This presentation deals with Marico's inbound and outbound supply chain. We discuss here the supply chain problems that Marico faced and the remedial steps it took to solve the problems. Use of IT (ERP/SAP solution) and disintermediation in supply chain appear as notable steps Marico undertook to solve its Supply Chain problems.

1. A study of inbound and outbound supply chains

2. FMCG company providing
consumer products and services in
the areas of Health and Beauty
based in Mumbai.
Sales revenue:2012: INR 4596 Cr
Net Profit: INR 396 Cr
Leadership positions in most
categories-Coconut Oil, Hair
Oils, Post wash hair care,Anti-lice
Treatment, Premium Refined
Edible Oils, niche Fabric Care etc
Brand portfolio:
Parachute, Saffola, Hair &
Care, Nihar, Mediker, Revive.
Marico also owns popular brands
like SetWet, Livon, Zatak , and
other personal care brands

3. Little sales seasonality
Strategy: Expand
continuously into even
smaller locales through
even more brands.
Every month, over 70
Million consumer packs
from Marico reach
approximately 130 Million
consumers in about 23
Million households
Widespread distribution
network of more than 2.5
Million outlets in India and
overseas.

4. 1995 – Focus on Brand
Development
This was in response to
the growing
International
competition from rivals
–Unilever and ConAgra
For survival -Increased
efforts to develop new
brands
Reduced reliance on 3
market leader brands -
Parachute coconut Oil
,Saffola and Sweekar
Introduction of more
products and more
brands – incur cost
Extensive advertising
,Innovative promotion
schemes – Advertising
expenditure increased
steadily
Expansion strategy –
introduced more brands
and tried to increase
reach – created Supply
Chain problems

5. Outbound Supply ChainTransactionsOutbound Supply chain for rural markets

6. NatureoftheMarket
• Fragmented nature
of Indian supply
chain
• Supply chain can
provide competitive
advantage
BullwhipEffect
• 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 KeyStrengths
• 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
ManagingSupplyChain
• Slow moving SKUs
– shipped directly
from factories to
depots
• Fast moving SKUs –
shipped to re
distribution centre
and subsequently to
depots
• Distribution
Alliances

7. 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
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

8. 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
• 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

9. Planning issues
• Planning cycle: 30 days
• Different bucketed time horizons
for manufacturing and distribution
• Manufacturing: 2 weeks
• Distribution: 1 week
• Only one qualified planner
• Spread sheet based planning
• Result:
• Inventory problems
• Eroded distributor confidence
• Expired products
• Unresponsive to market
changes
Business impact
• Supply chain not in tune with the
marketing strategy
• Losing competitive advantage
• Losing image among supply chain
components
• Poor performance affected cash
flows
• Supply chain hindered expansion
strategy of growth through more
brands
• Affected consumer’s image of
company

10. Poor data
visibility
Low forecast
accuracy
Long planning
cycle
Unreliable
unresponsive
production data
Poor response
to market
changes
Skewing of sales
High inventory and stock outs
High delivery costs
Low attention to smaller brands
Excess inventory and
stock outs
Outbound Supply chain problems

11.  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

12. Stage
1:
Lower inventory
and supply chain
costs
Revamp processes Technological support through
highly integrated applications
systems
ERP Big bang rollout in 2001
Stage
2:
Resolve forecasting
problems, eliminate
inventory and stock-
out problems
Partner
relationship with
distributors
Timely sales and inventory
information
VMI Manage distributor inventory
by replenishing stocks on the
basis of distributor’s input of
sales to retailers.

13. Operational improvements
• Reduced planning cycle
• From 30 days to 10 days
• Improved forecasting accuracy
• Improved delivery reliability
Improved forecasting
• Both primary and secondary sales figures were available
Improved distribution
• VMI implemented for C&FA
• 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

14. Distributor
stock-outs
30% of SKUs 20% 15%
Marico stock-
outs
21% of SKUs 13% 9%
Excess inventory
at distributors
29days 26 days 22 days
Excess inventory
at distributors
43m Rs 29m Rs 22m Rs
Annual supply
chain costs
13.5m Rs 8.1m Rs 4.8m Rs
BEFORE
IMPLEMENTATION
ENDOF FIRSTYEAR
ENDOF SECOND
YEAR

15. Marico
Mumbai based
Brokers
Terminal
Market Brokers
in Kerala
Supplier Network
inTerminal
Market
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, vandikkaran,Copra Converters, farmers)
Copra buying is approximately 50% of Marico’s purchase portfolio

16. 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
Quantity discrepancies
Price and Payment
terms were dictated by
brokers
Frequent supply
disruptions

17. VariousActors in the
Copra SupplyChain

18.  Disintermediation- reducing
intermediaries in supply channel.
BuyingOffice set up in Kozhikode in
1991, bypassing 2 layers of primary
brokers at Mumbai & Kerala
 Factory set up in
Kanjikode, Puduchery and Goa.
Mumbai factory shut down.
 New factories closer to sourcing
locations and markets
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
Initial Problems with the initiative:

19.  To reduce dependency on terminal markets, Marico
started sourcing from InteriorTraders- small
aggregators who sourced Copra from interior villages

20. Sourcing from terminal markets
discontinued completely by 1998
This eliminated
transaction fee at
Exchange
Unnecessary
loading/unloading
avoided
Vendor Development
Initiatives:
TenVendors identified
in N. Kerala and given
Copra dryers along
with some training
Starting
1994, attempts to
develop vendor base in
Tamil Nadu, other
states

21. • Big bang ERP implementation in
2001-02
• Marico’s Copra suppliers connected
through web portal- Marico Connect
• Institutionalize e-buying in Copra
purchase (dealt later)
The IT push:
• 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 CCs unlike large
traders who generally would wait for
the right quantity and price
Further Disintermediation:
Share of sourcing through Copra Collection
Centers

22. 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.

24. Process Improvement: Institutionalize
e-buying
• Web Based Auctions:This was the 2nd
phase of process improvement after
ReverseAuction.
• 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
• FastTrack Payment (FTP): allowed
vendors to rotate their money faster
• 3° Phase: Copra e- Portal “e-
marico.com” launched in 2005
• Enabled placing of bids through SMS

25. • 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 Outbound
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
Marico’s Inbound
Supply Chain