fauji cereals final report
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DISTRIBUTOR AUTOMATION: FAUJI CEREALS PAKISTAN
LETTER OF TRANSMITTAL
April 21, 2012
Mr. Rafay A KhanCourse InstructorSupply Chain ManagementInstitute of Business Management
Dear Sir:
We have been assigned to draft a report on supply chain management issues & possible solutions of an organization, for which we have selected “Fauji Cereals Pakistan”. This report leads us to explore downstream supply chain of the company & possibilities of ERP based integration with upstream supply chain of the company.
Evaluating supply chain perspective of real work environment had been an exhilarating experience for both of us and is going to help in our professional career.
We express our deep gratitude to you for giving us such great deal of learning opportunity.
Best Regards,
Salman Saleh (10992)Muhammad Misbah-ul-Haq Siddiqui (10979)
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DISTRIBUTOR AUTOMATION: FAUJI CEREALS PAKISTAN
LETTER OF ACKNOWLEDGEMENT
April 21, 2012
Dear Readers:
We are thankful to Almighty Allah for giving us the strength and capability to complete this report on “Distributor Automation at Fauji Cereals Pakistan.”.
We would like to thank our course instructor of Supply Chain Management course Mr. Rafay A. Khan for putting in all the hard work in this course to make it a memorable experience for all of us. We appreciate his guidance and shall appreciate the valuable feedback on this report as well.
We are highly obliged to Mr. Hassan Naeem & Mr. Kashif Mujhtaba from Fauji Cereals Pakistan who shared their valuable time from busy schedule in order to guide us through the report and provide the relevant information.
Sincerely,
Salman Saleh (10992)Muhammad Misbah-ul-Haq Siddiqui (insert your id here)
MBA IoBM
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DISTRIBUTOR AUTOMATION: FAUJI CEREALS PAKISTAN
S. NO. TOPIC PAGE NO.
1. Abstract 4
2. Introduction: FMCG Over view 4
3. About Fauji Cereals Pakistan 5
4. Pakistani Breakfast Cereal Industry 11
5. Literature Review 14
6. Fauji Cereals’ Supply Chain 15
7. Distributors Automation Project 16
8. Better Market Opportunities 17
9. Implementation Process 18
10. Findings & Discussions 19
11. SWOT as Conclusion 23
12. Similar Implementations: Kohinoor Soap & Detergent (Pvt) Ltd 25
13. Recommendations 26
14. References 28
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ABSTRACT:With the increasing awareness of integrated chain management, demand of
implementation of Information Technology based ERP software
in producing industries specially is on an increase. It is not solely integrates many to
all business processes within the organization; however the most advantage of
integration of suppliers & customers in the light of Extended Supply Chain concept.
In this paper, we are analyzing importance of integration of distributors with such IT
based technologies with taking the case of a FMCG based food company Fauji
Cereals. We’ll analyze how their downstream offer chain related issues will
be addressed by ERP implementation.
INTRODUCTION:
FMCG Overview
Products that have a quick turn over and comparatively low value are referred to
as Fast Moving Consumer Goods (FMCG). FMCG products are those that get
replaced at intervals a year. samples of FMCG usually embody a good vary of
frequently purchased client product like toiletries, soap, cosmetics, tooth
cleaning product, shaving product and detergents, additionally as alternative non-
durables like glassware, bulbs, batteries, paper product, and plastic merchandise.
Pakistan’s FMCG sector is one among the biggest sector within the economy and
creates employment for more than one million people in downstream activities. The
whole FMCG market is currently growing at double digit growth rate and is
predicted to take care of a high growth rate. The FMCG sector is dominated
by each MNC and domestic players.
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The FMCG sector in Pakistan is engaging attributable to the subsequent reasons:
There could be a low level of penetration additionally as low per capita
consumption for many of the product.
An average Pakistan spends 40% of his monthly income on groceries and 8% on
personnel care product.
Large population base of Pakistan.
The problems faced by the FMCG sector are as follows:
High deviation in forecasted and actual sales due to inaccurate demand
prediction
Inability to realize operational excellence due to multiple level of
sales knowledge tracking within the offer chain
Over production, higher occurrences of stock outs due to the
bullwhip result (lack of information sharing among the members of the
provision chain)
Due to random changing purchasing power, the consumption pattern of average
Pakistan is changing continuously.
Some of the articles have seasonal demands and demand prediction
becomes troublesome for them.
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About Fauji Cereals Pakistan
Fauji Cereals was established in 1954, a totally owned Project of Fauji Foundation
and began production at the beginning in collaboration with Quaker Oats England in
1956. It’s the pioneer business venture of Fauji Foundation. It’s the most important
producer of breakfast cereals in Pakistan with big selection of product. It’s
Pakistan’s most prestigious and largest cereal processing unit, having the newest
modernized machinery, extremely hygienic environses for production of Halal Food
product. Fauji Cereals is the number one consumer and trade-preferred brand in
Pakistan with a really sturdy brand equity and client following. The corporate enjoys
over 80% of the market share in the category of Breakfast Cereals and Porridge
Food product.
The company has achieved ISO 9001-2008 Certification by adopting the
International normal Procedures for manufacturing top quality food product. 100%
Halal ingredients are utilized in the producing method of all products. The company
has additionally penetrated in International Market and exporting its product to
varied countries. It’s additionally a provider to World Food Programme and UNICEF.
Products Categories
Fauji Cereals has three main product categories,
Breakfast Cereals
Desserts
Other Products
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Breakfast Cereals
Ready to eat Cereals -(Flakes)
Fauji Flakes product are produced on automatic plant manufactured by “Buhler
Switzerland” underneath strict hygienic conditions. Flakes are manufactured
from very best quality Corn/Wheat/Rice with ancient cooking and flaking
methodology to relinquish best style and quality which might not be duplicated
by the other technique. The products are carried on automatic packaging machines
to conserves their property of being pure, fresh and crispiness in all atmospheric
condition. Flakes owe their popularity among customers thanks to their crisp
texture, fresh flavours and their ready-to-eat characteristic. The marque enjoys a
clear-cut market leadership attitude in Flakes with over eightieth market share.
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Ready to cook Cereals-(Porridge)
Barley Porridge or Rolled Pearled Wheat Porridge and Porridge Food are more
desirable cholesterol free able to cook cereals. The Wheat/Barley after cleaning is
half-cooked and rolled. It might be outlined as rolled, gelatinized, dried
Wheat/Barley product and planate. The marque enjoys a clear-cut market
leadership position in Wheat and Barley Porridge with over seventieth market share.
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Desserts
Jelly fast Set, Custard Powder and Kheer combine are one among the
foremost standard and family favorite dessert foods. In-spite
of alternative established brands of competitors, Kheer Mix, Fauji Custard, Jelly and
Firni Khas have created substantial inroads into the competitor's market share and
are currently the quantity two client most well-liked marque in Pakistan.
Other Products
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Besides its powerful presence in Breakfast Cereals and Desserts classes, Fauji
Cereals is additionally producing numerous alternative quality product like Corn
Flour, Rice Flour, Pearl Barley, Laundry Kalaf, Ice Cream Powder, Fauji Atta, Fauji
Basmati Rice and Instant Porridge.
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Pakistani Breakfast Cereal Industry
With an estimated market size of Rs. 200 million a year and an estimated growth
rate of 20% every year, the breakfast class in Pakistan was experiencing
tremendous growth. The breakfast class in Pakistan, includes product like cereals,
cornflakes etc with popular brands like Fauji, Kellogs and alternative imported
brands.
Focus on ‘Health’ as a trend was gaining ground. Further, the distinction between
‘good food’ and ‘food that’s smart for you’ is turning into a lot of dominant with
a larger proportion of customers falling in line with the new trend. A lot of players
have additionally entered into this space.
Besides some established ones, native players also are testing the grounds with
their own cereal variants. Another issue propelling the expansion of health
food, particularly in Pakistan, is that the changing lifestyle of various individuals.
Worldwide, the issues are high concerning wrong eating habits, health disorders like
obesity and diabetes and Pakistan is not any exception.
Still the Pakistan Breakfast Cereal business is facing challenges
Pakistan population not used to consuming processed foods
Easy availability and low-price ofancient breakfast
Low awarenessconcerning processed foods
Habit of eatingsignificant breakfast
Low awareness ofthe need of healthy eating and calorie intake
Price sensitive customers
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Changing Mind set of the Consumers
People are getting aware of healthy & hygienic. There’s an amendment within
the mind-set of the buyer and currently viewing “Money for Value” instead of “Value
for Money”. We've seen willingness in customers to maneuver to evolved products/
brands, due to changing lifestyles, rising disposable income etc. customers are
switching from economy to premium product even we've witnessed a
pointy increase within the sales of packaged water and water purifier.
Information Technology in FMCG
Market share movements indicate that company like UniLever Pakistan Ltd and
Nestle Pakistan Ltd, with domination in their key classes, have improved their
market shares and outperformed peers within the FMCG sector. This has
significantly been aided by the employment of data technology to
facilitate varied processes and logistics demand.
A competitive edge in sales and distribution provides abundant required muscle to
the corporations to compete in market place as has been epitomized by companies.
Use of IT in sales and distribution guarantees to produce a regular supply of
competitive advantage which will go an extended approach in enhancing the power
of company in market place.
Sales and Distribution in Pakistan suggests that a collection of levels- wholesalers,
Stockists, transporters, retailers etc. Automation of S & D guarantees the reduction
in storage prices, administrative prices, communication prices, lesser wastage and
lesser transportation price due to higher route designing. It enhances the
revenue due to higher selling designing, demand volatility management, responsive
product development. The individuals’ productivity is additionally enhanced due
to effective use of sales knowledge, improved communication flows and pc assisted
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DISTRIBUTOR AUTOMATION: FAUJI CEREALS PAKISTAN
ordering. Considering of these blessings, it's prefer to be a natural candidate to
be utilized in sales and distribution.
Fauji Cereals, as a corporation, has forever been related to healthy food and this
changing shopper mind-set indicates that it’s poised to grow at a
comparatively higher rate in Pakistan with its massive product portfolio. To be able
to exploit this chance, the sales and distribution network ought to be capable
enough to handle the increased masses with reduced
logistics price. Information technology is the answer to needed potency in S&D and
would undoubtedly act as an enabler.
LITERATURE REVIEW:
Primary Objective
One of the first objectives is to know the Distributor automation project that aims at
connecting all the distributors on a standard platform named DBA Manufacturing
Sales & Distribution Module.
The main aim of the “Distributor Automation study” is to try to an intensive analysis
of the project comparing it with alternative such initiatives from alternative FMCG
companies and supply recommendations to confirm successful implementation of
the platform.
This report will also study the vital success factors that make sure the success of IT
automation in sales and distribution networks. Finally the report ends with a
collection of recommendations to be followed for the project.
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Fauji Cereals’ Supply Chain
The manufacturing for Fauji Cereals is done in production plant. After that the
finished merchandise are transported to Carry and Forward Agents (CFA) who
further deliver it to the distributors and super distributors.
Primary Sales
The requirement for smart delivery comes from the distributor who sends out a mail
to the CFA primarily based on this inventory levels and therefore the delivery is
sometimes done twice for each distributor.
Secondary Sales
DVSM (Salesman) sometimes goes to a collection of outlets in a day (called a Beat)
and records the inventory levels in the slightest degree the retailers in that beat.
Then he notes the requirement for new stock based on the average turnover and
retailers’ suggestion for each retailer that he additional notifies the distributor. The
bills are created at the distributor end and therefore the delivery is either done
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DISTRIBUTOR AUTOMATION: FAUJI CEREALS PAKISTAN
on same day or the next one.
Currently most of the distributors use one or the opposite proprietary software to
record all the invoices, stock keeping, payment settlement et cetera. In majority of
the cases, it’s the DVSM who truly operates the system to make invoices and prints
the outline beside alternative reports needed for the delivery.
Distributors Automation Project
For Visibility in Forward Supply Chain
Project plans to automate most of the aspects of the provision chain using the IT
platform from SAP Sales & Distribution module. The implementation of the
software needs that the MicroERP gets installed on all the distributor sites that shall
aid in day-to-day operations of the distributors like Invoicing, Stock Keeping,
Payment settlement, Claims handling etc.
The MicroERP shall be needed to upload sales knowledge on a daily to a central
server from where knowledge is fetched by an application known as the Sales
Portal that shall offer MIS reports to the sales team on a true time basis
concerning the sales knowledge and connected trends.
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Better Market Opportunities
OBJECTIVES
Distributors’ point of view
Improved sales due to higher call creating
Better inventory management resulting in perceivable price reduction
Problem of stock out (being faced by several distributors) will certainly be
benefited to a good extent
Better turnaround time for Claims processing
Purchase order processing: Reduced effort
Fauji Cereals Company’s point of view
Improve logistics and warehouse act of managing - Absence of secondary
and tertiary level data blurs the demand-supply graph.
In-depth market understanding - Dealer's/retailers purchase reflects
the buying pattern of outlets. Tracking secondary sales data with the
assistance of a totally integrated Sales Tracking System helps you to
grasp that section, region, and products mix have high and low demands.
Formulating and evaluating distribution strategies - Recognize the
distribution channel's performance and strategize ensuing distribution cycles
accordingly. You can plan-out remunerative schemes for distributors who are
under-performing or who are less motivated to sell your product.
Better stocking : Elimination of lost sales and mal-distribution of stock due
to stock outs or massive inventory levels.
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Sales Team’s point of view
Reduced manual effort in terms of collecting data from the distributor,
collating and processing it to extract meaningful info.
Real-time data helps keeping a detailed watch on the sales performance on
a daily facilitating action at the right time for maximum results.
MIS for improved conclusion making and performance appraisal.
Implementation Process
Initial
FINDINGS & DISCUSSIONS:
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Site Readiness check
Installation of the software
Loading the masters – Item, Customer etc.
Initializing the system with opening inventory and other dealer specific details like User-defined codes, printing formats etc.
Providing sufficient training to the distributor to ensure usage of the system
DISTRIBUTOR AUTOMATION: FAUJI CEREALS PAKISTAN
Process Related Issues
Parallel Billing
There are two possible primary reasons for the distributors indulging in parallel
billing:
Lack of trust in ERP Software:
Unskilled personnel of Fauji Cereals who will do the installation at the distributor site and operate the software are found to be not properly equipped to handle the job at hand. These personnel should be trained properly in the ways of how they are supposed to interact with the distributors as well as well-versed with the software to be able to respond to their queries.
Possible SolutionThis problem is being taken care of and the condition is improving with better
response mechanisms put into place which will help develop the required
trust among the distributors.
Consolidated Financial Statements: The need for consolidated financial statements to be maintained under single software is one of the primary reasons. The rationale is that most of the distributors have more than one agency of different companies and invoicing the bills for different companies in different software makes it very difficult for them to obtain consolidated financial statements for purposes like tax filling, VAT return etc.
If the distributor makes sure that if he is doing parallel billing then he enters all the bills manually as well as in ERP software then as a company Fauji Cereal shouldn’t have any problem with that. A possible roadblock here would be that as the volume of the business grows, this method of operation shall become unsustainable and the whole purpose will get defeated.
Batch Numbers and Packaging Date (PKD) Not Being
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The purchase invoice received from the CNF does not contain Batch no's and PKD and that’s the reason that none of the distributors are in a habit to record them when they receive stock from the CNF.
Possible SolutionOnce all distributors & CNF get integrated with the organization, computer
readable Batch numbers & PKD are required to be pasted on the products
when they are leaving manufacturing site to CNF. Radio-frequency
identification (RFID) or bar coded labels can be used for this purpose.
Installation/Training Issues
Inexperienced and Unskilled Personnel
Unskilled personnel of Fauji Cereals who will do the installation at the distributor site and operate the software are found to be not properly equipped to handle the job at hand. These personnel should be trained properly in the ways of how they are supposed to interact with the distributors as well as well-versed with the software to be able to respond to their queries.
No Representatives from Fauji Cereals to Oversee the Installation
Process
One major disconnect here is the fact that the ERP software installation personnel cannot be expected to understand the business process assuming that they are technical people who only understand the software part. Absence of any person from Fauji Cereals who understand the sales processes and the distributor requirements makes the whole process very slow when distributor raises issues on site and the ERP software person cannot answer them satisfactorily.
Learning is an Outgoing Process
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DISTRIBUTOR AUTOMATION: FAUJI CEREALS PAKISTAN
We can’t expect the distributor to understand the whole software at the time of training. Once the basic understanding is there, the distributor will try to explore the software more and will definitely come up with queries regarding the technicalities of software. Right now the only way they can get information is by calling ERP software call centre representatives which causes inconvenience for the distributor hampering extensive use of the software.
Possible Solution A comprehensive Usage Manual for ERP Software should be documented and
provided to all the distributors using the system. We should ensure that the
manual should be easy to understand from a distributor’s point of view and the
language used in it should not be too technical.
Distributor Specific Concerns
Tech Savvy Distributors
The more tech-savvy a distributor is, the more he wants to explore the system. These are the kind of distributors who willingly accept a superior system and further explore it to provide valuable suggestions. Good thing about their raised issues is that they give pretty detailed suggestions on the software which can be incorporated into the system from a convenience point of view. In the long run, these suggestions shall help to refine the system for maximum performance.
But in the short run, such issues cannot be entertained since these are just too specific to be resolved right now when other bigger issues are still pending. This creates a problem since distributors start losing trust in the system and the processes driving the implementation of this project just because either they have not been properly attended to or their queries have not been satisfactorily answered.
Possible Solution
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The solution lies in effective relationship management. We should be the first
ones to appreciate the effort spent by the distributor to understand the
system and to raise issues. After all he deserves it having spent so much
time on it and the only way to keep him engaged is to show that the inputs
by him are considered valuable and highly regarded.
Financially Constraints Distributors
One thing realized is the fact that not all distributors are capable enough to be able to invest extra time and money to be able to use the system. There might be some distributors who do a monthly business of around Rs 15-20 Lacs from Fauji Cereals and do not make enough money to justify the additional cost that the incur in getting financial statements audited from two different ways.
Also some of the low volume distributors take out only one bill for a particular retailer in a day to keep his printing costs low. This is how they have been running their business and it’s definitely not cost-effective for them to start using the new system.
Change Management
Gaining Trust of Partners
Supply chain automation is uniquely difficult because its complexity extends beyond your company's walls. People will need to change the way they work and so will the people from each distributor that company adds to its network. Most of the larger FMCG players have also faced issues trying to force such radical changes down distributors’ throats.
Possible Solution
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Distributors have to be convinced that the system just does not sit to benefit the company, rather there’s something in it for the distributors as well. Increased ROI with reduced stock outs, and better managed inventory should be something that can be highlighted here.
Internal Resistance to Change
If selling supply chain systems is difficult on the outside, it isn't much easier inside. Sales people are accustomed to dealing with phone calls, faxes and hunches scrawled on paper, and will most likely want to keep it that way. If we our sales people can’t see the benefits that it has for them and using the software will be worth their time, they will easily find ways to work around it. Also they won’t have the conviction to convince the distributors to use the system.
SWOT ANALYSIS AS CONCLUSION OF THE REPORT:
STRENGTHS Fauji Cereals' experience with DBA Manufacturing software as an ERP
application for upstream supply chain from supplier to manufacturing
products is a great leverage point to understand distributor's preferences and
that knowledge should be used to improve the system.
DBA Manufacturing is a matured software with most of the features at par
with the other software which are available in the market.
User friendliness of the software will go a long way in driving the usage
among the distributors.
WEAKNESSES Dissatisfaction among the distributors while adopting ERP software should be
well & timely taken care of in order to win their trust.
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DISTRIBUTOR AUTOMATION: FAUJI CEREALS PAKISTAN
Due to the money and effort required, it might not be possible to bring all the
distributors online easily especially the ones who do not do enough business
from Fauji Cereals to justify the costs.
OPPORTUNITIES Auto-replenishment of stock at the distributor end shall help manage the
inventory well.
Use of ERP software at downstream supply chain will give company accurate
information about the tertiary sales which can be used for market research
understanding consumer behavior
Sales forecast module can be used to make it a pull based selling rather than
the currently used push based
Ability to introduce dealer specific schemes can be a great feature to push
sales for specific products in selected areas as per the trend
Automatic data upload eliminates the need for manual data retrieval saving
time for other activities
Centralized upload of price lists leaves no room for manipulations at the
distributor end
Real time sales data facilitates intervention at the right time for declining
sales
THREATS Current trend of Parallel billing might not be sustainable in the future as the
volume grows
Lack of exposure to the ERP software among the distributors might require
addition efforts in the future to get the necessary support.
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OTHER SIMILAR IMPLEMENTATIONS
Kohinoor Soap & Detergents (Pvt.) Ltd
Managing Change
The company went along the philosophy that possession brings out a way of
responsibility in a person. One of the initiatives for making a
way of possession among staff was the appointment of practical heads of assorted
departments, because the process-owners, of the combination. The difficulty of
managing the whole method was on these process-owners and to feature to the
seriousness of the effort was taken into thought for their performance appraisals.
Key Success Factors
The success of this initiative can even be attributed to the thorough designing that
backed the project at the time of implementation. The primary step was to involve
the channel partners from the beginning.
The channel partners and therefore the entire organization had active roles in
defining the functionality of the solution. Considerations raised by partners were
addressed and far of the functionality desired by them was included within the
solution.
Next was allocation of adequate resources for the project. The core team consisted
of line managers moreover as members of the systems team. They were free
of their regular roles to consider the deliverables of the project. To extend the main
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DISTRIBUTOR AUTOMATION: FAUJI CEREALS PAKISTAN
target of the team on the task at hand, a separate workplace was created for
the length of the project separate from the head office.
Finally, an intensive analysis of all the danger factors was distributed as a part
of the planning method for the implementation. Clear mitigation plans were
developed and deployed for each of the danger factors.
RECOMMENDATIONS:
We need to make sure that distributors trust the system and the
processes behind it. One thing which is most important behind successful
implementation is the involvement of the channel partners and the
critical role of top management in ensuring that.
Another important thing is to take care of trying to be responsive to the
queries raised by the distributors in a prompt and satisfactory manner.
This is not to suggest that we fix all the issues as they come but probably
a convincing reply as to assure them that we understand the issue, and
will go a long way in maintaining a healthy relationship.
Just as distributors need to be convinced about using the system, the
same effort needs to be put into training the sales team as well. This is
very important since the translation of all these efforts into results will
only come if they use the system to its potential and are committed to it.
Financially constrained distributors (Ref. Distributor Specific Concerns)
will be given a differential treatment initially as it would not be possible
for them to be able to use the system from the start. The low volume
nature of the business does not justify the extra cost incurred to use the
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DISTRIBUTOR AUTOMATION: FAUJI CEREALS PAKISTAN
system. Such distributors would not be part of the system right now but
would be brought online as and when their sales exceed a particular
threshold level.
Re-implementations are being done at all the distributor sites so that
everyone is on the latest version of the software and also includes
refresher training on it. From now on, the usage of the software shall be
strictly monitored and distributors would be required to maintain the daily
usage.
Regular audit of sale and channel partners should be done to identify
improvement like reduction in inventories, reduction in stock outs
increase in sales owing to availability, increase in coverage, expiry of
perishable items etc.
The first reaction of some of the distributors would be to continue with
the parallel billing. But once the distributors will have command on the
software in the specific time then the distributors are asked to
compulsorily use the system, they won’t have any choice but to use it.
REFERENCES
http://www.erp.asia/scm-implementation.asp
http://www.faujicereals.com.pk/
http://en.oboulo.com/
information+technology+as+an+enabler+of+sales+and+distribution
http://www.dbamanufacturing.com/contact/
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DISTRIBUTOR AUTOMATION: FAUJI CEREALS PAKISTAN
http://fmcg-marketing.blogspot.com/2007/12/maricos-distribution-network.html
http://howtogetfasteratrunning.com/botree-software-international-bags-order-
from-nestle-globe/
http://eng.hi138.com/?
i261762_Distributor_of_FMCG_industry_how_to_make_money
http://books.google.co.in/books?
id=orimz5E6IO4C&pg=PA88&lpg=PA88&dq=marico++MidAs&source=bl&ots=-
tl9DR4Ksa&sig=VexQsXyiHT0sChGAfHghxBm2-xM&hl=en&ei=9wPJTf3mIJS-
tgfjrayECA&sa=X&oi=book_result&ct=result&resnum=9&ved=0CFcQ6AEwCA#v
=onepage&q=marico&f=false
http://www.itcinfotech.com/CPG/mobility-application-service.aspx
http://www.slideshare.net/WayneGoodrich/how-automation-can-help-fmcg-sales-
managers
http://en.wikipedia.org/wiki/Fauji_Cereals_Company
Institute of Business Management- SCM Term Report Spring 2012 Page 27 of 28
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