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Issue of January 2003 
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Techscope 2003: IT Trends in FMCG
Can IT restore the sheen in the FMCG vertical?

Increasing competition and sluggish growth put the FMCG sector in stormy seas. But FMCG companies hope they can use IT to restore calm and normalcy once again. by Mani Mulki

Within the manufacturing vertical, the FMCG slice has always been the most vibrant for a variety of reasons—whether it relates to the aggression shown by players in having a greater market share, or while recruiting management trainees in management schools. The sphere of Information Technology is no different. The FMCG sector has always been in the forefront of early adopters of technology, and is seen as an attractive proposition for IT vendors—be it hardware or application software.

Gone are the days when market growth in the FMCG sector was a foregone conclusion. With the level of competition and sluggish growth most FMCG corporates are looking at IT to reduce costs in the supply chain, and flatten the bottom line. They want technology to integrate business processes across the enterprise, suppliers and customers. They would like technology to help them sense changes in market conditions rapidly and the agility to respond quickly.

The current issues that FMCG companies have are:

  • How do we rationalize cost drivers across the supply chain—whether it relates to 'input' costs, manufacturing costs or distribution costs?
  • Gathering market intelligence to be ahead of the competition.
  • Enhancing relationship with business partners.

Listed below are some of the major IT initiatives most FMCG organizations are pursuing.

The FMCG sector was the early adopter of ERP packages. They were the first to jump into the ERP bandwagon. While the subsequent benefits that were derived were certainly as those which were expected, it has formed a strong and stable base of the current IT initiatives being pursued. ERP has also helped to bring in a sense of discipline in the various business workflows, besides ushering in a level of standardization in recording various business transactions across locations. This standardization has helped in quickly aggregating data and presenting a consolidated view which in turn has hastened the process of accounting and MIS reporting.

Nobody questions the need for an ERP now. Over the years, it has transitioned from an IT initiative requiring top management deliberations and decision, to something that is more infrastructural in nature. It is as essential for running an organization as say tables or chairs. It is so well meshed into the organization fabric that it gets noticed only when there is a downtime. It has now become an important platform on which various e-initiatives are built.

Supply Chain Initiatives
FMCG organizations are now looking at extending their IT initiatives to touch business partners like suppliers on one hand and the distributors on the other. Extending the IT chain to link the distributors for instance, would be of mutual benefit. The distributor would benefit by having a greater 'say' in what would be dispatched to him by the Carrier and Forwarding Agent or CFA (distribution outlet) servicing him. In essence this would propel a movement from a 'push' based system to a 'pull' based system, translating into inventory efficiencies right from the distributor stock point to the CFA and to the manufacturing location. Efficiencies in inventory would generate better ROI for the distributor thereby strengthening the relationship with the organization. Besides, the organization would have a daily view of the secondary sales (from the distributor to the retailer) translating into a higher degree of accuracy in forecasting and demand planning.

Connecting to the suppliers on the other hand would allow an organization to move towards 'Vendor Managed Inventory' type of a relationship. Hence the supplier can not only control the inventory at his level, but also at the organizational level. He also gets a view of future requirements which allows him to plan his production schedule efficiently. The inventory at the organization would always be at a balanced level.

Supply Chain Optimization
Linking up the distributors and suppliers would help in seamlessly integrating business partners into the organization’s workflows, which would definitely help in reducing the supply chain cost. Once that is successfully achieved, supply chain optimization tools like SAP APO, i2, Manugistics, Adexa would help in generating the most optimal and constraint based cost-effective plan across the supply chain.

Packages like these would for instance consider the capacity constrains of the manufacturing lines. Combination of various input blend costs and other constraints before unfolding the least cost production schedule. It would also generate the least cost dispatch schedule considering the stock levels at various segments of the supply chain and the distance between the source and the destination sites.

Packages like these require real-time online data and would place the organization into a different orbit altogether with a high degree of efficiency and flexibility across the supply chain.

Awareness of the use of PDAs is definitely increasing and more applications are being built for this platform. FMCG companies are looking at automating their sales force with the help of PDAs. It is envisaged that the efficiency of the sales force would increase by at least 15-20 percent with the help of these devices. This would have a direct and a favorable impact on top line growth. Most of the planning activities of the sales person, like the retail outlets to be visited during the daily 'beat,' and the order-taking process at the retailer's outlet, would be automated, thereby allowing him to spend more time with the retailer for selling. The data can then be brought into the corporate database and Enterprise Resource Planning by syncing the PDA with a distributor's desktop.

However, the market for PDA's in India is currently nascent, as prices are still on the higher side. It would be difficult to predict as to when these devices would become mass market products. Reduction in prices
and awareness amongst corporates would definitely help in rapid expansion of the market for PDA's.

Business Intelligence tools
With the hot pace of competition looming large, the management would need to arm itself with the type of proactive market intelligence that allows it to be one step ahead of the competition. This is where Data Warehousing/Business Intelligence tools come to the fore. While ERP and supply chain packages would allow for data collection, data warehousing tools would allow the information to be extracted.

Once transactional data is put into a data warehouse, the potential to extract hidden and unforeseen information is tremendous. For instance, sales trends across multiple dimensions like time periods, channels of sales, customer types, and geographic locations can be seen in one view. The efficacy of the sales promotional schemes can very easily be elicited by viewing the sales pattern across time zones.

The same information can be viewed in numerous graphical outputs adding more and more value to the same data. One could also have a GIS solution (Geographical Information Systems) layered on the top of a data warehouse wherein the same sales data can be juxtaposed onto the Indian map. Different states can then be colored differently to indicate the level of sales. A powerful visual representation like this would allow the marketing department to have a fast and a meaningful feedback of the sales/marketing initiatives.

Besides the above, companies are looking at improving the communication process among employees, and at streamlining operational efficiencies through initiatives like Employee Portals. Employees are also being educated on the importance of guarding the information infrastructure. Stringent IT security policies are in place to protect the 'Information Assets' and prevent its misuse.

The writer is General Manager (Information Systems), Godrej Industries

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