Enterprise Resource Planning
PROJECT ON DABUR’S ERP-SAP IMPLEMENTATION
UNDER THE GUIDANCE OF Pratima Dabholkar BY Group No. 3 Kavyashree(24) Avradeep Mallik(28) Malavika Menon(29) Purbasha Panda(35) PGDM-IV-Finance
K.J.Somaiya Institute of Management Studies and Research
1
Contents ENTERPRISE RESOURCE PLANNING:......................... .......................... ......................... ......................... .... 3 FMCG INDUSTRY MARKET: ...................................................................................................................... 4 ROLE OF ERP IN FMCG INDUSTRY: ................................... ........................... ......................... .................... 5 DABUR –THE COMPANY: ......................................................................................................................... 6 SOME KEY FACTS: ................................................................................................................................ 7 DABUR WORLDWIDE: .......................................................................................................................... 9 EXPECTED FEATURES OF AN EFFICIENT ERP SYSTEM .......................... ......................... .......................... . 12 KEY STAKEHOLDERS IN ERP IMPLEMENTATION......................... .......................... ......................... .......... 13 BENEFITS OF ERP ................................................................................................................................... 15 IT INITIATIVES .................................................................................................................................... 17 UPCOMING CHALLENGES................................................................................................................... 17 Sample Report: .................................................................................................................................. 18 CONCLUSION:................................................. .......................... ......................... ........................... ......... 18 REFERENCES .......................................................................................................................................... 19 FIGURES:
Figure 1:ERP Systems Architecture ...................................... .......................... .......................... ................ 5 Figure 2:Various products under Dabur ................................... ........................... .......................... ........... 7 Figure 3:Category contribution to ccd .......................... .......................... ......................... ......................... 8 Figure 4: Dabur international reach ..................................... ........................... ......................... ................ 9 Figure 5: Sample reports........................................................................................................................ 18
2
ENTERPRISE RESOURCE PLANNING: To define, Enterprise Resource Planning (ERP) is a system which brings all the decision making information from all the departments in a company into one single place in order to increase efficiency, productivity and profit of the company. ERP consists of 3 words-Enterprise, Resource and Planning. The first word among these three is the most important. There are many systems which deal with resource planning. It is the enterprise part that is important. ERP’s power and Potential comes from the movement from the traditional business model to enterprise business model.
Before the beginning of Systems Integration, different departments in an organization were responsible for developing their own computer systems, each one working separately using its own applications and data. Each and every department relied on the others to transfer key information. Items such as employee numbers would be generated in one system, then passed on and entered manually into the other applications. This process was not convenient. The coordination of information was manual, slow and unreliable. Mistakes happened, leading to additional complications as erroneous data propagated throughout the organization. Enterprise Resource Planning (ERP) standardizes and reduces the number of software specialties required in large organizations. The ERP systems of today generally cover one or a number of the following: 1. Manufacturing Bills of material, scheduling, quality control, cost management. 2. Supply Chain Management Inventory, order entry, purchasing. 3. Financials General Ledger, cash flow, accounts payable, accounts receivable. 3
4. Projects Costing, billing, expenses. 5. Human Resources Payroll, benefits, training. 6. Customer Relationship Management (CRM) Sales and marketing, commissions 7. Data Warehouse, Reporting, Data Mining
FMCG INDUSTRY MARKET: The FMCG industry market is very competitive in nature. If a retailer’s shelves are empty of a manufacturer’s product, he will simply fill them with a competing product. This challenge of ensuring
that the business is optimized to cater to ever-changing market demands is an issue which every FMCG major is facing. The demands of a competitive market require a solution that supports process-centric collaboration internally and across its value chain.
The key challenges which FMCG industry is facing are:
Arrival of modern trade in India
Legacy systems and business infrastructure are unable to meet transaction and process capability requirements of the modern trade
Market fundamentals require companies to ensure availability of their products so that they can respond quickly to customers’ orders in the m ost cost efficient manner. This is even more critical in the
emerging modern trade scenario. The distribution of goods across the country in the right quantity, right time and at the right place is already one of the biggest challenges they face. In order to thrive in the era of modern trade, companies need to deliver a service level that is higher than what the industry is used to and operate a supply chain which is superior to the competitors.
4
Also, traditional product lifecycle management is being challenged with the frequent introduction of new products and services with shorter lifecycles and a focus on brand extension. All of the above is placing intense pressure on conventional manufacturing and supply chain practices.
ROLE OF ERP IN FMCG INDUSTRY:
Manufacturers’ investment in strategic infrastructure, such as Enterprise Resource Planning (ERP) and
networks, can provide the foundation to bring people, processes, and relationships together to build an integrated business system that supports the e-business strategy for critical business initiatives without huge IT investments. The importance lies in the extent to which the technology can be integrated and is interoperable to allow all of your systems and the Internet (for communication and collaboration) to work in concert.
Figure 1:ERP Systems Architecture
5
Such an example in the FMCG sector is Dabur.Dabur implemented ERP in year 2001. The project was named Project Synergy and it worked on two ERP systems: For the outbound logistics it runs QAD ERP suite known as MFG/PRO. For manufacturing locations, there was BaaN. By 2005 Dabur started to feel the pinch of maintaining two independent ERP systems. They were facing issues like maintenance costs, data redundancy, etc. So, in April 2006, they migrated from standalone ERP systems - Baan and Mfg to centralized SAP ERP system for all business units (BUs).
DABUR –THE COMPANY: Dabur India Ltd is one of India’s leading FMCG Companies with Revenues of about US$750 Million (over Rs 3416Crore) &Market Capitalization of over US$3.5 Billion (over Rs 16,000Crore). Building on a legacy of quality and experience of over 125 years, Dabur is today India’s most trusted name and the world’s largest Ayurvedic and Natural Health Care Company.
Dabur India is also a world leader in Ayurveda with a portfolio of over 250 Herbal Ayurvedic products. Dabur's FMCG portfolio today includes five flagship brands with distinct brand identities -- Dabur as the master brand for natural healthcare products, Vatika for premium personal care, Hajmola for digestives, Réal for fruit juices and beverages and Fem for fairness bleaches and skin care products.
Dabur today operates in key consumer products categories like Hair Care, Oral Care, Health Care, Skin Care, Home Care and Foods. The company has a wide distribution network, covering over 2.8 million retail outlets with a high penetration in both urban and rural markets.
Dabur's products also have a huge presence in the overseas markets and are today available in over 60 countries across the globe. Its brands are highly popular in the Middle East, SAARC countries, Africa, US,
6
Europe and Russia. Dabur's overseas revenues stand at over Rs 500Crore in the 2008-09 fiscal, accounting for about 20% of the total turnover.
The 125-year-old company, promoted by the Burman family, had started operations in 1884 as an Ayurvedic medicines company.
Figure 2:Various products under Dabur
SOME KEY FACTS:
Dabur is a leading consumer goods company in India with a turnover of Rs. 2834.11 Crore (FY09)
3 major strategic business units (SBU) – Consumer Care Division (CCD), Consumer Health Division (CHD) and International Business Division (IBD)
3 Subsidiary Group companies – Dabur International, Fem Care Pharma and newu and 8 step down subsidiaries: Dabur Nepal Pvt Ltd (Nepal), Dabur Egypt Ltd (Egypt), Asian Consumer Care (Bangladesh), Asian Consumer Care (Pakistan), African Consumer Care (Nigeria), Naturelle LLC (Ras Al Khaimah-UAE), Weikfield International (UAE) and Jaquline Inc. (USA).
17 ultra-modern manufacturing units spread around the globe
7
Products marketed in over 60 countries
Wide and deep market penetration with 50 C&F agents, more than 5000 distributors and over 2.8 million retail outlets all over India
Consumer Care Division (CCD) addresses consumer needs across the entire FMCG spectrum through four distinct business portfolios of Personal Care, Health Care, Home Care & Foods
Master brands: o
Dabur – Ayurvedic healthcare products
o
Vatika – Premium hair care
o
Hajmola – Tasty digestives
o
Réal – Fruit juices & beverages
o
Fem – Fairness bleaches & skin care products
Figure 3:Category contribution to ccd
8
DABUR WORLDWIDE:
Dabur's mission to popularise a natural lifestyle transcends national boundaries. Today, there is growing global awareness about alternative medicine, nature-based and holistic lifestyles and an interest in herbal products. Dabur has been in the forefront of popularising this alternative way of life, marketing its products in more than 60 countries all over the world .
Over the years, Dabur's overseas business has successfully transformed from being a small operation into a multi-location business spreading through the Middle East, North Africa, West Africa and South Asia. The chart below shows the operations of Dabur in the world market.
Figure 4:Dabur international reach
9
THE CHALLENGES FACED BY DABUR: Dabur operates in FMCG Industry which is characterised by high degree of competition and a large number of low-value transactions. Dabur had to maintain a very short time lag between procurement, manufacturing, order, distribution and consumption for it to be competitive. Also, the profit margins for any FMCG company per transaction are very low hence it demands Dabur to be cost effective in its line of business. The inventory management system for FMCG companies is different & unique from that of the other industries and Dabur had to balance the inventory system effectively.
One of the problems Dabur faced severely was the Selling and Distribution problem. Dabur was facing problems to ensure availability of their products so that they can respond quickly to customers’ orders in the most cost efficient manner. By 2000, the company’s distribution network has grown
rapidly over a period of time, spanning 29 factories, 6 mother warehouses, 47 stocking points, 4 zonal offices and over 10,000 stockists and dealers. About one hundred trucks were dispatched daily. The distribution of goods across the country in the right quantity, right time and at the right place is already one of the biggest challenges they face. With distribution pressures rising, technology upgradation was becoming more and more important. In order to thrive in the era of modern trade, companies need to deliver a service level that is higher than what the industry is used to and operate a supply chain which is superior to the competitors.
Also, Dabur faced problems with their product lifecycle management . The new products and services were usually of shorter lifecycles and a focus on brand extension was demanded through the development of new products. Management was unable to figure out the demands and expectation of their customers.
10
Currently, Dabur Company did demand forecasting internally with little or no direct liaison with the organisation’s customers. In fact, sometimes forecast information is not even shared amongst
appropriate stakeholders internally, example, price promotions run by marketing without adjusting for inventory holdings or capability to deliver on the factory floor.
OBJECTIVES OF IMPLEMENTING ERP SYSTEM: In order to mitigate the above mentioned problems, Dabur implemented two ERP systems. To manage the outbound logistics QAD ERP suite known as MFG/PRO was used and to manage manufacturing locations BaaN was implemented. Though it showed improvements in the sales dispatch and demand forecasts, it posed severe problem due to data redundancies and inconsistencies at time. Thus formulating strategy and taking business decisions still remained as severe problem.
The key objectives of new system “SAP ERP system” were:
1. Implementing a new sales and distribution strategy
One of the important reasons for the implementation of the SAP system was to develop new sales and distribution strategy so as to identify key customer segments in urban and rural markets, customize sales activities for main accounts and reorganize Dabur’s sales team s. Dabur
teamed up with Accenture to optimize the internal logistics and distribution processes for mega retail customers, and put incentives and metrics in place to drive specific goals. 2. Developing a new supply chain management capability Company wanted to leverage SAP by automating Dabur’s material resource planning processes across the complex manufacturing arena spread across different parts of the country. Also the new system allowed the company to forecast the demand more accurately than before, this
11
new approach allowed management to shift their focus from simple transactions to more strategic procurement efforts to reduce the cost. 3. Optimizing Dabur’s ERP capabilities
With the existing two independent ERP systems, though the company was able to realize the operational excellence theinfrastructure for decision support was not adequate. The idea of a single organization wide ERP implementation was proposed in Dabur to improve the availability of data to the higher management for them to make decisions. Company needed to improve its capabilities in order to implement strategic and operational changes. 4. Leveraging IT for business initiatives
Gathering real-time data is one of the biggest challenges for any FMCG company. Through the implementation of the ERP the company aimed at integrating their key customer in order to gather real time data which would further help them to forecast the demand more accurately and help them in making sales and distribution decisions swiftly.
EXPECTED FEATURES OF AN EFFICIENT ERP SYSTEM
1. Packaged Software
The ERP system should be a complete package of modules that are required by the company. As far as Dabur is concerned, the system should comprise of modules like Sales and Distribution, Materials Management, Production Planning, Quality Management, Plant Maintenance, etc. The system modules should be well-integrated and highly efficient.
12
2. Process the Majority of an Organisation’s Transactions
The ERP system should cover as many functions of the organisation as possible, so that most of the organisation is brought under the umbrella of a centralised database system.
3. Use a Data Warehouse
The ERP system should be capable of keeping an up-to-date database of all the important information flowing through an organisation, and all the information should be updated constantly, on a real time basis.
4. Accessibility
The ERP system should be designed in such a way that any authorised employee of the organisation, regardless of which department he is employed in, should be able to access the information contained in the ERP database, from anywhere in the organisation.
KEY STAKEHOLDERS IN ERP IMPLEMENTATION
1. Management
The most important stakeholder in the implementation of ERP is the management, since it is the management which is responsible for the funding of the implementation. Effective implementation an ERP system requires considerable investment of time and money on the part of the management. As such, it would be in their interest to ensure that the system is working efficiently and achieving the desired results.
13
2. Employees
The next priority in the list would be the employees of the company. It has been observed that employees in an organisation are always less than receptive to ERP implementation in their company, because they are worried that their jobs and positions in the organisation would be in danger. Therefore, employees need to be given assurance that their services are still valuable in the company in order to ensure that their loyalty towards the company does not waver.
3. Customers
The customers of Dabur are also involved because they would expect better service and products from the company now that it has implemented ERP software. So it is in the interest of the company to ensure that it meets the customers ’ expectations.
4. Suppliers
The suppliers of Dabur would also be interested in the ERP implementation program of Dabur because the information supplied to them regarding orders, materials and other production planning decisions would now be more accurate and timely. Accordingly, they can meet the orders in time and without any mistakes as to the quality, quantity, etc. of the goods to be supplied.
5. External Users
External users refer to the shareholders as well as the potential investors in the company. This category of people would be interested in knowing how far the implementation of ERP in the company has been successful and whether it has achieved the results it originally set out to achieve. This knowledge might ultimately play an important role in their decisions regarding their investment in the company. 14
BENEFITS OF ERP DABUR is one of those companies who have implemented two ERP systems successfully by streamlining its primary distribution system and outbound logistics. It has used both MFG/PRO and BaaN. MFG/PRO can run in an offline mode using local database and it is network independent which served as one of the major benefits of this kind of system.They were facing issues like maintenance costs, data redundancy, etc. So, in April 2006, they migrated from standalone ERP systems - Baan and Mfg to centralized SAP ERP system for all business units (BUs). MFG/PRO is a fully integrated ERP (Enterprise
Resource Planning) solution, which includes manufacturing, distribution, customer service and financial applications and back-end system (Baan) for materials planning and production scheduling. Thus it helps create deliverable processes in the outbound logistics and seamlessly integrate it with strategic inventory management, credit control and sales generation.
The major advantages can be summarized as:
It helped them to improve the sales dispatch to the Carrying and Forwarding Agents (CFA). In an FMCG sector, the major chunk of sales happens at the end of the month. Thus over 80% of the sales happen during this period. Hence they faced a number of problems due to the sheer volume of the transactions and no system to keep a track of all these. Some of the problems would be like sales returns and cheque bouncing from ‘pushed’ sales to meet sales targets. ERP helped them to remove all these glitches in their supply chain to make them into a more profitable organization.
Improvement in collections. Collections have recorded an improvement of about 6 days and are more evenly spread over the month. This leads to considerable saving on working capital locked up in out-bound logistics. The collection improvement has also helped them to manage their
15
account receivables and thus more efficiently manage their working capital. In turn it has also helped them to reduce their bad debts.
The ERP system has provided them with a platform for visibility of the data across all the domains in the organization. Thus the stocks with the CFA are visible to the central distribution planners in saleable and unsalable categories. This has helped them to better plan their distribution and management by reducing the sales returns and unsold stock inventory.
In FMCG sector one of the major sources of income is the sale and promotion schemes. Without an ERP system it becomes very difficult to track the changes in this area especially when one is to monitor a base as huge as the whole of India. Thus the ERP system has helped towards the central management of the sales schemes. The schemes and free issues are now managed centrally at the corporate office and the ERP system keeps a strong check on schemes leading to reduction in misuse of schemes in the field.
MFG/PRO gives real-time information sales situation of distributors,about their inventory and improves the accuracy of demand forecasts.These demand forecasts are then fed into the backend system (BaaN) for materials planning and production scheduling. Integration of these two systems has significantly enhanced their efficiency.Mfg Pro is fully operational in the zonal offices, motherwarehouses and CFAs and Baan is already live in five manufacturing locations. Information on inventories, return of products, collections done and dispatch orders from warehouses are now all available at a central location.
A Secondary Sales System has been implemented to provide countrywide information on Secondary pipelines and sales by brand.This new Secondary Sales System has played an important role in tracking brand-wise sales, and reducing pipeline inventories by focusing on secondary sales. 16
The improvement in area-wise and brand-wise inventory management has scaled up the entire supply chain management through better sales forecasts, production scheduling, materials planning, vendor management and raw material sourcing.
Company has implemented another new initiative of Claims Settlement using an Intranet/ Extranet based system, for systematic tracking and settlement of claims. The Company also implemented another major initiative-Employee Management System (EMS), an intranet based HR-information system, including Payroll and PF processing.
IT INITIATIVES
Migration from Baan and Mfg ERP Systems to centralized SAP ERP system from 1st April 2006 for all business units.
Implementation of a country wide new WAN Infrastructure for running centralized ERP system.
Setting up of new Data Centre at KCO Head Office.
Extension of Reach System to distributors for capturing Secondary Sales Data.
Roll out of IT services to new plants and CFAs.
UPCOMING CHALLENGES
Forward Integration of SAP with Distributors and Stockists.
Backward Integration of SAP with Suppliers.
Implementation of new POS system at Stockist point and integration with SAP-ERP.
Implementation of SAP HR and payroll.
SAP Roll-out to Dabur Nepal Pvt. Ltd (DNPL) and other new businesses.
17
Sample Report:
Figure 5:Sample reports
CONCLUSION: DABUR made a very right move to change into the existing ERP system. This has helped them not only to remain competitive in the market but also act as an example that even two models can be integrated together in spite of all the challenges faced by them. The ERP software has helped them to increase their profitability many folds since 2006.
18
REFERENCES
Simchi-Levi , “Designing N Managing Supply 3E” , Tata McGraw-Hill Education
Alexis Leon, “ERP Demystified”
http://www.dabur.com/Media-ProductShots
http://russellobrien.hubpages.com/hub/ERP-Explained
http://www.dabur.com/en/investors1/Annual_reports/2005-06/Dabur_Annual_Report_0506.pdf
http://www.dabur.com/About%20Dabur-Dabur%20World%20Wide
http://www.valuenotes.com/Investment-Strategy/Dabur-Long-term-outlook-remainsintact/172842/12540103.00/C
http://provigator.com/dabur-india-limited
http://www.chillibreeze.com/articles_various/Dabur-story.asp
http://www.tspl.com/dabur_case_study.php
http://www.dabur.com/About%20Dabur
http://www.accenture.com/us-en/Pages/success-dabur-india-operational-excellencecompetitive-advantage.aspx
19
