A Case on Leveraging VMI Implementation for SCM

Operations management
Group 7
PGPM 1013 Batch

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AGENDA

1 2 3 4 5
Marico Problem Options Benefits Industry
Profile and with Available and Impact parallels
Company Marico ‘s and the of the and
Synopsis supply approach change on Potential
chain taken MARICO Pitfalls

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1.COMPANY PROFILE AND SYNOPSIS

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About Marico

 FINANCIALS Revenue : 2003/04-888 Cr 2013-14- 4687 Cr

Profit : 2003/04- 59 Cr,2013-14- 485 Cr

 FACTORIES 16 Globally
 No of SKUs 125
 GLOBAL SOUTH AFRICA , MIDDLE EAST, EGYPT ,
PRESENCE BANGLADESH VIETNAM , MALAYSIA

 BRANDS

 EMPLOYEES 1938 employees

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The Evolution

2009

2002

1996

IPO in
Bangladesh
Venture into
1992 Skin care
solutions
Listed in BSE

1988 Goes
International

Marico
incorporated

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FMCG Industry
 Market Break Up of FMCG Industry

5%
3%
3%
4% Food Products
Personal Care
8% 43% Fabric Care
Hair Care
Households
OTC Products
12%
Baby Care
Others

22%

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)

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Market Share of Marico Products

Market Share for Edible Oil

Market Share for Hair Oil

Others
3%

31%
Ruchi Soya India Bajaj Corp
51% Adani Wilmar Ltd 20%
Dabur
Marico 45%
others

13%
Marico
5% 32%

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Acquisitions by MARICO

2000 2006 2012

•
• Sundari
Mediker • Kanmoor LLC • Fiancee • Derma • Paras
- P&G. Foods and Rx Pharma
Haircode

1999 2010
2003

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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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The Cascading Effect

High
Poor Stock Low forecast
distributor
Visibility accuracy
Inventory

High sales
Low ROI skew: Stock Outs
Primaries

High Logistics Lost sales

cost

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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
• 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.

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3.ALTERNATIVE CHOSEN & ACTIONS TAKEN

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Solutions Implemented

APO
ERP

VMI

MINET

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

Distributor

R3 MIDAS

Distributor

MI-Net MIDAS
Warehouse

Distributor

MIDAS
APO

USERS
USERS
VENDOR MANAGED INVENTORY (VMI) – A
PARADIGM SHIFT

Places order

Marico
EARLIER Distributor
Replenishment
based on order

Replenishment based on
norms
Distributor Marico
VMI

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)

50%
reduction More than
50%
reduction

More than
50%
reduction

More
than 60%
reduction
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The Benefits: Quantified

50%
reduction in
sales skew

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Tangible Benefits For Marico
Forecast Accuracy % Inventory in Marico in Days
30 29
100% POS Info Better Cash flow
resulting in 90% 26
90% as a result
better 80% 25
80% 22
70%
70% 20
60%
15
50%
40% 10
2003 2004 2005 2003 2004 2005

Brand Country Level

Stock Out at Marico in %age Distributor Stockouts in % of SKUS
25% 35%
21% Lesser Pressure 30%
20% on Sales and 30% Variability of
Operations Team SKUs managed
15% 13% 25% better
20%
9% 20%
10% 15%
15%
5%
10%
0% 2003 2004 2005
2003 2004 2005

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Key Performance Indicators

Improvement in Double Digit Growth Availability of right

Sales Metrics Earnings qty and right amount
(11.4% in crease in of SKUs at
(12% increase in PBT) Distributors
Sales)

Better Productivity of Improved ROI for Uniform requirement

Sales Team and Distributors with across month and
greater focus on better stock hence savings on
secondary sales utilisation Infrastructure

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5.INDUSTRY PARALLELS AND POTENTIAL
PITFALLS

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Industry Parallels For VMI Implementation

GSK WALMART MAXIM INTEGRATED

• Used EDI in 1990s to • Helped managed them as • Provided better product
exchange many as 200,000 store availability for strategic
replenishment stock items customers like Apple ,
information Samsung and HTC
• Set KPI to Vendors based
• Extended it to on GMROII • Significant reduced order
upstream and lead times.
• Achieved 8 or more
downstream
inventory turns per year
networks
and GMROII at best in
• Implemented in R & D class level of 2.0+
supply chains to Gross Margin
save valuable
generated through
research time
Sell through
GMROII = Average
Inventory Cost
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Logistics and Supply Chain Management
Challenges relating to VMI

• 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.

LOgistics and Supply Chain Managment 27

Thank You 

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