Post on 06-Apr-2018
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Consumer Packaged Goods Industry (CPG)
Domain Competency Group
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Agenda
Introduction to Consumer packaged Goods Industry
What is a Consumer Packaged Good (CPG)
Categories in CPG industry
What is a CPG Company?
Organization Structure of a CPG Company
The Value Chain The Players
Supplier
CPG Company
CPG Manufacturer
Warehouse/Distribution Center
Distributor
Retailer
Consumer
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Agenda .. Contd.
Key Business Processes in CPG Company
Planning
Buying & Sourcing
Manufacturing
Logistics and Distribution
Sales and Order ManagementMarketing Management
Customer management
Information Technology in CPG Industry
Global Data Synchronization
RFID
Regulatory Compliance
Security
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Introduction To CPG
What is a Consumer Packaged Good
Consumables like food products, beverages, home & personal care, tobacco etc. whichhave a short life span and get replaced frequently.
Market Size
Global market size of $ 1,500 Billion
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Consumer Packaged Goods Industry
Food & Beverages Home Care Personal Care
Makers of generalhousehold items, OTCdrugs, nutritionalsupplements, pet foods
Key Players: Procter &Gamble, Unilever,
Reckitt Benckiser
Makers of personalhygiene, beauty care,baby care products
Key Players:Unilever, Procter &Gamble
Makers of food products,beverages, dry coffees,teas and fruit smoothies
Key Players: Nestle,Kraft Foods, Coca-Cola,
Pepsi
CPG Categories
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Food & Beverage Category - CPG
Dinner Solutions
Fz Dinners/Entrees, Natural Cheese, Soup, Rfg Salad/Coleslaw, Fz Poultry, Fz Pizza, Vegetables, Dry Packed Dinners, Fz Seafood, Fz Plain
Vegetables
Beverages
Carbonated Beverages, Milk, Beer/Ale/Alcoholic Cider, Bottled Juices, Rfg Juices/Drinks, Wine, Spirits/Liquor, Coffee, Bottled Water,Creams/Creamers
Sweet & Dessert
Chocolate Candy, Ice-cream/Sherbet, Cookies, Non-Chocolate candy, Snack bars/Granola bars, Fz Novelties, Canned/Bottled Fruit, BakerySnacks, Gelatin/Pudding Mixes, Fz Desserts/Toppings
Ingredients
Fresh Eggs, Dough/Biscuit Dough, Baking Mixes, Salad Dressings, Spices/Seasonings, Baking Needs, Margarine/Spreads/Butter Blends,Butter, Sugar, Mayonnaise
Breakfast Solutions
Cold Cereals, Breakfast Meats, Yogurt, pastry/Doughnuts, Fz Breakfast Foods, Hot cereal, Toaster Pastries/tarts, EnglishMuffins, pancakeMixes,
Lunch Solutions
Freash Bread/Rolls, Luncheon Meats, Processed Cheese, Frankfurters, Peanut Butter, canned Meat, Cream Cheese/Cream Cheese Spread,Lunches-Rfg, Pickles/Relish- Rfg
Salty Snacks
Crackers, Snack Nuts/Seeds/Corn Nuts, Popcorn/Popcorn Oil, Rice/Popcorn cakes
Baby Foods
Baby Formula/Electrolytes, Baby Food, Baby Diapers
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Food & Beverage Products
Food Products Beverages
CarbonatedDinner Solutions
Sweet and Desserts Non-Carbonated
PackagedWater
Alcoholic Drinks
Ingredients
Breakfast Solutions
Lunch Solutions
Salty Snacks
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Home Care Products
House Care
Toilet Tissue, Laundry detergent, Household Cleaner, Paper Towels, Food & TrashBags, Facial Tissue, Dish Detergent, Light bulbs, cups & plates, CleaningTools/mops/brooms
Pet Care
Dog Food, Cat Food, Pet Supplies, Cat/Dog Litter
General Merchandise
Batteries/Kitchen Storage, Photography Studies, Socks, Blank Audio/Video Media,Office Products, Lawn Fritzr, Childrens Art Supplies, Writing Instruments,Pantyhose/Nylons
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Home Care Products
House Care Pet Care General Merchandise
Laundry Care
Dishwashing Products
Surface Care
Chlorine Bleach
Toilet care
Polishes
Air Fresheners
Insecticides
Dog Food
Cat Food
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Home Care Products - Category Sizes
45000
42543
12939
8829
5423
4779
3013
2946
2798
0 10000 20000 30000 40000 50000
Pet Care
Laundry Care
Surface Care
Dishwashing ProductsAir Freshners
Insecticides
Chlorine Bleach
Polishes
Toilet Care
Cate
gory
GlobalMarket Size (in $ Mn)
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Personal Care Products
Personal Hygiene
Soap, Toothpaste, Toothbrush/Dental accessories/Sanitary napkins, Shampoos,Deodorants, Razors, Hand & Body Lotion, Hair Conditioners, MouthWash
Beauty Care
Skin Care, Hair Coloring, Facial Cosmetics, Fragrances, nail Cosmetics, Hair styling gel,Lip & Eye Cosmetics, Hair Spray, Hair accessories, shaving lotions
Baby Care
Diapers, Baby Accessories, Moist Towelettes, Baby Needs
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Personal Care Products
PersonalHygiene
Beauty Care Baby Care
Baby Care
Fragrances
Color Cosmetics
Hair Care
Bath and Shower
Oral Hygiene
Deodorants
Mens Grooming
Skin Care
Depilatories
Sun Care
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Personal Care Products -Category Sizes
2,559
3,476
4,302
9,242
16,221
20,335
20,701
22,408
28,055
38,481
42,491
0 10,000 20,000 30,000 40,000 50,000
Depilatories
Baby Care
Sun Care
Deodorants
Men's Grooming
Oral Hygeine
Bath& Shower
Fragrances
Color Cosmetics
Skin Care
Hair care
Category
GlobalMarket Size (in $Mn)
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CPG Company
The owner of a consumer packaged good trademark is a CPG
company.Th
ey are also called as brand owners.A CPG Company is a Marketer of the CPG product
It creates brands by investing in advertising and communication of theproduct
It decides the characteristics of a CPG product like pricing and promotions.
A CPG Company may or may not manufacture and/or distribute the
product for final consumption. A CPG company defines the manufacturing processes and product quality
parameters which effect the composition of the product.
It sets policies and guidelines for organization activities and controls & monitorthe manufacturing plant
Hence irrespective of it manufacturing a product CPG company keeps a verytight tab on production and distribution processes
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Key Activities Undertaken By A CPG Company
Marketing and advertising The CPG product
Launching new products and innovating and developing on the existingproducts
Close to 30000 new products in CPG were launched last year
Key account management
Specific focus on handling large accounts like Wal-Mart, K-Mart etc. A greater sense ofcollaboration happens in terms of order management, forecasting and promotionsmanagement.
Managing prices and promotions
Taking pricing decisions suitable to local environment and managing trade/consumerpromotions
Supply Chain Management
Managing global supply chains to reduce the sourcing costs and better vendormanagement
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CPG Industry - Organizational Structure
Administrative Structure
Executive, Assistant Manager, Regional Manager, General manager, VP,President
Functional Structure
Sales, Marketing, Production, Dispatch, Key Account, Finance, InformationSystems, Human Resources, Purchase
Geographical Structure
APAC, Europe, North America, Africa
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Organizational Structure - Illustrative
Vice President
Region
Vice PresidentHuman Resources
Vice President
Finance
Vice PresidentMarketing
Vice President
Production
Vice PresidentLogistics/Supply Chain
Executive
Systems
Manager
Systems
Executive
Finance
Manager
Finance
Executive
Human Resources
Manager
Human Resources
Executive
Sales
Manager
Sales
Executive
Marketing
Manager
Marketing
General Manager
Unit
Executive
Production
Manager
Production
Executive
Logistics/Supply Chain
Manager
Logistics/Supply Chain
General Manager
Human Resources
General Manager
Marketing
General Manager
Finance
General Manager
Production
General Manager
Systems
Vice PresidentSystems
General manager
Logistics/Supply Chain
President & CEO
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CPG INDUSTRY VALUE CHAIN THE PLAYERS
Supplier
Warehouse/ Distribution
Center
Distributor
Retail Store
Consumer
CPG
Manufacturer
Retail Distribution Center
Retailer
3
1
4
5Direct Store Delivery
Distribution Center Delivery
2
2(b)
CPG Company
2(a)
4(a)
4(b)
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SUPPLIER
Supplier is a provider of goods or services to the CPG
Company.
Suppliers can be classified on the basis of cost and how the goods orservices integrate with the end product
Supplier Classification
Key performance metrics
Cost of Supply
Reduced Lead Times
Service QualityPromotions etc.
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Supplier Classification
Materials and Parts
Short lasting goods that facilitate developing ormanaging finished product
Clickh
ere for examples
Long lasting goods which facilitate developing ormanaging the finished products
Click here for examples
Goods that are identifiable parts of the finishedproduct
Click here for examples
Capital Items
Supplies
Business Services
Services like advisory/maintenance services whichfacilitate developing or managing finished product
Click here for examples
Classification on the basis ofhow the goods or services enters the industrial
production process and their relative costing
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Materials and Parts
Two types of materials and parts
Raw Materials
Sugar, wheat, cotton
Manufactured Material and Parts
Cartons, Packaging materials
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Capital Items
Installations
Factories, offices
Equipment
Handtools, forklifts and other tools and prtable factory equipment
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Supplies
Operating Supplies
Lubricants, coal, oil, writing paper, pens etc.
Maintenance and repair items
Paint, nails, brooms
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Business Services
Maintenance and repair services
Window cleaning, type-writer repair
Business advisory services
Advertising agency, market research agency, legal services, management consultingservices
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CPG Manufacturer
A CPG Manufacturer is the owner of a unit producing a CPG product
CPG Manufacturers Can Be Of2 types depending on the ownership of themanufacturing facility
Company Owned Manufacturing
Here the CPG Company (Brand Owner) owns the plant
Third Party/Franchisee Owned Manufacturing
The franchisee produces the product as per the norms of the CPG player quantity, quality, price
Pays a franchisee fees to the CPG player which normally is directly proportional to the sales
Very closely collaborates with the CPG Player
E.g. SAPCO does bottling operations for The Coca-Cola Company
Ownership patterns are governed by a variety of factors
Maturity of product in the market
Investment requirements
Control of trade secrets
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Key Processes in CPG Manufacturing
Manufacturing
Transportation Logistics
Procurement
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Distributor
Who is a distributor?
A buying, warehousing and distributing organization that delivers merchandise to retailstores in their own trucks.
Distributor Operations
Unloading goods from supplier
Palletizing and storing goods maintaining FIFO
Order Collection by Electronic media/phone/salesman
Organizing orders according to the beat plan
Loading vehicles with the relevant orders
Supplying goods to customer
Ordering goods from the supplier
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Distributor Operations
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Goods FromCompanyWarehouse
DistributorWarehouse
Route Truck 1
Route Truck 2
Sales and Delivery
Sales and Delivery
Retail Stores
Retail Stores
Loading routetrucks
Collecting OrderDelivery of
goods
Accepting goods fromcompany as per previous
order
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Retailer
A Retailer is a seller of products or services to the consumers for their personal useorhouse-hold use
In a Retail Organization there are two types of entities
Retail Distributor Center
Retail Store
Retail Distribution Center
A centralized procurement and distribution facility which stocks and distributes various SKUs.
Centralized distribution and procurement facilitates tighter inventory control and reduced procurement costs
Retail Store
Point of actual purchase by consumer. Stores and merchandizes various product assortments which are boughtby the consumer
Retail Store Classification
Some CPG product categories sell more via a particular types of stores than others Click here to see data
Key C
h
allengesA
ffecting CPG CompanyReducing Transport and Order Fulfillment time
Ability to collaborate with major key retailers like Wal-Mart using EDI: Adherence to UCCNet/ RFID
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Classification of Retail Stores
Classification based on the type/range/price of products
Supermarkets A supermarket, or grocery, is a store food and drinks and sometimes drugs, clothes and otherhousehold products
that are consumed regularly. A supermarket offers a great variety of products.
Drug Stores
Pharmacies and Drug stores engaged in retailing prescription or nonprescription drugs and medicines. Theseretail a range of prescription and over the counter (OTC) medicines, health and beauty items such as vitaminsupplements, cosmetics and toiletries as well as offering photo processing services.
Club Stores
These stores retail a general line of grocery products along with new merchandise items. The majority of goodssupplied by this industry are purchased by wholesalers and retailers for resale. A smaller share of goods ispurchased by consumers for private use.
Mass Merchandisers
A self-service store displaying and selling different kinds of merchandise at lower overall profit margins than otherretailers.
Dollar Stores
A store selling inexpensive items for one dollar each. It usually sells everything from cleaning supplies to childrenstoys. Most of these products are not branded and have a lower quality compared to products sold in other retailstores.
Super centers
super center is a very large store that combines two formats: a complete grocery store and a complete massmerchandiser store. These formats are combined in the same building with common checkout lanes.
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CONSUMER
A Consumer is a person who consumes/ uses the product or service forhisend use and not for re-selling
CPG Products are
Fast Consumption products: implying regular purchase
Low value products: implying low switching costs for consumer to competitors products
Hence for the CPG company it is essential to have a strong and effective marketingcampaigns to influence the consumer buying and decision making process, so as to
build preference Consumer Decision Making Process
Different consumers have differing needs to buy a product
Needs could be based on tangible/aspiration requirement
Hence it is important for CPG company to segment consumers on the basis of theirneeds and target specific consumer segments with their product offering which isreinforced by their marketing campaigns
Consumer Segmentation
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CONSUMER: THE DECISION MAKING PROCESS
Problem Recognition
Information Search
EvaluatingAlternatives
Post-Purchase Behavior
STAGE INTERVENTION BY CPG PLAYER
Minimize gap between communication
and product benefit/attribute
Media Mix: Print/Television/Radio
Highlighting the value proposition value
communicating the product
Purchase BehaviorMerchandizing and Displaying the
Product
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Consumer Segmentation
The Need
To distinguish one product from the other, selectively target a specific group of people to whom theproduct is most appealing to. The group should be such that it makes economical sense to target itand the company has the expertise to make those features in the product which appeal to the group
Measurable
Substantial
Accessible
Differentiable
Actionable
Classification of consumer can be
Geographic
Parameters: Region, population size, density, climate
Demographic:
Parameters: Age/Family Size/Income/Gender/Occupation/education/Social Class
Psych
ographic
Parameters: Lifestyle/Personality/Value
Behavioral:
Parameters: Occasions/Benefits/Usage Rate/Attitude toward product
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Key Business Processes of CPG Company
Planning
Buying and Sourcing
Manufacturing Management
Logistics and Distribution Management
Sales and Order Management
Marketing Management
Supplier CPG Company Retailer Consumer DistributorVALUE CHAINPLAYERS
KEY BUSINESS
PROCESSES
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Functional Value Chain
PlanningBuying andSourcing
Manufacturing
Management
Logisticsand
DistributionManagemen
t
Sales andOrder
Management
MarketingManagemen
t
DemandForecasting
FinancialPlanning
SalesPlanning
MarketingPlan
ProductionPlan
Logistics &ProcurementPlan
What toBuy?
How Muchto Buy?
When toBuy?
How ToBuy?
FromWhom ToBuy?
ProductionScheduling
Manufacturing OrderExecution
Productionreportingandexecution
Inventorymanagement
PurchaseOrderManagement
Transportation
Management
WarehouseManagement
Distributionmanagement
TradeCustomer
Services
Trade ordermanagement
Sales forcesupport andautomation
Marketresearch
BrandManagement
AdvertisingandConsumerActivations
TradePromotionManagement
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Planning
Objective
To estimate and plan forresources correctly so as to satisfy the consumer demand inthe most cost effective manner
Meet sales expectations
Avoid out-of-stock conditions
Guard against overstock
Keep inventory investment at acceptable level
ManpowerContract LaborCompany Employees
SalesFinanceLogisticsMarketingProduction
SupplierSupplier of Goods
Machinery
Raw MaterialsSupplier of ServicesTransporterAdvertising AgencyMedia
CustomersKey RetailersDistributors
BanksLong Term vs ShortTerm Loans
Investment of ExcessCash
RESOURCES
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Planning Process - Components
Demand Forecasting
Financial Plan
Sales Plan
Marketing Plan
Production Plan
Logistics &Procurement Plan
Forecasting Yearly, Monthly, Weekly demand SKU-wiseDoing a rolling estimates of demands quarterly/monthly/weekly
Product Life Cycle and Seasonality Analysis
Capital ExpenditureNon-Capital Expenditure
Sales force staffing plan, Distribution plan, retail management
plan, Budgets for trade schemes
Communication mix, advertising campaigns, consumeractivations, packaging innovations, product launches
Scheduling batch runs
Labor SchedulingMaintenance Plan
Sourcing of raw materials, production scheduling, logistics andtransportation plan, Contract laborhandling
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Buying & Sourcing
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Buying and Sourcing
Objective
To source the materials and services used in product manufacturing in a cost effectiveand organized manner
Increase Procurement Efficiency
Material Cost Reduction
Inventory Holding Cost Reduction
Minimizing Raw Material Stock-Outs Efficient Planning and Forecasting
Vendor Collaboration
Ability to Source Urgent Requirements
Buying and sourcing is all of the processes involved in requesting, ordering,auditing, and paying for goods and services.
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Steps In Buying and Sourcing Process
1. Create Internal Requisition
2. Approval Process & Purchase Order Creation
3. Purchase Order Delivery to Suppliers
4. Bidding Process: Specifications from Suppliers
5. Supplier Selection & Confirmation
6. Advance Shipment Notice to CPG Manufacturer
7. Goods & Invoice receipt and matc
hing against t
he Purc
hase Order
8. Payment Based On Terms Of Credit
9. Payment receipt confirmation by supplier
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Increasing Sourcing Efficiency : Material Cost Reduction
Before After
Revenue $1000 M $1000 M
COGS-Material $600M $570M
Labor O/H $200M $200M
Gross Margin $200M $230M
Operating Expenses $100M $100M
N.I.B.T. $100M $130M
A 5% reduction in material cost increases net profit by 30%
Material Costs Reduction Can Happen Via The Following
Bidding Process and Global Sourcing
Closer Vendor Collaboration
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Increasing Sourcing Efficiency: Reduction of Raw Material Inventory
Holding Costs
Raw Material Inventory Holding Cost
Cost of investment in the goods which are used in the production process Typically is the interest paid on the value of raw material goods held in the warehouse for
production
Interest typically is the rate of return the business earns
Inventory Holding Cost = Value of Inventory * Rate of return earned by the business
E.g. (Illustrative)
Inventory value = $100M
ROI of CPG Manufacturer = 12%
Inventory holding cost = Inventory value*ROI = $100M*12% = $12 M
Inventory holding cost can be reduced by
Negotiating to reduce material costs
Reducing the stock levels by better collaboration with suppliers (reducing supplier lead times)
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Questions addressed by Buying and Sourcing Process
A Buying and Sourcing Process Addresses the five key questions
What to buy?
How much to buy?
When to buy?
From whom to buy?
How to buy?
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What To Buy?
Direct Materials
Ingredients
Packaging Materials
Indirect Materials
Office Supplies
Utilities
Spare Parts
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How MuchTo Buy?
Information Interaction
OrderQuantity Determination
Methods
Number of Days Stock
Economic Order Quantity
Supplier Information
Supply Lead TimeFreight Costs
Demand InformationProductionSalesCustomers
Min/Max Quantity
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How MuchTo Buy Information Interaction
XYZ
Company
Supplier
Retailer
Distributor
Consumer
Procurement
Manufacturing
Warehousing &
Logistics
Marketing
EXTERNAL ENTITIES INTERNAL ENTITIES
7. Lead Time,Quality, Quantity,
Price, PaymentTerms
2. Product wise
Sales Data
1. Product wiseSales Data
3. Changing Trends,Emergence of aproduct category
6. ProductionSchedule, Raw
MaterialRequirement
4. Product demandestimates factored for
promotions, NewLaunches
5. InventoryFinished Goods& Raw Materials
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How MuchTo Buy? - Number ofDays Stock Method
Determines the number of days stock the manufacturer will order over andabove the normal safety stock
The number of days stock is basically determined by the suppliers lead timewhich could vary from month to month
Month
Planned
Production
Requirement
Number of
Months Stock
Ratio
Planned
B.O.M.
Stock
Planned
E.O.M.
Stock
Planned
Order
E.O.M.
Jan 10000 2 20000 37500 27500
Feb 15000 2.5 37500 60000 37500
March 20000 3 60000 120000 80000
April 30000 4 120000 120000 30000
May 30000 4 120000 75000 -15000
June 25000 3 75000 90000 40000
B.O.M. = Beginning Of Month, E.O.M. = End Of Month
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How MuchTo Buy? - Economic OrderQuantity
WHERE:
D = ANNUALDEMAND, S = COSTTO PLACE ONE ORDER
I = % CARRYING COST/UNIT, C = COST OF ONE UNIT
Economic Order
Quantity=
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How MuchTo Buy? - Min/Max Quantity Method
Order quantity =
maximum quantity of SKU in stock
minimum quantity of SKU in stock
Maximum quantity depends on factors like
Storage space availability: E.g. for ice-cream products one needs a cold storage whichwill be very limited in the warehouse
Financial resources available for investing in stock
Minimum quantity depends on
Safety stock to cover for demand fluctuations
Supplier lead times
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When To Buy?
Periodic Replenishment Reorder Point Purchase Forward Buy
Variable order quantity butfixed time interval ordering
A convenientreplenishment method in
which the warehouseknows exactly when it will
receive goods.
With advance planning thewarehouse can arrangeand schedule transport
logistics and manpower in
advance thereby derivingcost benefits
Click to see graph
Fixed order quantity butvariable time interval
Ordering triggered wheninventory falls below a
specified norm called thereorder point
Helps to minimize and planinventory holding costs,
especially for items whichare costly and are not fast
consumption items
Click to see graph
Ordering independent oftime and quantity
Bulk purchase especiallywhen there are discounts
offered
The item may be usedseveral months after thepurchase but results in
substantial material costsreduction
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When To Order? - Periodic Replenishment
Day 1 Day 2 Day 3 Day 4 Day 5 Day 6 Day 7 Day 8 Day 9 Day 10
Inve
ntory
Fixed Replenishment period
Time Period
Day 11 Day 12
M
aximumInventory
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When To Order? - Reorder Point
Day 1 Day 2 Day 3 Day 4 Day 5 Day 6 Day 7 Day 8 Day 9 Day 10
Inventor
y
ReorderPoint
Fixed
OrderSize
Safety
Stock
M
aximumInventoryLevel
Time Period
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From Whom To Buy?
Terms Of Sale Vendor Performance
Basic Cost
Discount
Credit Limit
Number of Days Credit
Material Quality
Lead Time
Reliability
Value Added Services
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How To Buy?
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Case Study - Procurement Process atA Chocolate Manufacturer
(hypothetical case)
Situation
A plant, manufacturing milk chocolate
Ingredients: For 10 gm Milk Chocolate Bar production, Needed are the following
Sugar: 2gms
Milk: 20ml
Cocoa Beans: 2gms
Wrapping Foil: 10cms
Pack Cover: 1
Carton: 0.01 (1 carton for a pack of 100, 10gms milk chocolate)
Production Run: 100,000, 10gm milk chocolate (1000 cartons) scheduled after 10 days
Raw Material Inventory
Sugar: 200 kg
Milk: 100ltrs
Cocoa Beans: 150kg Wrapping Foil: 1000mtrs
Pack Covers: 5000
Cartons: 500 cartons
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Case Study (Contd.)
Prescribed Raw Material Inventory (depending on supplier lead times)
Sugar: 100kg
Milk: 1 20ltrs
Cocoa Beans: 150kg
Wrapping Foil: 800mtrs
Pack Covers: 3000
Cartons: 600 cartons
Lead Time (Time Taken By Supplier)
Sugar: 4 days
Milk: 2 days
Cocoa Beans: 6 days
Wrapping Foil: 10 days
Pack Covers: 9 days Cartons: 7 days
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Case Study (Contd.) - WHATTO BUY?
Cocoa Sugar Milk Pack
Covers
Cartons
Milk
Chocolate
Wrapping
Foil
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Case Study (Contd.) - How MuchTo Buy?
For Every Raw Material Calculate The amount consumed in the production run
Sugar : For 1 chocolate need 2gms, for 100000 chocolates need 200 kg sugar
Milk: For 1 chocolate need 20ml, for 100000 chocolates need 2000ltrs Milk
Cocoa Beans: For 1 chocolate need 2gms, for 100000 chocolates need 200 kg cocoa
Wrapping Foil: For 1 chocolate need 10cms, for 100000 chocolates need 10000mtrs foil
Pack Covers: For 1 chocolate need 1 cover, for 100000 chocolates need 10000 covers
Cartons: For 100 chocolates need 1 carton, for 100000 chocolates need 1000 cartons
For Every Raw Material Compute the Order Size By following
Closing Inventory + Amount Consumed OP Inventory = Raw Material Ordered
Sugar: 100kg+200kg-200kg = 100kg Sugar To Be Ordered
Milk: 120ltrs+2000ltrs-100ltrs = 2020 ltrs Milk To Be Ordered
Cocoa Beans: 150kg+200kg-150kg =
200kg Cocoa Beans To Be Ordered
Wrapping Foil: 800mtrs+10000mtrs-1000mtrs = 9800mtrs Foil To Be Ordered
Pack Covers:3000+10000-5000 = 8000 Pack Covers To Be Ordered
Cartons:600+1000-500 = 1100 Cartons To Be Ordered
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Case Study (Contd.) - When To Buy?
Raw Material Will Be Ordered So That The Supply Reaches Just In Time ForProduction So The Latest Ordered Can be Placed Is Equal To Production
Scheduled Date Minus Lead Time
Day 1 Day 2 Day 3 Day 4 Day 5 Day 6 Day 7 Day 8 Day 9 Day 10
Order300kgSugar
Order
1980ltrs Milk
Order200kgCocoaBeans
Order10200mtrs Foil
Order 12000
pack covers
Order900cartons
Day 11
PRODUCTION
SCHEDULED
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Case Study (Contd.) - From Whom To Buy?
Strategic Suppliers
Suppliers ofWrapping Foil, Pack Covers, Cocoa and CartonsGenerally the requirement is specific to the company, e.g. Nestle Milk ChocolateWrapper Cannot Be Used By Any Other Manufacturer
Commodity Suppliers
Supplies of Sugar and Milk Can Be Sourced Via A Wider Variety Of Supplier As They
Are Easily AvailableGenerally Go With The Lowest Price Suppliers
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Case Study (Contd.) - How To Buy?
Commodities like Milk and Sugar
E-marketplaces where one can place order and have the lowest bid
Strategic Products packing cover and wrapping foil
Collaboration with suppliers
Inventory
Demand Forecasts
Production Schedule
Sales Data
Suppliers could automatically deliver looking at inventory condition or on order whichcould be placed via an EDI or Portal or By Phone/fax
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Manufacturing Management
Objective
To produce the product while minimizing production costsCosts to be minimized can be of various types
Material wastage cost
Plant downtimes
Maintenance costs
Power utilization costs (Power efficiency)
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Manufacturing
Manufacturing is the process of converting raw materials into a finishedgood by means of a large scale industrial operation.
Schematic of a manufacturing process
Illustration of a manufacturing process
Performance Metrics In Manufacturing Process
Reduce wastageIncrease Capacity Utilization of Production Line by reducing downtimes
Minimize product stock-outs
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Manufacturing Process A Schematic
Raw materials
Packagingmaterials
Utilities - Energy
Production Process
FinishedGoods
WasteProducts
Machinery Spares
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Syrup preparation Filling and carbonation Conveying
Quality CheckPalletizing and warehousing
Manufacturing ProcessAt A Beverage Manufacturing Plant
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Performance Metrics In CPG Manufacturing
Key Challenge In Manufacturing
Multiple products/SKUs to be created on one production line
The sequence in which the products are produced determines the efficiency of the line
Use of production scheduling tools
Performance Metrics
ReduceWastage/ Increasing Plant Yield
Plant Yield (in %) = (1- Waste Product/Finished Good)*100
To minimize the wastage of raw materials during the production process. The more number of times the productchange-overhappens on the production line the more raw material wastage happens and hence the plant yielddrops. Hence the essence is to take as long batch runs as possible so as to avoid frequent changeovers. Butlonger batch runs could lead to holding higher inventories and hence higher carrying costs. Hence an optimumneeds to be set.
Increasing Capacity Utilization: Increasing Production Time
Reduce the Changeover Time or Break Down Time or Preventive Maintenance Time. Changeover time is directlycontrollable and can be reduced by proper sequencing of SKUs to be produced. Hence production scheduling isan important.
Reduced Finished Goods Stock-outs
Production scheduling and batch run has to happen in a way which is in sync with the demand. Hence productionscheduling has to be done so that finished goods stock-outs are minimized
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Manufacturing Management Key Components
Inventory Management
Production Reporting andExecution
Production Scheduling
Shop floor practices which are directly related to productionprocesses
Reporting tools which determine plant efficiencies and yields
Production planning and sequencing of different batch runs on
th
e same production line to in a way which
reduces ch
angeovercosts
Manufacturing OrderExecution
Managing optimal inventory levels to take care of thedemand/sales forecasts while reducing inventory holding costs
Purchase OrderManagement
Requisitions for materials raw materials, manufacturedmaterials, spares, equipment etc.Order management of the above categories
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Distribution and Logistics management
Processes involved in making the CPG product reach the retail store shelf
Key Components
Transportation Management
Warehouse Management
Distribution management
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Transportation Management
Transportation is the process of moving goods from one location to another. Themode of moving may be via trucks, railways, ships or by air.
Typically a third party (transporter) is hired by the CPG Company to move its goodsfrom manufacturing plant to a distribution warehouse
Since CPG products are low value per volume items, the transportation costs as apercent of total revenues are higher. Hence transport costs are critical to determiningcost efficiencies
Performance Metrics in Transportation
Transport Cost Minimization
Fleet Utilization
Higher transport fleet utilization is critical to bringing down transport costs as a percent of revenues. To do so non-standard (lessthan truckload) orders need to be clubbed
Reducing the number of miles run by route scheduling
Order clubbing of multiple locations should be done in a manner so that the miles run by the transport vehicle is minimized. This callsfor a proper route planning
Minimizing the Empty Miles
Since the transport truck has to come back to the plant, the critical challenge is utilize the truck on the way back by tying up withsome other company whichhas goods to be hauled to the CPG warehouse location. If not done so the CPG player ends up payingfor empty miles of the truck on the way back.
Reducing damages in transit
Using racks to handle and stack fragile materials in the container
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Warehouse Management
AWarehouse is a storage facility which stocks and supplies the products of the CPGcompany to retailers or distributors
Key Activities in a Warehouse
Performance Metrics in Warehousing and Distribution
Minimizing Material Loss
Prevention of Pilferage and Damage
Handling and stacking fragile products
Specialized storage space e.g. Cold Storage Space For Ice-Creams
Following FIFO (First In First Out) practice to dispatch older products first and then the fresher products
Stock Availability and Inventory Replenishment Process
Accurately tracking inventory information
Reducing Product Stock-Outs By stocking appropriate quantities
Order Fulfillment
Accurately fulfilling the customer orders
Minimizing Distribution Costs
Route Planning of Order Delivery to Increase Freight utilization and reducing the number of miles run for delivery
K A ti iti I A W h
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Key Activities In AWarehouse
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Goods Receipt FromManufacturing Plant
Unloading Goods From Truck Stacking Goods InWarehouse
Receiving OrdersLifting and loading goods todelivery truck
Transporting Goods ToDistributor or Retailer
Di t ib ti M t
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Distribution Management
Objective
To ensure supply of all the SKUs to t
he retail store at t
he lowest cost
Importance ofDistribution in CPG industry
CPG Products are day to day usage products and get consumed very quickly, hence theirreplenishment is very frequent. Hence service efficiencies in distribution is critical to avoid stockouts.
Presence of substitutes makes product stock-out at an outlet a major sales loss opportunity. The
consumer may buy a competitive product leading to sales loss
Distribution in CPG Industry
A CPG company can follow two types of distribution models depending upon the type ofproduct
Warehouse Distribution
Direct Store Delivery
Di t ib ti I CPG I d t
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Distribution In CPG Industry
Warehouse Distribution
The CPG product is sent from t
he Company
Wareh
ouse to a Distribution Center (DC) ofa large retailer. The product is then sent from the retailers distribution center to the retailstore.
Schematic of Warehouse Distribution
A retailer may have multiple DCs which may be organized in one of the two ways:
DC containing all SKUs and supplying to a set of retail outlets who take stocks exclusively from it
DC containing some SKUs and supplying to retail outlets who take some SKUs exclusively fromthe DC and other SKUs exclusively from some other DC
W h Di t ib ti
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Walmart DC
Walmart Store1 Walmart Store2
K-Mart DC
K-Mart Store1 K-Mart Store2
7 Eleven DC
7 Eleven Store1 7 Eleven Store2
DC: Distribution Center, A warehouse of a retailer which would stock products from different manufacturerslike CPG, Apparel etc. and supply to stores of the chain
Warehouse Distribution
Di t ib ti i CPG I d t Di t St D li i
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Distribution in CPG Industry Direct Store Deliveries
Direct Store Deliveries
Direct Store Delivery is a method of delivering product from CPG ware
house directly tothe retail store bypassing retailer warehouses. The shelf inventory in the retail store is
usually managed by the CPG company/distributor with product check-in done both bythe CPG company/distributor and the retailer
Major CPG categories include
Beverages, Snacks, Baked Goods, Greeting Cards etc.
DSD product characteristics
The deliveries may be handled in two ways
From company warehouse to retail store (2 tier DSD model)
From company warehouse to a distributor to a retail store (3 tier DSD model)
DSD P d t Ch t i ti
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TypeType DescriptionDescription ExamplesExamples
Perishability Shelf life too short to allow product to movethrough warehouse distribution network
Bread/ pastry
Fragility Vulnerable to physical damage products whichmay be significantly damaged if not given physicalprotection afforded by DSD
Cookies/ snacks
DensityExtremes High volume products at the extremes of densitymake it difficult to fully utilize truck space from thewarehouse
Potato chips/ papertowels OR soft drinks/beer
State/ LocalRegulations
Laws regulating the handling and payment ofcertain items can require specialized treatmentsuch as DSD can easily provide
Beer/ alcoholicbeverages
Unique SalesPatterns Complex sales patterns that require purchasing ormerchandising skills not readily available in theretail organization (slow moving items that arenecessary orhigh-impulse items that require storemerchandising support)
Cookware/ hosieryOR soft drinks/cookies/ snacks
DSD Product Characteristics
Source: GMA DirectStore Delivery An ECR Best Practices Report 1995 and Infosys analysis
Two Tier DSD Model
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Two TierDSDModel
Brand Owner is same as the CPG company
Three Tier DSD Model
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Three TierDSDModel
Brand Owner is same as the CPG company
DC shown above is the CPG companys Distribution Center
Warehouse Distribution vs DSD How it adds up for retailers?
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Warehouse Distribution vs DSD - How it adds up for retailers?
Warehouse Distribution Direct Store Deliveries
Nature of Product Medium to long term product life High
ly Perishable, Fragile
Contribution to total retailsales
75% 25%
Contribution to retailersinvoices
25% 75%
Contribution to retailersprofitability
48%5
2%
Advantages To Retailer Economies of scale: Withcentralized procurement can pushfor bulk discounts, better deals aswell as lower overhead costs
Lower safety stock levels needed
leading to lower inventory
Shorter lead times
Savings in Cost ofWarehousing,transportation and shelfreplenishment as all those aretaken care by the CPG player
Replenishment in DSD
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Replenishment in DSD
Depending upon how the replenishment of products happen at the retail storeDSD can be classified into 2 categories
Pre-Sell/ OrderTaking Model:A form of DSD in which order placements take place aday prior to product delivery. Orders are typically generated by distributor salesrepresentatives or initiated by the customer and communicated to distributor by phone orfax or internet. Once processed the order is typically delivered to the sore over a fewdays (typically one) following order placements
Click here for overview of2 tier DSD Pre-Sell
Click here for overview of3 tier DSD Pre-Sell
Route-Sell/ Ready Stock Model:A form of DSD in which the sale and delivery ofproduct is accomplished by the same individual on the same day. The salesman has theproduct in the route truck and replenishes each store based on its immediate need
Click here for the overview of2 Tier DSD Route-Sell
Click here for the overview of3 Tier DSD Route-Sell
Overview of a 2 tier DSD Pre Sell Replenishment Model
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Overview of a 2-tierDSD Pre-Sell Replenishment Model
The following example depicts a simplistic view of a 2-tier,pre-sell DSDmodel.
Information
Flow
Retail Stores
Deliver product
Backdoor check-in
Issue credit
Delivery approval
CPGWarehouse
RouteAssignment
Order Picking
Truck Loading
CPG
ERP
Route Rep
Transport goods
Select product
Store Shelf/
Display
Sales Force
Automation
Assortment Planning
Merchandise Shelf/Displays
Process Returns
Update promotions
Inventory
Transmit Invoice
Create order
Consumer
purchases
product
Route Rep
Day 1 Activities Day 2Activities
Overview of a 3 tier DSD Pre Sell Replenishment Model
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Overview of a 3-tierDSD Pre- Sell Replenishment Model
The following example depicts a simplistic view of a 3-tier,pre-sell DSDmodel.
Retail Stores
Deliver product
Backdoor check-in
Issue credit
Delivery approval
Distributor
Warehouse
Route Assignment
Consolidated storeorders for different
manufacturers
Consolidatedorder picking
Truck Loading
CPG2ERP
Transport goods
Select product
Store Shelf/
Display
Sales Force
Automation
Assortment Planning
Merchandise Shelf/Displays
Process Returns
Update promotions
InventoryTransmit Invoice
Create order
Consumer
purchases
product
Distributor Rep
Day 1 Activities
Day 2ActivitiesDistributor Rep
Multiple CPGbrands ship to
common
distributor
Distributor
ERP
CPG1
ERP
Information
Flow
Information
Flow
PriorActivities
CPG Warehouse
Overview of a 2-tier DSD Route-Sell Replenishment Model
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Overview of a 2-tierDSD Route-Sell Replenishment Model
The following example depicts a simplistic view of a 2-tier,route-sellDSD model.
Information
Flow
Deliver product
Backdoor check-in
Issue credit
Delivery approval
CPGWarehouse
RouteAssignment
Product Picking
Truck Loading
CPG
ERP
Store Shelf/
Display
Sales Force
Automation
AssortmentPlanning
Process Returns
Update
promotions
Inventory
Create order
Return to truckfor product
Consumer
purchases
product
Route Rep
All Activities in Day 1
Merchandise Shelf/Displays
Transmit Inventory
Retail
Stores
Route Rep
Transport goods(rolling warehouse)
Pick product from truck
Prior to startofday
Overview of a 3-tier DSD Route Sell Replenishment Model
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Overview of a 3-tierDSD Route Sell Replenishment Model
The following example depicts a simplistic view of a 3-tier,route-sellDSD model.
Deliver product
Backdoor check-in
Issue credit
Delivery approval
Distributor
Warehouse
CPG2ERP
Sales Force
Automation
Distributor Rep
Multiple CPGbrands ship to
common
distributor
Distributor
ERP
CPG1
ERP
Information
Flow
PriorActivities
Store Shelf/
Display
AssortmentPlanning
Process ReturnsUpdatepromotions
Inventory
Create order
Return to truckfor product
Consumer
purchases
product
All Activities in Day 1
Merchandise Shelf/Displays
Transmit Inventory
Route Assignment
ConsolidatedProduct Picking
Truck Loading
Retail
Stores
Distributor Rep
Transport goods(rolling warehouse)
Pick product from truck
Information
Flow
Prior to startofday
CPG Warehouse
Sales & Order Management
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Sales & OrderManagement
Objective
To ensure proper capturing and execution of order placed by the customer retailer/distributor
CPG industry has only 80% order fulfillment rate. Hence increasingly a problem of deductions inthe bills is faced by CPG companies.
To ensure availability of information to stakeholders in the sales process
Sales staff: Information to track and drive sales efficiencies and to take critical tactical decisionson the field to beat competition
Customers: Information related to orders, promotions and finance
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Creating end-to-end visibility
All parties should have a view of daily operations
Synchronize operations of business units
Coordinate activities of departments to broker better rates with3PL
Model logistics plan based upon the upcoming promotions
Data communication to retailers
Automate business processes
Setting alerts to catch irregularities
Web apps to minimize backhauls
Deploy asset aware technologoes
Use of RFID tags on cases
Investment in least cost fleets route planning
Sales and Order Management - Components
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Sales and OrderManagement - Components
Sales Force Support &Automation
Trade Customer Services
Granular Data Capturing
Data CommunicationBusiness Analytics: MIS Reports
Order Status
Sales ReturnsPromotion communications
Accounts status: receivables vs. payables
Trade OrderManagement
Order sequencing and Inventory allocation strategiesSales Order Invoicing
Returns ManagementClaims Management
Order approval process managementHandling financial transaction
Marketing Management
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Marketing Management
Objective
To create a consumer pull/preference/liking for the product with an objective ofdistinguishing oneself from competition and to command a premium (value of brand)over the cost price thereby increasing the profit margins
Marketing Management
Steps In Marketing Management
Key Marketing Decisions
Price
Product
Promotions
Place
Positioning
Importance of Product Life Cycle in making marketing decisions
Steps In Marketing Management
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Steps In Marketing Management
Trade PromotionManagement
Advertising and ConsumerActivation
Market Research &Consumer Intelligence
Defining Target SegmentDefining Value Proposition of The ProductCommunication
Communication Mix: TV/Radio/Print MediaContent of Communication: Value PropositionConsumer promotions
Understand consumer behavior and segment consumers on thebasis of their need
Understand relative strength of the product vis--vis competitionTest marketing new product launches
Brand Development &Management
Managing and designing promotions for retailers/distributorsManaging promotion logistics and tracking the efficacy of theretailer/distributor promotion
Marketing Decisions For CPG Player
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Marketing Decisions For CPG Player
CPG Industry
Characteristics
Low value massconsumption Product
Competitive productshaving similar attributes
Purchases of certainproducts are not planned
Consumer
Behavior
Propensity to try andexperiment other products
Effective Productpositioning to create top
of mind recall
Product availability and
merchandising at the rightplace
Consumer will look forvalue from range of
products
Frequent and innovativeconsumerpromotions
Differentiate Product
attributes from competition
Optimal Pricing
Impulse Driven purchaseesp. in food items
CPG Marketing
Decisions
CPG Marketing Decisions: Positioning the Product
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CPG Marketing Decisions: Positioning the Product
Defining value proposition
Defining the target segment
Defining communication mix and the message to convey the positioning
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CPG Marketing Decisions: Optimal Pricing
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CPG Marketing Decisions: Optimal Pricing
Price linked to the pack size related to consumer need
Price related to product quality
Price Elasticity e.g. salt (giffin goods)
Price= cost+ differential value (in terms of brand value/product)>sronger the brandhigher the premium
CPG Marketing Decisions: Product Attributes
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C G a et g ec s o s oduct tt butes
Name,Quality, features, packaging, ancillary services, warranty
CPG Marketing Decisions: Promotions
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g
Consumer promotions, trade schemes, packaging innovations
Illustration ofMarketing Decisions In The Cola Industry
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g y
Industry Characteristics
CPG Players: Coca-Cola, Pepsi, and small local players specific to district/town
Product Characteristics:
In Summers the product is consumed by the masses to quench their thirst
Product is extremely affordable @ Rs. 5
An extremely impulse driven product, the purchase is not pre-planned
Not a major taste difference between Coca-Cola and Pepsi, but locals taste significantly different
Substitutes also exist in form of juices, lassi, chilled milk
Consumer Behavior
Consumer is open to substitute coke with a pepsi and vice-versa if the product ofhis choice is notavailable or is not served chilled
A consumer can substitute cola for a juice or chilled milk or a lassi to experiment
If the consumption happens on premise consumer will go for a smaller volume pack, for at homeconsumption big packs are preferred
During Under the Crown Schemes the consumers buy/increase the usage of one product in thehope of winning prices
Illustration ofMarketing Imperatives In The Cola Industry
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g p y
COCA-COLA vs PEPSI (Indian Context)
Product Positioning
Coca-Cola Projected As A Family Drink Specifically Targeting Mature People Pepsi Projected As A Youthful & A Rebellious Drink, Specifically Targets Teenagers, Brand Associates with
Cricket
Place
Merchandising: No Difference, both companys provide and merchandise on racks, coolers and run displaypromotions for the retailers
Presence in Image Accounts: Pepsi has a much bigger presence in hotels, tourist spots while Coca-Colabelieves in presence in smaller accounts and opening new accounts and increasing the account base.
Price No major difference in cost to retailer and the selling price though at times there was a coke 600ml priced at Rs.
15 and Pepsi 500ml at Rs. 12.5; coke 2.25ltr at Rs. 43 and pepsi 2ltr at Rs. 40
Product Attributes
Taste: Sweetness: Pepsi is sweeter than Coca-Cola which is sweeter than Thums-Up
Gas Content: ThumsUp has a higher CO2 content than Pepsi whichhas a higher content than coke
Packaging Pepsi has cricketers pictures on its labels of plastic bottle
Coke had 2ltr + 250ml free big PET pack vs Pepsis 2ltr PET pack
Consumer Promotions
Launch of Coca-Cola Mobile pack (500ml+100ml free) led to a loss of Pepsi Market Share
Pepsi Tosss Ka Boss Promotion revolving around the ICC Cricket Tournament
Impact of Product Life Cycle on Marketing Decisions
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p y g
Product Life Cycle (PLC)
The phases through which every product goes through from its inception to itsdiscontinuity/phasing out
The PLC phases are uniquely identifiable depending upon the sales of the product
PLC CHART
Marketing Decisions based on PLC
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Marketing Decisions Based on Product Life Cycle
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g y
Life Cycle StageMarketing
Variable
DeclineMaturityGrowthIntroduction
Positioning:Target Market
Product
Place: DistributionIntensity
Price
Promotion
High-IncomeInnovators
Middle-IncomeAdopters
Mass Market Low-Incomeand Laggards
One Basic
Offering
Some Variety Greater
Variety
Less Variety
Limited orExtensive
MoreRetailers
MoreRetailers
FewerRetailers
Penetration orSkimming
Wide Range Lower Prices Lower Prices
Informative Persuasive Competitive Limited
Information Technology in CPG
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Information technology is a strategic asset for a CPG company. Theindustrys adoption of IThas been markedly slower as compared to othersectors
Global Data Synchronization
The principles of a sound data foundation as a key platform in the industrys efforts togain industrywide efficiencies date back to Efficient Consumer Response (ECR), whichbegan more than a decade ago. Internet and communications technologies haveimproved significantly since these early efforts, and the key components such as registryservices like UCCnet and catalogs/exchanges like Transora have at this point stabilized
somewhat
RFID/RPC
Radio frequency identification (RFID) and its Electronic Product Code (EPC) havereceived significant attention in the past year with the announcements from severalmajor retailers worldwide requiring top suppliers to support this technology at the palletand case level initially. As RFID/EPC goes from interesting research and foundational
standards development to practical implementations, th
e industry will reach
a majorturning point.
RFID/EPC tags can be applied at all levels of packaging from the consumer unit to theshipping case to the pallet.