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Inefficient Supply Chain’s Impact in FMCG Sector

Fast-moving consumer goods (FMCG) is one of the rapidly growing sectors in the Indian economy. The FMCG sector is expected to grow at a CAGR of 27.86 % and reach USD 103.7 billion by 2020. It is worth noting that the rural segment contributes about 45 % of the overall revenue generated by the FMCG sector. The top three sectors within FMCG are household & personal care (50%), healthcare (31%), and food and beverages (19%).
Supply Chain in FMCG pertains to the entire lifecycle of a consumer product, from acquiring raw material for production to the finished products. It begins with raw material sourcing and purchasing, product packaging, and ends with the delivery at the point of sale. An efficient supply chain is crucial for any FMCG organization to meet the growing consumer demands. Additionally, a robust supply chain has the potential to increase the profitability of the organization.
The FMCG supply chain deals with multiple challenges like the reducing overall costs, meeting increasingly varying customer demands, and ensuring quick as well as timely delivery. To add the woes, organizations must further ensure accessibility and be able to fulfill customer demands. Organizations need to maintain all this, in an ever-metamorphosing industry.

How Does A FMCG Supply Chain Become Inefficient?

One would think that FMCG companies, with its fast-moving and mass-produced items, would have already figured out the entire supply chain. Yet, several new factors are now part of the supply chain which if not addressed, can lead to significant inefficiencies. The rising cost of distribution, increasing number of SKUs, and a wide variation in the last mile execution can severely affect the supply chain. Lack of innovation, accountability, and visibility are the chief causes of an inefficient supply chain. Let us look at each of them individually to analyze the core of the problem.
  • Accountability - With the supply chains becoming global, accountability at every stage is essential. A lack of clear distribution of responsibility will lead to inefficient supply chains given the sheer volume and scale of distribution in FMCG.

  • Visibility - Visibility or tracking of the products at every stage is critical not only to ensure efficiency but also to ascertain product authenticity. A lack of visibility increases the probability of counterfeit products being introduced in the supply chain.

  • Innovation - Innovation is the key to survival in any industry due to the rapidly changing technological landscape. Using innovative tracking, tracing, and other related technologies FMCG companies can improve their supply chains. Not accepting the change may eventually turn the supply chain inefficient.

Why is it important to have an efficient Supply Chain?

An efficient supply chain is crucial for improving brand value in the market, enabling product transparency, enhancing profit, and increasing customer satisfaction. Thus, companies need to continue seeking higher efficiency in their supply chain. This would help companies meet price expectations by streamlining and restructuring processes while preserving economies of scale during the product lifecycle.
Transparency and traceability are terms often used interchangeably but incorrectly. When applied to a supply chain, both the terms could have a wide variety of meanings. A competent supply chain incorporates both and provides a huge clarity of procedures involved during the different stages of the cycle. As the name suggests, traceability allows for effective tracking of products during the lifecycle, whereas transparency aims to map this entire process.
Emerging technologies such as blockchain are now being tried to solve the complicated and critical problems of the supply chain. A modern-day supply chain needs high traceability and visibility to ensure that the trust between all the parties involved in the supply chain is sustained and increases over time.

The Need For Transformation In FMCG Supply Chain

To understand the current challenges that are being faced by the FMCG supply chain, we must first understand the factors driving the change and forcing businesses to upgrade. The rapidly changing shopping patterns of the consumers and the latest technological solutions are a few prime reasons that necessitate an overhaul in the entire supply chain.
Over the past decade, the FMCG & retail industry has transformed and evolved at breakneck speed. This has led to the rise in changing consumer expectations along with a massive change in shopping patterns. The latter can largely be attributed to the emergence of eCommerce and niche specialty stores. The change in the “traditional Kirana” store and their aspirations has also forced companies to leverage technology to stay relevant.
The tech-savvy and well-informed consumer is now aware of the options available at their disposal in a simple click of a button. The plethora of choices has made traditional barriers such as cost and convenience obsolete. Today, a consumer can access what they, when they want, and from wherever they want. This has resulted in diverse demands that range from international online retailing to a locally made product.
The nature of products that form a substantial part of the FMCG sector further complicates the supply chain. Perishability and seasonal fluctuations also create unique challenges that force organizations to create supply chains that are capable of adapting such a varied pace.
In response to this change, today’s FMCG supply chains have revamped their strategies and turned their attention towards reducing the costs, increasing responsiveness, and using technology to create a robust supply chain. An increasing number of companies are employing innovative loyalty management programs to optimize their supply chains.

What Next?

As technology advances and consumer demands evolve, things would continue becoming difficult for the FMCG supply chain. It becomes imperative for the organization to ensure that all the stakeholders in the supply chain are optimized so that the entire supply chain can function like a well-oiled machine. Simple and easy steps like product serialization and verification can help FMCG organizations manage and secure the entire supply chain.
Companies can also leverage the available data points for every entity in the supply chain. This data can be analyzed regularly to evaluate the performance of every partner in the supply chain and to take critical business decisions.
We at O4S, strive hard to deliver solutions that help companies create a robust supply chain. With our next-gen solutions, FMCG companies can track their entire supply chains, manage returns, and motivate the distributors & retailers with loyalty management programs. All our solutions are aimed at helping you create the supply chain you deserve.

Tackling the rising Counterfeits in the Agri Inputs Industry in India – The Big Challenge

With the population of India growing at the rate of 1.1% per annum, the natural stretch on the average Indian farmer is enormous. India needs to produce a higher quantity of food from each farmland to be able to maintain self-sufficiency in the country’s increasing food requirement.
While there is a need for more food, there are several challenges which are choking the agriculture sector such as reduction in arable land, decreasing farm size, proliferation counterfeit agro-chemicals, and low awareness among farmers.
Among them the availability and use of counterfeit agro-chemical products has severe consequences of the lives of millions directly and indirectly. These products are purchased by farmers by the sole purpose of protecting their produce, but instead these are unable to control the pests or control them efficiently moreover cause considerable harm to soil and environment as well as production loss.
There are enough studies that emphasis on the gravity of the situation in the agriculture industry, and the urgent need of attention from the farmer associations, industry players, pesticide regulatory bodies and government in a time bound manner to curb its further proliferation. A recent study by CropLIfe International India stated that,
“India will overtake China to become the most populated country on the planet in 2024, according to a UN forecast, reaching 1.5 billion people by 2030. The expectation on farmers to feed the growing population is huge, but their efforts are being undermined by criminals. It is estimated that almost 25 percent of the pesticide market in India is counterfeit or illegal. Given Indian farmers spend $125 million just on pesticides every year, a significant figure is likely spent on illegal products that undermine stewardship efforts across the country.”
The repercussion of the pesticide counterfeit are significant. As per reports from the ICC, the use of adulterated products leads to the loss amounting to over 10.6 million tons of food every year. Meanwhile, samples of illegal products on food grain produce has the potential to threaten India’s position as one of the world’s leading grain exporters — worth $26 billion a year.
The effect of non-genuine / illegal Agri Inputs on the various stakeholders can identified as follows* –
  • Overall yield for farmers across the country in case of 25% non-genuine / illegal 7 products prevailing can reduce by ~4% (Analysis by Tata Strategic,2016). This implies ~10.6 million tons of food production loss in the current year.

  • Irreversible damage to environment by uses of unmonitored toxic ingredients in non-genuine / illegal products due to –

    • Degradation of soil through unknown illegal chemicals, thereby rendering it useless for cultivation of succeeding crops
    • Ground and surface water contamination caused by unknown toxic chemicals and heavy metals
    • Imbalance of natural flora and fauna and negative health impacts on humans and animals
  • India’s position as one of the leading food grain exporters in the world is fully at stake as the possibility of rumors or sabotage by other countries or rejection of Indian exports food items from developed importing countries would increase. In such a scenario, export of ~29 million tons of food grains worth ~ INR 1, 578 8 Billion (Department of agriculture and cooperation, Government of India statistics, 2016) is at stake

  • Apart from Food grains, export of ~ 3 million tons of fruits and vegetables worth ~ INR 88 Billion (~ USD 1.43 Billion) is also at stake due to non-genuine / illegal 9 pesticides (Government sources (APEDA))

* FICCI Study on the Impact of Spurious Products in the Indian Agri Sector, 2016

In this situation, it is critical that there is a greater focus by brands and the Government bodies around creating simple technology tools which utilize the current user behavior. These technologies need to be identified at the farmer level to empower and engage with them at scale and digitally connect with all the distribution partners in order to get visibility of the product movement. This will ensure that unscrupulous parties are not able to penetrate the distribution supply chain at any stage.
What needs to be understood is that our farmers are smallholder farmers who lack enough disposable income. Firstly, every purchase made by them result from the liquidation of the hard-earned cash; an investment which they make in order to provide for their families. With digital verification platform, farmers can be assurance that the purchase made is genuine. Farmers end up buying what they see and are told, “We are illiterate farmers; we seek advice from the vendor and just spray on the crop,” (Business Word, 2018)
Secondly, by garnering points on the system, the farmer can convert their loyalty points to a product of their choice later. For the Agri Input manufacturer this is a dream come true way to penetrate deeper, into the harder to reach Tier 3 & 4 markets by means of simple-to-use technology for the average farmer.
How would a farmer authenticate the product without network coverage? And even then, how would they order it in the first place? In the percent scenario we are on one hand limited by logistical challenges while on the other by the long adoption cycles taken by farmers. However, we have seen a gradual rise in the adoption and verification from the farmers and it is also strengthening our belief as the numbers speak for themselves.
Additionally, there is a great amount of work which is being done to enable visibility and engagement with the distribution partners through a defined incentive scheme to help the genuine product flow through these nodes and thus preventing the spurious goods to reach the market and finally into the hands of the farmers.
There will still be a lot of spurious nodes that might still try and penetrate the distribution chains, and it is only when empowering the individual players in the supply chain can we make the system more robust and transparent.
The fight has just begun, and we have a long battle to endure. It is just the tip of the iceberg that has been touched but it is in a positive direction. The awareness and the technology adoption are helping farmers re-establish control over their produce and giving the much-needed input for the Brands and the Government alike.
This is a continuous process and technology startups like us are fortunate to play a small part in this journey for the Indian Agri Inputs Sector — more as a partner in growth and evangelism for a better and brighter future for our farmers and the India Agriculture sector as a whole.


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