SAP’s ERP system improves business operations for India’s packaged food industry
A brief overview of the opportunities, SAP’s ERP offers to food and beverage industry, with typically large product volumes and tight profits margins in one of the most cost conscious markets like India.
For the packaged foods industry, everyone from a crawling toddler to a retired person is a consumer. This sector is blessed with the largest target audience as everybody likes to snack. The packaged food domain includes bakery and dairy products, canned and frozen processed food, ready-to-eat meals, health products and drinks, chocolates, salty snacks and a large variety of local delicacies, which are amongst the favourite items on the snack list. The packaged foods industry in India is roughly estimated to be at $ 50 billion in 2017 and is expected to reach more than $ 60 billion by 2018-19. With improving consumer spending patterns in India, this industry sector is expected to grow at rate of 14-15 % for the next two to three years. This sector has a handful of large and organized companies which have a significant market share. Historically and even today, the packaged food segment is dominated by brands that are in-expensive and rudimentary, but in the coming years the share of these products is expected to decline as its market has reached a point of saturation. With rising incomes, consumers are now lured towards premium products and market share of the premium range is set to increase by 2019 as manufacturers are now aggressively entering this segment on account of higher prevalent margins. Increase in disposable income, changing lifestyles and growth in organized retail are the main drivers of this industry. Latest trends witnessed in the industry reveal that companies are focused on deploying latest technologies to improve the entire business eco-system, right from the quality of products with better tastes, newer flavours, improved packaging to optimized planning, production and logistics.
Everybody is familiar that India is a huge country with more than a billion people, but it’s not that simple to define India. India has a vast cultural and socio-economic diversity, which directly affects the tastes and likings of the people in the region. In order to succeed, companies require an in-depth understanding of the Indian consumer’s psyche and tastes. Companies with leading market share in the industry offer more than 50 brands that cater to India’s taste pallet. Some of the larger and more successful food companies are now reaching an annual production outputs of more than 1,000,000 tonnes (1 million metric tonnes). To achieve those levels of output, the effort required in terms of production planning, raw materials’ planning, logistics and the entire supply chain system is humungous and is proving to be an extremely exhaustive task for the management teams sitting at the headquarters.
For most of the companies, their current production and logistics approach was appropriate in the 1990s. But with rising commodity prices, companies are finding it extremely challenging to keep their profit margins in line with such high product volumes and 100s of pack sizes in different flavours being manufactured at numerous locations across the length and breadth of India. Catering to the entire Indian audience is rewarding but it also has tremendous expenditures involved. In order to reduce the costs, optimize the processes and at the same time increase transparency and availability of its products across India, some companies are focusing on technologies like SAP’s ERP.
Region based-demand driven production plans
One of the biggest advantages the SAP ERP system provides is the optimization of its production plans per product per manufacturing unit, based on the estimated demand of the region. This is the demand planning module of the SAP APO (Advanced Planning and Optimization). SAP’s APO is at the heart of the SCM (supply chain management). It offers planning and optimization functionalities in different business processes like demand planning, supply planning, production planning, detailed scheduling, ‘global available to promise’ and transportation management.
The system takes into account the constantly changing market scenario like product supply in the previous month, the current status of the product variant in the market i.e. retailers, the stacked up inventory of the product at distribution centre, availability of the manufacturing infrastructure at nearest factory for that particular product along with the availability of raw materials. This module helps in delivering a sufficient quantity of the required product in any particular region at the required time. This ensures optimum product quantity is produced and available in the market all the time, hence driving higher sales and improving the market share.
Apart from monthly production optimization, it also helps in the long term, to add or expand a manufacturing facility for a particular product variant in the region. For example, consider a product variant “X” which is extremely popular amongst the urban youth, but looking at its increasing popularity and consistent quality, the product demand amongst semi-urban and rural youth also started to pick up month after month. Most of the current manufacturing facilities for “X” are located and focused on meeting with urban demand, but in view of the data arising from the “demand-driven-production-plans”, it seems more practical to add to X’s production capacity catering to semi-urban and rural demand. This data also helps in scaling down the operations for a certain product which isn’t generating the desired response from the market.
An improved supplier network
From production planning, we now shift our focus on the production process requirements. With numerous manufacturing locations and 1000s of vendors for raw materials, ensuring every single gram of the required raw material reaches every single unit is quite a herculean task. Just imagine the chaos it can create in the functioning of a large organization. The SAP’s supply network modelling (SNP) system helps the organizations to connect across all its geographical locations. By connecting across all geographic locations, SNP helps to plan and procure the required raw materials and resources in the most cost effective manner. At the manufacturer level, it also provides the data on raw material consumption per shift per product, hence empowering the factory manager to analyze and make wise decisions to reduce wastage and losses.
Transparency at all levels
Transparency in movement of goods is one factor that is going to be hugely advantageous. A small example shows us how. A product “X”, continuously being produced is being piled up at the manufacturer’s warehouse, eating up all his storage capacity and hence forcing him to slow down and eventually stop his production until the stock pile was cleared out. After a stock clearance marathon, the manufacturer could now begin his production activity. The reason for the pile up is usually a miscommunication at the distributor end and lack of effective transparency between the management team, the dispatch team and the warehousing manager. But now, with the SAP system in place, the decision makers have the data available to make necessary arrangements for timely pick up of goods from the manufacturer’s warehouse to the distribution centre, hence avoiding unnecessary break-down in production.
Optimized and efficient transportation plans
With dispatches being linked with manufacturing, it helps the management team to organize detailed schedules and timely delivery of the packed goods from various points, thus ensuring a continuous and optimum supply of end product in the market. The handling of transportation via daily dispatch plans and transport route optimization along with transport carrier selection according to requirement plays a big role in reducing the logistics costs in the short as well as long term. Earlier, without SAP’s transportation management module, a product variant “X” being manufactured in western India would somehow be transported to a region in North India, which itself had enough manufacturing capacity of the same product variant. Thus increasing the company’s expenditure on fuel and transportation, but importantly loosing time and money with the taxes to be paid at the state borders. Although with GST (goods and service tax) soon to be implemented all over India, the issue of state border taxes and traffic congestions seems to have resolved, but with ERP in place, the production and dispatches for any region are now catered locally and efficiently.
Source: Sushen Doshi, International Correspondent, World of Industries – Intralogistics & Distribution