Wednesday, March 11, 2009

Under pressure to structure supply chain and storage

There is stiff competition amongst FMCG companies putting pressure on their wafer thin margins but they are using IT as a business enabler to their manufacturing processes. With tight supply chain schedules and intense competition the pressure is always on to bring new products to the marketplace. These companies are now using enterprise solutions to gain visibility into their schedules, customer requirements and their inventories. All of them have invested on desktops and notebooks too to enable their top management and mobile workforce to stay connected.

As per the survey, many FMCG companies consider storage as an important IT asset and want to have DR policies along with regularly archiving their e-mail and databases that contains vital sales and marketing information and customer leads.

The top three

As per the survey, the top technology areas on which the FMCG/consumer durables companies had invested were EAS (enterprise application software), followed by desktops and then storage.

As far as enterprise application software is concerned of the ten FMCG firms surveyed that had invested in enterprise applications, all had invested in ERP. This was followed by the investments on databases and messaging with 70 percent having invested in each of these and then CRM with 50 percent. While investment in ERP will continue with 42 percent of 12 respondents planning to invest in ERP this year and around 50 percent in CRM and a third of them want to streamline their supply chain.

By investing in EAS, FMCG companies have already experienced better utilisation of resources, faster time to market and have been able to formulate effective marketing strategies. Through effective use of EAS they have been able to improve service levels with their dealers in getting up-to-date information of potential stock-out scenarios, which has been made possible due to better visibility in sales, inventories and production-in-progress data.

EAS has been the top IT investment area for FMCG companies because they want to enhance productivity. Take the case of Hindustan Lever Ltd (HLL) where consolidation of information has led to operational excellence at its manufacturing plants across the country. Since finance, planning and inventory are all integrated, the company can focus on its core business—production.

Parle Products Ltd is using a home-grown ERP system, which has modules such as material management, finance and accounting and payroll. The company has also developed a home-grown depot management system, which is required to keep control over its depots located across the country. Gaurav Sharma, EDP In charge, Parle Products Ltd says, “Through the depot management system we get weekly reports on how many trucks were booked and the number of boxes dispatched in each truck. This helps us keep tight control over the goods being dispatched from our depots.”

The consolidation of enterprise-wide information has also helped these companies conduct better market analysis. There has been a continuous increase in the level of competition in the market, and EAS has helped these companies understand customer preferences. EAS has helped them improve their intimacy with customers and they have been able to analyse consumer behaviour and understand brand performance in the market. This has helped FMCG companies innovate with products as per customer preferences. Many of these companies are using business intelligence (BI) tools for better market analysis. FMCG companies are also forecasting cash flows through their ERP systems and have been able to significantly speed up accounts closure by more than 50 percent. Many companies such as HLL have experienced a reduction in potential stock-out scenarios and there has been visibility of inventory across locations thereby reducing the load on the system.

According to K G Mohan, vice president-IT, Hindustan Lever Limited, HLL has been able to enhance its supply chain system, check stock inventory online, and gain a deeper understanding of customer requirements. It has also eased the process of capturing market data and there is more visibility throughout the organisation. It has also helped in formulating market strategies by providing better understanding of market conditions and has improved the decision-making process leading to better inventory management, and structured production planning. It is now easy for the company to analyse the performance of its sales staff, thereby leading to enhanced productivity.

EAS has also helped FMCG companies manage their unprecedented growth. Take the case of LG Electronics Ltd, which has deployed additional modules of its ERP system to manage its growth. The most important one being costing (CO) and evaluation, which the company has added to the Oracle E-Business Suite (ERP) that it uses. Both these modules have been developed in-house and customised as per the company’s requirement. Daya Prakash, program manager, LG CNS Global says, “The costing module helps us analyse the exact cost of the finished product looking at the materials procured to manufacture it. It also helps in fixing the margin and price of the product. The evaluation system helps us in performance evaluation of our sales team as to how they are performing—keeping track of operations, daily targets/monthly targets, leads generated and follow up on the same and the like.”

In a FMCG company, a smoothly functioning supply chain is crucial if businesses are to survive in competitive markets. Mumbai-based FMCG major Marico Industries Ltd. is no exception. Its biggest challenge was to create efficiencies in distribution, this being the area in which the greatest competitive advantage can be achieved in India. Marico has a big supply chain to cover the country. Its supply chain consists of five factories, around 15 plus contract manufacturers, two consolidation centres to manage logistics activities, 30 depots, with hundreds of super distributors, distributors, stockists, wholesalers and retailers.

Vinod Kamath, chief, Finance and IT, at Marico who had been associated with the supply chain initiatives says, “We had standalone systems at the headquarters and in each of our 30 depots, and they weren’t integrated with each other. All the planning was done in Excel, which meant that we lacked data visibility and the management reports were inconsistent.” The result was obvious—inaccurate forecasts, long planning cycles, no transparency of warehouse stock, and a delayed response to customer needs. “It would have been impossible to improve the efficiency of the distribution based on this method,” says Kamath. What the company needed was a state-of-the art IT system to streamline the supply chain and minimise time-to-market. Kamath adds that Marico works with low levels of stock and its responses must be lightning-fast.

With SAP APO, the company has managed to shorten its planning cycles and introduce online reporting. Before implementing SAP, distributors had a warehouse stock out of around 30 percent each. Within six months of the implementation, Marico had managed to reduce stock outs to 20 percent. Kamath says, “This 10 percent reduction in stock outs means a corresponding increase in revenue.” The monitoring functionality of mySAP SCM APO allows the effectiveness of each distributor to be measured, and helps pinpoint the reasons for any changes.

Desktops: the next priority

All the surveyed FMCG companies have invested in PCs and 92 percent on notebooks. One in four had deployed Thin Clients. As per the survey, 67 percent of FMCG companies are planning to invest on notebooks, 58 percent on PCs and one in four on Thin Clients.

Take the case of Electrolux, now part of the Videocon Group. The company had outsourced its desktop management to Wipro Infotech. Now it wants to invest in desktops and do away with the AMC with Wipro Infotech. Anil Bhatia, senior manager-Business Solution Group, Electrolux, says, “We would now like to manage the desktops ourselves as we have to incur heavy cost in the outsourcing model. We want our offices desktop PCs to be linked to the ERP system (presently J D Edwards but soon migrating to SAP because Videocon is using SAP ERP) and for this we require desktops and they are strategic to us.” Electrolux has also provided notebooks to about 90 of its employees and these notebooks are helpful in cases where the workforce is on the move.

Similarly LG Electronics has also invested in desktops and a majority of them are desktops with LCD monitors. According to Prakash, there are around 2,000 PCs in the organisation. These PCs are used across the country for LG Electronics India employees and the choice of LCD monitors was because it occupies less space and is power efficient vis-a-vis CRT monitors. The company has provided 500 plus notebooks to its managerial staff, which provides them flexibility in accessing corporate data using Wi-Fi at its corporate office in Noida.

Many FMCG companies are also opting for thin clients these days and they are displacing PCs in part. D Banerjee, assistant general manager—Systems, DCM Shriram Industries Ltd says, “We have both LCD PCs as well as thin clients. Notebook usage is still confined to senior executives and mainly used to provide connectivity to the corporate network while the executives are out of the office.”

Thin clients are proving to be formidable alternatives to branded PCs at some FMCG companies. Many companies are replacing PCs with thin clients. What’s interesting is the fact that the low cost of thin clients is not the primary reason for their deployment. Thin-clients bring with them ease of manageability. Many FMCG companies have offices spread across locations and hence it is easier to manage thin-clients from a central server, thus requiring minimal support staff. Thin clients also address security aspects well.

That said it is likely that when some FMCG companies are successful in getting the same PC functionality with better manageability and security they will go for thin clients in the future. Thin clients can be a competitive alternative to branded PCs, particularly if the Total cost of Ownership (TCO) is taken into account. If one compares the cost of managing thin-clients it is a direct saving for a large enterprise in the FMCG sector. Thin clients also consume less power; this can prove to be a big saving for an enterprise. A thin client consumes 10 watts, whereas a PC consumes at least 150 Watts. For large enterprises with hundreds or thousands of machines, this can result in huge savings.

Broadly speaking large FMCG companies who have multiple offices around the country with desktops running into thousands will find it easy to manage and use thin clients. Banerjee says, “As a thin client has no hard disk or floppy drives and can be managed from a central server, maintenance is simpler and requires fewer support staff. Many FMCG companies that I know are always concerned with the issue of security. They can look to these machines as an easy and low-cost alternative to PCs.” Barring cases where performance is critical, as in engineering workstations, thin clients can easily stand in for PCs. According to industry pundits the total cost of ownership (TCO) can be 30 to 60 percent lower in the case of thin-clients.

Storage gains ground

Many FMCG companies have offices spread across locations and hence it is easier to manage thin-clients from a central server, thus requiring minimal support staff. Thin clients also address security aspects well

Of the ten respondents from this vertical who had invested in storage, 70 percent had already invested on SAN technology, the highest in all verticals surveyed. A significant number, 60 percent, continue to use DAS—which we feel will change this year, as they will be investing in networked storage.

As far as the adoption of secondary storage by FMCG companies is concerned, 75 percent of 8 respondents had invested on tape drives. About 25 percent were using Virtual Tape Libraries (VTL). Tape continues to be a major investment area followed by VTL. Also as part of their storage strategy, 86 percent of 7 FMCG respondents had invested on database archiving software to back up the data on tape drives followed by 57 percent who had gone for e-mail archiving software. 42 percent of 12 respondents intend to invest in e-mail and database archiving software in the coming year as well.

The penetration of network storage was very high amongst large FMCG companies as per the survey. The logic behind going in for network storage is the requirement to go in for multiple Disaster Recovery sites and also for a BCP (Business Continuity Plan). Electrolux has adopted SAN for block storage purposes—mainly CAD/CAM/CAE data that are used for product design. Bhatia says, “Block-level storage is very important for our organisation as many of our users used to accidentally delete design files. Thanks to the SAN, all the files are safely stored.” The company is also following a comprehensive e-mail archiving policy. Most Electrolux employees use Lotus Notes for e-mail and all their messages are archived using a storage solution from EMC-Legato. As per policy, these messages are archived for a few months. DCM Shriram Industries Ltd uses DAS but it is also considering and evaluating networked storage so that it can plan a DR strategy.

FMCG companies have realised the importance of VTL, as it is an archival storage technology that makes it possible to save data as if it were being stored on tape although it may actually be stored on hard disk or on another storage medium. VTL is facilitating faster backup and recovery and lower operating costs. VTL can be used with a hierarchical storage management (HSM) system in which data is moved as it falls through various usage thresholds to slower but less costly forms of storage media. VTL is also used as part of a (SAN) where less-frequently used or archived data can be managed by a single virtual tape server for a number of networked computers.

LG Electronics India has a proper DR set-up across its two manufacturing plants located in Noida and Pune. On a normal day, Noida’s (manufacturing plant and corporate office) users are connected to the Noida server and the Pune (plant) users are connected to the Pune server. If the Noida server fails all the critical users–both plant and corporate–would be connected to the Pune server to execute critical activities such as sales and production. A similar connection to Noida is made if the Pune server fails. LG Electronics India has classified all the information into two categories–critical and sensitive. (Critical data refers to the ERP and business-related data while sensitive data includes all e-mail, Excel sheets and PowerPoint presentations).

The company also has an e-mail and database archiving solution from Hitachi Data Systems (HDS) which it is using for storing e-mail of all its employees who are on Lotus Notes. Prakash says, “E-mail archiving is part of our ILM strategy which we are following as we have to adhere to statutory compliance requirements. We have a policy whereby we store all our transactional data for more than eight years and all our e-mail messages are stored for more than one year.”

In a similar fashion database and e-mail archiving holds the utmost importance for Parle Products, which is using a storage solution from Intransa for this purpose. The company has kept its storage solution at a Reliance data centre in Bangalore with the aim of bringing about storage consolidation for the purpose of putting in place a Disaster Recovery set-up. The company strongly believes in having an effective DR policy for data protection and in turn having a robust storage policy.

Technology is a high priority for FMCG companies in order to stay ahead of competition and also in analysing the competition which is equally important for them. Enhancing information delivery capabilities using front-end reporting tools for better market and self analysis will continue to be a priority for Indian FMCG companies. Additionally Web enabling all their applications and consolidation of information through EAS will help FMCG companies in bringing efficiency to their processes as they will have real time online information about their manufacturing plants, distribution points, distributors and retailers. In order to provide access to different applications to their employees they will need to invest on desktops and in order to preserve all the information they will need to invest on having effective storage strategies and policies.

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