The Hindu Business Line : Dabur India: Using technology to good effect

When input costs rise, you usually expect this to show up in the profit margin. But companies now have many sophisticated tools in their armoury to manage their material costs. Here are two of them.

GIVEN its unique basket of herbal FMCG products, many of Dabur India's raw materials, which include such items as herbs, spices and honey, are seasonal and have to be bought from various sources. To complicate matters, prices of inputs such as sugar and vegetable oils, and packaging material went through the roof in 2003-04. Yet Dabur India says it successfully cut procurement costs last year, thanks to technology.

To begin with, the company put together its material requirements across group companies so that it could make bulk purchases. It then empanelled a list of herb suppliers from across the country, ranging from organised traders to farmers stationed in remote villages. It then enabled sharing of information by all its suppliers, so that they could compete on equal terms.

In December 2002, Dabur signed up with FreeMarkets, a global firm which provides IT -enabled solutions that help companies streamline their procurement process. IT-enabled sourcing solutions or "e-sourcing" as it is commonly called, typically allows a company to link up all its suppliers online, rank them on the basis of costs and performance; and procure materials through bidding "events" conducted over the Net. In Dabur's case, the technology from FreeMarkets has significantly cut procurement costs, reduced the cycle time for purchases and shortened the negotiation process for buying materials, claims Mr Jude Magima, the company's Vice-President for Corporate Procurement and Planning.

In 2003-04, Dabur procured Rs 210 crore worth of materials, half of its total raw material spend, through the e-sourcing channel. The e-sourcing initiative has not been restricted to non-critical inputs alone. In fact, the company says a whole host of herbal raw materials including saffron, spices and essential oils, have been procured online. The company has also e-sourced a good bit of its services and logistics, not to talk of the hardware and packing materials. These initiatives have helped pep up Dabur's profit growth, despite the rising commodity prices. In 2003-04, despite the inflationary pressures on inputs, Dabur's material costs, as a proportion of sales, declined from 44.9 per cent to 43.8 per cent. As a result, its operating profit margins climbed from 10.4 per cent to 11.8 per cent, allowing its profits to grow at a rate higher than sales.

More Stories on : Performance | Personal Products

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page