Institute of Business Management

Course Instructor: Moin Uddin Ali Khan Storage & Warehouse Techniques Group Members: Salman Saleh Misbah-ul-Haq

10992 10979

MBA (IM), Summer 2012 August 12, 2012

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.

Pakistans 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 Mens 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

Companys 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 Userdefined 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

thats 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

WAREHOUSE FINANCIAL OPPORTUNITIES ASSESSMENT

Productivity Warehouse Order-Cycle Time Dock-toStock Time Inventory Accuracy Shipping Accuracy Storage Density
8,000 SKUs 2.5 SF/SKU 20,000 SF 1.4 SF/SKU 11,200 SF 8,800 SF PKR 450.00 PKR / SF *Yr

Annual Volume Current Performance Current Resource Requirement Benchmark Performance Benchmark Resource Requirement Resource Saving

60,000 lines/PH 4 lines/PH 15,000 person-hours 8 lines/PH 7,500 person-hours 7,500 person-hours

PKR 100,000,000.00 PKR 100,000,000.00 on-hand inventory on-hand inventory 50 hours 24 hours

3,000 locations 75% % locations 750 locations

40,000 lines / year 99.60% % lines 160 lines / year 99.95% % lines 20 lines / year 140 lines / year PKR 3,000.00 PKR / line

24 hours

12 hours

95% % locations 150 locations

26 hours 0.10% % / day PKR 100,000.00

12 hours 0.10% % / day PKR 50,000.00

600 locations PKR 200.00 PKR location

Rate

PKR 60.00 PKR / hr

Annual Savings Total Savings (PKR / year)

PKR 450,000.00 PKR 5,100,000.00

PKR 120,000.00 PKR 420,000.00 PKR 3,960,000.00

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 theres 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 cant 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 wont 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.