Posted at 12.09.2018
Distribution process consists of all the activities undertaken by producer, either by themselves or in sync with other channel members to make the product open to consumers.
Distribution can mainly be divided into two major components:
Distribution network comprising of syndication channels
Logistics or physical distribution
Efficient syndication and logistics are prerequisites for simple transit of goods. Offering is the finish process of circulation as this leads to change in ownership of product. Distribution is the most essential component for the success of FMCG companies. Efficient syndication network ensures brand is provided in right variety, right place and right time in good condition with competitive rates.
Objective of circulation network of FMCG companies:
Availability of Brand: Distribution network means that the merchandise is on the shelf or in electric outlet when consumers want to buy.
Quality of product: Companies ensure that not only the product is available at right time but also in right condition and quality like freshness, package deal etc.
Optimum price: Effective distribution also ensures that the price tag on product is competitive when it gets to final consumer.
Direct Syndication: In this case: Companies have direct control over the products circulation either to merchants or exclusive distributors.
Fig 1: Direct Distribution
A simplistic and direct distribution line
Efficient communication between your marketers and suppliers.
Indirect Circulation: This type of distribution occurs when intermediaries are involved in the circulation process.
A typical circulation channel involves the following participants:
Agents/Agents: They are channel associates that match needs of maker with wholesalers or in planned market with customers. They are extremely very important to exports and international marketing.
Wholesalers: They are someone who mostly markets to other merchants. They typically buy in large and are incredibly important in rural India.
Retailer: Suppliers are most visible face of the circulation system. India has the largest amount of retailers in the world.
Type of product:
Type of customers
India has about 6 million retail outlets with around 2 million in over 5000 towns and 4 million in 600, 000+ villages. Although very markets have made in-roads into India, their occurrence is limited to modernized urban areas. This poses a huge problem for logistics and distribution, specifically for new players.
A solution to this problem is Value String De-verticalization which involves achieving organizational parting through outsourcing the resource chain activity to a 3rd party. This will often involve selling existing Operation belongings and activities to a financial buyer, 3rd party company/distributor or a jv with other FMCG companies. This essentially makes the business in question "asset light" as the resource company becomes "asset heavy".
This allows the management of the FMCG Company to focus entirely on customer and consumer management which is its main expansion driver. Alternatively, the 3rd get together providers can build their resources and sites in a strong way which they will give out to the FMCG companies which outsource the resource string activities to them. Controlling supply string activities being their core activity, they could put 100% give attention to this and hence achieve efficiency and responsiveness which can only help all its clients.
To cite examples, a few FMCG companies like Sara Lee and Nike have already treaded this path and also have been quite successful. However, there's a lot of opportunity for a huge chunk of FMCG companies to follow this.
With time, organized retail chains are setting up systems for inventory management and quick servicing. That is in turn providing chance of the companies or suppliers to reduce distribution cost by reducing intermediaries like wholesalers and vendors. The FMCG companies can use this to their advantage and supply directly to the warehouse of the retailers thereby reducing costs immensely. An integral part of this advantage can be transferred over to the customer making the companies more competitive while the other part can be distributed between the company and the merchant. Thus this helps in increasing the efficiency of your FMCG company.
The talk about of FMCG sales done through grocers had lowered from 50% in the early 90's to around 35% in the late 90's. That is due to the increase in contribution from other retailers like chemist outlet stores and paan shops. FMCG companies need to market this upsurge in channel width by redesigning their SKUs (e, g, sachets) and hardware (e. g. minuscule dispensers). Therefore will give them advantage through more sales by higher ease of access of their products thus increasing the responsiveness of the syndication network.
A typical circulation network will consist of goods passing to Clearing & Forwarding Agent (CFA), then to Redistributors (RD) and finally to Retailers. While it is convenient to connect with and trail sales of the CFAs which can be less in number (typically a couple of in every talk about), it is immensely difficult to trail the sales that is going on from the RDs. This is due to the huge number of RDs present in a circulation network.
To enable this, FMCG companies may use the web to connect with the RDs and major retailers to acquire their sales data. This can help them in reaching better visibility and therefore better forecasting of sales at different things of the circulation network. This leads to a substantial upsurge in efficiency for the company.
The future of all products probably is based on utilising the web as a point of sales and reaching out to the customers directly. FMCG companies will be no exception to this and will soon have to join the bandwagon that will give them a massive boost of responsiveness to consumer demand.
We will now look at the distribution networks of three greatest FMCG players in India: HUL, Marico and ITC. We will further see the issues they face in their circulation network and exactly how they have/can solve them to get better customer service levels.
HUL is India's greatest FMCG with 20 different brands in different categories. The turnover in terms of level for HUL was about 4 million tonnes whereas in economic terms it was nearly 17523 crores. Regarding to HUL website every 2 out of 3 households in India use some HUL product.
HUL has products in 6 different categories using its brands being the very best advertising ones in almost all of the categories. Some of the famous brands of HUL receive below:
Food Products: BrookeBond, Bru, Annapurna, Kissan, Knorr, Kwality Wall's
Home MAINTENANCE SYSTEMS: Wheel, Domex, Rin, Surf Excel,
Personal MAINTENANCE SYSTEMS: Axe, Center plus, Dove
With such a large product profile and sales turnover, the syndication network of HUL has prevailed to attain out to virtually all the parts of the united states. The circulation network is what provides HUL its competitive border over its competition like P&G, ITC and RB.
We will first examine how the circulation network of HUL was customized in different periods and then the present network.
The first stage engaged the wholesalers and big stores giving bulk orders to the HUL sales rep. The sales person would accumulate al the requests from his area and put a consolidated order to the HUL office. All the orders were carried mutually to the salesperson who then redistributed it to the clients. This network put major emphasis on bulk purchasing and full truck load transportation. As all the orders in a single area were transferred together, the price of transportation from factory to sales rep was less. But the redistribution cost was high and also the administrative costs with more no. of sales person to repay maximum areas possible managed to get a pricey network.
In the second stage, the idea of recorded wholesaler (RW) was unveiled who would stock all the merchandise for the company. The salesperson accumulated orders from the market and redistributed the merchandise from the stock at RW. Developing a common stocking point allowed the salesperson to cover more regions and hence increased the reach of the distribution network. Aside from reducing the transportation costs, this method also increased the customer service levels.
The present distribution network has the RWs changed by redistribution stockists (RS) who provided the syndication products to the salesperson. There were also Company depots which acted as stocking point s and large breaking venues. The business depots have been replaced by Carrying & Forwarding Realtors (C&Fas). They transport the merchandise to the Rs and also become buffer stock things to ensure minimal stock outs.
The role of RS is important in this network as it services vendors, provides warehousing facilities, implements all promotional activities, records the market data to the company etc. The product movement in the Syndication network of HUL is really as shown below:
In the present day network, HUL has 4000 redistribution stockists, covering about 6 million shops. You can find 35 C&FAs who work to supply to the RS across the countries. The distribution network reaches to almost all the urban society and about 250 million rural customers by servicing the food markets, treatments stores, kiosks, general stores. To service the approaching excellent value stores and the self applied service stores in the urban areas, HUL has customized its channel design to suit their requirements.
HUL has 40 making plants which can be serviced by 2000 suppliers across the country. We will look at the circulation network of HUL individually for the Urban and Rural India as the strategies included and the route design will vary for both the areas.
In the cities, HUL follows two channel offering types:
Traditional Retail Channel
Direct Providing through Hindustan Lever Network (HLN)
The circulation of goods from the manufacturing crops to the C&F real estate agents occurs through rail/street depending on optimum cost factor. The production vegetation have been situated near commercial establishments to repay the virtually all the geographical portion of India. From C&F agents the products are transported to the RS through truckloads and then to the retailers by using the local transport settings.
In the immediate offering through HLN which is the Direct Offering Channel about a lakh independent internet marketers spread over 1500 cities and towns. This route services the Home & Personal care and attention group of products and is backed by about 240 service centres. HUL is wanting to leverage on this concept by making the route more participative through Income Showing rewards etc.
The rural areas have a sizable untapped market and the lack of move infrastructure and circulation factors managed to get problematic for the FMCG players to fulfil the needs. HUL, through its innovative concepts of Project Shakti and Job Streamline has reached 50000 villages and around 250 million customers. The reach of the distribution network in rural areas is one of biggest strengths of HUL.
In the rural route design, a RS is manufactured in charge to service all the villages of a specific town. For some accessible marketplaces, HUL possessed a sub stockist appointed who was responsible to move the goods to all or any the village retail outlets by means of available travel like cycles, bicycles etc. It has helped HUL reach even the most remote control villages with no connecting motor unit able roads.
In Job Shakti, groups of villagers use micro credit from banks to buy HUL products from the rural distributor and then sell them directly to the villagers. This has helped HUL reduce its transportation cost to distribute products in distant villages.
Project Streamline was initiated to cater to inaccessible markets with high business probable. A sub-stockist or a Superstar Retailer was appointed for each and every band of villages. The Legend seller bought the goods from the HUL rural distributor and carried the products to all the nearby villages through tractors and bicycles.
All these initiatives helped HUL increase its customer service levels and minimise stock outs. Adexa iCollaboration collection was used for facilitating centralized monitoring of SCM, integrating creation scheduling and demand & distribution planning. This increased the responsiveness of the supply string, reduced inventory buffers and optimized the arranging. With the help of the iSuite the company was able to combine sales and syndication data for different products.
Despite the circulation network being so robust and best in course when compared with the competitors, HUL encounters some challenges in the future and has to intend to face them. Given below are a few of the challenges plus some ways HUL can follow to face them.
Managing modern retails: The traditional retail design has been HUL's gain in India. But the development of Modern retail shops like Walmart, Spencer's, and Hyper Retail has added another route design for HUL to work on. Managing these types of retails has been P&G's stronghold for a long time and will have an edge in this sector.
HUL must leverage after its Hindustan Lever Network to service these big retail chains. These chains like to truly have a customized syndication and replenishment system with the suppliers. (Former mate. Wal-Mart with P&G). HUL can use its experience in utilizing it tools like iSuite and RS World wide web to focus on these retails.
In a geographically diverse country like India, getting the same route design for all those regions is not possible. For the areas where availability is problems, more layers have to be inserted in the circulation network.
HUL needs to identify the areas where convenience is difficult and add another layer between your rural distributor and the sub stockists so the products reach even the remotest parts. With still on the million rural areas to be protected, HUL has a huge scope to boost its circulation network.
With all the FMCG players coming up with small sachets the frequency of buys has increased therefore has probability of stock outs.
HUL uses the idea of Mom Depots which source to the RS to maintain the stock levels. As the purchase of smaller size packets is more in the tier 2 metropolitan areas and rural areas, Mother Depots should be situated in a town to be able to cover these areas.
The distribution charges for HUL (700 crs) is much more than its competitors (P&G: 150 crs and ITC: 550 crs). The travel costs have a significant share in the costs.
The structure of homeowners in India is changing. From a pyramid structure it has evolved to a gemstone framework with middle level constituting the center class, the very best constituting the affluent course and the bottom the low income category.
The needs and the price sensitivity of every category are different. HUL must identify and categorise its products for each and every of the categories. Having a different channel strategy for every single category so that the service levels increase can be looked directly into.
Another issue facing HUL if of leveraging the IT tools and deploying it to create POS data from the small kirana stores.
The concept of creating Perfect Stores (stores having appropriate product variety to increase sales) and mass customizing them as per the purchase trends is in the making at HUL. Because of this HUL will require Intelligent Information System and a flexible but efficient syndication network that can fulfill the service levels for these Perfect Stores.
ITC is one of India's foremost private sectors companies with market capitalization of almost 100000 crores and a turnover of over 18000 crores. ITC is scored among Asia's 'Fab 50' and the World's Most Reputable Companies by Forbes newspaper, among India's ESTEEMED Companies by Business World and among India's MOST EFFECTIVE Companies by Business Today. ITC also ranks among India's top 10 `Most Valuable (Company) Brands', in a report conducted by Brand Funding and shared by the Economic Times. ITC has a varied presence in Tobacco, Hotels, Paperboards & Area of expertise Papers, Packaging, Agri- Business, Packaged Foods & Confectionery, Information Technology, Branded Apparel, HANDMADE CARDS, Safety Complements and other FMCG products. ITC has A lot more than 1000 SKU's with warehousing space greater than 4 million Sqft spread out across 55+ locations. Also Production is carried out across 45+ plant life.
ITC has a unprecedented market control in this section with a market show of around 70 percent70 %. The Dominance of ITC is equally distributed across all sections and in all geographic locations as wel as price. ITC has an extensive distribution network supprted with state of the art technology as well as products which give it a exciting long term probable in this sector.
The Foods business is today displayed in 4 categories on the market. They are:
Ready TO CONSUME Foods
In the prepared to eat section ITC has market share of 48 % and with a majority of the pie being performed by MTR as well.
CONFECTIONERY Confectionary market in India is approximately Rs. 2500 crore. It is loosely split into seven categories: 1. Hard boiled candies 2. Toffies 3. Eclairs 4. Nicotine gum 5. Bubble gum 6. Mints 7. lozenges ITC has presently in market using its two brands "Mint-o" and "Candyman".
STAPLES ITC came into the staples market in 2002 with wheat flour under the Aashirvaad brand. In 2003, ITC prolonged the Aashirvaad brand to edible salt. By early on 2006, ITC possessed a 40% market show in the Rs. 6 billion packed flour business
BISCUITS: Indian biscuit market is believed to be around 5000 crore. Biscuit industry in India in the prepared sector produces around 60% of the total production, the balance 40% being contributed by the unorganized bakeries
In the NON-FOOD segment ITC uses the same model, just that the development centres for the same are: Kolkata, Bangalore, Haridwar and Nainital.
The e-choupal initiative was created by ITC to the obstacles confronted by the Indian agricultural arena characterized by fragmented farms, fragile infrastructure and a lot of intermediation by 3rd get-togethers leading to deprivation of the farmers with their dues. The e-choupal benefits the farmers in conditions personalized knowledge(for land management as well as risk mitigation) Real-time information(for item prices, weather information and farm inputs). The company benefits in conditions of finding a route into the untapped rural market segments, leasing this channel to 3rd parties(Plantation producers) as well as for immediate marketing activities.
e-choupal helped bring down the chain costs by one half and nearly all this profit was passed on to the farmers in terms of cost savings in the labour and handling losses. Overall as the farmers benefits through increased output and gate prices, ITC benefits insurance firms paid lower procurement costs lowering the non value adding activities in the string, adding features such as insurance and credit facilities for rural public and using it as a medium for proper sourcing support for its various divisions.
The Distribution system comprising of village traders, Ghanis, wholesalers, Mandis, cooperatives, dealers has been substituted by the e-choupal as the centre of most information.
E choupal assists 4 million people distributed over 10 claims thorugh 6500 kiosks. They have around 35 hubs currently and souces its products- soyabean, caffeine, wheat, grain, pulses, shrimp from around 40000 villages. It intends to adopt this service to 15 says in the foreseeable future covering 10 million farmers and 100000 villages in the coming years.
With the inflow of merchants like walmart, ITC would be in a new arena altogether. Using its competitiors like HUL having previous experience of employed in company specific programs with shared ERP tools, ITC would have to device new circulation channel to account for such retail players.
Marico produces 125SKU's in its own seven factories and 15 sub contracting manufacturers. It has two loan consolidation/redistribution centres to control logistics activities and stores products in 32 warehouses which supply to more than 3500 vendors. The distributors source to around 1. 6 million home retail outlets. Furthermore Marico has circulation alliance with Indo Nissin Foods and a circulation arrangement with P&G. Throughout 90's Marico taken care of a robust development but with an increase of rivalry it started out facing pressure and was struggling to preserve the performance of its supply chain as its level of procedures grew. A smooth functioning supply string is vital if companies are to survive in competitive market segments. Marico's biggest problem was to create efficiencies in syndication, which is the area of ideal competitive advantage that can be achieved in India.
The main issues confronted by Marico were to deal with the fragmented character of India's retail sector and the physical reach of the market segments. Moreover though Marico provided to more than 1. 6 million retail outlets, 95% of the vendors were kirana stores. The resource chain contains a number of business components (Refer Display 17).
Marico ships all its fast-moving SKU's directly from the vegetable to the depots and its gradual moving SKU's first to the redistribution centres from where it is sent to the depots. Such a model created logistical issues. Additionally Marico being in a rise stage, it developed services and brands on a continuous basis which resulted in an increase in the accountability of more sales, more marketplaces and SKU's to be tracked, more forecasts to make and even more truckloads to configure and path (Refer Display 18).
In the overdue 90's Marico started out facing problems in its planning and forecasting due to a lack in its internal and market presence. Marico faced problems in integrating the functions of its various processes since it was primarily operating in standalone systems controlled from the headquarters and each of its then existing 30 depots. So essentially they were not integrated with the other person and complete planning was done in excel leading to a lack of data presence and inconsistent management accounts which lead to inaccurate forecasts, long planning cycles, insufficient transparency of warehouse stock and delayed customer response.
The use of excel demonstrated insufficient as the data gathered from development and sales were analyzed monthly and if there have been any changes pertaining to the marketplace within that period it was impossible to improve the creation plan. The sales office often used their personal relationship to impact the production arranging and circulation planning which lead to a lack of integrity of the whole supply chain creating more problems.
Marico mainly adopted a push strategy. It had been severely cumbersome to collect major data about the sales determine from stores as 95% of merchants were kirana stores. Therefore the only way out was to assemble data of distributor sales to sellers that was highly frustrating on the unavailability of proper it. This lead to synchronization problems between manufacturers and marketers as already these were using different time horizons of planning: 2 weeks for development and a week for distribution. The net outcome was high companies in the resource route and low service levels.
Marico also faced a major matter regarding its syndication policies. Due to too little information regarding the stock levels in depots sometimes managers had to lease temporary spaces scheduled to insufficient space with other times there have been stock outs in the depots (Refer Display 19).
Some of the crucial overall procedure strategy problems faced by Marico were (Refer Show 20):
Demand volatility is distorted and amplified along a supply chain known as Bullwhip result. Another is Clock swiftness amplification which really is a trend that manufacturers face in a decline in price/performance proportion and compression of product life routine because they are placed nearer to the consumer end of the supply chain (very true for a FMCG industry). So organizations need to adapt the speed with their internal functions to meet the accelerating exterior clock quickness.
Demand information is highly volatile from customer part as either they are really inflated or deflated.
Vertical information showing for e. g. : transmitting of point-of-sales data between a retailer and supplier has both a primary and indirect result (leaking information to other competing organizations)
Information transparency among all members of the supply string reduces demand distortion
In order to reduce throughput time speed of information travel has been critical to the businesses.
Demand signals predicated on chaining patterns in demand structure can be produced by method of alert systems thus making the source string more agile, flexible, predictable and profitable
Conceived as an electric method to acquire and review customer information from marketing and warehouses and which may be used for customer retention and acquisition as well as enhance software industry relationships and revenue.
Virtual integration enhances information sharing and thus really helps to maintain better process control and demand volatility. By using IT all partners in a value string feedback mechanism can be installed which assists with greater inter-firm collaboration. Thus digital integration enhances both downstream and upstream visibility and reduces the influence of environmental uncertainty.
The next section points out how the above challenges were dealt with by the implementation of your ERP system expanded to include all business lovers.
The challenges faced in FMCG companies are compounded when the number of brands and market segments expand. This is the case with Marico where a large level of sales in numerous markets required a sizable range of SKUs to be tracked, forecasting, creation planning along with making syndication schedules. The entailed a transfer from traditional methods of acquiring data in self-employed systems and excel sheet which essentially brought on the next problems:
Stand-alone applications with non-integration: Departments with conflicting data
Forecasting exactness only 70%, distributor stock out stood at 30%, surplus inventory and loss of sales scheduled to errors in delivery to remote depots
Data Gathering, creation planning and final production plan plan required 30 days
To optimize forecasting and distribution networks for successful delivery mechanism, an ERP execution was envisaged which would integrate the internal functions as well vendors' systems.
Vendor Managed Inventory can be an integrated approach in which the inventory of the distributor, retailer or customer (downstream) is watched and managed by the product manufacturer (upstream). This main idea is to create an integrated source chain mechanism producing a sustainable competitive border. Marico planned to extend its IT execution not only to streamline its internal functions but also consolidate its value change by putting into action a VMI solution.
Marico was initially using disparate legacy systems and the change to a complete end to get rid of ERP system required substantial investment as well as acceptability in the company. The roadmap organized because of this process in 1999 contains five stages task planning, business blueprint, realisation, final prep, go live and support to be completed by the entire year 2001. The customization required in the tool was suggested not only by the technical team however the employees and different functional minds that acquired insights in to the key trouble spots during operation. The theory was to put into practice a solution that could provide company wide integration but at exactly the same time was well equipped with the necessity of employees at the functional level.
The last system was implemented in phases and contains SAP R/3, APO and BIW, and MIDAS which effort was furthered by development of a B2B site MiNet to attain out to marketers (Refer Exhibit 21).
Marico information network forms the backbone linking various business components and associates. It really is a portal with usage of 800 marketers and 110 excellent distributors of Marico disperse across the country. Super vendors are vendors for rural areas who sell to the stockists who further hook up to the retailers. This network thus, attaches to 330 marketers which accounts for about 75 % of company's sales.
At the backend installed is the SAP R3 exchange handling modules for sales, financing and materials management. The company in addition has installed the Advance Planner & Optimizer (APO), a source chain component, which works right from demand forecasting to materials management and development planning. Marico claims to be the first APO installation for SAP in India.
Finally, the company has in place a company information warehouse (BIW) which is the repository of every little bit of information highly relevant to the company. This backend is from the outside world comprising ratings of business associates through MiNet.
The most important sales mostly done by the depots or C&F agents have also been enabled by this system. These depots are linked via VSATs (really small aperture terminals) or a exclusive private network at Marico's expense. The secondary sales done by the distributors is also captured using the MIDAS request and linked to the company via MiNet. Distributors feed data, purchase, billing etc. in MIDAS and then dial in regularly and feed the information on MiNet. This reduces the issue of connectivity in remote control areas as the marketers may well not be online on a regular basis.
The discussion and move of information between various systems can be visualized through Exhibit 22.
In the entire year 2005, throughout a lecturer Mr. PradeepMansukhani - CEO Sales, Marico Companies Ltd. explained "the existing supply chain with the situation 3 years in the past wherein there have been a lot of inefficiencies. Insurance firms a clear vision, investing in place a sturdy IT infrastructure and chasing it up with a rigorous awareness and a training program for the 1000 plus vendors who are the principal customers, Marico has managed to put in place a system that is currently paying down handsomely. The brand new system has resulted in synergistic and enduring relationships with the principal customers which is value adding and based on trust. "
The IT empowered conduct of the business led to significant improvement in some of the key metrics for the company (Refer Exhibit 23) such as reduction in distributor and company stockouts, increased forecasting precision and reduction in sales skew.
Apart from these understood improvements, some of the tacit benefits included data transparency across sales programs, ability to keep tabs on competitors plus more control of the sales force and partner state disbursements.
The company pioneered both alternatives - MIDAS and MiNet and redefined the way FMCG business could advantage by it for a company intelligence platform due to which it was the receiver of Computer Associates Intelligent Enterprise Award in 2002.
Marico has utilized it SAP integration experience in some of the received businesses such in its acquisition of the buyer department of Enaleni Pharmaceutical. Unlike its prior execution of SAP where SAP R/3 was rolled out first followed by execution of other modules, the execution at Enaleni required traffic monitoring of current and previous sales data for better forecasting. Thus, SAP BW (Business Warehouse) and SEM (Strategic Business Management) and BPS (Business Process Simulation) were deployed concurrently.
Issues and Challenges
Demand Sensing & Respond Capabilities
Issues and problems in version of IT
Sales force automation
Electronic Partnering Options
Technological Compatibility and Competency
Partner Perceptions and Beliefs
Avg. Distr. Stock out in %
Stockouts at Marico
Avg. Depot Stock away in %
Inventory at Marico
Avg. Inventory in No of Days
Accuracy at Depot Level
Skewness within month
Percentage sales per stop of 10days
Supply vs Plan %