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Henkel Report Cover Page
Henkel Report Cover Page
Submitted to:
Professor L S Murthy
Indian Institute of Management Bangalore
Submitted by:
Group 8
Prior to 1995, the different players in the industry competed on price which led to
price wars resulting in significant losses for the independent retailers. The Law on
Commerce was established in 1995, which prohibited retailers from selling at a loss,
except in liquidation cases. Therefore, retailers could not sell branded products
below the wholesale price or cost of procurement. However, private labels used
discounts and gradually increased their market share to 13.4% in 2001. Non-
branded products too leveraged this channel. Hence, retailers began to rely heavily
on the lower prices of non-branded and private label products to boost sales.
Henkel, like the other national brands, was compelled to use product variants and
special promotions to differentiate itself. Each retailer also demanded a unique
promotion in order to have an edge over other retailers. Some of the promotional
offers used by Henkel were: more quantity of product for same price, specially
bundled products, coupons and free goods attached to the package, and gifts at
checkout counter. This resulted in Henkel having a large number of SKUs and
effectively increased the complexity of forecasting for both Henkel and the retailers.
Henkel Ibericas sales reduced to 651 million euros in 2001 from 764 million euros in
2000. Although, the sales volume were higher, the value was eroded because of
cost of product complexity at warehouses and stockouts at retailers points of sale.
4. Alternatives Available
1. Special promotions (Status quo)
To tackle the rising competition from low cost private labels and increased
competition from existing users in the already saturated market, Henkel resorted
to policies like special promotions where offers were different for different
customers. Pros and cons of these policies are as follows:
These issues can be addressed with the help of EDLP. By offering fixed low prices
every day, any incentive to delay the purchase is removed, leading to a more
uniform demand which is easier to forecast with more accuracy. This will reduce
stock-outs as well as overstocking. Furthermore, by cutting down promotional
expenses, we can pass on that benefit in terms of lower prices to customer.
However, lower prices may affect long term profitability of business. Some
consumers may perceive low prices as an indicator of low quality and can be
detrimental to the brand. Consumers may start comparing private labels with
Henkel which is also not desirable. EDLP can also reduce responsiveness to
competitor and external environment.
The CPFR method attempts to eliminate such inefficiencies by bringing all the
stakeholders in the supply chain to a common platform where they can share
real time data on the internet and use a common forecast. Henkel can
coordinate with its suppliers and the customers (retail businesses) and create a
joint business plan with specific focus on aspects such as desired service level,
inventory level targets, production plans etc. CPFR will help especially useful for
Henkel as it operates in an industry where special promotions are frequent and
the forecast of demand does not follow patterns. Moreover, with the uncertainty
associated with special promotions, exceptional demand forecasting can
become more accurate.
5. Recommendations
It is clear that the special customer specific promotions followed by Henkel is
leading to an increased number of SKUs and reduced accuracy in forecasting. From
the data given in the case, we can see that the sales decreased by around 14.79%
(from 764 million euros to 651 million euros) in 2001 and at the same time the costs
increased significantly. The increased cost is mainly due to rising number of SKUs
and the difficulty in forecasting resulting in over stocking or understocking (lost
sales). Hence in order to improve the situation going forward, we can think of
recommendations both from the long term perspective as well as the short term
perspective.
2. Rationalize and collaborate with suppliers: Henkel also has a large number
of suppliers which allows Henkel to have a high responsiveness to the material
and packaging requirements. However, it also requires more coordination effort.
Henkel should study if they require such a high number of suppliers and if they
can consolidate and reduce the number of suppliers. It will also lead to better
prices being obtained by Henkel for the raw material. Furthermore, Henkel can
help to develop some of their major suppliers to build a more collaborative
relationship with them. This may help to reduce the lead time for the packaging
and raw materials.
APPENDIX A
Price competition from private labels + Competition from national brands (new product launches/new variants)
Lower profit