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A

RESEARCH REPORT PROJECT


ON
CHANGING TRENDS OF FMCG IN INDIA

For The Partial Fulfilment Of The Degree of Masters in


Business Administration Awarded By UPTU.
(Affiliated to Uttar Pradesh Technical University, Noida)
(2012 2014)

IIMT COLLEGE OF MANAGEMENT


GREATER NOIDA

SUBMITTED TO:
Prof. SANDEEP SHARMA
(MARKETING)

SUBMITTED BY:
Ravi Kumar
Roll No.-1215270064

Declaration

I, Ravi Kumar a bonafide student of MIMT, GR. NOIDA. I hereby declare that the
research title CHANGING TRENDS OF FMCG IN INDIA, has been done by the
undersigned with full devotion for partial fulfilment of degree of M.B.A.
I also declare that the facts mentioned are true to date and best of my knowledge; any
discrepancies have been avoided for the same.

Ravi Kumar

ACKNOWLEDGEMENT

Behind every study there stands a myriad of people whose help and contribution make it
successful. Since such a list will be prohibitively long, I may be excused
for important omissions.
I would like to express my heart-felt gratitude to my faculty Prof. SANDEEP

SHARMA , for his invaluable guidance and encouragement.


I would also like to record my sincere gratitude to all those who have helped us directly
or indirectly in the fulfillment of this study.

Ravi Kumar

SYNOPSIS

The study taken up by us pertains to the study Dynamics of distribution of FMCG


industry. We have tried to study and understand the ideologies of the distribution with
regards to FMCG sector and further how much interaction is there, how much feed back
is there, how much successful are the companies in utilising distribution network in
boosting the sales and establishing its brand equity.
The project can be divided in two parts. In the first part the current or the present status
of distribution, its changing face and the transition from push to pull environment and
lastly current distribution set up of FMCG sector is studied by means of literature survey.
In the second part -we visited companies like HLL, AMUL, NESTLE, and BRITANNIA
and administered questionnaires to the executives of the concerned department and
studied the distribution set-up of the respective company. Secondly also studied the
implication of the companies in near future i.e. in the era of globalisation and IT. This
part was cumbersome as nothing was organised and as such I had to go in a random
fashion.
On a whole it was a good learning experience, as one is able to understand distribution
dynamics not with the help of books but with the help of real learning in the real
world.

TABLE OF CONTENTS
Topic

Page No

1.

DECLARATION......................................................2

2.

ACKNOWLEDGEMENT...........................................3

3.

SYNOPSIS...................................................................4

4.

TABLE CONTENTS......................................................5-6

5.

INTRODUCTION............................................................7-16

6.

LITERATURA SURVEY....................................................17-18

7.

CHANGING FACE...............................................................19-28

8.

FMCG SUPPLY CHAIN.........................................................29

9.

DATA PREPRATION ANALYSIS..............................................30-44

10.

COMPANY OF FMCG ............................................................45-75

11.

FEATURE STRATEGIS.............................................................76-83

12.

OBJECTIVE..................................................................................84

13.

RESERCH

METHOLOGY...............................................................85-

87

14.

LIMITATION.....................................................................................88

15.

DATA ENTERPRETATION..............................................................89-

103

16.

FINDING..........................................................................................104-

105

17.

CONSULATION..............................................................................106

18.

SUGGETION.....................................................................................107-

108

19.

BIBLOGRAPHY...............................................................................109-

110

INTRODUCTION

RATIONALE FOR CHOOSING THE PROJECT


In the current business environment, which appears to be difficult and
unpredictable, Indian industry has found a new avenue to pin its hopes on. Supply chain
and logistics management are suddenly under close scrutiny. Between them, they offer
companies the best way to sustain their businesses in rough times. Thus studying and
evaluating one of the aspect of supply chain management i.e. Distribution and that too
of the industry, which is a key component of Indias GDP and is a significant direct and
indirect employer, is worthwhile. Having an excellent distribution network is one of the
strengths of this FMCG sector, so we tried to carry out an in-depth study in dynamics of
distribution in FMCG industry with its relevance in the new millennium.

WHAT IS FMCG?
FMCG refers to consumer non-durable goods required for daily or frequent use.
Typically, a consumer buys these goods at least once a month. The sector covers a wide
gamut of products such as detergents, toilet soaps, toothpaste, shampoos, creams,
powders, food products, confectioneries, beverages, and cigarettes.

Typical characteristics of FMCG products


Individual items are of small value. But all FMCG products put together
account for a significant part of the consumer's budget.
The consumer keeps limited inventory of these products and prefers to
purchase them frequently, as and when required. Many of these
products are perishable.
The consumer spends little time on the purchase decision. Rarely does
he/she look for technical specifications (in contrast to industrial goods).
Brand loyalties or recommendations of reliable retailer/ dealer drive
purchase decisions.

Trial of a new product ie brand switching is often induced by heavy


advertisement, recommendation of the retailer or neighbours/ friends.
These products cater to necessities, comforts as well as luxuries. They
meet the demands of the entire cross section of population. Price and
income elasticity of demand varies across products and consumers

The FMCG sector has been the cornerstone of the Indian economy. Though, the
sector has been in existence for quite a long time, it began to take shape only during the
last fifty-odd years. To date, the Indian FMCG industry continues to suffer from a
definitional dilemma. In fact, the industry is yet to crystallize in terms of definition and
market size, among others. The sector touches every aspect of human life, from looks to
hygiene to palate. Perhaps, defining an industry whose scope is so vast is not easy.

After witnessing booming sales and flooding markets with innumerable products,
FMCG companies have had to abruptly apply the brakes and look for various ways to
save costs. The RS. 52,000 crore (listed companies) FMCG industry in India, which has
been on a roll for many years, faces tough times ahead, although many segments still
shows good growth.

Fast Moving Consumer Goods (FMCG) goods are popularly named as


consumer packaged goods. Items in this category include all consumables
(other than groceries/pulses) people buy at regular intervals. The most common
in the list are toilet soaps, detergents, shampoos, toothpaste, shaving products,
shoe polish, packaged foodstuff, and household accessories and extends to
certain electronic goods. These items are meant for daily of frequent
consumption and have a high return. The Indian FMCG sector is the fourth
largest sector in the economy with a total market size in excess of US$ 13.1
billion.It has a strong MNC presence and is characterised by a wellestablished
distribution

network,

intense

competition

between

the

organised

and

unorganised segments and low operational cost. Availability of key raw


materials, cheaper labour costs and presence across the entire value chain
gives India a competitive advantage. The FMCG market is set to treble from
US$ 11.6 billion in 2003 to US$ 33.4 billion in 2015. Penetration level as well as
per capita consumption in most product categories like jams, toothpaste, skin
care, hair wash etc in India is low indicating the untapped market ...

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TRENDS

Global Concentration
Major global consumer product companies (such as Unilever, P&G, Colgate,
Nestle, Heinz) have a lion's share of the global market. These companies have been
established for a very long time and possess a clutch of strong brands with proprietary
technology. Most of these companies are cash rich and well managed. Their brands
generate strong cash flows and allow them to reinvest in strengthening their brand equity
further, with continued promotions/ advertisements. (Harvard Business Review, SeptOct, 2004) They also have the financial clout to acquire small local brands to strengthen

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their position in the category. These companies also make considerable investment in
R&D to sharpen and maintain their edge in the business.
Growth Is In The Third World
Most of the global majors have their origins in Europe or USA. They find their
home markets saturated and are banking on the third world for future growth. These
companies are setting up shop and are aggressively expanding their base in these
countries. They also look out for opportunities to acquire local brands to push start or
consolidate their position in these markets. (www.web-enable.com/industry/enablingscm.asp)
Value For Money
During the last 4-5 years, particularly after reduced consumer spending during
the global recession, the new buzz word is value for money. FMCG companies globally
have embarked upon major re-structuring/ cost cutting exercises as the business has
become fiercely competitive. Also, several innovations in packaging media have taken
place. (CMIE reports)
Adapting To Local Conditions
In the last few years, process of adapting to local conditions has accelerated.
MNCs are adapting their products, process and marketing communication to the local
conditions. They alter the manufacturing process to maximize use of local raw materials
and suit their products to the taste and requirements of local consumers. This process has
been necessitated by the imperative to be cost effective and be competitive vis-a-vis
strong local players.

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Packaging
The role of packaging has increased significantly in recent times, partly due to
improvement in packaging technology. Traditionally, packaging was expected to serve
the purpose of protection and economy. Then, packaging was expected to fulfill the
objective of convenience. (Kotler Philip, 2003)Today, packaging is used as an effective
tool for promotion. Besides, new packaging technology has enabled most FMCG
companies to significantly reduce their packaging costs.
Rural distribution
Increased focus on rural distribution has increased logistics spend for the leading
companies.

INDIAN MARKET PERSPECTIVE


Background
At the time of independence MNCs were allowed to operate in India, but the
Indian market was too small for global MNCs. HLL had a manufacturing base, Colgate
and Nestle mainly undertook only trading activities. In the early '60s, several MNCs set
up manufacturing base in the country (www.hll.com). The government policies
continued to be protective, modelled on socialistic pattern with strong emphasis on self
sufficiency. As a result economic growth was slow (around 3.5% pa which many
economists dubbed as Hindu rate of growth) and India's share in international trade was
nominal (even today India's share in international trade is only 0.6%). Slow growth was
aggravated by major set backs in the late 60's due to drought and in the early 70's due to

13

oil shock. The new Government in power reserved several product categories for smallscale. It also forced MNCs to dilute their equity stake to 40% or leave the country. IBM,
Coca-Cola and several others decided to leave. Amongst major MNCs, Unilever (HLL)
was the only one which managed to retain 51% foreign stake by complying with the
Government conditions of minimum 10% export and 60% turnover from priority sectors.
Thus HLL got into the business of fertilizer and chemicals. In the '80s, when the
underlying factors for the economy were strong such as major oil discovery at Bombay
High, satisfactory monsoon, stable oil prices etc, the economic growth averaged 5% pa,
much lower than its potential. (www.hll.com) Several FMCG products such as toiletries
and cosmetics which are essentially mass consumption items, became luxury products
due to exorbitant burden of excise duties, sales tax (which added up to over 150% on
basic price). Local players sans technology and capital were not able to provide good
quality products. (www.hydepages.com/news)

Liberalization Wave
Foreign exchange crisis in 1991 (precipitated by Kuwait war) proved to be
blessing in disguise, due to which IMF suggested reform process began. The reforms
have continued over the last few years.
The economic growth rate is averaging 5-6% pa which is likely to continue. This growth
rate in GDP will imply 4-5% volume growth in mature categories and 8-10% pa growth
in upcoming categories where penetration levels are low. More importantly, the
organized sector will witness even a faster growth at the cost of the unorganized sector.

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ABOUT THE INDUSTRY IN INDIA


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
fromUS $ 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
theopportunity 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 aswell as low penetration level, but the potential for growth is huge.The
Indian Economy is surging ahead by leaps and bounds, keeping pace with
rapidurbanization, 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 byMNCs, and the
balance by Indian companies. Fifteen companies own these 62 brands

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CRITICAL SUCCESS FACTORS:


FMCG business rests on the two pillars of brand equity and distribution network.
Brand Equity

Brand equity refers to the intangible asset in the form of brand names. The
consumer's loyalty for a particular brand is due to the perception that the
product has distinctively superior and consistent quality and also satisfies
his/ her specific needs. Further provides better value for money than other
competing brands. (Kotler Philip, 2003) In FMCG products, brand equities
are relatively stronger as the consumer is reluctant to try unknown brands/
unbranded products as most of these products are for personal use. It is

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often difficult to differentiate a product on technical or functional grounds


and therefore little reason to switch from a known brand. A successful
brand generates strong cash flow, which enables the owner of the brand to
reinvest a part of it in the form of aggressive advertisement/ promotion to
reinforce the perceived superiority of the brand. The worth of a brand is
manifested in the consumers insistence on a particular brand or willingness
to pay a price premium for the preferred brand.

Distribution Network

In FMCG sector, one of the most critical success factors is the ability to
build, develop, and maintain a robust distribution network. Availability near
the consumer is vital for wider penetration as most products are low unit
value products and frequently purchased. Distribution network refers to the
consumer buying points where products are available (almost always). It
takes enormous time and effort to build a chain of stockists, retailers,
dealers etc and establish their loyalties. (Poirer C. Charles, 2004) There are
entry barriers for a new entrant as a new product is typically slow moving
and has lesser consumer demand. Therefore dealers/ retailers are reluctant

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to allocate resources and time. Established players use their clout to inhibit
new entrants. However, when a product offers a strong breakthrough (such
as Nirma in late 90s), equity we build up rapidly and so does the
distribution network.
Thus we see that distribution is the critical factor that at times even drives the brand
equity factor.

Assumption is made that views and suggestion given by the respondent are his
own perception and idea.
The study is not free from sampling error
Seasonal changes in sales figures may affect the quantitative data.
My study is based on responses of executives of mentioned companies of
concerned department only, which may not give a true picture.
Last but not the least and the most deciding factor paucity of time

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19

LITERATURE SURVEY

Objective: To analyse the present scenario of FMCG industry in terms of emerging

opportunities & challenges.


There is only one formula to win a 100-meter race --- run faster than the other
guys. To do that, you need to be learner and fitter than the competition. The same applies
to business as well. The only way to stay ahead in business is to be faster and fitter.
Indian business realized this clearly during the tumultuous decade of the 90s, which
changed the rules of the game forever. No longer does any artificial wall protect any
business. In the race to get more competitive, an area that is increasingly coming under
focus is Distribution i.e. the physical movement of good. Here an attempt is made to
study aspects of distribution, along with its changing face. Further the transition from
push to pull environment is also studied. Thus in nut shell to study the current status of
distribution in FMCG industry.

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In the heydays of 1980s the business Mantra was distribution reach. Every
distribution manager believed the way to market dominance was by reaching the greatest
number of brands to the maximum number of outlets across India (Carvalho, 2002) The
large scale and geographical diversity in retail outlets spread across the country meant
that all FMCG markets needed to service a large percentage of these outlets to really
reap economics of scale. Over the period companies like HLL, Godrej, P&G along with
recent entrants like Nirma and Wipro have build their distribution networks diligently.
Distribution is the crucial

success factor for FMCG, but distribution at best cost, is

vital. For Companys like GCMMF (Maul) distribution is literally all, since it deals in
perishables like milk and milk products. For all higher product visibility and lesser
inconvenience for the customer in obtaining the product results in more sales. (Mitra,
2003).

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CHANGING FACE
The Basic structure of FMCG supply chain has not changed in many years. What
has changed is the attitude of efficiency of each element. The end of 1990s revealed a
different way of looking at distribution. A new movement called SCM had been slowly
redefining the distributors role in channel. The market was changing and distributors
were expected to corporate with suppliers and customers to decrease total channel costs.
While increasing customer expectations were nothing new, they were unfolding at an
alarming rate. The tasks required of distributors in order to satisfy customer expectations
were not necessarily the ones that distributors would have chosen (Lawrence et. al.
2002)
FMCG or the Fast Moving Consumer Goods industry is also known as the CPG
(Consumer packaged goods) industry in India. This industry is named so because goods
are produced, distributed, marketed and consumed within a short span of time.
Products which are frequently purchased are examples of Fast Moving Consumer
Goods. FMCG products mainly include; toiletries, detergents, tooth cleaning products,
soaps, cosmetics, shaving products, paper products, glassware, batteries, plastic goods
and bulbs. FMCG also includes consumer electronics, pharmaceuticals, soft drinks,
packaged food products, tissue paper and chocolates.
In the year 2005, the FMCG Market in India was growing at a rapid rate of 5.3
percent. The value of the industry stood at Rs. 48,000-crore in the same year.
Currently the FMCG Market in India is one of the biggest and is growing at a
rapid rate of almost 60 per cent. Despite the economic downturn the FMCG Market in
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India currently stands at Rs.85,000 crore. The phenomenal growth of the FMCG industry
especially in the tier II and tire III cities in India is mostly due to the improvement in the
standard of living of the people of such cities and the rise in the level of disposable
income. Over the last few years companies like Dabur, HUL and ITC have managed to
change the face of the FMCG industry in India by using cutting edge technology in
production and a very strong distribution channel. Companies like Colgate Palmolive
and Britannia have also managed to penetrate into the urban areas of the country.

The FMCG sector in India happens to be the fourth largest in the world. According to
experts this industry will reach US$ 33.4 billion by 2015. Both the organized and the
unorgaganized sectors are largely responsible for the success of the Indian FMCG
industry. The Indian FMCG market also has a well defined and established distribution
network that makes products available even in the most urban areas of the country - See
more at:

DISINTERMEDIATION MYTH
Disintermediation is the term that means elimination of distributor; it was first
suggested for distributors in the early 1990s no a response to new technology and
increasing pressure on the supply chain to cut costs. Distributors were perceived as
middlemen who added cost to supply chain through redundant inventory, services and
information handling. It scared logical that if suppliers and end users could Automatic
out in efficiency they could eliminate the distributor. This logic follows from the

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reasoning that a shorter supply chain is inherently more inefficient (Narus and Anderson,
1997).
Until recently, most distributors described their core competency as
relationships. The statement covers the need for the following two roles. First is that
of a channel leader, who determines where the sources of supply are and how to access
them. The second role is that of a manager of customer information for manufactures. As
such the classical relationship of these functions (Inventory management, financing for
small customer, supplying technical info) became unchanging or frozen, the classic
business-relationship has become unfrozen by business forces like Just in Time (JIT).
The technological revolution caused by the Internet and advanced information system.
(Agawam D.K, 2000). Traditional relationships are in flux. It is unclear now new
channels and new bus models will be structured. To eliminate the distributor from supply
chain, channel members must eliminate the services the distributor currently supplies.
Thus this means eliminating some services following others. (Agawam D.K, 2000)
All in all, distributors sound like a rather noble bunch-always rising to occasion
for customer, willing to deal with uncertainty, provide flexibility and focus as customer
service (Lawrence, et. al. 2002)

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THE ECONOMICS OF DISTRIBUTION AND THE TRANSITION


The foundation for developing a successful channel arrangement rests in fully
understanding the underlying economics of distribution. The economic aspects of
channel relationships extend beyond issues of logistical operations. Several distinct
functions must be completed to achieve effective distribution. (Bowers ox Donald J. et
al, 2001)
Early scholar grouped functional requirements for effective distribution under 3
headings: Exchange, physical distribution and facilitating

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Buying
Exchange Function
Serving
Transportation
Physical Distribution Function
Storage

Standardization
Facilitating Function

Market Financing
Risk Bearing
Market Information and Research

(Bowers ox Donald J. et al, 2001)

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The exchange functions involved broad activities related to buying and selling.
As such exchange concerns activities required to transfer ownerships. The physical
distribution functions are the origin of what is referred to as logistics. The essential
activity consists of getting the right products to right place at the right time. Facilitating
functions include standardization, Market Financing, Risk Bearing and Market
Information and Research Activities. (Gattorna John, 2002)
In contemporary logistics the scope of operational concern is significantly broader than
transcending broad supply chain arrangements, logistics is viewed as encompassing all
work related to inventory positioning, which can also involve aspects of satisfying firm
and possession requirements.
Thus there is supply chain integration, below figure illustrates an overall supply chain
focussing on integrated management of all logistical operations from original supplier
procurement to final consumer acceptance. (Bowers ox & Closes, 2001).

Inventory Flow

Customers

Physical
Distribution

ENTERPRISE
Manufacturing
Support

Information Flow

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Procurement

Suppliers

CURRENT STATUS
As already started that FMCG supply chain has not charged in many years. What
has changed is the attitude and efficiency of each element. Also several new business
models have developed in the recent past like Direct Market, e tailing, B2C, B2B,
intranet and extranet (McAfee Andrew, 2004). The increasing competition in the market
place caused several changes through the chain.

FMCG (CURRENT) SCM TRENDS IN INDIA (Table #1)

Supply Chain Element


Retailer

Status Today

Trends Towards

Dispersed, unorganised, not Larger retail outlets; more number


much buyer power

of SKUs, concentration of buyers,


retailer power increases

SKU Variety

High numbers of SKUs of

Rationalization

of

SKUs

to

various sizes, offers and optimise costs


usage
Inventory At Plant

Push to warehouse

Pull from retailers/C&Fas

SKU Analysis

Time-dated

Dynamic, Instantaneous & fast


corrective action

Production Planning

Top down (from parent to

Collaborative but still with some

vendors); lots of buffer buffer time and inventory


stocks & time
Manufacturing Practice

Long production runs, low Flexible


overheads, fixed stations

manufacturing,

short

runs, low change-over times,


increased overheads

Contact

Manufacturing Contractual, opportunistic

(Outsourcing)/Third

Strategic

partnership,

alliance,

essential cost control element

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Party manufacturing
Information

Aggregated at every level


and

then

Instant

transmission

transmitted redirected

to

supply

hubs,
centres,

upwards loss of time in

rather

reacting

response to demand change

to change in

than

to

planners;

faster

demand pattern
Forecasting

Historical

data

based; ERP, trend data, qualitative field

varying levels of accuracy, inputs and allowance for force

Replenishment

person based

majeure

To maintain stock level, on

Dynamic replenishment: mix of

shelf, at stock point, at products replenished depends on


plant

an array of factors, only of which


is stock

Distribution systems

Traditional

linear

flow; Hub and spoke at more than one

some hub and spoke

level; distributors get their goods


directly from C&FAs

Integrated Data Systems

ERP used internally

ERP used with supply chain


planning to improve throughput
and efficiencies

Technology

E-mail, Fax, Telephones

V-SATs,

leased

lines,

mobile

ordering & automatic

Source: ETIG, L&SCM 2007

The emergence of the Internet, ERP systems and contract manufacturing are
important trends in India. Each has a clear implication for the FMCG supply chain. All
the FMCG companies list logistics above all other issues like price, how to get the

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product at the right time, in the right quantity, assortment and best cost is the challenge
of FMCG logistics.
The supply chain concept in the FMCG business in India really took root during
the downturn of the industry in 1999. A look at the FMCG industry growth trends in
distribution, raw materials, finished goods and ad spends clearly shows that the industry,
while undergoing strong fluctuations in all aspects, never really suffered a de-growth.
2001, while net margins grew by 9 per cent, distribution expenses grew by 9 per cent,
but still 60 per cent lower than 2003. (www.indiainfoline.com/fmcg/stma/st35.html)
In other words, the same distribution set up was giving an increase in net
margins. Most companies confirm they had initiated cost cutting measures, but heading
the list was control of supply chain costs. Other measures included longer credit periods
to vendors; faster collections, dropping slow moving brands and cutting back on ad
spend. (ET knowledge series, 2003)
They key trends emerging from the analysis include:
Increased focus on rural distribution has increased logistics spend for the
leading companies.
New alliances and re-negotiation with vendors is increasing, with the concept
of third party units (TPUs), already well established.
Working capital cycles are already turning negative for most FMCG majors
due to tighter control of credit, closer demand matching and SKU
rationalization (see table Good Control).

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FMCG INDUSTRY SUPPLY CHAIN TODAY


Vendors

Contract
Manufacturers

Owned Plants

Imports

Central Warehouse
Supply
Chain
Planning
And
ERP
Software

Regional Distribution Centres

C&F

Super stockists

Stockiest
Retail Chain Stores
Retailer

Consumers

(Source ETIG, L&SCM, 2004)

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Local wholesaler CRM

DATA PREPARATION AND ANALYSIS


QUESTIONNAIRE ANALYSIS
Q1. Please specify the importance of various functions of marketing in the present days
competitive scenario in the scale of 1-7: 1 being least important and 7 being most
important?
FUNCTIONAL AREA

HLL
7
6
7
7

AMUL
6
3
2
5

NESTLE
7
5
5
6

BRITANNIA
7
6
5
6

Management
Demand forecasting

& Management
Sales admn. & Mgt.

Brand Mgmt.
Advertising Mgmt.
Sales Promotion Mgt
Distribution channel
Management
Physical
distribution/Logistics

Q2. Please specify various purposes behind efficient distribution management on the
scale of 1-7: 1 being not important & 7 being most important?
HLL
Sustainable Bus.

AMUL
7

NESTLE
6

32

BRITANNIA
7

Growth & long term


performance
Greater market

dominance
Competitive

advantage
Total cost

containment
Dev. & maintenance

channel relationships
Improvement of
2

of harmonious

economic & social


welfare

Q3. Please indicate the combination of advertising and sales promotion for the products
of the company.

More
&

advertising
less

HLL
*

AMUL
*

sales

promotion

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NESTLE

BRITANNIA

More

sales

promotion & less


advertising
Both equally

Here we see that although HLL stresses that more of advertising should be done and
less of sales promotion, yet it is stated that at times both are to be done equally.

AMUL says that advertising should be done more than sales promotion.

On the other hand NESTLE & BRITANNIA believe both should be done equally.

Q4. Please specify the share of trade related schemes meant for channel members out of
total promotional budget?

Below 20%
20 30%
30 40%
40 50%

HLL

AMUL

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NESTLE
*

BRITANNIA
*

Above 50%

HLL & AMUL say that share of channel members in trade related schemes should
between 20 30%.

Whereas, NESTLE & BRITANNIA believe it should be less than 20%

Q5. Do you think that in the global competitive scenario and the era of information
tecnology, the role of distribution channel members have increased?

HLL
*

Increased
Decreased
No Change

AMUL
*

35

NESTLE
*

BRITANNIA
*

Here every body is of the view that increased competition and advent of IT has
imposed greater challelenges for the channel members and has also increased
their role immensely

Q6. Do you use Internet to sell your products to consumers directly?

HLL
YES
NO

AMUL
*

NESTLE

BRITANNIA

Only AMUL has B2C venture over Internet. In fact 9it was one of the
first to launch shopping on its web site. (amul.com Shoppe)

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Q7. Do you plan to sell your products on the Internet?


HLL
YES
NO

AMUL

37

NESTLE

BRITANNIA

Q8. Do you have web enabled Distribution Channel system?


YES
NO

HLL
*

AMUL

NESTLE

BRITANNIA

Only HLL has the system where all its stockists and the C&FA are in a web
enabled network throughout India.

38

Q9. In order to have smaller demand chain, if you have been asked to cut down one
channel member, which would you like to bypass?

HLL
C & F agents
Stockists/Distributors
Retailers/Dealers
None

AMUL

NESTLE
*

BRITANNIA

^
*

As talked to Mr. Kharbanda AM (scm), of NESTLE he said that we have already


done away with C&FA and as such our sales team directly meets with the
retailers/dealers. This helps for demand forecasting.

Again HLL would not like to cut any of its channel members, but if a revolutionary
change is to happen then they may bypass stockists.

AMUL& BRITANNIA believe every part of the channel is inevitable and as such
they dont think there is any need to bypass any of them.

39

Q10. Do you think that qualitative results of marketing largely depend on contributions
made by distribution channel members now a days?

HLL
**

YES
NO

AMUL
*

NESTLE
*

BRITANNIA
*

Here HLL strongly believes that due to the contributions of distribution channel
members overall marketing efforts have a synergistic effect, thus they have given
two stars to their YES.

AMUL & NESTLE also are of the similar view, but BRITANNIA thinks that it is
true but other factors also affect the overall marketing results and that is why half
star.

40

Q11.Is it essential to keep channel members happy, loyal & well motivated towards
trade?

YES
NO

HLL
*

AMUL
*

41

NESTLE
*

BRITANNIA
*

Q12.Rate the role of intermediaries in the era of globalisation and IT? Rate on a scale of
1-7; 1 being least important and 7 being most important.

HLL
Role of Intermediaries in the scale of 1 (Not important)
to 7 (very important)
FACTORS

C & F Agents

Stockists /
Distributors

Retailers

Logistics and Exchange Functions

Breaking Bulk

Assortment

Timely, intact movement and Delivery of


Products

Availability and proper storage of products

Order processing and Fulfilment

Marketing Functions

Market coverage and penetration

Facilitating Buyers in Information search

Supporting Buyers in their Purchase Decision

Product Holding and Risk sharing

Local Credit (if any)

Push Effort to generate sales volume

Trust Building

Information sharing with firms

Product performance

Market knowledge

Consumer Tastes and preferences

Dynamic Price effectiveness

Competitors Actions and Reactions

Effectiveness of Current promotional strategy

42

NESTLE
Role of Intermediaries in the scale of 1 (Not important)
to 7 (most important)
FACTORS

C & F Agents

Stockists /
Distributors

Retailers

Logistics and Exchange Functions

Breaking Bulk

Assortment

Timely, intact movement and Delivery of


Products

Availability and proper storage of products

Order processing and Fulfilment

Marketing Functions

Market coverage and penetration

Facilitating Buyers in Information search

Supporting Buyers in their Purchase Decision

Product Holding and Risk sharing

Local Credit (if any)

Push Effort to generate sales volume

Trust Building

Information sharing with firms

Product performance

Market knowledge

Consumer Tastes and preferences

Dynamic Price effectiveness

Competitors Actions and Reactions

Effectiveness of Current promotional strategy

43

AMUL
Role of Intermediaries in the scale of 1 (Not important)
to 7 (very important)
FACTORS

C & F Agents

Stockists /
Distributors

Retailers

Logistics and Exchange Functions

Breaking Bulk

Assortment

Timely, intact movement and Delivery of


Products

Availability and proper storage of products

Order processing and Fulfilment

Marketing Functions

Market coverage and penetration

Facilitating Buyers in Information search

Supporting Buyers in their Purchase Decision

Product Holding and Risk sharing

Local Credit (if any)

Push Effort to generate sales volume

Trust Building

Information sharing with firms

Product performance

Market knowledge

Consumer Tastes and preferences

Dynamic Price effectiveness

Competitors Actions and Reactions

Effectiveness of Current promotional strategy

44

BRITANNIA
Role of Intermediaries in the scale of 1 (Not important)
to 7 (very important)
FACTORS

C & F Agents

Stockists /
Distributors

Retailers

Logistics and Exchange Functions

Breaking Bulk

Assortment

Timely, intact movement and Delivery of


Products

Availability and proper storage of products

Order processing and Fulfilment

Marketing Functions

Market coverage and penetration

Facilitating Buyers in Information search

Supporting Buyers in their Purchase Decision

Product Holding and Risk sharing

Local Credit (if any)

Push Effort to generate sales volume

Trust Building

Information sharing with firms

Product performance

Market knowledge

Consumer Tastes and preferences

Dynamic Price effectiveness

Competitors Actions and Reactions

Effectiveness of Current promotional strategy

45

COMPANY OF FMCG

ABOUT HINDUSTAN LEVER LIMITED


(HLL)
You simply cannot think of the FMCG industry in India without Hindustan Lever
Limited (HLL). At Rs. 10,000 crore plus, it is a personal products behemoth. It is
difficult to define HLLs competition on an overall scale. The only way to do it is to go
down segment by segment (Nirma in soaps, for example) to find out who can (if at all)
challenge HLL. (www.hll.com)
On any given day, you end up using at least one HLL markets 110 brands with 950
pack sizes across categories as diverse as foods and soaps. The logistics handled vary
from the cold chain for its Walls range of products to the open-air cycles in the rural
hinterland of India for Surf. All possible and feasible modes of transport are used and
vast quantities of products and unlimited information zips across from one end of the
country to the other. (www.indiainfoline.com/fmcg/stma/st35.html)
It is an ethos HLL shares with its parent company, Unilever, which holds 51 per
cent of its equity. A Fortune 500 transnational, Unilever sells over 1,000 foods and home
and personal care brands through 300 subsidiary companies in 88 countries worldwide
with products on sale in a further 70. Individual consumers choose Unilevers foods and
home and personal care brands 150 million times a day across the world. Unilever is the
number one consumer goods company in the world in market competitiveness,
according to a survey of leading international corporations by Prof. Jean-Claude

46

Larreche of the International business school, INSEAD. (http://www.indiainfoline.com/


meet/me516.html)
A few numbers drive home the scale of operations at HLL 7,500 distributors, 100
manufacturing locations, SKUs varying from 5 ml to 1 litre going to 56 distribution
locations. With 36,000 employees and 1,300 managers, it reaches about 1 million
retailers across the subcontinent. HLLs distribution network directly covers the entire
urban population and reaches as far as villages with over 2,000 people. In the rather
smallish Indian market for cosmetics alone, it has 70 brands. This diverse product range
is manufactured in close to 100 factories located across the length and breadth of India.
The operations involve 2,000 suppliers and associates. About 28 factories are situated in
backward areas. Obviously, the company has its financials well under control
HLL is known today for its massive and penetrative distribution set up Many of its
products are no different from those manufactured by others, but what sets HLL apart is
its unique approach. The company web site explains: While the distribution system, is
quite similar for different businesses, each of the businesses have, over the years, finetuned the system to meet their objective of serving their respective customers and
consumers in the most efficient manner. The differences, therefore, lie in the manner
business use an existing distribution network, and the channel players involved therein,
to improve their reach and service to their customers and end users". (www.domainb.com/news_review)

HLL has several lines of business detergents, personal products and foods, the
detergents & soaps division is the largest (contributing 18 and 16 percent

47

respectively to turnover), followed by the personal products (16 percent) and foods
lines with tea contributing 16 percent. In almost all lines, it holds dominant market
shares. Analysis and company estimates suggest that at tight focus on supply chain
and usage of IT has saved HLL up to US$ 125 million (Rs. 6,000 crore) in
inventories right across the various levels of the chain.

PRODUCT OF HLL

Tubal Rings

48

Hinglact - polyglactin 910

Hidox

49

Hincryl

HIVAC B

50

51

GROWTH OF HLL

HLLs is a journey that started with a single contraceptive unit in 1966. It is today a
multi-product, multi-location organisation addressing various public health challenges
facing humanity.
With a vast array of innovative products and social programmes, HLL Lifecare Limited
is day after day taking a step closer to its vision of Innovating for Healthy Generations.
HLL is the only company in the world manufacturing and marketing the widest range of
contraceptives. It is unique in providing a range of Condoms, including Female
Condoms, Intra Uterine Devices, Oral.
HLLs healthcare product range include: Blood Collection Bags, Surgical Sutures, Auto
Disable Syringes, Vaccines, Womens healthcare Pharma products, In - Vitro Diagnostic
Test Kits, Hydrocephalus Shunt, Tissue Expanders, Needle Destroyers, Blood Bank
equipment, Iron and Folic Acid Tablets, Sanitary Napkins, and Oral Rehydration Salts
Over the past fifteen years HLL has steadily set up a strong and sound infrastructure for
direct marketing. HLL has put in place a vast distribution network covering the length
and breadth of the Indian continent.
HLL today reaches out to over half a million-retail outlets, including over 1,00,000
villages, in the remotest corners of India.
HLLs products are today exported to over 70 countries.
52

The company set up the not-for-profit organisation, the Hindustan Latex Family
Planning Promotion Trust (HLFPPT), in 1992 for the purpose of designing and
implementing social sector intervention projects, particularly in the area of reproductive
health, women empowerment and HIV prevention and control activities, with the
objective of creating planned social change. HLFPPT is today one of the top social
marketing organization in India.
HLLs association with world leaders include those with Okamoto of Japan; Finishing
Enterprises, USA; Female Health Company, UK; and Beijing Zizhu Pharma of China.
HLL has seven state- of -the art manufacturing facilities with quality and environmental
management system certifications. Products manufactured at its Plants also have the
CE marking.
HLL is today a leading provider of contraceptives and healthcare products to various
global public health programmes managed by international agencies like UNFPA,
UNOPS, UNHCR, WHO, PSI and IDA.
Nearly 2700 employees and with several world leaders as partners, HLL has over the
past four decades stood to uphold its mission to achieve and sustain a high growth path,
and focus on five key thrust areas to achieve its vision. These are - customers,
employees, business, industry, and social initiatives.
In the future through technical collaborations, marketing alliances and joint ventures,
HLL wishes to keep alive the dream of all humanity of a healthier world.
HLL is fully owned by the Government of India. It is managed by Board of Directors
appointed by the Government. Presently, it has four Directors and it is being expanded to
include independent Directors. The list of Directors in the Board is given below

53

HLL (formerly Hindustan Latex Limited) clocked a record business of Rs.1,376


crore during the 2012-13 fiscal.
HLL Lifecare chairman and managing director M. Ayyappan presented the
cheque to union Minister for Health and Family Welfare Ghulam Nabi Azad at a
function in New Delhi last week.
Explaining that HLL has now transformed into a healthcare delivery company
after starting out as a single-product initiative, Ayyappan said that the company's
growth strategy was driven by innovation.
"The HLL corporate research and development centre, the 60,000 sq ft state-ofthe-art facility that started functioning here Jan 1 is an example of this growth
story aided by innovation. The key focus area of the research centre will be
reproductive health," Ayyappan said.
Elaborating on the firm's expansion plans, the CMD said the construction of the
prestigious Rs.594-crore integrated vaccine complex, implemented by HLL's
subsidiary, HLL Biotech (HBL) at Chengalpett near Chennai, is progressing per
schedule.
"The total annual production capacity of condoms touched at 1,640 million
pieces during the last year," he said.
The Department of Public Enterprises (DPE) has rated the performance of HLL
as "Excellent" for the third consecutive year.
HLL's range of products includes contraceptives, hospital products,
pharmaceuticals, ayurvedic products, vaccines, personal hygiene products and
diagnostic kits.
Its services include infrastructure development, procurement consultancy and
facility management.
HLL was established in 1966 with the objective of providing quality condoms for
the National Family Planning Programme.
HLL, from a single-product company, has transformed into a total contraceptive
company and is now also active in the healthcare delivery sector.

54

At present, HLL has seven state-of-the art manufacturing facilities and 22


regional offices across India

INBOUND LOGISTIC

In the mid 1990s, HLL realised it had too many suppliers for its raw materials. Raw
materials procured ranged from chemicals to foods to glass bottles to
plastics- a logistical maze. Around 40 odd key raw materials and 60 plus
finished goods vendors supplied to HLLs factories. Overall numbers of
suppliers were around 1,000 not to mention overseas unilever vendors for
products like deodorants and after shaves. Earlier, there was a lot of
uncertainty regarding vendors, their abilities and plans leading to a
proliferation of vendors, sometimes up to five supplying the same item.
This meant not just checking the quality of each supplier, but also five
items in the same paperwork. In the 1980s, the inbound side of not just
HLL, but all other companies was dominated by paperwork.
Then came the crunch of the 1990s. Several factors combined to help rationalise the
inbound side. Foremost was the spiralling transaction costs.

55

Taking Stock (HLL)


Inventories
2000

2001

2002

2003

2004

2005

Total inventories

685

904

1,045

1,146

1,310

1,182

Raw Materials

298

366

456

535

565

515

Finished Goods

322

470

521

549

674

590

Source: CMIE Prowess database

Table # 18

Company figures clearly show an improvement in raw materials inventory with days
of raw materials falling continuously from 84 days in 1990 to just 29 days of stock in
2005 (see table Remarkable Result). Thats a reduction of over 66 per cent over the past
10 years. This reduction has been made possible largely due to better forecasting data
which is now being transmitted throughout the HLL supply chain quickly-and the
increasing visibility of business data. HLL has launched a number of e-commerce
initiatives that will bring e-business to the heart of the companys operations. HLLs
vision is Connect, Attract and Fulfil on a massive scale. In the supply chain for
example, the vision is to link in with some 3,000 stockists, 30,000 retailers and 100
suppliers spread over some 1,000 locations. The size of the ambition is based on HLLs
unique ability to leverage on scale and technology and the development in the telecom
infrastructure. HLLs Internet vision encompasses three opportunity segmentsbusiness connectivity, consumer connectivity and consumer commerce.

The Net- based e- tailing will work on a combination of HLLs own V-SAT network,
that of others, mobile telephony and the public network. HLL is creating an extranet

56

covering its key stockists and retailers to optimise the supply chain right up to the front
end. Similarly, an extranet is also being created covering the suppliers, factories and the
purchasers with the aim of achieving real time, vendor- managed inventory.

Today, the inbound side of HLL is a very different from what it was even five
years ago. There are upwards of 240 supply chain locations- be it own plants around the
country, or third party manufacturers, or stock points or transit/transportation points.
Almost all are linked by one form of IT or another - from the simple telephone call to
V-SATs. The plants and TPUs are, in fact, linked by V-SATs and HLLs ERP system
(MFG-PRO). MFG-PRO today works on more than 220 locations all over the country,
including the head office, branch offices, factories, depots and key redistribution
stockists. Also, HLL plans to move towards vendor- managed inventory (VMI). VMI
has

already

been

used

in

the

auto

sector

in

India.

(www.indiainfoline.com/fmcg/stma/st35.html)

Information exchange is critical for HLL. Sales information systems will be linked,
eventually, to the retail level. They are already linked at the stockist level. The moment
HLL sells 5,000 pieces of Lifebuoy in any one region, a signal traces right back via the
stockist to the region depot and the branch office straight through into the production and
replenishment plans, and thence onto the factory. It is this backward trace ability, which
gives HLL a sharp edge over competition in the one area that is crucial for any FMCG
manufacturer stock at the point of sale.

57

OUTBOUND LOGISTICS

HLL works on the hub and spoke system. The hubs are the mother depots and
regional depots, while the spokes radiate from these to the stockists, depots and retailers.
But HLLs large number of SKUs and brands demand a more sophisticated version of
the hub and spoke system. Fittingly, HLL uses not a one-tier hub and spoke, but a threetier set up

Like any other company, HLL has slow moving and fast moving brands. It has
premium and mass-market products and any other segment that you may think of is
catered to. Inevitably, you have the Pareto Principle working 80 per cent of business
from 20 per cent of brands. In HLLs case , brands like Lifebuoy, Lux, Hamam,
Vim, Rin and Surf are the fast moving ones, while brands like Denim, Rexona,
Breeze and a host of others are slow moving by relation.

HLL has a three-tier system of stocking and order replenishment. On the first tier it
has the all India buffer depot, the second level has the regional depots and the last level
h has the JIT (just-in-time) depots. From the last level, they supply the products to the
brand that needs to travel more than two days goes to this depot. These are sent from the
manufacturing sites to the all India buffer depot where these products are accumulated
up to a full truckload for that sales region. Once the truckload is made up, the goods are
sent to the regional buffer depot in the states, where break bulk occurs- the load is split
into the supply as per area demand. The smaller lots are now sent onto the JIT godowns
in the cities or towns and then onto the retailers via the stockists.

58

The real challenge for HLL begins now when the FMCG industry is in a downturn.
Most analysts predict that HLL is well poised to fight it out. HLL itself has started
focusing on supply chain as a means to maintaining its leadership profile. How it
manages the chain will be the only factor that will ensure its sustained leadership.

59

HLLS DISTRIBUTION NETWORK

Raw Materials
suppliers

Packaging materials
supplier
Manufacturing units
in-house, third party

All-India
buffer depot

Head office
Rolling sales
forecasts & mktg
plans
Regional
Offices

Regional
buffer depot

JIT godowns

Stockists

Wholesalers

Retailers

Consumers

60

ABOUT GCMMF (AMUL)


The Gujarat Co-operative Milk Marketing Federation (GCMMF) is the largest
food marketing company in India today with sales turnover of Rs. 2,500 crore. While
there are a host of other players in the foods market, GCMMF reigns in the milk and
milk products and perishables segments.

GCMMF has come a long way. It is the largest organised collector and distributor
of milk and its value added products are marker leaders under the brand names of Maul
(cheese, butter, milk, powder) and Dhara, Lok Dhara (oils). Amuls brands of paneer, ice
cream and sweets like Gulab Jamun and Shrikhand are fast catching up with the market
leaders in various segments. Among with a sustained brand-building exercise over the
past two decades. GCMMF is today in a position to leverage all its assets for exports.
Some thing not even considered some years ago.(www.amul.com)

GCMMF owes its market dominance to several factors. Crucial amongst these is
its milk procurement system, which gives it
massive

access to a vast reservoir of milk at

economies of scale. The logistic of milk are considerably more difficult than

for most other foods products.

61

Products of Maul

62

63

64

GROWTH OF AMUL
Amul India's growth in revenues has dropped from over 20 per cent a year till
about 2011, to 8 per cent in the quarter ended September 2013, which is its last
declared results. A Amul India spokesman declined to comment on an email
query by ET, stating that since the company was in the 'closed period', it would
be unable to comment.
To revive its fortunes in India, industry experts said Nestle could do well to bring
in fresh perspective from outside. "One of the best ways forward for Amul could
be to become more outwards focused...in terms of people and business
partners," Pinakiranjan Mishra, partner and national leader (retail & consumer
products) at Ernst & Young, said. Currently it works mostly with its own set of
people and consultants, experts said.
Industry peers say the lack of an Indian CEO could be another reason for Amul
comparatively slow growth in the country. After Daraius E Ardeshir quit the
company over 'hushed speculation of financial irregularities' in 1998, the Swiss
MNC has never had an Indian head.
"Understanding local consumers and insights, and being in direct contact with
market realities are critical," CEO of a top global foods firm said, requesting
anonymity. "More so in a high-potential emerging middle-class market like India,
with intense competition playing out across categories," the person added.
Most consumer goods multinationals in India including Hindustan Unilever,
Coca-Cola, Procter & Gamble,GlaxoSmithKline Consumer

65

Healthcare and PepsiCo have almost always banked on Indians to head their
businesses.Amul is an exception, with a string of expatriates heading it for 16
years now.
Under Carlo M Donati, who was incharge from 1998 to 2004, Maggi noodles
became a top power brand and the firm kicked off an innovation pipeline of
products such as Munch. Martial Rolland led Amul from 2004-09, followed by
Antonio Helio Waszyk till October 2013 when MD Etienne Benet took over.
Experts consider lack of innovation as Amul biggest problem in India where
consumers have increasing disposable incomes and modern trade is growing
rapidly.
At a time when most firms are innovating products, analysts and rivals say
Nestle doesn't have enough products for the middle class. The firm is also facing
increasing competition across its key product segments of noodles, chocolate
and dairy.
ITC's Sunfeast Yippee and HUL's Knorr soupy noodles and to a small extent
GSK's Foodles have taken away share from its flagship Maggi, although the
Nestle brand still dominates with 80 per cent market share. Newer entrants such
as Danone in dairy, Cremica in ketchup and several regional players have been
making it tough for Nestle to grow its volume share. All this shows that Nestle
needs a new recipe for India and, perhaps, an Indian at the top to prepare that.

66

INBOUND LOGISTICS

Inbound logistics in milk are governed by time. Within 2.5 hours, they collect,
check, transport and process up to 1 million litres of milk every day 365 days a year,
non stop. Maul is committed to accepting every drop of milk it is offered, whether
they have use for it or not.

GCMMF and the National Dairy Development Board, under the able guidance of
Dr. Verghese Kurien and Tribhuvnadas Patel, formed what is today called the Anand
Pattern of Co-operatives. In the Anand pattern of co-operatives, the farmer in most
cases the small marginal, non-landed farmer with 2.3 cows in his herd sells directly to
the cooperative society and then by extension to the dairy. The traditional middlemen
the brokers, the consolidator, the trucker who are so potent in other agriculture
markets, are conspicuously absent here. The direct implication of this structure is on
costs of procurement, fair returns to the producer and quality of the milk.

So how does GCMMF procure milk? The farmers tip over their milk into a standard
container that the village society has. The computer linked to the scale electronically
notes the weight of milk and container. The same computer automatically deletes the
weight of the container from the total to give the weight of the milk.

At the same time, another man at the counter (again an employee of the society)
takes a small sample of the milk into a machine called the lactometer. This machine

67

determines the fat content of the milk and automatically transmits the result to the
computer. The price to be paid to the farmer is pre-determined based on the fat content.
The computer then generates a pay slip for the farmer who is paid either in the evening
or the next morning, as the case may be. There is no credit period and the disbursements
are completed within one day of selling the milk to the society. Rationalisation of
vendors is not necessary.

At the farmer level, the aggregation is low from 1 litre to 10 litres/. But at the
society level, the total volume of milk may touch more than 5,000 litres a day. GCMMF
found a way out by developing village chilling centres or VCCs.

The milk that is bought from the farmers is filled into these VCCs, which maintain a
temperature of 4 degrees Celsius. In the absence of these VCCs, the milk would either
get contaminated or spoilt. Moreover, in order to reduce this wastage, the collected milk
would have to be transported urgently to the nearest district chilling centre or, it possible,
to the dairy directly. In a country like India with massive infrastructure bottlenecks, this
short window span of 2 hours ore often than not meant that overall milk quality was low
and cost of procurement was much above what it should have been. Lots of things could
go wrong the truck would not come, the milk could spill, too much heat or bad roads.
These were the issues at the village level.

The development of the VCCs down to the village level could cause several crucial
changes in Amuls supply chain. Also, the milk could be held at the village longer, thus
smoothening out the morning high capacity utilisation and spreading the receipt and
processing of milk evenly over the day. In effect, the window span of two hours to
68

handle 1 million litres of milk was expanded to 4-8 hours. Today, Maul chaims to have
upwards of 10,000 VCCs across the state, with average capacity of around 2,000 litres
each. At the same time, it must be noted that just about 2-3 per cent of all GCMMF
societies have these VCCs. While its success on a small scale is clear, on a state-wide
scale, they have a long way to go.
Having collected the milk at the VCC and ensured its quality level, the milk now has
to be transported to the chilling centre or the dairy. Each dairy has 4-5 chilling centres.
Earlier, the vehicles used were either matadors or jeeps or 9-tonne trucks. Today, the 9tonne truck and the insulated truck are the norm. The insulated stainless steel trucktanker, with capacities up to 10,000 litres, goes from society to society and collects the
milk. The trucks reach the dairy by 9 am and the milk run is completed. The next run is
in the evening around 7 pm. (http://www.indiainfoline.com/meet/me516.html)

At the dairy, the milk is either processed into butter, cheese or powder, or is
pasteurised. GCMMFs priority is for liquid milk, which has a shelf life of a hours at the
dairy, while the powder has a life of anything up to 18 months.
Take a peek into the scale of Maul Dairy 120 trucks arrive daily at the gates with
milk from the societies. Around 1.5 to 2 lakh litres come from other dairies, either due to
excess at their ends, or for further processing at Anand into powder. Each truck can carry
up to 10,000 litres in its tank, chilled and ready for processing. On an average, the milk
travels 150 to 160 km. every day the whole year around, all of these arriving in a span
of 4 hours up to 9 am

69

OUTBOUND LOGISTICS
As Critical As The Inbound Side Is For Maul, the outbound is just as complex with
108 SKUs all at various levels of perishability. Maul butter, cheese, shrikhand, curd,
ice cream and mithaee all are perishable and time-bound products. This means they have
to be sold within a very tight window from the date of production. GCMMFs reach
extends nation-wide, so accounting for packing time, transfer times and delivery to retail
outlets time, the net time available for sale can be as low as four days for curd and is less
than one day for milk. this, in turn, means that inventory management is of prime
importance in GCMMF. Unlike other products, the inventory of milk is practically one
day. So GCMMF follows

a strategy where plans of procurement and production are

made for 12 months rolling forecaste and inventories of butter and others are built up
during flush season for the following summer.
Too much milk is also a problem, says Vyas. I have to have an outlet for all the
milk that I collect and process. This means that a vast sales and distribution network is
almost imperative. GCMMF certainly has spread its wings. Today, it directly reaches
half a million retailers and aims to expand its reach to a million by 2005 (see table
Wide Reach). Its products need a rather different set-up than a typical

FMCG

company, due to the requirement of the cold chain. Says Sodhi, we reach 4,000
distributors across India, serviced from our 48 offices nation-wide. These distributors
invest in facilities like freezers, cold rooms and insulated vans. Sodhi claims GCMMF
has had no problems in all these years with this set-up.

70

Fig # 23
-

Farmer
1.5 hours
6 7.30 am

Society

Milk weighing
Fat content check
Payment slip

Milk into VCC

23
hours
by 9 am

Society collection
Sent by truck to
DCC or dairy

71

GCMMF today uses 35-40 transporters to ferry its products nation-wide to 2,500
distributors of butter and 1.5 lakh outlets for refrigerated products. Along with the butter,
cheese and other products can also be sent, but temperature requirements are different.
For example, ice cream needs freezing t temperatures (below zero), while chocolate can
be maintained at 4 degrees Celsius. This requirement drove another change in
transportation the refrigerated truck.

Today, 125 refrigerated trucks ply on the routes. These cost up to Rs. 3 lakh to
configure and have higher running costs but the net result is very desirable. Ultra Heat
Treated (UHT) milk is sent daily by refrigerated trucks to Vashi where it is processed
further for sale in Mumbai. These trucks have enabled GCMMF to leverage both its
products as well as its distribution. Highly perishable goods like ice cream and curds are
sent to Mumbai GCMMFs largest market for these products and stored at chilled
temperatures at Goregaon, the Fruits and Vegetables godown.

GCMMFs butter, frozen foods (Peas) and ice cream need frozen temperatures
(below zero degrees Celsius) while products like milk and powder need chilled
temperatures (4 degrees Celsius) and chocolate has to maintained at different settings.
Each is stored separately with separate, insulated stres and sophisticated temperature
controls. From this warehouse, h the stockists withdraw the butter, curds and other
products as and when needed. This single warehouse gives GCMMF a winning edge
over competitors.

72

GCMMF also encourages containerised cargo. It pays up to 6-7 per cenmt more
than usual open truck rates. Today, up to 40 per cent of GCMMFs cargo goes by such
trucks.

GCMMF estimates that vehicle costs have gone up to Rs. 6 lakh from Rs. 3-4 l akh some
years ago and fuel rates have also increased substantially to nearly Rs. 20 per litre from
Rs. 12 five years ago. Petrol is today Rs. 28 per litre in the metros. But relative to these
increase, freight rates havent gone up in the same ratio put together, this adds up to
considerable sayings for a leading company

like GCMMF. (www.domain-

b.com/news_review)

GCMMF Inventory Norms


Level

Inventory Days

Dairies

90* to 5.7**

Distributors

Retailers

3-4

* Summer ** Winter

GCMMF Network
2000

2005

Distributors

4000

7,000 (including Cold Chain)

Offices

48

100

Retailers Served

500,000

10,00,000

73

On the marketing side, GCMMF already has a formidable distribution network.


Not only does this give GCMMF vital access into the vast rural market. It also gives it
the advantage of introducing new products into the same system at little extra costs.
Unlike other companies, GCMMF use a legacy system for ERP designed by Tata
Consultancy Systems (TCS) in the early

1990s. This system is still used to track

business data. The orders booked by the branches are compiled and stocks and sales are
monitored daily. The data is received from the depots and branches by email/fax/phone
and these are collated everyday. Then dispatch department breaks down the demand into
product groups and decides which dairy (member union) should supply the goods. The
dispatch department coordinates the flow of information to truckers to pick up their
goods at the respective dairies and deliver. The goods are taken to the C&FAs who
manage the depots in the zones. Today this set-up is considered the most robust and
penetrative in India. The Internet is a key ingredient in GCMMFs marketing strategy.
GCMMF was, in fact, one of the firsts to launch shopping (amul.com shoppe) on its
web site. GCMMF accepts the order placed through the shoppe, relays it to the nearest
dealer of Maul in that area who then delivers and collects payment. Hence, the system
uses the existing network, but has created a new channel for sales.

74

GCMMF order Replenishment System


Order booking (Mumbai)

Branches
(Mumbai)

Depots
(Mumbai)

Head Office
(Anand)

Demand breakdown into


products/destination at Anand

Demand allocation to various


member unions (decided at
Anand)

Dispatch from member unions to


depot (coordinated from Anand)

Order received at depot; stocks


updated; into sent to Anand

Stocks breakdown into


stockistwise demand

Dispatch to stockist

Retailers

75

ABOUT NESTLE.
Nestl is the world's leading Nutrition, Health and Wellness company. Our mission of
"Good Food, Good Life" is to provide consumers with the best tasting, most nutritious
choices in a wide range of food and beverage categories and eating occasions, from
morning to night.

The Company was founded in 1866 by Henri Nestl in Vesey, Switzerland, where our
headquarters are still located today. We employ around 2,80,000 people and have
factories or operations in almost every country in the world. Nestl sales for 2009 were
CHF 108 bn.

The Nestl Corporate Business Principles are at the basis of our Companys culture,
developed over 140 years, which reflects the ideas of fairness, honesty and long-term
thinking.

76

Products of Nestle

77

78

79

GROWTH OF NESTLE

Nestle India's growth in revenues has dropped from over 20 per cent a year till
about 2011, to 8 per cent in the quarter ended September 2013, which is its last
declared results. A Nestle India spokesman declined to comment on an email
query by ET, stating that since the company was in the 'closed period', it would
be unable to comment.
To revive its fortunes in India, industry experts said Nestle could do well to bring
in fresh perspective from outside. "One of the best ways forward for Nestle could
be to become more outwards focused...in terms of people and business
partners," Pinakiranjan Mishra, partner and national leader (retail & consumer
products) at Ernst & Young, said. Currently it works mostly with its own set of
people and consultants, experts said.
Industry peers say the lack of an Indian CEO could be another reason for
Nestle's comparatively slow growth in the country. After Daraius E Ardeshir quit
the company over 'hushed speculation of financial irregularities' in 1998, the
Swiss MNC has never had an Indian head.
"Understanding local consumers and insights, and being in direct contact with
market realities are critical," CEO of a top global foods firm said, requesting
anonymity. "More so in a high-potential emerging middle-class market like India,
with intense competition playing out across categories," the person added.

80

Most consumer goods multinationals in India including Hindustan Unilever,


Coca-Cola, Procter & Gamble,GlaxoSmithKline Consumer
Healthcare and PepsiCo have almost always banked on Indians to head their
businesses. Nestle is an exception, with a string of expatriates heading it for 16
years now.
Under Carlo M Donati, who was incharge from 1998 to 2004, Maggi noodles
became a top power brand and the firm kicked off an innovation pipeline of
products such as Munch. Martial Rolland led Nestle from 2004-09, followed by
Antonio Helio Waszyk till October 2013 when MD Etienne Benet took over.
Experts consider lack of innovation as Nestle's biggest problem in India where
consumers have increasing disposable incomes and modern trade is growing
rapidly.
At a time when most firms are innovating products, analysts and rivals say
Nestle doesn't have enough products for the middle class. The firm is also facing
increasing competition across its key product segments of noodles, chocolate
and dairy.
ITC's Sunfeast Yippee and HUL's Knorr soupy noodles and to a small extent
GSK's Foodles have taken away share from its flagship Maggi, although the
Nestle brand still dominates with 80 per cent market share. Newer entrants such
as Danone in dairy, Cremica in ketchup and several regional players have been
making it tough for Nestle to grow its volume share. All this shows that Nestle
needs a new recipe for India and, perhaps, an Indian at the top to prepare that.

81

INBOUND LOGISTICS

Nestle Indias inbound supply chain is similar to most companies in the business,
using tankers, collections and so forth to bring the milk into the plants. As early as 1999,
Carlo Donatti, Nestle Indias CEO, had talked about Nestls foray into tetra packed milk
which needed a basic shift in supply chain. In an interview to a business magazine,
Donatti acknowledges that, if Nestle launches milk in tetra packs, its milk production
facilities will have to be close to its customers. You must have satellite factories and
manufacturing facilities close to the market, he says. Nestle has a giant operation going
at Moga in Punjab set up in 1962, the plant processes 800,000 litres of milk thats
collected from 71,000 farmers, every day. But to be close to customers, the equivalent of
the Moga plant may have to be set up around the country, with perhaps smaller plants at
the district level. So Nestle may have to eventually invest huge sums in setting up plants,
though it won't have to invest in freezers for shops because milk in tetra packs have a
shelf life of up to six months.

The coffee supply chain is of course more volatile dictated by global pricing, which
in turn affects inventory planning. Nestle has no major issue with either milk or coffee
inbound logistics.

Trace ability in the entire chain was crucial. Nestle India demarcated trace ability of
goods into two types - reactionary (trace and point the goods after an event), and
preventive (ensuring the goods are a high quality right from the start). In this regard,
Nestls views are very similar to those echoed elsewhere in India. Both these, needs
information back up. Firstly, regarding the type, speed, format and ease of data
82

collection; and secondly on the IT system back up". In all these, its the people that will
make the difference. Today, Nestle uses MRP and ERP for internal planning and
processes, but our folloups with vendors and others still remain on phone, fax and email.
Some vendors share data, others don't.

83

OUTBOUND LOGISTICS

The longer the supply chain, the weaker the demand signal becomes. In India, on
retail side as well as the vendors side, Nestle has too many intermediaries. That adds to
time and costs, also badly impacting quality. In India, no feedback comes from retailers.
The only source is Nestle's own staff, and the data is limited by sheer size and
complexity of the Indian market. It is in these conditions that initiatives like ERP, SCM
software and ECR will greatly help.

In Nestle India, the demand plan using statistical tools the demand plan using
statistical tools and sales data is first prepared, then broken down into stocks data where and when to hold, which in turn gets broken down into a manufacturing plan. This
plan is then further broken down into materials plan handed over to the different
vendors. For materials like cocoa and coffee, where imports play a role, stock norms
could be one-month stock, or price based. If prices go down, stock up; if up, maintain
the safety stock only. Milk is brought in daily, as detailed above. The finished goods
move by truck, containerized trucks and concor (by rail) to far off areas. Nestle has no
issue with outbound transport, using very much the same structure as most corporate in
India. It spent Rs. 87 crore in 1995. Spend on freight has remained well in control at
around 5.4 percent of net sales, in spite of increasing sales over the past five years.

Product strategy also plays a role in Nest's supply chain. Nestle plans to market milk
in tetra packs, which gives milk a longer shelf life and in fact helps by increasing the
sales window. Because milk can be sold over a longer period of time, it can also be
distributed further. Nestle India has a world of experience to draw upon in strategy,
84

implementation and usage of the Net and e-commerce for its supply chains here. At
Nestle's the consumer demand chain involves the entire business including people and
processes as well as managing the links between them. The importance Nestle places on
staff. The human element is crucial.

The keywords for linking people with the technological infrastructure are connect,
collaborate, consolidate and compress. The last named involves cutting least times. And
in logistics, that refers to eliminating errors in orders. In a recent survey, Nestle
discovered the root causes for such problems were: 45%, partner's process, 36% nonaligned systems and 19%, incomplete data and poor communications. The solution lies
in setting up coherent information architecture. These include personalizing the methods,
searching and classifying data, managing content and validating information and data
sources.

85

IT has been used as a tool in Nestle, but Nestle's is not award by E-Commerce's
potential. It simply considers emerging business-to-consumer (B2C) marketplaces as
newer channels that argument existing ones. At the same time Nestls would retain its
legacy EDI infrastructure to capture the full value of its investment.

86

ABOUT BRITANNIA
Britannia is the market leader in the organized biscuit and bakery product market in
India. Biscuits contribute to more than 80% of Britannia's total turnover. Other products
include bread and cakes. Britannia diversified into dairy products in 1997 with processed
cheese and dairy whitener. The portfolio was expanded with the launch of butter, pure,
flavoured milk in tetra packs and UHT milk.

The biscuit market in India is estimated to be 1.1mn tap, valued at Rs35bn. The
unorganized sector accounts for over 50% of the market. The market has been growing
at a CAGR of 6-7% pa. Per capita consumption of biscuits is estimated at a low 1.5kgs,
reflecting the huge potential for growth. Manufacturing was reserved for small scale up
to 1997, which put large players at a disadvantage. In the organized sector, Britannia and
Parley are the only national players with dominant market shares. Other organized
players include domestic players like Brakemans, Champion, Quality, Praia and MNCs
like SmithKline Consumer, Kelloggs, Sara Lee, Heinz, Excelsior (Nestle) and United
Biscuits.

Operating margins have been improving despite the fast pace of new product
launches in the last 2-3 years. Rationalization of manufacturing operations, and greater
contribution of higher margin dairy products has both contributed to the margin gains.
Britannia has decided to hive off its dairy business into a joint venture with the New
Zealand based Fonterra Cooperative. Britannia and Fonterra will each hold 49% of the
Rs2.25bn equity, while the balance business associates will hold 2%.

87

Again in this case where milk is the main raw material, the inbound logistics is
governed by time. But inbound logistics in case Britannia is not as efficient as in the case
of Maul, though it works more or less on the same principle as that of Maul.

As it also uses VCCs but it does not matches the scale and reach of Maul. Further
the distribution is not very IT integrated, which as per their VP materials management
V.K.Rao is going to be implemented very soon. Thus Britannia uses the local Channel
means i.e. near and easily accessible to the plant location in the respective city and this is
actually done with great care and efficiency.

88

Products of Brittan

89

90

91

GROWTH OF BRITANNIA

The company said the organisational changes will enhance "Britannia's position
to become an all-embracing foods company from a bakery/dairy company".
"We are preparing Britannia for high growth in India operations by catering to the
changing food habits of the evolving Indian consumer and pursuing opportunities
for growth in the overall food domain, here and abroad," said Chairman Nusli
Wadia in a statement.
Britannia's shares rose 16.5% to a lifetime high of Rs 665.80 on Monday after
the company announced robust fourth-quarter results late last week.
During Bali's tenure, first as CEO and then as MD, the company's revenues
have quadrupled from Rs 1,510 crore in 2005 to Rs 6,185 crore in 2013. But net
profit in these eight years has increased from Rs 149 crore to Rs 259 crore, a
much slower rate of growth.
This is because the company has had to navigate high costs and ward off
competition not just from older rivals such as Parle and ITC in its core biscuits
business, but also from relatively new entrants like Cadbury Kraft's Oreo and
United Biscuits' McVities.

92

While biscuits still make up over three-fourths of its total sales, the company has
made an aggressive push into other categories such as milk, cheese and readyto-eat food to earn higher margins. In these segments, too, it is facing stiff
competition from MTR, PepsiCo and its erstwhile partner Danone, among
others.
The international business currently accounts for less than 10% of Britannia's
revenues, with the Middle East being its main overseas market. It operates in
the region through Dubai-based Strategic Food International and Oman-based
Al Sallan Food Industries.
A Mauritius-based wholly owned subsidiary of Britannia is the holding company
of Britannia and Associates (Dubai) Ltd, which in turn holds investments in the
Middle Eastern subsidiaries.
Analysts expect Britannia to grow its international operations inorganically. "Its
international business is very small right now, and there could be some
acquisitions to make it large," said Nitin Mathur, consumer research analyst at
Espirito Santo Securities.

93

PLANT LOCATIONS

Britannia's plants are located in the 4 major metro cities - Kolkata, Mumbai, Delhi
and Chennai. A large part of products are also outsourced from third party producers.
Dairy products are out sourced from three producers - Dynamic Dairy based in Barmaid,
Maharashtra, Modern Dairy at Carnal in Haryana) and Thacker Dairy Products at
Howrah in West Bengal.

94

FUTURE STRATEGIES
The firm must recognize that it cannot make this journey alone. Companies that
want to be industry leaders realize they must reinvent the total network in which they are
merely one player. To achieve such leadership, a firm must cooperative in creating the
value chain constellation that will dominate an industry. This network consists of a
linked set of agile companies that not only react to market challenges but in fact
dynamically anticipate and exploit new opportunities that can sustain profitable revenue
growth and exceptional shareholder value well into the next decade.

Considering the importance of targeting markets and consumers, a company must


also choose its value chain partners very carefully because they are the key to future
profits and competitive advantage. In short, alliances must be built with organizations
that are qualified to assist in the process..

With the road map laid out and the destination defined, value chain partners can
pursue a jointly determined set of process improvement initiatives based on what works
for other networks or on new and innovative designs created by the members of the
value chain constellation.

95

The Value Optimising a Value chain Constellation

Suppose that these revenues are 10 to 20 percent above the business plan. Imagine
that profits can be increased by 30 to 50 percent, cycle times reduced by 20 to 50
percent, and inventory as a percentage of revenue cut in half. Add to the dream in fact
that shareholder value rises because of a doubling in earnings per share, and customer
satisfaction reaches new highs.

These results can be achieve by leveraging the network effort and the enabling
technologies to turbocharger a particular supply chain. Leading manufacturing and
service organizations in the automotive, aerospace, chemical,

consumer goods,

electronics, and pharmaceutical industries have already increased profits and shareholder
value through the supply chain strategies and solutions outlined in this book. They are
now seeking even higher levels of success.

United efforts may be used to move an entire industry forward. Efficient health-care
response (EHCR), efficient food service consumer response (EFCR), and several
industries focus on collaborative planning, focus on collaborative planning, forecasting,
and replenishment (CPFAR) are excellent examples of such a combined effort.

Whether industry sponsored or promoted by a nucleus firm, the value chain


constellation emerges as an alliance among organizations with a similar vision. The
constellation focuses on meeting the classic supply

96

chain objective; offering the right

combination of data, products, and services to customers and consumers at the right time
and place and at the right price. Available-to-promise is an important feature of this
alliance, backed with the lowest total delivered cost. To achieve this reality, the partners
in the alliance must embrace a number of key elements:

A focus on the Internet as a vital medium of communication

Rapid, interactive, and successful product design and introduction.

Global available-to-promise capability with completely visible inventory.

Ability to assemble, builds, or configures diverse components into a finished


order.

Features of mass customisation in the finished offering.

A glass pipeline for viewing availability and flow of goods and services.

Analytical and financial feedback loops that accurately measure progress.

Flexible planning and execution to meet customer needs.

Zero working capital.

Continuous learning and improvement.

97

OBJECTIVES: The objectives of the study can be divided in to: -

1. To analyse the present scenario of FMCG industry in terms of emerging


opportunities & challenges.
2. To measure the status of distribution in overall marketing mix of FMCG industry.
3. To identify the emerging paradigm of distribution in the era of globalisation &
IT.

98

RESEARCH METHODOLOGY
METHODOLOGY: -

The study conducted to achieve the before said objectives was both exploratory and
descriptive in nature and involved personal interviews based on the questionnaire
format.

DATA COLLECTION METHOD: -

Primary source
Secondary source

Primary sources: The data required for the study would be based on:

Personal interviews based on pre-decided format of structured


undisguised questionnaire, which would be administered to the
respondents.
Personal interview with the Company representatives regarding the
various data.
Short interviews with the customers.

99

Secondary Sources: The secondary data consists of information collected from:


Websites
Annual Report of the Companies
CMIE Report
Business magazines
Trade guides
Published data on FMCG industry

QUESTIONNAIRE/TECHNIQUE USED: -

100

The questionnaire would consist of: -

Open ended questions: - To bring out the ideas and pertinent thinking
of the respondents.
Multiple-choice questions: - These questions made answering
procedure more convenient for respondents.

Tools: Sample constitutes of companies like HLL, AMUL, NESTLE,


BRITANNIA.
Use of percentages and bar graphs for analysis

LIMITATIONS

101

Throughout the study utmost care has been taken to avoid biases, errors so as to
ensure authenticity and accuracy. But there is possibility for some discrepancies to come
in between due to following limitations:

Respondents may give their biased opinion, as they know the identity of
interviewer.
Some questions are quantitative and respondents are answering without
understanding it fully.

102

DATA INTERPRETATION
Q1.

8
7
6
5
4
3
2
1
Sales admn. & Mgt.

Demand forecasting
& Management

Physical
distribution/Logistics
Management

Distribution channel
Management

Sales Promotion Mgt

Advertising Mgmt.

0
Brand Mgmt.

ratings; 1 be ing le ast important

Importance of various functional areas

Functional are as
HLL

AMUL

NEST LE

BRIT ANNIA

Here we see that almost by all the companies the functional areas of Physical
distribution, Brand management and Distribution management were rated as the most
Important. Thus we learn how important is distribution these days as it even drives the
branding factor.

103

Q2.
re asons for e ffe cie nt distribution manage me nt
8
7
6

ratings

5
4
3
2
1
0
Sustainable Bus.
Growt h & long
term
performance

Greater market
dominance

HLL

Competitive
advantage

AMUL

T otal cost
containment

NEST LE

Dev. &
maintenance of
harmonious
channel
relationships

Improvement of
economic &
social welfare

BRIT ANNIA

In this graph we see that why companies want efficient distribution management.
Thus accordingly respective companies gave ratings. The reason, which was rated as
most important by almost all the companies, was Sustainable Business growth & longterm development and subsequently others.

Q12. Role of intermediaries in the era of globalisation and IT.

104

HLL
1.) LOGISTICS & EXCHANGE FUNCTION
role of interme diaries in Logistics & Exchange functions
in case of HLL

Ratings 1 be ing le ast important

8
7
6
5
4
3
2
1
0
Breaking Bulk

Assort ment

T imely, intact
movement and
Delivery of Products

Availability and
proper storage of
products

Order processing and


Fulfilment

Functions
C&F agents

St ockists/Distributors

Retailers

Here the role of various channel members like C&F agents, Stockist and Retailers
under the broader function of Logistics & Exchange were rated on a scale of 7, where 7
is the most important. Rest is quite evident from the graph that which sub-function was
rated the most and which one the least important.

105

2.) MARKETING FUNCTION

Ratings 1 being least important

Role of intermediaries in Marketing functions in case of HLL


8
7
6
5
4
3
2
1
0
Market
coverage and
penetration

Facilitating
Supporting
Product
Buyers in
Buyers in their Holding and
Information
Purchase
Risk - sharing
search
Decision

Local Credit
(if any)

Push Effort to T rust Building


generate sales
volume

Marketing functions
C&F agents

Stockists/Distributors

Retailers

Here again the role of various intermediaries is rated under the broader function of
marketing and rest the graph is quite self-explanatory.

3.) INFORMATION SHARING WITH THE FIRMS

106

ratings 1 being least important

Role of intermediaries in Information Sharing with firms in case of HLL


8
7
6
5
4
3
2
1
0

Product
performance

Market
knowledge

Consumer
Tastes and
preferences

Dynamic Price
effectiveness

Competitors
Actions and
Reactions

Effectiveness
of Current
promotional
strategy

cate gories
C&F agents

Stockists/Distributors

Retailers

Here again we see that role of channel members varies with category of function as in
product performance C&F agents plays no role at all. Similarly in Dynamic price
effectiveness C&FA and stockists have no role to play.

107

NESTLE
1. LOGISTICS AND EXCHANGE FUNCTION
Role of intermediaries in the logistics and Exchange Functions in Case of NESTLE

7
6

4
3
2

Order processing
and Fulfilment

Timely, intact
movement and
Delivery of
Products

Assortment

Availability and
proper storage of
products

Breaking Bulk

Rating 1 being least important

Function
C&F Agent

Stockist/Distributors

Retailers

Here we see there are no C&F agents as company has already done away with them.
Therefore, in case of timely Intact movement and delivery of products and in order
processing and fulfilment stockists/distributors and retailers play a pivotal role.

108

2. MARKETING FUNCTION
Role of intermediaries in marketing function in case of NESTLE

7
6

4
3
2
1

Trust Building

Push Effort to
generate sales
volum e

Local Credit (if any)

Product Holding and


Risk sharing

Supporting Buyers in
their Purchase
Decision

Facilitating Buyers in
Inform ation search

0
Market coverage and
penetration

Rating 1 being least important

Function
C&F Agent

Stockist/Distributors

Retailers

Again here in market coverage and penetration, facilitating buyers in information search
and supporting buyers in purchase decision. Stockists/distributors and retailers play a
fairly important role.

109

3.INFORMATION SHARING WITH FIRMS


Role of intermediaries in Information sharing with firms in case of NESTLE

7
6
5

3
2
1

Effectiveness of
Current promotional
strategy

Competitors Actions
and Reactions

Dynamic Price
effectiveness

Market knowledge

Consumer Tastes
and preferences

0
Product performance

Rating 1 being least important

Function

C&F Agent

Stockist/Distributors

Retailers

Again in product performance and market knowledge both stockists/distributors and


retailers play a most important role.

110

GCMMF (AMUL)
1.) LOGISTICS AND EXCHANGE FUNCTION

Ratings 1 being least important

Role of intermediaries in Logistics & Exchange function in case of AMUL


8
7
6
5
4
3
2
1
0
Breaking Bulk

Assortment

T imely, intact
movement and
Delivery of Products

Availability and
proper storage of
products

Order processing and


Fulfilment

Functions

C&F agents

Stockists/Distributors

Retailers

Here this graph tells us very clearly that where time is a pertinent factor. C&FA play a
most important role than distributors and retailers. This is so because products are highly
perishable in nature.

111

2.) MARKETING FUNCTION

Ratings 1 being least important

Role of intermediaries in Marketing function in case of AMUL


8
7
6
5
4
3
2
1
0
Market
Facilitating Supporting
coverage
Buyers in
Buyers in
and
Information
their
penetration
search
Purchase
Decision

Product Local Credit Push Effort


Holding
(if any)
to generate
and Risk sales
sharing
volume

Trust
Building

Functions
C&F agents

Stockists/Distributors

Retailers

In this graph we learn that in push effort to generate sales, trust building, helping buyers
in their decision and facilitating buyers in information search, retailers play most
important role and then comes stockists/distributors or C&F agents.

3.) INFORMATION SHARING WITH FIRMS

112

Ratings 1 being least important

Role of intermediaries in Information Sharing with firms in case of AMUL


8
7
6
5
4
3
2
1
0

Product
performance

Market
knowledge

Consumer
Tastes and
preferences

Dynamic Price
effectiveness

Competitors
Actions and
Reactions

Effectiveness
of Current
promotional
strategy

categories
C&F agents

Stockists/Distributors

Retailers

In this graph we see that for judging the effectiveness of current promotional strategy
and competitors action, stockists/distributors and retailers play a major role than C&F
agents

BRITANNIA
1.) LOGISTICS AND EXCHANGE FUNCTION
113

Ratings 1 being the least important

Role of intermediaries in Logistics & Exchange function in case of BRITANNIA


8
7
6
5
4
3
2
1
0
Breaking Bulk

Assortment

T imely, intact
movement and
Delivery of Products

Availability and
proper storage of
products

Order processing and


Fulfilment

Functions
C&F agents

Stockists/Distributors

Retailers

Here we see all the three play an equally important role in almost all of the Logistics and
exchange function.

2.) MARKETING FUNCTION

114

Ratings 1 being the least important

Role of intermediaries in Marketing function in case of BRITANNIA


8
7
6
5
4
3
2
1
0
Market
coverage and
penetration

Facilitating
Supporting
Product
Buyers in Buyers in their Holding and
Information
Purchase
Risk - sharing
search
Decision

Local Credit Push Effort to T rust Building


(if any)
generate sales
volume

Functions
C&F agents

Stockists/Distributors

3.) INFORMATION SHARING WITH FIRMS

115

Retailers

Ratings 1 being least important

Role of intermediaries in Information sharing with firms in case of BRITANNIA


8
7
6
5
4
3
2
1
0
Product
performance

Market
knowledge

Consumer T astes Dynamic Price


and preferences
effectiveness

Competitors
Actions and
Reactions

Category
C&F agents

Stockists/Distributors

116

Retailers

Effectiveness of
Current
promotional
strategy

FMCG logistics costs trends


2001

2002

2003

2004

Sales (Rs Cr.)

27,455

29,421

32,192

34,559

35,290

6.0

Cost of production
(Rs Cr)

23,882

24,953

26,828

28,592

28,335

5.4

Distribution Cost
(Rs Cr)

665

683

742

784

853

2.9

Outbound
Cost/Sales (%)

3.7

3.5

3.4

3.4

3.6

(0.6)

RM Inventory (Rs
Cr)

876

1,108

1,150

1,104

1,1042

2.8

FG inventory (Rs
Cr)

1,285

1,417

1,398

1,552

1,438

2.7

RM Inventory
Holding (Days)

41

50

52

50

49

1.5

FG Inventory
Holding (Days)

31

33

30

28

29

(1.1)

Interest Cost (%)

16.4

14.6

11.9

12.2

11.3

(1.4)

Inventory Holding
Cost (IHC) (Rs cry)

355

370

304

323

280

(2.4)

IHC/Sales (%)

2.0

1.9

1.4

1.3

1.1

(1.0)

Material
Consumption (Rs
Cr)

11,016

11,800

13,174

14,537

14,055

5.0

Inbound Logistics
Cost (Rs cry)

294

293

322

346

363

2.3

Inbound Logistics
Cost/Sales (%)

1.7

1.5

1.4

1.4

1.4

(0.8)

Total Logistics
Cost (Rs Cr)

1,114

1,146

1,168

1,253

1,296

2.8

Total Logistics
Cost/Sales (%)

6.4

5.9

5.3

5.1

5.1

(1.0)

117

2005 CARG

CHAPTER V FINDINGS
Following Are The Findings Of the Study On The Topic Dynamics Of Distribution In
FMCG Industry

India is still in its infancy in the logistics and supply chain business.

FMCG industry is in doldrums and as such must look for ways to save costs.
Thus the most drastic end effective way is controlling the distribution or in
bigger perspective supply chain.

Today distribution systems have a linear flow and some hub and spoke,
whereas the trend is moving towards Hub & Spoke at more than one level and
multidimensional flow of information.

With the passage of time use of sophisticated software tools- ERP, Trend Data,
Qualitative field inputs will increase and as a result forecasting would be better.

One major finding is that, while branding differentiates the image of the
product, the distribution will determine its success to a large extent.

Rural markets would be the cornerstones of all FMCG strategies in the near
future and this difficult markets will only be cracked by companies that form
partnerships across their value and supply chains.

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FMCG companies are now realising that change will come faster and harsher
than ever before, so why not change before change is thrust upon. Therefore,
Distribution has suddenly emerged from the background of the business to the
very forefront.

Last but definitely not the least with all attention now being centred on Supply
chain and logistics specifically in FMCG sector, this could well turn out to be
the business to be in.

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CONCLUSION

From basic foods to processed foods, supply chains are equally


important. In India, all the various elements of the chain already, exist,
but none work in a cohesive entity. The disparate players even today
look no further than their immediate supplier and dealer. On one hand
the farmer get one-third of the final retail price, while on the other, high
prices of value added processed foods limits the demand. There is an
urgent need to address these issues.
The supply chain in foods takes on a great significance in developing
and improving the lives of a large part of India's population.

120

SUGGETION
On the basis of the project done and the before said analysis we may conclude that
the distribution management has emerged from the back-benches of the marketing
discipline and is all set to become a specialized area of expertise, critical to the success
of any brand. Till date the distribution strategies of FMCG companies were evolutionary,
but from now onwards the strategies would be revolutionary and in this regard HLL is
leading from the front.

In recent years the profile of distributors has been changing. No longer are they
old style traders, sitting in dusty godowns and keeping track of inventories with hand
written account books. Those distributors had mostly been appointed in the preliberalization era of low competition, where supply was what mattered. Business was a
matter of delivering and usually rationing products to a finite number of retailers and
ensuring that money flowed reliably to the company.

These distributors still exist, but increasingly a younger more professionally


minded breed of local entrepreneurs, who couldnt care less about the company or its
managers, is supplanting them. Their sole interest is growing their business and
increasing returns. However it is worth noting that role of distributors in this sector is
ever-changing i.e. dynamic and as such to be a leader always a close watch on changing
paradigm is must.

121

Today it seems that IT cannot be separated from any discipline or function, so is


the case with distribution. Information technology has enabled distribution as key
competitive tool in todays business environment. It removes the degree of uncertainty
that simply existed because information was not being shared. IT enables integration of
disparate processes successfully.

The concepts of distribution or SCM started filtering in India in late 80s and
early 90s and now they are beginning to acquire momentum over the broad business
landscape. Thus this study has scope for further researches.

122

BIBLIOGRAPHY

BOOKS & ARTICLES

Agawam D.K, Dr. Deeply Singh and Agawam D.P. Paper on Efficient Consumer
Response by Web based Demand Chain Management.

Agawam D.K, Dr. Deeply Singh and Agawam D.P. Paper on IT enabled Distribution
Systems, 2000

Bowers ox Donald J And Closes David J, Logistical Management, Tata Mc Grew Hill
publication company ltd.(edition 2001)

Dyer Jeffery and Hatch Nile, Using Supplier Networks to Learn Faster, MIT Sloan
Management Review, Spring 2004

Harper W.Boyd, Marketing Research, Prentice Hall Europe, 3 rd Edition, Chapter 1,


2, 18.Killteller Phillip, marketing management, millennium edition. (Prentice hall of
India).

Korean Praia et al, The Case for re-examining IT effectiveness, Journal of Business
Strategy, No 2 - 2004

CMIE Reportes

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WEBSITE

www.hll.com

www.aberdeen.com

www.agencyfaqs.com

www.web-enable.com/industry/

www.expresscomputersonline.com

www.i2.com/home/solutionareas/scm

http://www.dobney.com/Research/Brand_equity_research.htm

http://www.indiainfoline.com/fmcg

http://www.domain-b.com/news_review

http://www.adclubbombay.com

http://hydepages.com

http://www.agencyfaqs.com/news/stories

http://www.expressindia.com

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