ARESEARCH 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)

MANGAL MAY INSTITUTE OF MANAGEMENT & TECHNOLOGY

SUBMITTED TO: SUBMITTED BY: Prof. SANDEEP SHARMA Ravi Kumar (MARKETING) 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

2

ACKNOWLEDGEMENTACKNOWLEDGEMENT

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

3

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.

4

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

5

14. LIMITATION.....................................................................................88

15. DATA ENTERPRETATION..............................................................89-103

16. FINDING..........................................................................................104-105

17. CONSULATION..............................................................................106

18. SUGGETION.....................................................................................107-108

19. BIBLOGRAPHY...............................................................................109-110

6

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 India’s 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.

7

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

8

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

9

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 ...

10

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, Sept-

Oct, 2004) They also have the financial clout to acquire small local brands to strengthen

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/enabling-

scm.asp)

Value For Money

11

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.

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

12

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

oil shock. The new Government in power reserved several product categories for small-

scale. 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

13

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.

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

14

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

15

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

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 consumer’s insistence on a particular brand or willingness

to pay a price premium for the preferred brand.

16

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

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.

17

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

18

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 90’s, 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.

19

In the heydays of 1980’s 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 Company’s 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).

20

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 1990’s revealed a

different way of looking at distribution. A new movement called SCM had been slowly

redefining the distributor’s 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 distributor’s 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

21

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 1990’s 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

22

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)

23

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

24

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)

25

The exchange functions involved broad activities related to buying and selling.

As such exchange concerns activities required to transfer ownership’s. 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).

ENTERPRISE

26

Inventory Flow

Information Flow

Procurement Suppliers Manufacturing Support

Physical Distribution

Customers

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 Status Today Trends Towards

Retailer Dispersed, unorganised, not

much buyer power

Larger retail outlets; more

number of SKUs, concentration

of buyers, retailer power

increases

SKU Variety High numbers of SKUs of

various sizes, offers and

usage

Rationalization of SKUs to

optimise costs

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

vendors); lots of buffer

stocks & time

Collaborative but still with some

buffer time and inventory

Manufacturing Practice Long production runs, low

overheads, fixed stations

Flexible manufacturing, short

runs, low change-over times,

increased overheads

27

Contact Manufacturing

(Outsourcing)/Third Party

manufacturing

Contractual, opportunistic Strategic partnership, alliance,

essential cost control element

Information Aggregated at every level

and then transmitted

upwards loss of time in

reacting to change in

demand pattern

Instant transmission to hubs,

redirected to supply centres,

rather than planners; faster

response to demand change

Forecasting Historical data based;

varying levels of accuracy,

person based

ERP, trend data, qualitative field

inputs and allowance for force

majeure

Replenishment To maintain stock level, on

shelf, at stock point, at

plant

Dynamic replenishment: mix of

products replenished depends on

an array of factors, only of which

is stock

Distribution systems Traditional linear flow;

some hub and spoke

Hub and spoke at more than one

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

28

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

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.

29

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).

30

FMCG INDUSTRY SUPPLY CHAIN TODAY

(Source ETIG, L&SCM, 2004)

31

Vendors

Contract Owned Plants Imports Manufacturers

Central Warehouse

Regional Distribution Centres

C & F Super stockists

Stockiest

Retail Chain Stores

Consumers

Retailer Local wholesaler

SupplyChain PlanningAndERPSoftware

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 AMUL NESTLE BRITANNIA

Brand Mgmt. 7 6 7 7

Advertising Mgmt. 6 3 5 6

Sales Promotion Mgt 7 2 5 5

Distribution channel

Management

7 5 6 6

Physical

distribution/Logistics

Management

7 6 5 7

Demand forecasting

& Management

7 7 4 5

Sales admn. & Mgt. 7 1 4 5

Q2. Please specify various purposes behind efficient distribution management on the

scale of 1-7: 1 being not important & 7 being most important?

32

HLL AMUL NESTLE BRITANNIA

Sustainable Bus.

Growth & long term

performance

7 7 6 7

Greater market

dominance

5 5 4 6

Competitive

advantage

5 6 7 6

Total cost

containment

7 5 5 5

Dev. & maintenance

of harmonious

channel relationships

7 6 3 6

Improvement of

economic & social

welfare

2 6 2 5

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

of the company.

33

HLL AMUL NESTLE BRITANNIA

More advertising

& less sales

promotion

* *

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?

34

HLL AMUL NESTLE BRITANNIA

Below 20% * *

20 – 30% * *

30 – 40%

40 – 50%

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?

35

HLL AMUL NESTLE BRITANNIA

Increased * * * *

Decreased

No Change

.

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?

36

HLL AMUL NESTLE BRITANNIA

YES *

NO * * *

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)

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

37

HLL AMUL NESTLE BRITANNIA

YES

NO * * *

Q8. Do you have web enabled Distribution Channel system?

38

HLL AMUL NESTLE BRITANNIA

YES *

NO * * *

Only HLL has the system where all its stockists and the C&FA are in a web

enabled network throughout India.

39

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 AMUL NESTLE BRITANNIA

C & F agents *

Stockists/Distributors ^

Retailers/Dealers

None * * *

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 don’t think there is any need to bypass any of them.

Q10. Do you think that qualitative results of marketing largely depend on contributions

made by distribution channel members now a days?

40

HLL AMUL NESTLE BRITANNIA

YES ** * * ½*

NO

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.

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

trade?

41

HLL AMUL NESTLE BRITANNIA

YES * * * *

NO

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

42

FACTORS

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

C & F Agents Stockists / Distributors

Retailers

Logistics and Exchange Functions

Breaking Bulk 5 6 6

Assortment

Timely, intact movement and Delivery of Products

6 7 3

Availability and proper storage of products 5 6 6

Order processing and Fulfilment 6 4 3

Marketing Functions

Market coverage and penetration 1 7 5

Facilitating Buyers in Information search 0 4 7

Supporting Buyers in their Purchase Decision 0 5 7

Product Holding and Risk – sharing 6 6 1

Local Credit (if any) 0 6 5

Push Effort to generate sales volume 4 6 2

Trust Building 2 7 7

Information sharing with firms

Product performance 0 5 7

Market knowledge 2 4 6

Consumer Tastes and preferences 0 6 7

Dynamic Price effectiveness 0 0 3

Competitors Actions and Reactions 0 6 7

Effectiveness of Current promotional strategy 3 6 7

43

NESTLE

FACTORS

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

C & F Agents Stockists / Distributors

Retailers

Logistics and Exchange Functions

Breaking Bulk 4 2

Assortment 5 2

Timely, intact movement and Delivery of Products

7 7

Availability and proper storage of products 6 4

Order processing and Fulfilment 7 7

Marketing Functions

Market coverage and penetration 7 7

Facilitating Buyers in Information search 5 7

Supporting Buyers in their Purchase Decision 6 7

Product Holding and Risk – sharing 3 2

Local Credit (if any) 5 5

Push Effort to generate sales volume 0 0

Trust Building 4 5

Information sharing with firms

Product performance 7 7

Market knowledge 7 7

Consumer Tastes and preferences 5 7

Dynamic Price effectiveness 4 3

Competitors Actions and Reactions 6 6

Effectiveness of Current promotional strategy 2 1

44

AMUL

FACTORS

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

C & F Agents Stockists / Distributors

Retailers

Logistics and Exchange Functions

Breaking Bulk 6 4 3

Assortment 6 6 5

Timely, intact movement and Delivery of Products

7 6 4

Availability and proper storage of products 7 7 5

Order processing and Fulfilment 7 6 4

Marketing Functions

Market coverage and penetration 4 7 5

Facilitating Buyers in Information search 0 3 7

Supporting Buyers in their Purchase Decision 0 0 6

Product Holding and Risk – sharing 7 6 4

Local Credit (if any) 0 6 5

Push Effort to generate sales volume 0 0 5

Trust Building 2 7 7

Information sharing with firms

Product performance 0 4 7

Market knowledge 1 5 6

Consumer Tastes and preferences 0 2 7

Dynamic Price effectiveness 0 0 2

Competitors Actions and Reactions 0 5 7

Effectiveness of Current promotional strategy 0 4 7

45

BRITANNIA

FACTORS

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

C & F Agents Stockists / Distributors

Retailers

Logistics and Exchange Functions

Breaking Bulk 6 4 2

Assortment 5 3 2

Timely, intact movement and Delivery of Products

5 7 3

Availability and proper storage of products 6 7 6

Order processing and Fulfilment 6 7 7

Marketing Functions

Market coverage and penetration 5 7 6

Facilitating Buyers in Information search 1 4 7

Supporting Buyers in their Purchase Decision 0 2 7

Product Holding and Risk – sharing 6 5 3

Local Credit (if any) 0 1 2

Push Effort to generate sales volume 2 3 6

Trust Building 2 7 7

Information sharing with firms

Product performance 2 5 7

Market knowledge 2 6 6

Consumer Tastes and preferences 0 5 7

Dynamic Price effectiveness 0 0 2

Competitors Actions and Reactions 0 5 7

Effectiveness of Current promotional strategy 2 5 7

46

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 HLL’s 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 Unilever’s 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

47

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. HLL’s 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, fine-

tuned 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.domain-

b.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

48

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

49

Hinglact - polyglactin 910

Hidox

50

Hincryl

HIVAC –B

51

52

GROWTH OF HLL

HLL’s 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.

HLL’s healthcare product range include: Blood Collection Bags, Surgical Sutures, Auto

Disable Syringes, Vaccines, Women’s 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.

53

HLL’s products are today exported to over 70 countries.

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.

HLL’s 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.

54

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

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-of-the-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.

55

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.

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 HLL’s 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.

56

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). That’s 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 company’s operations. HLL’s

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 HLL’s

unique ability to leverage on scale and technology and the development in the telecom

infrastructure. HLL’s Internet vision encompasses three opportunity segments-

business connectivity, consumer connectivity and consumer commerce.

The Net- based e- tailing will work on a combination of HLL’s own V-SAT

network, that of others, mobile telephony and the public network. HLL is creating an

57

extranet 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 HLL’s 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.

58

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 HLL’s 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 three-

tier 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 HLL’s 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.

59

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.

60

HLL’S DISTRIBUTION NETWORK

61

Raw Materials suppliers

Packaging materials supplier

Manufacturing units in-house, third party

Head office All-India buffer depot

Regional Offices

Regional buffer depot

JIT godowns

Rolling sales forecasts & mktg plans

Stockists

RetailersWholesalers

Consumers

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). Amul’s 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 access to a vast reservoir of milk at

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

for most other foods products.

62

Products of Maul

63

64

65

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

66

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.

67

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

68

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 Amul’s 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

69

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 9-

tonne truck and the insulated truck are the norm. The insulated stainless steel truck-

tanker, 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

70

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.

71

Fig # 23

-

72

Farmer

Society

Milk weighingFat content check

Payment slip

1.5 hours

6 – 7.30 am

2 – 3hours

by 9 am

Milk into VCC

Society collectionSent by truck to DCC or dairy

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.

GCMMF’s 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.

73

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 GCMMF’s 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 haven’t 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 7

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

74

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&FA’s 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 GCMMF’s 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.

75

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

76

ABOUT NESTLE .

Nestlé 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 Nestlé 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. Nestlé sales for 2009 were

CHF 108 bn.

The Nestlé Corporate Business Principles are at the basis of our Company’s culture,

developed over 140 years, which reflects the ideas of fairness, honesty and long-term

thinking.

77

Products of Nestle

78

79

80

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.

81

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.

82

INBOUND LOGISTICS

Nestle India’s 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 India’s CEO, had talked about Nestlé’s 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 that’s

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,

Nestlé’s 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

83

collection; and secondly on the IT system back up". In all these, it’s 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.

84

OUTBOUND LOGISTICS

The longer the supply chain, the weaker the demand signal becomes. In India, on

retail side as well as the vendor’s 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,

85

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% non-

aligned 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.

86

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 Nestlé’s would retain its

legacy EDI infrastructure to capture the full value of its investment.

87

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 Brakeman’s, Champion, Quality, Praia and MNC’s

like SmithKline Consumer, Kellogg’s, 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%.

88

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.

89

Products of Brittan

90

91

92

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.

93

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 ready-

to-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.

94

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.

95

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.

96

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 chain objective; offering the right

97

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.

98

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.

99

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.

100

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: -

101

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

102

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.

103

DATA INTERPRETATION

Q1.

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.

104

Q2.

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 & long-

term development and subsequently others.

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

105

HLL

1.) LOGISTICS & EXCHANGE FUNCTION

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.

2.) MARKETING FUNCTION

106

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

107

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.

NESTLE

1. LOGISTICS AND EXCHANGE FUNCTION

108

Role of intermediaries in the logistics and Exchange Functions in Case of NESTLE

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.

2. MARKETING FUNCTION

109

Role of intermediaries in marketing function in case of NESTLE

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.

3.INFORMATION SHARING WITH FIRMS

110

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

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

retailers play a most important role.

111

GCMMF (AMUL)

1.) LOGISTICS AND EXCHANGE FUNCTION

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.

112

2.) MARKETING FUNCTION

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

113

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

114

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

exchange function.

2.) MARKETING FUNCTION

115

3.) INFORMATION SHARING WITH FIRMS

116

117

FMCG logistics costs trends

2001 2002 2003 2004 2005 CARG

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)

118

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.

119

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.

120

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.

121

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 pre-

liberalization 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 couldn’t 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.

122

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 today’s 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 80’s and

early 90’s and now they are beginning to acquire momentum over the broad business

landscape. Thus this study has scope for further researches.

123

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, 3rd 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

124

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

125