I consider myself very lucky.
Because I get to contribute to India’s untold FMCG story. Indian media is always abuzz with the next big startup fundraise, big-ticket exits and acquisitions. But deep down all this noise, coming from India’s hinterland there are a number of small FMCG companies running into tens and hundreds of crores. They make all kinds of things – biscuits, namkeen, deodorants, chips, juices and not to forget all kinds of knick-knacks. Let me give you a sense of the size of these brands.
Manpasand Beverages, the makers of Mango Sip and a publicly listed fruit juice company did close to Rs 1,000 crores in FY 18.
This story is fascinating. And this became one of the topics of my discussion when I recently spoke to the Head of Sales at one of India’s leading FMCG companies. We, also discussed sales force automation, of course. But the topic that got all the attention was the distribution management system. It was natural for us to complain about the distributor community, but soon professionals in us took over. Not every problem in the FMCG distribution sales is because of the distributor. There are other issues surrounding the digital readiness of manufacturers and many operational ones. What followed was a balanced conversation that concluded today’s FMCG distributors are slowly and steadily adopting the Distributor Management System (DMS).
Here is what the conversation covered.
Trade does not favour a DMS
Historically, FMCG trade – organized and unorganized – did well without a DMS. It is not difficult to understand why. It was brave of Unilever to talk about it. Unilever had put up a document titled “Economic crimes in FMCG Industry”. In addition to talking about many issues plaguing FMCG, it did highlight the manipulation by distributors. At times, this manipulation occurred even in the presence of a distribution management system in FMCG. The issues involved include but are not restricted to inflation of period end sales and sales returns. Sales returns aggravate the “whiplash effect” in the FMCG supply chain seriously impacting net sales. Another area that has always been a concern for manufacturers has been trading promotions. Most trade promotions never get passed on to the retailer and consumer. Even when they are, trade promotions are cut down or diverted to other territories. All these are wonderful handles for the distributors to eat into trade margins, at the expense of the manufacturer, retailer, and consumer.
But not every reason for the resistance to a distribution management system is because of the above. There are genuine operational reasons too as indicated above.
A distributor’s life isn’t easy either – retailer issues, sales pressures, issues of taxation, hyper-active bureaucracy, the list is endless. Let’s touch on the main ones.
Multi-Brand Distributor, are you?
Will there be a time when FMCG brands and manufacturers are on a single DMS in a grand display of co-opetition? That surely could disrupt general trade. It will take a very large brand to demonstrate leadership for a shared single DMS. It is a wild idea, but an idea it is.
In the interim, if you are a multi-brand distributor under the pressure of running many DMS’, I can understand your pain. In addition to the operational effort of maintaining different systems, omission and commission errors also creep in.
Integrations could resemble Pandora’s box. There are a plethora of systems out there – ERP, Tally accounting software, and document management systems. Before the GST, there were all kinds of VAT software. Once brand owners install a distribution management system, it could create an endless spiral of requests for integrations and upgrades.
It is difficult for the distributors to keep up and dilutes their focus on distribution sales. At times, it also starts the vicious circle of sales returns.
Absence of Qualified Manpower
India’s rising affluence at the bottom of the pyramid has also meant good growth for the FMCG industry. Distributors are already challenged by the increase in the number of SKUs that they now have to increase coverage for. Should they focus on growing sales or improving operations? Usually, the priority is very clear.
That also increases the brand and distributor friction. FMCG analysts and journalists have documented how brands are taking an increasing role in temp staffing distributors.
The conservative Brand owner
Even brand owners are buying time when it comes to adopting a distribution management system. MNC FMCG brands have been early adopters, but slowly large local brands are also rising to the occasions. They are moving beyond “koi aur Pehle market dikhaye. Phir karenge”. Luckily, the key enabler for this change in mindset – technology – is falling in place. Technology is becoming affordable and predictable. With mobile technology on the ground, it is possible to geocode all the elements of the FMCG distribution chain. This will help to track salesmen, optimizing their route, taking orders from retailers, and overall improving forecasting. Brands, even the conservative ones are able to see value in it. Mother Dairy – a Giant in India’s dairy industry with a focus on North India – implemented a distributor management system after a year-long effort.
Needless to mention they did face distributor resistance. The press says so.