Case 2
Arihant Consumer Products (ACP)
Harnessing the Power of IT in Managing Supply Chain
Arihant Consumer Products (ACP) is having a product mix of toiletries, hair care, household care, fabric care and body care. ACP plants are located at Malanpur (M.P.), Guwahati (Assam), Silvassa (U.T.) and Baddi (H.P.). ACP organization is harnessing the power of IT is supply chain management, dealer management, customer relationship management and sales force management.
ACP had gone for IT support in its business operations in 2000, and decided to adopt ERP across the enterprise. In 2001, ACP decided to look beyond ERP and leveraged the Internet to the maximum possible extent. ERP helped ACP significantly to gain benefits within the organization. The company's new initiatives were to connect the business partners outside the organization. ERP has a de-centralized architecture. This standard ERP did not support B2B, dealer and supplier networks. Hence, ACP hired the services of another service provider for the next 5 years.
This requirement gave rise to a new initiative in the form of connecting distributors and another initiative to connect to the suppliers. ACP also has an initiative known as ‘ACP-IT’. This is a portal for employees of the organization. ACP-IT is the company's intranet and is like a virtual workplace encompassing all the workflows like performance appraisal, leave and reimbursements into it. It also helps the employees located away from head office to know what is happening in the organization. It also helps in sharing best practices, learning, events, and updates across the organization. All the above initiatives and the current IT investments at ACP align with the strategy document on IT submitted by external service providers.
DISTRIBUTOR-IT is one of the most successful IT implementations at ACP. It is a combination of more than one product. One of the challenges the company faced 3–4 years back was to bring distributors into the IT infrastructure. The need came because of the non-visibility of stocks at the distributor end. ACP had to entirely depend upon their estimates, intuition and knowledge of the field force.
However, bringing the distributors into the IT architecture was a big challenge. They were suspicious and apprehensive about the new IT solution. ACP needed a solution to connect all concerned and align them to the business logic. After initial resistance, distributors realized the benefits from the system and have started participating actively in it. ACP has around 1, 000 distributors of which around 375 are A class distributors contributing 70–75 per cent of the total business. The remaining 750 distributors are B and C class distributors.
The underlying business concept behind this IT initiative was based on replenishment. It monitored the inventory levels at distributor's end and based on that it suggests a replenishment plan. The distributor has to furnish information on sales to carrying and forwarding agents (CFA). The information consists of current stock levels and goods-in-transit flow from CFA to distributors and also to ACP. The system considers all the above three things to determine the order level by considering the replenishment logic.
The initial challenge was that the distributors were not open to sharing the above data. Also the technical challenge was that most of the distributors were using some software or the other. The distributors felt that ACP will get insights into their data and they had an apprehension that their data will be shared with other distributors. ACP overcame this, through various dealer's education programmes.
The IT team at ACP had a great role in pushing the distributors. Each of the 375 (A Class) distributors was extensively trained by a special IT team of ACP. This resulted in benefits such as a daily visibility of the retailing information to ACP and the distributors benefited from much lower inventory carrying costs. This implementation has re-organized the push-sales tactic followed before. Now, the distributors invest smaller amount of capital, for shorter time periods, leading to reduction in product stagnation on the distributor's end and fewer chances of scarcity of a particular brand in the marketplace. Invariably, this translated into better brand visibility and higher profits. Though this project took some time to reach wide acceptance, all distributors were finally happy about the benefits it accrued.
SUPPLIER-IT was another initiative towards the suppliers. CFA generated orders and informed regional warehouses on the quantity that was to be shipped to the CFA. Thus, CFA inventory level was maintained at minimum. The data from the regional warehouse was shared with the plant warehouse and, based on it, the plant warehouse decided on the quantity that was to be shipped to the regional warehouse.
Based on this, the manufacturing plants derived the quantity that was to be shipped to the plant warehouse. This information helped ACP to finally decide on the quantity of different products to be produced at each of the plants. Based on this, the suppliers were informed of the quantity that was to be dispatched.
SUPPLIER-IT was thus an extension of DISTRIBUTORS-IT. Using these two IT initiatives, the production was done on the basis of demand. Production now matches the demand. Thus, the entire supply chain has optimum inventory.
Using these two programmes, replenishment for A class distributors is done on a daily basis, and for B and C class distributors it is done on a biweekly basis. For B and C class distributors ACP did not want to give the ERP software. This was because it is not easy to maintain the software at so many distributed sites. Also, these are small distributors and most of them do not even have PCs. These distributors are also located at remote places and providing them technical support would not have been easy.
For 750 distributors, ACP thought of a different solution so that the investment was also minimized. These small distributors call CFA two times a week and read the sales and stock data over the phone. CFAs key in the data by logging on the Web site, and then the data is taken backwards like in the case of A class distributors. Thus, ACP is now connected to all distributors.
In the third stage, ACP planned to connect to the retailers through the RETAIL-IT initiative. This initiative has started recently. In this, a very large number of retailers are connected, extending to the tune of 60,000–75, 000. The system is based on replenishment logic again. With this new initiative, the retailers come into the current IT architecture. From an organizational perspective, the implementation is almost complete.
ACP uses PDAs and mobile applications for capturing retailing and non-IT distributors’ data. Earlier, field force used to visit the retailers to get orders, but now they will be getting stock details using PDAs from retailers. The distributors will then synchronize the data taken from the field force with DISTRIBUTOR-IT. Each A class distributor can thus serve 200–350 retailers.
Thus, it is a trio of distributor, supplier and retailer IT initiatives giving the company a real-time visibility of inventory across end-to-end supply chain.
On an overall basis, inventory level has come down by 50 per cent and sales have gone up. Distributors reported a higher ROI—some distributors have reported about 20–30 per cent increase in their sales because of IT. There is a higher visibility of material flow and data flow across the supply chain.
The inventory turnover ratio (net sales/inventory) improved. While the inventory turnover ratio was 6.74 for FY 2000, it has improved to 13.56 in 2005. Overall, there has been a reduction of inventory holding days by 60 per cent and a reduction of stock-out situations by 65 per cent. The other business benefits from each of these IT implementations were improvement in quality of service, accurate data of market variations, on-time dispatches from CFAs to distributors, efficient delivery enhancing order fulfillment from 76 per cent to 91 per cent, reduction in lead times in replenishing a distributor, faster responses than competitors via promotions, release of capital by distributors and overall improvement in profits and cash flow, and improvements in customer support and average response time to the distributors.
REVIEW QUESTIONS
- Why did ACP feel that it needed planning and implementing IT in supply chain?
- Explain the IT initiatives taken by ACP.
- Discuss the various challenges faced by ACP during implementation of trio IT packages.