A New Beginning

As Ranjana Singh was making her inspection rounds of the Mumbai depot, she could sense a quiet turmoil. Her interactions with the depot operators revealed that things were not as frictionless as they should ideally be. They were overloaded and worked up. They were juggling between phone calls to the sales team and distributors. They were frantically punching orders into the system and ensuring that distributor orders were booked and stocks were dispatched. This is one of the most important parts of Marico’s supply chain which ultimately brings in revenue for Marico. It was clear to Ranjana that there was a problem in the mid-supply chain that needed urgent attention from the organization. There also was this unanswered question – “Are we doing what we are best at?”

Ranjana is the Head of Supply Chain in Marico and has delivered many transformations to make the supply chain dependable, efficient and responsive. Marico is seen as one of the pioneers in implementing supply-chain best-practices. While clocking a consistent revenue growth of over 20% per annum, dozens of new SKUs are being added to the portfolio at a brisk pace. Foreseeing higher growth, the organization has plans of implementing aggressive Go-To-Market (GTM) strategies with a tight integration between sales and supply chain. But the current order-management process consumes a lot of management bandwidth. There is friction between the distributor and sales teams. Both Marico and the distributors aren’t able to predict the correct stock levels to be maintained. In order to support future growth, and to relook at the root causes of unrest, Ranajana setup a task force to suggest a transformation roadmap to her.

The task force studied Marico’s supply chain in detail. It also interviewed all the key members involved in the process. The findings of the task force are as below:

Marico’s Supply Chain

The end objective the supply chain is to ensure that stocks are available at the shelves of the retailer so that consumers can buy them when they need it. In order to ensure availability, products are first sent to depots which are stock aggregation centres.

Primary Sale: Distributors are Marico’s partners who help Marico distribute stocks to various retailers in the market. They place orders for stocks and a Marico depot services the distributor order. This is the point when the ownership of the stocks moves from Marico to the distributor. This sale from Marico to the distributor is called Primary sale.

Secondary Sale: The Distributor has his own sales force. The sales force consists of a team of people who make rounds of the market and collect orders from each retailer. The distributor services the retailer orders. This is the point when the ownership of stocks moves from the distributor to the retailer. This sale from the distributor to the retailer is called a secondary sale.

Order Management: Based on the potential for secondary sales in the market, the distributor makes an estimate of how much stock he needs to buy from Marico. He places an order for the desired stocks. These orders are billed and delivered by Marico Depots. This process is called Order Management.

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Permanent Dispatch Plan: Since every depot serves a large number of distributors, it becomes difficult to collect orders, invoice them and dispatch ordered goods to every distributor every day. In order to make it operationally feasible, every distributor has a Permanent Dispatch Plan (PDP). A PDP is a schedule with specified days of the week where distributors are serviced from the depots.

Distributor Service Level: Marico endeavours to maintain a 95% service level at the distributor point. A high service level ensures that retailer orders are not missed and retailer shelves are not occupied by competitor products.

Marico’s Sales Organization

In order to pin-point the problem, Ranjana’s task force selected the Mumbai ASM area. Rekha Goyal was the Area Sales Manager (ASM) for the chosen sales area.

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Rekha managed a team of two Tertiary Sales Officers called Suresh and Ramesh.

PDP Schedule of Mumbai distributors

!The primary and secondary sales of Marico’s top SKUs for each of these distributors are provided in the attached sheets.

The task force conducted interviews with all the stakeholders and asked them about the issues faced in managing the stocks at distributor point.

Interview with Rekha

“As an area sales manager, I have to maximize the sales of Marico products in the market. We are a public limited company and the stock markets are highly focused on Marico’s growth. We have made it a habit to show aggressive quarter and quarter growth and take great pride in this fact.

It is important to ensure range selling as the organisation intends to have a balanced portfolio of products for revenue generation. I also have to ensure a good return on investment for my distributors by maximizing the inventory turnover. The right level of stocks at distributor point would play an important role in achieving the above objectives. Currently, my team is facing the following main issues:

Marico customer Name Monday Tuesday Wednesday Thursday Friday Saturday Sunday

Ram Agencies   Yes   Yes   Yes  

Laxman Agencies Yes       Yes    

• Many times, the stock of some SKUs is not available at distributor point which leads to a loss of secondary sale

• The inventory levels for some of SKUs is much higher at 1 distributor point wherein the sales are poor, and the same SKUs are stocked out at other distributor points ”

Interview with Suresh

“Marico has a very complex product hierarchy. Within each SKU, there are many changeovers on account of consumer and trade offers run by the company. I have to closely manage the inventory of all products for Ram agencies to ensure secondary sales. Estimating the right quantum of stocks for so many SKUs is a very difficult and time consuming task. I am not able to focus on the new GTM initiative as I spend most of my time deciding the quantity of each SKU to be ordered from the depot. Even after years of experience, it gets impossible to predict right levels of stocks as the sales environment is very dynamic and volatile.

I do my best to assess the SKUs and quantity which Ram Agencies needs so that he can full-fill the market requirement. But I am never able to convince him and always end up having a negotiation based approach rather than a business forward approach.”

Interview with Ram Agencies

“As a business partner to Marico, I want to maximize the sales potential for the organisation and also earn a high return for my investment in the business. There is cut-throat competition in the market and the right availability of products as per retailer orders is an important aspect in the FMCG business. Currently, my investment in the business is huge due to very high stock levels in some products. At times, I am not able to buy necessary products from the Marico depot as per market demands because my working capital gets locked in non-moving SKUs. Also, the working capital requirement fluctuates a lot as sales in some peak months are very high as compared to other non-peak months. The inefficiencies in stock management lead to lesser ROI for me.

Suresh tries to push stocks onto me as he faces pressure from Mario to maximize primary sales. I don’t mind buying stocks as long as I can sell them to the retailers. But I always have a feeling that he tries to push a high volume of stocks to me. I am worried that my money may get blocked. ”

Interview with the Depot Operator

“We have a stressful day every-day. First we have to talk to the distributors and take their orders. Then we need to confirm the orders with the sales team. The Sales team wants to push SKUs and increase the volume of high-running SKUs in the distributor order. The distributors say that they don’t want any excess stocks. By the time they both agree on the final order, it is too late in the day. I find it hard to place trucks

and dispatch the order quantities. It also sometimes leads to delays in stock connection at the distributor point.”

!Interview with Ranjana:

“The final objective of the any supply chain is to achieve a seamless flow of goods to ensure the availability of products as per demand. A pull based replenishment system is recommended in order to avoid mal-distribution and unnecessary inventory in the supply chain. But some factions believe that push based systems might be good for maximizing sales for the organisation. The FMCG industry in India is very competitive and it is easy to lose shelf space to other players. Thus, Push vs Pull is a raging debate which persists in the organization.

As distributors consume stocks from our depots, the depots need to be replenished. As of now, stocks are pushed from plants to the depots only on the basis of the month’s primary forecasts. I wonder if the back end of the supply chain needs a transformation to ensure depots are stocked correctly so that the order-management process works like a well-oiled machine”

Problem Statement

The Task force needs to formulate a strategy and propose the following to Ranjana

1. What is the change in operating model required to ease the pains of Rekha, Suresh, the distributors and the depot operators?

2. What are the correct stock levels to maintain at the distributor points such that they can service all secondary orders

3. For Jan and Feb 2015, Rekha has identified a potential to sell certain quantities in Mumbai Area. She has discussed with the Marico head-office and taken on the same stretched sales targets. (Quantities provided in data sheet)

a. How should the sales targets be disaggregated to the distributors?

b. What primary plans should Rekha target for the month to ensure secondary sales?

4. Are there any IT and process improvements that can be suggested for automation and touch-free distributor handling

5. How should the back end of the supply chain (from Factory to Depot) be reorganized to ensure correct stock availability

6. What are the Key change management issues and how can Marico address them

The task force may need to gather best practices in the FMCG industry to get a clear understanding of solutions which can be quickly implemented.

Data may be assumed if required. Ranjana may ask for excel workings in the strategic review.

!!!Appendix Marico is a pioneer in implementing multiple IT and analytics solutions to enable smooth business functioning. Where many organizations have tried and failed, Marico has been exemplary in establishing processes and enabling them through IT systems. Below is a snapshot of the many systems implemented to ease the process of Distributor Order management and flow of material from depot to the retailer shelves

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Other Data attached with the case

• Secondary forecasts and sales data for Mumbai Area

• Primary sales data for Mumbai Area

• PDP schedule and transit times from Depot to distributors

• Jan and Feb 2015 sales Mumbai secondary sales targets and distributor opening stocks