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Consider A Real-Life Indian Company Selling Functional Products

Parachute coconut oil, produced by Marico Ltd, is classified as a functional product due to its stable demand, predictable volume growth, wide availability reducing stockouts, and contribution of 39% to Marico's revenue. As a functional product with predictable demand, Marico can gain margins by [1] making their supply chain more efficient through reducing transportation and asset costs, [2] following Campbell's Continuous Replenishment strategy to improve inventory management, and [3] integrating with suppliers and distributors to reduce costs and lead times.

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59 views

Consider A Real-Life Indian Company Selling Functional Products

Parachute coconut oil, produced by Marico Ltd, is classified as a functional product due to its stable demand, predictable volume growth, wide availability reducing stockouts, and contribution of 39% to Marico's revenue. As a functional product with predictable demand, Marico can gain margins by [1] making their supply chain more efficient through reducing transportation and asset costs, [2] following Campbell's Continuous Replenishment strategy to improve inventory management, and [3] integrating with suppliers and distributors to reduce costs and lead times.

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Div_n
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Supply Chain Management

1. Consider a real-life Indian company selling functional products.


Company: Marico Ltd
Product: Parachute

Parachute is the world’s largest packaged coconut oil brand.

a. Justify why the product falls under the category of functional?

● Strong distribution network: Marico distribution network covers over 33 Lakh retail outlets.
Indirect Reach: 4.6 million outlets out of 9.2 million outlets
Direct Reach: Over 853,000 outlets

● Stockout: Widely available so the average stockout rate is quite less.

● Stable demand and long Life Cycle: The product satisfies a basic need, hence the demand over
the years looks more or less stable and therefore is predictable. The company can quite accurately
forecast the demand for oil using the sales data while taking into account the seasonality effects.
Predicted volume growth by Marico of the product : 5-7%.

According to the data, the demand seems to be more or less stable.


● Market Mediation Cost: There is no forced end of the season markdown in the product because of
nearly perfect match between supply and demand.

● Contribution Margin of approximately 39% to the revenue of Marico.

● High Competition: Due to stable demand, there is a lot of competition from other brands as they also
offer similar products, thus the profit margin is low.
Its top three competitors include:
○ Dabur India.
○ Himani Navratna Oil.
○ HUL (Hindustan Unilever Limited).

● Low Product Variants: Limited number of product variants in Parachute like:


○ Parachute Advansed Jasmine Hair Oil
○ Parachute Advansed Deep Conditioning Hot Oil
○ Parachute Advansed Coconut Hair Oil
○ Parachute Advansed Ayurvedic Hair Oil
○ Aloe Vera Enriched Coconut Hair Oil

Hence we will classify our product as a functional product.

b. How can this company gain margins for functional products?

Since Parachute Hair Oil is a functional product with very predictable demand, the following key strategies should
be followed while designing its supply chain:

● The main focus should be on making the Supply chain physically efficient by reducing transportation costs
and being asset-light i.e. reducing the number of company-owned infrastructures as low as possible.

● It should follow Campbell’s Continuous Replenishment strategy which was designed to improve the efficiency
of inventory management throughout the supply chain.
● Forward & Backward integration with the suppliers and distributors will reduce cost & lead time. This will give
Marico more control thus making the supply chain more efficient for everyone.

● The manufacturing process should be such that utilization rate is as high as possible with minimum WIP,
finished goods inventory, downtime, and raw material shortages.

● Suppliers must be chosen based on the quality that they offer and the cost of raw material. Lead time from
the supplier side, demand for fixed order quantities, etc. should not be a concern. Suppliers should be as
close to factories as possible to reduce costs.

● Price based promotion should be avoided as much as possible because it brings unnecessary uncertainty
and costs.

● Cooperative Model of supply chain relations: In the Competitive model of supply chain relations, costs in the
chain are assumed to be fixed, and the manufacturer and the retailer compete through price negotiations
for a bigger share of the fixed profit pie. In contrast, Campbell's continuous replenishment program
embodies a model in which the manufacturer and the retailer cooperate to cut costs throughout the chain,
thereby increasing the size of the pie.

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