54438985 12950828 Distribution Management of Hindustan Unilever Ltd

8/6/2019 54438985 12950828 Distribution Management of Hindustan Unilever Ltd

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A Study on Distribution Management of Hindustan Unilever Limited

SubmittedTo

Prof.SGovindrajanBy PRADEEPNARAIN SANJEEVKUMARJHA SATADRUBAGCHI SOUMITRADHALI

TARUNKUMARSAHA


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Content

Page3 4 5 12 14 16 18 26 33

1. IntroductionHindustanUnileverLimited 2. DistributionNetworkofHUL 2.1.EvoluttailOverview 3. ChannelDesign

4. InitiativestakentoImprovetheDistributionNetwork 5. FieldForceManagement 6. Aework 7. FinancialAnalysis 8. References


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1.IntroductionHindustanUnileverLimitedHindustan UnileverLimited(HUL),formerlyHindustanLeverLimited (itwasrenamedin

ndia

slargestFastMovingConsumerGoodscompany,touchingthelivesoftwoout of thredistinct categories in Home & Personal Care Products and Foods & Beverages.Theecompanywithascaleofcombinedvolumesofabout4million tonnesandsalesofnearlyof the country

s largest exporters; it has been recognised as a Golden SuperheGovernmentofIndia. The mission that inspires HUL

s over 15,000 employees, i0 managers, is to "add vitalitytolife."HULmeetseverydayneedsfornutrition,hygthbrandsthat helppeoplefeelgood,lookgoodandgetmoreoutoflife.Itisamissionnilever, which holds 52.10% of the equity. The rest of the shareholding is di,675individualshareholdersandfinancialinstitutions. HUL

s brands like Lifebuoyel, Rin, Wheel, Fair & Lovely, Pond

s, Sunsilk, Clinic, Pepsodent,Closeup,Lakman,KnorrAnnapurna,KwalityWall

sarehousehold names across the country and spas, detergents, personal products, tea, coffee,brandedstaples,icecreamandculinar

eproductsaremanufacturedover40 factoriesacrossIndia.Theoperationsinvolveover2ociates.HUL

sdistribution network comprisesabout 4,000redistributionstockists,covillionretailoutletsreaching theentireurbanpopulation,andabout250millionruralclyzedthedistributionnetworkofHULfromthefollowingaspects: 1. EvolutionofHULsd. Transportation&Logistics 3. ChannelDesign 4. Initiativestakenforchannelmemberm5. Fieldforcemanagement 6. AnalyticalFramework 7. FinancialAnalysis


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2.DistributionNetworkofHUL 2.1.EvolutionoverTimeTheHULsdistributionnetworkhasevolvedwithtime.ThefirstphaseoftheHULdistributrsplacingbulkordersdirectlywiththecompany.Largeretailersalsoplaced directorde

most30percentofthetotalorderscollected.Thecompany salesmangroupedalltheseorheHeadOffice.Goodsweresentto thesemarkets,withthecompanysalesmanastheconsigctedand distributedtheproductstotherespectivewholesalers,againstcashpayment,antedtothecompany. The focus of the second phase, which spanned the decadese desired productsandqualityservicetothecompany

scustomers.Inordertoachievetchmarketwasappointedasa"RegisteredWholesaler,"astockpointforthecompany

sprodmpanysalesmanstillcoveredthemarket,canvassingforordersfromtherest ofthetradeksfromtheRegisteredWholesalerthroughdistributionunits maintained by the companyed Wholesaler system, therefore, increased the distributionreachofthecompanytotomers. Thehighlightofthethirdphasewastheconceptof"RedistributionStockist"(The RS was required to provide the distribution units to the company salesman.cteristic of this period was the establishment of the "Company Depots" system.

pedintransshipment,bulkbreaking,andasastockpointtominimisestockoutsattheRSificantchangehasbeenthereplacementoftheCompanyDepotbyasystemof thirdpartyCs(C&FAs).TheC&FAsactasbufferstockpointstoensure that stockouts did not taks also resulted in cost savings in terms of direct transportation and reducedry. The most important benefit has been improvedcustomerservicetotheRS. TheRedistribution Stockists includes: Financing stocks, providing warehousing faciliroviding manpower, providing service to retailers, implementing promotional activixtending indirect coverage, reporting sales and stock data, demand simulationandransitdamages.


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2.2.DetailOverviewThedistributionnetworkofHULisoneofthekeystrengthsthathelpittosupplymostprntryfromSrinagartoKanyakumari.Thisincludes,maintainingfavorable trade relations,

nnovative incentives to retailers and organizing demand generation activitiesamonrthings.EachbusinessofHULportfoliohascustomizedthenetwork to meet its objects function of providing the logistics support is to get the companysproductt

DistributionSystemofHUL HUL

s products, are distributed through a network of 4,000 redistribution stocng 6.3 millionretailoutletsreachingtheentireurbanpopulation,andabout250milliore are 35 C&FAs in the country who feed these redistribution stockists regularradecomprisesgrocerystores,chemists,wholesale,kiosksandgeneralstores.HindustanUdes tailor made services to each of its channel partners. It has developed cuand supply chain capabilities for partnering emerging selfservice stores and suound2,000suppliersandassociatesserveHULs40manufacturingplantswhichare decentr

nsquaremilesofterritory.


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(Fig.1SchematicofHULsDistributionNetwork)

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DistributionattheVillages:The company has brought all markets with populations of below 50,000 under onenisation.Theteamcomprisesanexclusivesalesforceandexclusiveredistributionstockist

cusesonbuildingsuperioravailabilityofproducts.InruralIndia,thenetworkdirectlyillages,reaching250millionconsumers,through6000substockists.

(Fig.2RuralDistributionModelofHUL)

HUL approached the rural market with two criteria the accessibility and viabhis segment, HUL appointed a Redistribution stockist who was responsible for alll businesswithinhisparticulartown.Inthe25%oftheaccessiblemarketswithlowbusgnedasubstockistwhowasresponsibletoaccessallthevillagesatleastonceinafortets.Thissubstockistdistributesthecompany

sproductstooutletsin adjacentsmaller

ortationsuitabletointerconnectingroads,likecycles,scooters ortheageoldbullocknUnileveristryingtocircumventthebarrierofmotorable roads. The company simultaolesale channel, suitably incentivising them to distributecompanyproducts.Themosradingremainsthegrassrootsbuyandsell mode.ThisenablesHULtoinfluencetheretailssoldthroughcreditextension and trade discounts. HUL launched this Indirect Co960s.Under the Indirect


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Coverage(IDC)method,companyvanswerereplacedbyvansbelongingtoRedistributionStocicedaselectgroupofneighbouringmarkets.

DistributionattheUrbancentres:Distribution of goods from the manufacturing site to C & F agents take placerucksorrailroadsdependingonthetimefactorfordeliveryandcostoftransportation.uring site is located such that it covers a bigger geographical segment of In,thegoodsaretransportedtoRSsbymeansoftrucksandtheproductsfinallymake theapmodeoftransport.

NewdistributionchannelsProjectShakti This model creates a symbiotic partnership between HUL and its ced in the late 2000,ProjectShaktihadenabledHindustanLevertoaccess80,000ofInL

s partnership with Self Help Groups(SHGs) of rural women, is becoming an extompany

s operation in rural hinterlands. Project Shakti has already been extende

states Andhra Pradesh, Karnataka, Gujarat, Madhya Pradesh, Tamil Nadu, Chattisadesh, Orissa, Punjab, Rajasthan, Maharashtra and West Bengal. The respective stents and several NGOs are actively involved in the initiative. The SHGs haveith HUL as a business venture, armed with training from HUL and support froms concerned and NGOs. Armed with microcredit, women from SHGs become directtoralmarkets. Themodelconsistsofgroupsof(1520)villagersbelowthepovertyline(Rsocredit from banks, and using that to buy our products, which they will thenumers.Ingeneral,amemberfromaSHGselectedasaShaktientrepreneur,commonlyreferreesstocksfromtheHULruraldistributor.Afterbeingtrainedbythecompany, the Shaktills those goods directly to consumers and retailers in the village. Each Shaktsually service 610 villages in the population strata of 1,0002,000. The ShaktvenHULproductsona

cashandcarrybasis.

ThefollowingtwodiagramsshowtheProjectL.


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ProjectStreamlineTo cater to the needs of the inaccessible market with high business potentialreamlineinitiativein1997.ProjectStreamlineisaninnovativeandeffectivedistributioalareasthatfocusesonextendingdistributiontovillageswithlessthan2000peoplewitockists/Star Sellers who are based in these very villages. As a result, the dkdirectlycoversasofnowabout40percentoftheruralpopulation. Under Project Stributed from C & F Agents to Rural Distributors (RD), whohas1520ruralsubs

fthesesubstockists/starsellersislocated in a rural market. The substockistsdriving distribution in neighboring villages using unconventional means of transps tractor and bullock carts. Project Streamline being a cross functional initiaSeller sells everything from detergents to personalproducts. Higherqualityservquency, creditandfulllineavailability,istobeprovidedto ruraltradeaspartoft. ThediagraminthenextpageshowsthemodelofProjectStreamline.


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HindustanLeverNetwork(HLN)It is the company

s arm in the Direct Selling channel, one of the fastest grIt alreadyhasaboutseverallakhconsultantsallindependententrepreneurs,trainedantmanagers.HLNhasalreadyspreadtoover1500townsandcities,covering80%ofthe urb2 offices and 240 service centres across the country. It presents a rangeofcome&PersonalCareandFoods. The New Compensation plan for HLN partners provideearning substantial income in addition to offering rewards like revenue sharingnnovative concept of pools

MotherDepotandJustinTimeSystemInordertorationalisethelogisticsandplanningtask,aninnovativestephasbeenthef

tandJustinTimeSystem(MDJIT).CertainC&FAswereselectedacrossthecountry to acthem has a minimum number of JIT depots attached for stock requirements.AllbrdforthesetofmarketswhichtheMDandJITsservicein a given area are sent toring units. The JITs draw their requirementsfromtheMDonaweeklyorbiweeklyba

LeveragingInformationtechnologyHULcustomersareservicedoncontinuousreplenishment.ThisispossiblebecauseofITconhe extended supply chain of about 2,000 suppliers, 80 factories and 7,000 stocisticated network with its voice and data communication facilities has linked mcationsalloverthecountry,includingtheheadoffice,branchoffices,factories,depotsbutionstockists.TheyhavealsocombinedbackendprocessesintoacommonSharedServicehich supports the units across the country. All these initiatives together have


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enhanced operational efficiencies, improved the service to the customers and havclosertothemarketplace.

RSNetInitiative:TheRSNetinitiative,launchedin2001,aimsatconnectingRedistributionStockists(RSs)tbasedsystem.ItnowcoversstockistsoftheHome&PersonalCarebusinessandFoods&ities.Togethertheyaccountforabout80%ofthecompany

s turnover. RS Net is onerce initiatives ever undertaken in India. It provides linkages with the RSs otems, enables monitoring of stocks and secondarysalesandoptimisesRSsordersandsisthroughonlineinteraction on orders, despatches, information sharing and monitTpowered system has been implemented to supply stocks to redistribution stockisous replenishment basis. Today, the sales system gets to know every day whatsold to almost a million outletsacrossthecountry.Informationonsecondarysalesieryday. RSNetispartofProjectLeap.ProjectLeapbeginswiththesupplierrunsthroueachesuptotheRSs.ThisensuresHULsgrowthbyensuringthattherightproductis ava

he right quantities and at the right time in the most costeffective manner.cing inventories and improving efficiencies right through the extendedsupplychaieasaforcemultiplierforHULWay,thecompany

sactionplantonotonlymaximise thet also to achieve leadership in every outlet. RS Net has enabled stockists tontinuous Replenishment System. This in turn has unshackled the fieldforcetosolrysalesfromthestockiststoretailersandmarketactivation.It hasalsoenabledRSstoretailoutlets.Simultaneously,HULisservicing theruralmarket,keyurbanoutlets,agleconcern.

AdexaiCollaborationsuite In 2000, HUL identified improved supply chain management as a critical businessaunched a comprehensive initiative, Project Leap, tasked with increasing supplior responsiveness,reducinginventorybuffers,andoptimizingplanningandscheduling.HU

xaiCollaborationsuiteforfacilitatingcentralizedmonitoringoftheSCM,livecustomerboration, and integrating demand and distribution planning with production scheduh theaggregatedviewofdataprovidedbytheiCollaborationsuite,HULwasabletocombi


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distributioneffortsonthediverseproductlines,whichresultedinsignificantsavingsoventories and distribution. HUL updates inventory positions, shipments and customonadailybasiswiththesesoftwarepackagesandcangetapulseonthemarketrealtime.

(Fig.3HULsTurnoverComparedwithCompetitors,2006)

(Fig.4HULsMarketLeadershipacrossvariousFMCGCategories)


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3.ChannelDesignHindustanLeverLimited(HUL)hastwotypesofchannelselling i. Regular(traditional

ii. DirectSellingChannelinthenameofHindustanLeverNetwork(HLN). HUL has a wtribution model which comprises of C&FAs, Redistribution Stockists,wholesalersandasshownearlier).HindustanUnilever

sdistributionnetworkis recognizedasoneofitsusesonProductavailability,Brandcommunication,and higherlevelsofbrandexperience.roughdifferentchannels:Sales Break-up Through Different Channels

7% 33%

60%

Modern Retail

Urban General Trade

Rural Areas

ChannelStructure(SpecialFocusisonJamshedpur)

Typically,thegoodsproducedineachoftheHUL

s40factoriesaresenttoadepotwithtgagent(C&FA).Thecompanyhasitsdepotineverystateofthecountry.The C&FA is ag fee for stock and delivery of the products. In each town, thereisatleastS)whotakesthegoodsfromtheC&FAandsellsthemto retail outlets. In Jharkhand t

shedpur is serviced by 3 Redistribution StockistsatSakchi(M/sOmPrakashAgarwal)dih. TheHULmanagementrealizedcertainproblemswiththeexistingsalesmodel.First,e for small towns with small population and small business. HUL found it expee stockist exclusively for each town. Secondly, the retail revolution in the cedthepatternthecustomersshop.Largeretailselfserviceshopsarebecomingcommonplac


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In response of these problems, HUL redesigned its sales and distribution channestemisknownas

diamondmodel

inthecompany.Atthetopendofthediamond,therearehconstitute10%ofthetotalFMCGmarket.Themiddle,fatterpartof thediamondreprese

lesteam.Inthebottomofthepyramidistherural marketing and distribution whichusiness. As a result of the new distributionplanthecompanyhasplannedtoreduce. RedistributionStockists: TotalnumberofRSinJamshedpur=3(atSakchi,Bistupur,educedto onlyonewitheffectfromnextmonthofthisyear. Sales Margin: 4.76% whi, unloading expenses from depot, distributionexpensestoretailers,incentiveschementalexpenses. Modesoftransportused:Rickshaw,tempo. Incentiveschemes:Before2000ndtoursbutafter2000nononmonetary incentiveforRS. Software systems and Inform.3 (Developed by IBM & CMC). This softwareneedstobesynchronizeddailyandthesion/incentive schemes/salesfiguresetctoandfromthecommonsharedplatform. AreasachoftheRS. SellingOperations:RSssellsthegoodsto o o Wholesaler: GetscasotedbyHUL(getspointsunderVijetaScheme). Retailers: TotalretailerbaseinJamsh70. SalesMargin:Dependsontheproduct o o o Soap,detergents Cosmetics

S) Retailers(gets1.0%max.discountfromRS)


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Incentiveschemes: Companyprograms(SchemeDiscounts+CashDiscounts) TPRschemesbtaschemeisnotforretailers. FieldSalesForce:

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To meet the everchanging needs of the consumer, HUL has set up a distributios availability of all their products, in all outlets, at all times. This incl

favourable trade relations, providing innovative incentives to retailers and orgamand generationactivitiesamongahostofotherthings. Theimportantactivitiesthare(i)targetchasingand(ii)reportingona dailybasis.Accountinformationismaintai.Duringourresearchand informalsurveyofHULfieldsalesforce,wecametoknowthatt beinggivenatalltothesalesforce. HULhaslimitedthenetworkchannelsellingtHPC)andFood products with exclusive brands for this channel. That is, these pproducts) are all exclusivetoHLN,specificallydevelopedfortheDirectSellingchanneintheretail channel. The general trade comprises grocery stores, chemists, whs and general stores.HindustanUnileverserviceseachwithatailormademixofservic

4.InitiativestakentoImprovetheDistributionNetworkHULhastakenthefollowinginitiativestoimproveitsdistributionnetwork: Setting up

s organisation comprising key account management and activationtoimpact,fullyenodernretailersastheyemerge. ServicingChannelpartnersandcustomerswithcontinuousent. LeveragingscaleandbuildingexpertisetoserviceModernTradeandRuralMarkets.cetoimproveresponsetimesandservicelevels. Revamping of its sales organisationts to fully meet the emerging needs andincreasedpurchasingpoweroftheruralpopionnetworkinrural India already directly covers about 50,000 villages, reachingion consumers throughabout6,000substockists.


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15 Implementationofsupplychainsystemthatconnectsstockistsacrossthecountry,andandsystemconnectingsuppliers,allcompanysitesandstretchingrightupto stockists.eployed for connectivity across the extended supply chains. BackendprocesseshaventoacommonSharedServiceinfrastructure. LaunchingofProjectShaktithroughwhichthenditsoperationsin villages. HUL has also included several NGOs and state gov

tiative helps ruralwomentoimprovetheirfinancialposition. LaunchingofHULNetworkelofdirectsellingbypresentingcustomised offeringsin11homeandpersonalcareandn2003,italreadyhasa baseof300,000consultantsacrossthecountry. StartingoffrasandAyushTherapycentrestoofferstandardised services, in line with the strateguity of its brands through relevant services. Finding out Innovative ways to rnsumers, particularly in rural areas by leveragingnonconventionalmedialikewallavans,weeklymarkets(haats), fairsandfestivals. InitiatingtheconceptofSuperValreastopartnertraditionalstores to provide a range of services ranging from matory to setting up POS (pointofsale)banners.Inadditiontothis,toboostuptradasing inroads made by large, modern retailing chains like Spencers, RelianceLissqueezedharderfordiscounts),HULstartedrestructuringsomeoftheselectedSVSseretailshopsalamodernretails.Thisistoprotect&maintainthe competitiveadvanta

ompetitorsintheothermarkets(e.g., P&G),withitsverydeepdistributionreachthrouLaunchingtheUnicareschemewithupmarketpharmaciesandretailerstosaleitspremium bgseveralinitiativesfortraditionalchannelsinordertoimproveitscapabilitiesat thgskillsforstockists

salesforce.Under

ProjectDronacharya

,the FMCGmajorcontinuoningtoover10,000stockistsalesmen. Launching of several promotional schemes forsalers and distributors. For instance,ithasstartedtheVijetaRishtaJeetKascor thewholesalerandHULtogrowthebusinessbyearningpointsandredeemingthem.


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5.FieldForceManagementTheworkingcycleofatypicalHULfieldforcememberisfrom21stofeverymonthtothe2odheisgivenvarioustargetsthathelpstoachievecompanyobjectives andgiveshimac

elativetoother. Tostartwiththefieldforcememberisgivenaparticularareaandhistheretailersinthatarea.Whiledecidingtheareaforeachmemberofthefieldforce,thratingareaofeachfieldmemberdoesn

toverlapwithhisothercolleagues. TherearevarpanytoincentivizethefieldforceMonetaryandNon Monetary. InHUL,thefieldforcefContribution).Itconsistsof4components 1.SecondarySale(Maxpoints=2.5) 2.ts=0.5) 4.FCS(MaxPoints=0.5) SECONDARY ECO QOC FCS FOCUS


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Secondary Sale Based on the operating area, each member is given a specificue(e.g.,Rs.15lacs)fortheoperatingmonth(21st20thofnextmonth).Ifheachieveschieves95%targethegets1.5points.Thesepointsareusedto addtothetotalQOCscor

ive. ECO/WidthpackTargetThisisusedforthepenetration/reachofcertainproductwingisatypicalECOtargetassignedtoafieldforceagent: LuxInternational PearsSoU 104outletsx1SKU 100outletsx1SKU

BreezeSoap

Theoutletsmentionedarewithintheoperatingareaofthepersonand1SKU=Rs.27/.Baesnumberofpacksheshouldselltotheretailers.Theconcernedagent receivesthistardhastocompletethistargetwithinthe5thdayof next month. Upon completion he gadded to his QOC score along with monetary incentive associated with it. Howevet within 5th, he looses the opportunity. Focus/DepthPacktargetThisismaieofcertainproducts.A typicalFocustargetisgivenbelow: LuxInternational Life

This target needs to be achieved within 20th of next month. Upon achieving thersonisawarded0.5pointswhichisthenaddedtohisoverallQOCscore. FieldCapabilhefieldforcepersonsarerequiredtoensurethat the scheduled visit/outlet billingst 15 items are demanded per order. If this is achieved the retailer gets alled amount and on the other hand the field person gets an additional scoreo his QOC score. Each scheduled visit per outlet is one per week. For examplets within the operating area of a field personthenthenumberofvisitperweekonth=100x4=400.


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Thesalespersonisrequiredtoachieve90%successratetoget0.5pointsforhisQOCscoyperformance. NonMonetaryMethods TheotherpurposeoftheQOCscoresistohighlighersonamonghis peers. Based on the QOC various awards are distributed to the

nd of every month. These awards are also known as MOC Star awards. MOC staCycle. IfQOCscore>4.5Thepersoniseligiblefor7staraward IfQOCscore>4seligiblefor3staraward In the event of exceptional performance, management rem the regional office cometothezonalofficetodistributetheawards.Thephotograplayed intheofficeasasourceofinspirationforothersalesperson. TargetSettingeregional officemonitorstheperformanceofvariouszones.Athoroughanalysisisdoneand based on that the weak products are identified or those for which the dehebasisofsettingECOandFOCUStargetsforthefieldpersons.Each fieldpersonisgivntriesonthespotwherethetransactionis done.Thissolvesbasicallythetwopurposeshetedioustaskofmaintainingcumbersomerecordsandcanthen concentrateonthejob(thieldforceorotherchannelmembers), b)Thesolditemisimmediatelyupdatedinthecomp

6.AnalyticalFrameworkWetriedtoanalyzeHULsdistributionnetworkinthelightof20mostsignificantvariablution part of channel management for any organization in the business of markeods.Thevariables,theirexplanationsandtheirimpactontheHULsdistributionnetworkrofConsumers In retail business dominated by traditional stores like Kirana Stretail business falls in this category), higher the no. of consumers, higher whannel intermediaries.Theimplicationofthisisthattherewillbemanylayersinthec


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19 situationandmanagingsuchacomplexdistributionnetworkbykeepingtabsoneveryplak. Moreover, Transport & Logistics (T&L) support provided by the organizationzed. ImplicationforHUL HULskeystrengthliesinmanagingitsdistributionnetworkinMCG company with unmatched distribution network, which is built over a centuryditional retail. HUL

s distribution network comprises about 4,000 redistribution

s, covering about 6.3 million retail outlets reaching the entire urban populati50 million rural consumers in India. Its said that HUL is able to touch theery 3 Indian consumers. This achievement is due to the sheer strength of itsrk(productsshouldbegoodasalways,otherwisetheywillfindnobuyersinthelongrun)rgestFMCGmajor,doesnotfinditsnameinthelistoftop5 FMCGmajorsinIndiaasitsbiggestexample,WalMart), butnottraditionalretail.

2. GeographicDispersionofConsumers Again,thisiscloselyrelatedwiththepreviousvage,geographicallydiverse country like in India. With the increase in this dispre intermediaries and more layersarerequiredinthedistributionnetworksoastoefth&breadthof the country. Obviously the T&L management for such an organizatil to accomplishthis. ImplicationforHUL For a country as geographically diverse

an presence & market leadership can only be possible when products reach evens of the country. HUL is very successfulinachievingandmaintainingthisreachduork. 3. FrequencyofPurchase If the frequency of purchase is high, then transpoe last mile (i.e., from distributortoretailers)increasesmanifold.ForFMCGprodukethat themeantimebetweentwopurchasesis~90days.WiththeintroductionofsmalleGgoods(Re.1/shampoosachetsbeingaverygoodexample),thetransport intensityincr


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ImplicationforHUL

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HUL has about 4000 redistribution stockists, who supply to approx. 6.3 millionIndia.Sincemanufacturingisdoneat40plantsaroundthecountry,rationalizingthelogiugetask.AninnovativestepinthatregardhasbeentheformationoftheMother Depotan

ainC&FAswereselectedacrossthecountrytoact as mother depots. Each of them hadepots attached for stock requirements. All brands and packs required for theich the MD and JITs serviceinagivenareaaresenttothemotherdepotbyallmanufequirementsfromtheMDonaweeklyorbiweeklybasisandsupplytostockistsinthat ars. 4. TendencytoPostponePurchase Ifthetendencytopostponepurchaseislesser,thistribute.For example,products/serviceslikeFireExtinguishers,LifeInsuranceetc.arghthese are needed, the overall tendency for the consumers is to postpone theducts/services can be termed as necessary evil. For this kind of products, rtinthemindsofconsumersbecomesnecessary,salesfieldforcebecomescritical anduseplace. ImplicationforHUL Since FMCG products are used regularly and these prodsary evils, distributionnetworkofHULdoesnotrequireanyexpertfieldforcetosellt diversification of HUL into Home Water Purification business (Pure It brand

eldsalesforce. 5. LevelofFamiliarity/Knowledge(ofconsumer)abouttheProduct Iftyofconsumerwiththeproductishigher,lowerwillbetheimportanceof fieldsalesforceofchannel. ImplicationforHUL SinceFMCGgoodsareverymuchfamiliartoconsumers,embersare very much important to HUL and field sales forces function is mostmanagementandensuringavailabilityofproducts.


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6. DegreeofBrandLoyalty

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If the consumers are more brand loyal, then less push will be required fromltheproductsastherewillbesufficientpullordemandfromtheconsumers. Thisimpltomerbase,effortsfromthechannelmemberscan bemuchlesserforfinalofftaketohap

rginstothechannel members for those products. For faster moving products (mostll), retailers maynotbeaversetoslightlylessermarginsasrotationoftheproductsrotected. RetailersROI=

M arg in Rotation Investment

ForaFMCGplayerwithanonestablishedbrand,marginstochannelmembersandpointofsamportant. ImplicationforHUL AsHULenjoysleadershippositioninmanyFMCGsegmentsli,PersonalCare productsetcwithstrongbrandswithcontinuouspull,HULhaslesstowbersorPOSadvertising.Butthissituationcanchangeconsiderablyinthefaceof riseoavingalmostthesamereachasHULhas(e.g.,ITCasitseating intoHULsmarketsharement). 7. PurchasedonImpulse Theimpulsepurchaseproductslikechocolates,toffees,c

tc.followSaysLaw whichstatesthatSupplyCreatesDemand,implyingavailabilityoftical aspect for these to be sold and consumed. This stresses on the fact thctsbecomesveryimportant. ImplicationforHUL HULhasonlyoneproductinthisimpulsealls(icecream).HULis #2afterAmulinthisFMCGsegment.Toincreasethisbrandssalisibilityandconsumermindsharehastobeincreasedandimprovedaswell. 8. LevelofIf involvement (i.e., time & effort spent by the consumer) generally depends on. If LOI is higher, lower is the importance of availability and more critical


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22 supply of information as consumer decision process depends more on elaboratesearch. ImplicationforHUL AsFMCGproductsaregenerallyLowInvolvementProducts,HULuring availabilityoftheproducts,ratherthansupplyofinformation.

9. PurchasedasaBasketofGoods Theproductswhicharegenerallyboughttogetherbycon

.g.,Rice, Flourpowder,Cookingoiletcatthebeginningofthemonth)aretobemadeavke. ImplicationforHUL ThisaspectpartlyappliestoHULsproductsassomeproductslients mayfallinabasket.EfficientdistributionnetworkofHULensuresavailabilityofellingpoint(individualretailer). 10. Speed&ComplexityofDecisionMakingProcess Ifnthecomplexityofthedecisionmakingprocessishigherandgreateris theimportanceospersonsskill,knowledgeandquality. ImplicationforHUL ForFMCGproducts,complexitrocessisnotthereandso,speedofdecision makingishigh.ThismeansthatforHUL,fionalusage. 11. PresentofExpertInfluencerintheDecisionMakingProcess Roles of sry depending upon whether expert influencer (e.g., doctors) is present in thef present, then consumer buying behavior may become subcontractedandtheexpertisanothercustomerofthenetwork,apartfrom the enduser. In that situation two gneeded to cater to both the segments. ImplicationforHUL ForFMCGgoods,roleof

ed.Butcompaniestrytoassociatebrandswith regulatory bodies/authorities and showth experts commenting upon superior virtues of a product in an attempt to makour shift from picking/variety


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23 seekingtosubcontractedandmakeconsumersmoreloyaltothebrand.Thesearetrueforute).

12. ElementofCrisisPurchaseExists If element of crisis purchase exists in thef a product (for example, bulbs & tubes),thenitsavailabilitybecomescritical.

one of the products of HUL fall under this category. Nevertheless, availabilityHULisnecessaryforotherreasons. 13. ElementofRiskAversionExists If the levelconsumer in buying decision process is higher, risk taking tendency of the coner or consumer will be more risk averse. In such a situation,channelmemberscicitorimplicitsuggestions. This implies that in such a case, selling dependse company is taking care of channelmembers(keepingthemhappy)suchthattheyarr directedbygrievancessoastounsellthebrand.Thissituationisprevalentmostlyin,Refrigeratorsetc.).InFMCGgoods,thesituationdoesnotexistperse. ImplicationfotsFMCGproductsbythisvariable.ForwaterpurifierPureIt,thiscan haveconsiderabenthroughchannelmembersratherthanby fieldsalesforceasishappeningnow. 14. Pert Iftheproductisperishable(havingsmallshelflife;examplesnewspaper,milk,fruifspeedinreachingtheendconsumersbecomescritical&T&Lassumesgreat significance

onforHUL The FMCG products that HUL sells are not perishable by nature, buthis aspectisnotcriticalforHUL. 15. TimeBandAssociatedwiththePurchaseofthePlity/cyclicity for the demand or purchase of the product (examples newspaper,emand in the 1st three hours of the day; cooking oil, rice etc


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24 grocery items are most on demand in the 1st week of the month), then highralrequirementsareneededforthelastmileforthetimebandwhendemandis maximum.pacity in the areas mentioned above outside the peak requiredtimeband. ImplicheproductsofHUL,theabovestatedvariableissignificant.Forexample,inFood segmengmentslikeLaundryDetergents,Shampoo&HairOil etc. this element of demand time

in extent. This underscores the importance of T&L for HUL as the transport instributors and retailers increasesinthe1st&4thweekofamonthfortheproductsmebovetheregularreplenishmentofstocksatretailersdonebydistributors.Festivalslikencrease the demand for personal care items like soaps, shampoos etc for a shoutionnetworkshouldbegearedupnottomissanysuchopportunity.

16. Fungibility Fungibility is the property of a good or a commodity whose inde capable of mutualsubstitution.Examplesofhighlyfungiblecommoditiesarecrudeoile, preciousmetals,andcurrencies.Fungibility hasnothing todowith theabilitytoyforanotherdifferentcommodity.Itrefersonlytotheeaseofsubstitutionofoneunittofthesamecommodityforallintentsandpurposes. Fungibilityisdifferentfromliquidableifitcanbeeasilyexchanged for money or for another different good. A go

t of the good is substantiallyequivalenttoanotherunitofthesamegoodofthesamce. It is said that commodities are fungible, goods tangible, services intangibesmemorable&transformationsareeffectual1. As an example, one Rs. 100/ banke with another. Cash is fungible. A barrelofWestTexasIntermediatecrudeoilise)withanotherbarrelof thesamecrudeoil.Oil(ofthesametype)isfungible. Fungib,andliquiditydoesnotimplyfungibility.Jewelscanbereadily bought and sold (theindividual diamonds, being unique, are not interchangeable (diamonds are not funian rupee bank notes are interchangeable in London (they are fungible there),asily traded there (they are not liquid in London).Incontrasttodiamonds,goldrealsoliquid,especiallyundera


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25 gold standard. The combination of fungibility and liquidity is one of the ras successfullyservedasmoneyforthousandsofyears. Further,afungiblethingcanbemecircumstances.Forexample,an old coin or a currency note may assume a valueace value due to historical reasons or due to some defects in it which makerom a viewpointwhichseesitdifferentlythanitsintendedpurpose. Theoutcomeofpr

emorefungibleaproduct becomes,higher isthe chancethatpartsofthedistribution.Agoodexampleofthisis dematerialization(Demat) routeforsharetrading nowwherenceof shares. ImplicationforHUL As branded FMCG goods are not fungible per secommoditize & differentiatetheproduct),theimportanceofchannelmemberswillconti

17. DegreeofCustomizationPossible Degreeofcustomizationdirectlyaffectseconomiesorthecustomization,lesserthe economiesofscale.Also,criticalityofsalesfieldforcmizationlevelsofthe offering. ImplicationforHUL ForFMCGproductsofHUL,whichamizationsarenotpossibleand thus with higher economies of scale, lower criticales from the standpoint of customizationofproductofferings,costsarelowerinthes. NegativeorPositiveReinforcingProduct Negative reinforcing products are thoset to avoid/reduce the problem (ex. insurance, washing machine, car battery e

forcing products are those which gratify the senses (ex. Perfumes, ChocolatesShopping experience becomes a criticalaspectforpositivereinforcingproductstoreavefeelings. ImplicationforHUL Axe & Rexona deodorants are distinctly positis from HUL, including others like Lux, Lakme etc. So these are seen in mostth high visibility displaystoreaffirmthefeelings.Consumersarewillingtopayhigh


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19. Value/VolumeRatio(ValueDensity)oftheProduct

26

ThisratioisveryimportantforboththecompanyandtheretailerforitstwocriticalasOI/sq. cm (retailers are actually in real estate business in true sense). HightisforbothcompanyandtheretailerashigherratiosignifieslesserT&L costperunit

anyandgreaterROIperunitofshelfspaceforthe retailer. ImplicationforHUL Ingl,valuedensityisrelativelylower.Inadditionto this fact, increasing trend towaack sizes increases the packaging density (increased packaging density increaseextent, but favours mechanized handling greatly,reducinghandlingcosts).Sincevalus,transportationcostswillbehigher andthusitisofeconomicsensetohavemanufactuetomajormarkets. ThisisthereasonHULhasvariousmanufacturingplants(40intotaliis is a pointer to the fact most of the major FMCG players (including HUL)turing dispersed across the geographic spread so as to lower transportation cos

7.FinancialAnalysisWe have taken data from CMIE database while analyzing the performance of markeluding distribution) functions of HUL and comparable companies. By comparable,

mpanies whose main economic activity, as defined in the CMIE database, is theple,maineconomicactivityofHULasdefinedinthatdatabaseisCosmetics,toilet prrep. Obviously, one major FMCG company in India, ITC, does not comeunderthisicactivityisTobaccobusinesswhichisnearly85%ofits totalrevenue.ButforthesakdITCalsoasitsnontobaccoFMCG businessrevenueinFY08wasRs.2511Cr.,nearlyaer HULinHULschosencategory.Butthefiguresforadvertising,marketing&distributioentages to its total sales may not be directly comparable to those figures ofgories are different and the impact of above mentioned variables on these twoibutionfunctionisdissimilar.OthermajorFMCGplayersnotincludedinthe analysis artannia & Tata Tea, which are mostly into the Food & Beverages


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27

segmentwhereHULhasrelativelylesserpresence(ProcessedFoods&Icecreamsegmentstoglyapproximately5%ofHULstotalsales).InTea,HULispresentsignificantly,though.tising,marketing&distributionexpensesofmajorFMCGgoods(inHULs categorymostly)

erstoodherethatmarketingexpenseshereinclude commissions, rebates, discounts, salnal, expenses on direct selling agents & entertainmentexpenseswhereasdistributioludeoutwardfreight. Exhibit1:AnnualSpendinAdvertising,Marketing&DistributionfuAnnual Rs. Crore Mar-08 Sl. Company Name No.1 HUL

Annual Rs. Crore Mar-08 Advertising expenses1422.9

Sales14937.88

Advert. Exp. As % of Sales9.53

Annual Rs. Crore Mar-08 Marketing expenses6.07

Marketing Distribution Exp. As % expenses of Sales0.04 731.41

Annual Rs. Crore Mar-08

Dist. Exp. As % of Sales4.90

2 3 4 5 6 7 8 9 10 11 12

Nirma Dabur Colgate-Palmolive Reckitt Benckiser P&G Home Godrej Emami P&G Hygiene & Health Henkel Henkel Marketing ITC

2651.15 2128.17 1597.3 1334.76 1079.57 922.78 586.42 556.02 430.33 417.79 21467.38

40.96 248.1 256.51 207.85 119.45 61.4 102.92 57.95 0 0 427.83

1.54 11.66 16.06 15.57 11.06 6.65 17.55 10.42 0.00 0.00 1.99

71.87 21.4 0 9.34 44.31 42.37 27.46 40.85 40.94 65.64 68.17

2.71 1.01 0.00 0.70 4.10 4.59 4.68 7.35 9.51 15.71 0.32

136.91 66.84 35.36 55.88 70.54 32.27 14.86 37.24 16.4 17.63 548.4

5.16 3.14 2.21 4.19 6.53 3.50 2.53 6.70 3.81 4.22 2.55

Exhibit2:AdvertisingExpensesaspercentageofSalesAdvertising Expenses as % of Sales 20.00 17.55 16.06 16.00

18.00 15.57


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Advertising Exp. as % to Sales

14.00 11.66 11.06 10.42 10.00 9.53

12.00

8.00 6.65 6.00

4.00 1.54 0.00 0.00 HUL Nirma Dabur ColgateReckitt Palmolive Benckiser P&G HomeGodrej Emami P&G Hygiene & Health Henkel Henkel Marketing ITC 0.00 1.99

2.00


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28

We can see here that Nirma, Godrej & Henkel (ITC also) have less advertisinges)thanHUL.Importantly,Henkelhaszeroadvertisingexpensesin2008,whichmayexplainslevelinconsumersforHenkelbrandsislow.HULadvertisingisdonemainlyin case of

mainly to reaffirm that its not a soap!), shampoos, deodorants (Axe), laundrel, Rin) etc. With the introduction of home waterpurifier(PureIt),considelexpenseshavegoneintoit. Oflate,weseeverylittleofNirmaadvertisements.Thisxpenseas % to sales, which is very low (only 1.54%). ITC is altogether a dites & other tobacco related products which constitute approx. 85% of its salesoxication or habitual consumption patterns having intensely brand loyal consumermost no advertising(surrogateadvertisingisdone)isneededeithertoreaffirmthebransumers to the brands (there is regulatory angle as well). Current consumers oroducts are the biggest advertising agents that ITC has and of course, they dd without knowing what theyre doing. But while moving faster into nontobaccoghighonitsstrengthofdistributionnetworkmatchingorsurpassinginsomecasesthatoressive advertising campaigns (Fiama Di Wills shampoo, Vivel soap, Sunfeast

rectlyfocusingonmarqueebrandsofHULlikeSunsilk& Lux,increasingtheheatonBre&othersnacksandchips fromPepsi,Cokeandothers. Advertising expenses as perest for Emami, which owns brands such as Navratnahairoil&talc,Boropluscreamir&Handsome,SonaChandi Chawanprash,Menthoplusetc,eachofwhichisadvertisedheavi,TV)with famous & expensive celebrity endorsers like Amitabh Bachchan, Kareenaa etc. On the other hand, we see regular advertising streams for Colgate tootral care products, in which category ColgatePalmolive is the market leader. Redvertises considerablyforitsbrandslikeHerpic,Mortein,Vanish,Clearasil,Dettol,Stchisthe reasonforitshighadvertisingcostaspercentageofsales. MarketingExpenarketingexpenseshereincludethefollowing commissions rebates


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discounts salespromotional expensesondirectsellingagents entertainmentexpenseketingExpensesaspercentageofSalesMarketing Expenses as % to Sales 18.00 15.71

29

16.00

14.00 Marketing Exp. as % to Sales

12.00

10.00

9.51

8.00

7.35

6.00 4.59 4.10 4.00 2.71 2.00 0.04 0.00 HUL Nirma Dabur ColgateReckitt PalmoliveBenckiser P&G Home Godrej Emami P&G Hygiene & Health Henkel Henkel Marketing ITC 1.01 0.00 4.68

0.70

0.32

Here we see that the marketing expenses of HUL are among the lowest in thelowest after Colgate Palmolive which has very good brand pull for its ColgvesthatHULisabletomaintainconsiderablebrandpullthroughadvertising. ITCagaincbaccoproductsrequireverylittlepushandhaveveryhigh rotations.Also,ITCmostly

istributors(paancigaretteshopsowners) whohavemarginalbargainingpower. Anotherkel,whichhaszeroadvertisingexpenditure,hasthehighestmarketing expenses among ais strategy to push the products through the channel partners may not be aight be losing out for the lack of visibility and thus consumer mind share ao, Fa, Neem toothpaste etc are losing out in the market. Further, it is alsohat Henkels largest business share is in industrial


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30

chemicals (adhesives, sealants e.g., popular brand Loctite; this segment conldwide sales of Henkel) and for B2B, advertising per se is not that much imprtant is directselling approach, which generally requires negotiations, volume d

c, whicharereflectedinhighestmarketingexpenses(aspercentagetosales)comparedtoween the extremes and with considerable advertising expenses also, it is unablecientpullforitsproductsinIndia(asevidencedbythefactthatmarketingexpensesare) or its getting stuck for the lack of sufficient distribution muscle a lalinIndiaandsuffersfromlackofreachandavailabilityattheendconsumerlevel. AslgatePalmolive and ReckittBenckiser both enjoys very good brand loyalties andip for their key brands like Colgate toothpastes and Dettol (#1 in antisepticstc.Thisiscorroboratedbythefactthatthesecompanieshavesomeof thelowestmarketiosales)inthegroup,asshowninthechart. DistributionExpenses Distributionexpenseeightcosttothecompany. Exhibit4:DistributionExpensesaspercentageofSales

Distribution Expenses as % to Sales 8.00

7.00 6.53 6.00 Distribution Exp. as % to Sales 5.16 5.00 4.90 4.19 4.00 3.50 3.14 3.00 2.53 2.21 2.00

6.70

4.22 3.81

2.55

1.00

0.00 HUL Nirma Dabur ColgateReckitt Palmolive Benckiser P&G Home Godrej Emami P&

G Hygiene & Health Henkel Henkel Marketing ITC


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31

WehaveseenthatT&LplaysaveryimportantroleforHUL&otherswhohavepanIndianpremolive,Emami&ITChassomeofthelowestdistributionexpenses(as %tosalesfigures)hisrespectthanNirma&P&G,buthigher than Henkel. This can be explained somewha

e variable, Time Band of purchase,ontheincreasedtransportintensityforHULinthuctslike householdpersonalcare,laundrydetergent,brandedattaetcinthefirst&lascco),Henkel(largelyB2B)aremostlyprotectedfromthisimplicationofthevariable. AngtorememberthatvaluedensityofFMCGgoodsisrelativelylower,causing share of trhe overall cost structure to be relatively higher. This implies dispersed manufating manufacturing plants nearer to major markets. So one location manufacturiner economies of scale and on the other hand, trying to serve geographically dnot be economically attractive for FMCG sector. Compared to HULs 40 manufacturs India, Nirma, the 2nd largest FMCG major in soaps and detergents category,g plants, all located in and around Gujarat. So, transportationcostofNirma,ifanmarketwillbehigher.Thisissupported bythefactthatNirmas higherdistributionrP&G,thesamereasons significantlyaffectitsdistributioncostwhichishighestfort


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8.References1. B.JosephPine,JamesH.Gilmore(1999),TheExperienceEconomy:WorkisTheatre& EveshedbyHarvardBusinessPress,254pages. 2. HULWebsite(http://www.hul.co.in/) 3. HUL

ce,InvestorPresentation(24thSept.,2008). 4. ReckittBenckiserWebsite (http://wwwkiser.com/site/RKBR/Templates/Home.aspx?pageid=1) 5. ColgatePalmoliveWebsite (http:/ww.colgate.co.in/app/Colgate/IN/HomePage.cvsp) 6. EmamiGroupWebsite(http://www.emamigroup.com/Brands) 7. CMIE 8. Wikipedia


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Documents

54438985 12950828 Distribution Management of Hindustan Unilever Ltd