FMCG COMPANY- IBP IMPLEMENTATION

 Introduction:

Powered by digital transformation, smart software solutions and modern planning processes driving better insights are the deals of the day. IBP (Integrated Business Planning) is one such tool that helps in organizing all these processes. This article provides an overview of how an FMCG company transformed its Procurement Planning process through SAP Integrated Business Planning

About the Industry:

The FMCG (Fast Moving Consumer Goods) is the 4th largest sector in the Indian Economy. Half of the sales in this industry are from Household and Personal Care products then comes the healthcare products and then the food and beverages.

Below are a few statistical facts regarding the FMCG Industry:

·      60% of the consumption revenue comes from Urban India.

·      According to CRISIL Ratings, Revenue growth in this sector will double from 5-6% in FY21 to 10-12% in FY22.

·      Despite nationwide lockdowns, the Indian FMCG industry grew by 36.9% in the second quarter of 2021.

·      The FMCG market in India is expected to increase at a CAGR of 14.9% to reach US$ 220 billion by 2025, from US$ 110 billion in 2020.

Company Overview:

Operating in the beauty and wellness space, our client is one of India’s leading FMCG companies having a presence across 20+ Countries and manufacturers across India.  It owns multiple brands in the below categories:

·      Hair care

·      Skin care

·      Edible oils

·      Health foods

·      Male grooming

·      Fabric care etc.,

Problem Statement:

The client was facing challenges in their current planning capabilities due to a need for multi-level material requirement planning (MRP) in custom time buckets. Additionally, there were many other scenarios and custom logics that were not supported by their existing ERP system.

Planners had to plan in excel sheets, fetch the Master and Transactional Data manually from the ERP system to do MRP operations and this resulted in siloed planning as well as a lot of computations which made the entire planning process very time-consuming. The client wanted to adopt a technology solution that would automate most of the process while taking care of all the scenarios and which would also seamlessly get integrated into the ERP system for incorporating the latest data for planning

Planning Scope:

Solution to be developed for a user base of 20 RM/PM planners and implemented for all the factories across India for 5 product categories comprising of 20000 SKU’s

Approach:

Multiple customizations and varied needs led to multiple scenarios for which different approaches were taken.

Scenario 1: Multilevel BOM Handling in Custom Time Buckets

·      Business Need: The key step in Materials Requirement Planning is a calculation of the dependant demand of Raw Materials / Packaging Materials basis the Finished Goods plan. This dependency is called ‘Bill of Materials’ (or BOM) in Supply Chain Terms.

In their business line there are often BOMs that can extend up to 3 or 4 levels [E.g., Raw Material -> Semi-Finished Good 1 -> Semi-Finished Good 2 -> Finished Good] and there is an added complexity of existing raw materials being replaced with new raw materials within the planning horizon. [For e.g. The label for the same tube of gel may get changed, so for the same Bill of Material, there is a new component to be used from next month].

While the existing ERP system had the capability for handling multi-level BOMs, the custom time bucket planning was not supported and hence planners had to calculate the dependent demand manually in each cycle which was a tremendous manual effort. There was a need for a system that could handle multi-level BOMs in custom time buckets with the ability to incorporate BOM changes within the planning horizon.

·      Approach: With the incorporation of SAP IBP, the dependent demand calculation is now handled by the Supply Planning Heuristics engine. An interface built from the ERP system to IBP automatically updates BOMs daily so only the latest BOM is available for planning. Additionally, for any BOMs that are having a change within the planning horizon, the validity dates for the older and newer materials can be maintained directly in the system and will be taken into consideration by the Heuristics Engine. Doing so helped in the reduction of manual intervention thereby reducing the time consumed by planners

Scenario 2: Multilevel Planning

·      Business Need: Business had grouped its manufacturing plants into logical locations called clusters. This was done to balance the stock levels between plants within a cluster and avoid excess ordering in case even one of the plants had stock on hand which could be transferred to other plants. This multi-level stock consideration was not supported by the existing ERP system and hence with the new planning system, business wanted to generate requirements at a cluster level rather than plant.

·      Approach: A custom location hierarchy was created with the cluster as an aggregated level. Once the business plans the net requirements and receipts at the cluster level, plant level quantity is obtained later through disaggregation that helped in making operational decisions.

Scenario 3: Dynamic Norm Computation

·      Business Need: Planners generally plan for orders based on vendor lead times and material availability and hence to optimize order quantities, they place orders for up to 4 months into the future. This is maintained as ‘norms’ (in days) and varies from 45 days for some materials up to 120 days for some materials. The norms for materials could also change in each cycle depending on the situation, hence there is a need to calculate the requirement dynamically based on the updated norms. This was a time-consuming activity using excel sheets and in each cycle, the demand is also changing, so it had to be manually calculated each time.

·      Approach: In the planning system, custom logic was enabled using advanced key figure functions like Cumulative Aggregation and Rolling Aggregation without any use of operators. Planners could now upload a file with updated norms and the norm qty would be calculated as per the latest norms. Planners could also update the norms on an ad-hoc basis and the qty would be calculated dynamically. This helped in eliminating the manual activity that resulted in reducing the time consumed to perform

NOTE: Let’s look at other use cases where IBP was implemented in the FMCG industry for the aforementioned client and its benefits etc., in the coming article.

Stay Tuned to this space for the next publish.

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