Honey, I shrunk the delivery time
Prasad Sangameshwaran, Hindu Business Line, 23 January 2015
Rakesh Kumar Sinha, chief operating officer, global supply chain, manufacturing and IT, Godrej Consumer Products, tells you to take a test the next time you visit a store. "Check the date of manufacturing of our products and compare it with the competition’s. Ours will be the freshest," he says.
For Godrej Consumer Products, being the brand with the freshest product on the shelves is not an ego massage. The company does not market food products or any fresh produce (other group companies do). Still, for the consumer products business, this is a proposition that delivers a strong business benefit — fulfilling consumer demand when it exists.
A costly miss
That realisation came to Godrej while analysing past sales data. It found that only one-third of the triggers of consumer demand came from company-generated activities like advertising, consumer promotions and so on. However, a significant two-thirds of any fluctuation in consumer demand was due to changes in the external environment that was beyond the company’s line of sight.
So, what influenced the 66 per cent fluctuation of consumer demand? For example, if winter sets in early or late, products like cold creams and woollen care products like Godrej’s Ezee would see a huge fluctuation in demand. Or in the case of household insecticides like Good Knight or Hit that Godrej sells, an increase in malaria or dengue cases in any locality would see demand surge manifold. In the case of hand sanitisers, any scare of infectious diseases like H1NI would see demand going through the roof.
"Typically, companies lose the opportunity to serve the external demand and the irony is that the demand loss does not get recorded anywhere," says Sinha. As a result, most companies do not even feel they are losing what they could have sold. "The additional opportunity came their way and they missed it," says Sinha.
To prevent this potential loss, Godrej decided to eliminate the problem at the root. Normally, most FMCG supply chains start with the sales force which draws up forecasts. Based on the forecast, production plans, procurement plans and a finished goods movement plan is drawn.
Godrej Consumer attempted to make the supply chain more responsive to what is happening in the market place. Previously, two months or 40 days before the month starts, there was a sales forecast, and as Sinha agrees, it was humanly impossible to get it right. "How can we forecast what consumers will be buying 45 days later for each geography and each product? The question is, can we increase the frequency of forecasting and frequency of response?" he says.
The company went a step ahead and decided to eliminate usage of the sales forecast. Instead, it decided to see what consumers are actually buying and be fast enough to respond to it on a day-to-day basis.
The challenge was how to redesign afresh the supply chain that works on consumer demand as the only stimulus. That means all systems needed to be responsive — production plans cannot be frozen for a week. Factories need to be geared up and suppliers would need to respond accordingly as the raw materials requirement would also change.
The company designed a system that would go right up to the vendors’ level and work on changing even their production plan according to demand fluctuation.
Stock-taking every day
"The supply chain worked in a manner where finished goods move from factory to regional warehouse, from there to the carrying and forwarding agents (CFA), from that point to distributors, from where it finally reached retailers. Four different points where we stock products."
Till the distributor-level Godrej had to measure demand across 1,500 nodes (points) for each of its 400 stock-keeping units (SKUs). "We are talking about 6 lakh data points, each of which has to be carefully calibrated," says Sinha. It was a slow and gradual process and took up to six years for the company to get it perfect.
Now, the stock up to the distributor level is calculated every day. Even as Sinha claims that there is scope for perfection, Godrej Consumer now operates at a fill rate that is upward of 99 per cent on every SKU. This fill rate is for servicing distributor orders and to ensure that there are no stock-outs for any product. "The best of competitors work around 92 per cent. Even for them, the best region for best product will be at 95-96 per cent," says Sinha.
Consultants like Abheek Barua, partner and director at BCG, agree. He says, the best fill rates at a sales distributor level is 80-90 per cent. Right now Godrej would be setting standards in fulfilling consumer demand. But as everyone agrees, the challenge clearly is in doing it perfectly on an everyday basis.