Supply chain must ‘get' as much ‘focus' as marketing

Changing the mindset of the top management to focus on and invest in the supply chain is the biggest challenge for companies today, noted speakers at the second edition of the ‘India Supply Chain Cost Optimisation Summit' in Mumbai on Thursday.

The supply side does not get the attention that marketing and advertising, which create demand, garner, said Mr Rakesh Sinha, COO, Godrej Consumer Products Ltd.

In the FMCG sector, typically, he noted that 10 per cent of the sales revenue is spent on advertising.

“A lot of time is spent on demand generation, on things like branding, new product development, pricing and advertising. Relatively lesser time is spent on demand fulfilment. We must recognise that 50 per cent of the demand generated for an FMCG brand is lost because the consumer can't find it on the shop shelf,” explained Mr Sinha.

Supply chain improvement

Citing the experience of GCPL, he observed that with a focus on supply chain improvement based on a ‘replenishment-based model' rather than a forecast-based model, the company was able to increase sales by 20 to 30 per cent in three to six months. In two years, he claimed that the company had registered a 5 per cent increase in gross margins.

“The effectiveness of the advertising or promotions increases with increase in supply chain efficiency. The same marketing and advertising can generate more sales if the supply side is secured,” said Mr Sinha.

In a message to the audience of supply chain professionals, he said, “The mindset change has to start from the top. Promise them (top management) that you will deliver higher sales at no extra cost. The top management should also allow for some initial turbulence, in the first 10 to 15 days, when the changes in supply chain are being introduced.”

He cited the example of Godrej No.1 soap in the UP market.

With 80 per cent of the market being rural, distribution was a challenge. With supply chain improvement, the brand's market share moved up from 9 per cent to 21 per cent, according to the GCPL COO.

Strategic sourcing

Strategic sourcing can reduce expenses by 10 to 30 per cent, said Mr Shashank Raodeo, GM-Automotive Logistics, Mahindra and Mahindra.

On the subject of the replenishment-based sourcing model, he mooted a ‘mix' model that allowed for balancing demand at the volume level. He said that forecasting should, however, focus on a longer horizon, of about three years.

Mr Raodeo cited the example of a supply chain revamp exercise at his company in 2003. “We believed that we could reduce sourcing cost with the right people and processes. It's critical because 5 per cent reduction in material cost can add 1 per cent increase in operating profit. To get the same increase in operating profit, one needs to increase the sales by 10 per cent.”

The GM pointed out that the modern day supply chain has to be one with visibility across the spectrum. Collaborative models with multiple suppliers — across geographies — are the order of the day in a flat world connected by IT, noted speakers.

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