are significant costs associated with selling direct which may be higher than the costs associated with using an intermediary to generate the same level of sales. There are several potential advantages of using an intermediary.
More efficient distribution logistics Overall costs (even taking into account the intermediaries’ margin or commission) may be lower
Consumers may expect choice (i.e. the products and brands of many producers) at the point of sale
Producers may not have sufficient resources or expertise to sell direct.
In indirect distribution
It is the system the marketer reaches the intended final user with the help of others. These resellers generally take ownership of the product, though in some cases they may sell products on a consignment basis (i.e., only pay the supplying company if the product is sold). Under this system intermediaries may be expected to assume many responsibilities to help sell the product.
Indirect methods include: Single-Party Selling System - Under this system the marketer engages another party
who then sells and distributes directly to the final customer. This is most likely to occur when the product is sold through large store-based retail chains or through online retailers, in which case it is often referred to as a trade selling system.
Multiple-Party Selling System
This indirect distribution system has the product passing through two or more distributors before reaching the final customer. The most likely scenario is when a wholesaler purchases from the manufacturer and sells the product to retailer
STREAM LINE DISTRIBUTION
To improve the efficiency of a process, business organization by simplifying or eliminating unnecessary steps, using modernizing techniques, or taking other approaches.
SPECIAL TYPE OF DISTRIBUTION USED BY HUL Project Shakti, HLL's partnership with Self Help Groups of rural women is becoming an extended arm of the company's operation in rural hinterlands. Started in 2001, Project Shakti has already been extended to about 50,000 villages in 12 states - Andhra Pradesh, Karnataka, Gujarat, Madhya Pradesh, Tamil Nadu, Chhattisgarh, Uttar Pradesh, Orissa, Punjab, Rajasthan, Maharashtra and West Bengal. The respective state governments and several NGOs are actively involved in the initiative. The SHGs have chosen to partner with HLL as a business venture, armed with training from HLL and support from government agencies concerned and NGOs.
Hindustan Lever Network:
Is the company's arm in the Direct selling channel, one of the fastest growing in India today. It already has about 3.5 lakh consultants - all independent entrepreneurs, trained and guided by HLN's expert managers. HLN has already spread to over 1500 towns and cities, covering 80% of the urban population, backed by 42 offices and 240 service centres across the country. It presents a range of customized offerings in Home & Personal Care and Foods.
COMPANY PROFILE Vision and mission of HUL
33 Unilever’s misssion is to add vitality of life.They meet every day needs for nutrition,hygene, and personal care with brands that help people feel good, look good and get more out of life.
The vision of Hindustan Lever is to integrate social, economical, and environmental considerations into its business and brands. The company also aims to focus on climate change, water, packaging and sustainable agricultural resources as our key sustainability themes. The company also focuses on making global partnerships on nutrition and hygiene issues.
1. Introduction ‐ Hindustan Unilever Limited
Hindustan Unilever Limited (HUL) formerly Hindustan Lever Limited (it was renamed in late June 2007 as HUL) is India's largest Fast Moving Consumer Goods company, touching the lives of two out of three Indians with over 20 distinct categories in Home & Personal Care Products and Foods & Beverages. These products endow the company with a scale of combined volumes of about 4 million tones and sales of nearly Rs. 13718 crores. HUL is also one of the country's largest exporters; it has been recognized as a Golden Super Star Trading House by the Government of India. The mission that inspires HUL's over 15,000 employees, including over 1,300 managers, is to "add vitality to life." HUL meets every day needs for nutrition, hygiene, and personal care with brands that help people feel good, look good and get more out of life. It is a mission HUL shares with its parent company, Unilever, which holds 52.10% of the equity. The rest of the shareholding is distributed among 360,675 individual shareholders and financial institutions. HUL's brands ‐ like Lifebuoy, Lux, Surf Excel, Rin, Wheel, Fair & Lovely, Pond's, Sunsilk, Clinic, Pepsodent, Close‐up, Lakme, Brooke Bond, Kissan, Knorr‐Annapurna, Kwality Wall's – are household names across the country and span many categories ‐ soaps, detergents, personal products,
34 tea, coffee, branded staples, ice cream and culinary products. These products are manufactured over 40 factories across India. The operations involve over 2,000 suppliers and associates. HUL's distribution network comprises about 4,000 redistribution stockists, covering 6.3 million retail outlets reaching the entire urban population, and about 250 million rural consumers. The distribution network of HUL is analyzed from the following aspects: 1. Evolution of HUL’s distribution network 2. Transportation & Logistics 3. Channel Design 4. Initiatives taken for channel member management. 5. Field force management
1.Distribution Network of HUL Evolution over Time
The HUL’s distribution network has evolved with time. The first phase of the HUL distribution network had wholesalers placing bulk orders directly with the company. Large retailers also placed direct orders, which comprised almost 30 per cent of the total orders collected. The company salesman grouped all these orders and placed an indent with the Head Office. Goods were sent to these markets, with the company salesman as the consignee. The salesman then collected and distributed the products to the respective wholesalers, against cash payment, and the money was remitted to the company.
The focus of the second phase, which spanned the decades of the 40s, was to provide desired products and quality service to the company's customers. In order to achieve this, one wholesaler in each market was appointed as a "Registered Wholesaler," a stock point for the company's products in that market. The company salesman still covered the market, canvassing for orders from the rest of the trade. He then distributed stocks from the Registered Wholesaler through distribution units
35 maintained by the company. The Registered Wholesaler system, therefore, increased the distribution reach of the company to a larger number of customers. The highlight of the third phase was the concept of "Redistribution Stockist" (RS) who replaced the RWs. The RS was required to provide the distribution units to the company salesman. The second characteristic of this period was the establishment of the "Company Depots" system. This system helped in transshipment, bulk breaking, and as a stockpoint to minimise stock‐outs at the RS level. In the recent past, a significant change has been the replacement of the Company Depot by a system of third party Carrying and Forwarding Agents (C&FAs). The C&FAs act as buffer stock‐points to ensure that stock‐outs did not take place. The C&FA system has also resulted in cost savings in terms of direct transportation and reduced time lag in delivery. The most important benefit has been improved customer service to the RS. The role performed by the Redistribution Stockists includes: Financing stocks, providing warehousing facilities, providing manpower, providing service to retailers, implementing promotional activities, extending indirect coverage, reporting sales and stock data, demand simulation and screening for transit damages.
2. Detail Overview
The distribution network of HUL is one of the key strengths that help it to supply most products to almost any place in the country from Srinagar to Kanyakumari. This includes, maintaining favorable trade relations, providing innovative incentives to retailers and organizing demand generation activities among a host of other things. Each business of HUL portfolio has customized the network to meet its objectives. The most obvious function of providing the logistics support is to get the company’s product to the end customer.
Distribution System of HUL
HUL's products, are distributed through a network of 4,000 redistribution stockists, covering 6.3 million retail outlets reaching the entire urban population, and about 250 million rural consumers.
36 There are 35 C&FAs in the country who feed these redistribution stockists regularly. The general trade comprises grocery stores, chemists, wholesale, kiosks and general stores. Hindustan Unilever provides tailor made services to each of its channel partners. It has developed customer management and supply chain capabilities for partnering emerging self‐service stores and supermarkets. Around 2,000 suppliers and associates serve HUL’s 40 manufacturing plants which are decentralized across 2 million square miles of territory.
DITRIBUTION NET WORK
Distribution at the Villages:
The company has brought all markets with populations of below 50,000 under one rural sales organisation.The team comprises an exclusive sales force and exclusive redistribution stockists.The team focuses on building superior availability of products. In rural India, the network directly covers about 50,000 villages, reaching 250 million consumers, through 6000 sub‐stockists.
PHASE 1 Van based fixed route coverage 25% Rural pop Town Based Distribuor
PHASE 3 Shakti Entreprenurs 50% Rural population (target)
PHASE 2 SS-Star seller Distributor based in the village Hub& spoken Model 37% Rural population .
HUL approached the rural market with two criteria ‐ the accessibility and viability. To service this segment, HUL appointed a Redistribution stockist who was responsible for all outlets and all business within his particular town. In the 25% of the accessible markets with low business potential, HUL assigned a sub stockist who was responsible to access all the villages at least once in a fortnight and send stocks to those markets. This sub‐stockist distributes the company's products to outlets in adjacent smaller villages using transportation suitable to interconnecting roads, like cycles, scooters or the age‐old bullock cart. Thus, Hindustan Unilever is trying to circumvent the barrier of motorable roads. The company simultaneously uses the wholesale channel, suitably incentivising them to distribute company products. The most common form of trading remains the grassroots buy‐and‐sell mode. This enables HUL to influence the retailers stocks and quantities sold through credit extension and trade discounts. HUL launched this Indirect Coverage (IDC) in 1960s.Under the Indirect 7 Coverage (IDC) method, company vans were replaced by vans belonging to Redistribution Stockists, which serviced a select group of neighbouring markets.
Distribution at the Urban centres:
39 Distribution of goods from the manufacturing site to C & F agents take place through either the trucks or rail roads depending on the time factor for delivery and cost of transportation. Generally the manufacturing site is located such that it covers a bigger geographical segment of India. From the C & F agents, the goods are transported to RS’s by means of trucks and the products finally make the ‘last mile’ based on the local popular and cheap mode of transport.
New distribution channels Project Shakti
This model creates a symbiotic partnership between HUL and its consumers. Started in the late 2000, Project Shakti had enabled Hindustan Lever to access 80,000 of India's 638,000 villages .HUL's partnership with Self Help Groups(SHGs) of rural women, is becoming an extended arm of the company's operation in rural hinterlands. Project Shakti has already been extended to about 12 states ‐ Andhra Pradesh, Karnataka, Gujarat, Madhya Pradesh, Tamil Nadu, Chattisgarh, Uttar Pradesh, Orissa, Punjab, Rajasthan, Maharashtra and West Bengal. The respective state governments and several NGOs are actively involved in the initiative. The SHGs have chosen to partner with HUL as a business venture, armed with training from HUL and support from government agencies concerned and NGOs. Armed with micro‐credit, women from SHGs become direct‐to‐home distributors in rural markets. The model consists of groups of (15‐20) villagers below the poverty line (Rs.750 per month) taking micro‐credit from banks, and using that to buy our products, which they will then directly sell to consumers. In general, a member from a SHG selected as a Shakti entrepreneur, commonly referred as 'Shakti Amma' receives stocks from the HUL rural distributor. After being trained by the company, the Shakti entrepreneur then sells those goods directly to consumers and retailers in the village. Each Shakti entrepreneur usually service 6‐10 villages in the population strata of 1,000‐2,000. The Shakti entrepreneurs are given HUL products on a `cash and carry basis.
To cater to the needs of the inaccessible market with high business potential HUL initiated a Streamline initiative in 1997. Project Streamline is an innovative and effective distribution network for rural areas that focuses on extending distribution to villages with less than 2000 people with the help of rural sub‐stockists/Star Sellers who are based in these very villages. As a result, the distribution network directly covers as of now about 40 per cent of the rural population. Under Project Streamline, the goods are distributed from C & F Agents to Rural Distributors (RD), who has 15‐20 rural sub‐stockists attached to him. Each of these sub‐stockists / star sellers is located in a rural market. The sub‐stockists then perform the role of driving distribution in neighboring villages using unconventional means of transport such as tractor and bullock carts. Project Streamline being a cross functional initiative, the Star Seller sells everything from detergents to personal products. Higher quality servicing, in terms of frequency, credit and full‐line availability, is to be provided to rural trade as part of the new distribution strategy. The diagram in the next page shows
the model of Project Streamline.
Hindustan Lever Network (HLN) It is the company's arm in the Direct Selling channel, one of the fastest growing in India today. It already has about several lakh consultants ‐ all independent entrepreneurs, trained and guided by HLN's expert managers. HLN has already spread to over 1500 towns and cities, covering 80% of the urban population, backed by 42 offices and 240 service centres across the country. It presents a range of customised offerings in Home & Personal Care and Foods. The New Compensation plan for HLN partners provides new exciting ways of earning substantial income in addition to offering rewards like revenue sharing through the innovative concept of “pools” Mother Depot and Just in Time System
41 In order to rationalise the logistics and planning task, an innovative step has been the formation of the Mother Depot and Just in Time System (MD‐JIT). Certain C&FAs were selected across the country to act as mother depots. Each of them has a minimum number of JIT depots attached for stock requirements. All brands and packs required for the set of markets which the MD and JITs service in a given area are sent to the mother depot by all manufacturing units. The JITs draw their requirements from the MD on a weekly or bi‐weekly basis.
Leveraging Information technology
HUL customers are serviced on continuous replenishment. This is possible because of IT connectivity across the extended supply chain of about 2,000 suppliers, 80 factories and 7,000 stockists. This sophisticated network with its voice and data communication facilities has linked more than 200 locations all over the country, including the head office, branch offices, factories, depots and the key redistribution stockists. They have also combined backend processes into a common Shared Service infrastructure, which supports the units across the country. All these initiatives together have 10 enhanced operational efficiencies, improved the service to the customers and have brought us closer to the marketplace.
RS Net Initiative:
The RS Net initiative, launched in 2001, aims at connecting Redistribution Stockists (RSs) through an internet based system. It now covers stockists of the Home & Personal Care business and Foods & Beverages in close to 1200 towns and cities. Together they account for about 80% of the company's
42 turnover. RS Net is one of the largest B2B e‐commerce initiatives ever undertaken in India. It provides linkages with the RSs’ own transaction systems, enables monitoring of stocks and secondary sales and optimises RS’s orders and inventories on a daily basis through online interaction on orders, despatches, information sharing and monitoring. The IT‐powered system has been implemented to supply stocks to redistribution stockists on a continuous replenishment basis. Today, the sales system gets to know every day what HUL stockists have sold to almost a million outlets across the country. Information on secondary sales is now available on RS Net every day. RS Net is part of Project Leap. Project Leap begins with the supplier runs through the factories and depots and reaches up to the RSs. This ensures HUL’s growth by ensuring that the right product is available at the right place in the right quantities and at the right time in the most cost‐effective manner. Leap also aims at reducing inventories and improving efficiencies right through the extended supply chain. RS Net has come as a force multiplier for HUL Way, the company's action‐plan to not only maximise the number of outlets reached but also to achieve leadership in every outlet. RS Net has enabled stockists to place orders on a Continuous Replenishment System. This in turn has unshackled the field force to solely focus on secondary sales from the stockists to retailers and market activation. It has also enabled RSs to provide improved service to retail outlets. Simultaneously, HUL is servicing the rural market, key urban outlets, and the modern trade as a single concern.
Adexa iCollaboration suite
In 2000, HUL identified improved supply chain management as a critical business priority and launched a comprehensive initiative, “Project Leap,” tasked with increasing supplier/distributor responsiveness, reducing inventory buffers, and optimizing planning and scheduling. HUL chose the Adexa iCollaboration suite for facilitating centralized monitoring of the SCM, live customer /supplier collaboration, and integrating demand and distribution planning with production scheduling. With the aggregated view of data provided by the iCollaboration suite, HUL was able to combine sales and 11
43 distribution efforts on the diverse product lines, which resulted in significant savings on the cost side for inventories and distribution. HUL updates inventory positions, shipments and customer orders on a daily basis with these software packages and can get a pulse on the market real time.
Consumption of products and services is a rising opportunity in India, as elsewhere in the world. Hindustan Lever is already the largest player in the hot beverages out-of-home segment, with over 15000 tea and coffee vending points. The company is expanding the network strongly, in the education, entertainment, leisure and travel segments. HLL's alliance with Pepsi will significantly strengthen this channel.
Channel Structure (Special Focus in Regards to Hyderabad)
Typically, the goods produced in each of the HUL's 40 factories are sent to a depot with the help of a carrying and forwarding agent (C&FA). The company has its depot in every state of the country. The C&FA is a third party and gets servicing fee for stock and delivery of the products. In each town, there is at least a redistribution stockist (RS) who takes the goods from t`he C&FA and sells them to retail outlets. In Hyderabad the C&FA is in Rani ganji and Kompally is serviced by 3 Redistribution Stockists.
HUL Distribution network in out of home division (OOH)
HUL distribution network in OOH is operated by third party and it comes under third partry logistics. The flow of the product from point of the manufacture to the point of the consumption goes like this, First the products are transported from the point of manufacture i.e. manufacturing unit in Chennai to the ware houses in Hyderabad. It then transported to C&F agent, there the stocks are allocated to the distributors based on their quotations and transported the respective distributors in the respective markets. From the distributor it reaches the ultimate consumer.
Typically, the goods produced in each of the HUL's 40 factories are sent to a depot with the help of a carrying and forwarding agent (C&FA). The company has its depot in every state of the country. The C&FA is a third party and gets servicing fee for stock and delivery of the products. In each town, there is at least a redistribution stockist (RS) who takes the goods from t`he C&FA and sells them to retail outlets. In Hyderabad the C&FA is in Rani ganji and Kompally is serviced by 3 Redistribution Stockists.
Hindustan Unilever's distribution network is recognised as one of its key strengths. Its focus is not only to enable easy access to their brands, but also to touch consumers with a Two-way convergence . • • product availability Brand communication.
HUL's products, manufactured across the country, are distributed through a network of about 7,000 redistribution stockists covering about one million retail outlets. The distribution network directly covers the entire urban population. The general trade comprises grocery stores, chemists, wholesale, kiosks and general stores. Hindustan Unilever services each with a tailor-made mix of services. The emphasis is equally on using stores for direct contact with consumers, as much as is possible through in-store facilitators.
Just in time depot
The products that are manufactured are first brought to the JIT (Just In Time) Depot from the factory. Then these products are delivered to the Redistribution Stockiest according to the order placed by them, this is done through Permanent Despatch Plan.Then this stock is send to either retailers or wholesalers, according to the channel followed by them. From there it reaches to the consumers.
4. Recommendations to Improve the Distribution Network
• • • Servicing Channel partners and customers with continuous daily replenishment. Leveraging scale and building expertise to service Modern Trade and Rural Markets. Delivering of sales force to improve response times and service levels. Undertaking several initiatives for traditional channels in order to improve its capabilities at the front‐end by developing skills for stockists' sales force.
Launching of several promotional schemes for existing wholesalers and distributors. For instance, it has started the ‘Vijeta ‐ Rishta Jeet Ka’ scheme last year to provide a platform for the wholesaler and HUL to grow the business by earning points and redeeming them.
http://www.beemanagement. www.WIkepedia.com www.scribd.com www.Hll.com www.Fmcg.com
SWOT ANALYSIS: Strengths
HLL enjoys a formidable distribution network covering over 3400 distributors and 16 million outlets. This helps them maintain heavy volumes, and hence, fill the shelves of most outlets. The new sales organization named 'One HLL' brings "Household and Personal Care" and foods distribution networks together, thereby aligning all the units towards the common goal of achieving success. HLL has been continuously able to grow at a rate more than growth rate for FMCG Sector, thereby reaffirming its future stronghold in Indian market. Project Shakti - Rural India is spread across 627,000 villages and possesses a serious distribution challenge for FMCG Cos. HLL has come up with a unique and successful initiative wherein the women from the rural sector market HLL products, and hence, are able to reach the same wavelength as of the common man in village. Apart from product reach,
the initiative also creates brand awareness amongst the lower strata of society. This has brought about phenomenal results.
HLL's market dominance, originating from its extensive reach and strong brand presence, allowed it to raise the prices even as raw materials were getting cheaper. Hence, though the volumes decreased, the margins grew, and company was able to earn more profits. But higher margins attracted competition in areas of operations. HLL's strategy remained focused on creating power brands and earning higher margins. It was not left with any other option but to try cutting down the costs in order to protect volumes, if not increase it. As shown in above figure, the key differentiators for an FMCG player are ability to call shots and pricing power, and HLL has shown weakness over both these factors. HLL's weakness was its inability to transform its strategies at the right time. They continued with the same old strategy which helped them gain profits but was not genuine in this changed environment. HLL's risk aversion and market myopia led to stagnation of business, and ferocity of competition forced it into a defensive mode. Lack of pricing power in core business and absence of growth drivers have put HLL on a deflationary mode.
India is one of the world's largest producer of FMCG goods but its exports are miniscule as compared to production. Though Indian Cos. have been going global, their focus is more towards Asian countries because of the similar preferences. HLL is one of the top companies exporting FMCG goods from India. An expansion of horizons towards more and more countries would help HLL grow its consumer base and henceforth the revenues. Opportunity in Food Sector - The advent of modern trade has opened up greater opportunities for HLL to diversify its brand and strength its food division. It could look at introducing products from its parents stable like margarines and could also look at expanding its Knorr range of products. Well-placed to take advantage of future FMCG Growth - HLL reach out 80% of 207 million households in the country through various brands. It has a very welldefined product portfolio spread across many product categories. Penetration levels for some major
49 categories like skin-cream (22%), shampoo (38%), toothpaste (48%) and processed foods, continue to remain low offerings but great growthopportunities products.
ITC has reduced its dependence on the cigarettes business - Contribution of the core business in revenues has come down from 87% in FY99 to 70% in FY05. Over a period of five years, ITC has extended its presence into areas like foods, retailing, hotels, greetings, agri, paper, etc. These are businesses that can give it growth impetus in the long run. With ITC gaining momentum in each of these businesses, it is turning into a consumer monolith, and hence, the greatest threat to HLL's Business. SSKI India has gone on to say, "We maintain Out performer on ITC with a price target of Rs. 2200, while our Under performer call on HLL remains unaltered (price target of Rs. 160)."
Turn over in 2007 compared with competitors
Market Leader across different Sectors in 2007
3. Channel Design
51 Hindustan Lever Limited (HUL) has two types of channel selling ‐ i. Regular (traditional) retail channel,
ii. Direct Selling Channel in the name of Hindustan Lever Network (HLN).
HUL has a well entrenched high distribution model which comprises of C&FAs, Redistribution Stockists, wholesalers and retailers (as shown earlier). Hindustan Unilever's distribution network is recognized as one of its key strengths. Its focuses on Product availability, Brand communication, and higher levels of brand experience.
5. Field Force Management
The working cycle of a typical HUL field force member is from 21st of every month to the 20th of the next month. During this period he is given various targets that helps to achieve company objectives and gives him a chance to prove his performance relative to other. To start with the field force member is given a particular area and his responsibility is to cater to all the retailers in that area. While deciding the area for each member of the field force, the company makes sure that the operating area of each field member doesn't overlap with his other colleagues. There are various methods used by the company to incentivize the field force ‐ Monetary and Non Monetary. In HUL, the field force is evaluated using QOC (Quality of Contribution).
Field Capability Score (FCS)
In this component, the field force persons are required to ensure that the scheduled visit/outlet billing is such that at least 15 items are demanded per order. If this is achieved the retailer gets a discount of 1% on the billed amount and on the other hand the field person gets an additional score of 0.5 which is added to his QOC score. Each scheduled visit per outlet is one per week. For example if there are 100 outlets within the operating area of a field person then the number of visit per week is 100 and total number of visit per month = 100x4 = 400. 18. The sales person is required to achieve 90% success rate to get 0.5 points for his QOC score and at least 65% for a satisfactory performance.
Non Monetary Methods
The other purpose of the QOC scores is to highlight the performance of the field person among his peers. Based on the QOC various awards are distributed to the field persons at the end of every
53 month. These awards are also known as ‘MOC Star’ awards. MOC stands for Monthly operating Cycle.
Target Setting Mechanism and monitoring
The regional office monitors the performance of various zones. A thorough analysis is done at the end of each month and based on that the weak products are identified or those for which the demand has weakened. This is the basis of setting ECO and FOCUS targets for the field persons. Each field person is given a palmtop wherein he can feed the entries on the spot where the transaction is done. This solves basically the two purposes ‐ a) The field person is freed from the tedious task of maintaining cumbersome records and can then concentrate on the job (thus IT is replacing some of the field force or other channel members), b) The sold item is immediately updated in the company information system.
COMPETITORS FOR HUL: Last price Market capitalization (in cr) Sales turn over Net profit Total assets
54 HUL Dabur India Colgate Godrej Godrej India Marico P&G Gillete Emami Jothy labs 290.40 140.00 222.75 163.05 83.50 1,074.85 920.55 414.15 414.15 114.10 63,322.88 12,117.00 9,104.04 5,723.65 5,191.65 5,085.59 3,489.04 2,999.63 2,573.74 828.01 20,601.56 2,417.91 1,770.82 1,088.01 880.97 1,921.85 645.02 588.84 651.01 350.85 2,496,45 373.56 290.22 161.55 19.33 142.12 131.41 117.37 67.36 40.88 2,483.46 877.17 220.98 599.80 1,628.10 676.21 346.64 425.40 324.20 352.51
PRODUCTS MANUFACTURED BY HUL:
55 Market Position of HUL for Different Products: MARKET LEADER Personal wah Fabric wash House hold care Slin care Hair care Talcum powders Brand tea Ice creams 60% 42% 62% 53 % 63% 65% 35 % 25% STRONG NUMBER Oral Hair oils 36% 14% 36% 39%
Instant coffee Ketchup
Brands&squashes 78% R&g coffe Branded staples Branded salts 56% 15% 18%
Supply chain management:
Hindustan Unilever's distribution network is recognized as one of its key strengths. Its focus is not only to enable easy access to our brands, but also to touch consumers with a three-way convergence of product availability, brand communication, and higher levels of brand experience. HUL's products, manufactured across the country, are distributed through a network of about 7,000 redistribution stockiest covering about one million retail outlets. The distribution network directly covers the entire urban population.
The general trade comprises grocery stores, chemists, wholesale, kiosks and general stores. Hindustan Unilever services each with a tailor-made mix of services. The emphasis is equally on using stores for direct contact with consumers, as much as is possible through in-store facilitators.