Mumbai: Makers of consumer goods and personal care products are turning to consultancies to help reduce sales losses and cope with high growth by creating so-called supply chain management networks.
They are hiring consultancy firms such as Ernst and Young (E&Y), Goldratt Consulting Ltd and Frost and Sullivan to streamline the chain of activities through which finished products are transported from factories, stored at warehouses, moved to sales outlets and finally sold.
Ashwani Arora, managing director of LT Foods Ltd, a Rs1,000 crore company that owns three rice mills and sells the labels Davat and Heritage, recalls chairing “high tension” sales meetings two years ago. His sales were falling by 15%—not to mention the hole in brand image caused by products not being available in stores. “We were earlier in the dark as we didn’t have any tools for sales forecast or manufacturing. There was no system to integrate raw materials and production check. This resulted in high inventory and high loss of sales,” Arora said.
LT Foods then approached E&Y to create a supply chain management network for it. They worked together for a year. The result: Loss of sales in domestic business reduced from 15% to less than 5%, and from 5% to 2% in the export business, leading to a higher market share for the firm.
The new logistics network reduced the time finished goods took to be sold from 38 days to 26, freeing up working capital—or the cash available to the firm for day-to-day operations. E&Y also provided an integrated sales forecast system to LT Foods, which it now uses at its monthly meetings to predict sales and plan accordingly, said Ashish Nanda, partner, business advisory services, E&Y.
“Supply chain management is going to be critical in ensuring availability of products to end-consumers,” said Rakesh Kumar Sinha, chief operating officer, marketing and operations, Godrej Consumer Products Ltd. Godrej Consumer worked for five years with Goldratt to build its supply chain management structure.
“In the past, there were no serious attempts to bring down loss of sales... Now, CEOs are focusing on supply chain management best practices,” said Nanda of E&Y, adding that the firm was helping a dozen personal care products and consumer goods companies put similar structures in place.
He explained that the idea of supply chain management was not to cut down employees, reduce the number of warehouses or come up with an action taken report. It was more about enabling a company put in place an integrated planning process with clear accountability.
The biggest hindrance to creating a new supply chain management network, said Nanda, was challenging the way a company had worked and even achieved reasonable success with. “At LT Foods, we overcame that challenge quickly as employees were open-minded. We did a major overhaul of sales and distribution system of the company. We clearly defined accountability at all levels of sales, procurement and logistics that has resulted in enhanced productivity and better decision-making.”
V.G. Ramakrishnan, senior director of transportation and logistics at Frost and Sullivan said his company was also advising a number of firms on building supply management networks.
“This is not just to reduce the loss of sales, but more because of growth in the market too. The existing supply chain of companies find it difficult to cope with growth as companies are doubling their turnover in every three-five years. This was not the case a few years back,” he said.
Arora of LT Foods said equipped with a new supply chain management network, the firm was gearing up for fresh launches. He added that the firm was willing to invest still more in forecasting tools. “Whatever change is put in (place) by E&Y is going to be sustainable,” he said. “We are ready to invest for more enterprise solutions to support it.”