Day 35 – Q 2.In the context of India’s growing FMCG sector, examine the supply chain bottlenecks being faced. How can these bottlenecks be addressed? Suggest.

2. In the context of India’s growing FMCG sector, examine the supply chain bottlenecks being faced. How can these bottlenecks be addressed? Suggest. 

भारत के बढ़ते एफएमसीजी क्षेत्र के संदर्भ में, आपूर्ति श्रृंखला की बाधाओं की जाँच करें। इन अड़चनों को कैसे संबोधित किया जा सकता है? सुझाव दें।

Introduction:

Fast-moving consumer goods (FMCG) can be defined as packaged goods that are consumed or sold at regular and small intervals. The prices of the FMCG are low and profits earned are more dependent upon the volume sales of the products.

Body

The fast-moving consumer goods (FMCG) sector is an important contributor to India’s GDP growth. The sector includes food & dairy products, packaged food products, household products, drinks and others. FMCG is the fourth largest sector in Indian economy and provides employment to around 3 million people accounting for approximately 5% of the total factory employment in India. The Indian FMCG sector is the fourth largest sector in the economy with a total market size of USD49 billion in 2016. The sector is projected to grow at a CAGR of 20.6% to reach USD103.7 billion by 2020.

The FMCG industry is characterised by complex distribution network and intense competition, forcing firms to constantly work on supply chain innovation. Micro-economics play an important role in the supply chain structure of India.

Bottlenecks

• Infrastructure: Poor roads and unreliable transport systems have an adverse impact on costs and uncertainties. Lack of storage and transport facilities coupled with rising costs of raw materials and energy has been a major challenge for the Indian FMCG market. Food items tend to have a significantly shorter shelf life and requires quick delivery systems, regular replenishment of products on the shelf, and vast different distribution and storage requirements.
• Emergence of third –Party Logistics provider: Traditionally most companies have been managing all logistics activities themselves so far the logistics sector in India has lacked professionalism. Hence the new players will be of value only to new MNCs and FMCG players who operate in the mid volume high variety segment of the market. Established FMCG companies like Nestle and HUL are unlikely to use their services as logistics solution providers as they are not likely to be cost effective. Moreover most Indian FMCG companies have skewed sales patterns that place huge demands on service providers in the last week of month.
• Managing availability in the complex distribution Set Up: The Indian FMCG sector has to work with very complex distribution system comprising multiple layers of numerous small retailers between company and end customer. For example a company like, Marico has to ensure reach to 1.6 million retailers spread throughout the country.

• Entry of National Players in the Traditional Fresh Products sector: National players want to market “fresh” products that have been traditionally handled by local players in each region. For example, ITC wants to make inroads in the market for ‘ATTA’ and Nestle for yoghurt. Traditionally national companies have worked with centralized plants, As freshness is one of the most important criteria from the customer’s point of view, national players will have to work with decentralized manufacturing plants. Balancing quality, freshness and cost is a major issue for national players.

• Dealing with Counterfeit Goods: According to recent study conducted, counterfeits accounted for loss of sale worth more than Rs 300 billion for the FMCG sector every year. P&G found that various counterfeit products of Vicks Vaporub raked in sales equivalent to 54 percent of the original.

• Opportunistic Games played by the Distribution Channel: It is a common notion in distribution that only 50 percent of the promotion actually reaches the final customer. This is due to the fact that many distributors work unscrupulously. Rather than playing the role of the facilitator, they try to grab a significant part of the promotion budget for themselves. Some of these distributors also indulge in the illegal movement of goods from one market to another during local promotions. 

• Emergence of Modern Retails: In the West large departmental or discount chains have managed to grab huge market shares and have clout with FMCG companies. FMCG companies so as to offer better deals to their customers. Unlike in the west margins in distribution are traditionally quite low in India.
• Optimize costs and investments: Optimization of costs and investments is a matter of priority and has to be factored in along with your production needs.

Solutions

• To increase market penetration, Indian companies have to reach out to consumers present at the lower end of the economic pyramid
• To prevent losses from the counterfeit Goods, FMCG companies in India have to ensure that they exercise greater control over their distribution channel and not just leave it to the market forces.
• Companies should focus on utilizing universally accepted global standards, and organizations should implement a comprehensive track and trace system.
• GST, upon being implemented shall replace the multiple indirect taxes levied on FMCG sector with a uniform, simplified and single-point taxation system.
• Food Security Bill The Food Security Bill has been passed recently by the Union Cabinet. As per the bill, 5Kg of food grains per person per month will be provided at subsidized prices by the State Governments under the targeted public distribution system. This is expected to result in higher inflow of investments into the agriculture sector in the coming years.
• Relaxation of License Rules Industrial license is not required for almost all food and agro-processing industries, barring certain items such as alcoholic beverages, cane sugar, and hydrogenated & animal fats as well as items reserved for exclusive manufacture in the small-scale sector.
• The Government of India has approved 100 per cent Foreign Direct Investment (FDI) in the cash and carry segment and in single-brand retail along with 51 per cent FDI in multi-brand retail.

Conclusion

Indian economy as a whole and the manufacturing sector in particular, need to improve supply chain performance considerably if Indian firms are to compete globally. Indian firms need to learn from progressive firms in developed economies, which have managed to improve supply chain performance considerably.