Consumer is king. But what does he want? FMCG companies are coming up with formulas to crack the demand-supply code to make their new products a hit with customers. At the heart of this lies a revamp of the supply chain network to make it more demand-driven.
Forecasting they say is an inherently erroneous business. When fast moving consumer goods (FMCG) players’ plans a new product launch based on its estimation of demand and consumer preference, the company assumes that the product would click with consumers after it travels the length of supply chain. It then does some number crunching and manufacturers the quantity which it feels would easily meet the market demand.
However, of marketing experts are to be believed there has been a dip in the success rate of new product launches. One reasons for this could be the fact that the sheer number of product launches has gone up. It could also be due to flawed supply chain management. Whatever be the reason, for a company whose product has not performed in line with its expectation there’s another problem at hand having to deal with inventory across the supply chain. As one of the manufactured products is packed off to godowns to gather dust some where at the retail end. That’s not all. There could also be a demand supply mismatch if demand exceeds supply and the consumer is left craving for more.
FMCG companies understand this predicament well. Some have tried to tweak their go to market approach to base it on consumers demand. The solution according to experts leis in turning the supply chain on its head, to make it more demand driven rather than supply led. Experts say understanding where demand would peak and in which parts of the country would result in better success rate of product launches.
The supply chain needs to respond to the market, that consumer needs keep changing and so does their expectation. This would be a constant struggle but the supply chain in future would be far more responsive to signals. It would start being becoming leaner and would keep less inventory. It would, therefore, be able to respond to the many dynamics changes which we will see in the market place.
In order to make its supply chain more responsive to the changes in the market place HUL has dramatically reduced its total working capital. In some of its detergent factories, HUL is running twin track o single production lines. This enables the company to not only double its production for better customer service but also to improve its operating efficiencies. In addition, most of its production lines have developed the capability of quick changeovers to meet market demand.
Another large FMCG company, Godrej Consumer Products (GCPL) on the other hand has switched to an efficient replenishment mode. The objective GCPL is to replenish the stocks as they move. The system in which GCPL operates by design is much more responsive. As demands of product pick ups, it is automatically met. There is no manual procedure involved.
There has been a rise in demand for household insecticide products in the last few months due to a high incidence of malaria and dengue GCPL managed to meet the sudden surge in demand, which resulted in a strong double digit growth in the category. Had it not been in the replenishment mode, the company would have missed out on this opportunity to hike the sales. By switching to the replenishment mode, we changed the working style to become more agile – both in dealing with rise or fall in demand for a particular product. Any change in consumer demand can be captured by being agile.
Globally, Procter & Gamble (P&G) measures consumer satisfaction in what it terms as moments of truth. The first moment of truth arrives when the consumer finds the product she is looking for on the shelf and the second, when she is satisfied with the product. P&G feels that supply chain management continues to grow and evolve as the pressure to adapt to a constantly changing environment increases. Change in customer channels, consumer tastes government policy decisions and new product launches all impact the manner in which the supply chain operates and delivers.
For P&G says the essence of such management, other center of focus has always been the customer. And that has not changed.