Marico Supply Chain

A CASE STUDY ON SUPPLY CHAIN OF

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Submitted By, Richesh Krishnan 14MMCC24

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Contents  Company Profile  Marico’s Inbound Copra Supply Chain  Remedial Action  Marico Strategy and Supply Chain Impact  Marico Outbound Supply chain  Improved Outbound supply Chain  Conclusions  References

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Company Profile  Founded on 1971  Marico is one of India's leading Consumer Products & Service Industry  Brand portfolio: Parachute, Saffola, Hair & Care, Nihar, Mediker, Revive. Marico also owns popular brands like Set Wet, Livon, Zatak , and other personal care brands.

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 Marico is a FMCG company providing consumer products and services in the areas of Health and Beauty based in Mumbai.  Leadership positions in most categories- Coconut Oil, Hair Oils, Post wash hair care, Anti-lice Treatment, Premium Refined Edible Oils, niche Fabric Care etc  Marico's own manufacturing facilities are located at Goa, Kanjikode, Jalgaon, Pondicherry, Dehradun, Baddi, Paonta Sahib, Perundurai and Daman.  Sales revenue 2012: INR 4596 Cr  Net Profit: INR 396 Cr  Part of Marico’s business strategy is to expand continuously into ever smaller locales until its brands are available to most Indian households.

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Marico’s Inbound Copra Supply Chain: Prior to 1991, Copra purchase unit was in Mumbai Marico contracted brokers in Mumbai who in turn contracted brokers in Kerala. Brokers in Kerala had their own trail of intermediaries (local brokers, Copra Converters, farmers) Copra buying is approximately 50% of Marico’s purchase portfolio

Marico

Mumbai based Brokers

Terminal Market Brokers in Kerala

Supplier Network in Terminal Market

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Problems with the Inbound Copra Supply Chain Increased cost of procurement due to presence of many intermediaries

Quality of the copra bought from market significantly different from one that reached Marico factories

Price and Payment terms were dictated by brokers

Quantity discrepancies

Frequent supply disruptions

Copra Supply Chain 7

Remedial Action: Disintermediation &

Interiror

Traders 8

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Disintermediationreducing intermediaries in supply channel. Buying Office set up in Kozhikode in 1991, bypassing 2 layers of primary brokers at Mumbai & Kerala

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Factory set up in Kanjikode, Puduchery and Goa. Mumbai factory shut down.

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New factories closer to sourcing locations and markets

Initial Problems with the initiative:

Terminal markets had strong labour unions • Ability to dictate terms of payments

High labour charges • Consequence of unionized terminal markets in Kerala

Separate unions for handling, loading, unloading, drying, stacking etc.

• Increased overheads and cost

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To reduce dependency on terminal markets, Marico started sourcing from Interior Traders- small aggregators who sourced Copra from interior villages

Vendor Development Initiative 10

Vendor Development Ten Vendors Initiatives: Starting 1994,

identified in N. Kerala and given Copra dryers along with some training

attempts to develop vendor base in Tamil Nadu, other states

Sourcing from terminal markets discontinued completely by 1998 This eliminated transaction fee at Exchange

Unnecessary loading/unloading avoided

11 The IT push: • Big bang ERP implementation in 2001-02 • Marico’s Copra suppliers connected through web portalMarico Connect • Institutionalize e-buying in Copra purchase (dealt later) Further Disintermediation: • To further eliminate traders, Marico started with own collection centers • This brought more stability to the supplies: Small farmers could sell directly to Marico’s Collection Centers unlike large traders who generally would wait for the right quantity and price

Share of sourcing through Copra Collection Centers

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 Process Improvement: Institutionalize e-buying 

Web Based Auctions: Most suppliers were computer illiterate; this challenge was met by:  Opening Rediff email ids for each vendors  Training on e-mail usage & tie-up between vendors and cyber cafes 

Fast Track Payment (FTP): allowed vendors to rotate their money faster.

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3° Phase: Copra e- Portal “e-marico.com” launched in 2005.

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Enabled placing of bids through SMS.

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Process Improvement: • Daily negotiations with Copra traders was done away with • Reverse Auction: Buying team would accept quotes from copra traders only during three one-hour auction slots in a day and the lowest bidder would be selected. • The initial resistance to Reverse Auction died down in a few months and traders accepted the process.

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Marico Strategy and Supply Chain Impact 1995 – Focus on Brand Development

Extensive advertising ,Innovative promotion schemes – Advertising expenditure increased steadily

This was in response to the growing International competition from rivals –Unilever and ConAgra

Introduction of more products and more brands – incur cost

For survival -Increased efforts to develop new brands

Reduced reliance on 3 market leader brands - Parachute coconut Oil ,Saffola and Sweekar

Expansion strategy – introduced more brands and tried to increase reach – created Supply Chain problems

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Marico Outbound Supply chain

Marico’s Supply Chain

Plants

Depots

Distributor

Super Distributor

Retailer

Stocklist

Urban Consumer

Retailer Rural Consumer

Initial Outbound Supply Chain 17 Factory Stock Transfer Depots Ideal Information Flow

Supplier/Super Supplier Retailer

Consumer

Primary Sales Secondary Sales

Offtakes

Marico’s Supply Chain Transactions

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Features of the Outbound Supply Chain  Nature of the Market  Fragmented nature of Indian supply chain  Supply chain can provide competitive advantage

 Bullwhip Effect  Only 2% - represents organized retail stores(tiny grocery stores)  95% : Kirana stores  Point of sale information – Not readily, directly available from retailers  Sales data – collected from field test, customer focus group, well financed advertising program

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 Key Strength  Relatively low commodity Raw material such as Vegetable oil, safflower seeds.  Strong control on sourcing of RM  Less variation in sales seasonality  No major manufacturing constraints

 Managing Supply Chain  Slow moving SKUs – shipped directly from factories to depots  Fast moving SKUs – shipped to redistribution centre and subsequently to depots  Distribution Alliances

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Challenges Faced in the outbound Supply chain  Supply chain not scalable with Expansion Plan  Strategy:  Expand continuously to reach most Indian households  Growth through new brands and product lines  Penetrate more into rural areas - represents 70% of Indian population  Entails more sales and market to track –more forecast to make ,more product to plan, more SKUs to track-more truckloads to configure.  To cater to the new areas with existing supply chain – logistic challenge

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 Forecasting Errors  Low cost products – leading to impulsive buying decisions  Product availability – Key to impulse buying  Forecast accuracy was 70%  Distribution – suffered stock outs leading to loss of sales 30%  On one hand – low level of service level due to product availability  Other hand, excess inventory lying at Marico and in the channel  Cost of errors in shipments to remote depots increased

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 Un-integrated Application systems  Lack of integration among transaction systems  Result  Poor visibility into internal operations  Did not scale with increased logistics requirements  Inaccurate forecasts, long planning cycles, no transparency of warehouse stock, delayed response to customer needs.

 Problems with distribution  Shipped only full trucks  Obstacles to good distribution:  Random decisions due to  Poor visibility into the depot stocks of growing number of SKUs  No prioritisation rules for configuring optimal truckloads

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 Monthly distribution levels  First 20 days: 16-32%  Last 10 days: 53%

 Result  Needed to hire extra space when shipment exceeded depot facility  Excess inventory for some SKUs, stock-out in others  Higher deliver costs  Erosion of sales, distributor confidence and customer satisfaction

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Outbound Supply Chain redesign  Solution: mySAP business Intelligence  Big bang approach for SAP implementation  At Company factories, warehouses, business offices, contract manufacturers

SAP APO implemented for:

Not implemented for:

Demand forecasting

Sourcing

Supply chain network planning

Sales Manufacturing

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Stage 1:

Stage 2:

Supply Chain Implementation Lower inventory and supply chain costs

Resolve forecasting problems, eliminate inventory and stock-out problems

Revamp processes

Technological support through highly integrated applications systems

ERP

Big bang rollout in 2001

Partner relationship with distributors VMI

Timely sales and inventory information Manage distributor inventory by replenishing stocks on the basis of distributor’s input of sales to retailers.

Improved Outbound supply Chain 26

Complete Visibility

Improved Forecast Accuracy

Short Planning Cycle

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Reduced Inventory and stockouts

Uniform scales

Low Inventory and stockouts

Reliable and Responsive production and distribution data

Reduction in Delivery Cost Fast response to market dynamic

Equal Attention to Smaller Brands

Benefits of redesign 27

Operational improvements • Reduced planning cycle • From 30 days to 10 days • Improved forecasting accuracy • Improved delivery reliability

Improved forecasting • Both primary and secondary sales were available

Improved distribution • VMI (Vendor managed Inventory) implemented • SAP heuristics ensured shipments are sent in full truckloads and that depot inventories simultaneously remain within prescribed inventory norms

Improved distributor relationship: reduced bullwhip effect

• Partnership relation with distributors • Monitor and manage distributor inventory by replenishing stock on the basis of secondary sales • C&FA supposed to replenish distributors within specified period or face penalty

Outbound Supply chain performance improvements 28

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Conclusions  Marico’s Outbound Supply Chain  Forecasting and distribution errors impacted company’s cash flows and hindered expansion  By effective implementation of SAP, forecasting and distributor relationship improved, costs and inventory levels went down

 Marico’s Inbound Supply Chain  Marico faced increased costs of procurement and frequent supply disruptions due to many levels in supply channel  Disintermediation and IT assisted process improvement led to reduced costs, procurement lead time and efficient operations

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References

 Marico Industries: mySAP™ Supply Chain Management IIM, Bangalore By, Janat Shah and Angeline Pantages  Economics Times – Appachi Supply Chain Article http://articles.economictimes.indiatimes.com/2013-11-26/news/44486941_1_saugata -gupta-fmcg-major-marico-supply-chain

 Marico - An Information Update April 26, 2007

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