Reckitt Benckiser Stratagem

8/8/2019 Reckitt Benckiser Stratagem

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Organizational Background

Reckitt Benckiser India Ltd (RBIL) is a fully owned subsidiary of Reckitt Benckiser Plc., world’s No.1

Company in Household, Health and Personal Care. Reckitt Benckiser Plc came into being with themerger of Reckitt & Colman Plc with Benckiser NV in 1999. The company has operations in 60

countries, sales in 180 countries and has had net revenues in excess of £7.75 billion (2009). It’s a FTSE

top 15 company and since 2000 net revenues have doubled and the market cap has quadrupled. Today

it is the global No 1 in the majority of its fast-growing categories, driven by an exceptional rate of

innovation – over a third of revenue comes from innovations launched in the prior 3 years. It has a

strong portfolio led by 17 global power brands, such as Dettol, Finish, Airwick, Mucinex, Lysol, Vanish,

Veet, Nurofen and Strepsils which account for nearly two thirds of its net revenue.

Reckitt Benckiser India Ltd (RBIL) manufactures and markets a wide range of products in Personal care,

Pest control, Shoe care, Antiseptics, Surface care, Fabric care and other categories. Amongst its manywell-known brands are Dettol, Mortein, Harpic, Veet, Cherry Blossom, Lizol, Disprins, Robin powder,

Colin, Vanish etc. Most of these brands are either number 1 or number 2 in their respective categories

in India.

Vision

Passionately deliver better solutions in household cleaning and health & personal care for the ultimate

purpose of creating shareholder value.

Some facts about Reckitt Benckiser

World Leader in House Hold Cleaning (except Laundry Detergent)

• Head Quartered at Slough, United Kingdom

• Turn-over of 7.75 billion GBP

• Operating Profit of 1.89 billion GBP

• 23,000 employees in over 60 countries

• Over 10 million products sold every day

• Recently acquired companies: SSL International Plc, Boots Healthcare International, and Adams

Respiratory Therapeutics.

Reckitt Benckiser (India) Limited

It is experiencing a double digit growth with the revenue almost doubling in the last five years. Reckitt

Benckiser (India) manufactures and sells many different and successful categories under brands like

Dettol, Harpic, Lizol, Cherry, Mortein and Veet etc. It is expected to post revenue of over 21 billion INR

in the current year and is targeting growth of 20-25% YOY in the coming years.



PRODUCT PORTFOLIO

Organizational structure



Problem statement

The current macroeconomic environment coupled with seamless fund flows across the globe is making

the whole business environment dynamic and hence procurement an increasingly strategic andchallenging process. For instance, low interest rates in European nations and USA is driving cheap

money fund flow into commodity trading which has pushed up the commodity trading volumes by 5-6

times. This trading is often sentimental and based on global cues driven from different sectors or

events across the globe. The coupling of financial institutions globally often shows ripple effect from

one market to another in the commodity prices. The manufacturing and services base of the world is

also showing a shifting trend from the West to the APAC region countries which are becoming the hub

of all kinds of economic activities.

Earlier, the demand-supply gap used to drive commodity prices but due to this global dynamism the

impact on price of commodities due to demand-supply gap is just about 40% while a major chunk of 60% is influenced by these global dynamic factors. Thus fluctuating commodity prices and their

budgeting and accurate forecasting are becoming one of the main concerns of the procurement

functions.

Current Procurement function brief:

Global Head of

Procurement

Regional Supply

DirectorGlobal Buyer

Commodity A

Head of Procurement

(Regions – MEA, Asia etc)

Head of Global buyers

Global Buyer

Commodity B

Global Buyer

Commodity C

Head of Procurement

(Countries – RM, PM Etc.)



The Head of Procurement is also linked to the global procurement and for some of the key

commodities global buying is done. Prices of some of these key commodities are globally negotiated

which accounts for about 20% of the total procurement while the rest of them are locally negotiated

though there are global inputs available at each step. The New Product Development and relatedactivities are handled primarily by the central procurement team. New vendor development, sourcing

strategies and price negotiations are also handled by the central team. The local procurement teams

handle the day to day scheduling and other production activities. The central team decides the share of

the business for each vendor by releasing the bulk purchase orders for each of them. As per the

monthly demand the local plants decide the delivery schedules. All types of vendor follow ups are done

locally. Constraints regarding the availability of Raw Material and Packaged Material are discussed

between the two teams. Corporate finance checks the invoicing of vendors.

Approximate Spend Value Break-up:

Raw Material: 650Cr

CATEGORY SPEND %

Soap Noodles Total(palm oil) 34%

Organics 18%

Oil Vegetable 12%

Surfactants 8 %

Dyes & Pigments 8%

Fragrances 5%

Govt Controlled 5%

Others Balance



Packaging Material: 350Cr

Main Categories % Procurement

Blow molding

(HDPE) 30%

Glass 10%

Laminates 10%

Corrugated Trays

(Kraft paper) 10%

Tin 5%

Labels 5%

Injectibles 6-7%

Boxes 6%

Balance 9-10 %

A. Price forecasting and Budgeting:

The present marketplace for a FMCG company is highly competitive with the growing presence of the

organized retail chains introducing more and more private labels in the market. The presence of variety

of goods in the market means - quality and price play a big role in the decision making process of a

customer. A more informed consumer is more sensitive to price differentiation among products.

Therefore a well thought out pricing strategy can directly bolster market share for a company.

Two major components which determine the final shelf price for a product are:

• Raw Material

• Packaging Material

For the case if we consider soap as a product: raw materials to be procured are noodles’ which is made

from palm oil and pine oil and the packaging material needed for the same is Kraft Paper and HDPE.

The budgeting starts after forecasting for the future prices of the four main components mentioned

(Pine oil, palm oil, HDPE and Kraft paper) is done keeping the volumes and capacity planning in mind.



Reckitt Benckiser starts forecasting and budgeting in the month of August/September and this is

generally done for the next calendar year (Jan-Dec). This forecast for 12 months finally results in a

budget being allocated in the month of September. The current technique for price forecasting and

budgeting is mainly knowledge and experience driven with inputs from various sources. Subject Matter

Experts from various fields are involved such as banks, advisors etc and their reports are analysed for

the various macroeconomic factors that are in the forecasting period and inputs are gathered from

various sources, coupled with in-house expertise at RB. Several rounds of deliberations and feedbacks

from various sources are then conducted to zero down on the final plan. However, as of now any

advanced statistical measures are not being employed.

In addition there are three principle inputs which go into the budgeting exercise

1. Global buyers’ perspective: Global inputs on commodity pricing are received from the global

teams in terms of expected price fluctuations for the commodities.

2. Local Scenario: The local scenario can be completely different from the global perspective

many a times, for instance demand supply gap globally for a particular commodity might be

stable throughout the year but locally in case of India may have seasonal variations in terms of price. Due to recession GDP growth rates globally were just about 1-2% while in India it was

about 6-8%.

Price Forecasting Cycle: Starts with the sales plan and ends with price

budgeting for both raw Material and Packaging Material



3. Top down Approach: Globally top management comes out with a plan of procurement spend

and estimates of the inflation in the prices of the raw material at an aggregate level. This plan is

then percolated down to the country level. However, there are many regional variations that

may be in contrast to the estimates from global level.

These three parameters often give contradictory perspectives which need to be accounted for striking

a balance. Mostly, the prices decided at the top level have to be maintained by the regional teams.

Considering all these factors participants have to come out with a good planning process, timelines and

monitoring parameters for this planning process such as if the planning process itself needs to be

reviewed, when and how frequently etc.

The participants are also expected to analyse the above scenario and conduct a benchmarking study

with some of the best in class companies in terms of processes followed for planning and budgeting

with respect to these four commodities:

1. Raw Material

A) Palm Oil

B) Pine Oil

2. Packaging Material

C) Kraft paper

D) HDPE

Currently the variance in budgeted vs. actual is about 2-3% overall and about 15-20% at the commodity

level which needs to be reduced to + 1% overall and + 5% at the commodity level.

C. Futuristic role in Procurement:

Future growth of Reckitt Benckiser is promising with growth rates at 20-25% currently and RB India

expected to grow up to 5000Cr Enterprise in the next three years. The procurement role it has to play

should be forward looking. RB needs to be prepared for a futuristic role basing its forecasting on the

macro and micro indicators of Indian subcontinent and its customers and the world in general.

Participants are expected to study the structures of big organizations poised for similar growth and

conduct a benchmarking study of their procurement functions. The dynamic roles and responsibilities

and the flexibility to accommodate such high growth and market dynamics.



Deliverables:

Q1. How to forecast the prices for 4 commodities: Pine oil, palm oil and Kraft paper, HDPE? Develop

one forecasting model (if needed) explaining the rationale, for these commodities in particular.

Q2. Comment on the timelines RB uses in budgeting and forecasting. What would be the best path

approach RB can follow as far as the timelines for price forecasting and budgeting are concerned?

Elucidate with quantified explanation.

Q3. The futuristic procurement role RB should play and how to be prepared in the fast changing world

without running the risk of losing market share given the fluctuating input prices and price sensitive

market. What should be the steps and process models in the procurement function going forward to

stay competitive?

Q4. How to measure the effectiveness of the budget planned in a certain cycle to ensure properfeedback in the upcoming years plans and budgets? Mention Quantitative as well as qualitative

indicators.

Rules and Guidelines Rules for Round I:

Case study: The case would be open for all the B-school students across India.

1. A team can consist of maximum two members (Management Students only) from the same

college. A student cannot be a member of more than one team. The case study is open to fulltime students of following colleges only:

IIMA ISB IIT DMS

IIMB FMS, Delhi IIT Mumbai

IIMC SPJIMR IIT Kanpur

IIML JBIMS IIT Kharagpur

MDI IIFT Delhi and Kolkata SIOM

IIMK IMT-G SIBM

IIMI NMIMS IIM Shillong XLRI Jamshedpur SCMHRD NITIE

XIMB

2. All the team members need to register on the Prerana 2010 website www.prerana.nitie.net.

Each participant should register separately on the website to generate his Prerana registration

ID.

3. The solution should not exceed 2100 words inclusive of all exhibits and appendices.

4. Solution format: Font Size – 12, Font Type – Times New Roman, 1.5 line spacing and the file

should be a Microsoft Word Document (.doc)/PDF.

5. The front page should carry only a) Institute Name, b) Team Name, c) Details of the team

members (Name, Email IDs, Phone Nos.) and d) Prerana Registration IDs.

6. On every subsequent page the header should contain only the Prerana Registration ID in the

header section of all the team members.

http://www.prerana.nitie.net/






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Reckitt Benckiser Stratagem

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