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India can boast of being the fourth largest Fast Moving Consumer Goods (FMCG) Sector globally (India Brand Equity Foundation, n. d., p. 2). The estimated size of the FMCG sector of India is Rs. 1,300 billion (Gnimoline, n. d.). It has shown further growth of about 11 percent in the recent times. However, the FMCG sector of India is not like that of the developed markets, which are only dominated by few major players. It is defragmented and comprised of large number of sellers who conduct business in both organized and unorganized markets. Among 12-13 million retail stores, about 9 million stores belong to the FMCG segment. The population of the country is over one billion, so it has a strong customer consisting of about 300 million middle class buyers. It is considered to be among the largest economies because of the large purchasing power of the people (Sharma, and Bakshi, 2012, p. 472-474).
India is considered to be the fastest developing countries in the world now, so the disposable incomes of the people are increasing and even the standard of living of the rural people has gone through drastic change. The Indian FMCG market is flooded with goods and services and the consumers have access to innumerable products based on their needs and requirements. The major players in the FMCG sector of India are Britannia Industries, Dabur India, ITC, Nestle India, Palmolive, Marico Industries, Tata, Amul, and many more (Sharma, and Bakshi, 2012, p. 472-474). It was derived from a research that an average Indian spends around 40 percent of their income on products like grocery and about 8 percent on the personal care items, as can be seen in Figure 1
Source: (India Brand Equity Foundation, n. d., p. 4)
In order to understand the usage of ERP and its pros and cons in the supply chain of the FMCG sector, it is very important to first segregate the segments of the FMCG industry because the different companies selling diverse products utilize ERP based on their convince, business strategies and goals of the company. The major segments in the FMCG sector of India are household care, food and beverages, and personal care. There are few minor segments too.
1.2 India Competitiveness and Comparison with the World Markets
Due to the diverse climatic condition and different landscapes, wide range of food processing companies has the opportunity to do business and generate revenue in India. India is regarded as the largest supplier of milk, livestock, coconut, cashew, spices, and sugarcane. It is also the second largest producer of vegetables, rice and wheat. The country also has ample supply of caustic soda, and the soda ash which is the raw materials required for the detergents and soaps. Tata Chemicals is the largest company in the world, which produces the synthetic soap ash. The Indian companies also have a significant presence in the global FMCG value chain, which ranges from raw materials to the finish and packed products. Amul is the most popular company in India which deals in dairy products. Apart from the advantage of having raw material in abundance, India also enjoys the huge resource of low-cost labour resource, among all the Asian countries, as can be seen in Figure 2.
Source: (India Brand Equity Foundation, n. d., p. 7)
Two major resources are there in adequate amount in the country. Many multinational companies have set up factories or manufacturing units in India to minimize their cost of production. For example Unilever a global giant sources a huge part of their product requirements from the Indian subsidiary called Hindustan Lever Limited. Unilever has outsourced about US$218 million products from HLL, which are mainly the personal, home care, and food products. Even Procter and Gamble has outsourced an Indian company in Hyderabad to manufacture Vicks Vapourub, so that Procter& Gamble can export them easily to Japan, Australia and the other Asian countries (India Brand Equity Foundation, n. d., p 9-10).
India has always tried to compete in the world market and allowed internationals or multinationals to trade in the country. With this idea, the policies were developed to attain international competitiveness, such as by reducing the excise duties, lifting the restriction on the quantity, eco-friendly food law formulation, and by permitting the brand names of the foreign products in the country.
1.3 SWOT Analysis of the FMCG Industry in India
According to Bohm (2009, p. 2) "SWOT analysis is a strategic management tool which can be utilized to evaluate the strength, weakness, opportunity and threats of the supply chain of the Indian FMCG market. SWOT analysis can assist in designing an effective plan that would capitalize the opportunities, utilize the strengths, by neutralizing the threats and minimizing the effects of weaknesses."
All the major brands around the world are present in the FMCG market due to the strong supply chain framework in India. Even the base of the raw materials in the country is adequate for the procession of food products industries. The raw materials for the agro-based industries are also available and this is because of the diverse climatic condition which supports the growth of different crops in different parts of the country. Apart from these things, the production cost, delivery cost and the labour cost is also low, so this acts as a major advantage for not only domestic manufacturers, but also for the international manufacturing companies (Soundarapandian, 2002, p. 50-54). A good aspect of the supply chain in India is that it is uniformly spread in the urban as well as the rural areas of the country (Krishnamacharyulu, 2011, p. 404). Technological advancement in every parts of the country is also reflected in the supply chain segment too. IT enabled supply chain has high demands in the Asian markets, which also includes India. In India the FMCG countries provide ample assistance to the rural sector and the agricultural industry too. That is why increasing usage of technology in agriculture is seen these days (Ferrell, and Hartline, 2010, p. 122-124).
The major weakness is the growing market of fake products of popular brands. The "Me-too" products are sold less that their duplicates in the rural markets and also in the semi-urban markets (Kashyap, and Raut, 2005, p. 150-151). Though the usage of technology is growing, yet the scope of investment on technology is still limited. The risk is high and companies are reluctant to take risk (Mukherjee, and Patel, 2005, p. 124). Moreover, the export level is also high due to the increasing level of competition in the market. Though the raw materials are getting cheaper, but the FMCG companies are raising the prices of the products, and due to the vast market size, companies have become more interested in earning profit and creating power brands.
The Indian FMCG industry now has many suppliers who have identified ways of decreasing their cost and have introduced innovative ideas to enhance and improve the supply chain. Efforts should be made by the Indian companies to improve the quality of the supply chain. The population of the domestic market in India is 1.2 billion. The growth possibilities of the Indian companies are immense especially in the rural areas, as about 12.2 percent population of the country stays in rural areas (Euromonitor International, 2008). Apart from this the increasing focus and initiatives of the government towards the FMCG companies also depicts a growth prospect for the companies. Globalization and liberalization has also opened fresh horizons for the FMCG companies of India. Healthy products such as eco-friendly goods are gaining popularity in the world market; similarly Indian FMCG market should also utilize their resources to cash such an opportunity.
The rural India includes 627,000 villages (IIM Ahmadabad, n. d.). So challenges are faced by the supply chain companies in distribution networks. Problems related to IT sourcing, professionals and procurement activities for involving more and more members in the supply network can also be faced. Moreover, lack of investments for the technological advancement, lower level of computer literacy, and low penetration of internet facilities in the rural areas. The complex framework of the supply chain in the country may also make the distribution of products difficult.
1.4 Supply Chain in FMCG Sector
In order to succeed in the highly competitive markets, companies should align the supply chain along the market demand and serve accordingly. The performance of the supply chain provides an edge to the company over its competitors. Supply chain management involves the right co-ordination of location, production, transportation, inventory, and information. Indian FMCG industry is ranked as the fifth most eye-catching and budding markets in the world, in case of supply chain management practices. It has also been graded second in the GRDI (Global Retail Development Index), which included a comparative analysis of 30 different developing countries (Munjal, Kumar, and Narwal, 2011, p. 156-162). The Indian FMCG sector is characterized by the stiff competition between the unorganized and the organized sector, and also among the highly established intermediaries and distribution networks. Even a strong presence of the multinational companies can be seen in the value chain of the entire FMCG sector of India. Though the performance of this industry had been inconsistent during the phase of 2000-2003, and even the investors in this sector could not derive any profit, but in 2005 and so on, the FMCG sector has seen a demanding growth. Further, in the year 2006, the FMCG industry not increased the disposable income but also improved the economic health of the country. The FMCG sector has grown further by 60 percent till 2010. The rural segment and the middle class of the country are considered to be the most promising segment of buyers in India. This also gives the brand makers the opportunity to convert these FMCG products into brands (Munjal, Kumar, and Narwal, 2011, p. 156-162).
1.5 ERP (Enterprise Resource Planning) in Supply Chain
Over many years the companies have started embracing new style of resource management and planning software structure in order to integrate the different processes, manage the resources in a better manner and enforce the integrity of the data. The systems which contain all these qualities intact can be termed as an ERP solution or system (Davenport, 2000; Boykin, 2001, p. 99-100; Sadagopan, 1999, p. 179-181). Before ERP was introduced, the supply chain segment used to enjoy the advantages of material requirement planning (MRP) in case of delivering performance and inventory turnover (Schroeder, Anderson, Tupy, and White, 1981, p. 1-4). Though statistics speaks that 80 percent of the companies implementing ERP have failed (Sarkis and Sundarraj, 2003), Cliffe (1999) revealed that about 65 percent of the executives have a belief that the ERP solutions can be harmful, and these perceptions further lead to the failure of the ERP system or poor implementation of the systems that even lead to the bankruptcy of the companies (Appleton, 1997). However, it goes without saying that those evidences of failures are there, but benefits of ERP are also innumerable. The top management of the FMCG companies having clear vision regarding the implementation process and its results can utilize it for the success of the company (Holland and Light, 1999).
A new perspective in the supply chain can be seen nowadays due to which companies are opting for ERP systems for the FMCG sector. Due to rising pressure of implementing green systems, and utilizing green resources by increasing on the manufacturers and marketers, the usage of ERP solutions specially designed to support green or eco-friendly supply chain have been launched in the market. Indian FMCG sector took like that of other countries has welcomed this initiative. Though the penetration level of such specific ERP system in the supply chain is less, but it is slowly gaining momentum (Wu and Wang, 2006, p. 882; Leedale, 2010, p. 1-3).
1.6 Outline of the Study
It can be well understood that when the country has such massive establishment of FMCG industry, then supply chain would be surely playing an important role in this sector. Keeping in mind the significance of supply chain in FMCG sector in India and the increasing use of technology in the retail and FMCG sector, this study aims to thoroughly analyze the significant and the challenges of Enterprise Resource Planning (ERP) in the supply chain of the FMCG sector of Lucknow, India. ERP plays an important role in the supply chain of the FMCG sector because the motto of supply chain segment is to deliver the goods at the right time, in the right place and to the right people. The study is designed to include the both the secondary data and the primary data. Secondary data signifies the past research and literature that are available on the usage of technology based ERP solutions in the Indian supply chain segment of the FMCG sector, and primary data on the other hand would be collected through questionnaire survey that would be conducted.
Since the primary research that would be conducted would be specifically based on the FMCG industry and its supply chain in Lucknow, India, the research study begins with an overview of the nuances of the FMCG industry, the role of the supply chain and the significance of the ERP solutions in these sectors in India. This would give the readers a clear view of the country as a whole. The next section would be a literary analysis of the supply networks in India, especially in the northern parts where Lucknow is situated, the penetration of technology, especially solutions like ERP, and also a brief overview of the supply chains of the companies in Lucknow chosen for this research study. Further a research would be conducted and results drawn would be analyzed to suggest recommendations.
1.7 Research Objectives
The objectives of this research study are stated below:
To comprehend the notion of ERP in supply chain management, in the FMCG sector and focus on the significance and relevance.
Analyze the importance of ERP by studying the past literatures available, so as to evaluate the theories of other researchers in this regard.
To scrutinize the activities in supply chain management and understand the operation functions of major FMCG companies of India, which are also based in Lucknow.
To study the activities and functions of ERP in the supply chain of these companies.
To analyze the results of the findings and throw light on the similarities and differences of ERP usages of these companies in their supply chain management.
1.8 Problem Statement
The study would investigate the responsibility and the challenges of ERP in supply chain segment of the FMCG sector in Lucknow, India. The issues which the supply chain companies face due incorrect ERP implementation or inadequate training would also be discussed. Further, instances of breakdown of the supply chain services in the FMCG sector due to ERP problems would also be discussed.
1.9 Research Question
Q1: What role does supply chain play in the FMCG sector of Lucknow, India?
Q2: What improvements can be seen in supply chain after extensive usage of ERP?
Q3: What challenges supply chain departments or companies and the FMCG companies face specially due to ERP?
Q4: How the major FMCG companies in Lucknow, India utilize ERP for their supply chain?
CHAPTER II - LITERATURE REVIEW
2.1 Supply Chain Sector in India
The traditional boundaries are the things of past. The new horizons of technology have introduced an array fresh business opportunities and also infused various challenges that needs to be mastered or trapped. In order to maintain a significant position in market nowadays, companies have to concurrently manage the efficiency of the various business activities, such as distribution, manufacturing, and services, effectively. Competitive advantage is governed by innovation, visibility, customerization, velocity, scalability, and cost governance. The future of business depends on serving the customers properly, and maintaining a trustful relationship with the suppliers, and partners. In order to attain all these criteria and objectives, organisations apply the concepts of supply chain management (SCM) (D. Simchi-Levi, Kaminsky, and E. Simchi-Levi, 2000; Sahay, 2000; Derocher, and Kilpatrick, 2000). The concepts and theories of SCM can be traced back to the ages of Forrester (1958, 1961), who recognized the dynamics of several response to the changing demand in the various situations that arises in supply chain. Forrester had acknowledged that dynamic complexities create distortion in the patterns of demand by shifting the demand from the end users to the manufacturers, and the raw material suppliers. One of the major implications in SCM is that all the participants are interdependent, which is both the strength and the weakness of this system.
The interest in SCM has increased since 1980s after globalisation and free flow of trade and commerce. Organisations started viewing the benefits of collaborative trade relationships. Though management concept has vast scope for growth in India, but the proliferation of the variety of products and the reducing life cycles of the products have forced the Indian companies to think beyond the boundaries of just maintaining collaboration with the supply chain partners (Vrat, 1998, p. 10-24). The dramatically changing environment has made the Indian organisations realise the effect of competing unnecessarily without the assistance of the supply chain associates. The requirements for adaptation of collaborative methods are high because of the recent deregulation in the global economy and also due to globalisation and its effects on the Indian economy. The traditional defensive industrial, organisational and economic boundaries have now been demolished (Saxena and Sahay, 2000). However, new and emerging markets bring in new opportunities, as well as new rivals too. The rules of trading relationships and economy are now ascertained and re-defined by technology and information networks. This is the reason why it has become mandatory for the Indian organisation for look out for such SCM methodologies and process which can maximise their efficiency not only beyond their operation, but also make them eligible to compete with the top FMCG brands of the world (Sahay, 1999). Many Indian companies have not operated in the open economy system. So working with appropriate business partners, developing mutual trust, designing a flawless SCM system, etc are altogether an alien ball-game for them. It has been studied that the Indian industry spends about 14 percent of the GDP on the logistics, and about $25 billion is attached to the inventories or stocks in the supply chain system around the country. Though India is one of the fastest developing countries with more than a billion populations, it should think of integrating highly advanced SCM theories and approaches for sustainable economic growth (Korgaonker, 1999a, 1999b). The significance of supply chain in organisation is being recognised in at the corporate level.
The Indian supply chain plays a significant role for the growth and development of the FMCG sector. With the motive of overcoming the challenges that the retailers face and also to develop new systems and solutions for the organisations in India, the Supply Chain Council was formed (Supply Chain Leadership Council, 2012). Supply chain assist in organising the business activities in the FMCG by establishing a shelf-centric partnership between the manufacturers and the retailers. The nature of the supply chain in India is relatively fragmented because of less availability of fresh produce. This reveals the requirement of more advanced and organised supply chain in the country. The supply chain networks play significant role in India because they assist the customers to purchase variety of products at affordable prices. It is because of the supply chain the customers can get various offering that the company has designed for the customers based on the changing taste and preferences of the customers. The Indian Infrastructure in terms of rails, roads, and air transportation are not sufficient. In these cases warehousing play a very important role in the operations of the supply chain system. In order to overcome these issues the retailers in India are trying their level best to decrease their transportation cost and are also outsourcing their supply chain system to the specialized companies for best logistics. Supply chain is required for the development of cost effective collaboration in order to survive in the competitive environment.
India has a diverse economy which ranges from village farming, handicrafts, agriculture to technologically advance modern industries, and other diverse services. However the major source of economic growth of India is the Services offered to customers. It has been analysed that approximately 60 percent of labours or work force are into the agriculture (Hirway, 2008, p. 1-14). This compels the government of the country to improve the standard of living of the rural citizens of the country by developing the basic infrastructure for them, making available the resources such as education, medicines, health care facilities, or food, etc for the overall development of the country. The reduction of control on FDI is an initiative to welcome foreign investors so as to encourage free flow of trade and commerce and improve the economic condition of the country. The Indian logistics and supply chain had played an important role all through these years and still evolving for the better. Constant improvement of the supply chain framework has made India the global hub for auto ancillaries, manufacturing of sophisticated products like luxury cars, pharmaceuticals, electronics, textiles, food processing, etc. It also has a significant role to play in the service sector through BPOs, tourism, health services, and education facilities. SCM has occupied a value spot in the corporate level. This is the reason it is studied by young entrepreneurs in business schools to implement an organised supply chain framework in the new emerging India. Companies nowadays directly focus on reducing cost and reaching out to the customers in the shortest possible time. For this reason the objective to design and develop the best supply chain system for increasing the profitability is the best solution.
2.2 Role of Supply Chain in the FMCG Sector of India
The FMCG industry follows a simple strategy that is to keep the price margins low, and volume of products high. In order to continue business in this manner FMCG companies in India need to plan the entire operational functions and the different value chain actions to the last details, so as to ensure guaranteed profit. Branding assists in differentiating the products, while supply chain or distribution system would determine the faith of the FMCG companies in the long run. The diversity of the Indian market and the huge opportunities in the vast untapped rural market of India provides opportunities to the FMCG companies to explore these areas and connect them through effective supply chain networks. Though the level of competition, and changing business environment has transformed the significant of each elements in the supply chain, but the major elements remains the same. The activities, level of performances, resources utilised and the approaches of utilising the resources have changed with requirements and time.
There are five specific factors on the basis of which the supply chain of the FMCG sector in India functions. They are stated below:
Combined scheduling, forecasting, offering customer services, and building relationships: The supply chain system has the duty to reduce the lead-time and deliver the goods per performance on time to the customers for building a strong relationship with them. It must possess a strong demand and supply forecasting structure for correct supply chain arrangement and movements. Responsiveness of the supply chain is also necessary towards the customers and is regarded as the most critical factor for success. The forecast for collaboration with the customers is prepared by taking into account the sales figures of the past and a project figure for the future. An effective mechanism for customer care and services is prepared so as to offer customized services to them and provide value based services. Point of sales, inventory and real time demand like concepts are given importance and data related to such approaches are collected from retailers for survey or research in order to improvise the supply chain system (Gentry and Vellenga, 1996, p. 37-44).
Establishment of operational system with the suppliers and formulating provisions for logistics services: The agreements at service level with the transporters assist in providing the reliability and the effectiveness to the logistics framework. The requirements of the customers are analysed and accordingly designs are developed. The feasibility of producing those designs are also checked steps involved in developing a new product is followed to develop the idea into a product and float it in the market. Networking and clustering with the intermediaries and the suppliers for deciding the location of the firm is important, so that the location may act as an advantage for the company. Nowadays outsourcing partial activities of the company proves to a cost and time saving step. After this the selection of a dynamic route for the distribution of the product is selected. The suppliers are selected keeping in mind that the product reaches the customers on time and also large accumulation of stock in the shop is not there. So the approach of Just-in time is preferable in such cases (Mathur, 2010, p. 391-395). Lean approach for operational improvements in the supply chain is also an intelligent initiative. Companies also develop transport rating systems for tracking and enhancing the performance of the distribution system and logistics, while the suppliers evaluate the cost, but not the unit prices of the products or the services.
Cross Functionality through establishing collaborative activities with the dealers and suppliers: The immediate demand is shared and information assists the supply chain to smoothen the flow. Though previously the suppliers were reluctant to use technology or IT services, but now IT is welcomed and deeply integrated in the supply chain system of India. The activities in which the company does not have much experience or competency, is usually outsourced now to save cost and time. Organisation, especially FMCG companies in India have now realized that working in close relationship with the suppliers, intermediaries and the supply chain is critical for the success of the company (Lambert, Stock, and Ellram 1998, p. 3-28).
Strategic Partnership and the practice of outsourcing to survive in the competitive environment: The organisations in FMCG sectors prefer to have strategic partnerships with selected well established suppliers. This is the reason why the competition among the suppliers is also increasing. The suppliers are encouraged by the organisations to offer cost effective and quality services. The modularity of the supply chain system is also beneficial for the successful establishment of SCM. The organisations share the rewards and risks associated with the suppliers and the supply chain as the market is volatile and changes in the market negatively affects the suppliers.
The selection of suppliers strategically, evaluation and development: The preference for selecting the suppliers depends on the flexibility and customization of the volume of goods. It is the suppliers who should involve in the development of new product so as to deliver the new products to the customers in no time. The suppliers' balanced scorecard should be made so that the performances of the supply chain can be assessed (Lambert, Stock, and Ellram 1998, p. 3-28).
2.3 Usage of Technology in the Supply Chain Segment
Supply chain management (SCM) plays an important role in companies for the creation and maintenance of sustainable relation with the customers and the suppliers. According to the Global Supply Chain Forum (GSCF), SCM is the incorporation of the major business practices to the customers with the help of the suppliers that assist in transfer of goods, services and relevant information and add value to the offerings offered to the customers and other stakeholders. The process of supply chain management involves all the activities from transporting raw materials to manufacturers to supplying finished products to point of purchase and also to the point of storage (Hanfield, and Nichols, 1999, p. 143-156). SCM includes all activities that are associated with the achievement of competitive advantage and sustainability of the business. In this sphere internet is affecting the process in which nowadays goods are distributed and bought. The advent of Internet has changed the ways of conducting business. Companies are injecting technology in various departments of the organization to discover new ways of earning revenue, finding new customers, and managing the supply chain of the company. E-commerce is one of the parts in the technological environment (Bushry, 2005, p.87-88). It enables the marketer to sell the products and services through a virtual marketplace and the payment for the product is also done online through the use of internet services. In large manufacturing companies, the supply chain segment has to manage multiple suppliers and vendors at the same time and also regulate the flow of goods to the different target markets. Technology is now treated as agents who help in solving the major problems of management or information overload. The collaborative information agents play very significant roles in SCM.
The pressure of global competition is increasing day by day, so the requirement for streamlining the supply chain in order to make it responsive and flexible is also increasing. The traditional ways of distributing the product led to the inaccurate assumption of demand and exact supply figures. The suppliers and the marketer also faced problems in the maintenance of records in the warehouses and while production. Due to these issues, the whole supply chain infrastructure started evolving and moving towards the electronic transfer of data, and electronic supply chain systems. There are few characteristics which can be seen in the present day supply chain and its philosophy, such as sharing of information, management of inventory, adopting flexibility readily, cost minimising strategies, coordination of all the intermediaries in the pipeline. The business environment of all the industries is becoming more dynamic, so the product life cycles are becoming shorter, and the demand of products and services are uncertain (Sheth, and Sharma, 2000, p. 55-60). The supply chain environment has changed in the recent times as the warehouses have reduced in number, competition level has increased, third-party services have increased, channel integration, etc. The traditional supply chains are reactive rather than being proactive, uncertain, extensive lead times, deficiency of flexibility in operation, etc. The next generation of supply chain system should be customer centric, have scalability, flexible, open, integrated, capable of functioning autonomously, optimization and negotiation capability, etc. It must have the capability to forecast accurately, and it should be compatible with the manufacturing process (Anderson, and Lee, 1999, p. 34-36). Companies nowadays prefer to have seamlessly integrated M-commerce or E-commerce system which would assist in the performance measurements. All the characteristics stated above are interrelated.
Integration is the new buss word in the supply chain nowadays because it represents the difference between the old logistics system which included distribution and transportation, and the new SCM system, that interlinks all the activities and the players that are play important role in converting the raw materials to different products and supplying those products to the customers on right time, at right place and within the stipulated time fame. So the success of businesses is directly dependent on the functional integration of technology (Kumar, and Hillegersberg, 2000, p. 22-25). In the new SCM, e-commerce assists in providing opportunities to integrate a system which decreases the operational cost and a speedy order-to delivery channel to the company. This is also known as e-supply chain which helps in gaining competitive advantage over the others. The models of doing business are B2B (business-to-business), B2C (business-to-customers) and C2C (customers to customers). In B2B the e-commerce transactions take place between businesses. It includes transactions and transfer of goods between suppliers and the retailers. Similarly B2C marketing refers to online exchange of products and transfer of payments among the business and the customers. The framework of e-commerce has been developed by utilizing various other technological resources such as computer languages, the transaction software, DBMS, communication protocols, etc (Maes, 1997, p. 10-13). There is a pre-conditioned relationship between the customers and the suppliers. Due to this reason the networking infrastructure is very necessary. In the early times the telephone companies used to handle the local networks and internet connectivity, but now the telephone companies have switched to single path between caller and the receiver. This system is centrally controlled and is known as circuit switching model (Wooldridge, and Jennings, 2005, p. 115- 117).
Supply chain planning has significance in the e-supply chain system. It enables the companies to manage the supply chain activities intelligently. Collective planning in supply chain involves sharing information and coordination of all the activities from customers to suppliers. In this case link can be acquired from the internet for sharing information, scheduling and planning the various activities in supply chain management. The performance that is derived through the usage of e-commerce framework should be compared globally and not locally. The customer services can be measured by monitoring that the lead time is shorter and the stock availability is apt. Other measures including the accuracy of invoice, better accessibility to the order status, and better customer responses are also necessary (Jennings, and Wooldridge, 2003, p. 3-9). The approach should be customer centric. The key to provide effective customer services and gain an edge over the competitors, marketers have to maintain the online commitments of the orders and the schedules fixed with the suppliers, vendors, intermediaries, or customers.
2.4 Penetration of Technology in the FMCG Sector of India
FMCG companies in India who are looking out for an excess of 10-20 percent of growth than their competitors are opting for new technologies for various activities such as expanding the product portfolios, sending shipment to the warehouses, taking the raw materials to the manufacturing location, etc. New web-based technologies adopted by several companies in India like Marico, Godrej, Emami, and Eveready has enabled them shared information, cost-control, seamless integration and also ease of working at warehouse and factory level (IBM, 2009). It has been seen over the last few decades, that many companies have diversified their portfolio of commerce in FMCG itself (Dhar, Nath, Nair, and Yadav, 2008, p. 133-135). This has led them not only to rapid expansion but also increased the complexities. IT enabled strategic framework is very helpful in minimizing these complexities that arises due to increasing length and breadth of supply chain network in Indian FMCG sector. For example, Emami has recently invested in IT framework which has helped them to finalise their balance sheet within 35 days, which required 60 days before the IT enabled process came into existence. Emami has already projected a growth of 10 percent in production due to the new IT enabled infrastructure of the company. This growth can be achieved through proper supply chain and operational planning, resource planning of distribution and demand management. All these functions would help in controlling the system, forecast sales, track the inventories at different locations, and plan the logistics in order to meet the schedules of the customers. It would also enable the company to keep a track of the finished goods and those inventories which are seasonal (Silicon India News, 2009).
The companies are also implementing Wi-Fi technology in the corporate offices of these FMCG companies for unified communication. Products like call managers and IP phones are still not implemented but are under research and trail. These equipments or technologies would connect the different factories, corporate offices, branches, and even warehouses in one web network. The Indian FMCG companies nowadays completely depend on internet based applications and information technology supported business models. Companies commonly utilise video conferencing technique for conducting joint meetings or working in teams from different places. Many IT tools such as SAP ECC 5.0, ERP, etc for managing the supply chain and the manufacturing units that effects the seamless integration of the business functions. It also helps in observing the inventory policies of the company such as no over stocking, controlling the finished goods, generating MRP based requisition, and automation of secondary sales for receiving data instantly (IBM, 2009). Companies like Emami introduced Bar-coding in the warehouses for the identification of the products, right management and traceability of the inventory Eveready also invested about Rs. 3.5 crore for implementing ERP solution and disaster recovery software from HP. However, the implementation of this infrastructure would be done by IBM (IBM, 2009).
Eveready is an FMCG company which has approximately 34 warehouses in India, but the company is bring down its storage capacity to 6 mother warehouses in order to reduce the overall maintenance cost of so many warehouses. The company also plans to decrease its inventory time from 15 days to 10 days. Other companies like in Marico the company was facing challenges due to its traditional financial management system, budgeting techniques, and old planning and reporting methods. Marico and its management found the solution offered by IBM, which was also called IBM Cognos TM1 (The Economic Times, 2012). It helped the company to reconcile data faster, assisted in collation and aggregation of data and records, and it was flexible and easy to use. The employees got more time to examine the financial data rather than collecting and synchronizing them. It also assisted in identification of better business opportunities and resulted in providing Marico an edge in terms of financial performance administration. Godrej on the other hand has outsourced its IT requirements to HP. So HP takes care of the software and hardware requirements of Godrej for every kind of operations. Godrej in this process has reworked its supply chain and logistics framework after the implementation of Goods and Service Tax was implemented in 2010 (Rapoport, and Martin, 1994). The FMCG sector of India now depends on the three C's, namely communication, coordination, and collaboration. The growing challenges in the workflow of the FMCG sector have increased the need using IT in the operational framework. Operation functions like optimising the business activities, redefining the business processes, tracking the daily operations, integrating different applications of various platforms, lengthy documentation, and reacting efficiently and quickly to market changes are the motive due to which IT integrated infrastructure is very important in the competitive business arena. This process is also called automation of workflow (IBM, 2009).
Business processes are considered to be different sets of tasks that need to be performed in a sequential order. With this basic idea in mind, the technological framework is implemented in the companies nowadays. There are various software which assist in moving files, important documents, pictures from one workstation to another on the basis of the laid down business norms of the company. This reduces the paper works in office and also the cost of the company on documentation. The simple office tasks such as expense settlement, forwarding leave application, documentation for the approval of the financial information, helpdesk management and other administrative work also reduces due to the technological infrastructure in the company. The utilization of the latest technology is the demand of the present business environment nowadays. In this scenario corporate intranet is thoroughly used as it is a very convenient method of accessing the information of those offices which are in other parts of the world. It simply means that intranet connects all the offices, stores, warehouses, and other establishments of the company in one mesh or network. The corporate intranets are helpful especially in case of FMCG sector as this assists the companies to spread information to its different units around the world (Radhakrishnan, Kanchana, Mohanram, and Palaniswami, 2001, p. 252-255). It also plays an important role letting their brand manager know about the activities that are going on in the MNC FMCG companies around the world and plan their marketing strategies accordingly. Intranets assist the sales force to reveal their experiences in different markets. It acts as social site for discussion for the employees, so the employees even have fun discussing about not only work related issues but share common jokes too. The intranet framework of the organisation is also evolved into a corporate learning system for workforce of the firm because training nowadays is even given through the intranet channels. The cost of training employees physically has become very high and the constraint of time and place also makes the training process further complicated. So the net-based option is the most feasible one.
2.5 Significance of ERP in Supply Chain Management
The process of traditional supply chain model was linear that is the flow of merchandise, information and the finances were in the same direction. However, with the inception of a new internet based relational channel, the priorities allocated for the supply chain models and the strategic views increased. For example the relationship with the old customers and the suppliers got transformed into such a web-based network where the customers, suppliers, producers and also the marketers can interact with each other (Joines, Barton, Kang, and Fishwick 2000; Tourbon 2002). The modern configuration of the SCM is supported by chain partners who also assist in facilitating the relationship between the customers and the suppliers. This also reduces the cost of the company because the information can be shared easily without any expense. It also assists in development and growth of e-commerce and deals with the complexities arising as a result of international and domestic SCM. SCM is a network which reveals the relationship of all the members such as the suppliers, vendors, customers, producers, manufacturers, and markers and creates a transparent framework where the whole process of manufacturing, selling and buying of products and services are clear to every member of the SCM. Enterprise Resource Management (ERP) software assists the companies to re-engineer their supply chain system and take the company beyond the objectives or pre-determined goals of the company. SCM is one of the sections which have the major contribution in the development of the business. In a recent research done among 300 supply chains revealed that 92 percent companies are successful because of their effective supply chain (Tourbon, 2002). The aim of SCM of the company is to accomplish competitive advantage by recuperating the relationship between all the levels of the supply chain.
The aim of ERP is to unify the diverse departments of the company through the application offered by the software package. The ERP system can be utilised with the help of different methods, such as information integration, information sharing, automatic updation of the relevant information, information management, etc. The supply chain system along with ERP is an advanced technological combination of various business processes which provide solution for the entire organisation (Sople, 2009, p. 232). The major aim is to improve the internal efficiency through the integration of ERP in different sections of the SCM. It has changed the liner flow of information into a network, through which information percolates to every section of the organisation including the supply chain. ERP solutions assist the supply chain to reduce their inventories because of the added visibility of the complete supply chain. It facilitates the manufacturing, supply, and logistics procedure for the smooth flow of goods from the manufacturers to the end users or customers. Another specific function that ERP plays in supply chain is that, it reduces the bull-whip effect. Bull-whip affects means building up the supply chain for safety of the stock inventory. It also assists the supply chain members to plan the production and supply process better and faster. ERP system also assists in standardizing the manufacturing process of the organisation (Momoh, Roy, and Shehab, 2010, p. 537-565). The manufacturing firms generally have numerous business units across the country. These manufacturing units might produce the same product but they use different systems and processes. ERP system helps in automation of these manufacturing processes. The standardization of the process eliminates the redundancy of resources and increases the productivity. Since the manufacturing companies generally have different products and businesses, so they find it convenient to track their customers with the help of ERP based information infrastructure. The performance of the entire organisation can also be monitored, measured and standards can be set for employees, so that they can assess the performance of the employees (Vaman, 2007, p. 62-65).
ERP is a single platform database management system which assists in deriving detailed information regarding production, supply, financials, inventory, customer orders, feedback, and performance of the employees in every department. All these information are otherwise scattered, but due to a single network of which connects all the departments and essential divisions of the company, communication becomes easy, work is done faster, goods reaches the customers on right time and place, and it increases the profitability of the company (Wisner, Tan, and Leong, 2008, p. 205). The goal of any manufacturing business and operation is to produce high quality products at the lowest possible cost and sell at a good margin. Among all these criteria, the most important one is to satisfy the customers because they decide the fate of the product and the company. It is also necessary to maintain the market share and sustainability of the company. In order to achieve cost-effectiveness and consistency, in-depth idea regarding the supply chain is essential, especial when the motive is to handle the complexities for producing and formulating the products on the basis of customised specifications. All these functions require tremendous agility and a dynamic operating environment. ERP is the best solution for supply chain optimization. It is a strong tool for inventory management that assist in improving the planning process and the system of forecasting. The supply of inventory and the levels can be fine turned easily on the basis of the customer's demands. In order to access the real-time data faster and receive critical business intelligence information, ERP is essential. IT forms the backbone of any cost-effective, dynamic and efficient supply chain. Any organisation can follow a demand-driven production line, want to respond faster to the environmental changes, supply conveniently, and add more potential customers has to integrated an effective IT framework with in business model of the company (Shave, 2011). The manufacturers who understand the significance of ERP in the organisation have understood that technologically advanced business model would assist them to achieve effective response from the customers and meet the changing requirements of the supply chain in the present business environment. ERP assist in improving the supply chain functions in four specific ways; firstly, develop enhanced communication and customer insight. Secondly, achieve an international visibility in the demand focused supply chain. Thirdly, the integration of suppliers, global sourcing, and adopting lean manufacturing system is achievable through ERP and lastly, performing better and maintaining the higher performance would be also possible in this case (Caruso, 2009).
2.6 Implementation of ERP for Supply Chain Management in FMCG Sector
Like the other management information tools, ERP is also considered as difficult and complex in case of implementation. However, the success of implementing any systems depends on many factors such as selecting the right set of vendors, ERP consultant, ERP system evaluation and the plan designed for implementation of the ERP system. The failure of ERP system in the organization is not because of malfunctioning of the software, but because of the inability of companies to productively execute and operate the system for enhanced outcomes. In India, ERP has changed the way business was conducted. It is more than just a computer software package in the country. The performances of many Indian Organisations have improved because of the advent of ERP like software packages. The ERP software not only plays an important role in supply chain but also in management control, operational control, and planning the human resource. ERP is the major tool for infusing the concept of core competency in the FMCG segment of the country. It has great contribution in the development and growth of the Indian economy. A new revolution has been brought about in the in the Indian organisation through the cognitive process, procedure and rules. Since it can be seen that the software industry of India is developing at an increasing pace, a promising future can be expected by the organisation with the help of advanced and dynamic ERP solutions (Chowdhary, 2007).
Before specifically focusing on the usage of ERP by the supply chain of different Indian FMCG companies, an overview regarding the usage of different IT solution in Indian companies can be studied. The generally used IT solutions specially for the supply chain of the IT companies ranges from ERP, EDI or e-commerce, Intranet, Data mining or warehousing, to eight point scales. However, intranet and ERP are mostly used because they are the most convenient tool to connect the internal and external corporate functions and operations. In addition to this ERP also streamlines the different business processes and assist companies to achieve operational efficiency. Marico Industries Ltd., one of the most popular consumer goods companies, though being one of the major players in the market was unable to scale its operations well, and attain sustainability. This also affected the performance of its supply chain. This is the reason why the company implemented mySAP for re-engineering its supply chain and attain sustainability. The solution assisted them to calculate their monthly shipments, requirements from the manufacturing plants and the warehouses, enabled transfer of stock data to different relevant departments and pushed the fast and effective distribution of products on time. They also implemented SAP R/3 for handling their financial, material, and cost management areas. It also took care of quality management. Then SAP Advanced planner was implemented and it was for the business information related to the warehouse. Almost every Indian FMCG company is using either ERP or other sort of IT solution for fast, effective and efficient business operation (Sahay, and Mohan, 2007, p. 106-109). Another well-known company called Zandu pharmaceuticals, which produces many popular products such as Zandu balm, Kesari Jivan, etc. It has six manufacturing units in different places, while the data processing system is controlled from Mumbai, which is its head office. The company utilised COBOL application to handle its data, but this was found to be inadequate for the maintenance and compilation of daily inventory data and other data. So the company decided to implement ERP that ran on Unix Server to solve its issues related to data management and also inventory management. Zandu also took initiatives to educate its employees in IT and ERP for the optimum utilisation of the new IT enabled framework (Sahay, and Mohan, 2007, p. 113). Dabur another market leader has a strong supply chain and its 30 factories and 6 key warehouses are spread across India. It has more than 10,000 stockists and its products are supplied all over the country. In order to manage the whole network and keep track of very product produced by the company, Dabur use Visual Basic and also ASP along with SQL Server 2000 for database management (Sahay, and Mohan, 2007, p. 115-116). However, as the market and company size is increasing, it has also become difficult to Dabur to handle all its processes through its traditional IT system, so in 2001 they implemented ERP system. The company with the help of its SAP R3, SQL platform is moving towards the attainment of sustainability (Levi, 2008, p. 447).
ERP solution is helpful in infusing dynamism, growth and welfare in various companies in India. Due to this reason these companies could make themselves stand out among the crowd. The ERP vendor mainly focus on the midsized companies for the implementation of ERP based solutions. This is because the number of midsized firms is many in number in India. In today's business environment most of the companies are customer centric and consider the feedback and customer recognition to be valuable. For example few large companies in India would actively utilise ERP based solutions are Hindustan Unilever Limited (HUL), ONGC, Godrej, Sony India Private limited, Kirloskar, Glaxco, Rallis India, etc (Balsmeier and Nagar, 2002). The researcher argue that not only supply chain but ERP solutions or framework must coordinate and manage every need of the enterprise which involves the accounting needs, sales tax requirements, income tax, etc. According to Frost and Sullivan (2008), due to rising level of competition and increasing pressure from the penetration of foreign products in India, Indian companies are extensively equipping themselves with the ERP based framework so as to acquire more information regarding the business strategies of the MNC FMCG and manufacturing companies and the trends of the global market. Among the other factors, the increasing return on investment (ROI) is also another reason due to which the implementation of ERP in the Indian companies has increased.
2.7 Challenges in the Implementation and Usage of ERP
Integrating IT system in supply chain is not an easy task. It has been observed by many researchers that there are few barriers that slow down the IT enabled supply chain system of the company. This is the reason, it is very important to analyse and identify these barriers and develop effective strategies for eradicating these barriers. Shaw (2000) has noticed the fact that there are two major barriers in the organisations when IT enabled framework is integrated in the system, they are access and security issues. Further major problems like unresearcherized access to the company information and tampering by the competitors of the company are also prevalent (Jharkharia and Sankar, 2000). According to Warren and Hutchinson (2000), several forms of cyber-attacks can be seen nowadays in the IT enabled supply chain framework of the companies, so the companies are focusing more on tightening the security system of the web based framework, which further is increasing complications in day to day usage of the system. Many researchers (Bender, 2000; Monczka and Morgan, 1997) have considered the poor integration of IT tools to be the barriers in the SCM. However, the lack of proper IT framework many be due to various reasons such as lack of funds, awareness, and the commitment of the top-level manager to learn and train the subordinates.
The challenges that the ERP companies faced in other countries is similar to the Indian companies. They include issues in change management, shifting from one function to another, faith in the software packages, and knowledge regarding ERP. It is also important to note that there are the IS shops which regard the penetration of ERP as a threat due to which they act as barriers for the implementation of ERP based framework. Basically, the traditional IT framework of Indian companies were depended on the IS professionals, but this is being replaced by ERP, SAP, SQL, etc, So changing the mind-set of the companies and its human resource is also a major challenge (Dogra, Kaur, and Kaushik, 2009, p. 20). Companies have to face many challenges even during the implementation of ERP solution. In case of ERP implementation, the users, consultants, and vendors have to work in co-ordination in order to understand the requirements and realities of the business. So bring together all these people together and share the same thought is difficult. Secondly, it is very important to properly customise the ERP packages on the basis of the needs and usage of the organisation. Moreover, the process of using such a system also must be easy enough for the employees to handle. This is one of the major challenges why employees are reluctant to switch to a new system. Delegation of researcherity and predefined roles and responsibilities is an important ingredient in an ERP integrated environment (Shah, 2009, p. 193-197). Delegating researcher is not all; the person responsible should also have complete knowledge in order to handle teams and train others too. However, in most of the cases it is seen that the person responsible to educate other has little knowledge regarding the new system. The performance analysis of the new system should be done. Just implementation is not all. It is very important to know whether the purpose of implementation has been served or not. If the processes are still slow, operational functions are not conducted in an organised manner then the objective of utilising the ERP solution is not served. The selection of the right vendor for purchasing the ERP solution is a critical decision that the company has to take. The next challenge is developing guidelines after the implementation because after implementation, employee needs to know the dos and don'ts too. ERP is an advantage and also a disadvantage because on one hand it allows easy access to all the information of the company; on the other hand it is also making that valuable information insecure (Shah, 2009, p. 193-197).
About 52 percent of the ERP execution fails because of various reasons related to resources and money. The businesses generally believe that implementing ERP would address many issues related to their short comings, but broken practice cannot be automated. In order to implement ERP, it is first necessary to re-engineer the business processes because when the traditional processes are corrupt and wrong, then the automation of those processes through ERP would not be of much help for the company. ERP is just a tool, but in order to utilise the tool, the business strategies must be compatible to the tool. It is not possible to implement ERP without fixing human errors, control of places, and other tools already implemented in the organisation (Momoh, Roy, and Shehab, 2010, p. 537-565).
2.9 ERP in Few Major FMCG Companies in Lucknow, India
A strong IT framework integrated in the supply chain can assist a company in achieving its objectives. The Indian FMCG sector is at its boom and opportunities of growth are immense. However, in order to be at par with the MNC FMCG companies, in the global market is possible only when the India companies utilize technology to its fullest. Though past research shows that advancement in IT framework and business model has been seen in the Indian FMCG companies, but there is a long way to go. This research study was also conducted with the objective of studying the available literature on the usage and significance of ERP, a software solution, in the supply chain of the Indian FMCG market. The second objective was to conduct a questionnaire survey to gather primary data on the ERP usage of four major FMCG companies in India, namely ITC, Dabur, NESTLÉ, and HUL (LaLonde, 2000)
The research would be conducted in Lucknow area of India. It would assess the utilization of ERP of the supply chain of these companies in the northern part of India that is Lucknow and neighboring places. However, in this section the secondary research on these companies would be presented. This means that this section would evaluate a brief overview of the company, its supply chain and operational functions, IT framework and ERP usage, the role ERP plays in these companies and the challenges faced by them due to its implementation and usage (Kilpatrick and Factor, 2000).