Consumer is king. But what does he want? And how much? FMCG cos 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 a fast-moving consumer goods (FMCG) player plans a new product launch based on its estimation of the demand and consumer preference, the company assumes that the product would click with the consumers after it travels the length of the supply chain. It then does some number crunching and manufactures the quantity which it feels would easily meet the demand of the market.
However, if marketing experts are to be believed, there has been a dip in the success rate of new product launches. One reason 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 lot of the manufactured product is packed off to godowns, the other lot gathers dust somewhere 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 consumer demand. The solution, according to experts, lies 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,” agrees Nitin Paranjpe, CEO & MD, Hindustan Unilever (HUL), “needs to respond to the market.” Paranjpe says that consumer needs keep changing and so does their expectation. “This would be a constant struggle, but the supply chainin future would be far more responsive to signals. It would start becoming leaner and would keep less inventory. It would, therefore, be able to respond to the many dynamic changes which we will see in the market place,” says Paranjpe.
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, Hindustan Unilever is running ‘twin track’ on 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, according to R K Sinha, COO (marketing & operations), GCPL, is to replenish the stocks as they move. “The system, in which GCPL operates by design, is much more responsive. As demand for any product picks up, it is automatically met. There is no manual procedure involved,” says Sinha.
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 its 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,” says Sinha.
Similarly, the demand for Godrej’s liquid detergent Ezee is higher in the northern region during winters. Over the last few seasons, GCPL has been able to meet the demand by ensuring steady supply of Ezee to pockets where demand was high. “All it takes is a feedback loop to understand how products are moving in the system in different parts of the country,” says Sinha.
The result is visible in Ezee’s growth. While the market for liquid detergents grew by 12% last year, Ezee grew by over 30%. As for new product launches, Sinha says GCPL follows the go-to-market approach for a maximum of one month.
“We do not keep forecasting. We quickly move to the dynamic system where we are able to estimate demand and meet the requirement.”
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,” says Gurunath Nayak, supply chain head, P&G India.
For P&G, says Nayak, the essence of such management, or the centre of focus, has always been the customer. And that has not changed.
‘Demand-led model will cut losses’
“We continue to design and manage our supply chains to be demand-driven based on customer insights. That we truly believe, will in long term help improve more lives, in more parts of India, more completely,” says Nayak.
A few months back, when P&G had put up hoardings about the ‘mystery shampoo’ — a new Pantene shampoo which it was about to launch in India — it said 80% women said it was better than any other shampoo. By saying so, P&G was telling consumers that it had sought feedback from a certain group of consumers who had given their stamp of approval.
Such instances, feel marketers, will increase as companies understand the importance of determining what consumer wants. Once a company is sure about the response, it will not go wrong on quantity it needs to supply. A demand-led model would also cut down losses in case of failure. Another pointer to this trend is the emergence of consumer cocreation. This is different from feedback mechanism based on quantitative market research as the consumer is directly involved at the product development stage.
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