FMCG refers to consumer non-durable goods required for daily or frequent use. Typically, a consumer buys these goods at least once a month. The sector covers a wide gamut of products such as detergents, toilet soaps, toothpaste, shampoos, creams, powders, food products, confectioneries, beverages, and cigarettes.
Most product categories in FMCG require relatively minor investment in plant and machinery and other fixed assets. Therefore shortage of product for want of capacity would be a rare phenomenon. The turnover is typically five to eight times the investment made in a Greenfield plant at full capacity. This is also due to the fact that the business being marketing driven, players do not integrate backward. Also, the business has low working capital intensity as bulk of sales from manufacturers takes place on a cash basis.
Nonetheless, there is a large front-ended investment made in new products including cost of product development, market research, test marketing and most importantly its launch. To create awareness and develop franchise for a new brand requires enormous initial expenditure on launch advertisements, free samples and product promotions. Launch costs are as high as 50-100% of revenue in the first year and these costs progressively reduce as the brand matures, gains consumer acceptance and turnover rises. For established brands, advertisement expenditure varies from 5 - 12% depending on the categories. It is common to give occasional push by re-launches, which involves repositioning of brands with sizable marketing support.
[...] Macro Trends Here, seven of the most important channel trends are identified: * Wholesaler-distributors will continue play an important role in marketing channels and supply chains. Wholesale distribution remains an important force in market-oriented economic systems. In the United States, wholesale distribution contributes 7 percent of U.S. national income and accounts for one in every 20 US jobs. * Online ordering will be adopted slowly. Customers will adopt new business technologies when it benefits them and limit technology usage when the technology does not help them. [...]
[...] DISINTERMEDIATION MYTH Disintermediation is the term that means elimination of distributor; it was first suggested for distributors in the early 1990s as a response to new technology and increasing pressure on the supply chain to cut costs. Distributors were perceived as middlemen who added cost to supply chain through redundant inventory, services and information handling. It was logical that if suppliers and end users could “Automatically locate inefficiency” they could eliminate the distributor. This logic follows from the reasoning that a shorter supply chain is inherently more inefficient (Narus and Anderson, 1997). [...]
[...] In contemporary logistics, the scope of operational concern is significantly broader than transcending broad supply chain arrangements; logistics is viewed as encompassing all work related to inventory positioning, which can also involve aspects of satisfying firm and possession requirements. Thus, there is supply chain integration; the below figure illustrates an overall supply chain focussing on integrated management of all logistical operations from original supplier procurement to final consumer acceptance. (Bowersox & Closs, 1996). ENTERPRISE TRANSITION FROM PUSH TO PULL ENVIRONMENT Starting in the 1980s, customers began demanding faster delivery with narrower delivery windows. [...]
[...] Significant Presence Of Unorganised Sector In the past, several factors led to the mushrooming of small unorganized players with local presence viz, Basic technology for most products is fairly simple and easily available. Fiscal advantages: In many countries, small-scale sector enjoys (the concessions however have been diluted considerably in the past few years) exemption/ lower rates of excise duty, sales tax, etc. This makes them more competitive vis-a-vis the organized sector. Remote rural markets: Due to highly scattered market and poor transport infrastructure, very few MNC companies/ organized players have been able to reach out to remote rural areas and even small towns. [...]
[...] The only way to stay ahead in business is to be faster and fitter. In the race to get more competitive, an area that is increasingly coming under focus is Distribution i.e. the physical movement of good. CHANGING FACE The Basic structure of FMCG supply chain has not changed in many years. What has changed is the attitude of efficiency of each element. The end of 1990's revealed a different way of looking at distribution. A new movement called SCM had been slowly redefining the distributor's role in channel. [...]
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