mySAP™ SUPPLY CHAINMANAGEMENT AT MARICO

SAP Case Study

Marico Industries, Ltd. is a leading India-based consumer goods company with sales of Rs 6.96 billion (approximately $142 million) for the fiscal year ending March 2002. With 6 factories and about 1,000 employees, it has maintained steadyrevenue and profitability growth throughout the past 10 years.Marico offers a range of products to the local and export markets (primarily South Asia and the Middle East), includingrefined edible oils, food products such as jams and sauces, nichefabric care products, and hair oils.

Marico was incorporated in 1988 and began commercial opera-tions in 1990 when it acquired the consumer products divisionof Bombay Oil Industries. Since its inception, a key strength ofthe company has been its ability to build brands.

Marico has pursued a rigorous approach to creating and sus-taining its brands, focusing on understanding and anticipatingconsumer needs, innovating in distinct ways, developing adver-tising campaigns to reinforce value delivered to consumers, andtracking metrics that support product positioning strategies.The company’s approach has enabled it to pioneer polyethylenepackaging for coconut oils, a cold-water clothes starching product, and other unique developments. Marico faces com-petition from large, well-capitalized international rivals such asConAgra Foods and Unilever, domestic brands, and non-brand-ed products. Nevertheless, Marico’s approach has enabled thecompany to create unique value for consumers and thereby tobuild significant market share in many product categories. OfMarico’s nine brands, three are market leaders.

A key attribute of Marico’s brands is the widespread availabilityof the company’s goods throughout India. Marico’s distributionnetwork is key to ensuring that its products reach about 100million people throughout the Indian subcontinent eachmonth. Marico produces 125 SKUs at its own factories andthrough 15 subcontracting manufacturers. It stores products at32 warehouses and sells to 3,500 distributors. These distributorsin turn provide products to 1.6 million domestic retail outlets.

ENHANCING BRAND EQUITY BY IMPROVING DISTRIBUTIONPERFORMANCE

AT A GLANCE: mySAP™ SUPPLY CHAIN MANAGEMENT AT MARICO

Strategic Goals:

• Enhance long-term value of company brands byachieving excellence in distribution performance

• Maintain market share growth in a competitiveenvironment with much larger, offshore rivals

• Scale supply chain operations to sustain customer service as the business grows

• Reduce total delivered cost

Approach: Marico shortened its planning cycle from 30 days to about15 days; revised its demand planning process to forecast“sales out” (shipment from distributors to retailers); andimplemented an improved process to replenish its distrib-utors. The company focused on achieving relatively evenshipment levels throughout each month and developed internal collaborative processes to support planning. Thisapproach was enabled by mySAP™ Supply Chain Manage-ment software, which includes demand planning and supplynetwork planning capabilities coupled with SAP® R/3® andSAP® Business Information Warehouse (SAP® BW).

Results (achieved during 3Q01 to 1Q02):

• Decreased stock-outs associated with distributor sales to retailers by 33%

• Reduced lost sales due to stock-outs by 28%, thereby improving total revenue by 1.5%

• Lowered excess distributor inventory by 33%

• Reduced late deliveries to distributors by 37.5%

• Reduced costs associated with supply chain exceptionsby 25% (for example, intracompany stock transfers,truck detention costs)

• Positioned the company for a vendor-managed inventory implementation and further performance improvements

CHALLENGES AND OBJECTIVES

Although Marico had achieved a compound annual growthrate of about 18% during the 1990s, the company recognized inthe latter part of the decade that it must renew its focus onprofitability in order to participate in long-term growth opportunities. The company had become highly dependent onits three leading brands for generating revenue and earnings,and was facing increasing competition in the associated edibleoil markets as well as in other product categories. This meantthat Marico would have to increase its advertising expendituresto defend the market positions of its various products and con-tinue to invest in product development to ensure continuedgrowth.

Moreover, even though distribution was a core strength forMarico, the performance of its supply chain network was notkeeping pace with the growing scale of its operations. For example, the company had a planning cycle of 30 days, and,during this period, was unable to respond to changes indemand. The bucketed time horizons for manufacturing anddistribution were not synchronized and distribution levels wereuneven, with a weighting of 15%, 32%, and 53% for the first, second, and final third of each month. This suboptimal skewingof distribution activity over time, coupled with low levels offorecast accuracy, led to a mismatch of supply and demand,inventory build-ups at Marico and at its distributors, expiredproducts, and stock-outs – all of which adversely affected end-consumer perceptions. Total delivered costs were increasingdue to storage capacity constraints, which often required inter-warehouse stock transfers, temporary renting of additionalstorage space, and truck demurrage. Also, spreadsheet-basedplanning methods and multiple, nonintegrated transaction systems inhibited widespread visibility into essential data, further compounding planning-process problems.

Thus, key goals for Marico included improved forecast accuracyand more uniform distribution levels throughout each month.It also needed to reengineer its planning processes to moreeffectively match supply and demand. As a result, costs would

Marico’s peer companies in other countries recognize itsstrength in distribution; consequently, Marico has secured adistribution alliance with Indo Nissin Foods and a distributionagreement with Procter & Gamble.

Though Marico experienced robust expansion throughout the 1990s, the company realized that it would face challenges tocontinued profitable growth. Greater rivalry in its core marketsmeant it had to increase marketing expenditures. The companyalso was unable to sustain the performance of its supply chainas its scale of operations grew. Marico was increasingly experi-encing inaccurate forecasts, excess inventory, stock-outs, anddelays in response to market requirements. These supply chainperformance issues were reducing Marico’s cash flow and didnot support the product brand images the company had takencare to develop.

In order to achieve sustained profitable growth, given marketfactors and the need to maintain its distribution effectiveness,Marico determined that it must improve its supply chain capabilities. Specifically, the company focused on customer-facing business processes as well as on its internal operations.After a careful analysis of alternatives, Marico selected mySAP™Supply Chain Management (mySAP™ SCM) to enable the re-engineering of its associated planning and execution processes.

Marico’s goals included improving forecast accuracy and delivery performance in order to sustain the widespread avail-ability of its products in the market and the associated positiveperceptions of its brands. By concentrating on internal opera-tions, Marico has been able to lower inventory and supplychain operating costs, particularly those expenses that could be reduced through better planning in areas such as intracom-pany stock transfers. The company has achieved improved cashflow to fund future growth, sustained the viability of its inde-pendent distributor network, and maintained those elements ofits brands’ images that are tightly coupled with high availabilityof its products to its customers.

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be more in line with best-in-class operations in the consumerindustry. Inventory carrying costs and total supply chain costswould be reduced, freeing cash flow to reinvest in growth-generating activities. Marico targeted improvements in stock-out reductions and on-time delivery that would be a conse-quence of better planning processes. These actions would support the company’s branding initiatives as well as helpensure the profitable operation and continued viability of itsdistributor network.

IMPLEMENTATION

In 1999, Marico initiated a detailed evaluation of its supply chain operations to determine how best to reduce costs, satisfycustomer needs, support its brands’ images, and position thecompany for long-term growth. The company concluded thatsourcing and manufacturing were straightforward, while its dis-tribution operations were the key source of opportunity. Maricoprocured only a few commodity raw materials (for example, vegetable oils and safflower seeds), had no major manufacturingcapacity constraints, had no sales seasonality associated with itsproducts, and minimized artificially induced demand surges byavoiding the use of promotions. However, the distribution net-work was complex, with SKU/distribution point combinationsnumbering in the millions.

Marico focused on business processes that addressed internalcollaborative forecasting between its manufacturing sites andwarehouses. The company defined clear responsibilities toensure that distribution from its warehouses to distributorswould meet service level and inventory objectives. Also, thecompany implemented policies to distinguish the relative priority of SKUs and of distributors.

After a careful evaluation, Marico selected mySAP SCM to en-able the associated planning and execution processes. Theseprocesses included calculation of monthly shipment require-ments from its plants to its warehouses to support make-to-stock operations, electronic transfer of stock level data from thedistributors to Marico, and push distribution of products from

Marico to distributors based on forecasted retail-level demandand distributor inventory levels.

Implementation of SAP® R/3® capabilities in finance, costaccounting, materials management, production planning, quality management, and sales and distribution was started inJune 2000 and went live quickly in a “big bang” implementationin April 2001. Implementation of the demand planning and supply network planning capabilities of the SAP® AdvancedPlanner & Optimizer of mySAP SCM – along with the SAP®Business Information Warehouse (SAP® BW) – began in August2000 and went live in a “big bang” implementation in May 2001.Twenty-six staff members and 20 consultants assisted in the project, using AcceleratedSAP™ (ASAP™) methodologies to en-sure a rapid implementation. The scope included all companyfactories, warehouses and business offices; distributors; and contract manufacturers, and the implementation achieved systems integration that efficiently supported the new planningand execution processes.

The implementation produced quick results. By early 2002,forecast accuracy was improved by 14%, and the levels of ship-ment activity through each third of a month had become moreeven (25%, 32%, and 43%). The planning-cycle time was reducedfrom 30 days to 15-20 days, and enhanced reporting facilitatedmanagement decision making. These results led to reducedinternal and distributor inventory, fewer stock-outs, lower levelsof lost sales, and reduced supply chain exception-handling costs.

In the future, Marico plans to implement vendor-managedinventory (VMI) processes by making use of Internet-based integration of distributors’ stock levels into the company’s SAP R/3 system. This VMI implementation will enable Maricoto further reduce the planning cycle to 10 days and ensuregreater visibility into distributor operations, reduced inventory,lower supply chain management costs, and higher levels ofdelivery performance. These results will continue to reinforcethe company’s branding initiatives and position Marico forlong-term, profitable growth.