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FMCG Foray Into Digital Commerce PDF
FMCG Foray Into Digital Commerce PDF
Table of Contents
Introduction
Hybrid model
10
Order Processing
10
Inventory Planning
11
12
Demand Planning
13
Customer Service
14
Models Comparison
15
16
17
17
18
Conclusion
19
Introduction
FMCG industry in India has evolved gradually over
a period of time both in terms of new technology
adoption & efficient processes benchmarked to
international standards. The FMCG industry is
characterized by diversified, relatively low
involvement products with little differentiation.
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Customer Dynamics
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Cost conscious
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1990s
Brand Loyal
General Trade
Lack of time:
One stop shopping
with diversified range
Modern Trade
2020s
250 ml
Suppliers
Robust and
Scalable Platform
with Intuitive UI
Customer Service
Oriented Org Culture
Manufacturer
Warehouse
Distributor
Retailer
End Consumer
This arrangement allows the company to skip one echelon (retailers) in the distribution network and
service the online customers directly through its distributors. Such a scenario puts the onus of order
capturing, order processing and order fulfillment on the distributor. Such a channel will leverage the
companys existing distribution network but will bifurcate online and offline channels at the distributor
level, thus giving both channels some autonomy in terms of control and channel performance metrics
establishment. The distributor can use its existing storage space and operational processes to handle the
delivery of the orders with much ease. The key challenges with this model would be to increase the
operational efficiency of the distributor warehouses to maintain a high OTIF for online orders and to bring
about a cultural change within the distributors organization and make it more customer-centric.
Manufacturer
Warehouse
Distributor
Retailer
End Consumer
An FMCG company may decide to enter the online channel through several possible means. The decision
on approach will be guided by the existing strengths of the company and the desired To-Be state.
In our view, there can be four different courses that can be taken while utilizing distribution strength from
traditional channels and at the same time maintaining service requirement and customer focus that is
required in an e-commerce business. The four distribution models proposed are:
Hybrid Model
The company utilizes both whole sale distributors and retailers for online order fulfillment. This model
gives the customer a choice of delivery mode. The customer can either opt for home delivery or choose a
retail store for pickup. The delivery or choose a retail store for pickup. The order processing will happen at
distributor level. In case of home delivery, the distributor will send the order across to the customer and in
case of a retail pickup, distributor will service the order till retailer point. This model addresses the
concerns of non-availability in case of major retailer model and longer delivery times in case of the
distributor model.
Option 2
Suppliers
Suppliers
Manufacturer
Warehouse
Distributor
Retailer
Warehouse
End Consumer
Own Network
Manufacturer
Distributor
Retailer
End Consumer
Option 1
! FMCG entry to the digital commerce space can happen through multiple routes.
! While some options will leverage the existing network and capability, others may offer a completely
separate channel for more focus and evolved processing needs of digital commerce space.
! Companies will also have an option to pick and choose the best from both worlds
Model Used
Key Activities
Hybrid Model
! Order Processing
! Inventory Planning
! Last Mile Delivery
! Demand Planning
! Customer Service
From a go-to market perspective, these elements will present unique challenges and opportunities for
each of the four options. It will be important for a company to evaluate its existing strengths and
infrastructure around these focus-areas before taking a call on which approach they would like to follow.
Order Processing
Order processing is the cycle from receiving the
orders to final delivery to the customer. The
main activities involved in this are order
capturing, picking, packing and delivery of
packed items to shipping carrier. When an FMCG
is going for online channel/direct to customer
channel for selling its goods, it needs to change
its order processing practice. It is a shift from
B2B from B2C. It will need a customer interface
for placing an order online and a backend
mechanism to collate process and fulfill these
orders. It will also have to provide information to
the customer enabling him to trace his order.
This will require the company to have an
integration of Item and Price Masters, Inventory
for in stock positions and replenishments,
delivery details etc. throughout the supply chain.
An additional training will be needed to bring
customer orientation within employees. Training
will also be needed for warehouse operators and
delivery personnel to process online orders.
There will be some differences in order
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Inventory planning
Online ordering provides flexibility for fulfillment
through different nodes. Hence, what inventory
to keep where and at what level becomes an
important decision point. Inventory planning will
thus be a key factor to have an efficient online
presence. With high customer expectations and
competitive digital commerce space, the
criticality of fulfilling orders in a very short lead
time necessitates keeping a high inventory level.
Such an approach in turn impacts the freshness
level of stock and adds to the overall cost. So
deciding an optimum inventory level is very
important for the success of FMCG venturing
into e-commerce. The inventory policy would
have to be replenishment based and agile. The
different models require inventory norms
modification at different levels.
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Some salient features of inventory planning which would be peculiar to the type of channel used are:
Model Used
Key Activities
Hybrid Model
Demand Planning
Demand planning is a multi-step operational supply chain management (SCM) process used to create
reliable forecasts. Effective demand planning can guide users to improve the accuracy of revenue
forecasts, align inventory levels with crestsand troughs in demand, and enhance profitability for a given
channel or product. A big change that online sales will bring into the demand planning process is the
direct access to true customer demand. With the direct availability of demand data, sales data, customer
demographics and click data, companies will now have the potential to analyze sales trends, customer
analytics, new product introduction analytics, introduce online sampling, promo design analytics, promo
effectiveness monitoring etc. The online sales medium provides the manufacturer with plethora of
customer data. The company can know who is ordering what, in what order mix and at what time. All
these help in a more robust and accurate demand planning. At the same time, with so much data to
consider, demand planning becomes a very tedious exercise. The model has to be more dynamic/agile to
utilize the benefit of the customer analytics.
Model Used
Model Used
12
Key Activities
Hybrid Model
Key Activities
Hybrid Model
13
Models Comparison
Customer Service
Customer service is an important aspect in digital commerce space on account of highly aware customers
and increasing competition. With customers willing to spend more money in lieu of better convenience, it
is imperative that customer service is taken great care of. Herein, having ones own last mile delivery will
provide better customer service in terms of adherence and control over quality and timelines compared to
options like delivery through retailer and distributors. Self-owned LMD can also be a channel for hearing
the voice of customer which can feed back into the system.
Model Used
Hybrid Model
Separate
Online Channel
Dedicated
resources
Key Activities
Leverage existing
Customer
Oriented Mindset
Special secondary
packing needs
Order Processing
Through
Wholesale
Distributors
Hybrid Model
Existing
infrastructure
available for order
processing
Existing
infrastructure
available for order
processing
Picking and
packing order
wise will require
staff training
SOP for
demarcation of
online and offline
order processing
is required
Utilizing existing
retail network
Easier to plan
Additional safety
stock will be
required to be
kept separately
Keeping a real
time track of
retailer inventory
will be difficult
Inventory planning
The key cornerstone elements will provide a reference point for FMCG companies to
evaluate which strategy to use for getting into the digital commerce market
Pre-existing
inventory norms
available
Pre-existing
inventory norms
available
Special training
need to employ
customer oriented
mindset in staff
Special training
need to employ
customer oriented
mindset in staff
More flexibility to
customer
Better
aggregation is
possible
Quicker lead
times to service
order
Better
aggregation is
possible
Voice of customer
can be channeled
through delivery
personnel
Better equipped
personnel to do
customer facing
transactions
Pre-owned
delivery assets
can be leveraged
Handling reverse
logistics will be a
challenge
Handling reverse
logistics will be a
challenge
Demand Planning
Advantage
14
Specific and
evolved model
can be used for
online channel
Demand Planning
data needed at
retailer level for
online sales
Existing demand
planning
framework can be
used
Existing demand
planning
framework can be
used
Challenge
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Higher time to
serve order
Direct Data
available for
analysis
Customer Analytics
Voice of customer
may not reach the
organization
Lesser control
over data
reporting by
retailer
Higher time to
serve order
Voice of customer
may not reach the
organization
Direct Data
available for
analysis
Hybrid Model
Voice of customer
may not reach the
organization
Direct Data
available for
analysis
Others
Advantage
Separate Infra
Setup
Enhance Customer
Convenience
Multiple Payment
Options
Loyalty Benefits
*
24 & 7 Order
Availability
Increase Sales
Doorstep
Delivery
New Channel
Introduction
Low channel
conflict
Initiatives
Channel conflicts
may happen with
existing channels
Partial channel
conflicts
Integration with
ERP Systems
Reliable & Scalable
Ecommerce Platform
Business Driven
Order Processing
Strategy
Fulfilment Strategy
Catalogue Creation
Loyalty Program
Business Analytics
POS Data
Customer Demographics
Promotion Schemes
Increased
Customer Base
Targeted marketing
communication
Freshness
Technology Driven
Additional leg of
data integration is
required
Separate Staffing
ITC Infotech can engage with FMCG organizations to develop Direct-to-Customer strategy and implement
it at strategic, tactical &operation level. The below mentioned framework can help the company achieve
the objective in a phased manner. Over the years, ITC Infotechhas built capabilities & domain expertise to
build an e-commerce organization around technology, process & people.
Objectives
Customer Service
Leverage existing
good terms of
retailer with its
customer
Through
Wholesale
Distributors
Value Proposition
Better degree of
control over
customer service
Utilizing existing
retail network
Enablers
Separate
Online Channel
Organization Driven
Ecommerce
channel Setup
Product Information
Assortment Planning
Sub Category/Category
Price & Discount
Fig: Strategy framework for Establishing Direct to Customer Channel for FMCG companies
Challenge
! As a part of the strategy, the ITC Infotech team has identified the following key design principles to
establish Direct-to-Customer channel for FMCG companies:
Utilizing existing
retail network
Distribution Penetration
! Convenience shopping anywhere, anytime through e-commerce and m-commerce channels with
availability of commerce platforms
Hybrid Model
! High Consumer Service levels and robust fulfilment backbone assured delivery within prescribed
delivery windows; intra-day, next day etc. in line with needs of freshness and in line with market
competition
! Have efficient inventory management, delivery mechanisms
! Pricing algorithms for competitive pricing
Through Whole
sale Distributors
Separate
Online Channel
! Convenience around variety of payment options online payment; Cash on Delivery, mobile pay,
vouchers etc.
! Friendly returns policy
! Rich User Experience comprising ease of ordering, intuitive user interfaces, guided selling,
recommended products using auto suggestions, etc.
Technology Advancement
17
User Experience
Adherence to branding
guidelines and
communication as
defined by Corporate
communication team
customer needs
Robust Platform
ordering transactions
promised
Integration with
Enables customer to
complete a transaction
quickly
Efficient Fulfilment
Ability to scale up to
large volumes
e-commerce orders to
link up to inventory
systems on real time
basis
including Information
Customer Privacy
Protect information
Protect information
Conclusion
In the time to come, polar positions will be taken by those FMCG companies who can crack the complex
Omni-channel fulfillment mechanism keeping top KPIs as service levels and OTIF in black. To achieve this
objective, Direct-to-Customer strategy will pay a pivotal role and companies have to weigh, which option
to adopt basis their distribution maturity or the agility with which they can train their people, adapt to
new process and invest in new technologies. D2C is an option today but it is only a matter of time for it
to become a necessity.
Convenient payment
modes
deployment
Technology Strategy
! Core online platforms to be designed for
About Authors
Abhinav Verma is Senior Associate Consultant at ITC Infotech, Business Consulting Group, specializing in
CPG domain. He holds a Bachelors degree in Management Science with an M.B.A in Marketing & Finance
with 11 years of experience in Territorial business planning & Logistics, Customer Analytics, ROI
management, Profit centre management, Risk Management, Vendor development & Procurement, Key
Account management and Quality management in CPG sectors. He has built comprehensive Financial
Benchmarking models, Redesigned the Demand estimation & Promotional Planning process, set up SOPs for
Centralized Order Processing system & SKU rationalization and has created Process Blue print for
Distributor Management System (DMS) for CPG Sector companies.
Anurag Tripathi is a Supply Chain professional and enthusiast with experience in CPG, Retail,
Manufacturing and Hi-Tech industry. He has worked in areas around Supply Chain Integrated Planning,
Supply Chain Transformation, Fill Rate Improvement, Order Management and Supply Chain Performance
Management. Anurag is currently employed as an Associate Consultant in Supply Chain Practise within
the Business Consulting Group at ITC Infotech.
Anurag Tewari is an Associate Consultant in Supply Chain Practice within the Business Consulting Group
at ITC Infotech. He holds a management degree in General management with focus on supply chain
management and has 3 years of professional experience spanning in the fields of project management,
Warehouse design and operational excellence and distribution planning.
ITC Infotech has the capability to help FMCG companies at a strategic, tactical and operational level in
entering into the Digital commerce space
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