Factor Analysis

For each of the two item scales i.e. agreement and adoption continuum, exploratory factor analysis was used to identify a smaller set of factors to represent the relationships among the variables prudently i.e. to explain the observed correlation with fewer factors. In this research, principal component analysis with eigenvalues greater than one was used to extract factors and varimax rotation was used to facilitate interpretation of factor matrix. The Bartlett Test of Sphericity (value = 1919.451 and significance value = 0.000) was used to validate the use of factor analysis. The value of KMO came out less than 0.5 because sample size for research was comparatively small. The reason behind small sample size was that the total size of population as Indian FMCG firms under organized sector is in itself limited to nearly 120 firms.

Factor analysis with aforesaid method was applied on agreement continuum and items with factor loading above 0.50 (with a few exceptions) were considered to determine item representation to a single factor.

The exceptions are given as:

• Sharing of real time demand and inventory information with suppliers/dealers,

• Key suppliers locate personnel within focal firm (JIT-II) and

• CRM is only 20 percent technology and 80 percent successful involvement of employees

• Factor 1: Coordination with supply chain partners i.e. suppliers and customers.

This factor comprises the eight practices that address collaboration among supply chain partners. This factor accounts for 16.4 percent of the variance in the data.

• Factor 2: Operational networking with suppliers and logistics service

providers. This factor involves the six operating practices related with suppliers and logistics service providers. The factor accounts for 11.6 percent of the variance in the data.

• Factor 3: Cross functionality in joint action with suppliers and customers. It involves four practices, out of which two are directly related with the involvement of suppliers and customers in new product development process. Rest two are concerned with costing and manufacturing flexibility. This factor accounts for 8.64 percent of the variance in the data.

• Factor 4: Mechanistic of SCM implementation. This is basically related to

strategic outsourcing and it involves three practices, which comprises 8.06 percent of the variance in the data.

• Factor 5: Collaborative Forecasting and Sales planning: It involves two practices and these two practices account for 7.65 percent of the variance in the data.

• Factor 6: Leanness of Supply Chain: It involves four practices, which indicate the focal firm’s willingness to reduce waste and streamline the processes through proper planning. These four practices account for 7.49 percent of the variance in the data.

These six factors accounted for a total of 59.88 percent of the total variance in the data shown in table 2.

The clubbing of various SCM practices of Indian FMCG organizations emerged as few exclusive factors through research study, which were different on agreement continuum and adoption continuum from each other. The result of study revealed that supply chain partnership and supply chain networking are considered to be dominating factors for Indian FMCG organizations. This seems to be quite true with the rapid spread and development of IT and telecommunication tools and techniques throughout India, which is facilitating the bi-directional flow of information and enhanced level of coordination and collaboration. Besides that leanness or operational efficiency factors have high degree of agreement but low level of adoption. The reasons behind the same are basically infrastructural bottlenecks and the presence of unskilled and semi-skilled suppliers at backend and distributors at front end of the supply chain. However, cross functionality and strategic outsourcing are leading on adoption continuum.

A truly integrated supply chain requires a huge amount of commitment by all members of the supply chain. The focal firm might require to overhaul the purchasing process and integrate suppliers’ R&D teams directly into its own decision making processes so as to leverage on it’s own core competency and partners’ core capabilities. Integrating the purchasing and logistics processes with other key corporate processes creates a closely linked set of manufacturing and distribution processes. It further allows focal firm to deliver products and services to both internal and external customers in a more timely and effective manner.

4. Modern Technology used in Supply Chain Management

4.1 The Technological Evolution of Supply Chain Management

SCM technology has come a long way since the early 60’s when systems were mainly based around financial measures. As technology progressed, purchasing and order entry were added, evolving into simple Manufacturing Requirements Planning (MRP) systems. However the organizational model was still firmly based around departmentalization. MRPII (Materials Resource Planning) organizations had realized internal efficiencies the only way to achieve more was to extend the organization, and SCM was born.

Progressing to SCM is an evolution, both in terms of technology and organizational culture. There is no doubt that today’s SCM systems have the potential to deliver huge competitive advantage in areas such as manufacturing and distribution. However, successfully implementing them can be a significant challenge.

Figure 7: Evolution of Supply Chain Management Technology

4.1.1 The Business Benefits Technology Can Deliver

The Internet is bringing SCM to the front line of business management. As well as providing the essential ‘back-office’ fulfillment for successful eBusiness, organizations are discovering the real benefits of eBusiness where Internet exchanges are streamlining purchasing operations, accelerating procurement cycles and cutting inventories, thus taking significant cost out of key processes.

But Internet enabled SCM is having a more dramatic effect on the business model, particularly the way that company performance is being measured. A major challenge is whether your supply chain is nimble enough to accommodate the new customer-centric demands for total connectivity with customers and suppliers; increased velocity as a performance measure; greater flexibility to meet rapid shifts in customer demand;

and customer-beating service levels.

4.1.2 Making the right choice

When selecting the right SCM/AP S solution for your business, addressing the following questions and issues will pay dividends:

Is the solution a specialist stand-alone product or an integrated part of a larger ERP system?

Stand-alone may be better if you are running different ERP systems. However, if you are using a single ERP system, the argument to select an APS add-on from the same vendor becomes more compelling. You should also take into account the systems your partners are running.

How well does the solution communicate with transactional ERP systems?

Does the technical architecture of the solution support scalability, i.e. can it grow as its application in the organization grows?

Has the solution been developed organically or by acquisition?

Many AP S products, which have grown by acquisition, experience design integration problems. What are the development plans for the product?

How much does it cost and what is its value potential?

How well does the solution address the specific needs of your industry? Are there current reference sites available showing successful applications of this solution within your industry?

4.1.3 The outsourcing solution

The increasing complexity and cost of maintaining I T systems in-house and the move to focus more on core business activities have sent many organizations down the outsourcing route. Apart from the strategic imperatives of cost, efficiency and short-term profit performance, outsourcing also provides benefits at an IT level. The complexity of ERP and SCM technologies (which are often in direct proportion to the strategic value of the system to the company), the speed at which technology is

evolving, and the cost of specialist skills required to support these applications, means outsourcing all or part of the management of an SCM system provides a cost effective and flexible solution.

4.2 New techniques adopted by FMCG firms to improve efficiency Companies looking at 10-20% improvement in production.

Fast moving consumer goods (FMCG) companies are looking at a 10-20 per cent improvement in production and efficiency levels, thanks to adoption of new technologies to track expansion of product portfolio, manufacturing locations, aggregating godowns and shipment warehouses.

The new technology adoption by FMCG companies like Eveready, Marico, Emami and Godrej Consumer Products, is expected to ensure faster access to shared

information, seamless integration, accuracy, cost-control and ease at the factory and warehouse level. FMCG companies will spend around 10-15 per cent of net profit on technology implementation and upgrade.

Over the last few years, most companies have forayed into a diverse portfolio of businesses in FMCG alone, which has not only led to the rapid expansion of the supply chain but has also enhanced its complexities.

Emami’s recent investment into IT, for instance, has ensured finalisation of its balance sheet in a record 35 days, against the earlier norm of 60 days.

“We foresee a 10 per cent improvement in production and efficiency levels at Emami.

This will be achieved by implementing sales and operation planning, demand

management and distribution resource planning, which will enable system control to forecast sales, check inventories at locations, plan manufacturing resources and logistics to meet the customer schedules. It will also enable us to keep track of and monitor finished goods inventories as our products are seasonal in nature,” according to Manish Goenka, director, Emami Group.

Emami has implemented Wi-Fi at its corporate office. Also, for unified

communications, Cisco products like call manager and IP phones are under evaluation and trial runs are on to connect the Emami corporate office with two factories in Kolkata and Guwahati. This is expected to be implemented soon. A video conference (VC) system has already been implemented at Emami corporate office.

“We have implemented SAP ECC 5.0 in all functions, including manufacturing and supply chain that results in seamless integration of all business functions. This brings about faster access to shared information, cost control and complete sales

information,” Goenka said.

It also helps in monitoring the inventory norms, no over stocking, MRP-generated purchase requisition, control on finished goods from manufacturing date, as well as secondary sales automation to get data instantly.

Emami is also introducing bar-coding at the warehouse for product identification, traceability and managing finished good inventory.

Eveready, on its part, is investing close to Rs 3.5 crore, with a return-on-investment (RoI) period of two years, to implement primary enterprise resource planning (ERP) software and disaster recovery solutions from Hewlett-Packard. While the

infrastructure is being built by H-P, the implementation will be by IBM.

“We had diversified into new businesses like CFL and home light. We needed advanced supply chain management software that would take care of end-to-end demand management and market forecast and accordingly plan module for delivery and despatch chain,” said Arup Choudhury, senior general manager (IT), Eveready.

Eveready currently has 34 warehouses in India and is looking to consolidate operations into six mother warehouses, as a means to bring down overall costs.

“We expect to reduce inventory time to 10 days from 15 days right now. We also intend to consolidate our warehouses into six, from 34 right now. Each mother warehouse covers an area of 15-25,000 sq ft,” Choudhury said.

At Marico, the biggest challenge became its conventional financial management processes and traditional methods of budgeting and strategic planning. The existing system was not capable or flexible enough to incorporate the drastic surge in business.

Finance teams faced a number of problems when it came to collating data, managing various budget versions and reporting, leaving Marico with a vast increase in manual work, no time for critical analysis, and a strong need for an automated budgeting, planning and reporting solution.

V Subramanyam, vice-president (information management), IBM Software Group (India and South Asia), said: “Marico found that IBM Cognos TM1 helped take the time and weight of collating, aggregating and reconciling data off their shoulders, had a marked increase in flexibility and was easy to use. Employees found that they had more time to analyse financial performance, identify opportunities and influence better business outcomes, giving them a significant edge in the area of financial performance management.”

Godrej Consumer Products, on its part, has outsourced its information technology (IT) requirements to Hewlett-Packard (HP). H K Press, vice-chairman of Godrej

Consumer Products, said: “We have retained the core team of close to 7 people, the remaining (around 23 people) have been shifted to H-P payrolls. H-P will take care of both our software and hardware requirements for all kinds of operations.”

In the short-term, Godrej Consumer would be looking at reworking its supply chain and logistics costs once goods and services tax (GST) is implemented from April 2010, and CST is phased out from 4 per cent to nil. The company also intends to consolidate the FMCG companies in the Godrej Group and so, post-GST

implementation, it would be looking at how the group FMCG companies can get together to use common depots and supply chain. This would not only reduce cost of operations but also enable reduction of inventory levels.

4.2.1 RFID in the FMCG Supply Chain Management Application

The 20th century, the automatic identification industry can be said that the world of bar code technology, since the 70 in the 20th century to promote the application of the global bar code system of goods (that is, EAN-UPC system) Since the birth of bar code technology in a rapidly developing situation occupation from the business-to-industry, from warehousing to the flow of almost all data management applications, can be said that the bar code technology on supply chain management, from the commodity production, management and circulation is an important contribution to the development of modern logistics, providing management, lower management costs and the promotion of global economic integration process of laying a solid foundation.

However, with the changing times and technology, constantly updated, bar-code technology has been unable to meet existing Enterprise applications. Such as fast-moving consumer goods supply chain management, as a result of the special nature of the industry, short-cycle circulation of goods for goods in real-time transmission of information requirements. The existing bar code technology within a short time from a large number of commodities of goods to obtain information, the only way to be man-made one-on-one on the way to complete the scan. Wal-Mart & RFID

program & The implementation of RFID is no doubt that in the fast-moving

consumer goods supply chain management in the development of a powerful fulcrum.

At present, many businesses have been aware of RFID in the FMCG industry, the necessity of application of the domestic fast-moving consumer goods enterprises in Guizhou Maotai Group has also launched a wine-based anti-counterfeiting RFID technology research and application of RFID technology in supply chain management applications. At the same time, as a fast-moving consumer goods supply chain

management is an integral part of the development of cold chain logistics needs of the RFID technology more strongly.

4.2.2 System Solutions

To EPC Global standards for RFID smart label wireless Radio Frequency wave through the issue, so that a new automatic identification technology breakthrough, in a short period of 1 second, 200 commodities can read information, and through wireless Internet data model to update. This technology into the entire supply chain of

enterprises, it will solve the existing bar code technology is not possible to identify a number of product issues, the smallest unit for each of the flow of goods, the

establishment of a global symbol in order to achieve the entire supply goods chain in real-time tracking and management. At the same time, greatly increased the fast-moving consumer goods supply chain, the progress of the entire process.

System basic configuration:

(1) packaging using rf Tags: Smart Label sticker model, 915MHZ, ISO18000-6/EPC standards, paste fixed position in the commodity.

(2) required RFID equipment: EPC Globe standards to support the two-standards-compliant reader, and have the network interface; fixed reader; handheld terminals.

(3) software systems: label distribution system (including device drivers), authentication system, the local database system and the local ERP system.

(4) other equipment: site computers and wireless Internet equipment.

4.2.3 RFID in the FMCG supply chain management applications in specific aspects of To soft drinks as an example, manufacturers of RFID in the context of the

production line, the use of shipping links; in logistics and distribution sectors of warehousing, distribution, transportation applications, as well as the shelves at the retail chain management, order management, sales management, etc. applications.

Soft drinks cans in each package are the use of a RF tag. Tags size in each tab has a sand equivalent of an electronic chip and antenna. In this tab of the micro-chip storage of the electronic product code, or EPC. Cans of soft drink each have a unique EPC code.

4.2.4 RFID applications in the manufacturing chain. Carried out in the beverage filling lines, the lines at various locations on the RF tag reading equipment will be automatically sent the data read command, and receive feedback from the label. The data collected by the production control systems and records, and further into the enterprise production management system, automatic counting and tracking database product. At the end of lines, canned drinks have been put into the box, in the same box with a RF tag, when a box of finished beverage packaging and production control system of RF would be label printer driver (a special electronic chip to write data, printers, usually at the same time the existing functions of barcode printers), will be detailed information on the box (Transport bar, production date, etc.) to write to this tab, at the same time, data storage management system into production in. These boxes, stored in the warehouse when he was placed in the tray, each tray also has a RFID label. Delivery platform in the top of the door there is a RFID reader device, when the tray through the door, the read-wave radio equipment, the activation of these labels. At this point, the label wake up over and began to send their EPC, a reader only a label statement. It will be followed by rapid opening and closing of these labels, until the entire label reading so far. Mature technology on the current view, every second, RFID reader equipment can successfully read the RFID tags 200. First of all, this information was passed to the software system, and then in the local area network or the Internet service system to resolve the object (ONS), search with the EPC-related commodities, like the Internet, like the registration, ONS role is the software system data into the enterprise database, and retrieve objects Network. Data for each product will be a physical markup language (PML) to store, similar to the popular XML, can perform some tasks common enterprise. Tag reading equipment and systems, will receive EPC data transfer, while the follow-up drive system. The system via the Internet (objects networking) to the Object Name Service (ONS) database to send information, the database is like a reverse telephone directory service, that is, according to numbers provided by the address received; ONS server EPC encoding and there are a large number of the product information that matches the server address, the data all over the world not only for the use of software systems,

4.2.4 RFID applications in the manufacturing chain. Carried out in the beverage filling lines, the lines at various locations on the RF tag reading equipment will be automatically sent the data read command, and receive feedback from the label. The data collected by the production control systems and records, and further into the enterprise production management system, automatic counting and tracking database product. At the end of lines, canned drinks have been put into the box, in the same box with a RF tag, when a box of finished beverage packaging and production control system of RF would be label printer driver (a special electronic chip to write data, printers, usually at the same time the existing functions of barcode printers), will be detailed information on the box (Transport bar, production date, etc.) to write to this tab, at the same time, data storage management system into production in. These boxes, stored in the warehouse when he was placed in the tray, each tray also has a RFID label. Delivery platform in the top of the door there is a RFID reader device, when the tray through the door, the read-wave radio equipment, the activation of these labels. At this point, the label wake up over and began to send their EPC, a reader only a label statement. It will be followed by rapid opening and closing of these labels, until the entire label reading so far. Mature technology on the current view, every second, RFID reader equipment can successfully read the RFID tags 200. First of all, this information was passed to the software system, and then in the local area network or the Internet service system to resolve the object (ONS), search with the EPC-related commodities, like the Internet, like the registration, ONS role is the software system data into the enterprise database, and retrieve objects Network. Data for each product will be a physical markup language (PML) to store, similar to the popular XML, can perform some tasks common enterprise. Tag reading equipment and systems, will receive EPC data transfer, while the follow-up drive system. The system via the Internet (objects networking) to the Object Name Service (ONS) database to send information, the database is like a reverse telephone directory service, that is, according to numbers provided by the address received; ONS server EPC encoding and there are a large number of the product information that matches the server address, the data all over the world not only for the use of software systems,