"Faltu Me CHU jaise Ghoomna" is the funniest expansion of the abbreviation "FMCG", I know till date, which actually means "Fast Moving Consumer Goods".
FMCG is the industry which makes daily-needs goods available at your nearest kirana Store (Mom & pop outlets), Departmental Stores, Supermarkets - hypermarkets and online stores, from where you easily purchase your favorite brands whenever you need them.
Just imagine how your life would be if this industry is not there. You wake up in the morning and will not have toilet paper to clean up your a**, no toothpaste and toothbrush available to brush your teeth. No soap, shampoo and conditioner to make your bath delightful. No Gillette to shave your unwanted hair off. No Deodorant to make you smell good.
Not only this, no Bread, no biscuits, no Cold Drinks, no snacks, nothing available.
Life would reverse back to a caveman life. Thus, FMCG can be considered as the most important industry for the survival of today's humanity.
But is this industry a well structured and principal oriented industry? If you think yes, think again and if no, then by the end of this article you will feel proud to think the way you think.
The level of disorientation and mismanagement even in so-called multinational companies which hires top MBA graduates from top B-Schools across globe is to such an extent, I did not find a better word than "Politics" to relate with FMCG industry.
Politics, as everyone knows is an another word for complete chaos, implementation-less rules, high level of corruption at each level, complete selfishness, the list is endless.
In many aspects where FMCG is a kin to Politics are:
FMCG is the industry which makes daily-needs goods available at your nearest kirana Store (Mom & pop outlets), Departmental Stores, Supermarkets - hypermarkets and online stores, from where you easily purchase your favorite brands whenever you need them.
Just imagine how your life would be if this industry is not there. You wake up in the morning and will not have toilet paper to clean up your a**, no toothpaste and toothbrush available to brush your teeth. No soap, shampoo and conditioner to make your bath delightful. No Gillette to shave your unwanted hair off. No Deodorant to make you smell good.
Not only this, no Bread, no biscuits, no Cold Drinks, no snacks, nothing available.
Life would reverse back to a caveman life. Thus, FMCG can be considered as the most important industry for the survival of today's humanity.
But is this industry a well structured and principal oriented industry? If you think yes, think again and if no, then by the end of this article you will feel proud to think the way you think.
The level of disorientation and mismanagement even in so-called multinational companies which hires top MBA graduates from top B-Schools across globe is to such an extent, I did not find a better word than "Politics" to relate with FMCG industry.
Politics, as everyone knows is an another word for complete chaos, implementation-less rules, high level of corruption at each level, complete selfishness, the list is endless.
In many aspects where FMCG is a kin to Politics are:
DALDAL (SWAMP)
You must have heard this dialogue in many Bollywood & Hollywood movies, Politics is like a dirty daldal (swamp) and if you jump into to clean it, you have to get dirty. Same is the condition of FMCG industry. We have been shown all flowery image of FMCG industry by our eminent professors (except few), but the real image is thorny rather than flowery.
Before entering FMCG, I painted it as a systematic industry, where policies and industry norms control everything, but after entering into this daldal I found it is a mammoth task to make things in order. By the time you work on shaping one thing in order, the other things lose their shapes and end result is more messed up situation than before. Many have jumped into this swamp and tried their hands on it, but at the end this daladal swallowed them, without even leaving a mark of struggle those faced during their career.
POLICIES - LOL!! WHAT A JOKE..!!
Before entering FMCG, I painted it as a systematic industry, where policies and industry norms control everything, but after entering into this daldal I found it is a mammoth task to make things in order. By the time you work on shaping one thing in order, the other things lose their shapes and end result is more messed up situation than before. Many have jumped into this swamp and tried their hands on it, but at the end this daladal swallowed them, without even leaving a mark of struggle those faced during their career.
POLICIES - LOL!! WHAT A JOKE..!!
Corruption is considered as the birth right of politics, but after reading the next few lines, you can say that politics has got a tough competition.
FMCG is one of the most corrupted industries in the economy of any country. There are no major scams and money laundering like we have in politics and financial industry, but a chaotic system is being followed which acts as air to the fire of corruption and it is next to impossible to extinguish this fire.- At Company's Production Center (Factory)
- When I think of problems being created by company's production center or factory, following lines by famous poet-heart saint 'Kabir Das' best describes my thought
I searched for the crooked, met not a single one.
When searched myself, “I” found the crooked one
When searched myself, “I” found the crooked one
- It is the common human tendency to find minutest problems and flaws in other people without even looking their blunder mistakes. Same is the condition with every FMCG company. Company officials point out problems in other channel partners, not bothered to look their own faults.
- Production center is the foundation of distribution channel of every company. What if the foundation of a building is weak? The building's life is not long and will not be able to withstand calamity. Similarly, if production center of a company is at the fault, the company can not withstand against fluctuating market, competitors, new entrants. The common faults at production center are:
- Less number of products in cases: Suppose there are 100 units of a product in a case, packed in 10 boxes containing 10 units (10x10 = 100). Sometimes the case which is delivered at distributor contains 9 boxes instead of 10.
- No product inside the box: In some cases, there are 10 boxes in a case, but one box has 5 units.
- No product to supply: This is the major problem with factories when there is the demand of the product, but production lines are not able to meet the demand on time. This disturbs the whole channel and ultimately business is lost by the company.
- Overproduction: Many times goods which have less demand in the market are produced more at production lines. That stock has to be cleared off by giving extra schemes or as a free product with any other running product.
- At Carrying & Forwarding Agent (C&FA)
- Late delivery: The major problem which distribution channel faces is, when the distributor has ordered for stock replenishment and has cleared off all the formalities required for delivery, but due to C&FA logistics problem, stock can not be delivered.
- This leads to the stock out situation at the distributor and sales is lost
- Stock out at C&FA: It is a regular occurring phenomenon of C&FA replying, the product which you have asked for is out of stock. Again leading to loss of sales
- There is a possibility that those products might be stock out at company production center and therefore stock out at C&FA.
- But most of the times stock out condition at C&FA occurs due to incapability in forecasting and determining the stock quantity that will be required in the area for the next some days.
- Once the stock is delivered at C&FA from company's mother depot, the next lot will be delivered after some days and till next lot will be delivered the C&FA will remain in stock out condition.
- Wrong product delivered: This problem is a child of the previous problem. When the required product at the distributor is out of stock at C&FA, it delivers some other product as to math the billing amount as paid by distributor beforehand.
- This leads to stock out of one product, which was required to be replenished but not delivered by C&FA
- The other product which was not required at distributor but delivered by C&FA, leads to its excess stock
- At Distributor
- The distributor is the key element in the distribution channel of every company. A good distributor can increase the sale of your products and a bad distributor will not only bring down sale in his allotted area, will also damage adjacent areas. It is like "a rotten fish makes the whole pond dirty".
- A problematic distributor always keeps handy an 'excuse book' where he has already panned down a silly excuse for every issue which a company official raise in front of him
- After every negotiation and never ending dialogues between company representatives and distributor, if company tries to change the distributor, he will run to his mother (distributor's association) and cries like a baby in front of her.
- Nothing makes a mother angrier than someone hurting her children, and so distributor association becomes fierce in its action and 99.999% of time favors her sobbing child and sees company as the wicket man trying to harm him. The worst case being, barring the company to get any distributor in the specific area for a specific period of time.
- The unexpected and hidden set of thorns created by distributors in what seems a nice and fragrant bouquet of flowers are:
- Scheme cut: Just like many politicians love to consider the funds allotted by the central government for the specific purpose as their own money, many stockists also consider the scheme allotted by the company for retailers as their right.
- The primary schemes (given directly by company in the invoice to stockist) and sometimes secondary schemes (stockist has to submit the claim after passing on scheme to retailer/wholesaler), are not passed on to retailer/wholesaler and stockist enjoys the extra profit from the scheme amount.
- Delivery problem: The strong delivery is the backbone of the success of any product in the market and this heroic task is the responsibility of distributors, which most of them fails to perform.
- Major cause of problem in delivery is infrastructure of distributor for delivery, which includes delivery man and delivery vehicle
- Most of the distributors hold distribution of more than one company and 90% of them appoints one delivery man to handle delivery of 2-3 companies
- When a retailer/ wholesaler receives stock of more than 2 companies on the same day, he is not able to pay for each one off them. In many cases, the stock is given on cash bases and thus retailer/wholesaler returns the stock.
- When goods are returned by a retailer, distributor stops delivering to those retailers without considering the reason for the return.
- Not delivering to the new outlets added by company salesman. The reason for this is stated from the 2nd paragraph, page 32 of excuse book, if delivered to new outlets then existing outlets will be left uncovered as market closes by that time.
- Stock management: For effective delivery in area, distributor has to hold some days stock (number of days varies company to company) for that he has to replenish his stock time to time, which requires making payment to Company's C&FA (which supplies stock to distributor).
- The payment made by a distributor to C&FA is primary billing and the number of bills a distributor issues in retail/wholesale is secondary billing.
- This is a major area of concern for a territory sales manager as his target comprises of primary billing.
- A distributor tries to limit his primary billing by hook or cook and thus sometimes he does not deliver the actual order from the market. This reflects more stock at his stock point and thus need for less primary billing.
- Infiltration (Undercutting): This is the most serious and root cause of many other problems. These is
- Some distributors dump goods in another market than their allotted markets at a cheaper rates than the distributor of that area is giving, by passing on some fraction of their own margin.
- This leads to sale loss of the authorized distributor of the particular area and still the retailer and wholesaler are stuffed with stock.
- Creating Broker: Brokers are third party individual business holders, who buys fast moving goods from company's authorized distributors at a very cheap rates and sells them in the market by keeping their profit. Distributors provide goods by passing on some fraction of their own margin to clear off the extra stock and complete the target to get incentives.
- These brokers sell goods in the adjacent markets which are not the officially allotted to the distributor from which broker had purchased goods.
- The price at which broker sells in the market is lesser than what distributor of that area is giving in the market and thus the sale of that distributor is lost.
- Sometimes this triggers chain reaction and one distributor damages market of other distributor and vice-versa while both earning lesser profits.
"Aadha Sach poore jhut se bhi jyada khatarnak hta hai" (Partial truth is even more dangerous than a complete lie) this statement is not believed by people in FMCG. We say that we don't lie, well that's true because we don't lie, we just always speak the incomplete truth.
- Selling more to the retailer: We manipulate the primary and secondary schemes given by the company to sell more units of goods at outlets.
- For example, suppose on a certain product of MRP Rs. 35, the primary scheme given by the company is 25% above the normal retailer's margin. Then the actual landing for retailer should be Rs. 23.86 [35/ (retailer's margin) - 25%].
- But on giving full scheme to the retailer if he purchases one or two units is not profitable for the salesman as he has to push hard to complete his target.
- Thus, the scheme given by the company is converted to buy 6 units and get two unit free for the retailer. [6*(scheme amount of one unit) = 2* landing rate of retailer(23.86)]
- The message conveyed to the retailer is the scheme is only applicable when he will purchase 6 units and not less than that, but actually scheme is given by company at single unit also.
- Selling more to wholesaler: Companies give QPS (quantity purchase schemes)(for example Rs.100 off on bill amount on purchase of 5 cases of a product) to sell more at wholesalers.
- The salesman manipulates the timing of QPS schemes at the end of the month, rather than reveling when he got the communication by the company.
- Throughout the month, the wholesalers do his normal purchase of stock, 2-3 cases on every order (suppose the monthly purchase is of 10 cases). before the last visit of a salesman to wholesale counter, the total cases purchased by wholesaler were 8 cases.
- Now at the last visit, salesman announces the QPS and shows that this is valid for only this week and wholesaler gives the order of 5 cases to get QPS.
- Thus a total number of cases sold to wholesaler 8+5=13 when the monthly purchase was 10.
TOP TO BOTTOM APPROACH
In this game of vote bank, the areas which actually requires resources suffers.
In FMCG also, something similar is happening. The sales targets are decided by the top management on the bases of required growth by the company, without even analyzing the potential of markets and feasibility of such unrealistic targets. The salesman who actually knows the area and market is not even allowed to say anything about his target and the whole communication process is limited to orders.
CHAMELEON DISORDER
- Allies at the month start and rivals at end
- Every distributor in FMCG industry suffer from chameleon disorder. When a company official visits distributor, he gets a brotherly treatment with a hot cup of 'chai' complemented by all sorts of snacks. But towards the month end, if company official has a lucky day and distributor agrees to meet him, gets a welcome drink of exquisite problems freshly picked on that day itself, served with hot and spicy allegations on company.
- Taking credits on achievement and blaming others on failures
- When any politician wins election, he takes whole credit for himself and points out several problems which he faced due to his political party, but if he loses the black ink of blames is rubbed on the party face while he stands out clear as an innocent child unaware of what went wrong.
- Tracing the footsteps of politics, FMCG also adopted this behavior perfectly, where at each level people are throwing grenades of allegations on each other on failure and taking the individual medal of honor on completion of targets.
Politics is all about maintaining your position, your administration in the government irrespective of what damage is done to the country, its citizen and to other countries as well. You must not lose your seat. In FMCG, it is all about sales. Whatsoever happen to the channel partners, salesman, customers, and economy, company should get its required growth on sales.
- For this companies uses certain tactics which show the selfishness:
- Increasing case size
- To achieve high growth over last year in sales, companies increase case sizes of products up-to two folds. Suppose case size of certain product was 72, which is increased to 144 and other things are left same.
- Now if a number of cases sold by a salesman remain same as that of the previous year, the actual products sold is two times as compared to last year.
- Increasing MRP
- Same is the case with increasing Maximum Retail Price of products. Suppose the MRP last year was Rs.55, which is increased to Rs.60 and other things remains same.
- Now if a number of cases which a salesman sells is same as that of last year, the company earns Rs.5 more on per unit of product.
THE END..!!
When a company runs out of stock, it is end consumer of that product who is going to feel the real loss.
When a company increases MRP of daily needed products, it is again consumer who suffers.
In the end the one who is lying at the bottom of the pyramid suffers and certainly it is not any politician or any channel partner of FMCG industry, it is a common man who is crushed under the weight of whole system.
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