Institute of Business Management

STORAGE & WAREHOUSEDISTRUBUTION CENTREAUTOMATION STUDY IN

MEDORA PAKISTAN

Group Members:Salman Saleh 10992 Misbah-ul-Haq 10979

MBA (IM), Summer 2012August 12, 2012

Course Instructor:

Moin Uddin Ali Khan

Storage & Warehouse Techniques

PRIMARY OBJECTIVE

• Study of possible problems & their solutions regarding implementation of ERP

software for Warehouse & Distribution Automation

• We are analyzing importance of integration of distributors with such IT based

technologies with taking the case of a FMCG based company Medora of London

PVT Ltd. on a standard platform named DBA Manufacturing.

DBA MANUFACTURING

• Manufacturing Efficiency

• Starts with DBA Software

• Designed for Self-Implementation

• Worldwide Sales & Support

• Price: US $ 5000 / 5 interconnected users

FMCG OVERVIEW

• Products that have a quick turn over and comparatively low value are referred to

as Fast Moving Consumer Goods (FMCG).

• Product Categories are toiletries, soap, cosmetics, tooth cleaning product, food

items like beverages, ready-to-eat stuffs etc.

Pakistan’s FMCG sector

• Biggest sector which creates employment for more than one million people in

downstream activities.

• Double digit growth rate.

MEDORA OF LONDON (PVT) LTD.

• It was established in 1961

• A totally owned Project of Kohinoor Group of Companies.

• Largest cosmetics processing unit of Pakistan, with ISO 9001-2008 standards

environment.

• Sturdy brand equity and client following in cosmetics industry.

• Famous brands include “Medora”, “Delycia”, “Swiss Miss” and “Diplomat” being

one of the best sellers in their respective categories.

• The corporate enjoys over 55-60% of the market share in the category of color

cosmetics in Pakistan.

PRODUCTS CATEGORIES

Medora of London has five main product categories,• Color Cosmetics• Fragrances• Perfumed Talc• Shampoo• Men’s care

SUPPLY CHAIN CLASSIFICATION

CHALLENGES FACING BY PAKISTAN FMCG SECTOR AT DOWNSTREAM SUPPLY CHAIN

• 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.

• Over production, higher occurrences of stock outs due to the bullwhip result.

• Random changing purchasing power of average Pakistani consumer.

• Some of the articles have seasonal demands.

INFORMATION TECHNOLOGY IN FMCG

• Data management technology to facilitate varied processes and logistics demand.

• IT in warehousing and distribution guarantees competitive advantage.

• Automation of warehousing & distribution guarantees:

Reduction in storage prices

Reduction in administrative prices

Reduction in communication prices

Lesser wastage

lesser transportation price

Exceptional accuracy

Better forecasting, etc

MEDORA OF LONDON SUPPLY CHAIN MAPPING

DISTRIBUTION CENTER AUTOMATION PROJECT

Software needs that the DBA Manufacturing Warehouse & Sales module gets installed on all CFA & super distributor sites that shall aid in day-to-day operations like,

receiving, stock keeping, order picking, distributing, Payment settlement, Claims handling etc.

BETTER MARKET OPPORTUNITIES

Warehouse & Distributors’ point of view

• Improved sales

• 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

BETTER MARKET OPPORTUNITIES

• Company’s point of view

Improve logistics and warehouse act of managing.

In-depth market understanding

Formulating and evaluating distribution strategies

Better stocking

IMPLEMENTATION PROCESS

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 & CFA agents to ensure usage of the system

FINDINGS & DISCUSSIONS:

Process Related Issues

Parallel Billing & Stock Keeping Documentation

There are two possible primary reasons for the distributors indulging in parallel billing and

Stock Keeping Documentation:

Lack of trust in ERP Software:

Unskilled personnel of Medora who will do the installation at the warehouse site and operate

the software are found to be not properly equipped to handle the job at hand.

Possible Solution

These personnel should be trained properly in the ways of how they are supposed to interact

with the warehouse personnel as well as well-versed with the software to be able to respond

to their queries.

Computerized Batch Numbers and Packaging Date (PKD)

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 Manufacturing Site.

Possible Solution

Once 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.

BENCHMARKING

A benchmark is typically a quantitative assessment of some aspect of performance of an

enterprise. Benchmarking is the process of gathering and sharing those assessments

and developing an improvement plan of action based on the assessment.

The three perspectives of benchmarking are internal, external and competitive. Here we

are doing Internal benchmarking which looks at firms conducting business in the same

company/group. For internal benchmarking Kohinoor Soap & Detergents (Pvt.) Ltd has

been decided which already go through the same procedure of automation.

WAREHOUSE PERFORMANCE GAP ANALYSIS

Prod

ucti

vity

Doc

k-to

-St

ock

Tim

e

War

ehou

se

Ord

er-C

ycle

Ti

me

Inve

ntor

y A

ccur

acy

Ship

ping

A

ccur

acy

Stor

age

Den

sity

Annual Volume 60,000 PKR 100,000,000.00 PKR 100,000,000.00 3,000 40,000 8,000

lines/PH on-hand inventory on-hand inventory locations lines / year SKUsCurrent

Performance4 50 24 75% 99.60% 2.5

lines/PH hours hours % locations % lines SF/SKUCurrent Resource

Requirement15,000 750 160 20,000

person-hours locations lines / year SFBenchmark

Performance8 24 12 95% 99.95% 1.4

lines/PH hours hours % locations % lines SF/SKUBenchmark Resource

Requirement7,500 150 20 11,200

person-hours locations lines / year SF

Resource Saving 7,500 26 12 600 140 8,800

person-hours hours hours locations lines / year SF

Rate PKR 60.00 0.10% 0.10% PKR 200.00 PKR 3,000.00 PKR 450.00

PKR / hr % / day % / day PKR location PKR / line PKR / SF *Yr

Annual Savings PKR 450,000.00 PKR 100,000.00 PKR 50,000.00 PKR 120,000.00 PKR 420,000.00 PKR 3,960,000.00

Total Savings(PKR / year)

PKR 5,100,000.00

WAREHOUSE FINANCIAL OPPORTUNITIES ASSESSMENT

INVENTORY TRACKING METHOD

The most important aspect of an inventory control program is tracking the inventory

and locating it as required for a warehouse transaction or customer order. Inventory

tracking is a vital function for an accurate floating-slot system and for an effective,

productive fixed position pick system.

There are two inventory tracking methods, manual and computer.

Before implement the ERP software Medora was using manual method for the tracking

of inventory. They are using card slot method to track the inventory.

Now Medora will use computer-controlled tracking system to track the inventory in

which warehouse reserve and pick position is discretely identified and each unit load

has a discrete label. This unit load label identifies the assigned reserve or picks position.

INVENTORY TRACKING METHOD

Possible Solution

Bar-Code Scanning: With the bar-code scanning system, the paper document directs

the employee to the reserve position. At the reserve position, the employee scans the

unit-load reserve position, transfers the unit load to the pick position and scans the pick

position label. The scanned information is entered on line or delayed in the host

computer to update the on-hand inventory.

Disadvantages:

Disadvantages are investment and employee training.

Advantages:

Advantages are that it handles a high volume, provides an accurate record, provides an

accurate transfer of data, is online and handles a large number of SKUs.

METHOD OF PHYSICAL INVENTORY COUNT

A very important activity of the inventory control function is the activity to verify the SKU actual

on-hand inventory level. The objective of the actual on-hand inventory level verification (count)

is to ensure and to establish confidence in the book on-hand inventory levels.

Current Practice of physical cycle count in Medora: Medora is using manual count method, in

which an employee walks the warehouse aisles with a physical inventory form and counts the

product. On the form the employee indicates the actual on-hand inventory by SKU by reserve or

picks position, family group, or an entire warehouse zone. After the count is completed in the

warehouse, the actual cost is compared to the book inventory.

Possible Solution

Bar-Code Scanning Count: The bar-code scanning count is similar to the manual count method,

but an employee uses a hand-held bar-code scanning device to scan bar-code labels on the

product and storage-pick positions. In a unit load warehouse, the employee scans the unit load

and rack position. This represents an exact inventory count by warehouse location.

When all required scans are made, the information is entered into the computer. The entry

updates the on-hand inventory level by the reserve and pick position counts in the warehouse.

BULLWHIP EFFECT

• Fluctuation in orders increase as they move up the supply chain.

• Demand information is distorted as it travels within the supply chain, so that different

stages have different perspectives and estimates of the chain demand Manufacturing cost Inventory cost Replenishment lead time Transportation cost Labor cost for shipping and receiving Level of product availability Relationships across the supply chain distorts Profitability

Possible Solution

Implementation of ERP in downstream supply chain helps a lot in improvement in

accuracy in demand forecast, thus reduces overall cost of holding inventory at

warehouse.

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

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

STRENGTHS

• Medora 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 matured software with most of the features at par with the

other software which is available in the market.

• User friendliness of the software will go a long way in driving the usage among the

warehouse managing personnel.

WEAKNESSES

• Dissatisfaction among the warehouse managing personnel while adopting ERP software

should be well & timely taken care of in order to win their trust.

• Initial investment cost to implement ERP in the downstream supply chain is high and

payback period is around 5 years.

OPPORTUNITIES

• Auto-replenishment of stock at the warehouse 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 for better demand planning for the company which helps in

improving warehousing of finished goods which ultimately reduce holding cost.

• 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

• In downstream supply chain, personnel at warehouse may not ready to accept change in the

operating procedure.

• Lack of exposure to the ERP software among the distributors might require addition efforts in

the future to get the necessary support.

RECOMMENDATIONS

• We need to make sure that distributors trust the system and the processes behind it.

• 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.

• Just as distributors need to be convinced about using the system, the same effort

needs to be put into training the warehouse personnel as well.

• Re-implementations are being done at all the distributor sites so that everyone is on

the latest version of the software.

• Regular audit of warehouse 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.

• Implement ISO 28000 for security management system for the supply chain.