Operations managementGroup 7PGPM 1013 Batch
A Case on Leveraging VMI Implementation for SCM
1
AGENDA
2
Marico
Profile and
Company
Synopsis
Problem
with
Marico ‘s
supply
chain
Options
Available
and the
approach
taken
Benefits
and Impact
of the
change on
MARICO
Industry
parallels
and
Potential
Pitfalls
1 2 3 4 5
1.COMPANY PROFILE AND SYNOPSIS
3
About Marico
FINANCIALS
FACTORIES
No of SKUs
GLOBAL
PRESENCE
BRANDS
EMPLOYEES
4
Revenue : 2003/04-888 Cr 2013-14- 4687 Cr
Profit : 2003/04- 59 Cr,2013-14- 485 Cr
1938 employees
SOUTH AFRICA , MIDDLE EAST, EGYPT ,
BANGLADESH VIETNAM , MALAYSIA
16 Globally
125
The Evolution
Marico incorporated
Goes International
Listed in BSE
Venture into Skin care solutions
IPO in Bangladesh
5
1988
1996
2002
2009
1992
FMCG Industry
Market Break Up of FMCG Industry
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43%
22%
12%
8%
4%
3%
3%5%
Food Products
Personal Care
Fabric Care
Hair Care
Households
OTC Products
Baby Care
Others
The future: FMCG market is set to treble from US$ 11.6 billion in 2003 to US$
33.4 billion in 2015.
Source: http://www.ibef.org/industry/fmcg-presentation (Indian Brand Equity Forum)
Market Share of Marico Products
31%
13%
5%
51%
Market Share for Edible Oil
Ruchi Soya India
Adani Wilmar Ltd
Marico
others
7
Dabur45%
Marico32%
Bajaj Corp20%
Others3%
Market Share for Hair Oil
•Mediker- P&G.
1999
• KanmoorFoods
2000
• SundariLLC
2003
• Fianceeand
Haircode
2006
• Derma Rx
2010
• ParasPharma
2012
Acquisitions by MARICO
8
2.PROBLEM WITH MARICO’s SUPPLY CHAIN
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Distribution Network
PAIN POINTS
- Low ROI at Distributor.
- Low sales of small SKUs in the first 22
days of the month.
- High stock outs and lost sales at
distributor end.
- Poor working capital management. Raise
cash for month end sales.
- Loss of shelf life, leakages and damages.
- Detentions and extra space requirements.
- High mis-distributions.
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Poor Stock Visibility
Low forecast accuracy
High distributor Inventory
Low ROIHigh sales
skew: Primaries
Stock Outs
Lost salesHigh Logistics
cost
The Cascading Effect
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Need for SCM initiative
Absence of detail SKU level planning.
Forecasting and planning done is silos. No visibility to customer demand.
No way to track lost sales.
Non-Compliance to distribution and inventory norms
Frequent replenishments in small lots.
High inventory at the month end.
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Alternatives
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• Uniform Distribution System for All SKUs through the month.
• Focusing more on logistics front – More FTLs (say 80%) than LTLs
• Trying fixed inventory ordering system for SKUs and clustering them as per
replenishment needs.
• Introducing Vendor Managed Inventory
• Upgrading technology to have greater access to Point of Sales data.
3.ALTERNATIVE CHOSEN & ACTIONS TAKEN
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Solutions Implemented
VMI
APO
MINET
ERP
ERP, APO, BW – Used for Marico
MIDAS for Distributors
MINET :- The face of all the above to users in the field
Outcome - Stock visibility of depot and distributor real time
MiNET Functions
MiNet is a portal that links all the distributors of Marico spread across the country to
the company
MiNet enables the company to get daily sales updates at the distributor level
Integrated with MIDAS that generates distribution plan.
MiNet collates historical sales data , simulates stock out levels.
Scientific calculation of Maximum stock norm generated
Advance Planner & Optimizer (APO), forecasted the sales more accurately with the
sales data captured in MiNet.
The “MIDAS” Touch
The company has also put in place a software called the Marico Industries Distributor
Application Software (MIDAS) which is akin to an ERP (enterprise resource planning)
software to capture “secondary sales” data
Every morning the distributor logs on to MiNet and uploads information from MIDAS and we
pass on the information regarding invoices, running schemes etc to the distributor
This means that the distributor can keep feeding his data on MIDAS and then dial in
periodically and feed the information on MiNet. He doesn’t have to be online all the time
Marico IT System - Overview
R3
APO
Warehouse
MIDAS
MIDAS
MIDAS
USERS
MI-Net
Distributor
Distributor
Distributor
USERS
VENDOR MANAGED INVENTORY (VMI) – A
PARADIGM SHIFT
Places order
Distributor Marico
Replenishment
based on order
EARLIER
VMIDistributor Marico
Replenishment based on
norms
Orders are automatically generated with
past data from distributor and right
forecasting methods
4.BENEFITS AND IMPACTS OF THE CHANGE
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Operational Benefits (distribution channel)
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50% reduction More than
50% reduction
More than 60% reduction
More than 50% reduction
The Benefits: Quantified
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50% reduction in sales skew
Tangible Benefits For Marico
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21%
13%
9%
0%
5%
10%
15%
20%
25%
2003 2004 2005
Stock Out at Marico in %age
Lesser Pressure on Sales andOperations Team
30%
20%
15%
10%
15%
20%
25%
30%
35%
2003 2004 2005
Distributor Stockouts in % of SKUS
Variability of SKUs managed better
70%
80%
90%
40%
50%
60%
70%
80%
90%
100%
2003 2004 2005
Forecast Accuracy %
POS Info resulting inbetter
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26
22
10
15
20
25
30
2003 2004 2005
Inventory in Marico in Days
Better Cash flowas a result
Brand Country Level
Key Performance Indicators
Improvement in Sales Metrics
(11.4% in crease in Sales)
Double Digit Growth Earnings
(12% increase in PBT)
Availability of right qty and right amount
of SKUs at Distributors
Better Productivity of Sales Team and greater focus on secondary sales
Improved ROI for Distributors with
better stock utilisation
Uniform requirement across month and hence savings on
Infrastructure
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5.INDUSTRY PARALLELS AND POTENTIAL
PITFALLS
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Industry Parallels For VMI Implementation
GSK
• Used EDI in 1990s to
exchange
replenishment
information
• Extended it to
upstream and
downstream
networks
• Implemented in R & D
supply chains to
save valuable
research time
Logistics and Supply Chain Management26
WALMART
• Helped managed them as
many as 200,000 store
stock items
• Set KPI to Vendors based
on GMROII
• Achieved 8 or more
inventory turns per year
and GMROII at best in
class level of 2.0+
GMROII =
Gross Margin
generated through
Sell through
Average
Inventory Cost
MAXIM INTEGRATED
• Provided better product
availability for strategic
customers like Apple ,
Samsung and HTC
• Significant reduced order
lead times.
Challenges relating to VMI
LOgistics and Supply Chain Managment 27
• Size of Retail Operations. Larger and Unstructured Retail Operations in India make it a challenge
to implement . Also it makes sense when the scope of business is large to make financially viable.
• Building the Trust Factor at Supplier or Distributor’s end.
Questions like
Will the supplier deliver as required
Will the consumer consume as expected
Has the right products selected
• Heavy Reliance on Technology. Cost and reliability become bigger concerns.
• Willingness to Implement VMI by vendors and distributors. Might see as an intrusion on their
responsibilities. Barilla Spa case classically showed this point
• Vendors willing to take higher responsibility is an absolute ingredient. Frequent demand of
goods will be a need Vendors must agree to implement.
• Close working of Supplier and customer to develop accurate forecasts is am absolute must.
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Thank You