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The role, significance and impact of supply chain management in the FMCG sector

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  1. What is FMCG?
  2. Distinguishing characteristics of the industry
    1. Low capital intensity
    2. High initial launch cost
    3. Technology
    4. Marketing drive
    5. Market research
    6. Balance sheets are misleading
    7. Third-party manufacturing
    8. Significant presence of unorganised sector
  3. Trends
    1. Global concentration
    2. Growth in the third world
    3. Value for money
    4. Adapting to local conditions
    5. Packaging
    6. Evolving strategies for supply chain markets
    7. Macro trends
    8. Understand the end customer's buying process
  4. Restructure the economics of your channel partners
  5. Lead from the top
  6. Changing face
    1. Distribution channels and network
  7. Disintermediation myth
  8. The economics of distribution and the transition
  9. Transition from push to pull environment
  10. Pull method
  11. Bibliography

FMCG refers to consumer non-durable goods required for daily or frequent use. Typically, a consumer buys these goods at least once a month. The sector covers a wide gamut of products such as detergents, toilet soaps, toothpaste, shampoos, creams, powders, food products, confectioneries, beverages, and cigarettes.

Most product categories in FMCG require relatively minor investment in plant and machinery and other fixed assets. Therefore shortage of product for want of capacity would be a rare phenomenon. The turnover is typically five to eight times the investment made in a Greenfield plant at full capacity. This is also due to the fact that the business being marketing driven, players do not integrate backward. Also, the business has low working capital intensity as bulk of sales from manufacturers takes place on a cash basis.

Nonetheless, there is a large front-ended investment made in new products including cost of product development, market research, test marketing and most importantly its launch. To create awareness and develop franchise for a new brand requires enormous initial expenditure on launch advertisements, free samples and product promotions. Launch costs are as high as 50-100% of revenue in the first year and these costs progressively reduce as the brand matures, gains consumer acceptance and turnover rises. For established brands, advertisement expenditure varies from 5 - 12% depending on the categories. It is common to give occasional push by re-launches, which involves repositioning of brands with sizable marketing support.

[...] Macro Trends Here, seven of the most important channel trends are identified: * Wholesaler-distributors will continue play an important role in marketing channels and supply chains. Wholesale distribution remains an important force in market-oriented economic systems. In the United States, wholesale distribution contributes 7 percent of U.S. national income and accounts for one in every 20 US jobs. * Online ordering will be adopted slowly. Customers will adopt new business technologies when it benefits them and limit technology usage when the technology does not help them. [...]


[...] DISINTERMEDIATION MYTH Disintermediation is the term that means elimination of distributor; it was first suggested for distributors in the early 1990s as a response to new technology and increasing pressure on the supply chain to cut costs. Distributors were perceived as middlemen who added cost to supply chain through redundant inventory, services and information handling. It was logical that if suppliers and end users could ?Automatically locate inefficiency? they could eliminate the distributor. This logic follows from the reasoning that a shorter supply chain is inherently more inefficient (Narus and Anderson, 1997). [...]


[...] During the past 10 years, business customers have focused on improving efficiencies in their inbound supply chain by consolidating supply contracts, implementing integrated supply agreements, installing e-procurement systems, experimenting with reverse auctions, and rationalizing vendors. To respond, manufacturers must identify the winning channels and partner with them to retain access to customers. The winner might be a distribution intermediary with sophisticated transactional services, such as electronic data interchange and e-procurement support. Or the winner could be an integrated e-procurement vendor who controls access to customers. [...]

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