HUL s&d Management

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INTRODUCTION

Hindustan Unilever Limited), formerly Hindustan Lever Limited (it was renamed inlate June 2007 as HUL), is India's largest Fast Moving Consumer Goods company, touching

the lives of two out of three Indians with over 20 distinct categories in Home & Personal

Care Products and Foods & Beverages. These products endow the company with a scale of

combined volumes of about 4 million tones and sales of nearly Rs. 13718 crores.

HUL is also one of the country's largest exporters; the Government of India has

recognized it as a Golden Super Star Trading House.

The mission that inspires HUL's over 15,000 employees, including over 1,300

managers, is to "add vitality to life." HUL meets everyday needs for nutrition, hygiene, and

personal care with brands that help people feel good, look good and get more out of life. It is

a mission HUL shares with its parent company, Unilever, which holds 52.10% of the equity.

The rest of the shareholding is distributed among 360,675 individual shareholders and

financial institutions.

HUL's brands

like Lifebuoy, Lux, Surf Excel, Rin, Wheel, Fair & Lovely, Pond's,Sunsilk, Clinic, Pepsodent, Close up, Lakme, Brooke Bond, Kissan, Knorr Annapurna,

Kwality Wall's are household names across the country and span many categories soaps,

detergents, personal products, tea, coffee, branded staples, ice cream and culinary products.

These products are manufactured over 40 factories across India. The operations involve over

2,000 suppliers and associates. HUL's distribution network comprises about 4,000

redistribution stockiest, covering 6.3 million retail outlets reaching the entire urban

population, and about 250 million rural consumers.


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Detail Overview

The distribution network of HUL is one of the key strengths that help it to supply most

products to almost any place in the country from Srinagar to Kanyakumari. This includes,

maintaining favorable trade relations, providing innovative incentives to retailers and

organizing demand generation activities among a host of other things. Each business of HUL

portfolio has customized the network to meet its objectives. The most obvious function of

providing the logistics support is to get the comp any s product to the end customer.

Distribution Network of HUL

The HUL s distribution network has evolved with time.

The first phase of the HUL distribution network had wholesalers placing bulk orders

directly with the company. Large retailers also placed direct orders, which comprised almost

30 per cent of the total orders collected. The company salesman grouped all these orders and

placed an indent with the Head Office. Goods were sent to these markets, with the companysalesman as the consignee. The salesman then collected and distributed the products to the

respective wholesalers, against cash payment, and the money was remitted to the company.


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The focus of the second phase was to provide desired products & quality service to the

company's customers. In order to accomplish this, wholesaler in each market was

appointed as a "Registered Wholesaler," a stock point for the company's products in that

market. The company salesman still covered the market, inquiring in to for orders from

the remainder of the trade. They then distributed stocks from the Registered Wholesaler

through distribution units maintained by the company. The Registered Wholesaler

technique, therefore, increased the distribution reach of the company to a bigger number

of customers.

The highlight of the third phase was the concept of "Redistribution Stockiest" (RS)

who replaced the Registered Wholesalers. The RS was required to provide the distribution

units to the company salesman. The second characteristic of this period was the

establishment of the "Company Depots" system. This system helped in transshipment, bulk breaking, and as a stock point to minimize stock outs at the RS level. In the recent past, a

significant change has been the replacement of the Company Depot by a system of third

party Carrying and Forwarding Agents (C&FAs). The C&FAs act as buffer stock points to

ensure that stock outs did not take place. The C&FA system has also resulted in cost

savings in terms of direct transportation and reduced time lag in delivery. The most

important benefit has been improved customer service to the RS.

1 HUL Factory

2 Registered Wholesaler

3 Retailers


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The role performed by the Redistribution Stockiest includes: Financing stocks,

providing warehousing facilities, providing manpower, providing service to retailers,

implementing promotional activities, extending indirect coverage, reporting sales and stock

data, demand simulation and screening for transit damages.

1 HUL Factory

2

C&FAs(Carrying And Forwarding Agent)

3 Redistribution Stockist

4 Retailers And Wholesalers


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DISTRIBUTION SYSTEM OF HUL

HUL's products are distributed through a network of 7,000 redistribution stockiest, covering

6.3 million retail outlets reaching the entire urban population, and about 250 million rural

consumers. There are 35 C&FAs in the country who feed this redistribution stockiestregularly. The general trade comprises grocery stores, chemists, wholesale, kiosks and

general stores. Hindustan Unilever provides tailor made services to each of its channel

partners. It has developed customer management and supply chain capabilities for

partnering emerging self service stores and supermarkets. Around 2,000 suppliers and

associates serve HUL s 40 manufacturing plants which are decentralized across 2 million

square miles of territory.


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1. Distribution at the Villages :

The company has brought all markets with populations of below 50,000 under one rural

sales organization. The team comprises an exclusive sales force and exclusive redistribution

stockiest. The team focuses on building superior availability of products. In rural India, the

network directly covers about 50,000 villages, reaching 250 million consumers, through

6000 sub stockiest.


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HUL approached the rural market with two criteria the accessibility and viability. To

service this segment, HUL appointed Redistribution stockiest who was responsible for all

outlets and all business within his particular town. In the 25% of the accessible markets with

low business potential, HUL assigned a sub stockiest who was responsible to access all the

villages at least once in a fortnight and send stocks to those markets. This sub stockiest

distributes the company's products to outlets in adjacent smaller villages using transportation

suitable to interconnecting roads, like cycles, scooters or the age old bullock cart. Thus,

Hindustan Unilever is trying to circumvent the barrier of motorable roads. The company

simultaneously uses the wholesale channel, suitably incentivizing them to distribute

company products. The most common form of trading remains the grassroots buy and

sell mode. This enables HUL to influence the retailers stocks and quantities sold through

credit extension and trade discounts. HUL launched this Indirect Coverage (IDC) in 1960s.

Under the Indirect Coverage (IDC) method, company vans were replaced by vans belonging

to Redistribution Stockiest, which serviced a select group of neighboring markets.


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2). Distribution at the Urban:

Distribution of goods from the manufacturing site to C & F agents take place through either

the trucks or rail roads depending on the time factor for delivery and cost of transportation.

Generally the manufacturing site is located such that it covers a bigger geographical segment

of India. From the C & F agents, the goods are transported to RS s by means of trucks and

the products finally make the last mile based on the local popular and cheap mode of

transport.

3). New distribution channels: PROJECT SHAKTI

This model creates a symbiotic partnership between HUL and its consumers. Started in the

late 2000, Project Shakti had enabled Hindustan Lever to access 80,000 of India's 638,000

villages. HUL's partnership with Self Help Groups (SHGs) of rural women is becoming an

extended arm of the company's operation in rural hinterlands. Project Shakti has already

been extended to about 12 states Andhra Pradesh, Karnataka, Gujarat, Madhya Pradesh,

Tamil Nadu, Chhattisgarh, Uttar Pradesh, Orissa, Punjab, Rajasthan, Maharashtra and West

Bengal. The respective state governments and several NGOs are actively involved in theinitiative. The SHGs have chosen to partner with HUL as a business venture, armed with

training from HUL and support from government agencies concerned and NGOs. Armed

with micro credit, women from SHGs become direct to home distributors in rural

markets.

The model consists of groups of (15 20) villagers below the poverty line (Rs.750 per

month) taking micro credit from banks, and using that to buy our products, which they will

then directly sell to consumers. In general, a member from a SHG selected as a Shakti


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entrepreneur, commonly referred as 'Shakti' receives stocks from the HUL rural distributor.

After being trained by the company, the Shakti entrepreneur then sells those goods directly

to consumers and retailers in the village. Each Shakti entrepreneur usually service 6 10

villages in the population strata of 1,000

2,000. The Shakti entrepreneurs are given HUL products on a `cash and carry basis.

This two diagrams shown that the project Shakti model as initial by HUL

Project Streamline

To cater to the needs of the inaccessible market with high business potential HUL initiated a

Streamline initiative in 1997. Project Streamline is an innovative and effective distributionnetwork for rural areas that focuses on extending distribution to villages with less than 2000


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people with the help of rural sub stockiest/Star Sellers who are based in these very villages.

As a result, the distribution network directly covers as of now about 40 per cent of the rural

population.

Under Project Streamline, the goods are distributed from C & F Agents to Rural Distributors

(RD), who has 15 20 rural sub stockiest attached to him. Each of these sub stockiest /

star sellers is located in a rural market. The sub stockiest then perform the role of driving

distribution in neighboring villages using unconventional means of transport such as tractor

and bullock carts. Project Streamline being a cross-functional initiative, the Star Seller sells

everything from detergents to personal products.

Higher quality servicing, in terms of frequency, credit and full line availability, is to be

provided to rural trade as part of the new distribution strategy.

The diagram shows the model of Project Streamline.


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HINDUSTAN UNILEVER NETWORK (HULN)

It is the company's arm in the Direct Selling channel, one of the fastest growing in India

today. It already has about several lakh consultants all independent entrepreneurs, trained

and guided by HULN's expert managers. HULN has already spread to over 1500 towns and

cities, covering 80% of the urban population, backed by 42 offices and 240 service centers

across the country. It presents a range of customized offerings in Home & Personal Care and

Foods.

The New Compensation plan for HULN partners provides new exciting ways of earning

substantial income in addition to offering rewards like revenue sharing through the

innovative concept of pools

MOTHER DEPOT AND JUST IN TIME SYSTEM

In order to rationalize the logistics and planning task, an innovative step has been theformation of the Mother Depot and Just in Time System (MD JIT). Certain C&FAs were

selected across the country to act as mother depots. Each of them has a minimum number of

JIT depots attached for stock requirements. All brands and packs required for the set of

markets, which the MD and JITs service in a given area sent to the mother depot by all

manufacturing units. The JITs draw their requirements from the MD on a weekly or bi

weekly basis.

Redistribution Stockiest Net Initiative :

The RS Net initiative, launched in 2001, aims at connecting Redistribution Stockiest (RSs)

through an Internet based system. It now covers stockiest of the Home & Personal Care

business and Foods & Beverages in close to 1200 towns and cities. Together they account

for about 80% of the company's turnover. RS Net is one of the largest B2B e commerce

initiatives ever undertaken in India. It provides linkages with the RSs own transaction


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systems, enables monitoring of stocks and secondary sales and optimizes RS s orders

and inventories on a daily basis through online interaction on orders, dispatches,

information sharing And monitoring. The IT powered system has been implemented to

supply stocks to redistribution stockiest on a continuous replenishment basis. Today, thesales system gets to know every day what HUL stockiest have sold to almost a million

outlets across the country. Information on secondary sales is now available on RS Net every

day.

RS Net has come as a force multiplier for HUL Way, the company's action plan to not only

maximize the number of outlets reached but also to achieve leadership in every outlet. RS

Net has enabled stockiest to place orders on a Continuous Replenishment System. This in

turn has unshackled the field force to solely focus on secondary sales from the stockiest to

retailers and market activation. It has also enabled RSs to provide improved service to retail

outlets. Simultaneously, HUL is servicing the rural market, key urban outlets, and the

modern trade as a single concern.

UNILIVER LARGEST FMCG in India

TurnoverUS$m

0

500

1000

1500

2000

2500

3000


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Channel Design

Hindustan Lever Limited (HUL) has two types of channel selling

Regular (traditional) retail channel,

Direct Selling Channel in the name of Hindustan Lever Network (HULN).

HUL has a well-entrenched high distribution model, which comprises of C&FAs,

Redistribution Stockiest, wholesalers and retailers (as shown earlier). Hindustan Unilever's

distribution network is recognized as one of its key strengths. Its focuses on Product

availability, Brand communication, and higher levels of brand experience.

HUL s Sales Break up through different channels:

0

10

20

30

40

50

60

HUL market share (%)

Main competitor market share(%)


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Channel Structure

Typically, the goods produced in each of the HUL's 40 factories are sent to a depot with the

help of a carrying and forwarding agent (C&FA). The company has its depot in every state

of the country. The C&FA is a third party and gets servicing fee for stock and delivery of the

products. In each town, there is at least a redistribution stockiest (RS) who takes the goods

from the C&FA and sells them to retail outlets.

The HUL management realized certain problems with the existing sales model. First, the

model was not viable for small towns with small population and small business. HUL found

it expensive to appoint one stockiest exclusively for each town. Secondly, the retailrevolution in the country has changed the pattern the customers shop. Large retail self-

service shops are becoming commonplace.

In response of these problems, HUL redesigned its sales and distribution channel and the

new system is known as 'diamond model' in the company. At the top end of the diamond,

there are the self-service retail stores, which constitute 10% of the total FMCG market. The

middle, fatter part of the diamond represents the profit center based sales team. In the

bottom of the pyramid is the rural marketing and distribution, which accounts for 20% of the

7%

60%

33%

Sales Break-up Through Different Channels

Modern Retail

Urban General Trade

Rural Areas


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business. As a result of the new distribution plan the company has planned to reduce the

number of RS in small towns.

Field Sales Force

To meet the ever changing needs of the consumer, HUL has set up a distribution network

that ensures availability of all their products, in all outlets, at all times. This includes,

maintaining favorable trade relations, providing innovative incentives to retailers and

organizing demand generation activities among a host of other things.

The important activities that HUL field sales force does are (I) target chasing and (ii)

reporting on a daily basis. Account information is maintained on palmtops given by HUL.

During a research and informal survey of HUL field sales force, it was found that for the last

two years, training is not being given at all to the sales force.

HUL has limited the network channel selling to categories of Home & Personal Care (HPC)

and Food products with exclusive brands for this channel. That is, these particular brands

(products) are all exclusive to HLN, specifically developed for the Direct Selling channel,

and not available in the retail channel. The general trade comprises grocery stores, chemists,

wholesaler, kiosks and general stores. Hindustan Unilever services each with a tailor made

mix of services.

Channel Structure (Special Focus is on Jamshedpur)

Typically, the goods produced in each of the HUL's 40 factories are sent to a depot with the

help of a carrying and forwarding agent (C&FA). The company has its depot in every state

of the country. The C&FA is a third party and gets servicing fee for stock and delivery of the

products. In each town, there is at least a redistribution stockiest (RS) who takes the goods

from the C&FA and sells them to retail outlets. In Jharkhand the C&FA is in Ranchi and

Jamshedpur is serviced by 3 Redistribution Stockiest at Sakchi (M/s Om Prakash Agarwal),

Bistupur and Parsudih.

The HUL management realized certain problems with the existing sales model. First, the

model was not viable for small towns with small population and small business. HUL found

it expensive to appoint one stockiest exclusively for each town. Secondly, the retail

revolution in the country has changed the pattern the customers shop. Large retail self-

service shops are becoming commonplace. In response of these problems, HUL redesigned


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its sales and distribution channel and the new system is known as 'diamond model' in the

company. At the top end of the diamond, there are the self-service retail stores, which

constitute 10% of the total FMCG market. The middle, fatter part of the diamond represents

the profit

center based sales team. In the bottom of the pyramid is the rural marketing anddistribution that accounts for 20% of the business. As a result of the new distribution plan

the company has planned to reduce the number of RS in small towns.

Redistribution Stockiest:

Total number of RS in Jamshedpur = 3 (at Sakchi, Bistupur, Parsudih). This is going to be

reduced to only one with effect from next month of this year.

Sales Margin: 4.76%, which includes cash discount, unloading expenses from depot,distribution expenses to retailers, incentive schemes & other incidental expenses.

Modes of transport used: Rickshaw, tempo. Incentive schemes: Before 2000 holiday packages and tours but after 2000 no non

monetary incentive for RS. Software systems and Information System: UNIFY 8.3 (Developed by IBM & CMC). This

software needs to be synchronized daily and the system updates any information/ incentive

schemes / sales figures etc. to and from the common shared platform. Areas of Operations: Marked for each of the RS. Selling Operations: RSs sells the goods to Wholesaler (gets 1.5 % max. discount from RS) Retailers (gets 1.0% max. discount from RS)

Wholesaler:

Gets cash discounts and other schemes promoted by HUL (gets points under Vijeta Scheme).

Retailers:

Total retailer base in Jamshedpur: Approximately 1070. Sales Margin: Depends on the product Soap, detergents 8% on MRP

Cosmetics 10% on MRP

Food items 8% on MRP


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Incentive schemes:

Company programs (Scheme Discounts + Cash Discounts)

TPR schemes based on Sales (1 % to 4 %)

Vijeta scheme is not for retailers.

Initiatives taken to improve the Distribution Network

HUL has taken the following initiatives to improve its distribution network:

Setting up of a full scale sales organization comprising key account management and

activation to impact, fully engage and service modern retailers as they emerge. Servicing Channel partners and customers with continuous daily replenishment. Leveraging scale and building expertise to service Modern Trade and Rural Markets. Delayering of sales force to improve response times and service levels. Revamping of its sales organization in the rural markets to fully meet the emerging needs

and increased purchasing power of the rural population. HUL s distribution network in ruralIndia already directly covers about 50,000 villages, reaching about 250 million consumers

through about 6,000 subs stockiest. Implementation of supply chain system that connects stockiest across the country, and also

includes a back end system connecting suppliers, all company sites and stretching right up

to stockiest. IT tools have been deployed for connectivity across the extended supply chains.

Backend processes have been combined into a common Shared Service infrastructure. Launching of Project Shakti through which the company is able to extend its operations in

villages. HUL has also included several NGOs and state governments as the initiative helpsrural women to improve their financial position.

Launching of HUL Network to leverage the channel of direct selling by presenting

customized offerings in 11 home and personal care and food categories. Started in 2003, it

already has a base of 300,000 consultants across the country. Starting of franchised Lakme Beauty Salons and Ayush Therapy centers to offer

standardized services, in line with the strategy to leverage the equity of its brands through

relevant services.


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Finding out Innovative ways to reach out to its consumers, particularly in rural areas by

leveraging non conventional media like wall paintings, cinema vans, weekly markets

(haats), fairs and festivals. Initiating the concept of Super Value Stores (SVS) in urban areas to partner traditional stores

to provide a range of services ranging from managing their inventory to setting up POS

(point of sale) banners. In addition to this, to boost up traditional retail in the face increasing

in roads made by large, modern retailing chains like Spencer s, Reliance Fresh etc. (where

HUL is squeezed harder for discounts), HUL started restructuring some of the selected SVSs

into the form of self service retail shops a la modern retails. This is to protect & maintain

the competitive advantage that HUL has over its biggest competitors in the other markets

(e.g., P&G), with its very deep distribution reach through traditional retail. Launching of several promotional schemes for existing wholesalers and distributors. For

instance, it has started the Vijeta Rishta Jeet Ka scheme last year to provide a platform

for the wholesaler and HUL to grow the business by earning points and redeeming them.


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Conclusion

Hindustan Unilever, which once pioneered distribution in India, is today reinventing

distribution - creating new channels, and redefining the way current channels are serviced. In

the process it is converging product availability, with brand communication and brand

experience.

HUL s&d Management

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