Importance of Responsive Replenishment in Consumer Products and Retail Industries

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It has been said that the only thing more difficult than being indifferent to India is to attempt to describe or understand India completely. Most retail and consumer products companies are no longer indifferent to India. It is the fourth largest economy in the world, in terms of Purchasing Power Parity (PPP) and is expected to rank third in 2010, just behind the United States and China. Moreover, recent liberalization of Foreign Direct Investments (FDI) policies for retail trading has reduced barriers to entry for single-brand retailers and for the first time allowed them to control their operations in India. It, thus, comes as no surprise that retail and consumer products are the fastest growing sectors in the Indian market today.

As competitive pressures mount, consumer products (CP) companies as well as retail set-ups, coping up with increasing consumer expectations, more demanding retailers, and maintaining efficiencies is made possible through new technologies such as radio frequency identification (RFID). However, existing strategies to deal with these continuing problems, like making existing processes more efficient, and optimizing the cycle of planning and forecasting, are approaching a limit beyond which improvements will be hard to come by.

The need of the hour for retail and consumer product companies is to build their entire supply chains around their specific business; and to do this, the supply chains need to be tailored to be adaptable and flexible i.e. responsive to fluctuations in consumer demand. The new-age supply chains should be able to sense the variations in consumer demand and buying patterns and respond with managing the production schedules to meet these changing needs.

The heart of such a supply chain would be the "Responsive Replenishment" function, which helps integrate data across various platforms, such that consumer demand data can be used directly to control other functions in a supply chain like distribution, transportation and manufacturing schedules.
In this paper, we first undertake a study of the Consumer Products Industry (specifically FMCG Sector) and Retail Industry in India, following which we look at the typical processes in each of these industries. We then look at the current trends in the supply chain domain with a specific focus on the FMCG and retail sectors. Next the concept of a consumer-driven supply chain is introduced followed by how the implementation of a responsive replenishment solution would help improve processes detailed earlier.

Industry Study – FMCG (Fast Moving Consumer Goods)

The FMCG sector has been the cornerstone of the Indian economy. The consumer products industry consists of a range of products from soap to automobiles – consisting of two sub-categories: durable and non-durable goods. The FMCG sector specifically refers to consumer non-durable goods required for daily or frequent use.

In India, the Rs. 80,000 crore FMCG sector consists mainly of 3 sub-segments viz. personal care, oral care and household products. Since the industry caters to goods that are used regularly in every household, volumes hold a key here. Traditionally, margins are low, hence maximum emphasis is placed on the marketing and distribution functions in FMCG organizations.

The sector, as such, consists of both organized as well as unorganized players. However, recent trends in consumer behavior seem to indicate that there is increasing brand awareness in both the rural as well as urban markets, with over 65% branded goods sold in the rural markets of India.

Some of the salient features of the FMCG sector can be summarized as follows:

•Heavy launch costs
The cycle for launching a new product is often long-drawn consisting of intensive market research, product development, test marketing. Further, the actual launch in the market is characterized by capital intensive activities like advertising, promotions and free sampling....
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