International Journal of Engineering and Management Research Peer Reviewed & Refereed Journal

e-ISSN: 2250-0758 | p-ISSN: 2394-6962 Volume-14, Issue-1 (February 2024)

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A Study on Supply Chain Challenges for the Indian FMCG Sector

Dr. Salim Khan
Former Head & Assistant Professor, Department of Business Administration, St Xavier’s College Jaipur, INDIA

Corresponding Author: [email protected]

Received: 22-01-2024 Revised: 10-2-2024 Accepted: 28-02-2024

ABSTRACT necessity drives the adoption of a dynamic procurement

The term "supply chain management" emerged in strategy that spans multiple countries, involving the
the 1980s, initially introduced by consultants and later sourcing of raw materials and the identification of vendors
explored by the business community. In simple terms, it capable of supplying the required quality and quantity at
establishes an integrated two-way communication system competitive prices. In this context, companies often engage
among organizations involved in the supply chain to
in global procurement, obtaining materials from diverse
efficiently manage high-quality inventory. Supply chain
management encompasses a network of facilities and vendors to support their manufacturing facilities dispersed
distribution options, managing the procurement, across different continents. The end products from these
transformation, and distribution of materials in both the varied factory locations then traverse through intricate
service and manufacturing sectors. The complexity of supply distribution networks, covering warehouses, exporting to
chains varies across industries and firms, involving multiple diverse nations or local markets, involving distributors,
end products, shared components, and various transportation retailers, and ultimately reaching the consumer, the supply
modes. SCM facilitates successful supply chain management chain is a comprehensive system that oversees various
execution through technology exchange and strategic stages from production to consumer delivery.
alliances, collaborating with professional consulting firms
In practical supply chains, there are often multiple
and core technology vendors.
final products that share components, facilities, and
Keywords— Supply Chain Management, FMCG, Stock capacities. The material flow may not follow a linear
Control network, and diverse transportation modes could be
utilized. The list of components for final products can be
comprehensive and complex.
Conventionally, different functions within the
I. INTRODUCTION supply chain, such as marketing, distribution, planning,
manufacturing, and purchasing, operated autonomously,
A supply chain comprises a network of facilities each pursuing its own conflicting objectives.
and distribution channels that carry out the processes of Manufacturing operations typically prioritized maximizing
acquiring materials, transforming them into intermediate throughput and reducing costs without adequately
and finished products, and distributing these final products considering the effect on stock levels and distribution
to consumers. This idea is relevant to both service and capabilities was significant. Procurement agreements were
manufacturing entities, displaying differences in often subject to frequent negotiations. the impact on based
complexity among various industries and companies. As on historical buying patterns, lacking comprehensive
per Christopher, Supply Chain Management (SCM) entails information.
the effective management of relationships with suppliers The consequence of these factors is the absence of
and customers to provide superior customer value while a unified, combined plan for the corporation, leading to as
minimizing costs for the entire supply chain. Professor several plans as there are corporations. There is a
Douglas M. Lambert defines SCM as the seamless transparent need for a process that can facilitate the
integration of business processes from end users to original integration of these disparate functions. Supply chain
suppliers, involving products, services, and information management serves as a strategic approach to achieving
that collectively contribute value to the customer such integration. It occupies a middle ground between
The expansion of global markets transcends fully vertically integrated companies, where a single entity
traditional borders, reshaping the dynamics of supply and controls the entire material flow, and situations where each
demand management. International corporations are channel member operates independently. Therefore,
propelled by markets spanning continents, compelling effective management relies on coordination among the
them to continually seek cost-effective production centers various players in the supply chain.
where raw materials and labor are affordable. This

261 This work is licensed under Creative Commons Attribution 4.0 International License.
International Journal of Engineering and Management Research Peer Reviewed & Refereed Journal
e-ISSN: 2250-0758 | p-ISSN: 2394-6962 Volume-14, Issue-1 (February 2024)
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The Significance of a Supply Chain Management soaps, tooth paste dairy products , confectionery etc.
SCM strategy for an organization cannot be FMCG products are typically characterized by high in
overstated. In today's business landscape, SCM strategies volume and low in term of unit costs. The leading Fast-
serve as the essential foundation for the operations of Moving Consumer Goods (FMCG) companies in India
business entities. The successful coverage of markets and comprise a mix of international behemoths like HUL,
the availability of products at strategically chosen Nestle, Cadbury, P&G, along with indigenous entities such
locations, which are crucial for revenue recognition, hinge as Amul, Asian Paints, and Dabur.
on the efficiency of the SCM strategy implemented. Within the Fast-Moving Consumer Goods
To simplify, when a new product is introduced (FMCG) sector, the effectiveness of the supply chain holds
and promoted in the market, it is imperative that the entire significant importance. This industry is characterized by an
market within the country, along with all sales outlets, has intricate distribution network and intense competition,
the product readily available for customers to purchase and necessitating companies to consistently explore innovative
receive. Any disruptions in ensuring timely product approaches in their supply chain management..The
availability can lead to a decline in customer interest and effectiveness of the supply chain system becomes a
demand, potentially resulting in severe consequences. The distinguishing factor for success. Companies with well-
design and management of the transportation network play managed supply chains are poised for superior
a pivotal role in supporting sales and marketing strategies. performance, while those with inadequately handled
On a global scale, finished goods inventory is supply chains may struggle to survive in the highly
dispersed across various locations and distribution centers, competitive market.Half of the industry's sales come from
often managed by third parties. Additionally, a significant household and personal care products, with healthcare
portion of inventory is in transit through the transportation contributing 31-32%, and the remaining 18-19% attributed
network, and distributors and retail points also hold to food and beverage items. This distribution underscores
inventory. Given that any loss of inventory at any point in the significant impact these sectors have on shaping the
the supply chain translates to a loss of value, the effective economic landscape of the nation. Its role is crucial in
control and visibility of inventory become paramount ensuring the smooth operations of e-commerce processes.
within the realm of Supply Chain Management. Therefore, it's essential to explore the genuine importance
The management of logistics in the Fast-Moving of warehouse management in driving the success of the
Consumer Goods (FMCG) sector entails the strategic FMCG sector!
planning, coordination, and control of the entire product
flow, spanning from the origin point to the ultimate II. REVIEW OF LITERATURE
destination. This comprehensive approach includes
logistics management in the FMCG sector involves Khanzode, Vivek, and Shah, Bhavin (2017)
coordinating various key actions, including transportation, extensively explore the current state-of-the-art literature on
inventory management, order processing, and warehousing. They emphasize pertinent research issues
warehousing. The primary goal is to ensure the timely and based on the proposed taxonomy. The study introduces a
cost-efficient delivery of products while optimizing the decision framework aimed at determining the optimal
overall efficiency of the supply chain quantity of depots and their necessary size within a supply
Profitability of Fast-Moving Consumer Goods chain system. While the research investigates certain
(FMCG) products is influenced by multiple factors, performing procedures analyzing their impact on the
including brand positioning, market demand, pricing complete logistics system, it does not center on warehouse
strategies, and production costs. Identifying a single most design and operational concerns. This oversight excludes a
profitable FMCG product is challenging, as it is subject to consideration of performance measures that influence each
fluctuations over time. However, certain categories of aspect of warehousing functions and overall productivity.
FMCG products have historically demonstrated strong Shilpa et al.'s research in 2014, the optimization
profitability.These product types often benefit from a of the entire distribution network can be achieved through
combination of brand recognition, consumer preferences, the optimization of load planning and network structures.
and effective marketing strategies, contributing to their Their study concentrates on optimizing costs of logistics
sustained profitability in the FMCG sector. within the secondary delivery network of the retail supply
Indian FMCG Sector chain. The research provides a thorough examination of
The Indian Fast Moving Consumer Goods the significance of transportation and various costs linked
(FMCG) sector holds the position of the 4th-largest to retail logistics. However, it is important to note that the
segment in the economy, with a market volume exceeding study has a limitation as it solely focuses on the retail
Rs 500 billion. This sector encompasses a diverse range of distribution network of a business. Additionally, the
consumer products that are frequently purchased, including

262 This work is licensed under Creative Commons Attribution 4.0 International License.
International Journal of Engineering and Management Research Peer Reviewed & Refereed Journal
e-ISSN: 2250-0758 | p-ISSN: 2394-6962 Volume-14, Issue-1 (February 2024)
https://ijemr.vandanapublications.com https://doi.org/10.5281/zenodo.10823993

research finds existing research gaps within this specific Emergence of Third-Party Logistics Providers: While
area. third-party logistics providers (3PL) are emerging, their
effectiveness is still evolving. Established FMCG
III. PRIMARY OBSTACLES IN THE companies may find it more cost-effective to manage
INDIAN FMCG SECTOR logistics in-house, particularly given the unique demands
of the Indian market.
Effectively Handling Product Accessibility within a Emergence of Modern Retails: The rise of modern retail
Complicated Distribution Structure chains in India brings challenges related to bargaining
The FMCG sector in India grapples with a power, demand for higher margins, potential channel
complex distribution system involving numerous small conflicts, and the introduction of private label brands that
retailers between companies and end customers. Ensuring compete with existing manufacturers.
product accessibility at the end stage of supply poses the
significant challenge due to the increasing number of IV. ADAPTING METHODOLOGIES AS
Stock Keeping Units (SKUs). Standard solutions from A RESOLUTION TO OBSTACLES IN THE
developed countries may not be directly applicable, (FMCG) FAST-MOVING CONSUMER
necessitating innovative approaches. GOODS SECTOR
Operating with Smaller Sizes: Contrasting in developed
nations where larger pack sizes are common for cost Efficient warehouse management is of utmost
efficiency, the Indian trend leans toward smaller pack sizes importance in the fast-moving consumer goods (FMCG)
to reach the economically lower segments. This strategy, sector . Let's explore the vital aspects and importance of
while enhancing market penetration, increases packaging warehouse management in this sector:
and transportation costs. Balancing market outreach and Optimized Stock Control and Streamlining
logistics efficiency becomes crucial. Precise inventory management holds significant
The introduction of domestic participants into the value for FMCG companies. A robust warehouse
traditional fresh products industry: management system (WMS) utilizes advanced
National companies entering traditionally localized technologies, such as barcode scanning at batch, SKU
markets, especially in fresh products, face the challenge of (Stock Keeping Unit), and item levels, to meticulously
maintaining product freshness. Decentralized track inventory levels.
manufacturing plants are essential for meeting consumer These technologies offer real-time visibility into
expectations, requiring a delicate balance between quality, stock levels, allowing companies to promptly identify and
freshness, and cost. address any discrepancies or shortages. Maintaining
Dealing with Complex Taxation Structures: India's accurate inventory records is crucial in preventing
complex taxation structure impedes treating the country as stockouts, minimizing excess inventory, and mitigating the
a unified arcade. Changing local tax structures promote risk of product expiration.
smuggling, leading to creation of grey markets. Effective warehouse management is paramount
Harmonizing taxes across states, especially with the in the fast-moving consumer goods (FMCG) industry.
introduction of VAT, is expected to bring changes in how Let's delve into the crucial aspects and significance of
FMCG companies manage their supply chains. warehouse management in these sectors:
Dealing with Counterfeit Goods: Counterfeit products Optimizing Space Utilization and Design Planning
cause significant revenue losses, emphasizing the need for Effectively utilizing warehouse space is crucial
FMCG companies should enhance their oversight of for FMCG brands, given the high volume of products they
distribution channels in order to effectively address the handle. Warehouse management systems play a pivotal
challenge of counterfeiting. role in enhancing space allocation through features like
Opportunistic Games Played by the Distribution shelf management, allowing strategic organization of
Channel: Unscrupulous practices by distributors, such as products and implementation of efficient storage
diverting goods during promotions and illegal coupon techniques. This optimization enables e-businessess to
printing, pose challenges for FMCG companies, diverting boost storage area , reduce waste away, and simplify the
resources without adding worth to clients. selecting and sorting processes.
Infrastructure Challenges: Poor roads, unpredictable Ensuring Quality Excellence
transportation systems, and inadequate infrastructure, Customer satisfaction is closely linked to product
especially in cold chains, impact costs and product quality. quality, and a robust Warehouse Management System
Power problems during the distribution of perishable (WMS) integrates several quality control measures,
goods, like ice cream, present additional hurdles. including cycle counting, expiry management, and batch

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International Journal of Engineering and Management Research Peer Reviewed & Refereed Journal
e-ISSN: 2250-0758 | p-ISSN: 2394-6962 Volume-14, Issue-1 (February 2024)
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management. Cycle counting entails regular inventory  Lunchboxes are then transported to workplaces or
checks to detect discrepancies, and expiry management schools using a combination of bikes,
prevents the sale of expired goods by monitoring dates and wheelbarrows, and the local train system.
adhering to FIFO or FEFO approaches. Batch management  After lunch, empty lunchboxes are collected and
in WMS allows brands to identify the suitability of goods returned to customers' homes in the afternoon.
for different channels, optimizing the distribution process. Key Elements of the Dabbawala System:
Precision and Speed in Order Fulfillment 1. Efficient Coding System: The Dabbawalas utilize
Timely and accurate order fulfillment is crucial a unique and highly effective coding system to
for FMCG products that cater to daily consumer needs. accurately sort and deliver lunchboxes. This
Efficient picking strategies and strategic product bundling simple yet effective coding system ensures that
reduce the time and effort needed to locate and retrieve each lunchbox reaches the correct recipient.
products. Integrating warehouse management systems with 2. Dependency on Public Infrastructure: The
logistics providers ensures smooth order processing and Dabbawalas rely on Mumbai's local train system
accurate picking, enhancing precise and rapid order for transporting lunchboxes across the city.
fulfillment. The achievement of a remarkable 99.99% Utilizing existing public infrastructure helps keep
order fulfillment rate by The Man Company, facilitated by operational costs low.
Unicommerce's bundling feature, serves as a noteworthy 3. Accuracy and Precision: Known for their
example of precision and accuracy, the Dabbawalas maintain
Demand Driven by Data Estimating for Success an exceptionally low error rate despite the high
Success in the fast-paced realm of FMCG volume of transactions each day.
businesses hinges on accurate demand forecasting. 4. Teamwork: Operating in cooperative teams, the
Warehouse Management Systems equipped with robust Dabbawalas ensure the smooth functioning of the
reporting capabilities enable businesses to create entire delivery system. Each team has a
comprehensive reports on key performance indicators designated operational area.
(KPIs) and trends. This capability assists in making well- Business Model:
informed decisions regarding inventory replenishment and  The Dabbawalas operate on a day-to-day fee-
production planning.Marico Limited's partnership with based model, where customers pay a fee for the
Unicommerce, leveraging accurate reporting and analysis, daily delivery of lunchboxes.
resulted in a remarkable 100X growth in sales.  The cooperative structure ensures that profits are
Streamlining Returns and Refunds distributed among the Dabbawalas, fostering a
Effectively managing returns and refunds is a sense of pride and responsibility.
crucial element for e-commerce businesses, especially Global Recognition:
within the FMCG sector. Emphasizing product quality and  The Dabbawalas have gained international
safety, a well-structured warehouse management system acclaim for their efficiency and accuracy. They
streamlines the return process. This facilitates efficient have become the subject of various management
tracking of returned products, accurate inventory case studies and have been invited to speak at
management, and timely inspection of items for quality business schools and conferences worldwide.
control. Management Lessons:
 The Dabbawala system is frequently studied for
V. THE DABBAWALAS OF MUMBAI its effective supply chain and integrated
CASE operations management. It provides valuable
insights into teamwork, transparency in
The Dabbawalas are a renowned group of operations, and leveraging existing infrastructure.
lunchbox deliverymen celebrated for their efficient and In summary, the Dabbawalas of Mumbai exemplify a
accurate delivery service in the city. The term remarkable instance of a grassroots-level, highly efficient,
"Dabbawala" translates to "lunchbox transporter" in and precise delivery system that symbolizes Mumbai's
English, and their distinctive and highly effective lunchbox unique and effective approach to daily life.
delivery system has gained global recognition and study.
Service Overview: VI. HUL'S CASE
 The Dabbawalas offer a lunchbox delivery
service, primarily catering to office workers and HUL's Country Entrance Drive, encapsulated in
students. Project SHAKTI, reflects the company's strategic
 The service involves collecting freshly prepared initiatives to extend its market reach and distribution
meals from customers' homes in the morning. network in rural areas of India. Here's an overview of the
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International Journal of Engineering and Management Research Peer Reviewed & Refereed Journal
e-ISSN: 2250-0758 | p-ISSN: 2394-6962 Volume-14, Issue-1 (February 2024)
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key elements and components of HUL's Country  By involving local communities and SHGs, HUL
Infiltration Drive: builds a more sustainable and inclusive
Project SHAKTI Outline: distribution network.
1. Objective: The primary goal of Project SHAKTI Impact:
is to enhance the penetration of HUL's products in  Project SHAKTI has been recognized as a
rural markets, particularly in areas where successful model for rural market penetration and
traditional distribution networks may be limited community engagement.
or non-existent.  It has contributed to HUL's growth in rural
2. Collaboration with Self-help Groups (SHGs): markets and has been acknowledged as a socially
HUL collaborates through self-help groups responsible business initiative.
(SHGs) for broaden its extent to rural part of the In summary, HUL's Country Entrance Drive, through
country. SHGs, typically composed of women, Project SHAKTI, represents a comprehensive and
are community-based groups. HUL partners with community-driven approach to expanding its market
these groups to establish a direct-to-consumer presence in rural India while simultaneously creating
distribution model. economic opportunities for local women.
3. Role of SHAKTI Sellers: As part of the initiative,
members from SHGs become SHAKTI sellers. VII. CONCLUSION
These vendors act as direct-to-consumer HUL
wholesalers, selling products primarily in villages In conclusion, the supply chain management
within their respective regions. challenges faced by FMCG (Fast-Moving Consumer
4. Overcoming Accessibility Challenges: A Goods) in the retail sector in India are multifaceted and
significant challenge in rural penetration is the require strategic solutions for sustained success. The
lack of established distribution networks due to unique characteristics of the Indian market, coupled with
poor accessibility. Project SHAKTI addresses this the diverse consumer base and complex regulatory
challenge by utilizing existing community landscape, contribute to these challenges. In essence,
structures and networks provided by SHGs. addressing supply chain management challenges in the
5. Increasing Accessibility: By partnering with Indian FMCG retail sector requires a holistic and adaptive
SHGs, HUL aims to make its products more approach. Companies need to embrace innovation,
accessible to consumers in rural areas, technology, and collaborative strategies to overcome these
particularly in regions where traditional challenges and thrive in a dynamic and diverse market
distribution channels may not efficiently reach. environment. The ability to integrate sustainability,
6. Sustainable Business Opportunities: In addition to community engagement, and flexibility into supply chain
expanding market reach, Project SHAKTI practices will be crucial for long-term success in the
contributes to providing sustainable job evolving landscape of the Indian retail sector.
opportunities for marginalized rural women who Improving supply chain performance is crucial for
become SHAKTI vendors. Indian firms, both nationally and globally, to remain
7. Product Reach: The initiative covers a range of competitive. Learning from progressive firms in developed
HUL's fast-moving consumer goods (FMCG) economies and emphasizing efficient supply chain
products, including soaps, detergents, personal management are vital for sustained victory in the dynamic
care items, and other household products. FMCG sector. Efficient warehousing performs a pivotal
8. Community Engagement: Project SHAKTI role in the (FMCG) fast-moving consumer goods trade,
underscores community engagement and ensuring smooth supply chain management and meeting
empowerment, aligning with HUL's commitment consumer demands seamlessly.
to contribute to the economic development of the To navigate challenges effectively and promote
communities it serves. growth and profitability in your FMCG business, adopting
Significance: strategic measures and utilizing a comprehensive
 The initiative is significant as it aligns with warehouse management system is crucial. This all-
HUL's broader business strategy to tap into encompassing approach allows for the optimization of e-
untapped markets and gain market share. commerce operations, ultimately propelling your business
 It addresses the challenges of reaching consumers towards success.
in rural areas, where purchasing power and
accessibility can differ from urban markets.

265 This work is licensed under Creative Commons Attribution 4.0 International License.
International Journal of Engineering and Management Research Peer Reviewed & Refereed Journal
e-ISSN: 2250-0758 | p-ISSN: 2394-6962 Volume-14, Issue-1 (February 2024)
https://ijemr.vandanapublications.com https://doi.org/10.5281/zenodo.10823993

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