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Report on Benchmarking of FMCG Industries in India

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Introduction

This project is about finding the Issues, Constraints, Relevant alternatives, develop an implementation plan & mapping Supply Chain and doing benchmarking of three various companies. This project is done mainly for academic purposes in the subject of Supply Chain Management for the course of PGDSCOM (08-10). At the macro level, the Indian economy is poised to remain buoyant and grow at more than 7%. The economic growth would impact large proportions of the population thus leading to more money and the hands of the consumer.

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Changes in the demographic composition of the population and thus the market would also continue to impact the FMCG industry. A recent survey conducted by a leading business weekly, approximately 47 percent of India’s 1+billion people wear under the age of 20, and teenagers among them numbered about 160 million. Together, they wielded INR 14000 Cr worth of discretionary income, and their families spent an additional INR 18500 Cr on them every year, by 2015, Indians under 20 are estimated t make up 55% of the population- and wield proportionately higher spending power.

Means, companies that are able to influence and excite such consumers would be those that win in the market place.

Executive Summary

The accomplishment of the report mainly depends upon research methods viz. industry analysis, and internal benchmarking of supply chain management. The project was assigned to perform the analysis of three companies in the same industry. In this project opportunity analysis has been done with the data of the holding period of the firm’s Raw material, Semi-finished goods, and Finished goods.

Analysis of internal supply chain efficiency has been done for the same companies. Internal supply chain working capital productivity analysis has been done with the data of Working Capital Productivity and Inventory, Accounts receivable, and Accounts payable and reached the conclusion that only internal supply chain analysis cannot suggest the whole cost reduction we also need to analyze the external factors.

Industry Analysis

About Industry

The Indian FMCG market has been divided for a long time between the organized sector and the unorganized sector.

While the latter has been crowded by a large number of local players, competing on margins, the former has varied between a two-player –scenario to a multiplayer one Unlike the U. S market for fast-moving consumer goods (FMCG), which is dominated by a handful of global players, India’s Rs. 460 billion FMCG market remains highly fragmented with roughly half the market going to unbranded, unpackaged homemade products This presents a tremendous opportunity for makers of branded products who can convert consumers to branded products.

However, successfully Launching and growing market share around a branded product in India presents tremendous challenges. Take distribution as an example. India is home to six million retail outlets and supermarkets virtually do not exist. This makes logistics particularly for new players extremely difficult. Other challenges of similar magnitude exist across the FMCG supply chain. The fact is that FMCG is a structurally unattractive industry in which to participate. Even so, the opportunity keeps FMCG makers trying.

At the macro-level, over the long term, the efforts on the infrastructure front (roads, rails, power, and river linking) are likely to enhance the living standard across India. To date, India’s per capita consumption of most FMCG products is much bellow world averages. This is the latent potential that most FMCG companies are looking at. Even in the much-penetrated categories like soaps/detergents companies are focusing on getting the consumer up the value chain. Going forward, much of the battle will be fought on sophisticated distribution strengths.

Structural Analysis of FMCG Industry

Typically, a consumer buys these goods at least once a month. The sector covers a wide gamut of products such as detergents, toilet soaps, toothpaste, shampoos, creams, powders, food products, confectioneries, beverages, and cigarettes. Typically characteristics of FMCG products are:

  1. The products often cater to 3 very distinct but usually wanted for aspect necessity, comfort luxury. They meet the demands of the entire crosssection of the population. Price and income elasticity of demand vary across products and consumers.
  2. Individual items are a small value (small SKU’s) although all FMC products put together account for a significant part of the consumer’s budget.
  3. The consumer spends little time on the purchase decision. He seldom overlooks at the technical specifications. Brand loyalties or recommendations of reliable retailer/dealer drive purchase decision s.
  4. Limited inventory of these products (many of which are perishable) are kept by consumer and prefers to purchase them frequently, as and when required.
  5. Brand switching is often induced by heavy advertisement, the recommendation of the retailer or word of mouth

Distinguish Features of Indian FMCG Business

FMCG companies sell their products directly to consumers. Major features that distinguish this sector from the others include the following:

Design and Manufacturing

  1. Low capital intensity – Most product categories in FMCG require in FMCG requires relatively minor investment in plant and machinery and other fixed assets. Also, the business has low working capital intensity as the bulk of sales from manufacturing take place on a cash basis.
  2. Technology – Basic technology of manufacturing is easily available. Also, technology for most products has been fairly stable. Modifications and improvements rarely change the basic process.
  3. Third-party manufacturing – Manufacturing of products by third-party vendors is quite common. Benefits associated with third party manufacturing include (1) flexibility in production and inventory planning; (2) flexibility in controlling labor cost; and (3) logistics-sometimes it is essential to get certain products manufactured near the market. Marketing and distribution: Marketing function is sacrosanct in the case of FMCG companies.

Major features of the marketing function include the following

  1. High initial launch cost – New products require a large front-ended investment in product development, market research, test marketing, and launch. Creating awareness and develop franchises for a new brad requires an enormous initial expenditure on launch advertisements, free samples, and product promotions. Launch costs are as high as 50-100% of revenue in the first year. For established brands, advertisement expenditure varies from 5-12% depending on the categories.
  2. Limited mass media options-The challenge associated with the launch and/or brand building initiatives is that few no mass media options. TV reaches 67% of urban consumers and 35% of rural consumers. Alternatives like wall paintings, theaters, video vehicles, special packaging, and consumer promotions become an expensive but required activity associated with a successful FMCG.
  3. Huge distribution network- India is home to six million retail outlets, including 2 million in 5,160 towns and 4 million in 627,000 villages. Supermarkets virtually do not exist in India. This makes logistics particularly for new players extremely difficult. It also makes new product launches difficult since retailers are reluctant to allocate resources and time to slow-moving products. Critical factors for success are the ability to built, develop, and maintain a robust distribution network.

Competition

The significant presence of the unorganized sector –Factors that enable small, unorganized players with local presence to flourish include the following:

  1. The basic technology for most products is fairly simple and easily available.
  2. The small scale sector in India enjoys exemption/lower rates of excise duty, sales tax, etc. This makes them more price-competitive vis-a-vis the organized sector.
  3. A highly scattered market and poor transport infrastructure limit the ability of MNCs and national players to reach out to remote rural areas and small towns.
  4. Low brand awareness enables local players to market their spurious look-alike brands.
  5. Lower overheads due to limited geography, family management, focused product lines, and minimal expenditure on marketing.

Company Analysis

Cadbury India Ltd

Company Profile

Cadbury plc (LSE: CBRY, NYSE: CBY) is a confectionery and beverage company with its headquarters in London, United Kingdom, and is the world’s largest confectionery manufacturer. The firm was formerly known as “Cadbury Schweppes plc” before demerging in May 2008, separating its global confectionery business from its US beverage unit, which has been renamed Dr. Pepper Snapple Group Inc.

The company is listed on the London Stock Exchange and is a constituent of the FTSE 100 Index. It is headquartered in Mayfair, City of Westminster, and Greater London Early history 10 In 1824, John Cadbury began vending tea, coffee, and (later) chocolate at Bull Street in Birmingham in the UK and sometimes in India. The company was later known as “Cadbury Brothers Limited”. After John Cadbury’s retirement, his sons, Richard and George, opened a major new factory at Bourneville, five miles south of the city. In 1893, George Cadbury bought 120 acres (0. 5 km? of land close to the works and planned, at his own expense, a model village which would ‘alleviate the evils of modern more cramped living conditions’. By 1900 the estate included 313 cottages and houses set on 330 acres (1. 3 km? ) of land. As the Cadbury family was Quakers there were no Public houses in the estate; in fact, it was their Quaker beliefs that first led them to sell tea, coffee, and cocoa as alternatives to alcohol. After World War I, Cadbury Brothers Limited undertook a financial merger with J. S. Fry & Sons Limited, another chocolate manufacturer. Merger

The Cadbury Schweppes logo used until the demerger in 2008Cadbury merged with drinks company Schweppes to form Cadbury Schweppes in 1969. Snapple, Mistic and Stewart’s (formerly Cable Car Beverage) were sold by Trier to Cadbury Schweppes in 2000 for $1. 45 billion. In October of that same year, Cadbury Schweppes purchased Royal Crown from Trier. Demerger In March 2007, it was revealed that Cadbury Schweppes was planning to split its business into two separate entities: one focusing on its main chocolate and confectionery market; the other on its US drinks business.

The demerger took effect on 2 May 2008, with the drinks business becoming Dr. Pepper Snapple Group Inc. Cadbury is selling its Australian beverage unit to Asahi Breweries. 11 The Cadbury Schweppes logo used until the demerger in 2008 Recent developments In October 2007, Cadbury announced the closure of the Key sham chocolate factory, formerly part of Fries. Between 500 and 700 jobs would be affected by this change. The production transferred to other plants in England and Poland. In 2008 Monk hill Confectionery, the Own Label trading division of Cadbury Trevor Bassett. This sale included factories at Pontefract, Cleckheaton & York and a distribution center near Chesterfield, and the transfer of around 800 employees.

Johnson & Johnson Ltd

Company Profile

Johnson & Johnson Ltd. is the most comprehensive manufacturer of healthcare products, selling more than 100 different products in the consumer, pharmaceutical, and professional markets. Since 50 years of establishment in India, they have gained a reputation for delivering high-quality products at competitive 12 kinds of rice. Their success stems from our staunch commitment to caring for and catering to the needs of Their customers and employees. The quest to provide high-quality, yet cost-effective products have led to active R&D efforts. Rich dividends have led not only to innovations in the pharmaceutical industry, surgical science, and diagnostics industry but have also earned us an important place in virtually every household. Their success has also helped us introduce and continuously innovate on highly sophisticated products for new markets in India.

Nestle India Ltd

Company Profile

13 Nestle S. A. (French pronunciation: [n? sle]) is a multinational packaged food company founded and headquartered in Vevey, Switzerland, and listed on the SWX Swiss Exchange with a turnover of over 87 billion Swiss francs. It originated in a 1905 merger of the Anglo-Swiss Milk Company for milk products established in 1866 by the Page Brothers in Cham, Switzerland, and the Farine Lacteal Henri Nestle Company set up in 1866 by Henri Nestle to provide an infant food product.

The two world wars both affected growth: during the first, dried milk was widely used but the second war caused profits to drop by around 70%. However, sales of instant coffee Nescafe were boosted by the US military. After the wars, growth was stimulated by acquisitions expanding its range and taking control of several well-known brands, so they now include Magi, Thom, and Nescafe, which are known globally. The company dates to 1867 when two separate Swiss enterprises were founded that would later form the core of Nestle.

In August of that year, Charles A. and George Page, brothers from Lee County, IL in the United States, established the Anglo-Swiss Condensed Milk Company in Cham. In September, in Vevey, Henri Nestle developed a milk-based baby food and soon began marketing it. In the succeeding decades, both enterprises aggressively expanded their businesses throughout Europe and the United States. (Henri Nestle retired in 1875, but the company, under new ownership, retained his name as Farine Lacteal Henri Nestle. In 1877 Anglo-Swiss added milk-based baby foods to its products, and in the following year the Nestle company added condensed milk so that the firms became direct and fierce rivals In 1905, however, the companies merged to become the Nestle and Anglo-Swiss Condensed Milk Company, retaining that name until 1947, when the name Nestle Alimenting SA was taken as a result of the acquisition of Barbeque de Products Magi SA (founded 1884) and its holding company, Alimenting SA of Kempten, Switzerland. Magi was a major manufacturer of soup mixes and related foodstuffs. The company’s current name was adopted in 1977.

By the early 1900s, the company was operating factories in the United States, the United Kingdom, Germany, and Spain. World War I created new demand for dairy products in the form of government contracts; by the end of the war, Nestle’s production had more than doubled. 14 After the war, government contracts dried up and consumers switched back to fresh milk. However, Nestle’s management responded quickly, streamlining operations, and reducing debt. The 1920s saw Nestle’s first expansion into new products, with chocolate the company’s second most important activity Nestle felt the effects of World War II immediately.

Profits dropped from US$20 million in 1938 to US$6 million in 1939. Factories were established in developing countries, particularly Latin America. Ironically, the war helped with the introduction of the company’s newest product, Nescafe, which was a staple drink of the US military. Nestle’s production and sales rose in the wartime economy. The end of World War II was the beginning of a dynamic phase for Nestle. Growth accelerated and companies were acquired. In 1947 came the merger with Magi seasonings and soups. Crosse & Blackwell followed in 1950, as did Findus (1963), Libby’s (1971), and Stouffer’s (1973).

Diversification came with a shareholding in L’Oreal in 1974. In 1977, Nestle made its second venture outside the food industry by acquiring Alcon Laboratories Inc. In 1984, Nestle’s improved bottom line allowed the company to launch a new round of acquisitions, notably American food giant Carnation and the British confectionery company Row tree Mackintosh in 1988, which brought the Willy Wonk Brand to Nestle The first half of the 1990s proved to be favorable for Nestle: trade barriers crumbled and world markets developed into more or less integrated trading areas.

Since 1996 there have been acquisitions including San Pellegrino (1997), Spillers Petfoods (1998), and Ralston Purina (2002). There were two major acquisitions in North America, both in 2002: in June, Nestle merged its U. S. ice cream business into Dreyer’s, and in August a US$2. 6 billion acquisition was announced of Chef America, the creator of Hot Pockets. In the same time frame, Nestle came close to purchasing the iconic American company Hershey’s, though the deal fell through. Another recent purchase includes the Jenny Craig weight loss program for US$600 million.

In December 2005 Nestle bought the Greek company Delta Ice Cream for €240 million. In January 2006 it took full ownership of Dreyer’s, thus becoming the world’s biggest ice cream maker with a 17. 5% market share. In November 2006, Nestle purchased the Medical Nutrition division of Novartis Pharmaceutical for $2. 5B, also acquiring in 2007 the milk flavoring product known as Oval tine. In April 2007 Nestle bought baby food manufacturer Gerber for $5. 5 billion. 15 In December 2007 Nestle entered a strategic partnership with a Belgian chocolate maker Pierre Marceline.

Research Methodology

There has been an increased awareness in recent years regarding the role and potential of supply chain management in supporting corporate goals. Benchmarking is one way of assessing performance based on these measures (Began and English 1994). Seltzer and Carr(1999) tested the relationship between benchmarking, strategic purchasing, and the firm’s performance and found that benchmarking is positively related to a firm’s performance and strategic purchasing.

This research develops performance measures that were computed through publically available information and demonstrate how benchmarking these measures may be useful to a firm.

Steps Delineating the Bench-marking Framework

Selection of performance measures among the ones taken in this research by the firm depending on its competitive focus, market niche, and strategy Benchmarking exercise on the firms in the industry using the selected performance measure. This would enable the identification of firms with “best performance’’ in terms of selected measures.

Other performance measures developed in this research may then be computed for the selected firms The information about specific strategies of the “best performance” firms to be obtained from business periodicals and other sources in the public domain. This information can be extracted and be related to the specific performance measures of the firms. Leveraging this knowledge to find what bearing the firm’s performance measure have on their Specific practices and policies. At this stage, management’s objective is to identify practices and policies that drive superior performance. Nestle has the least days of 31 raw material inventory. Also, this company has the lowest aggregate length, i. e. the composite figure including days of raw material, WIP, and finished goods. Cadbury has the least days of finished goods inventory. However, the product stays as raw material for the longest time in Cadbury. Johnso n has the longest days of finished goods inventory but the least days as WIP. The aggregate industry profile shows that for the industry as a whole, the product stays in finished goods inventory for a long time and the companies bear the significant cost in keeping the product as raw material. The result suggests that the companies strive to bring down the level of raw material and finished goods since there is no value-added in these stages and the company has to bear the inventory carrying cost.

Nestle seems to be successful in this objective. However, the product stays in the WIP stage for the medium time for this company. This suggests that the company attempts to delay the product 35 differentiation to the last stage of the production process. Analysis of internal Supply chain efficiency Cadbury has been successful in bringing down the internal supply chain inefficiency ratio from -0. 149799 in 2005 to -0. 322037 in 2007 for nestle this ratio has decreased from -0. 340106 in 2005 to -0. 292786 in 2007. Likewise, the ratio has 36 increased for Johnson -0. 322008 in 2005 to -0. 172492 in 2007. This suggests that the industry in general and Cadbury in particular seem to be following an integrated logistic strategy, thereby achieving cost efficiency and optimization in the internal supply chain process. Nestle has managed to achieve the highest increase in sales while at the same time it increases the internal supply 37 chain inefficiency ratio. It may be further observed that the duration for which the product stays in the finished goods stage was the least for Cadbury.

Internal supply chain working capital productivity analysis: Table-12 shows the breakdown of working capital for each of the three companies.

Conclusion

The above data analysis results point to the fact that looking only at internal supply chain working capital productivity parse would be myopic and would not capture the total performance of the firm. Total performance needs to take into account the partnering approaches of the firm, which 45 is possible by examining the components of the internal supply chain working capital.

Recommendation

If a firm is very large in comparison to its suppliers, then it should be more concerned about keeping its accounts payable at lower levels since the cost of capital faced by a small player is much higher. On the sell side, a firm may be prone to offer extensions of credit and sell more on credit to generate sales.

Reference

  1. Janet shah, supply chain management, 2009
  2. Journal of supply chain management; winter 2001; 37, 1, ABI/INFORM Global, benchmarking internal supply Chain performance: Development of a framework

Cite this Report on Benchmarking of FMCG Industries in India

Report on Benchmarking of FMCG Industries in India. (2018, Mar 05). Retrieved from https://graduateway.com/fmcg-sector/

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