HUL set to streamline distribution network

HUL set to streamline distribution network
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First Published: Fri, Jan 09 2009. 01 19 AM IST

Leveraging strengths: Hindustan Unilever’s Hemant Bakshi.
Leveraging strengths: Hindustan Unilever’s Hemant Bakshi.
Updated: Fri, Jan 09 2009. 01 19 AM IST
Pune: Hindustan Unilever Ltd (HUL), the country’s largest household and personal care products maker by sales, is expanding its so-called go to market (GTM) initiative, launched in Mumbai last year, in an attempt to revamp its national distribution network and streamline its supply chain.
The project has been a success in Mumbai, where it was started in June, and will be rolled out in 42 cities and towns across India by the end of 2009, Hemant Bakshi, executive director for sales and customer development at HUL, told Mint in an interview.
Leveraging strengths: Hindustan Unilever’s Hemant Bakshi.
“The Mumbai pilot is now complete and has delivered significant improvements in customer service. We are now in the process of rolling out the project in other towns with population of eight lakh-plus,” Bakshi said. “It is a very important project for us and Unilever and we will roll this out eventually in (global) markets that are at a similar stage of development.”
HUL’s GTM initiative in Mumbai was aimed at rationalizing its distribution network, make it more efficient, deliver stocks to retailers faster and reduce inventory on their product shelves. It farmed out the task of stock deliveries to logistics provider Mahindra Logistics as part of the Mumbai project.
In Mumbai, the company consolidated its 21 distributors into four ‘mega distributors’, who now account for sales of about Rs480 crore, another senior HUL executive said. Bakshi said dealership reduction has been an ongoing exercise, but declined to provide figures about the pilot project.
The GTM initiative has been internally labelled by parent firm Unilever Plc. as one of its 10 most important initiatives, said the senior HUL executive, as well as an executive with a firm that does business with HUL. Both of them declined to be named as they were not authorized to comment on the company’s operations.
A top management team from Unilever, including outgoing chief executive officer Patrick Cescau, his successor Paul Polman, and HUL chief executive officer Nitin Paranjpe, are believed to have assessed the success of the pilot plan last month and given in-principle approval to take the project to key cities in Tamil Nadu, Karnataka, Gujarat and Madhya Pradesh.
Unilever has said it is looking at global savings of €1.5 billion (Rs9,855 crore) annually by 2010 through the restructuring operations.
The HUL executive and the HUL business associate added that the company is restructuring other aspects of its operations as part of the GTM project and that it would cut back on losses and in-transit theft.
The consolidation is aimed at giving the distributors, who typically operate on a 4% profit margin, a bigger share of the pie at a time when they are being wooed by other sectors.
“At least a couple of our distributors are now owners of close to Rs100 crore companies, up from the Rs8-10 crore business they had just under an year ago,” the HUL executive said.
“Our distribution network is changing from being one driven by entrepreneurs to becoming large professional distribution houses with service orientation,” Bakshi said. “Our biggest strength in the market is our distribution network, our knowledge of the market and our strong brands. We now want to leverage these, ensure that our distributor-partners make sustainable returns and be prepared for the emerging market of 2013.”
HUL had revenues of Rs13,913.40 crore in 2007—like its parent company, HUL follows a calendar year for declaring results—and sells some of the country’s most recognized brands such as Surf Excel detergent powder, Lux soaps, Ponds and Dove skin care products.
As part of its effort to streamline distribution, HUL has also started outsourcing most of the sales team to professional staffing firms. Traditionally, bookings from retailers was the responsibility of the distributor’s sales team.
“Distributors’ salesmen have generally been not very competitively paid and have no job security and decent working conditions. While they have traditionally been paid between Rs4,000-7,000, the new salesmen are graduates wherever available and are paid Rs7,000-11,000 and are from a staffing services company,” said the HUL business associate, adding that HUL is now asking distributors to use their own resources to upgrade staff offices and training.
Currently, about 2,400 distributors across the country employ 9,000 salesmen to take weekly orders from a million retail outlets.
Enlisting Mahindra Logistics led to a system being put in place that has cut seven-day inventory to one day .
Orders are logged in the evening by distributors’ staff and delivered by the company the next evening to the distributor. Mahindra Logistics delivers stocks to retailers the next morning. Essentially this frees distributors’ resources that are otherwise tied up in stocking excess inventory and preventing losses due to in-transit damage. Consumers get fresher stock from retailers.
The system also ensures that products that languish on a retailer’s shelves are not supplied, eliminating losses from expired stock. The shift from dependence on the unorganized sector to an external logistics supplier will also reduce loss due to pilferage, one HUL executive said
Mahindra Logistics managing director Sanjay Sinha declined to comment.
The GTM pilot in Mumbai, meanwhile, could make HUL distributors more visible to retailers because sales people are required to now visit retailers regularly instead of waiting for orders to come in.
The consumer products business “works on personal relationships and it helps for retailers to have an equation with the distributor”, the HUL business associate said. “With retailers now putting a range of global products in every segment on their shelves, HUL, a major player in the food, personal care and home segments, faces the threat of shrinking market share.”
A May report from the Federation of Indian Chambers of Commerce and industry, before the crash in financial markets and a global economic slowdown, projected India’s household and consumer care products market to grow 16% this fiscal year to Rs95,150 crore.
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First Published: Fri, Jan 09 2009. 01 19 AM IST