Care and Concern
Dabur commenced its operations in 1884 when Dr S.K. Burman started mail order sales of the company's products. Today, Dabur is a multilocationalmultiproduct enterprise. In the past five years, Dabur grew at a compounded annual growth rate. But to go any further from here to become the largest Indian FMCG, with a sales turnover of Rs 2,000 crore by the year 2003, the company has to look into its internal processes in general and logistical operations in particular in order to maintain the pace of that kind of growth, especially in the global competitive environment.
Consider logistics. When a Dabur dealer wanted stocks from any of the company's 19 branches across the country, the branch took 6 days to process the order. It then took an almost equal number of days to ferry the goods from its godowns. Very often, the godowns did not have the right stocks. Since the goods used to be sent by truck, and truckers wanted full truckloads before they started rolling, at times, the goods would remain at the transporter godown for a week. Dabur distributors also used to pay the company through an elaborate system of vouchers, and that too almost never on time.
Similarly, there was little coordination between production procurement and sales. Neither were Dabur's forecasting technique precise and it used to be an annual rocedure. Feedback from the company's sales department would be discussed with its marketing cell and the annual forecast would be put together jointly. Again, the branch heads would request for fresh stocks based on the estimates which were part statistical and part gut feel. This, at times, led to huge inventory pile-ups. The finished goods inventory cost is Rs 118 crore and the working capital cycle used to be 160 days against an industry average of 60 days.
The commercial department of the company looked after all these activities and prepared six copies of challan—one copy for the department itself, one copy for the warehouse, one copy for the information cell, two copies for the branch, and one copy to move with truck.
It was only on 2 November 1988, when the 114-year-old Dabur India reinvented itself. Breaking over a century of tradition, executive powers of running the company were handed over to Ninu Khanna, an outsider appointed as CEO, former Marico General Manager (, ommodities) Shyam Shanker, as head of Dabur's purchase and procurement planning cell, and ex-HLL man G. Kashinath in the central supply chain cell (CSCC).
Dabur began to set right its entire supply chain from the buying of raw materials to the selling of finished goods at the retailer's. For FMCG companies, this is the most critical aspect of business. The objectives of efficient supply chain management are threefold—one, have the right stocks, at the right place, at the right time; two, keep inventories down; and three, do all this with the lowest operational costs.
In fact, Dabur hired consulting firm McKinsey & Co. primarily to fix its internal processes, which have initially been on supply chain front, spanning the five aspects of demand forecasting, production planning, logistics, order processing and procurement planning. The present performance of logistics and supply chain system is as follows:
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Factor
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Present Performance
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Logistics
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Systematized forecasting method and branch sales staff encouraged to collect orders from geographical routes
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Forecasting
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A three-monthly rolling forecast is made with firm productions for one month and for the other two, tentative. This is also done SKU-wise
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Vendors
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Vendor appraisal systems are being put in place. Every month, vendors are rated on the four parameters of cost, quality, delivery and service. Vendors can be dropped if found unsatisfactory.
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Inventory
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Finished goods inventory were already down from 52 days to 40 days
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Production
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Indents replaced by a replenishment model which uses available
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Planning
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information to control both manufacture and transit of goods to the marketplace.
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When Dabur benchmarked itself against other FMCG companies like HLL, P&G, Cadbury India, etc., it realized where it stood. Normally, a stock replenishment cycle is of about 2 weeks in the FMCG industry. Furthermore, every time Dabur failed to restock a dealer on time, the company lost sales. For example, HLL tracks the number of times its C&F agents fail to restock dealers (which incidentally happened only once in 10 attempts). Dabur did not even know the number of times its dealer returned empty handed because there was no scientific system of knowing what is happening.
QUESTIONS FOR REVIEW
- 1. Being the head of CSCC, identify the major logistical problems associated with Dabur India Ltd.
- 2. Suggest a detailed logistics and supply chain system in order to reduce the replenishment cycle time and working capital cycle.
- 3. How can an information technology solution to L&SCM in the implementation of a new strategy facilitate in the improvement of productivity and efficiency?
- 4. What sorts of restructuring would you suggest?
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Supply chain Management 