Paint Industry Project

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REPORT ON THE PAINT INDUSTRY PROJECT TITLE: “STUDY OF SUPPLY CHAIN MANAGEMENT IN THE PAINT INDUSTRY”

– AN ANALYTICAL VIEW OF THE SALES AND MARKETING SIDE

ORGANIZATIONS IDENTIFIED FOR THE STUDY: BERGER PAINTS INDIA LTD ASIAN PAINTS INDIA LTD BUSINESS SECTOR IDENTIFIED FOR THE STUDY: PAINT INDUSTRY

PROJECT GUIDE: PROF. ANIRUDH SHARMA A Report By: Manmeet Singh/ IIPM / PGP / SS 2003 – 05 Alumni Reference Code – SS03517

Indian Institute of Planning and Management

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Date of Submission: August 31, 2005

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Manmeet Singh


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ACKNOWLEDGEMENT It is my proud privilege to acknowledge with a deep sense of gratitude, the invaluable help, kind patronage and able guidance, given to me by my learned and revered project guide, Prof. Anirudh Sharma Vice President - Corporate Relations, Indian Institute of Planning & Management. Their prudent counsel, meticulous supervision, ardent personal interest, sustained encouragement and affection have been of immeasurable help all along. In fact working under his supervision is a matter of pride. I owe a debt of honour of Prof. Sumanta Sharma, The Indian Institute of Planning and Management, for the exceptional cooperation and multifarious openhanded help. I am also thankful to Prof. A. Sandeep, Dean - Center for Advanced Consulting & Research, Indian Institute of Planning & Management, for the support he provided at the time it was most important to me. He provided me with the project of Micheal Potter's 5 forces analysis project, which made me gain a lot of knowledge and start the project with a right platform. My heartfelt gratitude are due to the officials and staff of various companies specially to Mr. Arun Batra (RSM Berger Paints), Mr. Rajesh Sahay ( DSM Berger Paints India Ltd), Mr. Joydeep Paul(RSM Asian Paints India Ltd) and Mr. Nimesh Gupta (ASM ICI Paints) who all helped me with the information I needed to finish the project successfully in time.

(Manmeet Singh Sachdeva)

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EXECUTIVE SUMMARY Supply Chain Management is an area that is used as a differentiating factor for a lot of companies. Every company in the world have either improved the Supply Chain Management or are looking forward to give proper concentration to it. This project will take a look at the supply chain management of the Paint Industry. In view of the same the companies which are been covered are primarily the biggest 2 companies in Delhi. As being No.1 in Delhi, Berger Paints India Ltd and the follower Asian Paints India Ltd. The study has only been focused towards the working of these companies in the global region of Delhi. The research has mainly covered some company officials; in the company officials even I have tried to cover at least 3 levels of officials, thus for the same effort I have covered 24 sales officers of 3 companies (Berger Paints, Asian Paints and ICI paints also for a better idea of the industry), then onwards there are ASM’s of all the three companies and RSM’s of only the two focal companies. After covering the company persons, the next step was to cover, as many dealers as I can, but due to the time constrain the no of dealers, which were been covered, were restricted to only 38. With the discussions to the company persons and the dealers I was able to gain knowledge that the paint trade in Delhi is primarily working on 2 things. One is rebates and the other is credit period. On the basis of both the things the market runs. In the thesis I have first explained about the basic concept of supply chain management. After the same I have explained about the Indian Paint Industry. Paint trade in India is organised only to the level of 60% and rest is all un-organised. The unorganized sector in the Paint IIPM/ PGP-SS-2003-05/ SS03517


5 Industry is very scattered, Delhi in all have almost 550 Local vendors. Thus the competition and usefulness of SCM goes deeper. After understanding the need then the thesis moves to various areas of the SCM and see how are all these things managed in Paint Industry as a whole and wherever possible about the two companies differently. The second chapter covers the areas of Logistics; logistics, which is the backbone of any SCM, is covered with various areas. It has areas like invenmtory management,

order processing, network planning and

many more. In this chapter all the functions are explained individually and also been accompanied with the paint trade for that particular segment only. Moving further to the areas where the heart of any company exists, the financial aspects, this chapter explains about the relevance of finance to SCM and SCM to finance. How well the combination of the two is working together for the Paint Industry. The further chapter moves towards the forecasting methods and the importance of forecasting. It shows that how difficult is it to forecast in the paint industry. This is followed by the relationship chapter, this chapter talks about the customer satisfaction and the inter firm relations. This chapter explains both the things differently and explains how Asian is trying to take an additional advantage by giving special kind of services and trying to gain customers goodwill. Role of sales and marketing in the working of SCM is the next chapter. This chapter tells us about the importance of human touch in the technical process. This chapter shows that is there is not a proper IIPM/ PGP-SS-2003-05/ SS03517


6 human involvement then the whole process might go for a toss. Thus to have a perfect person at perfect place is as importance as to have the right market share. In the next chapter there is discussion about the machine which has changed the working of the Paint industry. This machine has made the SCM in the Paint Industry some effective. Further moving to the final chapter we will talk about the future of the paint industry and what all changes are going to hit the paint market and what all effect will be there from the changes.

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TABLE OF CONTENT Chapter No.

Particulars

Page No.

Synopsis & Research Methodology

7

Chapter 1

Supply Chain Management

10

Chapter 2

Logistics management

26

Chapter 3

Financial areas

39

Chapter 4

Forecasting

50

Chapter 5

Customer Satisfaction & interfirm relationship

63

Chapter 6

Role of sales and marketing in SCM

74

Chapter 7

Tinting machines

82

Chapter 8

Future Trends in the Indian Paint Market

89

Chapter 9

Conclusion

96

Annexure 1

99

Annexure 2

101

Annexure 3

103

Bibliography

105

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SYNOPSIS THE TITLE OF THE THESIS: “Study of Supply Chain Management in the Paint Industry”

THESIS GUIDE: Prof Anirudh Sharma

Vice President - Corporate Relations,

Indian Institute of Planning & Management.

OBJECTIVES OF THE STUDY The objective here is to get an overview of Supply Chain Management and to know how this concept works in the Paints Industry, The various steps the companies take to improve the supply chain management and how successful are they.

Primary objective:

To understand the Supply Chain Management followed at Paint Industry. To find out the gaps left while implementing Supply Chain Management in various companies under the paint industry. Finally to find out the solutions for those Gaps.

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9 Secondary objective:

 To study the various areas of Supply Chain Management in Paint Industry.  How they manage Supply Chain.  Whether they are able to get the maximum out of the Supply Chain Management and make the highest benefit of it. RESEARCH METHODOLOGY

Methodology of the study will be an exploratory research. The nature of the study is such that it needs to have both the secondary research as well as the primary one. The Secondary research will help to gain more and more information about the companies and the usage of Supply Chain Management in them. The primary research will make me understand the realities of the market.

I. INFORMATION SOURCES

Primary Sources

The following sources have been identified to provide primary information regarding the supply chain management of the organizations under study: •

Employees of the organization in the concerned departments through o

•

General Discussions

Business Associates/ Wholesalers/ Stockiest/ Dealers/ Sub-Stockiest/ Other intermediaries of the Organization’s Sales and Distribution network

•

Any other individual having association with the organization

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10 The focus during the research would be towards meeting more and more channel members of the company not only facilitate our primary research but in the process collecting authentic data and verifying the same.

Secondary Sources The following sources have been identified to provide secondary information about the organizations under study: •

•

Literature on sales and marketing o

Research publications

o

Books by Renowned authors

o

Business magazines and journals

The Internet

II. DATA COLLECTION TOOLS

Though there are numerous tools available for Data Collection, we have identified the following tools to be used for the purpose during the course of the project:

•

Group discussions

•

Personal Interviews and

•

Questionnaires

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CHAPTER 1

SUPPLY CHAIN MANAGEMENT Cisco does it. Toyota does it. IBM does it. Do you do it?

What is Supply Chain Management? (An overview on Supply Chain Management)

In this chapter we will see that what is Supply Chain Management, how did it evolved, how does it affect the various areas of our companies.

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12 When we think of Supply Chain Management the first thing which comes to our mind is logistics and movement of the material. We all have a misconception that Supply Chain Management only works from the company end to the consumer, it creates a better platform for the product to reach the market. Before we start learning about how the supply chain works in the paints industry let us first learn about what is Supply Chain Management exactly is and which all areas it covers. To serve a few or to serve the whole market, one thing that is common in them is to produce the product and making it available to the customer. Any company that will be successful to do it better would lead the market in its respective market & Industry. Leading manufacturers of the world have starting improving the efficiency of their manufacturing and enhanced profitability by focusing on how they interact with suppliers and customers. Supply chain management is the management of supply chain. Thus to manage a supply chain properly we must first understand what supply chain is all about. This effort to cover all the areas in the market is called Supply Chain. Supply Chain is the one that starts from purchases of raw material of our raw material supplier and finishes at making the product available to the end customer. Traditionally, supply chain was a synonymous with logistics and the movement of materials. Today, it carries a broader definition; supply chain is the one that covers all the areas of sourcing, production and distribution. A supply chain is a network of facilities and distribution options that performs the functions of procurement of materials, transformation of these materials into intermediate and finished products, and the distribution of these finished products to customers. Supply chains exist in both service and manufacturing organizations, although the complexity of the chain may vary greatly from industry to industry and firm to firm. A very simple supply chain for a single product, where raw material is procured from one supplier, transformed into finished goods in a single step, and then transported to the ultimate customers. Lets understand it with a Drawing (See SC1)

Supplier

sPECIFIC COMPANY

Customer

Basic Supply Chain Figure - SC1

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13 Realistic supply chains have multiple end products with shared components, facilities and capacities. The flow of materials is not always along an arbores cent network, various modes of transportation may be considered, and the bill of materials for the end items may be both deep and large. It is really difficult to explain a supply chain without a particular industry. It does not end here, supply chain even differs within the industry. Different companies in an industry even have different kinds of supply chains and they may be managing it in different manner. To give you a generalized view let us see a part of supply chain that is generally common in all the companies. See SC2

Initial Supplier

Ultimate Customer

Third party logistics supplier

Supplier

sPECIFIC COMPANY

Customer

A part of Supply Chain Figure – SC2

This is just a part of the supply chain. Imagine that this figure has 45-50 Initial suppliers, 10-15 Suppliers who are making the raw material available to the company. On the other hand if there are some logistics companies, a number of distributors, a huge number of dealers dealing with them and a un-countable number of customers. This all can be accompanied with the Institutional selling, bulk selling which has different pattern and direct marketing. With having all this in one diagram I feel that it is almost impossible to built a diagram that can explain al that. Supply chain can better be understood by putting it as a well-balanced and well-practiced relay team. Such a team is more competitive when each player knows how to be positioned for the hand-off. The relationships are the strongest between players who directly pass the baton, but the entire team needs to make a coordinated effort to win the race.

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14 Let us see some definitions of Supply Chain Management,



The planning, scheduling and control of the supply chain, which is the sequence of organizations and functions that mine, make or assemble materials and products from manufacturer to wholesaler to retailer to consumer. The driving force behind supply chain management (SCM) is to reduce inventory.



Dr. Roger D. Blackwell, professor of marketing at Ohio State University and author of the bestselling book, "From Mind to Market," says it very succinctly. "Supply chain management is all about having the right product in the right place, at the right price, at the right time and in the right condition."



Typically, SCM will attempt to centrally control or link the production, shipment, and distribution of a product. By managing the supply chain, companies are able to cut excess fat and provide products faster. This is done by keeping tighter control of internal inventories, internal production, distribution, sales, and the inventories of the company's product purchasers.



A cross-functional approach to procuring, producing, and delivering products and services to customers. The broad management scope includes sub-suppliers, suppliers, internal information, and funds flow.



Supply chain management (SCM) deals with the planning and execution issues involved in managing a supply chain. 

Supply Chain Management encompasses the planning and management of all activities

involved in sourcing and procurement, conversion, and all Logistics Management activities. Importantly, it also includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third-party service providers, and customers. In essence, Supply Chain Management integrates supply and demand management within and across companies. Supply Chain Management is an integrating function with primary responsibility for linking major business functions and business processes within and across companies into a cohesive and highperforming business model. It includes all of the Logistics Management activities noted above, as well as manufacturing operations, and it drives coordination of processes and activities with and

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15 across marketing, sales, product design, finance and information technology. (Source: Council of Supply Chain Management Professionals www.cscmp.org)

Here are some official definitions



"MIT's definition is integrated supply chain management is a process-orientated, integrated approach to procuring, producing, and delivering products and services to customers. ISCM has a broad scope that includes sub-suppliers, suppliers, internal operations, trade customers, retail customers, and end users. It covers the management of material, information, and funds flows."

(Dymystifying Supply chain Management by Peter J Metz from Supply Chain Management Review Winter 1998)

"A supply chain is a network of facilities and distribution options that performs the functions of procurement of materials, transformation of these materials into intermediate and finished products, and the distirbution of these finished products to customers." 

Supply chain management (SCM) is the oversight of materials, information, and finances as they move in a process from supplier to manufacturer to wholesaler to retailer to consumer. Supply chain management involves coordinating and integrating these flows both within and among companies. It is said that the ultimate goal of any effective supply chain management system is to reduce inventory (with the assumption that products are available when needed). As a solution for successful supply chain management, sophisticated software systems with Web interfaces are competing with Web-based application service providers (ASP) who promise to provide part or all of the SCM service for companies who rent their service.



Supply chain management (SCM) is the practice of coordinating the flow of goods, services, information and finances as they move from raw materials to parts supplier to manufacturer to wholesaler to retailer to consumer. This process includes order generation, order taking, information feedback and the efficient and timely delivery of goods and services.

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Let us now see how the Supply Chain Management evolved.

Over the decades, management of the supply chain has moved through three distinct phases, from decentralized (functional/departmental), to centralized (corporate planning and purchasing), and finally to a combination of both.

The trend is now moving towards centralized planning combined with decentralized execution. Technology now allows for the rapid sharing of business information from all functional and geographical areas of the extended enterprise, which enables decision makers to plan and execute with the view to maximising enterprise-wide profitability. Let us now understand both the Phases in a bit depth manner and then a combination that is now days been promoted in the corporate world

Phased Evolution of Supply Chain Management

Supply

Phase 1: Decentralised

Phase 2: Centralised

Phase 3: Combination

(Functional or

(Integrated)

of both centralised

Departmental)  Done in functional areas

Chain Planning



business process focus

Ineffective due to limited information.



Shift to a



and decentralised  Collaborative



planning 

Increase in

Extension of the planning process

effectiveness due to

beyond the enterprise

implement

standardisation of

to include contract

Standardisation around

information across

manufacturers, key

the enterprise.

the enterprise

customers and

Difficult to



Integrated

suppliers

supply chain planning: demand

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17 forecasting, planning & scheduling

Supply

Execution is



Chain Execution 

Most of the





Decisions

generally in a reactive

decisions made on

taken at the most

mode

an enterprise wide

appropriate level in

area.

the organization

Decisions often made by functional



managers and key Associates

Limited collaboration



The functional manager might not



Greater proportion of collaborative, preemptive Decisions

be happy with the decisions made.

Phase 1—Departmentalized or functional supply chain management

Organizational structures from the fifties to the late eighties can be characterized as a series of functional and geographical areas. Executive management’s attempts at centralised supply chain planning in such an environment were ineffective due to the lack of standardisation of business information, poor data integrity and analysis support, disparate technology systems, and incentives that did not promote sharing of information. Supply chain execution decisions were made by a core set of managers within each functional area with minimal thought about repercussions in other areas. Decisions were reactive and based solely on criteria that were applicable to the particular functional area.

Phase 2—Transformation to integrated supply chain management

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18 In the late eighties and early nineties, with the advent of BPR, corporate leaders started seeing the benefits of aligning their organizations, along with the associated business objectives and performance incentives for executives, to underlying business processes. Advances in technology and lower cost of computing increased the penetration of enterprise-wide transaction systems such as ERP systems. Standardised business information and a coherent set of metrics from different businesses, functional and geographical areas were now readily available to senior managers. With the introduction of advanced planning and scheduling systems, supply chain optimization became a feasible option. This led to an increase in the effectiveness of increasingly centralized supply chain planning processes. The planning process was more integrated and driven by cross-functional teams with an objective to look at the enterprise as a whole. Leading corporations across all industries started realising that to reap the full benefits, demand forecasting, supply chain planning, and production scheduling ought to be treated as an integrated business process. Sales and operations planning programs, where cross-functional teams periodically meet to determine the best course of action, became popular. Supply chain execution decisions also became more cross functional and integrated. Purchasing and manufacturing could now jointly decide on a raw material procurement decision that minimized the total cost-to-make of a product, not just the lowest purchase price. Similarly customer service and distribution and logistics could jointly decide on a fulfillment decision that minimized the total cost to serve a particular customer.

Phase 3—Transformation to value networks

Today, the Internet is unleashing a powerful phenomenon—collaboration—that is affecting the supply chain. Integrated and centralized supply chain planning will become even more effective as the majority of inputs to the planning process will flow bottom-up through the enterprise, and an increasing portion of it will originate from the end customer. Pertinent information will be adjusted and reviewed by relevant players based on new developments. Demand forecasts will be routinely updated by sales representatives based on the latest customer information and eventually by the end customers themselves. Sharing of information around product seasonality, promotional events and new product launches between buyers and

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19 sellers will further enhance the trend, and increase the associated benefits of higher customer service levels and lower supply chain costs.

The other significant development will be that supply chain execution decisions will become increasingly decentralized. As supply chains migrate from a push model (build-to-stock) to a pull model (build-to-demand), they require four key elements for operational success: real-time visibility (across the entire supply chain), flexibility (of supply and sourcing options), responsiveness (to changes in customer demand and product lead-times) and rapid new product introductions (based on market trends and new designs).

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Let us now see that how is the supply chain management works in the paint industry. In short we can say that how the paint trade works.

The Indian paint industry has come a long way from the days when paints were considered a luxury item. Today the awareness level on benefits of paints is relatively high and people have started making paint as a part of their life. India is a favorable proposition for a lot of trades and a lot of world leaders have already or wants to start operations in India. Paint industry is one of these industries, where leaders of the world are looking at companies like ICI has already entered and companies like Sherwin Williams also are looking for some entry gateway in India. Factors due to which these companies are interested in coming to India include the low per capita consumption of paints (currently 0.5 kilogram and has a huge potential to grow as per the world average), growth in construction sector (it is being offered industry status) and growth in the auto/white goods market respectively spurring demand for decorative and industrial paints. The industry has also witnessed increased activity in the industrial variety of paints with the entry of MNCs in auto, consumer durables etc, which has been gaining steadily over decorative paints in the last one decade, by having such fast growth the industrial sector has been able to gain a good market share. Right now the market share of industrial paint is close to 30 % of the paint industry.

This paint industry of India comprises of organized as well as unorganized sector, which can also be called small scale sector. Approximately 60% of the production is contributed by the organized sector. The unorganized sector in the paint industry is having a big number of players running nearly 2000 small-scale units. We can say that one cannot count the number of players running in a particular market. This trade is so dynamic that after every few days one can hear a new name in the market.

With having so many competitors in the market one has to be very accurate in the market, this is because being a high technical product one cannot judge the quality of the product at the time of purchasing. The production of Paints is not a very expensive affair, which is because we have so many players in the market. Thus to show the differentiation in the product wither one have to wait for a few years or he can give a better service and get the perception about the quality of the prouct in the customers mind.

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21 In the organised sector, leading from the front is market leader Asian Paints which leads the market to the market share of 54% of the organisaed sector and over 15000 dealer networks and it is increasing its network by concentrating in the semi urban and rural areas for more penetration in the market. Two very close companies with the name of Nerolac and Berger are followed Asian Paints, these companies have a market share of 17% and 16% respectively. After all this fourth in the major organised sector is ICIDulox, which is gaining control with a very fast pace.

The Paints Industry mainly consists of emulsion paints, enamel paints, pigments, printing inks, synthetic resins and many more products.

The paint trade in India is divided in two segments Industrial paints and Decorative paints.

Automobile manufacturers are the biggest targets of the Industrial paints segment as they are the one who has the maximum demand in this segment of market. It is very difficult to study the supply chain of the paint industry in the industrial segment, as there is a different set of works for every customer or every set of customers. Every customer in this segment is such big that the company has to change the working style as per the customer. In this particular segment Nerolac is the leader with having majority of market share followed by Berger and then rest of the players follow the market.

Decorative is market which leads the Indian paint industry and which needs all the efforts on all the sides. This is one segment of the market that needs all the efforts of all the functions of the market as in this segment the market covers whole India. The product range which one company covers in the market is also huge in the organised sector companies. As we have already discussed that the product range of a paint

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22 company covers emulsion paints, enamel paints, pigments, printing inks, synthetic resins and many more products. All these products have their first quality product and second quality product in these areas.

Let me explain this with a example of taking Emulsions and Enamels of Berger Paints.

Paint

EMULTIONS (water-based) Exterior Wall Finishes Interior Wall Finishes



Rangoli Super Emulsion



Luxol Silk Emulsion



Bison Emulsion



Bison Distemper



Jadoo Distemper



Castle Distemper



Weather Coat



WalMasta



Durocem



Jadoocem



Happy Wall Putty

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ENAMELS (solvent-based) Synthetic Enamels for Exteriors & Interiors

         

Luxol Hi Gloss Butterfly Enamel Luxol Luster Finish Luxol Satin finish Luxol Rich Mat Enamel Butterfly Furniture Enamel Antisol Roof Enamel Wood Primer BP Cement Primer And Many More……….


23 

And Many More……

Let us move further and multiply the number of colours, which every product has to provide in the market. Move further and multiply all these (products X Colours) to the No of Pack sizes every product has to supply in the market.

This was just a small segment of the works of the paint industry. Another major area of work might be the tinting machine’s that are available in the market. After having this illustration you one might be able to imagine the kind of complexity that is there in the paint companies.

A GLIMPS ON THE INPUT SIDE OF THE PAINT INDUSTRY (Raw Materials)

The industry is raw-material intensive. Of the 300 odd raw materials, nearly half of them are imported petroleum products. Other major raw materials titanium dioxide, phthalic anhydride and peutarithrithol constitute 50 per cent of the total cost. Besides, this, there are other raw materials such as castor, linseed and soybean oils, turpentine and pigments. Majority of the inputs in paint industry are sourced through big industrial houses and the raw materials used are standardized across the industry with limited substitute available and very limited scope for players to switch suppliers. Materials like titanium dioxide, phthalic anhydride, peutarithrithol and petroleum products are imported and they constitute nearly 30 per cent of their raw material requirements and the raw materials cost sums up to a whopping 70 per cent thus changes in import policies can affect the industry. For imported petroleum products, any deficit in global oil reserves affects the bottom-line of the players. Raw materials such as castor, linseed and soybean oils, turpentine and pigments are procured from the local players which are easily available in the market and thus decreasing the bargaining power of the suppliers

With having these many complications in the production of the product and making it available in the market the story doesn’t ends here. Further are the expectations of the product in the market which a company has to fulfill in the market. To be successful in the market paint should provide number of things. Let us now take exteriors and study that what all is needed out of an exterior paint.

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Qualities of an exterior Paints

•

Durability

•

Finish

•

Anti-fungal properties

•

Dirt pick-up resistance

•

Ease of Application, no curing required

•

Wide range of shades

•

Cost

These are a few of areas which one has to provide as a bear minimum in the market to stay there and be in the consideration box of the target audience.

Let us now come to the reality and analyse that what the Indian domestic market is doing in the decorative segment. As we have already seen that the market leader in the paint industry is Asian Paints with a good amount of margin. Asian has that advantage because they have a very keen eye on the decorative market and they have been the most aggressive company in the paint companies from last many years, due to this aggressive effort of many years Asian holds rank 1 in the decorative segment, following to the leader is Berger Paints, which is been closely followed by ICI and then last is the industrial segments leader Nerolac.

The efforts which is there in the markets in the current times by all the companies are as follows

•Aggressive efforts of GNP for resurgence. In the past couple of years Nerolac has started making an aggressive effort in the retail market. With the effort of marketing and putting amitabh bachan in their Advertisements they have been able to get

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25 some good effort from the market but still a lot more to go to come into the prompt notice of the target audience . •Focus brand marketing of ICI. ICI being a player who does not believe in providing the affordable products in the market is able to make a prompt mark in the market attacking only in the high end products.

•Comeback battle of Shalimar. Shalimar Paints which was loosing its presence from the market is now trying to make a comeback and is trying to be the 5th player in the market.

•Gradual evaporation of J&N. Jenson and Nicholson, once being the initial companies to install the tinting machines is now loosing their presence from the market and is now almost out of the market.

•Price game tinkering of Asian. Asian even being the market leaders are now not able to command their needed price and are feeling threat from other players in the market, due to the same they are now coming more aggressive in the market with the price game. With having the same the aggressiveness in the market is still these with the name of Asian paints in the market.

•Positive outcome of brand building exercise in Berger Paints With the efforts from the marketing Berger Paints is now able to Improved visibility & brand salience due to which they are able to improved the price realizations even after providing the consumer affiliation & applicator base.

•

VAT implementation and Crude oil price fluctuation.

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26 Due to the VAT implementation and Crude oil price fluctuation the Paint Industry is moving towards - Intense brand wars. - Clash of loyalty programs. - Clash of application facilitation. - Hostile dealer associations - Product showcase outlets. - Large format retail outlet customers: a new trend. - Losing human resources to consumer related industries.

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27

CHAPTER 2 LOGISTICS MANAGEMENT

In this chapter we will analyze that how the most important area of the supply chain management works. The area which was been given the second name of Supply chain management. With the theories of logistics we would co-relate it with the paint trade and we would find out the way paint is taking care of this particular segment.

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28 Logistics, which used to the be the synonym of Supply Chain Management till couple of years back and is still understood the same way by a lot of people. It is the area which covers the core of any business. Logistics activities have a major impact on the capabilities and profitability of the company. Logistics management is increasingly being seen as a source of competitive strength. Its effective use provides potential for cost reduction and the opportunity for increasing market share.

Logistics management is the process of strategically managing the procurement, movement and storage of materials, parts and finished inventory (and the related information flows) through the organization and its marketing channels in such as way that current and future profitability are maximized through the costeffective fulfillment of orders. Source: Christopher, M. (1998). Logistics and Supply Chain Management: Strategies for reducing cost and improving service, (2nd Ed.). New York: Prentice Hall.

Logistics Management is that part of Supply Chain Management that plans, implements, and controls the efficient, effective forward and reverse flow and storage of goods, services and related information between the point of origin and the point of consumption in order to meet customers' requirements.

Logistics Management activities typically include inbound and outbound transportation management, fleet management, warehousing, materials handling, order fulfillment, logistics network design, inventory management, supply/demand planning, and management of third party logistics services providers. To varying degrees, the logistics function also includes sourcing and procurement, production planning and scheduling, packaging and assembly, and customer service. It is involved in all levels of planning and execution – strategic, operational and tactical. Logistics Management is an integrating function, which coordinates and optimizes all logistics activities, as well as integrates logistics activities with other functions including marketing, sales manufacturing, finance and information technology.

(Source: Council of Supply Chain Management Professionals www.cscmp.org)

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29 'Logistics' is the process of designing, managing and improving such supply-chains, which might include purchasing, manufacturing, storage and, of course, transport. The Modern business logistics sets out to deliver exactly what the customer wants - at the right time, in the right place and at the right price. Very often transport is a major component of the 'supply-chain' which delivers to the customer the goods and services needed.



Order Processing



Inventory Management



Transportation



Location management



Network planning



Warehousing



E-commerce



Channel Bonding

All the above areas comes together and makes the output which is known as the logistics management.

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30

ORDER PROCESSING As a very old saying is that demand derives the supply of a product, thus it will not be wrong to say that demand derives the logistics system, if there is no demand there is no reason of a logistics system to exist. Time duration that is been used by a company to complete the order processing is very important for any company. This time duration is one of the factors to find out the reaction time for any happenings in the market.

Order processing includes order preparation, order transmittal, order entry, order filling and order status reporting

Order preparation involves the customer or sales person filling out the order form, voice communication by telephone to a sales clerk or selection from a computer menu. In some companies it is been done by using bar codes on the products and only giving it the quantity.

Order transmission is transferring the order from its point of origin to the place where the order entry can be handled. This can be done either manually or electronically

Order entry includes 

Checking the accuracy of the order information such as item description and number, quantity and price



Checking the availability of the requested items



Checking the customer’s credit status



Transcribing the order information as needed



Billing preparation

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31 Order filling represents the area where the order is allocated and then been dispatched after making a challan for the order. This area also covers the confirmation of the delivery of the order to the customer.

Order status reporting ensures good customer service by keeping the customer informed of any delay in order processing or delivery.

Let us now see that how are these functions are been taken care in the paint industry.

Order preparation is done by the sales person or is taken by the order clerk on the phone. Order form has various columns as 

Customer name



Customer code



Territory code



Stock business line code (SBL Code)

Every customer in the company has a unique code for his name. As for example a code is written as 03/005254/05

This means 07

/

Territory Code

005254 Customer Code

/

0 SBL Code

5 Customer type

Further in the order form there are columns with the heads as 

Serial No



Item Code and Name



Product Name or Code



Various columns of product size

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32 The row has to be filled as per the columns heading, the quantity of the product has to be filled in the product size column. Further this again makes a full code, which tells the whole story

2145482000 This means

214

548

2000

Product code

Shade Code

Size Code

In the process of Order transmission the order is been accompanies with a cheque of the ordering party

Blank cheque’s are been given by the dealers to the companies, these cheque’s are signed by the party and crossed on the name of the concerned paint company. The only blank area in the cheque is the area where the amount is been written

After the attachment of the cheque’s the order is been transmitted to the order entry desk, where the order is been entered into the computer. In the process of entering the order the customers credit limit (In Value and in days) and the availability of the products is been checked. After which the invoice is been printed and the amount is been filled in the blank cheque of the dealer.

In Order filling the order invoice with the challan is passed to the Godown and the physical transfer of goods is been taken care of. In this process one copy of the challan and invoice is been returned back after signing the acceptance of the products.

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33

INVENTORY MANAGEMENT

Inventory provides a means to take care of all the uncertainties in product supply and demand. It is meant for the purpose of making the product available at the very time when the customer needs it. To give a prompt supply it is needed. It can be explained as it is done to shorten the time between the order and the delivery.

With having this accuracy of the supply to the customers and to be very prompt to all the demands of any customer a company can create a very nice goodwill in the market and can create a healthy relation with the customers. Inventory is a very important portion of providing the right product at the right time and the right place. Thus it is very important to have high inventory level.

At the same time where inventory so important to the company it can even present threat to corporate profitability to the consumer. The capital that is invested in keeping the inventory can be invested at any other place and the profits can be made to the company

Manufacturing entities have inventories for raw products, products in the production process, and finished products. In addition there are often warehouses or distribution centers between the different levels of the supply chain. Inventories are costly. Binding capital in inventories prevents the company from investing this capital in projects of higher return. The holing cost inventories are therefore often set as high as 30 40% of the inventory value! In addition it is desirable to avoid so-called dead inventory, i.e. inventory that is left when a product is no longer on the market.

As we see it is in every company's interest to keep inventory levels at a minimum. Much effort has been put into this, for example an entire manufacturing paradigm has come out of it. A main objective of the Just in Time (JIT) paradigm is to virtually abolish inventories. The efforts made have been more or less successful.

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34 There are a number of mismatches which are countered when we plan for the inventory MISMATCH BETWEEN

STORAGE COST TRANSPORTATION COST INVENTORY LEVEL PRODUCTION COST RAW MATERIAL COST

Let us now see that how is the inventory is been managed in the paint industry

There is no hard and fast formula in the paint industry. It is always based on the budget which is been prepared. On the basis of the budget the Target Stock Level (TSL) is been fixed on the basis of which the product is been kept in the go down.

Inventory of the factory is always based on the forecast of the depots that is been compiled and the production plan is been made. Many products as per the other costs has to be made in one bulk order and is to be managed high in the inventory.

At the depot level a basic cap is been made as the TSL and further stock is been kept as per the schemes, which are been run by the companies. When the company is going to run schemes on product (A), then they would make it sure that the product is available at the depot’s level.

As far as the dealers level is concerned, they don’t have to keep much stock in their inventory as it is very easily accessible to them from the closest depot. The inventory has to be high only when the season is coming and at that time getting products from the depot at urgency will not be very easy thus at that time dealers are been asked to keep a high amount of inventory.

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35

TRANSPORTATION Transport remains a major component of most supply-chains. Certainly limitations of, or restrictions to, transport caused by congestion, taxation or legislation will drastically affect the design and operation of supply-chains. Logistics services and other transport companies need to understand logistics and supply-chain management in order to tailor their services to meet their customers' needs.

Transportation is the only area that works at all levels of the supply chain. It is taken as critical that if a company has good transportation planning and they can work it out optimally then the supply chain of the cooperate has a high probability of being good.

We can understand the transportation as

Raw material supplier

End Customer

Production Plant

Dealer

Parent Depot

Retail Depot

With all the functions this is a common phenomena

This for a paint company will be in a different format.

The transportation cost is one critical factor for any paint company. The transportation cost is always very high for then. With the view to the same cost every company in the paint industry has

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36 various factories at distinct location of India. By doing this they can even provide quick service to any depot in the country.

Berger Paints works on a format that the factory directly sends the product to the sales depot, which will sell the products to the dealers, and it is sold in the market by them.

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37

The structure of Berger can be seen with a diagram: Factory 1

Factory 2

Factory 3

Depo t

Factory 6

Factory 7

Factory 4

Factory 5

This is how Berger paints manages to transport the material from factory to the depot. In this diagram majority of the requirement of the depot is been fed by factory 1 and factory 2. this is because the transportation from the factory to the depot is cheapest in comparison to other factories. Thus the cost efficient factory is providing the material to the depot. Still there are some products that are not in a very regular demand, thus these products are not been manufactured in all the factories and is been transported from the factory that is manufacturing it. This is done to keep the production cost down.

Asian on the other hand is working the pattern of having Regional distribution center(RDC) and further having carrying and forwarding agents (C&F).

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38 Their structure will be Factory 2

Factory 3

Factory 1

RDC

C&F Agent C&F Agent

C&F Agent

Instead of having a depot owned godown they are having a C&F agent at all the places. Their system is to transfer the products from the factory to the regional distribution center, which is more easily accesable to all the depots. By doing this they don’t have to carry high inventory at the C&F level and through this they able to supply the right product to the right depot when ever the need comes up.

The further supplies of the products from the depot’s/C&F to the dealers is done by the transporter’s which is been outsourced by all the companies in the paint trade.

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39

LOCATION MANAGEMENT AND NETWORK PLANNING For any company to be good in logistics management it is very important to have a proper location of their depot and to have proper location of the dealers they are associated with.

To be located close to the market as a depot and to have dealers in the proper market is the dream of any company. Every company is trying hard on working with dealers, who have highest footfall in their shops. Thus this is one of the most critical areas for any company. If a company is working with these kinds of dealers then they can promote their sales in a better manner.

Both the companies have placed their depots very close to the markets; in a city like Delhi both the companies have 5 depots in all the areas of Delhi.

With the same view both the companies have very critically worked on the dealers also, both the companies are running hard to collaborate with the best dealers in the market. The best dealers are those who have the retail market, the dealers who are placed in the location where the retail sale is high.

As on date Asian is leading in the two, Asian is known for having most of the retailers working with them and Berger is known for having most of the distributors in their hands.

The major advantage that Asian is getting out of it is that the product gets consumed quickly and they again have space in the market to sell. The turnover rate of Asian is better than Berger in the market. As Berger paints products goes from the distributors to the dealers and then to the final customer. Thus the logistics of Asian Paints is better in the manner that one of the most important area

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40

CHAPTER 3 FINANCIAL AREAS

Supply chain activities have a major impact on the capabilities and profitability of the supply chain and its member firms. Let us understand the how is the supply chain connected to the financial part and it is done otherwise.

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41 Significant opportunities exist for the competent supply chain manager to reduce expenses, generate better returns on invested capital and improve cash flows.

Introduction Customer value and satisfaction are important ingredients in the business formula for success. No one business function alone can create superior value for customers. All departments must work together in this important task. Each company department can be thought of as a link in the company’s value chain. This is, each development carries out value-creating activities to design, produce, market, deliver, and support the firm’s products. Marketing Mangers pay attention to understanding customer needs, understanding the company’s ability to satisfy them, and creating revenues to sustain future growth and profitability. Logistics managers historically have focused their time and attention on three core functions of business operations: inventory policy and practice, facility location and design, and transportation of materials and products. Financial managers strive to obtain borrowed funds at the lowest cost, to select projects that offer the best returns, and to balance the financial risks taken with investor expectations of returns, and to keep the business liquid. The firm’s success depends not only on how well each department performs its work but also on how well the activities of various departments are coordinated. To the successful supply chain organization is shifting from a single firm cost focus on inventories, facilities, and transportation to a multi-enterprise focus on cycle time compression, system wide cost reduction, and improved value for end customers. Having satisfactory or even excellent products and services no longer guarantees a competitive advantage in today’s market place. Successful companies find that they must also establish supply chain partnerships to reduce costs and complement their product portfolios with value-adding relationships.

Financial Issues of Supply Chain Consultants The Management of every business wrestles with a common problem: How do we allocate the resources required to effectively and efficiently meet the expectations of our various constituencies? Those needs and expectations very by constituent. Owners and investors desire reasonable rates of return given the level of risk they assume compared with alternative opportunities. Employees need and expect to be adequately compensated and rewarded for their contributions to the success of the firm. Customers require multiple

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42 values from the products and services they purchase. Resellers of the firm’s products expect help in marketing and managing their activities. Resellers of the firm’s also expect credit of more and more days and more and more amount so that they will be able to earn more. Suppliers expect timely payment for goods and services provided. They community expects socially responsible behavior, whatever the costs to the firm. Major reductions in inventory relative to GDP have occurred since 1981, when the prime interest rate was at an all time high. When we look at the changes in total transportation and inventory costs graphically, it appears that productivity improvements have bottomed out. Are further cost reductions possible? A concern could be raised that the economic value of logistics to the macro supply chain is not increasing. How does the individual firm plan for and evaluate the reductions in its logistics costs? How does the individual firm meet the economic claims of its various constituencies, reduce its logistics costs and achieve acceptable profitability and returns on investments?

Three Paths to Economic Success: The Micro View There are basically three paths that an enterprise can take to manage its profitability and rate of return: margin management, asset management and financial management. Margin management is concerned with the revenue streams generated from sales, less the cost of goods and services provided by suppliers, and less the firm’s selling and other operating expenses. The result is net profit. Asset management is concerned with the investments made to produce the revenues of the company. These include cash, accounts receivable, inventory, and other current and fixed assets (fixed assets include facilities, equipment, and hardware) that are used in the business to generate its income. The productivity of these assets is an important managerial concern. As an important measure of enterprise productivity, the asset turnover measure is computed by dividing the value of sales generated for the period by end of period total assets. Financial management is concerned with the source of funds used to conduct the business (i.e., debt, equity, or retained earnings) and the capital structure relationship of debt to equity employed. Because the cost of capital and associated risks vary by source of funding, financial management is focused on

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43 achieving balance between debt and equity to provide an acceptable amount of financial risk and leverage to achieve targeted returns on equity. Using this model, financial simulations are easy to construct that reveal the impact of possible supply chain decisions on the firm’s financial performance. Supply chain executives often have responsibility for a significant portion of the costs of goods sold and operating expenses, and therefore, have a major impact on margin management. Decisions and expenditures associated with procurement, inbound transportation, production planning, and materials management are directly related to the net profits of the firm. Supply chain executives have responsibility for a sizable array of assets – inventories, facilities, handling equipment, transportation equipment, and computer and communications systems, used in the operation of the business. Their decisions on asset acquisition, utilization, replacement, and disposal affect the rate of asset turnover. The ability of the supply chain executive to perform financial analysis affecting supply chain decisions is critical in competing for funds and adding value to the firm and the supply chain. The supply chain executive must be able to implement the often-competing strategies of cost minimization, value added maximization and control/adaptability enhancement. This requires the use of financial tools.

Financial Focus of the Supply Chain Executive It was not long ago that operations performance was measured in strictly negative terms, such as costs over budget, damaged goods and shortages, late or missed shipments, and stock-outs. Increasingly, firms have begun to appreciate how improved supply chain performance produces increases in sales, productivity and profit. No longer is supply chain management focused only on internal operational activities and measures. Economic measures, both internal and external, are increasingly used to justify, judge and reward the supply chain organization. There are three areas of financial focus in which the supply chain executive must demonstrate competency; expense control, capital budgeting, and cash flow generation. Expense control Expenses control goes beyond merely managing expenses to the constraints of the budget. Expenses control requires a deliberate ad continuous search for more efficient ways of getting value-added work performed while eliminating non-value added activities. Some companies naively install computers and other technologies to automate and speed up outdated business practices. The power of computers and

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44 technology should be used to “reengineer” the work, to abandon inferior yet institutionalized ways of working, and to create better practices and processes that better align with customer needs. Capital Budgeting Supply chain executives must understand capital budgeting techniques, including their advantages and disadvantages, to contribute effectively to investment decision-making. They must speak the language of finance. They must know which acceptable methods of investments evaluation will best sell their proposals. Several capital budgeting techniques can be used simultaneously on a single investment proposal. Decision makers must consider the amount and timing of cash inflows, as well as the cost of capital or some internal hurdle rate of return. Some firms use the simple payback method of evaluation or the benefit-cost ratio. Cash Flow Generation Cash flows of the firm can be improved as a result of many business practices. Historically, accounting departments attempted to improve working by aggressively collecting accounts receivable from customers white simultaneously delaying payments to suppliers. Such behavior. Such behavior rarely produces and net benefit across the supply chain. Care must be taken in how that inventory reduction is accomplished. Just in time (JIT) manufacturing techniques have become a “best practice” of manufactures in most industries, but savings in inventory investments associated with JIT practices can be more imagined than real. To offset the faster cash outflow, shippers receive discounts from carriers in exchange for last payment. Lead time reductions affect cash flows. Many firms systematically work on controlling and reducing lead times and have achieved impressive results. An economic evaluation of lead time reduction should examine of impact on future cash flows across all business functions or at the organizational level, no just the product level.

A Gold Mine of Opportunity Left Un mined Inefficiencies in the supply chain can waste as much as 25% of operating costs. Companies considered to be best practice organizations in moving product to market enjoy a 45% supply chain cost advantage over their median competitors. Their order –cycle time is half that of their competition, their inventory days of supply are 50% less, and they meet their promised delivery dates 17% more often that the competition.1 1

Source: International Supply Chain Management Association

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45

Key Performance Areas that are used for the financials of the Supply Chain Management The “supply chain cost” measures used are 1.

Total cost,

2.

Cost per unit,

3.

Cost as a percentage of sales,

4.

Inbound freight,

5.

Outbound freight,

6.

Administrative,

7.

Warehouse order cost,

8.

Direct labor,

9.

Comparison of actual versus budget,

10.

Cost trend analysis,

11.

Direct product profitability,

12.

Customer of customer segment profitability

13.

Inventory carrying,

14.

Cost of returned goods,

15.

Cost of damage,

16.

Cost of service failures, and

17.

Cost of backorders.

Margins to remain intact despite increasing input costs

•

Between 2007-08 and 2010-12, the demand for paints is expected to grow at a steady rate of around 7 per cent in volume terms and 10 per cent in value terms. While the high growth in the auto sector is expected to drive the demand for industrial paints, higher demand from fresh housing constructions and steady growth in housing repaint demand is likely to boost the volumes

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46 of decorative in the short term. Another major rise in the paint industry can be expected with the rise in infrastructure in India because of the common wealth games and other further games that are in plan to be hosted by India. •

The paint industry is raw material intensive and about 50 per cent of the inputs used are petroleum-based. The industry imports around 30 per cent of its total raw material requirements, primarily titanium dioxide. While the unexpected spurt in crude oil prices led to an increase in the cost of production of paints, the pressure on margins was eased by the flexibility to pass on input cost increases. The productivity-related benefits, an increased focus on premium products and the flexibility to pass on any further sharp change in input prices will continue to ensure stability in operating margins.

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47 When we come to the financial controls on the sales level then it is one of the job that nobody wants to do as it has a lot of restrictions and those restrictions are sometimes hurdles for the sale. Due to the hurdles one has to keep a very keen eye on these things so that these things are taken care of before even coming in between sales.

Let us first move to Berger Paints, which have to take care of all the areas at a depot level. Let us first see that what all restrictions are there to which a depot manager has to take care of.

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48

•

Credit Limit to a dealer

•

Credit limit are of two kinds one is the credit limit in term of money or can be said as in Rs. And another can be the case as credit limit in days. Both are very different but have a very close relevance. On one side credit limit in Rs. is the amount of product given to a dealer without paying the amount for the same. On other hand the limit in days is that the dealer can pay the amount in x number of days. There is a limit for every dealer in the companies as per the working pattern of the company. This is been decided on the size of the work that a dealer is doing with the company and the relation that the company has with the dealer. At both the sides there is a amount of capital involved in it. Let us understand this with a example. Let us assume that at a particular depot there are 200 Dealers working with the company and every dealer is on an average working for around 2 Lacks with the company. Thus if the company is giving even one day as credit limit to all the dealers then the company has to go for an additional investment for around 4 Cr. So this explains the importance of having the credit limit in hand and in control.

•

Damage Stock

•

Damaged stocks has always been a big problem for the paint industry as the products are such that the damages are very common in transit thus one has to take care that it is been reduced to the minimum level

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49

•

Non-moving Stock

•

These are those stocks that have not moved from a long time and are lying at the depot only. As these stocks are consuming a lot of money in them in the face of inventory cost, capital, a part of profit which will be there after sales and many other minor areas.

•

Material Returns

•

Material returns are even more dangerous than material not sold as this material is also carrying the cost of transportation from the depot to the customer and return. This material is also needed to be controlled because these returns generally are harming the relations with the customers also.

•

Cheque Returns

•

A stock is consider sold only at that time when the payment of that stock is received. As with the view to this line a cheque return is considered to be product not sold but still is lying at somebody else’s place or even is sold further in the market.

•

Invoice cancellation

•

This is one area which is reducing the credibility in the market as either the customer doesn’t want the product now are it is because of some fault of the company. In both the cases the company is loosing relation as well as the sale, which always harms.

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50

•

Delay in depositing cheques

•

A delay in depositing cheques will result to a delay in clearance. It can be treated as an additional capital is been delayed to get cleared and is further not available for investments.

•

Transportation cost

•

The transportation cost from the depot to the dealers end is a very crucial part as the order of a dealer varies from 1 Lt’s to 10,000 Lt’s, thus when the order is less then the transportation also has to be paid as per the expenses he is bound to get. Thus we need to take care of the transportation expenses in a proper manner.

These are some of the most important areas that have to be given a proper priority so that company doesn’t loose some money, which can be used for further growth of the company. If these areas are handled in a proper manned then the company can grow at a very faster rate in comparison to otherwise.

Now when the discussion moves to the market leader, Asian Paints, then we can see that they don’t have to take care of all the issues they only have to deal with few of them as all other processes are been outsourced by Asian paints to a local vendor or to a centralized one. A few of the areas where even Asian has to worry about are

•

Credit Limit to a dealer

•

Material Returns

•

Cheque Returns

•

Invoice cancellation

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51

Thus from this discussion one thing which is understood is that with the market leader Asian Paints is making more expenses for the processes but still feels that the payment is justified so that various areas can be controlled in a better manner.

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52

CHAPTER 4 FORECASTING

In this Chapter we will see the relevance of forecasting in a supply chain management and how it is been used in various areas. How can we get the maximum out of the forecasting and how does it actually happen in the paint industry

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53 Demand planning and sales forecasting is a critical consideration for manufacturers, distributors, retailers, and other supply chain members. It is a central activity for many mid- to senior-level executives, mainly for those who manage the companies supply chain activities. Sales forecasting is more important for those who are especially responsible for developing and monitoring sales to forecasts, schedules, and budgets.

Forecasting can be defined as “Predicting current and future market trends using existing data and facts. Analysts rely on technical and fundamental statistics to predict the directions of the economy, stock market and individual securities.”

Or

“Can be defined as a quantitative estimate (or set of estimates) about the likelihood of future events based on past, current, and future information. This past and current information is specifically embodied in the structure of the econometric model used to generate the forecasts. The future information contains any predictions or knowledge of the trends in the behavior of the explanatory variables.”

Sales forecasting is a difficult area of management. Most managers believe they are good at forecasting. However, forecasts made usually turn out to be wrong! Even after having such results the managers are forced to look well ahead in order to plan their investments, launch new products, decide when to close or withdraw products and so on. The sales forecasting process is critical for most businesses.

Supply chain initiative such as quick response, effective customer response, collaborative planning forecasting and replenishment and vendor managed inventory all of these rely on the forecasting to help plan and manage operations more effectively.

Sales forecasting for a product is the total volume that would be bought by a defined customer group, in a defined geographical area, in a defined time period, in a given marketing environment. If it is done

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54 effectively across the supply chain then it can bring a lot of benefits. Specifically, it can help in cutting inventories, speed up product flows and increase revenues & profits.

As a starting point for estimating market demand, a company needs to know the actual industry sales taking place in the market. This involves identifying its competitors and estimating their sales also.

Most of the times when we start doing sales forecasting then there are a few questions come into our minds.



How can customers be integrated with other supply chain members to realize supply chain efficiencies?



What role does the sharing of business plans and schedules play in demand planning and sales forecasting?



How do Vendor or Supplier Managed Inventories relate to demand planning and sales forecasting?



How do channel members share the cost of inaccurate forecasts in terms of buybacks, reverse logistics of returns, ineffective promotional campaigns, and the costs of improved DP&SF?



What metrics should be used to monitor improvement of the forecasting process?

These questions must be answered in the mind of the person who is responsible for the sales so that he will be able to achieve the same and create confidence in others for the same. If not done so then the forecast might not be achieved.

Forecasting never ends at the point of doing, it is a continuous process, as one should review the forecast done. This helps in two ways. First one is that one can put periodical checks and can review ones own performance and modify the working style according to the mismatch (If mismatch is there). The second benefit is that one can see the forecasting abilities of his own and further can keep the mismatches in mind, so that he will be able to do a better forecasting of the market.

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55 To improve forecasting performance, companies have increasingly relied on advances in Computer and Information Systems Technologies. Point of sale (POS) data collection systems, electronic data interchange (EDI), and more recently, internet-based applications all provide access to near-real-time sales and forecasting information for each supply chain member.

It will review the evolution of forecasting research from and early emphasis on technique development, to more recent considerations for behaviors and channel factors that affect forecast creation and application. Contributing to this understanding of forecasting, I merge existing concepts in forecasting management and application to establish a model of supply chain sales forecasting management.

The forecasting of a company can be divided into 4 steps; rather in can be divided into 2 dimensions that

Management

will be explained in a better manner.

IV

Models

II

Forecast Implementation and Management

Forecasting Management Performance in the Supply Chain

III

I

Evaluating Model Performance

Organisational

Model Performance- Implications for the supply chain

Supply Chain

The vertical axis, described as “moving from models to management”, acknowledges the human component of forecasting. It recognizes that forecasting entails more than mathematical formulae, operating procedures, and systems. Rather, forecasting involves people, their perceptions and motivations, and their behaviors as they participate in the development and application of forecasts.

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56

The horizontal axis illustrates that forecasting practices more and more frequently consider demand process and incorporate forecasting techniques that extend beyond corporate boundaries to companies throughout the supply chain. Let us now understand each quadrant and the contributions that are helping to improve sales forecasting performance in supply chains.

Quadrant 1: Evaluating Model Performance Early efforts to improve forecasting performance sought to identify techniques that produce the most accurate forecasts when considering the varied patterns of product and service demand. Much of this research focused on time series and regression techniques and evaluated those techniques based on traditional measures of forecast accuracy such as percent error (PE) and mean absolute percent error (MAPE). Findings from these and similar studies of forecasting performance suggest that more complex or statistically sophisticated techniques do not necessarily lead to more accurate forecasts. Forecasting performance can be affected by a variety of factors including the level of detail and types of demand data used (item by location, all items aggregated to one number, dollars vs. units, etc.) and the length of the forecast interval and horizon (yearly, quarterly, monthly) among other factors. Therefore, rather than focusing on any one technique for sales forecasting, those responsible for forecasting are encouraged to apply a range of techniques individually, and in combination, whenever possible. Furthermore, combining forecasts should extend beyond time series and regression to include judgmental techniques. As computer processing speeds have improved and increased the ability to consider more complex techniques, broader measures of forecasting performance have emerged. Rather than measuring the accuracy posed by alternative techniques, these measures have addressed issues related to forecast application in industry. Because they have been repeated over time, these surveys offer some interesting insights about the evolution of forecasting practices in such concerns as changes in techniques, technologies that support forecasting, areas of application, and role of forecasting in business.

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57 In addition to supporting the application of more sophisticated forecasting techniques, computers have provided a means to evaluate techniques within the context of particular business applications (Bowersox, Closs, Mentzer, & Sims, 1979; Gardner, 1990). Computer-based simulations have been used to investigate relationships between forecasting performance and the performance of functions that use forecasts for decision making.

Quadrant II: Forecasting Implementation and Management It is apparent from the previous discussions that techniques selections can affect forecasts performance and that the application of more accurate forecasts can lead to more effective operations in other areas of a company (i.e., inventory management). Forecasting is not, however, solely a quantitative exercise. Qualitative methods also provide a means to forecast future demand for products and services. To benefit from either quantitative or qualitative forecasting techniques, individuals, systems, the forecasting environment, and other related factors must be considered. Forecasting implementation draws from many of the same factors that affect the implementation of other types of decision support and operations management systems. Key among them is the need to adopt a user’s prespective in process and system design (Schultz, 1984). The many individuals who participate in forecasting incorporate different decision styles, educational

backgrounds very and

differences exist in perceptions about forecasting practices ad now well they understand those practices. To improve the likelihood of success with forecasting process and system implementation, Schultz (1984) recommended the following five steps to guide forecast implementation: 1.

Define the current process and system supporting forecasting.

2.

Measure factors that contribute to implementation success (such as those outlined above),

3.

Develop an implementation plan,

4.

Build an implementation team, and

5.

Establish mechanisms for feedback and control during the implementation process.

Implementing new forecasting systems and practices can improve forecasting performance; however, such success is not a guarantee of continued forecasting effectiveness or improvement. Over the longer term,

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58 forecasting performance relies on management attitude and a company’s approach to continuous improvement in forecasting management. As a tool for prescription, the characteristics identified along each forecasting management dimension are represented in some form at all stages of sophistication. By comparing forecasting practices to the model, companies can establish their current state of forecasting practices and define a road map leading to improved forecasting management performance. As a tool for prescription, the characteristics identified along each forecasting management dimension are represented in some form at all stages of sophistication. By comparing forecasting practices to the model, companies can establish their current state of forecasting practices and define a road map leading to improved forecasting management performance.

Quadrant III: Model Performance- Implementation for the Supply Chain Forecasting technology and inventory policies can systematically influence the degree of demand variability in the supply chain than exponential smoothing techniques. Furthermore, when all companies in a supply chain use the same demand data, the same forecasting technique (i.e.) forecasting is centralized), the same inventory polices, the supply chain experiences reduced demand and inventory fluctuation (the bullwhip effect). On the other hand when forecasting is not centralised, or when forecasting techniques require estimation of smoothing parameters to address factors such as trend and seasonality, a more substantial bullwhip effect can be experienced in supply chain inventory.

Quadrant IV: Forecasting Management Performance in the Supply Chain Forecast development and application in supply chains is affected by two dimensions of management. The first is intra-organizational and is

concerned with forecasting effectiveness within companies. This

dimension draws from insights revealed in the discussion of quadrant II. The second is inter organizational and is affected by the extent each company in the supply chain has adopted a supply chain orientation(SCO) and activities affiliated with such orientation. The inter-organizational dimension extends the concept of forecasting management performance across the supply chain. FMP is defined as the forecast users’ perception of forecast accuracy and credibility, as well as their application of the forecast without modification (Smith, 1999). In the FMP model (Figure 7.2)

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59 forecast users include individuals and operations within an organization who must satisfy product and service demand, and who use forecasts to plan and execute tasks to accomplish this goal. In the supply chain forecasting management performance (SCFMP) model (Figure 7.4), forecasts’ users extend to include other companies in the supply chain that rely on forecast to plan and execute tasks to satisfy product and service demand. In supply chain environment in which companies share forecast information, the effectiveness of the forecasts used by an upstream company for planning and management can be influenced by measurement error (accuracy), a commonly recognized approach to measuring forecast performance. It ma also be affected by the extent that forecasts received from a downstream supply chain partner are used to plan and manage operations. In other words, if a forecast shared between companies in a supply chain were devoid of measurement error, performance could still be affected by the extent that each company uses the forecast, ignores the forecast, or modifies the forecasts prior to its use.

Let us now analyse some of the channel relationships

Manufacturer Forecasting Management

Wholesaler Forecasting Management

ORDER

Retailer Forecasting Management

ORDER

This is the most traditional channel relationship. This is how it used to be managed. In this channel management, there was no exchange of information from both the sides. The wholesaler will come to know about the plans of the retailer at the time when he will get the order and the manufacturer will come to know about the wholesaler at the time of order only.

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60 In this caste Manufacturer has to forecast about the wholesaler’s forecast and similar is the story for wholesaler to retailer. Only the retailer is able to concentrate on forecast of customer who should be the target of all the three. Further market has moved towards sharing some information and the next stage appeared as

Manufacturer Wholesaler Retailer Sharing of Forecasting& Sharing of Forecasting& Forecasting Management Forecasting Management Forecasting Management Plans Plans

ORDER

ORDER

In this case the forecasting is been shared with the supplier at all the levels. This has improved the working of the whole chain. In this case the problem is that the manufacturer can plan things as per the forecasting of the wholesaler and the retailer as he has got the information needed to plan the production. The problem arises in that case when retailer has to change his plans or make his plans and is in need of the forecast of his suppliers, thus it needs to have a sharing of the information from both the sides. Another reason for sharing of information from both the sides is that the person at a higher level can put much better inputs and can predict for a market much better that a small player of that market. Thus a retailer to be successful and make the company successful in a particular market needs to have a better insight about the market and the company. Let us now see that what kind of relation is needed for a optimal combination

Sharing of Forecasting& Sharing of Forecasting& Manufacturer Wholesaler Retailer Plans Plans Forecasting Management Forecasting Management Forecasting Management

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ORDER

Indian Institute of Planning and Management ORDER

61

In this case every supply chain partner can plans things as per the information that is available to him. A retailer can plan things better in this case as he can know about the status of the orders he has given and also is knowledgeable about the activities happening in the market. At number of times he might be able to give some valuable information to the company that he might have thought to be irrelevant.

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62

Let us now move to the Paint industry and understand how is the forecasting in the particular trade.

As it was been discussed in the first chapter that there are many products, which are been covered by a company in the paint, trade thus it is very important to have a accurate amount of forecast. If at any level the forecast goes wrong then he might loose either sales or he has to bear an additional cost for having the stuff available at the time it is needed. To make all the products available at all the time for the customers is a very costly affair as to do so one has to carry huge amount of inventory, which will charge carrying cost, capital, which is been blocked in the inventory, and also the products are getting older in the Godown.

To forecast the market very accurately for so many products is not only difficult but is merely impossible. The forecasting has to be as close as it can be so that the manager who is forecasting can offer the right product at the right time in the right market without having any additional cost. Some plans have also to be made for the uncertainties so that a manager should not loose any kind of sales if the market does not moves as per the forecast.

In the forecasting patterns both the companies move in a different pattern. Let us see that how both the companies plan their future in the market and how well they are able to perform.

The paint market is so uncertain that to forecast is very difficult for any company but still all the companies in the market are looking to have better growth than the other. Berger Paints who was able to keep the growth level in the positive side since 1980 is having more of human touch in the forecasting process. The plans of forecasting is been decided both top to bottom ways and also bottom to top ways. This can be explained as a growth for the company is been decided by the top management of the company and is been further divided as per the growth potential of the Zones( Berger Has 5 Zones in India), the Zones then further divide the plans in the Regional Level (Every Zone has 2 regions), further regions divide their plans into depot wise which is finally been given to the territory level. In this process the division is been done as per the growth potential of the place. In a depot to have an average of 10% Growth he might give one territory a target of 5% and the other a target of 15% as the growth potential of the first is low and the second is high. This happens other wise also as the plans for up to down is for the plans of overall growth

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63 but when it comes to product wise growth then the plans are made at a depot level which is decided at a territory level. These plans are been compiled and moved up to the regional level, then zonal level and then finally goes to the corporate level.

The planning in Berger is done twice a year, once it is done for the first 3 months of the year which is January, February and march. The other planning is done for the rest of 9 months. The planning is then been divided in month wise and then unto the territory wise level. This exercise is called phasing. In this phasing exercise one has to forecast for all the SKU’s (Stock keeping units) that can be divided in product name, colour and pack size.

The planning is also done at a dealer wise level and is been communicated to the dealer at the beginning of every month. There are many schemes run for various fast running products, these schemes are generally a cash discount through credit notes or given in the system of some gift. For every dealer to achieve the discounts or gift they have to qualify the criteria, which is generally based on the forecast made for the particular dealer. if a dealer is not able to qualify for the scheme, then he will not be able to enjoy the benefits of the scheme and thus at times he is not able to make himself competent in the market.

The system of schemes will better be understood by an example

Suppose a particular dealer has purchased Luxol Snow White (A Berger Brand) 200Liters in the month of may in the previous year, then he might be given a target of 12% growth on the last year lifting and he is been told that if he achieves the target then he will be issues a Credit note of Rs. 2 Per Liter of the total purchases of the same product in this month. If the dealer is able to achieve the target given by the company then he will be able to get products cheaper than the rate which is given to the dealer who are not able to qualify in the market. If in case he is not able to do so then he will be getting products 2Rs costlier than the dealers who are able to achieve the scheme. If these dealers decide to sell the products in the market only after making profit of Rs.1 then this dealer who is not able to qualify will not be able to sell the products in the market.

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64 With these schemes running in the market there is a advantage to the dealer as to that he can purchase the products in the cheaper cost and also to the company so that they can achieve the targets they made for a particular dealer. With having the targets achieved for the dealers they are trying to achieve the target of the territory which is go up to the depot, region, zone and finally to the company as a whole.

In the case of forecasting Asian Paints has a upper hand as they have a better technology in their hands. Asian paints have implemented ERP in their working from i2. They are able to get the market data very accurately and so do they can plan things in a better manner but at the same time as been discussed that the forecasting now a days is more of a human factor than the technical factor. To forecast a market in a better manner one has to have good knowledge of the market and also to have a insight about what the competitor is doing, one who has the better idea of all this is able to do things in a better manner and is able to get better results. In the present days Asian has a bigger problem in having fight with ICI as their rivals as they both are having a strong presence in the same segment, they both are more aggressive in the emulsion market as they both feels that emulsions are the future of the paint industry. Thus it is very difficult to forecast in a better manner. Asian most of the time works on the targets of the dealers, they have targets or all the dealers, these targets are based upon the performance on the last year sales. As also in Berger, Asian also gives additional benefits on achievements of these targets. One thing that is different in Asian is that they have a very keen eye on what the market is going towards, as they don’t prefer having surprises. Asian always keeps a check on the product lifting of every dealer, through which they can come to know about the dealer in a better manner as to is the dealer selling as in the retail market or he is selling the stuff to other dealers also. This can be seen as if one dealer who is lifting 300 liters of Paint in a week and another is lifting 20 liters. Suddenly if 300 liters person stops buying and the person having 20 liters shoot his order then they come to know that the stock is been transferred by the second dealer to the first dealer. They at Asian Paints does not stops at the point by thinking that the lifting is still the same but they work on the reasons of having such kind of activity, they prefer to check the reasons and try to get the things back to their own control. Asian Paints prefer that their products in the market should not be wholesaled but should only be retailed. This helps them to keep the control in their hands only so that one dealer will not be able to harm them to a high volume.

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65

CHAPTER 5 CUSTOMER SATISFACTION (The Key to Supply Chain Value Creation – A Customer Focus)

&

INTERFIRM RELATIONSHIP (The Key to deliver the promised components – A health partnership)

Delivering just what your customers need, when they need it, isn’t easy. But some leading companies are combining

strategy,

business

processes,

and

technology to create what’s known as demand-driven supply chains—a highly efficient mode of operating that scores a perfect 10 for businesses and customers alike.

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66 An increasing number of businesses are turning their attention to supply chain management to create competitive advantage and improve the bottom line. Many managers still view supply chain management as a mechanism to improve profits through cost containment. However, it is important to recognize that effective SCM focuses primarily on meeting customer needs, rather than on cutting costs. Improved relationships with customers and more efficient product delivery processes can result in a clear distinction between firms and lead to sales growth. Alternatively, if cost cutting goes too far, the company may unknowingly eliminate services or product features that may be valued by customers.

The notion of leveraging supply chain service is particularly significant in situations where there exists intense competition on price, product features and promotional initiatives. In commodity-type markets where the standard is high-level service at the lowest cost, firms must reduce wasteful practices across the entire supply chain to create significant value. For example, in businesses like consumer packaged goods and automobile parts, firms have little choice but to compete on service to gain differentiation. Adopting a customer-driven perspective enables firms to view SCM as a tool for creating market value, rather than simply controlling costs.

Management of the supply chain can help firms distinguish themselves from competitors. Rather than limiting promotion efforts to the products they offer, the processes that accompany the products can be viewed as an additional means of adding value for customers. For example, many manufacturing firms have produced brochures that detail how their customizable distribution capabilities benefit customers.

It is rare that cost cutting alone can enable a company to improve long-term profitability and competitive position in a growing economy. Thus financial professionals must look beyond cost containment and focus on customer satisfaction as a major component of the strategic direction of the company. Embracing a customer-driven focus in the SCM process offers many tangible opportunities for financial professionals to actively participate in strategic planning and business decision-making, and to be perceived as valued members of the management team.

To help their firms develop customer-driven SCM, financial professionals should:

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67 •

Appreciate the true differences between customer-driven and asset-driven SCM

•

Identify and support initiatives that capitalize on customer value-creation opportunities in the supply chain.

Let us now see that what is the difference between a Customer-Driven Supply chain management and a Asset-Driven Supply Chain Management

While many companies openly claim to be customer-driven, in reality, they tend to be more asset-driven. Managerial effort, performance evaluation and rewards are based primarily upon internally-oriented efficiency and productivity metrics rather than on the satisfaction of customer needs. In terms of SCM, customers value — and are often willing to pay a premium for — high-quality service, flexibility, reliability, customization and responsiveness. Unless firms adopt a focus broader than asset-driven cost control, the attributes critical to customer satisfaction may be overlooked.

In contrast to the internal focus of asset-driven companies, customer-driven companies maintain a more balanced focus by allocating time equally to tracking internal processes and external issues like customer needs and competitor actions. Senior managers may spend as much as one day a week meeting directly with customers. Formal customer service and satisfaction data is collected and regularly evaluated. Joint problem-solving meetings are routinely held with customers. A key determinant in performance evaluation and reward allocation is customer satisfaction.

Extensive familiarity with customers operations is important because SCM is essentially a trade-off between cost and service. In order to realize the potential benefits in terms of increased sales and profits, management needs to understand the customer and recognise the value that customers assign to the various dimensions of service. It is essential that managers work across functional boundaries. SCM should not be considered the domain of any single functional group.

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68 Now let us see that how a Supply Chain can add value

Supply chain management adds customer value in three generic ways: effectiveness, efficiency and differentiation. It is important for finance professionals to recognize the product differentiation opportunity.

As an increasing number of businesses use SCM to create competitive advantage, it is important to recognize the importance of customer-driven SCM. If financial professionals are expected to help their firms develop customer-driven SCM programs, they must first appreciate the differences between customer-driven and asset-driven perspectives as applied to SCM. This important distinction will enhance the credibility of financial managers when operating in cross-functional teams and prepare them to best identify and support initiatives that capitalize on customer value-creation opportunities in the supply chain.

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69 Lets now again go to the paint industry and analyse it.

In the paint industry the involvement is very less to but the product as it is not the product that is in direct contact to the end customer, the product is used by a applicator who is generally a painter. It is in hand of a painter to give a product a desired output, if a painter is will to work on the product from his heart then he can give the product a better output than the company claims to have as he knows that what is the right move and what is not appropriate to be done. Thus in this case it is very important to keep a painter knowledgeable on how to use the product in a proper manner and also to keep him happy with the products. Thus in the paint industry the painter is equally important that to a customer.

Thus if we have to give importance a per a company to the painter, dealer and the end customer then it might happen that the customer will loose and will not be able to get as much importance as the painter and the dealer is given. The reason is simple that the painter is the applicator and he is the sole person who is responsible for success or failure of a product. The next importance is that of a dealer as there are three reasons for it. One is that the dealer is keeping the product at his shop thus he is a aim for a company, the second reason is that every dealer have a few painter attached to him and he is in direct contact with them and is also responsible for a better or a poor picture in the painters mind. Last but not the least is that at times when a customer is willing to buy the product by himself then he is moving to a dealer and asking for a particular product, but due to lack in confidence, which is due to lack in knowledge it is very easy to convert the customer from one brand to another. So due to all the three reasons the dealer even scores very high points for the company.

As when we compare the companies like Berger and Asian which are two market leaders then we look at a very opposite story as they both are very opposite in their working. At one side is Berger Paints who is mainly concentrating on the dealers network and likes to give heavy discounts or supports to the dealer network they have as they feels that if the dealer is happy with them then he will stock only the products they are providing. The further result will be that the dealer will be working on the painters he have and convince him to apply that product. This will finally help them making their product reach maximum

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70 number of houses. As the result they are able to take lead in a number of markets, one of them is Delhi, which is the biggest market in India as far as the paint industry in India is concerned. The company even after having services like Home Décor, which is a service provider for all the solutions for a home in the paint concern, the perception in the mind of consumer is that the product is more of value for money product. Now keeping this picture in mind the company is trying to change the perception in the mind of consumers with a initiative to change the branding and the services which they are providing. The company is now changing the brand name from the previous name generally used as Berger Paints “Colours of Joy” they are now moving to some thing like Lewis Berger “Paint your imagination”. Thus with having all the initiative and also are starting the products like illusions which is a paint that looks like a wallpaper they might be able to change the perception in the mind of a customer. By this work they are also hoping that they will improve the market share of Berger paints in the next few years.

On the other hand is Asian Paints who is the market leader for India as a whole. They are more of customer centric and they prefer to work more on the promotions for the products. With the heavy spending on promotions they want that on the name of paints every customer should remember only one name “Asian Paints”. They have even kept their advertisements in the T.V. keeping that thing in mind and always kept the tagline the same “Har rang kuch kehta hai”. In fact they are the only company that is promoting the Brand Asian as a whole, other companies like Berger and ICI are always willing to promote one of the product that is been provided by their bucket. With having so much interest in the customer centric they even go for demonstrations whenever a customer is not satisfied or is confused to choose the products. This has helped them to have a perception of premium companies in the mind of the customers.

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INTERFIRM RELATIONSHIP

Internet age challenges have been accompanied by a handsome promise, that being, the promise of being able to collaborate and cooperate with strategic partners to deliver better products to customers in a faster and more efficient fashion.

As a manufacturer, wouldn't you welcome a system where there are no warehouses, inventories or paper invoices, just plug-ins that monitor your supplier network automatically, in real-time, everywhere, simultaneously?

Synchronised execution of manufacturing and supply across a dynamically re-configurable supply chain network, to profitably meet demand, is an ideal scenario.

The mantra is moving from just measuring performance, on internal cost and efficiency, to external processes targeting customer-satisfaction at the shelf. Having a well-harmonised network maintaining high operating margin — not just profits or growth rate — is the goal of any organisation.

Manufacturers must learn to collaborate internally and externally. This builds the culture of information sharing empowering everyone across the board. Collaboration makes it easier for companies to adjust to changing scenarios.

Collaboration facilitates real-time focus on inventory levels, capacity outlooks and new technology drivers, which, in turn, helps in better management of demand. Setting up a collaborative network will help build effective supply chain components.

Collaboration in Supply Chain Management Partnership, which can be another name for collaboration, is a label used for a variety of innovative approaches to managing relationships between organizations in construction.

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72 These arrangements have one thing in common - an intention to move beyond the limitations of traditional project relationships. In these, there is little or no integration of the processes used by the different members of the project 'team'; all too often one party seeks to improve business performance by manipulating cash flows and enhancing profit margins at the expense of someone else.

Partnering is not another new form of contract nor a new way of relating between people. It is a different way of structuring business relationships, which has profound implications for both contracts and the ways people work together.

Most ideas of Partnering draw their inspiration from manufacturing - vehicles, food, aerospace and electronics - where long-term supply relationships have developed between product assemblers and key first-tier component suppliers. Rather than constantly put out tenders and choose different suppliers on the basis of lowest price, assemblers enter into long-term, but relatively informal, agreements with a few suppliers. Commercial pressure is maintained by benchmarking supplier performance on a number of fronts, with agreed targets for improvement. Suppliers work together with the assembler to deliver continuous improvement in products and processes over time. As a result, all parties deliver lower costs and improved quality without squeezing each other's profit margins. Steady profits then provide the basis for investment in improved products and processes, and a virtuous circle of continuous improvement is established.

This goes for the manufacturing side now let us look at the marketing side and look at how partnership affects marketing strategies

Marketing strategists are increasingly realizing that making better decisions faster is crucially important in the Internet age. No longer a luxury, the ability to make effective decisions quickly is practically a prerequisite for mere survival. Fortunately, these uniquely Internet age challenges have been accompanied by a handsome promise; that being, the promise of being able to collaborate and cooperate with strategic partners to deliver better products to customers in a faster and more efficient fashion.

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73 Partnership can also help in making each other profitable as both can work together to make the system of the other better and more effective in a cheaper cost. By partnership another benefit can also be that the expansion the business of both the supply chain partners. This can be better understood with a example.

Let us see that the companies have partnership between each other and have collaborated to work, then the with having the faith in each other the dealer who is buying the products from the company and forwarding the products in the market can forward some of his major accounts to which he is supplying a major amount of products from the company. by doing so he does not have to worry for the supplies as the company will do it directly and he will get his commission as he has given the deal to the company. the benefit on the company side can be that the company is in contact with the customer directly.

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74

Inter firm relations in the paint trade. One common thing about the trade is that every company in this trade is very dealer centric. This is because of the reason that he has a very important part to play in the sales. He is not only the facilitator of the product but also plays a part as a influencer in the final sale. Keeping these things in mind every company is having a club. The company has given targets as in slabs or has given any other criteria through which a dealer can enter into the club. The members of the club are once in a year are taken on a foreign tour, which is fully paid by the company. In addition to that they get stationary and gifts in which it is mentioned as their being a member of the Club (Whichever they belongs to). In addition to the yearly club there are various schemes that are been run for the dealers as some may be of a tour to some place in India, some might be for a free gift as in the shape of a T.V. of a home theater. The dealer gets a lot of privilege from the companies for being loyal to the company.

As already been discussed that both the companies have a very different way of working in the market. Berger is more of working in the wholesale kind of structure and is willing to spend more on giving to the dealer. They are always more aggressive to give better discounts to the dealers and getting higher market share thus the relation that is been shared by dealers from Berger paints is most of the times in negotiation to the company and getting the maximum that they can get. It is been seen that the dealers are most of the times discussing the rates at which they will be getting a product (In the paint trade it is called the landing rate of a dealer). This can be better seen with that most of times when a products discount in Berger is changed, then the major concentration of the, manager taking the decision is kept on the rates at which the products of Asian is been sold to the dealers and at what price Asian products are been retailed in the market. It is seen that generally the products of Berger will be sold at a good discounts than the comparative products of Asian paints.

Asian paint is trying to keep a most hold in their hand by having the pull from the market instead of giving push to the dealer. They spend so much on the marketing that the dealer has a compulsion to keep a moderate amount of products of Asian Paints to serve the market properly. If the dealer won’t do so then he

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75 might loose a few of customers, as they are strict to take Asian paints for the painting of their house. This can be better understood with the example that a product Apex (Asian Paints), an exterior product, is having the name of the category. It is having such good name in the market that if a person needs exterior paint of any other company then he will say that “please give me Apex of Berger”. It was that the customer was in need of Weathercoat of Berger Paints, which is a competition brand of Berger to Apex of Asian Paints. With having such good name ion the market it doesn’t means that they don’t keep any care of the dealers but is in such a manner that they try to rely on the dealer as less s they can. This helps them to built a brand image of their product in the market and also are getting minimum threat of the buyer shifting from your brand to any other brand. This can be seen that they are reducing the bargaining power of the buyers and are taking care of one force of Michael Porter’s 5 Forces Model.

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CHAPTER 6 ROLE OF SALES AND MARKETING IN SCM

The two roles which focus totally towards market. One designs about how to sell and what should be done and the other actually sells the product in the market. Let is see what the experience of marketing and sales talks about it.

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The role of sales in Supply Chain Management

Given that the role of the contemporary salesperson is changing dramatically, and that in many situations, the old models of selling are simply outdated, ineffective, and counterproductive to supply chain management goals and objectives While most sales organizations focus on pre purchase activities, supply chain partners focus on managing relationships and conducting post purchase activities to enhance supply chain performance. The sales force is well positioned to implement, facilitate, and coordinate many supply chain management activities. In short, the supply chain sales force should be involved with any supply chain activity that goes beyond organizational boundaries. More specifically, the sales force should be an integral part of implementing cooperative behaviors (i.e., joint planning, evaluating, and forecasting), mutually sharing information, and nurturing supply chain relationships. To be effective at their new role, the supply chain sales force must gain new expertise in logistics and supply chain management. Salesperson logistics expertise is defined as a customer’s perception of a salesperson’s knowledge, experience, or skills relevant to logistics issues. Salesperson logistics expertises concern the seller’s and supply chain partners’ logistics operations, systems, and processes at both tactical and strategic levels. Thus, salesperson logistics expertise includes internal (company) logistics expertise, external (supply chain partner) logistics expertise, tactical logistics expertise, and strategic logistics expertise. While the logistics manager may be the primary person designing logistics solutions, the salesperson is likely to be the primary person representing the supply chain partner’s needs and requirements. For effective teamwork and innovative solutions, salespeople and logistics managers need to be able to communicate effectively and work together on supply chain management issues.

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Role of marketing in supply chain management

Choosing which marketing channel, or channel of distribution, to use is a major decision in the development of a marketing strategy. The major role of marketing channels is to make products available at the right time at the right place in the right amounts. In most channels of distribution, producers and consumers are linked to each other through a marketing intermediary. Of the two major types of intermediaries, retailers purchase products and resell them to ultimate consumers, and wholesalers buy and resell products to other wholesalers, retailers, and/or organizational customers.

Marketing channels serve many functions. They create time, place, and possession utility by making products available when and where customers want them and by providing customers with access to product use through sale or rental. Marketing intermediaries facilitate exchange efficiencies, often reducing the costs of exchanges by performing certain services and functions.

Marketing channels also form a supply chain, a total distribution system that serves customers and creates a competitive advantage. Supply chain management involves manufacturing, research, sales, advertising, shipping and most of all, cooperation and understanding of tradeoffs throughout the whole channel to achieve the optimal level of efficiency and service.

Channels of distribution are broadly classified as channels for consumer products and channels for business products. Within these two broad categories, different marketing channels are used for different products. Although consumer goods can move directly from producer to consumers, consumer product channels that include wholesalers and retailers are usually more economical and efficient. Distribution of business products differs from that of consumer products in the types of channels used. An example of a direct distribution channel, which is common in organizational marketing today, is the use of industrial distributors. Most producers have multiple channels so that the distribution system can be adjusted for various target markets. Two types of multiple channels are dual distribution and strategic channel alliances.

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79

A marketing channel is managed so that products receive appropriate market coverage. Marketers can choose the type of coverage, intensive distribution, selective distribution, or exclusive distribution.

Although many marketing channels are determined by consensus, some are organized and controlled by a channel captain. To attain desired objectives, the channel captain must possess channel power. Channels function most effectively when members cooperate. When they deviate from their roles, channel conflict can arise.

Integration of marketing channels brings various activities under one channel member's management. The two types of integration are vertical channel integration and horizontal channel integration. Integration has been successfully institutionalized in marketing channels called vertical marketing systems (VMS), which may be corporate, administered, or contractual.

Avoid Marketing and Supply chain Conflict

Scenario: To meet customer demands a company needs to maintain a significant level of inventory. But, the cost of inventory deeply erodes company's profits. On the other hand missing an order erodes company's future profits, the forecasts are inaccurate and replenishment takes too long. We are stuck between a rock and an abyss.

Globalization of products and service along with technology enhancement has resulted in increasingly dynamic markets and greater uncertainty in customer demand. Difference in customer requirements across different regions/countries may require different strategies or different product designs, brands and packaging. Supply chain management is the systemic, strategic coordination of one or more downstream and upstream flow of products, services, finances and information for the improving performance.

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80

The phenomenon of supply chain has challenged the traditional way of working with introduction of functional departments and division of work. Supply chain approach is to view the channel as a single entity, rather than as a set of fragmented elements, each performing its own function. Similar to other functions like procurement, logistics, order fulfillment, Supply chain encompasses Marketing too as a key function.

Primary objective of marketing function is creating avenues for exchanges, costumer focus, customer satisfaction, products and service visibility, revenue generation and maximizing profitability. On the other hand Supply chain management's focus is coordination from suppliers to customers for maximizing product availability, delivery performance, order fulfillment, responsiveness to market demand while minimizing the total cost of the process.

Conflicts arise between marketing and supply chain due to difference in perspectives and focuses regarding department deliverables.

Marketing stresses on the revenue maximization while supply chain works on cost minimization.

The main areas of conflict between marketing and supply chain can be

•

Control mechanism: Who encompasses what process, Ownership of functions and activities for better performance.

•

Information and Data availability: Data unavailability restricts better control, hampers decisionmaking capability and increase in conflicts.

•

Risk Reduction: Difference in Strategy definitions for mitigation of risk by maximizing product inventory and inaccurate forecasts.

•

Situation and scenario handling: Crisis situations and event handling roles definitions undefined

•

Failure mechanism: Responsibility and ownership in case of underachievement of targets and failure.

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81 These conflicts are very common and widely prevalent in the industry. In the cross functional environment, if the situation is not controlled at the initial stages, it can aggravate in to a fireball giving rise to chaos, buck passing and loss to the company. The conflicts could be handled or rather avoided by

•

Integrated system: Standardized IT system for data collection and acquisition, for better visibility in the forecasts, customer behavior and marketing effectiveness.

•

Analytical tools: Usage of analytical and scientific tools for planning processes and policy decisions like Inventory policy (finished goods and WIP), Forecasting models, Logistics optimizations for maximizing product availability and minimizing cost.

•

Role and Job definitions: Restructuring of the process flows for control on activities of the entire cross-functional areas. Performance linked job and role definitions for process owners and teams.

•

Alignment of Key review areas: Linking of Key review areas and Key Performance indicators of the marketing and supply chain functions for avoiding conflicts. IT based Performance management for visibility and faster corrective actions

•

Strategy formulation: Supply chain and marketing to work together with Top management in all the strategy formulation in order to achieve company goals.

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82 Paint is a seasonal product Presently, the companies have 2 different strategies going for the 2 different sectors.

1) For the urban sector they are giving high quality products for a marginal high cost. They are coming up with incentives like wide variety of colors combinations. The companies are going for interior designing consultancies this is to attract the customers and create a customers value feeling. The example of the same can be the tinting machines, which all the companies are working on now days.

2) For the rural segment they are trying to reach the customers with the help of their distributors network. The per capita consumption of the paints is still .5 kg which is too low compared to the others countries. The paint products are too price sensitive the competition in the market is so very high hence the players control the balance in the market.

The major players in the organized sectors are trying to create its own image through advertising. The main aim of the advertisement is to inform the end users about the product and create Brand awareness. In Paints the companies have CRM policies with local builders and most importantly with local painters who are the main influencers for paint buying decisions and have privilege schemes with dealers on the basis of volume purchases. Here these sections of people have a saying in the retail pricing of paints. In Paints there is no universal pricing policy, as volume sales is the major consideration for pricing.

The pricing is always having a price band between which a sales person can sell the product to the dealer. Further the sales person has to decide about the amount of rebates, which are to be given to a particular dealer. This is generally based on the volumes that the dealer is doing the business with the company. if the dealer is doing high volumes with the company then he might be offered a more attractive prices than the one who is doing lesser amount of business. This is entirely on the basis of the understanding of the sales person that the person is of what worth.

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83 Another job that the sales person is doing is to get the information of the pricing of other company in the market. This is based on the practice that the paint company is primarily driven by the price of the product, the company that is giving higher amount of rebate in the market is able to sell better in the market. Thus to keep the working of other companies ion the market is one of the primary job of any sales person in the paint company.

The sales person in a paint industry is having the job profile revolving around the job of keeping the relation with the dealers he is working with. In doing so he has to take care of the services of delivery, promotions, keeping him updated about the products, any technical help in the tinting machines and any other work which will be able to help him sell better to the dealer. In the profile even he have to decide about the business capability of the dealer, on that basis the company decided about the credit limit of the dealer. The primary and most important job of the sales person and the reason for giving all these services to the dealer is to get maximum sale out of the dealer for the company. To do this at times he even have to get the rates of other companies that are offered to him and even have to negotiate the rates that he is providing the products at. With all these jobs of the sales person also as being the industry consisting of 60% in organized sector, the existing big players have created an enormous brand image for themselves and by providing superior quality paints has provided limited choice for buyers to shift to local products. The inferior goods and limited choices offered by local players has created a negative demand for local players and with the large dealer base and ATMs (Automated Tinting Machines) the organised sector has left very few empty spaces for its customer base for themselves. The wider reach and large variety of choices has provided the customers the bargaining power to choose amongst the players. This demands more brand building exercises for the organised players that always add to cost and more challenges for them to trim operations.

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84 Charter 7

TINTING MACHINES

If somebody asks you that I will give you one thing which will help you work many times more efficient and accurate than what you do right now than what will you say? Might be “Is it a magic or what” So lets see what the magic is all about.

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85 One of the major and immensely useful innovations in the paints industry was the sue of tinting machines at retail outlets. Earlier, all SKU’s – slow and fast moving – were factory made. That means not just making hundreds of shares but also the massive complexity of sourcing of raw materials, packaging and transportation. Most of the companies have to carry stocks for a number of days. Most of the companies use to carry stocks for more than a month. The story does not ends here even the channel partners have to stock the products up to a limited period as they even have to satisfy the customer coming to them. This small illustration can explain that the products were previously been stocked for around 2 months at an average. This means that a company that is of turnover of 1200 Cr has to keep a stock of around 100 Cr with the company and same with the dealers, this finally adds up to the investment of almost an additional of 200 Cr.

So what are these wonderful machines, what does the machine do?

Quite simple, the tinting machine offers computer aided mixing and colour matching. Each machine carries a base paint which, as per instruction of the customer, can be mixed with the colorants and thousands of shades can be prepared right there in the shop in a few minutes. There is no need to get paint from the factory, no need to send order or follow up for the deliveries. This immediatelt translates into better service levels, a far superior retail experience and increased sales and lower costs of time and transactions. To do this the retail has to carry only bases of the products and likewise the company also has to only produce a large quantity of bases only.

These machines apparently have given a benefit at a number of places to each and every individual attached to the industry being it be the producer, the supplier of raw material, the middle man in face of dealer or C&F agent, being it the painter and finally being it the End customer. This small magic has added a major value to the paint industry and has helped in a major way to implement the Supply Chain Management in the Paint Industry.

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86 With various big companies there are different names involved as the names of the tinting machines. The machines are known as

Colour Bank

-

Berger Paints

Colour World

-

Asian Paints

Colour Solutions

-

ICI Paints

Colour Scapes

-

Nerolac Paints

As to explain the colour tinting machines let us first move to the various categories and see that how the tinting machines have changed the working area and then further in the end we will compare the tinting machines of various companies and will see the working of all the machines in the market.

Benefit of the tinting machines to:

1. Customers -

Previously there were only 30-40 shades available in the market in which one have to decide the colours and there was no choice available in the market but now as because of the tinting machines there are thousands of colours available in the market. Practically one can make any colour one can imagine to have.

-

Repeatability of the same shade was not that easy as the shades were made in the factory and two batches might have a little bit of variation in each other, thus the repeatability was not possible. Now as the formula is been put with the computer and the machine is making it, the repeatability is very much possible and the shade variation is very rare.

-

Previously there might happen that one has to wait for a particular shade out of the available shades as the batch will be produced in the factory and will be dispatched to the place where it is been sold, this whole process use to take some time. Now as the bases are common for

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87 many products and it is very easy to tint thus the customer doesn’t have to wait for a long time for a particular shade

-

As with the implementation of tinting machines the quality of colours has also improved so this is an additional advantage to the customer.

-

Another major advantage to the customer by the tinting machines is that he can not see the product getting tinted in front of him and he can be now sure about the authenticity of the product and can be better satisfied than the previous case.

2. Dealer

-

The biggest advantage to the dealer by the tinting machines is that now they have to keep less amount of inventory as one product can now give the output of many products. Dealers previously have to keep a big amount of inventory and even after that they were not sure that they will be able to satisfy the customer or not.

-

The product range that the dealer can now offer is endless, this can be said as now with a tinting machine one can tint any colour that they imagine. Thus the product range has gained a major growth.

-

As after having the tinting machines not the inventory cost which he was having previously has reduces with a great extend and with keeping one product he can provide services of many products. Thus with keeping both the things in mind a dealer will take chance to add more variety of products so that he can gain more profit and also can provide full range of products to the customers.

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88 -

With the tinting machines even the margins of the dealer’s have improved, as a same shade is available as a product and also can be tinted in a machine. A dealer is making more money if he sells a product after tinting even in comparison to the product, which is available in the same colour.

-

When a dealer is getting a tinting machine installed in his store, then his faith in market improves, as people will have faith in him that he is giving a genuine item. This might help the dealer to convert his customer to a higher product or sell him other products also.

3. Company

-

To produce some products, which are slow moving, was a problem and the company has to produce large number as they are in a batch, so that they can gain the cost advantage of the product. With the tinting machines now the company does not have to produce many products but only to produce the fast moving products and the bases for many added colours.

-

Previously inventory was a major problem for any company in the paint industry as there were many products and with it many shades of every product, which are, accompanied with all the pack sizes. Now with the bases being introduced the inventory of a company has reduced drastically.

-

The product range which a company can offer in the market has grown with a great level, now a company can provide any shade of any product required in the market. With the introduction of photo spectro meter in the computers a customer can get any colour he wants by scanning the colour on that product.

-

Product awareness has also grown in the market as the customer can now identify the product with the machines.

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89

-

Fast rotation of products is possible as one product can serve many purposes.

-

With the tinting machines the inventory of slow moving and non moving have reduced drastically

-

With the machine a dealer is now compelled to keep the full range of the company as he has to but the full set when he is getting a machine installed in the place.

-

With the tinting machines even the job of keeping the record has reduced and it is very easy to keep the records of the products.

Even after looking at the advantages to most of the supply chain partners let is give a look at the applicator who is applying the product at the customer end.

-

Now with the variety of shades which he can offer he can make the customer much more happy than he was previously.

-

He is now able to provide a high accuracy of shades in the market. Thus he can improve his reliability on the end customer.

-

When providing repeat service now he can provide the same shade to the customer which was Previously made by using colour stainers at the customer end, thus the variation in shade was very much possible.

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90 Let us now take a look at the tinting machines of companies and analyze that which company is better in what area.

Nowadays the core competency of any company in the paint Industry today lies in 2 areas out of which one is the Distribution base and second is Placement of tinting machine. This is one of the reasons that Asian is able to hold its share of being the market leader. Asian has the maximum number of tinting machines in the market. Even after not being the first one to introduce the concept but they have recognized the importance of the concept in time and have given the importance in time. They are the one who started the concept of getting a machine financed for a dealer or even giving the machine to a dealer on lease. All these reasons together made them the fastest to capture the market. With the concept of tinting machines as being the first one in the concept of making the machine easily available to the market, thus they were able to take advantage of that and they were able to put the machines at most of the bigger and retail counters thus it was a competitive advantage to them. Asian has another competitive advantage over Berger Paints as Asian is producing all the colorants in India and are making them available in the market in a cheaper cost.

Now coming to Berger Paints, they being the second one in the race of having the tinting machines are trying to tap all those counters, which were not been covered by Asian, and also the counters, which are coming up. Now as the concept of tinting machines is little bit old and there are many counters who have the capability of having two machines in their shops. All these counters are well tapped by Berger Paints. The advantage that Berger has in comparison to others is that, Berger is still importing the Colorants and due to the same reason the quality of colorants is high. Where with other companies the colorants is much more reliable. The major competitive advantage, which is there with Berger Paints, is that they are the only company in the market who is able to provide the good quality of bright colours. This is because of the usage of good quality of colorants thus they are the company who is preferred by a lot of dealers for the Colour Bank Machine.

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Charter 8 FUTURE TRENDS IN THE INDIAN PAINT MARKET THE ROAD AHEAD….

The future of any trade is Environmental Changes has been divided into two parts one is the Macro level and other is the Micro level. Let us now understand both of them separately.

Macro Level Changes Environmental changes happening in our country

– GDP growth at around 6-7% – Increasing prosperity of rural segments – Lowering of customs duties – Entry barriers dropping: New MNC’s entering the market – Increased spending on Infrastructure projects – Fragmentation of television audiences – Automobile explosion – Increasing consciousness of environment and health – Low Interest rates IIPM/ PGP-SS-2003-05/ SS03517


92

– New Technology

Micro Environmental Changes… Individual Level

– Increased disposable incomes – Family structure changing to nuclear families – Increasing incidence of double income families / Increased Inherited wealth

– Increased awareness: Internet / Television – Income tax breaks: On housing – Increased expectations from products and services

Further let is now see all the factors that are affecting the economy as a whole of affecting the paint industry as in specific.

Impact of Changes… Factors –

GDP growth at around 6 –7 %

–

Family structure changing to nuclear families

–

Income tax breaks: On housing

–

Low Interest rates on loans

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93 Impact –

Increased demand for new houses -- generic growth of 10 to 12 % for decorative paints for the next 3 to 5 year period.

–

Expanding base of the paint industry -- the new homes will enter the re-painting cycle in 2 to 3 years

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94 Factors

– Lowering of customs duties – Entry Barriers dropping: New MNC’s entering the market Impact -

New MNC’s are likely to step into the Indian market using one or a combination of the following strategies;

-

Introduce new products that may not have high volumes at present. They might import these products.

-

Develop a new distribution channel such as retail chains, company stores

-

Resort to hi-decibel advertising in a focused area

-

Tie-up with / Buy out an existing company to take advantage of an existing distribution channel

Factors

– Increased disposable incomes – Increasing incidence of double income families / Increased Inherited wealth Impact –

Demand for high end products like interior & exterior emulsions will continue to grow at a rapid pace

–

This trend will be more evident in exterior coatings, with the category continuing to grow at more than 20% for the next 3 years

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95 –

The trend to experiment with new colors, product categories and services will increase – essentially to elicit the “Wow effect”

Factors

– Increased expectations from products and services and companies – Increasing incidence of double income families Impact –

Companies will be forced to introduce new products and services to satisfy the customers

–

Companies will need to start looking at providing customers with complete solutions rather than piece meal options as the customers no longer have the time co-ordinate the entire process

–

The tinting machine will become de rigueur for all shops and this will lead to factories being geared to produce bases only especially with wall coatings.

Factors

– Increasing prosperity of rural consumers Impact –

This will open up the demand for basic products like enamels, distempers and primers

–

Lower price points , small pack sizes and pouch packing will become increasingly popular in these markets

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96 Factors

– Increasing consciousness of environment and health – Increased awareness: Internet / Television Impact –

Companies will be forced to become more socially responsible with respect to production and waste treatment, etc.

–

Products will have to adopt environmental and health friendly formulations

–

The range of products will have to be diversified to bring India on par with the developed paint markets

Factors

– Fragmentation of television audiences Impact –

The media spend levels for national companies will become much larger to cater to a fragmented audience

–

Media planning will become increasingly complex for pan-Indian players

–

New alternative methods of reaching consumers will have to be found

–

Fragmented markets will allow Regional players to focus promotions on a small area to strengthen their presence compared to the national player in that market : Advantages of Concentrated resources

Factors

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97 Impact –

Protective coating products will most probably see the advent of new technology

–

Demand for these products will also go up substantially

Factors

– Automobile explosion / White goods – Low Interest rates Impact –

Low loan interest rates and attractive financing schemes have led to a splurge on purchases of vehicles and white goods

–

One of the highest growth rates in the automotive coatings market in the world – 1 million plus cars, 18% growth – 26% + growth in two wheeler segment - OEM market booming

–

The organized second hand market is also gathering pace – demand for refinish segment will perk up.

Factors

– New Technology Impact –

New products are likely to be introduced in the Indian market. Some such likely products are:

•

Exterior Coatings with a 10 +year durability

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98 •

Faux Finishes for interiors

•

Non-drip paint

•

Single Coat Finish

•

Multichrome paints

•

UV cured Coatings

•

Water based specialty coatings in automotive and protective segments

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99

Charter 9

CONCLUSION In this chapter let us first see that where is SCM going and what is the future of SCM

The next generation of supply chain systems will include supply chain process management or event management capabilities. These capabilities will enable close to real time, event based escalation of relevant pieces of information through the organisation to appropriate individuals, who will then execute decisions to minimize organisational impact and/or leverage opportunities created by this event. As an example, a production scheduler based on real-time in-transit inventory information will proactively mitigate (by adjusting production schedules, etc.) the unintended consequences of a raw material shipment not arriving on time. However, that same piece of information combined with the detection of a supply demand imbalance, spotted by detecting a spike in the price of a related commodity in the spot markets, can lead senior managers to conclude that the supplier may have suffered a major outage in one of its units. Resulting strategies, potentially system-recommended, could involve the following options: confirmation of the event with the supplier, an examination of the possibility of replacing the material, or an assessment of the impact on downstream value chain coupled with an evaluation of alternate suppliers.

Real-time visibility of the supply chain, combined with a monitoring and an eventmanagement system, will increase the proportion of decisions that are taken preemptively to minimize unintended consequences or exploit unforeseen situations. Increasingly, key decisions will be made by cross-functional teams, chosen explicitly with the right skill set mix, and sometimes assembled just for the purpose of solving the problem at hand.

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100 The demands for supply chain efficiency will emphasize a combination of both centralized

and

decentralized

structures

and

approaches—collaborative

and

centralized planning with decentralized execution—requiring real time visibility for monitoring and rapid response mechanisms for event-driven management involving close to real-time problem escalation and remediation. Effective management of supply chains will occur through the deployment of integrated organizational team structures at multiple levels—executive through senior and middle management— executed through physical and/or virtual facilities such as “war rooms.”

As in one of the previous chapters we have seen that the controlling of such a huge bunch of products is very difficult and is not possible to attain a optimal formula to get all the products at the right time, at the right place and also at the right price, which is one of the key area’s on which the paint company works.

The first area where the industry has to move is that they have to make the customer involved in the process of purchasing the products, in fact the industry should try and make paint as a product that should be a part of a person’s life. This should be done as a person is spending most of the time in a day in his office or at his home and he is only able to see the colours of the walls. This has also been proved scientifically also that the colours that are surrounding us have a major effect.

By doing the above they will first be able to create demand in the market, which will finally force the dealers to stock the product in the market. This will improve the reach of a company in the market and will create presence in the market.

By creating the presence in the market a company can create fast turnover of the product. i.e. the product will quickly get cleared from the dealers counter which will finally help the company to quicken the whole process and this will lead to an effective supply chain management. A company if have the fast moving of the products from the counter can even plan things in a better manger as on the forecasting front. This company can very well forecast that what will the market be demanding in this particular period. The existing system of paint industry, which mainly runs on the rebates base, will also not affect the player; this is because of the market demand that is been created in the mind of a customer.

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101 For getting best results of the promotions a company also need to educate the customer as to how to use the products. This is needed because of the painter involvement in the final output of the product. if a painter works well on the paint then only the paint will give the best result. As also been discussed earlier that if a painter uses a 3rd grade paint in a proper manner and a 1st grade paint in not a proper manner then he will be able to get a better result from the 3rd grade paint. This is the reason that a company needs to educate the customer also so that the customer will be well equipped to supervise the whole process and will be able to notice about the mistakes made by the painter.

In addition to educating the customer a company also needs to educate the painters in a better manner, a big initiative is to be taken as to make a better class of painters in the country. This is needed as that by improving the whole class of painters one is improving the whole paint industry. Painters are the first point of interaction for the paint industry, even to many they are the only level of interaction for getting the work done. To improve this some of the companies have taken the initiative as by introducing Home Décor by Berger Paints and Home Solutions By Asian Paints. These two services that are been provided by these the companies provides all the painting services to the customer. This service starts from giving quotation to the customer to shifting the stuff back to the places where it was before the painting work started. This all will be take n care by a well-educated executive of the company. By providing all these services companies are trying to improve the customer satisfaction by getting the products from a company. This is one of the most important focuses of the supply chain management.

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102

ANNEXURE – 1 These are the discussion guidelines made for the discussion with the company person’s for the research of the thesis. They are also been headed by the topic for which the question was primarily been made and is been used.

Discussion Guidelines for the Company person’s of various companies BASIC

Q 1.

What is the kind of sales organizational structure?

Q 2.

What is the role of the company’s sales force in your sales?

Q 3.

How do you decide the sales force size?

Q 4.

How do you decide the quotas of the sales force?

Q 5.

Who is the final customer for the dealers? Who decides upon the brands? (Painter

or the customer) LOGISTICS Q 6. What is the logistic system of the company? How the product flows from the company to the distributors and the dealers? Q 7.

Order processing time? How much is the order processing time taken by the company to deliver the requested volume of amount?

Q 8.

How reliable is the delivery to the dealer in regard to the invoice clarity, invoice accuracy, delivered quantity and quality?

Q 9.

How does the information flow of the same?

SALESPERSON Q 10. Does the salesperson understand the intricacies of the order cycle, order processing, packaging, inventory control policies and delivery of the firm’s product lines? Q 11.

How accurately the delivery is been made as is been promised to the dealer /

distributor.

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103 Q 12.

Does the salesperson understand the intricacies of the order cycle, order

processing, packaging, inventory control policies and delivery of the supply chain partner’s product lines? (How can the supply chain partner serve the market better) Q 13.

In the case of emergency does the salesperson intervene in the supply route and

recommend specific courses of action tailored to the supply chain partner’s operation? Q 14.

Wow is the performance of the sales team evaluated and what is the Rewarding

system of the company?

FORECASTING The forecasting techniques used by the company? Who decides upon the

Q 15.

forecasting of the demand in the market? a.Kind of forecasting i.

Top down

ii.

Bottoms up

Q 16.

What kind of forecasting techniques used by the company?

Q 17.

Is the forecast done by a combined effort of company higher management, the sales force and the dealer?

Q 18.

How much do you believe is the open communication in the market of your company?

Q 19.

Training program schedule of the company over the salespersons? To give the salespersons the up to date and accurate knowledge.

Q 20.

Reward system of the company?

ADDITIONALS Q 21. What is the effect of online selling on your business? Q 22.

What is the effect of the phone helplines on your business?

Q 23.

What are the difference in the working of the tinting machines and the normal

conventional way? Q 24.

How often does a shade get obsolete? What happens to the lot left with the dealer/

distributor/ stockiest? Q 25.

What are the potential capabilities and limitation of his your firm?

Q 26.

What is the strength and weakness in the supply chain partner’s work?

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104

ANNEXURE – 2 These are the discussion guidelines made for the discussion with the Channel Partners for the research of the thesis. They are also been headed by the topic for which the question was primarily been made and is been used.

Discussion Guidelines for the Dealers/Distributors of various companies BASICS Q. 1

What kind of channel member are you in the channel structure? a. Dealer b. Distributor

FORECASTING Q. 2 How is the targets forecasting done? Are you always been included in the forecasting process of the company? Q. 3

What is your role in the forecasting?

Q. 4

How difficult is it to forecast?

Q. 5

How often do you achieve those targets?

Q. 6

How accurately you been able to forecast the demand in the market?

Q. 7

How often does a shade get obsolete? What happens to the lot left with the dealer/ distributor/ stockiest?

SALES PERSONS Q. 8 Role of the company’s sales force in your sales? Q. 9

Does the sales person always knows about the time taken by the product you order?

Q. 10 Do you always receive the delivery of product in time as been promised by the sales person? Q. 11

What happens to the response of the sales officer and the delivery if the order is given on an urgency basis?

Q. 12 How much is the order processing time taken by the company to deliver the requested volume of amount? MARKETING Q. 13 Who decides about the final decision of the brand of paint to be bought? (Painter or House Owner) LOGISTICS Q. 14 How accurate is the Delivery in terms of quantity of the product, quality, invoice clarity, etc?

IIPM/ PGP-SS-2003-05/ SS03517


105 Q. 15 Order cycle time? Q. 16

What all steps are involved in the product from the company to reach to the dealer? (for tranceperency)

CUSTOMER SERVICE/ SATISFACTION Q. 17 How offen the company do customer satisfaction surey? Q. 18 What is the effect of online selling on your business? Q. 19 What is the effect of the phone helplines on your business? Q. 20 Have you taken a tinting from the company? If yes. a.

What is the response of the tinting machines with you?

If No b. Q. 21

Why have you not opted for one?

What are the difference in the working of the tinting machines and the normal conventional way?

INTERFIRM RELATIONSHIP Q. 22 Role of other channel members in your sales? Q. 23 Do you voluntarily share the information with the company and share the advantage you have in the market with the company? Q. 24 Do you believe in the open communication in the market? Q. 25 Do the company pass the favorable motives and intentions to the distributor? Q. 26 Will you share the information’s with the company if they will take the initiative and work for the better future of both the company as well as the dealer?

Q. 27 What is the amount of inventory do you carry with you? value or no of days)

(Can be in

Q. 28 How much is the sales turnover you have with the company in a particular financial year? Q. 29 Are there any other kinds of benefits you are been given by the company?

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106

ANNEXURE – 3 This is the list of some of the products that are regular in use from the bucket of Berger Paints India Ltd. Many of these products have colours in the range of 20 to 50 fast running shades. this adds up with the various packing available for the products.

000 002 003 004 006 012 013 015 017 019 021 026 028 034 035 038 039 040 041 042 043 045 046 047 049 053 054 055 056 058 059 062 065 066 067 069 070 072 073

- LUXOL HI GLS SYN ENL - BUTTERFLY GP SYN ENL - LUXOL HIGLS SNOWHITE - LUXOL HIGLS SMALL - BISON ACRYL DISTEMPR - HAPPY WL AC WL PUTTY - WALMASTA W0 BASE - LHG DAZZLING WHITE - WCOATSMT BROWN BASE - DUROCEM EXTRA - WK MELAMINE FINISH - RANGOLI SUP ACR EMLN - WEATHERCOAT SMOOTH - BISON SP DS BS PT WO - BISON SP DS YL BS PT - LUX G SPE BASE PTW0 - LUX G SPE BASE PTW1 - LUX G SPE BASE PTN - RNG FF SAE BASE PTN - RNG FF SAE BASE PTW1 - RNG FF SAE BASE PTW0 - LUX SLK SPL BS PT N - LUX SLK SPL BS PT WO - LUX SLK SPL BS PT W1 - APEXIOR NO. 3 - WCOAT SM FN BS PT WO - WCOAT TX FN BS PT WO - LUX PRL LST BS PT WO - LUX PRL LST BS PT W1 - WCOAT SM FN BS PT W1 - LUXOL GOLD GREY BASE - SURERIOR ALUMNIUM PT - WALMASTAEXTEMLSNBRBS - LUXOLGOLDYELLOWBASE - LUXOLGOLDENMLBROWNBS - COLORBANK PRIMER S/T - COLORBANK PRIMER W/T - PARROT WOOD PRIMER - BP CEMENT PRIMER S/T

IIPM/ PGP-SS-2003-05/ SS03517

190 194 198 293 294 296 298 381 382 383 384 385 386 387 388 389 390 391 392 393 394 395 396 417 421 422 435 460 462 499 665 681 697 699 704 705 709 736 767

- BISON SUPER EMLBS W0 - WOODKPRLGNDEXTDGSELR - WALM CLSC CREAM BASE - WALMASTA WHITES - RANGOLI WHITES - BISON WHITES - WEATHERCOAT WHITES - NT-UNIVERSAL COLORNT - BR-UNIVERSAL COLORNT - GF-UNIVERSAL COLORNT - GC-UNIVERSAL COLORNT - BC-UNIVERSAL COLORNT - BF-UNIVERSAL COLORNT - VB-UNIVERSAL COLORNT - MG-UNIVERSAL COLORNT - RD-UNIVERSAL COLORNT - SP-UNIVERSAL COLORNT - RE-UNIVERSAL COLORNT - OR-UNIVERSAL COLORNT - OC-UNIVERSAL COLORNT - NS-UNIVERSAL COLORNT - LM-UNIVERSAL COLORNT - WT-UNIVERSAL COLORNT - B P WHITE PRIMER WT - BP REDOXIDE PRIMER - BP WHITE PRIMER - RED OXIDE PRIMER - WDKPR LGND INT GLOSS - WDKPR LGND INT MATT - RNG EASYCLEAN BSPTW0 - BP ROZC PR TO IS2074 - WCOAT SM FN BS PT N1 - RNG EASYCLEAN BSPTW1 - WALMASTACLASSICN1BS - LUXOL SATIN - LUXOL GOLD SATIN W0 - WCOAT SM FN BS PT N - LUXOL STAINERS - A/A H/R BLACK IS-158


107 074 - WOODKEEPER PU CWF GL 075 - WK MELAMINE SEALER 077 - BP CEMENT PRIMER W/T 078 - JADOO ENAMEL (White) 078 - JADOO ENAMEL (Colour) 083 - WALMASTACLASSICWIBSE 086 - CASTLE DRY DISTEMPER 088 - WCTSMOOTHCREAMBASEPT 095 - JADOO CEM 120 - BP INTERIOR FLAT 179 - WDKPRFINESSEPUWOBASE 180 - WDKRMLMNCLSCGLOSSYWO 189 - BISON SUPER EML

IIPM/ PGP-SS-2003-05/ SS03517

775 786 800 899 A07 A36 T12

- WCOAT EXT PRIMER - RNG FF SAE BASE CREM - THINNER 800 [ A/D - WOODKEEPER MM THINER - RNG EASYCLEAN BSPTN1 - RNG EASYCLEAN REG - WOODKPRLGNDPUTHINNER


108

BIBLIOGRAPHY Primary knowledge of the subject was been taken from the books 1.

Supply Chain Management 

2.

By John T. Mentzer

Supply Chain & Logistics 2002 

From the ET Intelligence Group (Mainly used the paint industry section)

Further knowledge was been gained from the full site of companies like 1.

2.

SAP 

www.sap.com



www.i2.com

i2

3. The Council of Supply Chain Management Professionals 

4.

Supply Chain Council 

5.

www.cscmp.org

www.supply-chain.org

Economic Times Strategic Marketing 

www.etstrategicmarketing.com

In the case of gaining more knowledge of the market and the supply chain management the Logistics pages of Economic Times have given me a lot of inputs.

IIPM/ PGP-SS-2003-05/ SS03517


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