Infosys -CPG_Domain Competency Group.ppt
- 1. Consumer Packaged Goods Industry (CPG) Domain Competency Group
- 2. Introduction to Consumer Packaged Goods Agenda Introduction to Consumer packaged Goods Industry What is a Consumer Packaged Good (CPG) Categories in CPG industry What is a CPG Company? Organization Structure of a CPG Company The Value Chain – The Players Supplier CPG Company – CPG Manufacturer – Warehouse/Distribution Center Distributor Retailer Consumer
- 3. Introduction to Consumer Packaged Goods Agenda .. Contd. Key Business Processes in CPG Company Planning Buying & Sourcing Manufacturing Logistics and Distribution Sales and Order Management Marketing Management Customer management Information Technology in CPG Industry Global Data Synchronization RFID Regulatory Compliance Security
- 4. Introduction to Consumer Packaged Goods Introduction To CPG What is a Consumer Packaged Good Consumables like food products, beverages, home & personal care, tobacco etc. which have a short life span and get replaced frequently. Market Size Global market size of $ 1,500 Billion
- 5. Introduction to Consumer Packaged Goods Consumer Packaged Goods Industry Food & Beverages Home Care Personal Care •Makers of general household items, OTC drugs, nutritional supplements, pet foods •Key Players: Procter & Gamble, Unilever, Reckitt Benckiser •Makers of personal hygiene, beauty care, baby care products •Key Players: Unilever, Procter & Gamble •Makers of food products, beverages, dry coffees, teas and fruit smoothies •Key Players: Nestle, Kraft Foods, Coca-Cola, Pepsi CPG Categories
- 6. Introduction to Consumer Packaged Goods Food & Beverage Category - CPG Dinner Solutions Fz Dinners/Entrees, Natural Cheese, Soup, Rfg Salad/Coleslaw, Fz Poultry, Fz Pizza, Vegetables, Dry Packed Dinners, Fz Seafood, Fz Plain Vegetables Beverages Carbonated Beverages, Milk, Beer/Ale/Alcoholic Cider, Bottled Juices, Rfg Juices/Drinks, Wine, Spirits/Liquor, Coffee, Bottled Water, Creams/Creamers Sweet & Dessert Chocolate Candy, Ice-cream/Sherbet, Cookies, Non-Chocolate candy, Snack bars/Granola bars, Fz Novelties, Canned/Bottled Fruit, Bakery Snacks, Gelatin/Pudding Mixes, Fz Desserts/Toppings Ingredients Fresh Eggs, Dough/Biscuit Dough, Baking Mixes, Salad Dressings, Spices/Seasonings, Baking Needs, Margarine/Spreads/Butter Blends, Butter, Sugar, Mayonnaise Breakfast Solutions Cold Cereals, Breakfast Meats, Yogurt, pastry/Doughnuts, Fz Breakfast Foods, Hot cereal, Toaster Pastries/tarts, English Muffins, pancake Mixes, Lunch Solutions Freash Bread/Rolls, Luncheon Meats, Processed Cheese, Frankfurters, Peanut Butter, canned Meat, Cream Cheese/Cream Cheese Spread, Lunches-Rfg, Pickles/Relish- Rfg Salty Snacks Crackers, Snack Nuts/Seeds/Corn Nuts, Popcorn/Popcorn Oil, Rice/Popcorn cakes Baby Foods Baby Formula/Electrolytes, Baby Food, Baby Diapers
- 7. Introduction to Consumer Packaged Goods Food & Beverage Products Food Products Beverages Carbonated Dinner Solutions Sweet and Desserts Non-Carbonated Packaged Water Alcoholic Drinks Ingredients Breakfast Solutions Lunch Solutions Salty Snacks
- 8. Introduction to Consumer Packaged Goods Home Care Products House Care Toilet Tissue, Laundry detergent, Household Cleaner, Paper Towels, Food & Trash Bags, Facial Tissue, Dish Detergent, Light bulbs, cups & plates, Cleaning Tools/mops/brooms Pet Care Dog Food, Cat Food, Pet Supplies, Cat/Dog Litter General Merchandise Batteries/Kitchen Storage, Photography Studies, Socks, Blank Audio/Video Media, Office Products, Lawn Fritzr, Children’s Art Supplies, Writing Instruments, Pantyhose/Nylons
- 9. Introduction to Consumer Packaged Goods Home Care Products House Care Pet Care General Merchandise Laundry Care Dishwashing Products Surface Care Chlorine Bleach Toilet care Polishes Air Fresheners Insecticides Dog Food Cat Food
- 10. Introduction to Consumer Packaged Goods Home Care Products - Category Sizes 45000 42543 12939 8829 5423 4779 3013 2946 2798 0 10000 20000 30000 40000 50000 Pet Care Laundry Care Surface Care Dishwashing Products Air Freshners Insecticides Chlorine Bleach Polishes Toilet Care Category Global Market Size (in $ Mn)
- 11. Introduction to Consumer Packaged Goods Personal Care Products Personal Hygiene Soap, Toothpaste, Toothbrush/Dental accessories/Sanitary napkins, Shampoos, Deodorants, Razors, Hand & Body Lotion, Hair Conditioners, Mouth Wash Beauty Care Skin Care, Hair Coloring, Facial Cosmetics, Fragrances, nail Cosmetics, Hair styling gel, Lip & Eye Cosmetics, Hair Spray, Hair accessories, shaving lotions Baby Care Diapers, Baby Accessories, Moist Towelettes, Baby Needs
- 12. Introduction to Consumer Packaged Goods Personal Care Products Personal Hygiene Beauty Care Baby Care Baby Care Fragrances Color Cosmetics Hair Care Bath and Shower Oral Hygiene Deodorants Men’s Grooming Skin Care Depilatories Sun Care
- 13. Introduction to Consumer Packaged Goods Personal Care Products -Category Sizes 2,559 3,476 4,302 9,242 16,221 20,335 20,701 22,408 28,055 38,481 42,491 0 10,000 20,000 30,000 40,000 50,000 Depilatories Baby Care Sun Care Deodorants Men's Grooming Oral Hygeine Bath & Shower Fragrances Color Cosmetics Skin Care Hair care C ategory Global Market Size (in $ Mn)
- 14. Introduction to Consumer Packaged Goods CPG Company The owner of a consumer packaged good trademark is a CPG company. They are also called as brand owners. A CPG Company is a Marketer of the CPG product – It creates “brands” by investing in advertising and communication of the product – It decides the characteristics of a CPG product – like pricing and promotions. A CPG Company may or may not manufacture and/or distribute the product for final consumption. – A CPG company defines the manufacturing processes and product quality parameters which effect the composition of the product. – It sets policies and guidelines for organization activities and controls & monitor the manufacturing plant – Hence irrespective of it manufacturing a product CPG company keeps a very tight tab on production and distribution processes
- 15. Introduction to Consumer Packaged Goods Key Activities Undertaken By A CPG Company Marketing and advertising The CPG product Launching new products and innovating and developing on the existing products Close to 30000 new products in CPG were launched last year Key account management Specific focus on handling large accounts like Wal-Mart, K-Mart etc. A greater sense of collaboration happens in terms of order management, forecasting and promotions management. Managing prices and promotions Taking pricing decisions suitable to local environment and managing trade/consumer promotions Supply Chain Management Managing global supply chains to reduce the sourcing costs and better vendor management
- 16. Introduction to Consumer Packaged Goods CPG Industry - Organizational Structure Administrative Structure Executive, Assistant Manager, Regional Manager, General manager, VP, President Functional Structure Sales, Marketing, Production, Dispatch, Key Account, Finance, Information Systems, Human Resources, Purchase Geographical Structure APAC, Europe, North America, Africa
- 17. Introduction to Consumer Packaged Goods Organizational Structure - Illustrative Vice President Region Vice President Human Resources Vice President Finance Vice President Marketing Vice President Production Vice President Logistics/Supply Chain Executive Systems Manager Systems Executive Finance Manager Finance Executive Human Resources Manager Human Resources Executive Sales Manager Sales Executive Marketing Manager Marketing General Manager Unit Executive Production Manager Production Executive Logistics/Supply Chain Manager Logistics/Supply Chain General Manager Human Resources General Manager Marketing General Manager Finance General Manager Production General Manager Systems Vice President Systems General manager Logistics/Supply Chain President & CEO
- 18. Introduction to Consumer Packaged Goods CPG INDUSTRY VALUE CHAIN – THE PLAYERS Supplier Warehouse/ Distribution Center Distributor Retail Store Consumer CPG Manufacturer Retail Distribution Center Retailer 3 1 4 5 Direct Store Delivery Distribution Center Delivery 2 2(b) CPG Company 2(a) 4(a) 4(b)
- 19. Introduction to Consumer Packaged Goods SUPPLIER Supplier is a provider of goods or services to the CPG Company. Suppliers can be classified on the basis of cost and how the goods or services integrate with the end product – Supplier Classification Key performance metrics Cost of Supply Reduced Lead Times Service Quality Promotions etc.
- 20. Introduction to Consumer Packaged Goods Supplier Classification Materials and Parts Short lasting goods that facilitate developing or managing finished product Click here for examples Long lasting goods which facilitate developing or managing the finished products Click here for examples Goods that are identifiable parts of the finished product Click here for examples Capital Items Supplies Business Services Services like advisory/maintenance services which facilitate developing or managing finished product Click here for examples Classification on the basis of how the goods or services enters the industrial production process and their relative costing
- 21. Introduction to Consumer Packaged Goods Materials and Parts Two types of materials and parts Raw Materials – Sugar, wheat, cotton Manufactured Material and Parts – Cartons, Packaging materials
- 22. Introduction to Consumer Packaged Goods Capital Items Installations Factories, offices Equipment Handtools, forklifts and other tools and prtable factory equipment
- 23. Introduction to Consumer Packaged Goods Supplies Operating Supplies Lubricants, coal, oil, writing paper, pens etc. Maintenance and repair items Paint, nails, brooms
- 24. Introduction to Consumer Packaged Goods Business Services Maintenance and repair services Window cleaning, type-writer repair Business advisory services Advertising agency, market research agency, legal services, management consulting services
- 25. Introduction to Consumer Packaged Goods CPG Manufacturer A CPG Manufacturer is the owner of a unit producing a CPG product CPG Manufacturers Can Be Of 2 types depending on the ownership of the manufacturing facility Company Owned Manufacturing – Here the CPG Company (Brand Owner) owns the plant Third Party/Franchisee Owned Manufacturing – The franchisee produces the product as per the norms of the CPG player – quantity, quality, price – Pays a franchisee fees to the CPG player which normally is directly proportional to the sales – Very closely collaborates with the CPG Player – E.g. SAPCO does bottling operations for The Coca-Cola Company Ownership patterns are governed by a variety of factors Maturity of product in the market Investment requirements Control of trade secrets
- 26. Introduction to Consumer Packaged Goods Key Processes in CPG Manufacturing Manufacturing Transportation Logistics Procurement
- 27. Introduction to Consumer Packaged Goods Distributor Who is a distributor? A buying, warehousing and distributing organization that delivers merchandise to retail stores in their own trucks. Distributor Operations Unloading goods from supplier Palletizing and storing goods – maintaining FIFO Order Collection by Electronic media/phone/salesman Organizing orders according to the beat plan Loading vehicles with the relevant orders Supplying goods to customer Ordering goods from the supplier
- 28. Introduction to Consumer Packaged Goods Distributor Operations Goods From Company Warehouse Distributor Warehouse Route Truck 1 Route Truck 2 Sales and Delivery Sales and Delivery Retail Stores Retail Stores Loading route trucks Collecting Order Delivery of goods Accepting goods from company as per previous order
- 29. Introduction to Consumer Packaged Goods Retailer A Retailer is a seller of products or services to the consumers for their personal use or house-hold use In a Retail Organization there are two types of entities – Retail Distributor Center – Retail Store Retail Distribution Center – A centralized procurement and distribution facility which stocks and distributes various SKUs. – Centralized distribution and procurement facilitates tighter inventory control and reduced procurement costs Retail Store – Point of actual purchase by consumer. Stores and merchandizes various product assortments which are bought by the consumer – Retail Store Classification – Some CPG product categories sell more via a particular types of stores than others – Click here to see data Key Challenges Affecting CPG Company Reducing Transport and Order Fulfillment time Ability to collaborate with major key retailers like Wal-Mart using EDI: Adherence to UCCNet/ RFID
- 30. Introduction to Consumer Packaged Goods Classification of Retail Stores Classification based on the type/range/price of products Supermarkets – A supermarket, or grocery, is a store food and drinks and sometimes drugs, clothes and other household products that are consumed regularly. A supermarket offers a great variety of products. Drug Stores – Pharmacies and Drug stores engaged in retailing prescription or nonprescription drugs and medicines. These retail a range of prescription and over the counter (OTC) medicines, health and beauty items such as vitamin supplements, cosmetics and toiletries as well as offering photo processing services. Club Stores – These stores retail a general line of grocery products along with new merchandise items. The majority of goods supplied by this industry are purchased by wholesalers and retailers for resale. A smaller share of goods is purchased by consumers for private use. Mass Merchandisers – A self-service store displaying and selling different kinds of merchandise at lower overall profit margins than other retailers. Dollar Stores – A store selling inexpensive items for one dollar each. It usually sells everything from cleaning supplies to children’s toys. Most of these products are not branded and have a lower quality compared to products sold in other retail stores. Super centers – super center is a very large store that combines two formats: a complete grocery store and a complete mass merchandiser store. These formats are combined in the same building with common checkout lanes.
- 31. Introduction to Consumer Packaged Goods
- 32. Introduction to Consumer Packaged Goods CONSUMER A Consumer is a person who consumes/ uses the product or service for his end use and not for re-selling CPG Products are – Fast Consumption products: implying regular purchase – Low value products: implying low switching costs for consumer to competitors’ products Hence for the CPG company it is essential to have a strong and effective marketing campaigns to influence the consumer buying and decision making process, so as to build preference – Consumer Decision Making Process Different consumers have differing needs to buy a product Needs could be based on tangible/aspiration requirement Hence it is important for CPG company to segment consumers on the basis of their needs and target specific consumer segments with their product offering which is reinforced by their marketing campaigns Consumer Segmentation
- 33. Introduction to Consumer Packaged Goods CONSUMER: THE DECISION MAKING PROCESS Problem Recognition Information Search Evaluating Alternatives Post-Purchase Behavior STAGE INTERVENTION BY CPG PLAYER Minimize gap between communication and product benefit/attribute Media Mix: Print/Television/Radio Highlighting the value proposition value communicating the product Purchase Behavior Merchandizing and Displaying the Product
- 34. Introduction to Consumer Packaged Goods Consumer Segmentation The Need To distinguish one product from the other, selectively target a specific group of people to whom the product is most appealing to. The “group” should be such that it makes economical sense to target it and the company has the expertise to make those features in the product which appeal to the “group” – Measurable – Substantial – Accessible – Differentiable – Actionable Classification of consumer can be Geographic – Parameters: Region, population size, density, climate Demographic: – Parameters: Age/Family Size/Income/Gender/Occupation/education/Social Class Psychographic – Parameters: Lifestyle/Personality/Value Behavioral: – Parameters: Occasions/Benefits/Usage Rate/Attitude toward product
- 35. Introduction to Consumer Packaged Goods Key Business Processes of CPG Company Planning Buying and Sourcing Manufacturing Management Logistics and Distribution Management Sales and Order Management Marketing Management Supplier CPG Company Retailer Consumer Distributor VALUE CHAIN PLAYERS KEY BUSINESS PROCESSES
- 36. Introduction to Consumer Packaged Goods Functional Value Chain Planning Buying and Sourcing Manufacturing Management Logistics and Distribution Management Sales and Order Management Marketing Management •Demand Forecasting •Financial Planning •Sales Planning •Marketing Plan •Production Plan •Logistics & Procurement Plan •What to Buy? •How Much to Buy? •When to Buy? •How To Buy? •From Whom To Buy? •Production Scheduling •Manufacturi ng Order Execution • Production reporting and execution •Inventory management •Purchase Order Management •Transportati on Managemen t •Warehouse Managemen t •Distribution managemen t •Trade Customer Services •Trade order management •Sales force support and automation •Market research •Brand Management •Advertising and Consumer Activations •Trade Promotion Management
- 37. Introduction to Consumer Packaged Goods Planning Objective To estimate and plan for resources correctly so as to satisfy the consumer demand in the most cost effective manner – Meet sales expectations – Avoid out-of-stock conditions – Guard against overstock – Keep inventory investment at acceptable level Manpower •Contract Labor •Company Employees •Sales •Finance •Logistics •Marketing •Production Supplier •Supplier of Goods •Machinery •Raw Materials •Supplier of Services •Transporter •Advertising Agency •Media Customers •Key Retailers •Distributors Banks •Long Term vs Short Term Loans •Investment of Excess Cash RESOURCES
- 38. Introduction to Consumer Packaged Goods Planning Process - Components Demand Forecasting Financial Plan Sales Plan Marketing Plan Production Plan Logistics &Procurement Plan •Forecasting Yearly, Monthly, Weekly demand SKU-wise •Doing a rolling estimates of demands – quarterly/monthly/weekly •Product Life Cycle and Seasonality Analysis •Capital Expenditure •Non-Capital Expenditure •Sales force staffing plan, Distribution plan, retail management plan, Budgets for trade schemes •Communication mix, advertising campaigns, consumer activations, packaging innovations, product launches •Scheduling batch runs •Labor Scheduling •Maintenance Plan •Sourcing of raw materials, production scheduling, logistics and transportation plan, Contract labor handling
- 39. Introduction to Consumer Packaged Goods Buying & Sourcing
- 40. Introduction to Consumer Packaged Goods Buying and Sourcing Objective To source the materials and services used in product manufacturing in a cost effective and organized manner Increase Procurement Efficiency – Material Cost Reduction – Inventory Holding Cost Reduction Minimizing Raw Material Stock-Outs – Efficient Planning and Forecasting – Vendor Collaboration – Ability to Source Urgent Requirements Buying and sourcing is all of the processes involved in requesting, ordering, auditing, and paying for goods and services.
- 41. Introduction to Consumer Packaged Goods Steps In Buying and Sourcing Process 1. Create Internal Requisition 2. Approval Process & Purchase Order Creation 3. Purchase Order Delivery to Suppliers 4. Bidding Process: Specifications from Suppliers 5. Supplier Selection & Confirmation 6. Advance Shipment Notice to CPG Manufacturer 7. Goods & Invoice receipt and matching against the Purchase Order 8. Payment Based On Terms Of Credit 9. Payment receipt confirmation by supplier
- 42. Introduction to Consumer Packaged Goods Increasing Sourcing Efficiency : Material Cost Reduction Before After Revenue $1000 M $1000 M COGS-Material $600M $570M Labor O/H $200M $200M Gross Margin $200M $230M Operating Expenses $100M $100M N.I.B.T. $100M $130M A 5% reduction in material cost increases net profit by 30% Material Costs Reduction Can Happen Via The Following Bidding Process and Global Sourcing Closer Vendor Collaboration
- 43. Introduction to Consumer Packaged Goods Increasing Sourcing Efficiency: Reduction of Raw Material Inventory Holding Costs Raw Material Inventory Holding Cost Cost of investment in the goods which are used in the production process – Typically is the interest paid on the value of raw material goods held in the warehouse for production – Interest typically is the rate of return the business earns Inventory Holding Cost = Value of Inventory * Rate of return earned by the business – E.g. (Illustrative) Inventory value = $100M ROI of CPG Manufacturer = 12% Inventory holding cost = Inventory value*ROI = $100M*12% = $12 M Inventory holding cost can be reduced by – Negotiating to reduce material costs – Reducing the stock levels by better collaboration with suppliers (reducing supplier lead times)
- 44. Introduction to Consumer Packaged Goods Questions addressed by Buying and Sourcing Process A Buying and Sourcing Process Addresses the five key questions What to buy? How much to buy? When to buy? From whom to buy? How to buy?
- 45. Introduction to Consumer Packaged Goods What To Buy? Direct Materials Ingredients Packaging Materials Indirect Materials Office Supplies Utilities Spare Parts
- 46. Introduction to Consumer Packaged Goods How Much To Buy? Information Interaction Order Quantity Determination Methods Number of Days Stock Economic Order Quantity Supplier Information •Supply Lead Time •Freight Costs Demand Information •Production •Sales •Customers Min/Max Quantity
- 47. Introduction to Consumer Packaged Goods How Much To Buy – Information Interaction XYZ Company Supplier Retailer Distributor Consumer Procurement Manufacturing Warehousing & Logistics Marketing EXTERNAL ENTITIES INTERNAL ENTITIES 7. Lead Time, Quality, Quantity, Price, Payment Terms 2. Product wise Sales Data 1. Product wise Sales Data 3. Changing Trends, Emergence of a product category 6. Production Schedule, Raw Material Requirement 4. Product demand estimates factored for promotions, New Launches 5. Inventory Finished Goods & Raw Materials
- 48. Introduction to Consumer Packaged Goods How Much To Buy? - Number of Days Stock Method Determines the number of days stock the manufacturer will order over and above the normal safety stock The number of days stock is basically determined by the supplier’s lead time which could vary from month to month Month Planned Production Requirement Number of Months Stock Ratio Planned B.O.M. Stock Planned E.O.M. Stock Planned Order E.O.M. Jan 10000 2 20000 37500 27500 Feb 15000 2.5 37500 60000 37500 March 20000 3 60000 120000 80000 April 30000 4 120000 120000 30000 May 30000 4 120000 75000 -15000 June 25000 3 75000 90000 40000 B.O.M. = Beginning Of Month, E.O.M. = End Of Month
- 49. Introduction to Consumer Packaged Goods How Much To Buy? - Economic Order Quantity WHERE: D = ANNUAL DEMAND, S = COST TO PLACE ONE ORDER I = % CARRYING COST/UNIT, C = COST OF ONE UNIT Economic Order Quantity =
- 50. Introduction to Consumer Packaged Goods How Much To Buy? - Min/Max Quantity Method Order quantity = maximum quantity of SKU in stock – minimum quantity of SKU in stock Maximum quantity depends on factors like Storage space availability: E.g. for ice-cream products one needs a cold storage which will be very limited in the warehouse Financial resources available for investing in stock Minimum quantity depends on Safety stock to cover for demand fluctuations Supplier lead times
- 51. Introduction to Consumer Packaged Goods When To Buy? Periodic Replenishment Reorder Point Purchase Forward Buy •Variable order quantity but fixed time interval ordering •A convenient replenishment method in which the warehouse knows exactly when it will receive goods. •With advance planning the warehouse can arrange and schedule transport logistics and manpower in advance thereby deriving cost benefits Click to see graph •Fixed order quantity but variable time interval •Ordering triggered when inventory falls below a specified norm called the reorder point •Helps to minimize and plan inventory holding costs, especially for items which are costly and are not fast consumption items Click to see graph •Ordering independent of time and quantity •Bulk purchase especially when there are discounts offered •The item may be used several months after the purchase but results in substantial material costs reduction
- 52. Introduction to Consumer Packaged Goods When To Order? - Periodic Replenishment Day 1 Day 2 Day 3 Day 4 Day 5 Day 6 Day 7 Day 8 Day 9 Day 10 Inventory Fixed Replenishment period Time Period Day 11 Day 12 Maximum Inventory
- 53. Introduction to Consumer Packaged Goods When To Order? - Reorder Point Day 1 Day 2 Day 3 Day 4 Day 5 Day 6 Day 7 Day 8 Day 9 Day 10 Inventory Reorder Point Fixed Order Size Safety Stock Maximum Inventory Level Time Period
- 54. Introduction to Consumer Packaged Goods From Whom To Buy? Terms Of Sale Vendor Performance Basic Cost Discount Credit Limit Number of Days Credit Material Quality Lead Time Reliability Value Added Services
- 55. Introduction to Consumer Packaged Goods How To Buy?
- 56. Introduction to Consumer Packaged Goods Case Study - Procurement Process at A Chocolate Manufacturer (hypothetical case) Situation A plant, manufacturing milk chocolate Ingredients: For 10 gm Milk Chocolate Bar production, Needed are the following – Sugar: 2gms – Milk: 20ml – Cocoa Beans: 2gms – Wrapping Foil: 10cms – Pack Cover: 1 – Carton: 0.01 (1 carton for a pack of 100, 10gms milk chocolate) Production Run: 100,000, 10gm milk chocolate (1000 cartons) scheduled after 10 days Raw Material Inventory – Sugar: 200 kg – Milk: 100ltrs – Cocoa Beans: 150kg – Wrapping Foil: 1000mtrs – Pack Covers: 5000 – Cartons: 500 cartons
- 57. Introduction to Consumer Packaged Goods Case Study (Contd.) Prescribed Raw Material Inventory (depending on supplier lead times) – Sugar: 100kg – Milk: 120ltrs – Cocoa Beans: 150kg – Wrapping Foil: 800mtrs – Pack Covers: 3000 – Cartons: 600 cartons Lead Time (Time Taken By Supplier) – Sugar: 4 days – Milk: 2 days – Cocoa Beans: 6 days – Wrapping Foil: 10 days – Pack Covers: 9 days – Cartons: 7 days
- 58. Introduction to Consumer Packaged Goods Case Study – (Contd.) - WHAT TO BUY? Cocoa Sugar Milk Pack Covers Cartons Milk Chocolate Wrapping Foil
- 59. Introduction to Consumer Packaged Goods Case Study – (Contd.) - How Much To Buy? For Every Raw Material Calculate The amount consumed in the production run Sugar : For 1 chocolate need 2gms, for 100000 chocolates need 200 kg sugar Milk: For 1 chocolate need 20ml, for 100000 chocolates need 2000ltrs Milk Cocoa Beans: For 1 chocolate need 2gms, for 100000 chocolates need 200 kg cocoa Wrapping Foil: For 1 chocolate need 10cms, for 100000 chocolates need 10000mtrs foil Pack Covers: For 1 chocolate need 1 cover, for 100000 chocolates need 10000 covers Cartons: For 100 chocolates need 1 carton, for 100000 chocolates need 1000 cartons For Every Raw Material Compute the Order Size By following Closing Inventory + Amount Consumed – OP Inventory = Raw Material Ordered Sugar: 100kg+200kg-200kg = 100kg Sugar To Be Ordered Milk: 120ltrs+2000ltrs-100ltrs = 2020 ltrs Milk To Be Ordered Cocoa Beans: 150kg+200kg-150kg = 200kg Cocoa Beans To Be Ordered Wrapping Foil: 800mtrs+10000mtrs-1000mtrs = 9800mtrs Foil To Be Ordered Pack Covers:3000+10000-5000 = 8000 Pack Covers To Be Ordered Cartons:600+1000-500 = 1100 Cartons To Be Ordered
- 60. Introduction to Consumer Packaged Goods Case Study – (Contd.) - When To Buy? Raw Material Will Be Ordered So That The Supply Reaches Just In Time For Production – So The Latest Ordered Can be Placed Is Equal To Production Scheduled Date Minus Lead Time Day 1 Day 2 Day 3 Day 4 Day 5 Day 6 Day 7 Day 8 Day 9 Day 10 Order 300kg Sugar Order 1980ltrs Milk Order 200kg Cocoa Beans Order 10200mtrs Foil Order 12000 pack covers Order 900 cartons Day 11 PRODUCTION SCHEDULED
- 61. Introduction to Consumer Packaged Goods Case Study – (Contd.) - From Whom To Buy? Strategic Suppliers Suppliers of Wrapping Foil, Pack Covers, Cocoa and Cartons Generally the requirement is specific to the company, e.g. Nestle Milk Chocolate Wrapper Cannot Be Used By Any Other Manufacturer Commodity Suppliers Supplies of Sugar and Milk Can Be Sourced Via A Wider Variety Of Supplier As They Are Easily Available Generally Go With The Lowest Price Suppliers
- 62. Introduction to Consumer Packaged Goods Case Study – (Contd.) - How To Buy? Commodities – like Milk and Sugar E-marketplaces where one can place order and have the lowest bid Strategic Products – packing cover and wrapping foil Collaboration with suppliers – Inventory – Demand Forecasts – Production Schedule – Sales Data Suppliers could automatically deliver looking at inventory condition or on order which could be placed via an EDI or Portal or By Phone/fax
- 63. Introduction to Consumer Packaged Goods Manufacturing Management Objective To produce the product while minimizing production costs Costs to be minimized can be of various types – Material wastage cost – Plant downtimes – Maintenance costs – Power utilization costs (Power efficiency)
- 64. Introduction to Consumer Packaged Goods Manufacturing Manufacturing is the process of converting raw materials into a finished good by means of a large scale industrial operation. Schematic of a manufacturing process Illustration of a manufacturing process Performance Metrics In Manufacturing Process Reduce wastage Increase Capacity Utilization of Production Line by reducing downtimes Minimize product stock-outs
- 65. Introduction to Consumer Packaged Goods Manufacturing Process – A Schematic Raw materials Packaging materials Utilities - Energy Production Process Finished Goods Waste Products Machinery Spares
- 66. Introduction to Consumer Packaged Goods Syrup preparation Filling and carbonation Conveying Quality Check Palletizing and warehousing Manufacturing Process At A Beverage Manufacturing Plant
- 67. Introduction to Consumer Packaged Goods Performance Metrics In CPG Manufacturing Key Challenge In Manufacturing Multiple products/SKU’s to be created on one production line The sequence in which the products are produced determines the efficiency of the line – Use of production scheduling tools Performance Metrics Reduce Wastage/ Increasing Plant Yield – Plant Yield (in %) = (1- Waste Product/Finished Good)*100 – To minimize the wastage of raw materials during the production process. The more number of times the product change-over happens on the production line the more raw material wastage happens and hence the plant yield drops. Hence the essence is to take as long batch runs as possible so as to avoid frequent changeovers. But longer batch runs could lead to holding higher inventories and hence higher carrying costs. Hence an optimum needs to be set. Increasing Capacity Utilization: Increasing Production Time – Reduce the Changeover Time or Break Down Time or Preventive Maintenance Time. Changeover time is directly controllable and can be reduced by proper sequencing of SKU’s to be produced. Hence production scheduling is an important. Reduced Finished Goods Stock-outs – Production scheduling and batch run has to happen in a way which is in sync with the demand. Hence production scheduling has to be done so that finished goods stock-outs are minimized
- 68. Introduction to Consumer Packaged Goods Manufacturing Management – Key Components Inventory Management Production Reporting and Execution Production Scheduling •Shop floor practices which are directly related to production processes •Reporting tools which determine plant efficiencies and yields •Production planning and sequencing of different batch runs on the same production line to in a way which reduces changeover costs Manufacturing Order Execution •Managing optimal inventory levels to take care of the demand/sales forecasts while reducing inventory holding costs Purchase Order Management •Requisitions for materials – raw materials, manufactured materials, spares, equipment etc. •Order management of the above categories
- 69. Introduction to Consumer Packaged Goods Distribution and Logistics management Processes involved in making the CPG product reach the retail store shelf Key Components Transportation Management Warehouse Management Distribution management
- 70. Introduction to Consumer Packaged Goods Transportation Management Transportation is the process of moving goods from one location to another. The mode of moving may be via trucks, railways, ships or by air. Typically a third party (transporter) is hired by the CPG Company to move its goods from manufacturing plant to a distribution warehouse Since CPG products are low value per volume items, the transportation costs as a percent of total revenues are higher. Hence transport costs are critical to determining cost efficiencies Performance Metrics in Transportation Transport Cost Minimization – Fleet Utilization Higher transport fleet utilization is critical to bringing down transport costs as a percent of revenues. To do so non-standard (less than truckload) orders need to be clubbed – Reducing the number of miles run by route scheduling Order clubbing of multiple locations should be done in a manner so that the miles run by the transport vehicle is minimized. This calls for a proper route planning – Minimizing the “Empty Miles” Since the transport truck has to come back to the plant, the critical challenge is utilize the truck on the way back by tying up with some other company which has goods to be hauled to the CPG warehouse location. If not done so the CPG player ends up paying for “empty miles” of the truck on the way back. Reducing damages in transit – Using racks to handle and stack fragile materials in the container
- 71. Introduction to Consumer Packaged Goods Warehouse Management A Warehouse is a storage facility which stocks and supplies the products of the CPG company to retailers or distributors Key Activities in a Warehouse Performance Metrics in Warehousing and Distribution Minimizing Material Loss – Prevention of Pilferage and Damage – Handling and stacking fragile products – Specialized storage space e.g. Cold Storage Space For Ice-Creams – Following FIFO (First In First Out) practice to dispatch older products first and then the fresher products Stock Availability and Inventory Replenishment Process – Accurately tracking inventory information – Reducing Product Stock-Outs By stocking appropriate quantities Order Fulfillment – Accurately fulfilling the customer orders Minimizing Distribution Costs – Route Planning of Order Delivery to Increase Freight utilization and reducing the number of miles run for delivery
- 72. Introduction to Consumer Packaged Goods Key Activities In A Warehouse Goods Receipt From Manufacturing Plant Unloading Goods From Truck Stacking Goods In Warehouse Receiving Orders Lifting and loading goods to delivery truck Transporting Goods To Distributor or Retailer
- 73. Introduction to Consumer Packaged Goods Distribution Management Objective To ensure supply of all the SKUs to the retail store at the lowest cost Importance of Distribution in CPG industry – CPG Products are day to day usage products and get consumed very quickly, hence their replenishment is very frequent. Hence service efficiencies in distribution is critical to avoid stock outs. – Presence of substitutes makes product stock-out at an outlet a major sales loss opportunity. The consumer may buy a competitive product leading to sales loss Distribution in CPG Industry A CPG company can follow two types of distribution models depending upon the type of product – Warehouse Distribution – Direct Store Delivery
- 74. Introduction to Consumer Packaged Goods Distribution In CPG Industry Warehouse Distribution The CPG product is sent from the Company Warehouse to a Distribution Center (DC) of a large retailer. The product is then sent from the retailer’s distribution center to the retail store. Schematic of Warehouse Distribution A retailer may have multiple DCs which may be organized in one of the two ways: – DC containing all SKU’s and supplying to a set of retail outlets who take stocks exclusively from it – DC containing some SKU’s and supplying to retail outlets who take some SKU’s exclusively from the DC and other SKU’s exclusively from some other DC
- 75. Introduction to Consumer Packaged Goods Walmart DC Walmart Store1 Walmart Store2 K-Mart DC K-Mart Store1 K-Mart Store2 7 Eleven DC 7 Eleven Store1 7 Eleven Store2 DC: Distribution Center, A warehouse of a retailer which would stock products from different manufacturers like CPG, Apparel etc. and supply to stores of the chain Warehouse Distribution
- 76. Introduction to Consumer Packaged Goods Distribution in CPG Industry – Direct Store Deliveries Direct Store Deliveries Direct Store Delivery is a method of delivering product from CPG warehouse directly to the retail store bypassing retailer warehouses. The shelf inventory in the retail store is usually managed by the CPG company/distributor with product check-in done both by the CPG company/distributor and the retailer Major CPG categories include Beverages, Snacks, Baked Goods, Greeting Cards etc. DSD product characteristics The deliveries may be handled in two ways From company warehouse to retail store (2 tier DSD model) From company warehouse to a distributor to a retail store (3 tier DSD model)
- 77. Introduction to Consumer Packaged Goods Type Type Description Description Examples Examples Perishability Shelf life too short to allow product to move through warehouse distribution network Bread/ pastry Fragility Vulnerable to physical damage – products which may be significantly damaged if not given physical protection afforded by DSD Cookies/ snacks Density Extremes High volume products at the extremes of density make it difficult to fully utilize truck space from the warehouse Potato chips/ paper towels OR soft drinks/ beer State/ Local Regulations Laws regulating the handling and payment of certain items can require specialized treatment such as DSD can easily provide Beer/ alcoholic beverages Unique Sales Patterns Complex sales patterns that require purchasing or merchandising skills not readily available in the retail organization (slow moving items that are necessary or high-impulse items that require store merchandising support) Cookware/ hosiery OR soft drinks/ cookies/ snacks DSD Product Characteristics Source: GMA Direct Store Delivery – An ECR Best Practices Report 1995 and Infosys analysis
- 78. Introduction to Consumer Packaged Goods Two Tier DSD Model Brand Owner is same as the CPG company
- 79. Introduction to Consumer Packaged Goods Three Tier DSD Model Brand Owner is same as the CPG company DC shown above is the CPG company’s Distribution Center
- 80. Introduction to Consumer Packaged Goods Warehouse Distribution vs DSD - How it adds up for retailers? Warehouse Distribution Direct Store Deliveries Nature of Product Medium to long term product life Highly Perishable, Fragile Contribution to total retail sales 75% 25% Contribution to retailer’s invoices 25% 75% Contribution to retailer’s profitability 48% 52% Advantages To Retailer Economies of scale: With centralized procurement can push for bulk discounts, better deals as well as lower overhead costs Lower safety stock levels needed leading to lower inventory Shorter lead times Savings in Cost of Warehousing, transportation and shelf replenishment as all those are taken care by the CPG player
- 81. Introduction to Consumer Packaged Goods Replenishment in DSD Depending upon how the replenishment of products happen at the retail store DSD can be classified into 2 categories Pre-Sell/ Order Taking Model: A form of DSD in which order placements take place a day prior to product delivery. Orders are typically generated by distributor sales representatives or initiated by the customer and communicated to distributor by phone or fax or internet. Once processed the order is typically delivered to the sore over a few days (typically one) following order placements – Click here for overview of 2 tier DSD Pre-Sell – Click here for overview of 3 tier DSD Pre-Sell Route-Sell/ Ready Stock Model: A form of DSD in which the sale and delivery of product is accomplished by the same individual on the same day. The salesman has the product in the route truck and replenishes each store based on its immediate need – Click here for the overview of 2 Tier DSD Route-Sell – Click here for the overview of 3 Tier DSD Route-Sell
- 82. Introduction to Consumer Packaged Goods Overview of a 2-tier DSD Pre-Sell Replenishment Model The following example depicts a simplistic view of a 2-tier, pre-sell DSD model. Information Flow Retail Stores •Deliver product •Backdoor check-in •Issue credit •Delivery approval CPG Warehouse •Route Assignment •Order Picking •Truck Loading CPG ERP Route Rep •Transport goods •Select product Store Shelf/ Display Sales Force Automation •Assortment Planning •Merchandise Shelf/ Displays •Process Returns •Update promotions •Inventory •Transmit Invoice •Create order •Consumer •purchases •product Route Rep Day 1 Activities Day 2 Activities
- 83. Introduction to Consumer Packaged Goods Overview of a 3-tier DSD Pre- Sell Replenishment Model The following example depicts a simplistic view of a 3-tier, pre-sell DSD model. Retail Stores •Deliver product •Backdoor check-in •Issue credit •Delivery approval Distributor Warehouse •Route Assignment •Consolidated store orders for different manufacturers •Consolidated order picking •Truck Loading CPG 2 ERP •Transport goods •Select product Store Shelf/ Display Sales Force Automation •Assortment Planning •Merchandise Shelf/ Displays •Process Returns •Update promotions •Inventory •Transmit Invoice •Create order •Consumer •purchases •product Distributor Rep Day 1 Activities Day 2 Activities Distributor Rep •Multiple CPG brands ship to common distributor Distributor ERP CPG 1 ERP Information Flow Information Flow Prior Activities CPG Warehouse
- 84. Introduction to Consumer Packaged Goods Overview of a 2-tier DSD Route-Sell Replenishment Model The following example depicts a simplistic view of a 2-tier, route-sell DSD model. Information Flow •Deliver product •Backdoor check-in •Issue credit •Delivery approval CPG Warehouse •Route Assignment •Product Picking •Truck Loading CPG ERP Store Shelf/ Display Sales Force Automation •Assortment Planning •Process Returns •Update promotions •Inventory •Create order •Return to truck for product •Consumer •purchases •product Route Rep All Activities in Day 1 •Merchandise Shelf/ Displays •Transmit Inventory Retail Stores Route Rep •Transport goods (rolling warehouse) •Pick product from truck Prior to start of day
- 85. Introduction to Consumer Packaged Goods Overview of a 3-tier DSD Route Sell Replenishment Model The following example depicts a simplistic view of a 3-tier, route-sell DSD model. •Deliver product •Backdoor check-in •Issue credit •Delivery approval Distributor Warehouse CPG 2 ERP Sales Force Automation Distributor Rep •Multiple CPG brands ship to common distributor Distributor ERP CPG 1 ERP Information Flow Prior Activities Store Shelf/ Display •Assortment Planning •Process Returns •Update promotions •Inventory •Create order •Return to truck for product •Consumer •purchases •product All Activities in Day 1 •Merchandise Shelf/ Displays •Transmit Inventory •Route Assignment •Consolidated Product Picking •Truck Loading Retail Stores Distributor Rep •Transport goods (rolling warehouse) •Pick product from truck Information Flow Prior to start of day CPG Warehouse
- 86. Introduction to Consumer Packaged Goods Sales & Order Management Objective To ensure proper capturing and execution of order placed by the customer – retailer/distributor – CPG industry has only 80% order fulfillment rate. Hence increasingly a problem of deductions in the bills is faced by CPG companies. To ensure availability of information to stakeholders in the sales process – Sales staff: Information to track and drive sales efficiencies and to take critical tactical decisions on the field to beat competition – Customers: Information related to orders, promotions and finance
- 87. Introduction to Consumer Packaged Goods Creating end-to-end visibility All parties should have a view of daily operations – Synchronize operations of business units Coordinate activities of departments to broker better rates with 3PL Model logistics plan based upon the upcoming promotions Data communication to retailers – Automate business processes Setting alerts to catch irregularities Web apps to minimize backhauls – Deploy asset aware technologoes Use of RFID tags on cases Investment in least cost fleets – “route planning”
- 88. Introduction to Consumer Packaged Goods Sales and Order Management - Components Sales Force Support & Automation Trade Customer Services •Granular Data Capturing •Data Communication •Business Analytics: MIS Reports •Order Status •Sales Returns •Promotion communications •Accounts status: receivables vs. payables Trade Order Management •Order sequencing and Inventory allocation strategies •Sales Order Invoicing •Returns Management •Claims Management •Order approval process management •Handling financial transaction
- 89. Introduction to Consumer Packaged Goods Marketing Management Objective To create a consumer pull/preference/liking for the product with an objective of distinguishing oneself from competition and to command a premium (value of brand) over the cost price thereby increasing the profit margins Marketing Management Steps In Marketing Management Key Marketing Decisions – Price – Product – Promotions – Place – Positioning Importance of Product Life Cycle in making marketing decisions
- 90. Introduction to Consumer Packaged Goods Steps In Marketing Management Trade Promotion Management Advertising and Consumer Activation Market Research & Consumer Intelligence •Defining Target Segment •Defining Value Proposition of The Product •Communication •Communication Mix: TV/Radio/Print Media •Content of Communication: Value Proposition •Consumer promotions •Understand consumer behavior and segment consumers on the basis of their need •Understand relative strength of the product vis-à-vis competition •Test marketing new product launches Brand Development & Management •Managing and designing promotions for retailers/distributors •Managing promotion logistics and tracking the efficacy of the retailer/distributor promotion
- 91. Introduction to Consumer Packaged Goods Marketing Decisions For CPG Player CPG Industry Characteristics Low value mass consumption Product Competitive products having similar attributes Purchases of certain products are not planned Consumer Behavior Propensity to try and experiment other products Effective Product positioning to create top of mind recall Product availability and merchandising at the right place Consumer will look for value from range of products Frequent and innovative consumer promotions Differentiate Product attributes from competition Optimal Pricing Impulse Driven purchase esp. in food items CPG Marketing Decisions
- 92. Introduction to Consumer Packaged Goods CPG Marketing Decisions: Positioning the Product Defining value proposition Defining the target segment Defining communication mix and the message to convey the positioning
- 93. Introduction to Consumer Packaged Goods CPG Marketing Decisions: Place of Sale Channel of sale – grocery, departmental stores, own stores, Kiosk/Vending machines How IT can be leveraged
- 94. Introduction to Consumer Packaged Goods CPG Marketing Decisions: Optimal Pricing Price linked to the pack size related to consumer need Price related to product quality Price Elasticity e.g. salt (giffin goods) Price= cost+ differential value (in terms of brand value/product)>sronger the brand higher the premium
- 95. Introduction to Consumer Packaged Goods CPG Marketing Decisions: Product Attributes Name, Quality, features, packaging, ancillary services, warranty
- 96. Introduction to Consumer Packaged Goods CPG Marketing Decisions: Promotions Consumer promotions, trade schemes, packaging innovations
- 97. Introduction to Consumer Packaged Goods Illustration of Marketing Decisions In The Cola Industry Industry Characteristics CPG Players: Coca-Cola, Pepsi, and small local players specific to district/town Product Characteristics: – In Summers the product is consumed by the masses to quench their thirst – Product is extremely affordable @ Rs. 5 – An extremely impulse driven product, the purchase is not pre-planned – Not a major taste difference between Coca-Cola and Pepsi, but locals taste significantly different – Substitutes also exist in form of juices, lassi, chilled milk Consumer Behavior – Consumer is open to substitute coke with a pepsi and vice-versa if the product of his choice is not available or is not served chilled – A consumer can substitute cola for a juice or chilled milk or a lassi to experiment – If the consumption happens on premise consumer will go for a smaller volume pack, for at home consumption big packs are preferred – During Under the Crown Schemes the consumers buy/increase the usage of one product in the hope of winning prices
- 98. Introduction to Consumer Packaged Goods Illustration of Marketing Imperatives In The Cola Industry COCA-COLA vs PEPSI (Indian Context) Product Positioning – Coca-Cola Projected As A Family Drink Specifically Targeting Mature People – Pepsi Projected As A Youthful & A Rebellious Drink, Specifically Targets Teenagers, Brand Associates with Cricket Place – Merchandising: No Difference, both company’s provide and merchandise on racks, coolers and run display promotions for the retailers – Presence in “Image Accounts”: Pepsi has a much bigger presence in hotels, tourist spots while Coca-Cola believes in presence in smaller accounts and opening new accounts and increasing the account base. Price – No major difference in cost to retailer and the selling price though at times there was a coke 600ml priced at Rs. 15 and Pepsi 500ml at Rs. 12.5; coke 2.25ltr at Rs. 43 and pepsi 2ltr at Rs. 40 Product Attributes – Taste: Sweetness: Pepsi is sweeter than Coca-Cola which is sweeter than Thums-Up Gas Content: ThumsUp has a higher CO2 content than Pepsi which has a higher content than coke – Packaging Pepsi has cricketers’ pictures on its labels of plastic bottle Coke had 2ltr + 250ml free big PET pack vs Pepsi’s 2ltr PET pack Consumer Promotions – Launch of Coca-Cola Mobile pack (500ml+100ml free) led to a loss of Pepsi Market Share – Pepsi “Tosss Ka Boss” Promotion revolving around the ICC Cricket Tournament
- 99. Introduction to Consumer Packaged Goods Impact of Product Life Cycle on Marketing Decisions Product Life Cycle (PLC) The phases through which every product goes through from its inception to its discontinuity/phasing out The PLC phases are uniquely identifiable depending upon the sales of the product – PLC CHART Marketing Decisions based on PLC
- 100. Introduction to Consumer Packaged Goods Product Life Cycle Introduction Maturity Decline Growth Product Sales Time
- 101. Introduction to Consumer Packaged Goods Marketing Decisions Based on Product Life Cycle Life Cycle Stage Marketing Variable Decline Maturity Growth Introduction Positioning: Target Market Product Place: Distribution Intensity Price Promotion High-Income Innovators Middle-Income Adopters Mass Market Low-Income and Laggards One Basic Offering Some Variety Greater Variety Less Variety Limited or Extensive More Retailers More Retailers Fewer Retailers Penetration or Skimming Wide Range Lower Prices Lower Prices Informative Persuasive Competitive Limited
- 102. Introduction to Consumer Packaged Goods Information Technology in CPG Information technology is a strategic asset for a CPG company. The industry’s adoption of IT has been markedly slower as compared to other sectors Global Data Synchronization The principles of a sound data foundation as a key platform in the industry’s efforts to gain industrywide efficiencies date back to Efficient Consumer Response (ECR), which began more than a decade ago. Internet and communications technologies have improved significantly since these early efforts, and the key components such as registry services like UCCnet and catalogs/exchanges like Transora have at this point stabilized somewhat RFID/RPC Radio frequency identification (RFID) and its Electronic Product Code (EPC) have received significant attention in the past year with the announcements from several major retailers worldwide requiring top suppliers to support this technology at the pallet and case level initially. As RFID/EPC goes from interesting research and foundational standards development to practical implementations, the industry will reach a major turning point. RFID/EPC tags can be applied at all levels of packaging from the consumer unit to the shipping case to the pallet.
Editor's Notes
- #34: To use example of one product and show consumer segmentation – e.g. coke