How the FMCG Sector is Using Technology to Increase Efficiencies
Maya M 11 June 2021
A new report by Edelweiss Securities says that fast moving consumer goods (FMCG) companies which have stepped up technology adoption in their sales, warehouse and inventory management, and distributor systems will enjoy improved efficiency and productivity in the long run. 
While large companies such as HUL, Marico, Asian Paints and Britannia are ahead of the curve when it comes to the technology initiatives, other listed players are also aggressively investing in tech upgrades. Automation companies such as ABB and Siemens have seen upticks in orders from FMCG companies. 
The Edelweiss report points out that FMCG companies are integrating systems across suppliers, inventory management and distributor management, which used to be separate systems in silos earlier. But today, an ordering app for retailers enables them to place contactless orders safely and provides them visibility on the fulfilment of those orders—right from placement to logistics to supply. 
There is also a marked shift in digitisation of factories, and automated warehouses powered by intelligent data and analytics are almost becoming a norm. In fact, digital initiatives being taken, cover supplier on-boarding and management to inventory management, distributor management to sales. 
“Quantifying the impact of all these initiatives and IT systems will be difficult for now. But what is certain is that it will help with a number of critical levers, right from order generation to order servicing to maintaining lower inventory, helping reduce write-offs and increase market returns ” analysts Abneesh Roy and Tushar Sundrani said in their report.
Due to COVID, it is risky for physical salesforce to go out in the field. Technology is complementing the salesforce, making it easier to serve retailers far more efficiently and accurately thus improving overall sales. 
For instance, HUL’s Shikhar app allows a retailer running out of stock before a salesperson’s scheduled visit to place the order online directly. In the old system, fulfillment was synchronised with the salesperson’s beat; the technology upgrade implies the company must fulfill the order as soon as it is placed online. 
How tech is improving efficiencies
The report highlights how digital initiatives will improve fill rates and the ability to analyse and provide them relevant data to sales team to make right decisions on the ground. It will reduce working capital needs and help manage inventory more effectively. 
1) An ordering app enables retailers to place contactless orders safely and also provides them visibility about the fulfilment of such orders through logistics tie-ups and intuitive interfaces. 
2) Digitising factories and building automated warehouses unlock capacities and make operations agile. All of this is powered by intelligent data and analytics, ensuring smooth and optimised operations. 
3) Between any two visits of a salesperson, a retailer can place the order, should they feel stocks are running out. Since digital orders are not linked to the beat of a salesman (particularly high rate of such orders during the second wave of COVID when a salesman can't visit the outlet), the outlets themselves can place an order. With the help of better analytics, companies are able to provide better support to salesforce, who are now able to customise the proposition for a store so that they pick up the most relevant stock keeping unit (SKU). 
Represented best through local convenience shops, malls, and sales representatives until about a decade ago, the FMCG sector in India today is as ubiquitous as mobile technology. However, the digitalisation drive of the FMCG sector is not confined to the front end alone.
Today there is higher internet and mobility penetration, a shift in consumption patterns of rural buyers, and a rise in the significance of the three ‘Vs’ – videos, vernacular content, and views. These factors are prompting companies to invest in digital initiatives so they can connect better with various stakeholders. 
As FMCG companies continue to adapt to prolonged and unplanned lockdowns, their ability to rapidly digitise the value chain, form alliances for manufacturing, distribution, marketing and product development, use data analytics to understand consumers and shoppers better to maintain and possibly improve customer experience, will be the big differentiator in the industry.
Technologies like big data, predictive analysis, social media too are contributing high in the change of course. Customer behavior can now be predicted almost accurately by just cherry picking buyer behavior. 
Hindustan Unilever: Shikhar, HUL’s ordering app enabled hundreds of thousands of retailers to place contactless orders safely and provided them visibility on fulfilment.  
In the scenario wherein traditional consumer surveys were not feasible, data centre continued to stay connected with consumers through social ‘listening’ and digital interactions, and picked up the demand trends. The company’s agile innovation hub processed these inputs to build superior experiences and products for consumers. 
The company has digitalised factories and is building automated warehouses, which unlock capacities and provide the agility required in running operations. All of this is backed by intelligent data and analytics. 
This quarter, HUL also got the nutrition business onto SAP. It has also started the initial integration of the go-to-market systems, and the company expects to complete more of that in the coming quarters between June and July. 
The company did have to suffer in a few markets, which are covered by sub-distributors, as the systems were being installed. The company is taking steps to address them over coming quarters. 
Britannia: Britannia has created a very large digital platform. It went live with S/4 HANA, dealer management platform and the vendor management platform. S/4 HANA will generate huge efficiency in material resource planning and will strengthen the data analytics for the company. The company has also got a Warehouse Management System working, which would reduce warehouse, ordering and inventory expenses. S/4 HANA will also provide the company with plant management and project management systems, which will improve day-to-day operational efficiency 
Arteria, the company’s dealer management system, provides real time data. It is an integrated system, and includes scheme management or discount management, claim settlements with distributors, pricing and promotion controls. The vendor management system, which presently covers 500+ vendors,is expected to add more efficiencies through better sourcing, digital contracts and lifecycle management, which would allow the company to cater to vendors better. 
To go live on these systems, the company had to close the fourth quarter about three days in advance, and the factories and despatches too had to be shut. This affected revenue but management has assured that impact is actually very small in the overall scheme of things.
Tata Consumer Products: Last year in a conference call, TCPL management mentioned five areas of digital initiatives. These five areas cover everything from supplier on-boarding and management with S/4 HANA to inventory management, distributor management (DMS) to sales (sales force automation). A chief digital officer has been appointed to handle all initiatives and tasked with keeping them up to date. Besides this, digital dashboards for various functions have been rolled out, and other initiatives that enable efficient resource planning have been taken up. The company has mentioned that the digital initiatives will improve fill rates, reduce working capital needs and help manage inventory better. 
Dabur: The company has implemented a Continuous Replenishment System (CRS), which removes the need for pre-season loading, thereby impacting inventory by 5-6 days. Juices, glucose products, hair oil and Pudina Hara will be see highest impact from this initiative. Some benefits that are likely to accrue immediately include better inventory days and distributor fill rates. 
Marico: Project SARAL – In order to ensure that Marico is the partner of choice for channel partners across the country, the company took initiatives to improve engagement, collect feedback and ensure grievance resolution. The company has also been working towards creating tech-enabled and simplified processes/solutions for issue and grievance resolution of channel partners.
Short term impact
Apart from cost implications, tech upgrades are causing a small negative impact in the short term— mostly reversible. In order to go live with tech initiatives, factories and dispatches must be shut temporarily. This has a small impact but is likely to be reversed in coming quarters.
One of the major challenges for adoption of technology is the lack of funds.  Indian market is still repositioning itself in global territories with complex tax structures, lack of organisation and tight competition from local and global vendors, till a few years back, it was still risky for many companies to invest  on technology. 
COVID has changed all this. With technology gaining so much impetus, it is very likely that technology will find its way to even the small FMCG players which are finding it tough to convert today. There are many factors such as high disposal income, population growth, better economy, incremental consumption, change in market rotation which would affect the pace of adoption of technology.
Technology - glimmer of hope in this overcast environment
While we continue to struggle to come to terms to the ‘new normal’, amidst the havoc, the digital transformation space has been an exciting one to be in the post-pandemic era. In a McKinsey survey, over 59% of surveyed organisations have accelerated their digitisation process, not as a choice but as a means to survive the pandemic. Digitisation comes as a glimmer of hope in the otherwise overcast environment, giving businesses of all sizes and scale a platform to operate and engage with their stakeholders considerably normally in this ‘new normal’.
With the acceleration of the pandemic the need for digitisation is no more limited to being a cost-saving mechanism. Instead, organisations have been forced to look at it as a method to modernise business capabilities, gain competitive advantage and to create a business culture that is focused on digital technologies. Companies and institutions that wish to prioritise employee safety and public health have turned to digitisation as well.
Shape of things to come
Emerging technologies will bring plenty of changes to the FMCG sector reflecting the shift in consumers’ tastes and behaviors. FMCG companies might soon start implementing cutting-edge technologies such as blockchain, artificial intelligence, digital assistants, and robotics, aiming to enhance operations and improve customer experience and satisfaction.
Blockchain: The distributed ledger technology has started to revolutionise the entire consumer goods supply chain facilitating transactions in a secure and transparent environment.
Consumers can quickly trace the source of their purchases, shippers can easily check if a truck is fully loaded before scheduling a delivery, drug stores can verify if their creams or shampoos are actually organic.
Blockchain also comes into play with loyalty rewards programs. A blockchain-powered platform can connect loyalty programs through blockchain nodes, which enables it to collect, exchange and redeem loyalty points amongst multiple organisations. This significantly increases interactions without the need for multiple separate programs or a middleman.
Internet of Things (IoT): IoT enhances the efficiency of back-end operations. Cameras and sensors track inventory and, in the case of low inventory levels in a warehouse, smart sensors inform the operator which products need to be ordered.
WiseShelf offers a system that prevents out-of-stock situations by alerting operators when stock levels get low or critical. To achieve this, an IoT appliance equipped with dozens of light sensors is installed on top of a shelf. The sensors detect the light level above them and alert store employees. The collected data is stored in a cloud that utilises machine learning techniques to generate valuable insights.
Digital Assistants: Artificial Intelligence (AI) powered voice-based systems that support consumers to find goods on e-commerce platforms are gaining popularity. Voice-activated assistants are now one of the fastest growing consumer electronic devices. Trend watchers estimate that the 500 million people using voice-activated assistants today will be 1.8 billion by 2021 and that 30% of browsing will be screenless by 2020. For FMCG companies, this would mean a shift from traditional text searches (visual) to audio interfaces. 
Free Helpline
Legal Credit