Download - Paint Industry Project
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REPORT ON THE PAINT INDUSTRY
PROJECT TITLE:
“STUDY OF SUPPLY CHAIN MANAGEMENT IN THE PAINT
INDUSTRY”
– AN ANALYTICAL VIEW OF THE SALES AND MARKETING
SIDE
ORGANIZATIONS IDENTIFIED FOR THE STUDY:
BERGER PAINTS INDIA LTD
ASIAN PAINTS INDIA LTD
BUSINESS SECTOR IDENTIFIED FOR THE STUDY:
PAINT INDUSTRY
PROJECT GUIDE: PROF. ANIRUDH SHARMAA Report By: Manmeet Singh/ IIPM / PGP / SS 2003 – 05
Alumni Reference Code – SS03517
Indian Institute of Planning and Management
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Date of Submission: August 31, 2005 Manmeet Singh
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ACKNOWLEDGEMENT
It is my proud privilege to acknowledge with a deep sense of gratitude, the invaluable
help, kind patronage and able guidance, given to me by my learned and revered project
guide, Prof. Anirudh Sharma Vice President - Corporate Relations, Indian Institute of
Planning & Management. Their prudent counsel, meticulous supervision, ardent
personal interest, sustained encouragement and affection have been of immeasurable
help all along. In fact working under his supervision is a matter of pride.
I owe a debt of honour of Prof. Sumanta Sharma, The Indian Institute of
Planning and Management, for the exceptional cooperation and multifarious openhanded
help.
I am also thankful to Prof. A. Sandeep, Dean - Center for Advanced Consulting
& Research, Indian Institute of Planning & Management, for the support he provided at
the time it was most important to me. He provided me with the project of Micheal Potter's
5 forces analysis project, which made me gain a lot of knowledge and start the project
with a right platform.
My heartfelt gratitude are due to the officials and staff of various companies
specially to Mr. Arun Batra (RSM Berger Paints), Mr. Rajesh Sahay ( DSM Berger
Paints India Ltd), Mr. Joydeep Paul(RSM Asian Paints India Ltd) and Mr. Nimesh
Gupta (ASM ICI Paints) who all helped me with the information I needed to finish the
project successfully in time.
(Manmeet Singh Sachdeva)
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EXECUTIVE SUMMARY
Supply Chain Management is an area that is used as a differentiating
factor for a lot of companies. Every company in the world have either
improved the Supply Chain Management or are looking forward to give
proper concentration to it. This project will take a look at the supply
chain management of the Paint Industry. In view of the same the
companies which are been covered are primarily the biggest 2
companies in Delhi. As being No.1 in Delhi, Berger Paints India Ltd and
the follower Asian Paints India Ltd. The study has only been focused
towards the working of these companies in the global region of Delhi.
The research has mainly covered some company officials; in the
company officials even I have tried to cover at least 3 levels of officials,
thus for the same effort I have covered 24 sales officers of 3
companies (Berger Paints, Asian Paints and ICI paints also for a better
idea of the industry), then onwards there are ASM’s of all the three
companies and RSM’s of only the two focal companies. After covering
the company persons, the next step was to cover, as many dealers as I
can, but due to the time constrain the no of dealers, which were been
covered, were restricted to only 38.
With the discussions to the company persons and the dealers I was
able to gain knowledge that the paint trade in Delhi is primarily
working on 2 things. One is rebates and the other is credit period. On
the basis of both the things the market runs.
In the thesis I have first explained about the basic concept of supply
chain management. After the same I have explained about the Indian
Paint Industry. Paint trade in India is organised only to the level of 60%
and rest is all un-organised. The unorganized sector in the Paint
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Industry is very scattered, Delhi in all have almost 550 Local vendors.
Thus the competition and usefulness of SCM goes deeper.
After understanding the need then the thesis moves to various areas of
the SCM and see how are all these things managed in Paint Industry as
a whole and wherever possible about the two companies differently.
The second chapter covers the areas of Logistics; logistics, which is the
backbone of any SCM, is covered with various areas. It has areas like
invenmtory management, order processing, network planning and
many more. In this chapter all the functions are explained individually
and also been accompanied with the paint trade for that particular
segment only.
Moving further to the areas where the heart of any company exists, the
financial aspects, this chapter explains about the relevance of finance
to SCM and SCM to finance. How well the combination of the two is
working together for the Paint Industry.
The further chapter moves towards the forecasting methods and the
importance of forecasting. It shows that how difficult is it to forecast in
the paint industry.
This is followed by the relationship chapter, this chapter talks about
the customer satisfaction and the inter firm relations. This chapter
explains both the things differently and explains how Asian is trying to
take an additional advantage by giving special kind of services and
trying to gain customers goodwill.
Role of sales and marketing in the working of SCM is the next chapter.
This chapter tells us about the importance of human touch in the
technical process. This chapter shows that is there is not a proper
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human involvement then the whole process might go for a toss. Thus
to have a perfect person at perfect place is as importance as to have
the right market share.
In the next chapter there is discussion about the machine which has
changed the working of the Paint industry. This machine has made the
SCM in the Paint Industry some effective.
Further moving to the final chapter we will talk about the future of the
paint industry and what all changes are going to hit the paint market
and what all effect will be there from the changes.
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TABLE OF CONTENT
Chapter No. Particulars Page No.
Synopsis & Research Methodology 7
Chapter 1 Supply Chain Management 10
Chapter 2 Logistics management 26
Chapter 3 Financial areas 39
Chapter 4 Forecasting 50
Chapter 5 Customer Satisfaction & interfirm relationship 63
Chapter 6 Role of sales and marketing in SCM 74
Chapter 7 Tinting machines 82
Chapter 8 Future Trends in the Indian Paint Market 89
Chapter 9 Conclusion 96
Annexure 1 99
Annexure 2 101
Annexure 3 103
Bibliography 105
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SYNOPSIS
THE TITLE OF THE THESIS:
“Study of Supply Chain Management in the Paint Industry”
THESIS GUIDE:
Prof Anirudh Sharma
Vice President - Corporate Relations,
Indian Institute of Planning & Management.
OBJECTIVES OF THE STUDY
The objective here is to get an overview of Supply Chain Management and to know
how this concept works in the Paints Industry, The various steps the companies take
to improve the supply chain management and how successful are they.
Primary objective:
To understand the Supply Chain Management followed at Paint Industry. To find out
the gaps left while implementing Supply Chain Management in various companies
under the paint industry. Finally to find out the solutions for those Gaps.
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Secondary objective:
To study the various areas of Supply Chain Management in Paint Industry.
How they manage Supply Chain.
Whether they are able to get the maximum out of the Supply Chain
Management and make the highest benefit of it.
RESEARCH METHODOLOGY
Methodology of the study will be an exploratory research. The nature of the study is
such that it needs to have both the secondary research as well as the primary one.
The Secondary research will help to gain more and more information about the
companies and the usage of Supply Chain Management in them. The primary
research will make me understand the realities of the market.
I. INFORMATION SOURCES
Primary Sources
The following sources have been identified to provide primary information regarding
the supply chain management of the organizations under study:
Employees of the organization in the concerned departments through
o General Discussions
Business Associates/ Wholesalers/ Stockiest/ Dealers/ Sub-Stockiest/ Other
intermediaries of the Organization’s Sales and Distribution network
Any other individual having association with the organization
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The focus during the research would be towards meeting more and more channel
members of the company not only facilitate our primary research but in the process
collecting authentic data and verifying the same.
Secondary Sources
The following sources have been identified to provide secondary information about
the organizations under study:
Literature on sales and marketing
o Research publications
o Books by Renowned authors
o Business magazines and journals
The Internet
II. DATA COLLECTION TOOLS
Though there are numerous tools available for Data Collection, we have identified the
following tools to be used for the purpose during the course of the project:
Group discussions
Personal Interviews and
Questionnaires
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CHAPTER 1
SUPPLY CHAIN MANAGEMENT
Cisco does it. Toyota does it. IBM does it. Do you do it?
What is Supply Chain Management?
(An overview on Supply Chain Management)
In this chapter we will see that what is Supply Chain
Management, how did it evolved, how does it affect
the various areas of our companies.
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When we think of Supply Chain Management the first thing which comes to our mind is logistics and
movement of the material. We all have a misconception that Supply Chain Management only works from
the company end to the consumer, it creates a better platform for the product to reach the market. Before
we start learning about how the supply chain works in the paints industry let us first learn about what is
Supply Chain Management exactly is and which all areas it covers.
To serve a few or to serve the whole market, one thing that is common in them is to produce the product
and making it available to the customer. Any company that will be successful to do it better would lead the
market in its respective market & Industry. Leading manufacturers of the world have starting improving the
efficiency of their manufacturing and enhanced profitability by focusing on how they interact with
suppliers and customers.
Supply chain management is the management of supply chain. Thus to manage a supply chain properly we
must first understand what supply chain is all about. This effort to cover all the areas in the market is called
Supply Chain. Supply Chain is the one that starts from purchases of raw material of our raw material
supplier and finishes at making the product available to the end customer.
Traditionally, supply chain was a synonymous with logistics and the movement of materials. Today, it
carries a broader definition; supply chain is the one that covers all the areas of sourcing, production and
distribution.
A supply chain is a network of facilities and distribution options that performs the functions of procurement
of materials, transformation of these materials into intermediate and finished products, and the distribution
of these finished products to customers. Supply chains exist in both service and manufacturing
organizations, although the complexity of the chain may vary greatly from industry to industry and firm to
firm.
A very simple supply chain for a single product, where raw material is procured from one supplier,
transformed into finished goods in a single step, and then transported to the ultimate customers. Lets
understand it with a Drawing (See SC1)
IIPM/ PGP-SS-2003-05/ SS03517 Indian Institute of Planning and Management
Supplier CustomerSPECIFIC COMPANY
Basic Supply Chain
Figure - SC1
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Realistic supply chains have multiple end products with shared components, facilities and capacities. The
flow of materials is not always along an arbores cent network, various modes of transportation may be
considered, and the bill of materials for the end items may be both deep and large.
It is really difficult to explain a supply chain without a particular industry. It does not end here, supply
chain even differs within the industry. Different companies in an industry even have different kinds of
supply chains and they may be managing it in different manner. To give you a generalized view let us see a
part of supply chain that is generally common in all the companies. See SC2
This is just a part of the supply chain. Imagine that this figure has 45-50 Initial suppliers, 10-15 Suppliers
who are making the raw material available to the company. On the other hand if there are some logistics
companies, a number of distributors, a huge number of dealers dealing with them and a un-countable
number of customers. This all can be accompanied with the Institutional selling, bulk selling which has
different pattern and direct marketing. With having all this in one diagram I feel that it is almost impossible
to built a diagram that can explain al that.
Supply chain can better be understood by putting it as a well-balanced and well-practiced relay team. Such
a team is more competitive when each player knows how to be positioned for the hand-off. The
relationships are the strongest between players who directly pass the baton, but the entire team needs to
make a coordinated effort to win the race.
IIPM/ PGP-SS-2003-05/ SS03517 Indian Institute of Planning and Management
Initial Supplier
CustomerSPECIFIC COMPANY
A part of Supply Chain
SupplierULTIMATE CUSTOMER
Third party logistics supplier
Figure – SC2
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Let us see some definitions of Supply Chain Management,
The planning, scheduling and control of the supply chain, which is the sequence of organizations
and functions that mine, make or assemble materials and products from manufacturer to
wholesaler to retailer to consumer. The driving force behind supply chain management (SCM) is
to reduce inventory.
Dr. Roger D. Blackwell, professor of marketing at Ohio State University and author of the best-
selling book, "From Mind to Market," says it very succinctly. "Supply chain management is all
about having the right product in the right place, at the right price, at the right time and in the right
condition."
Typically, SCM will attempt to centrally control or link the production, shipment, and distribution
of a product. By managing the supply chain, companies are able to cut excess fat and provide
products faster. This is done by keeping tighter control of internal inventories, internal production,
distribution, sales, and the inventories of the company's product purchasers.
A cross-functional approach to procuring, producing, and delivering products and services to
customers. The broad management scope includes sub-suppliers, suppliers, internal information,
and funds flow.
Supply chain management (SCM) deals with the planning and execution issues involved in
managing a supply chain.
Supply Chain Management encompasses the planning and management of all activities involved
in sourcing and procurement, conversion, and all Logistics Management activities. Importantly, it
also includes coordination and collaboration with channel partners, which can be suppliers,
intermediaries, third-party service providers, and customers. In essence, Supply Chain
Management integrates supply and demand management within and across companies. Supply
Chain Management is an integrating function with primary responsibility for linking major
business functions and business processes within and across companies into a cohesive and high-
performing business model. It includes all of the Logistics Management activities noted above, as
well as manufacturing operations, and it drives coordination of processes and activities with and
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across marketing, sales, product design, finance and information technology.
(Source: Council of Supply Chain Management Professionals www.cscmp.org)
Here are some official definitions
"MIT's definition is integrated supply chain management is a process-orientated, integrated
approach to procuring, producing, and delivering products and services to customers. ISCM has a
broad scope that includes sub-suppliers, suppliers, internal operations, trade customers, retail
customers, and end users. It covers the management of material, information, and funds flows."
(Dymystifying Supply chain Management by Peter J Metz from Supply Chain Management
Review Winter 1998)
"A supply chain is a network of facilities and distribution options that performs the functions of
procurement of materials, transformation of these materials into intermediate and finished
products, and the distirbution of these finished products to customers."
Supply chain management (SCM) is the oversight of materials, information, and finances as they
move in a process from supplier to manufacturer to wholesaler to retailer to consumer. Supply
chain management involves coordinating and integrating these flows both within and among
companies. It is said that the ultimate goal of any effective supply chain management system is to
reduce inventory (with the assumption that products are available when needed). As a solution for
successful supply chain management, sophisticated software systems with Web interfaces are
competing with Web-based application service providers (ASP) who promise to provide part or all
of the SCM service for companies who rent their service.
Supply chain management (SCM) is the practice of coordinating the flow of goods, services,
information and finances as they move from raw materials to parts supplier to manufacturer to
wholesaler to retailer to consumer. This process includes order generation, order taking,
information feedback and the efficient and timely delivery of goods and services.
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Let us now see how the Supply Chain Management evolved.
Over the decades, management of the supply chain has moved through three distinct phases, from
decentralized (functional/departmental), to centralized (corporate planning and purchasing), and finally to a
combination of both.
The trend is now moving towards centralized planning combined with decentralized execution. Technology
now allows for the rapid sharing of business information from all functional and geographical areas of the
extended enterprise, which enables decision makers to plan and execute with the view to maximising
enterprise-wide profitability.
Let us now understand both the Phases in a bit depth manner and then a combination that is now days been
promoted in the corporate world
Phased Evolution of Supply Chain Management
Phase 1: Decentralised
(Functional or
Departmental)
Phase 2: Centralised
(Integrated)
Phase 3: Combination
of both centralised
and decentralised
Supply
Chain
Planning
Done in functional
areas
Ineffective due to
limited information.
Difficult to
implement
Standardisation around
the enterprise.
Shift to a
business process
focus
Increase in
effectiveness due to
standardisation of
information across
the enterprise
Integrated
supply chain
Collaborative
planning
Extension of
the planning process
beyond the
enterprise to include
contract
manufacturers, key
customers and
suppliers
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planning: demand
forecasting, planning
& scheduling
Supply
Chain
Execution
Execution is
generally in a reactive
mode
Decisions often
made by functional
managers and key
Associates
Most of the
decisions made on
an enterprise wide
area.
Limited
collaboration
The functional
manager might not
be happy with the
decisions made.
Decisions
taken at the most
appropriate level in
the organization
Greater
proportion of
collaborative, pre-
emptive Decisions
Phase 1—Departmentalized or functional supply chain management
Organizational structures from the fifties to the late eighties can be characterized as
a series of functional and geographical areas. Executive management’s attempts at
centralised supply chain planning in such an environment were ineffective due to the
lack of standardisation of business information, poor data integrity and analysis
support, disparate technology systems, and incentives that did not promote sharing
of information. Supply chain execution decisions were made by a core set of
managers within each functional area with minimal thought about repercussions in
other areas. Decisions were reactive and based solely on criteria that were applicable
to the particular functional area.
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Phase 2—Transformation to integrated supply chain management
In the late eighties and early nineties, with the advent of BPR, corporate leaders started seeing the benefits of
aligning their organizations, along with the associated business objectives and performance incentives for
executives, to underlying business processes. Advances in technology and lower cost of computing
increased the penetration of enterprise-wide transaction systems such as ERP systems. Standardised
business information and a coherent set of metrics from different businesses, functional and geographical
areas were now readily available to senior managers. With the introduction of advanced planning and
scheduling systems, supply chain optimization became a feasible option. This led to an increase in the
effectiveness of increasingly centralized supply chain planning processes. The planning process was more
integrated and driven by cross-functional teams with an objective to look at the enterprise as a whole.
Leading corporations across all industries started realising that to reap the full benefits, demand forecasting,
supply chain planning, and production scheduling ought to be treated as an integrated business process.
Sales and operations planning programs, where cross-functional teams periodically meet to determine the
best course of action, became popular. Supply chain execution decisions also became more cross functional
and integrated. Purchasing and manufacturing could now jointly decide on a raw material procurement
decision that minimized the total cost-to-make of a product, not just the lowest purchase price. Similarly
customer service and distribution and logistics could jointly decide on a fulfillment decision that minimized
the total cost to serve a particular customer.
Phase 3—Transformation to value networks
Today, the Internet is unleashing a powerful phenomenon—collaboration—that is affecting the supply
chain. Integrated and centralized supply chain planning will become even more effective as the majority of
inputs to the planning process will flow bottom-up through the enterprise, and an increasing portion of it
will originate from the end customer. Pertinent information will be adjusted and reviewed by relevant
players based on new developments. Demand forecasts will be routinely updated by sales representatives
based on the latest customer information and eventually by the end customers themselves. Sharing of
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information around product seasonality, promotional events and new product launches between buyers and
sellers will further enhance the trend, and increase the associated benefits of higher customer service levels
and lower supply chain costs.
The other significant development will be that supply chain execution decisions will
become increasingly decentralized. As supply chains migrate from a push model
(build-to-stock) to a pull model (build-to-demand), they require four key elements for
operational success: real-time visibility (across the entire supply chain), flexibility (of
supply and sourcing options), responsiveness (to changes in customer demand and
product lead-times) and rapid new product introductions (based on market trends
and new designs).
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Let us now see that how is the supply chain management works in the paint industry. In short we can say
that how the paint trade works.
The Indian paint industry has come a long way from the days when paints were considered a luxury item.
Today the awareness level on benefits of paints is relatively high and people have started making paint as a
part of their life. India is a favorable proposition for a lot of trades and a lot of world leaders have already
or wants to start operations in India. Paint industry is one of these industries, where leaders of the world are
looking at companies like ICI has already entered and companies like Sherwin Williams also are looking
for some entry gateway in India. Factors due to which these companies are interested in coming to India
include the low per capita consumption of paints (currently 0.5 kilogram and has a huge potential to grow
as per the world average), growth in construction sector (it is being offered industry status) and growth in
the auto/white goods market respectively spurring demand for decorative and industrial paints. The
industry has also witnessed increased activity in the industrial variety of paints with the entry of MNCs in
auto, consumer durables etc, which has been gaining steadily over decorative paints in the last one decade,
by having such fast growth the industrial sector has been able to gain a good market share. Right now the
market share of industrial paint is close to 30 % of the paint industry.
This paint industry of India comprises of organized as well as unorganized sector, which can also be called
small scale sector. Approximately 60% of the production is contributed by the organized sector. The
unorganized sector in the paint industry is having a big number of players running nearly 2000 small-scale
units. We can say that one cannot count the number of players running in a particular market. This trade is
so dynamic that after every few days one can hear a new name in the market.
With having so many competitors in the market one has to be very accurate in the market, this is because
being a high technical product one cannot judge the quality of the product at the time of purchasing. The
production of Paints is not a very expensive affair, which is because we have so many players in the
market. Thus to show the differentiation in the product wither one have to wait for a few years or he can
give a better service and get the perception about the quality of the prouct in the customers mind.
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In the organised sector, leading from the front is market leader Asian Paints which leads the market to the
market share of 54% of the organisaed sector and over 15000 dealer networks and it is increasing its
network by concentrating in the semi urban and rural areas for more penetration in the market. Two very
close companies with the name of Nerolac and Berger are followed Asian Paints, these companies have a
market share of 17% and 16% respectively. After all this fourth in the major organised sector is ICIDulox,
which is gaining control with a very fast pace.
The Paints Industry mainly consists of emulsion paints, enamel paints, pigments, printing inks, synthetic
resins and many more products.
The paint trade in India is divided in two segments Industrial paints and Decorative paints.
Automobile manufacturers are the biggest targets of the Industrial paints segment as they are the one who
has the maximum demand in this segment of market. It is very difficult to study the supply chain of the
paint industry in the industrial segment, as there is a different set of works for every customer or every set
of customers. Every customer in this segment is such big that the company has to change the working style
as per the customer. In this particular segment Nerolac is the leader with having majority of market share
followed by Berger and then rest of the players follow the market.
Decorative is market which leads the Indian paint industry and which needs all the efforts on all the sides.
This is one segment of the market that needs all the efforts of all the functions of the market as in this
segment the market covers whole India. The product range which one company covers in the market is also
huge in the organised sector companies. As we have already discussed that the product range of a paint
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company covers emulsion paints, enamel paints, pigments, printing inks, synthetic resins and many more
products. All these products have their first quality product and second quality product in these areas.
Let me explain this with a example of taking Emulsions and Enamels of Berger Paints.
Rangoli Super Emulsion
Luxol Silk Emulsion
Bison Emulsion
Bison Distemper
Jadoo Distemper
Castle Distemper
Weather Coat
WalMasta
Durocem
Jadoocem
Happy Wall Putty
And Many More……
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Paint
EMULTIONS (water-based)Exterior Wall FinishesInterior Wall Finishes
ENAMELS (solvent-based)Synthetic Enamels
for Exteriors & Interiors
Luxol Hi Gloss Butterfly Enamel Luxol Luster Finish Luxol Satin finish Luxol Rich Mat Enamel Butterfly Furniture Enamel Antisol Roof Enamel Wood Primer BP Cement Primer And Many More……….
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Let us move further and multiply the number of colours, which every product has to provide in the market.
Move further and multiply all these (products X Colours) to the No of Pack sizes every product has to
supply in the market.
This was just a small segment of the works of the paint industry. Another major area of work might be the
tinting machine’s that are available in the market. After having this illustration you one might be able to
imagine the kind of complexity that is there in the paint companies.
A GLIMPS ON THE INPUT SIDE OF THE PAINT INDUSTRY (Raw Materials)
The industry is raw-material intensive. Of the 300 odd raw materials, nearly half of them are imported
petroleum products. Other major raw materials titanium dioxide, phthalic anhydride and peutarithrithol
constitute 50 per cent of the total cost. Besides, this, there are other raw materials such as castor, linseed
and soybean oils, turpentine and pigments. Majority of the inputs in paint industry are sourced through big
industrial houses and the raw materials used are standardized across the industry with limited substitute
available and very limited scope for players to switch suppliers. Materials like titanium dioxide, phthalic
anhydride, peutarithrithol and petroleum products are imported and they constitute nearly 30 per cent of
their raw material requirements and the raw materials cost sums up to a whopping 70 per cent thus changes
in import policies can affect the industry. For imported petroleum products, any deficit in global oil
reserves affects the bottom-line of the players. Raw materials such as castor, linseed and soybean oils,
turpentine and pigments are procured from the local players which are easily available in the market and
thus decreasing the bargaining power of the suppliers
With having these many complications in the production of the product and making it available in the
market the story doesn’t ends here. Further are the expectations of the product in the market which a
company has to fulfill in the market. To be successful in the market paint should provide number of things.
Let us now take exteriors and study that what all is needed out of an exterior paint.
IIPM/ PGP-SS-2003-05/ SS03517 Indian Institute of Planning and Management
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Qualities of an exterior Paints
Durability
Finish
Anti-fungal properties
Dirt pick-up resistance
Ease of Application, no curing required
Wide range of shades
Cost
These are a few of areas which one has to provide as a bear minimum in the market to stay there and be in
the consideration box of the target audience.
Let us now come to the reality and analyse that what the Indian domestic market is doing in the decorative
segment. As we have already seen that the market leader in the paint industry is Asian Paints with a good
amount of margin. Asian has that advantage because they have a very keen eye on the decorative market
and they have been the most aggressive company in the paint companies from last many years, due to this
aggressive effort of many years Asian holds rank 1 in the decorative segment, following to the leader is
Berger Paints, which is been closely followed by ICI and then last is the industrial segments leader Nerolac.
The efforts which is there in the markets in the current times by all the companies are as follows
•Aggressive efforts of GNP for resurgence.
In the past couple of years Nerolac has started making an aggressive effort in the retail market.
With the effort of marketing and putting amitabh bachan in their Advertisements they have been able to get
some good effort from the market but still a lot more to go to come into the prompt notice of the target
audience
.
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•Focus brand marketing of ICI.
ICI being a player who does not believe in providing the affordable products in the market is able
to make a prompt mark in the market attacking only in the high end products.
•Comeback battle of Shalimar.
Shalimar Paints which was loosing its presence from the market is now trying to make a
comeback and is trying to be the 5th player in the market.
•Gradual evaporation of J&N.
Jenson and Nicholson, once being the initial companies to install the tinting machines is now
loosing their presence from the market and is now almost out of the market.
•Price game tinkering of Asian.
Asian even being the market leaders are now not able to command their needed price and are
feeling threat from other players in the market, due to the same they are now coming more aggressive in the
market with the price game. With having the same the aggressiveness in the market is still these with the
name of Asian paints in the market.
•Positive outcome of brand building exercise in Berger Paints
With the efforts from the marketing Berger Paints is now able to Improved visibility & brand
salience due to which they are able to improved the price realizations even after providing the consumer
affiliation & applicator base.
VAT implementation and Crude oil price fluctuation.
Due to the VAT implementation and Crude oil price fluctuation the Paint Industry is moving towards
- Intense brand wars.
- Clash of loyalty programs.
IIPM/ PGP-SS-2003-05/ SS03517 Indian Institute of Planning and Management
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- Clash of application facilitation.
- Hostile dealer associations
- Product showcase outlets.
- Large format retail outlet customers: a new trend.
- Losing human resources to consumer related industries.
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CHAPTER 2
LOGISTICS MANAGEMENT
In this chapter we will analyze that how the most
important area of the supply chain management
works. The area which was been given the second
name of Supply chain management. With the theories
of logistics we would co-relate it with the paint trade
and we would find out the way paint is taking care of
this particular segment.
IIPM/ PGP-SS-2003-05/ SS03517 Indian Institute of Planning and Management
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Logistics, which used to the be the synonym of Supply Chain Management till couple of years back and is
still understood the same way by a lot of people. It is the area which covers the core of any business.
Logistics activities have a major impact on the capabilities and profitability of the company. Logistics
management is increasingly being seen as a source of competitive strength. Its effective use provides
potential for cost reduction and the opportunity for increasing market share.
Logistics management is the process of strategically managing the procurement, movement and storage of
materials, parts and finished inventory (and the related information flows) through the organization and its
marketing channels in such as way that current and future profitability are maximized through the cost-
effective fulfillment of orders.
Source: Christopher, M. (1998). Logistics and Supply Chain Management: Strategies for reducing cost and improving service, (2nd
Ed.). New York: Prentice Hall.
Logistics Management is that part of Supply Chain Management that plans, implements, and
controls the efficient, effective forward and reverse flow and storage of goods, services and
related information between the point of origin and the point of consumption in order to meet
customers' requirements.
Logistics Management activities typically include inbound and outbound transportation
management, fleet management, warehousing, materials handling, order fulfillment, logistics
network design, inventory management, supply/demand planning, and management of third party
logistics services providers. To varying degrees, the logistics function also includes sourcing and
procurement, production planning and scheduling, packaging and assembly, and customer
service. It is involved in all levels of planning and execution – strategic, operational and tactical.
Logistics Management is an integrating function, which coordinates and optimizes all logistics
activities, as well as integrates logistics activities with other functions including marketing, sales
manufacturing, finance and information technology.
(Source: Council of Supply Chain Management Professionals www.cscmp.org)
IIPM/ PGP-SS-2003-05/ SS03517 Indian Institute of Planning and Management
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'Logistics' is the process of designing, managing and improving such supply-chains, which might include
purchasing, manufacturing, storage and, of course, transport. The Modern business logistics sets out to
deliver exactly what the customer wants - at the right time, in the right place and at the right price. Very
often transport is a major component of the 'supply-chain' which delivers to the customer the goods and
services needed.
Order Processing
Inventory Management
Transportation
Location management
Network planning
Warehousing
E-commerce
Channel Bonding
All the above areas comes together and makes the output which is known as the logistics management.
IIPM/ PGP-SS-2003-05/ SS03517 Indian Institute of Planning and Management
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ORDER PROCESSING
As a very old saying is that demand derives the supply of a product, thus it will not be wrong to say that
demand derives the logistics system, if there is no demand there is no reason of a logistics system to exist.
Time duration that is been used by a company to complete the order processing is very important for any
company. This time duration is one of the factors to find out the reaction time for any happenings in the
market.
Order processing includes order preparation, order transmittal, order entry, order filling and order status
reporting
Order preparation involves the customer or sales person filling out the order form, voice communication
by telephone to a sales clerk or selection from a computer menu. In some companies it is been done by
using bar codes on the products and only giving it the quantity.
Order transmission is transferring the order from its point of origin to the place where the order entry can
be handled. This can be done either manually or electronically
Order entry includes
Checking the accuracy of the order information such as item description and
number, quantity and price
Checking the availability of the requested items
Checking the customer’s credit status
Transcribing the order information as needed
Billing preparation
Order filling represents the area where the order is allocated and then been dispatched after making a
challan for the order. This area also covers the confirmation of the delivery of the order to the customer.
IIPM/ PGP-SS-2003-05/ SS03517 Indian Institute of Planning and Management
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Order status reporting ensures good customer service by keeping the customer informed of any delay in
order processing or delivery.
Let us now see that how are these functions are been taken care in the paint industry.
Order preparation is done by the sales person or is taken by the order clerk on the phone.
Order form has various columns as
Customer name
Customer code
Territory code
Stock business line code (SBL Code)
Every customer in the company has a unique code for his name. As for example a code is written as
03/005254/05
This means
07 / 005254 / 0 5
Territory Code Customer Code SBL Code Customer type
Further in the order form there are columns with the heads as
Serial No
Item Code and Name
Product Name or Code
Various columns of product size
The row has to be filled as per the columns heading, the quantity of the product has to be filled in the
product size column.
Further this again makes a full code, which tells the whole story
2145482000
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This means
214 548 2000
Product code Shade Code Size Code
In the process of Order transmission the order is been accompanies with a cheque of the ordering party
Blank cheque’s are been given by the dealers to the companies, these cheque’s are signed by the party and
crossed on the name of the concerned paint company. The only blank area in the cheque is the area where
the amount is been written
After the attachment of the cheque’s the order is been transmitted to the order entry desk, where the order is
been entered into the computer. In the process of entering the order the customers credit limit (In Value
and in days) and the availability of the products is been checked. After which the invoice is been printed
and the amount is been filled in the blank cheque of the dealer.
In Order filling the order invoice with the challan is passed to the Godown and the physical transfer of
goods is been taken care of. In this process one copy of the challan and invoice is been returned back after
signing the acceptance of the products.
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INVENTORY MANAGEMENT
Inventory provides a means to take care of all the uncertainties in product supply and demand. It is meant
for the purpose of making the product available at the very time when the customer needs it. To give a
prompt supply it is needed. It can be explained as it is done to shorten the time between the order and the
delivery.
With having this accuracy of the supply to the customers and to be very prompt to all the demands of any
customer a company can create a very nice goodwill in the market and can create a healthy relation with the
customers. Inventory is a very important portion of providing the right product at the right time and the
right place. Thus it is very important to have high inventory level.
At the same time where inventory so important to the company it can even present threat to corporate
profitability to the consumer. The capital that is invested in keeping the inventory can be invested at any
other place and the profits can be made to the company
Manufacturing entities have inventories for raw products, products in the production process, and finished
products. In addition there are often warehouses or distribution centers between the different levels of the
supply chain. Inventories are costly. Binding capital in inventories prevents the company from investing
this capital in projects of higher return. The holing cost inventories are therefore often set as high as 30 -
40% of the inventory value! In addition it is desirable to avoid so-called dead inventory, i.e. inventory that
is left when a product is no longer on the market.
As we see it is in every company's interest to keep inventory levels at a minimum. Much effort has been put
into this, for example an entire manufacturing paradigm has come out of it. A main objective of the Just in
Time (JIT) paradigm is to virtually abolish inventories. The efforts made have been more or less successful.
There are a number of mismatches which are countered when we plan for the inventory
IIPM/ PGP-SS-2003-05/ SS03517 Indian Institute of Planning and Management
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MISMATCH BETWEEN
INVENTORY LEVEL
STORAGE COST
TRANSPORTATION COST
PRODUCTION COST
RAW MATERIAL COST
Let us now see that how is the inventory is been managed in the paint industry
There is no hard and fast formula in the paint industry. It is always based on the budget which is
been prepared. On the basis of the budget the Target Stock Level (TSL) is been fixed on the
basis of which the product is been kept in the go down.
Inventory of the factory is always based on the forecast of the depots that is been compiled and
the production plan is been made. Many products as per the other costs has to be made in one
bulk order and is to be managed high in the inventory.
At the depot level a basic cap is been made as the TSL and further stock is been kept as per the
schemes, which are been run by the companies. When the company is going to run schemes on
product (A), then they would make it sure that the product is available at the depot’s level.
As far as the dealers level is concerned, they don’t have to keep much stock in their inventory as
it is very easily accessible to them from the closest depot. The inventory has to be high only when
the season is coming and at that time getting products from the depot at urgency will not be very
easy thus at that time dealers are been asked to keep a high amount of inventory.
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TRANSPORTATION
Transport remains a major component of most supply-chains. Certainly limitations of, or
restrictions to, transport caused by congestion, taxation or legislation will drastically affect the
design and operation of supply-chains. Logistics services and other transport companies need to
understand logistics and supply-chain management in order to tailor their services to meet their
customers' needs.
Transportation is the only area that works at all levels of the supply chain. It is taken as critical
that if a company has good transportation planning and they can work it out optimally then the
supply chain of the cooperate has a high probability of being good.
We can understand the transportation as
With all the functions this is a common phenomena
This for a paint company will be in a different format.
The transportation cost is one critical factor for any paint company. The transportation cost is
always very high for then. With the view to the same cost every company in the paint industry has
IIPM/ PGP-SS-2003-05/ SS03517 Indian Institute of Planning and Management
Raw material supplier
Production Plant
Parent Depot
Retail DepotDealerEnd Customer
36
various factories at distinct location of India. By doing this they can even provide quick service to
any depot in the country.
Berger Paints works on a format that the factory directly sends the product to the sales depot,
which will sell the products to the dealers, and it is sold in the market by them.
IIPM/ PGP-SS-2003-05/ SS03517 Indian Institute of Planning and Management
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The structure of Berger can be seen with a diagram:
This is how Berger paints manages to transport the material from factory to the depot. In this
diagram majority of the requirement of the depot is been fed by factory 1 and factory 2. this is
because the transportation from the factory to the depot is cheapest in comparison to other
factories. Thus the cost efficient factory is providing the material to the depot. Still there are some
products that are not in a very regular demand, thus these products are not been manufactured in
all the factories and is been transported from the factory that is manufacturing it. This is done to
keep the production cost down.
Asian on the other hand is working the pattern of having Regional distribution center(RDC) and
further having carrying and forwarding agents (C&F).
IIPM/ PGP-SS-2003-05/ SS03517 Indian Institute of Planning and Management
Factory 1
Factory 5
Factory 4
Factory 2
Factory 3
Factory 7
Factory 6
Depot
38
Their structure will be
Instead of having a depot owned godown they are having a C&F agent at all the places. Their
system is to transfer the products from the factory to the regional distribution center, which is
more easily accesable to all the depots. By doing this they don’t have to carry high inventory at
the C&F level and through this they able to supply the right product to the right depot when ever
the need comes up.
The further supplies of the products from the depot’s/C&F to the dealers is done by the
transporter’s which is been outsourced by all the companies in the paint trade.
IIPM/ PGP-SS-2003-05/ SS03517 Indian Institute of Planning and Management
Factory 1
Factory 2
Factory 3
C&F Agent
RDC
C&F AgentC&F Agent
39
LOCATION MANAGEMENT AND NETWORK PLANNING
For any company to be good in logistics management it is very important to have a proper
location of their depot and to have proper location of the dealers they are associated with.
To be located close to the market as a depot and to have dealers in the proper market is the
dream of any company. Every company is trying hard on working with dealers, who have highest
footfall in their shops. Thus this is one of the most critical areas for any company. If a company is
working with these kinds of dealers then they can promote their sales in a better manner.
Both the companies have placed their depots very close to the markets; in a city like Delhi both
the companies have 5 depots in all the areas of Delhi.
With the same view both the companies have very critically worked on the dealers also, both the
companies are running hard to collaborate with the best dealers in the market. The best dealers
are those who have the retail market, the dealers who are placed in the location where the retail
sale is high.
As on date Asian is leading in the two, Asian is known for having most of the retailers working
with them and Berger is known for having most of the distributors in their hands.
The major advantage that Asian is getting out of it is that the product gets consumed quickly and
they again have space in the market to sell. The turnover rate of Asian is better than Berger in the
market. As Berger paints products goes from the distributors to the dealers and then to the final
customer. Thus the logistics of Asian Paints is better in the manner that one of the most important
area
IIPM/ PGP-SS-2003-05/ SS03517 Indian Institute of Planning and Management
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CHAPTER 3
FINANCIAL AREAS
Supply chain activities have a major impact on the
capabilities and profitability of the supply chain and
its member firms. Let us understand the how is the
supply chain connected to the financial part and it is
done otherwise.
IIPM/ PGP-SS-2003-05/ SS03517 Indian Institute of Planning and Management
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Significant opportunities exist for the competent supply chain manager to reduce expenses, generate better
returns on invested capital and improve cash flows.
Introduction
Customer value and satisfaction are important ingredients in the business formula for success. No one
business function alone can create superior value for customers. All departments must work together in this
important task. Each company department can be thought of as a link in the company’s value chain. This is,
each development carries out value-creating activities to design, produce, market, deliver, and support the
firm’s products. Marketing Mangers pay attention to understanding customer needs, understanding the
company’s ability to satisfy them, and creating revenues to sustain future growth and profitability.
Logistics managers historically have focused their time and attention on three core functions of business
operations: inventory policy and practice, facility location and design, and transportation of materials and
products. Financial managers strive to obtain borrowed funds at the lowest cost, to select projects that offer
the best returns, and to balance the financial risks taken with investor expectations of returns, and to keep
the business liquid. The firm’s success depends not only on how well each department performs its work
but also on how well the activities of various departments are coordinated.
To the successful supply chain organization is shifting from a single firm cost focus on inventories,
facilities, and transportation to a multi-enterprise focus on cycle time compression, system wide cost
reduction, and improved value for end customers. Having satisfactory or even excellent products and
services no longer guarantees a competitive advantage in today’s market place. Successful companies find
that they must also establish supply chain partnerships to reduce costs and complement their product
portfolios with value-adding relationships.
Financial Issues of Supply Chain Consultants
The Management of every business wrestles with a common problem: How do we allocate the resources
required to effectively and efficiently meet the expectations of our various constituencies? Those needs and
expectations very by constituent. Owners and investors desire reasonable rates of return given the level of
risk they assume compared with alternative opportunities. Employees need and expect to be adequately
compensated and rewarded for their contributions to the success of the firm. Customers require multiple
IIPM/ PGP-SS-2003-05/ SS03517 Indian Institute of Planning and Management
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values from the products and services they purchase. Resellers of the firm’s products expect help in
marketing and managing their activities. Resellers of the firm’s also expect credit of more and more days
and more and more amount so that they will be able to earn more. Suppliers expect timely payment for
goods and services provided. They community expects socially responsible behavior, whatever the costs to
the firm.
Major reductions in inventory relative to GDP have occurred since 1981, when the prime interest rate was
at an all time high. When we look at the changes in total transportation and inventory costs graphically, it
appears that productivity improvements have bottomed out.
Are further cost reductions possible? A concern could be raised that the economic value of logistics to the
macro supply chain is not increasing. How does the individual firm plan for and evaluate the reductions in
its logistics costs? How does the individual firm meet the economic claims of its various constituencies,
reduce its logistics costs and achieve acceptable profitability and returns on investments?
Three Paths to Economic Success: The Micro View
There are basically three paths that an enterprise can take to manage its profitability and rate of return:
margin management, asset management and financial management.
Margin management is concerned with the revenue streams generated from sales, less the cost of goods and
services provided by suppliers, and less the firm’s selling and other operating expenses. The result is net
profit.
Asset management is concerned with the investments made to produce the revenues of the company. These
include cash, accounts receivable, inventory, and other current and fixed assets (fixed assets include
facilities, equipment, and hardware) that are used in the business to generate its income. The productivity of
these assets is an important managerial concern. As an important measure of enterprise productivity, the
asset turnover measure is computed by dividing the value of sales generated for the period by end of period
total assets.
Financial management is concerned with the source of funds used to conduct the business (i.e., debt, equity,
or retained earnings) and the capital structure relationship of debt to equity employed. Because the cost of
capital and associated risks vary by source of funding, financial management is focused on achieving
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balance between debt and equity to provide an acceptable amount of financial risk and leverage to achieve
targeted returns on equity.
Using this model, financial simulations are easy to construct that reveal the impact of possible supply chain
decisions on the firm’s financial performance. Supply chain executives often have responsibility for a
significant portion of the costs of goods sold and operating expenses, and therefore, have a major impact on
margin management. Decisions and expenditures associated with procurement, inbound transportation,
production planning, and materials management are directly related to the net profits of the firm. Supply
chain executives have responsibility for a sizable array of assets – inventories, facilities, handling
equipment, transportation equipment, and computer and communications systems, used in the operation of
the business. Their decisions on asset acquisition, utilization, replacement, and disposal affect the rate of
asset turnover.
The ability of the supply chain executive to perform financial analysis affecting supply chain decisions is
critical in competing for funds and adding value to the firm and the supply chain. The supply chain
executive must be able to implement the often-competing strategies of cost minimization, value added
maximization and control/adaptability enhancement. This requires the use of financial tools.
Financial Focus of the Supply Chain Executive
It was not long ago that operations performance was measured in strictly negative terms, such as costs over
budget, damaged goods and shortages, late or missed shipments, and stock-outs. Increasingly, firms have
begun to appreciate how improved supply chain performance produces increases in sales, productivity and
profit. No longer is supply chain management focused only on internal operational activities and measures.
Economic measures, both internal and external, are increasingly used to justify, judge and reward the
supply chain organization. There are three areas of financial focus in which the supply chain executive
must demonstrate competency; expense control, capital budgeting, and cash flow generation.
Expense control
Expenses control goes beyond merely managing expenses to the constraints of the budget. Expenses control
requires a deliberate ad continuous search for more efficient ways of getting value-added work performed
while eliminating non-value added activities. Some companies naively install computers and other
technologies to automate and speed up outdated business practices. The power of computers and
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technology should be used to “reengineer” the work, to abandon inferior yet institutionalized ways of
working, and to create better practices and processes that better align with customer needs.
Capital Budgeting
Supply chain executives must understand capital budgeting techniques, including their advantages and
disadvantages, to contribute effectively to investment decision-making. They must speak the language of
finance. They must know which acceptable methods of investments evaluation will best sell their
proposals. Several capital budgeting techniques can be used simultaneously on a single investment
proposal. Decision makers must consider the amount and timing of cash inflows, as well as the cost of
capital or some internal hurdle rate of return. Some firms use the simple payback method of evaluation or
the benefit-cost ratio.
Cash Flow Generation
Cash flows of the firm can be improved as a result of many business practices. Historically, accounting
departments attempted to improve working by aggressively collecting accounts receivable from customers
white simultaneously delaying payments to suppliers. Such behavior. Such behavior rarely produces and
net benefit across the supply chain.
Care must be taken in how that inventory reduction is accomplished. Just in time (JIT) manufacturing
techniques have become a “best practice” of manufactures in most industries, but savings in inventory
investments associated with JIT practices can be more imagined than real. To offset the faster cash outflow,
shippers receive discounts from carriers in exchange for last payment. Lead time reductions affect cash
flows. Many firms systematically work on controlling and reducing lead times and have achieved
impressive results. An economic evaluation of lead time reduction should examine of impact on future cash
flows across all business functions or at the organizational level, no just the product level.
A Gold Mine of Opportunity Left Un mined
Inefficiencies in the supply chain can waste as much as 25% of operating costs. Companies considered to
be best practice organizations in moving product to market enjoy a 45% supply chain cost advantage over
their median competitors. Their order –cycle time is half that of their competition, their inventory days of
supply are 50% less, and they meet their promised delivery dates 17% more often that the competition.1
1 Source: International Supply Chain Management Association
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Key Performance Areas that are used for the financials of the Supply Chain
Management
The “supply chain cost” measures used are
1. Total cost,
2. Cost per unit,
3. Cost as a percentage of sales,
4. Inbound freight,
5. Outbound freight,
6. Administrative,
7. Warehouse order cost,
8. Direct labor,
9. Comparison of actual versus budget,
10. Cost trend analysis,
11. Direct product profitability,
12. Customer of customer segment profitability
13. Inventory carrying,
14. Cost of returned goods,
15. Cost of damage,
16. Cost of service failures, and
17. Cost of backorders.
Margins to remain intact despite increasing input costs
Between 2007-08 and 2010-12, the demand for paints is expected to grow at a steady rate of
around 7 per cent in volume terms and 10 per cent in value terms. While the high growth in the
auto sector is expected to drive the demand for industrial paints, higher demand from fresh
housing constructions and steady growth in housing repaint demand is likely to boost the volumes
IIPM/ PGP-SS-2003-05/ SS03517 Indian Institute of Planning and Management
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of decorative in the short term. Another major rise in the paint industry can be expected with the
rise in infrastructure in India because of the common wealth games and other further games that
are in plan to be hosted by India.
The paint industry is raw material intensive and about 50 per cent of the inputs used are
petroleum-based. The industry imports around 30 per cent of its total raw material requirements,
primarily titanium dioxide. While the unexpected spurt in crude oil prices led to an increase in the
cost of production of paints, the pressure on margins was eased by the flexibility to pass on input
cost increases. The productivity-related benefits, an increased focus on premium products and the
flexibility to pass on any further sharp change in input prices will continue to ensure stability in
operating margins.
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When we come to the financial controls on the sales level then it is one of the job that nobody wants to do
as it has a lot of restrictions and those restrictions are sometimes hurdles for the sale. Due to the hurdles one
has to keep a very keen eye on these things so that these things are taken care of before even coming in
between sales.
Let us first move to Berger Paints, which have to take care of all the areas at a depot level. Let us first see
that what all restrictions are there to which a depot manager has to take care of.
• Credit Limit to a dealer
• Credit limit are of two kinds one is the credit limit in term of money or can be said
as in Rs. And another can be the case as credit limit in days. Both are very different
but have a very close relevance. On one side credit limit in Rs. is the amount of
product given to a dealer without paying the amount for the same. On other hand
the limit in days is that the dealer can pay the amount in x number of days. There is
a limit for every dealer in the companies as per the working pattern of the
company. This is been decided on the size of the work that a dealer is doing with
the company and the relation that the company has with the dealer. At both the
sides there is a amount of capital involved in it. Let us understand this with a
example. Let us assume that at a particular depot there are 200 Dealers working
with the company and every dealer is on an average working for around 2 Lacks
with the company. Thus if the company is giving even one day as credit limit to all
the dealers then the company has to go for an additional investment for around 4
Cr. So this explains the importance of having the credit limit in hand and in control.
• Damage Stock
• Damaged stocks has always been a big problem for the paint industry as the
products are such that the damages are very common in transit thus one has to take
care that it is been reduced to the minimum level
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• Non-moving Stock
• These are those stocks that have not moved from a long time and are lying at the
depot only. As these stocks are consuming a lot of money in them in the face of
inventory cost, capital, a part of profit which will be there after sales and many
other minor areas.
• Material Returns
• Material returns are even more dangerous than material not sold as this material is
also carrying the cost of transportation from the depot to the customer and return.
This material is also needed to be controlled because these returns generally are
harming the relations with the customers also.
• Cheque Returns
• A stock is consider sold only at that time when the payment of that stock is
received. As with the view to this line a cheque return is considered to be product
not sold but still is lying at somebody else’s place or even is sold further in the
market.
• Invoice cancellation
• This is one area which is reducing the credibility in the market as either the
customer doesn’t want the product now are it is because of some fault of the
company. In both the cases the company is loosing relation as well as the sale,
which always harms.
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• Delay in depositing cheques
• A delay in depositing cheques will result to a delay in clearance. It can be treated
as an additional capital is been delayed to get cleared and is further not available
for investments.
• Transportation cost
• The transportation cost from the depot to the dealers end is a very crucial part as
the order of a dealer varies from 1 Lt’s to 10,000 Lt’s, thus when the order is less
then the transportation also has to be paid as per the expenses he is bound to get.
Thus we need to take care of the transportation expenses in a proper manner.
These are some of the most important areas that have to be given a proper priority so that company doesn’t
loose some money, which can be used for further growth of the company. If these areas are handled in a
proper manned then the company can grow at a very faster rate in comparison to otherwise.
Now when the discussion moves to the market leader, Asian Paints, then we can see that they don’t have to
take care of all the issues they only have to deal with few of them as all other processes are been outsourced
by Asian paints to a local vendor or to a centralized one. A few of the areas where even Asian has to worry
about are
• Credit Limit to a dealer
• Material Returns
• Cheque Returns
• Invoice cancellation
IIPM/ PGP-SS-2003-05/ SS03517 Indian Institute of Planning and Management
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Thus from this discussion one thing which is understood is that with the market leader Asian Paints is
making more expenses for the processes but still feels that the payment is justified so that various areas can
be controlled in a better manner.
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CHAPTER 4
FORECASTING
In this Chapter we will see the relevance of
forecasting in a supply chain management
and how it is been used in various areas.
How can we get the maximum out of the
forecasting and how does it actually happen
in the paint industry
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Demand planning and sales forecasting is a critical consideration for manufacturers, distributors, retailers,
and other supply chain members. It is a central activity for many mid- to senior-level executives, mainly for
those who manage the companies supply chain activities. Sales forecasting is more important for those
who are especially responsible for developing and monitoring sales to forecasts, schedules, and budgets.
Forecasting can be defined as
“Predicting current and future market trends using existing data and facts. Analysts rely on
technical and fundamental statistics to predict the directions of the economy, stock market and
individual securities.”
Or
“Can be defined as a quantitative estimate (or set of estimates) about the likelihood of future events based
on past, current, and future information. This past and current information is specifically embodied in the
structure of the econometric model used to generate the forecasts. The future information contains any
predictions or knowledge of the trends in the behavior of the explanatory variables.”
Sales forecasting is a difficult area of management. Most managers believe they are good at forecasting.
However, forecasts made usually turn out to be wrong! Even after having such results the managers are
forced to look well ahead in order to plan their investments, launch new products, decide when to close or
withdraw products and so on. The sales forecasting process is critical for most businesses.
Supply chain initiative such as quick response, effective customer response, collaborative planning
forecasting and replenishment and vendor managed inventory all of these rely on the forecasting to help
plan and manage operations more effectively.
Sales forecasting for a product is the total volume that would be bought by a defined customer group, in a
defined geographical area, in a defined time period, in a given marketing environment. If it is done
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effectively across the supply chain then it can bring a lot of benefits. Specifically, it can help in cutting
inventories, speed up product flows and increase revenues & profits.
As a starting point for estimating market demand, a company needs to know the actual industry sales taking
place in the market. This involves identifying its competitors and estimating their sales also.
Most of the times when we start doing sales forecasting then there are a few questions come into our minds.
How can customers be integrated with other supply chain members to realize supply chain
efficiencies?
What role does the sharing of business plans and schedules play in demand planning and sales
forecasting?
How do Vendor or Supplier Managed Inventories relate to demand planning and sales forecasting?
How do channel members share the cost of inaccurate forecasts in terms of buybacks, reverse
logistics of returns, ineffective promotional campaigns, and the costs of improved DP&SF?
What metrics should be used to monitor improvement of the forecasting process?
These questions must be answered in the mind of the person who is responsible for the sales so that he will
be able to achieve the same and create confidence in others for the same. If not done so then the forecast
might not be achieved.
Forecasting never ends at the point of doing, it is a continuous process, as one should review the forecast
done. This helps in two ways. First one is that one can put periodical checks and can review ones own
performance and modify the working style according to the mismatch (If mismatch is there). The second
benefit is that one can see the forecasting abilities of his own and further can keep the mismatches in mind,
so that he will be able to do a better forecasting of the market.
To improve forecasting performance, companies have increasingly relied on advances in Computer and
Information Systems Technologies. Point of sale (POS) data collection systems, electronic data interchange
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(EDI), and more recently, internet-based applications all provide access to near-real-time sales and
forecasting information for each supply chain member.
It will review the evolution of forecasting research from and early emphasis on technique development, to
more recent considerations for behaviors and channel factors that affect forecast creation and application.
Contributing to this understanding of forecasting, I merge existing concepts in forecasting management and
application to establish a model of supply chain sales forecasting management.
The forecasting of a company can be divided into 4 steps; rather in can be divided into 2 dimensions that
will be explained in a better manner.
The vertical axis, described as “moving from models to management”, acknowledges the human
component of forecasting. It recognizes that forecasting entails more than mathematical formulae,
operating procedures, and systems. Rather, forecasting involves people, their perceptions and motivations,
and their behaviors as they participate in the development and application of forecasts.
IIPM/ PGP-SS-2003-05/ SS03517 Indian Institute of Planning and Management
Organisational Supply Chain
Mod
els
Man
agem
ent
IIForecast Implementation and
Management
IEvaluating Model Performance
IVForecasting Management Performance
in the Supply Chain
IIIModel Performance- Implications for
the supply chain
55
The horizontal axis illustrates that forecasting practices more and more frequently consider demand process
and incorporate forecasting techniques that extend beyond corporate boundaries to companies throughout
the supply chain. Let us now understand each quadrant and the contributions that are helping to improve
sales forecasting performance in supply chains.
Quadrant 1: Evaluating Model Performance
Early efforts to improve forecasting performance sought to identify techniques that produce the most
accurate forecasts when considering the varied patterns of product and service demand. Much of this
research focused on time series and regression techniques and evaluated those techniques based on
traditional measures of forecast accuracy such as percent error (PE) and mean absolute percent error
(MAPE).
Findings from these and similar studies of forecasting performance suggest that more complex or
statistically sophisticated techniques do not necessarily lead to more accurate forecasts. Forecasting
performance can be affected by a variety of factors including the level of detail and types of demand data
used (item by location, all items aggregated to one number, dollars vs. units, etc.) and the length of the
forecast interval and horizon (yearly, quarterly, monthly) among other factors. Therefore, rather than
focusing on any one technique for sales forecasting, those responsible for forecasting are encouraged to
apply a range of techniques individually, and in combination, whenever possible. Furthermore, combining
forecasts should extend beyond time series and regression to include judgmental techniques.
As computer processing speeds have improved and increased the ability to consider more complex
techniques, broader measures of forecasting performance have emerged. Rather than measuring the
accuracy posed by alternative techniques, these measures have addressed issues related to forecast
application in industry.
Because they have been repeated over time, these surveys offer some interesting insights about the
evolution of forecasting practices in such concerns as changes in techniques, technologies that support
forecasting, areas of application, and role of forecasting in business.
In addition to supporting the application of more sophisticated forecasting techniques, computers have
provided a means to evaluate techniques within the context of particular business applications (Bowersox,
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Closs, Mentzer, & Sims, 1979; Gardner, 1990). Computer-based simulations have been used to investigate
relationships between forecasting performance and the performance of functions that use forecasts for
decision making.
Quadrant II: Forecasting Implementation and Management
It is apparent from the previous discussions that techniques selections can affect forecasts performance and
that the application of more accurate forecasts can lead to more effective operations in other areas of a
company (i.e., inventory management). Forecasting is not, however, solely a quantitative exercise.
Qualitative methods also provide a means to forecast future demand for products and services. To benefit
from either quantitative or qualitative forecasting techniques, individuals, systems, the forecasting
environment, and other related factors must be considered.
Forecasting implementation draws from many of the same factors that affect the implementation
of other types of decision support and operations management systems. Key among them is the need to
adopt a user’s prespective in process and system design (Schultz, 1984). The many individuals who
participate in forecasting incorporate different decision styles, educational backgrounds very and
differences exist in perceptions about forecasting practices ad now well they understand those practices.
To improve the likelihood of success with forecasting process and system implementation, Schultz
(1984) recommended the following five steps to guide forecast implementation:
1. Define the current process and system supporting forecasting.
2. Measure factors that contribute to implementation success (such as those outlined above),
3. Develop an implementation plan,
4. Build an implementation team, and
5. Establish mechanisms for feedback and control during the implementation process.
Implementing new forecasting systems and practices can improve forecasting performance; however, such
success is not a guarantee of continued forecasting effectiveness or improvement. Over the longer term,
forecasting performance relies on management attitude and a company’s approach to continuous
improvement in forecasting management.
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As a tool for prescription, the characteristics identified along each forecasting management dimension are
represented in some form at all stages of sophistication. By comparing forecasting practices to the model,
companies can establish their current state of forecasting practices and define a road map leading to
improved forecasting management performance.
As a tool for prescription, the characteristics identified along each forecasting management dimension are
represented in some form at all stages of sophistication. By comparing forecasting practices to the model,
companies can establish their current state of forecasting practices and define a road map leading to
improved forecasting management performance.
Quadrant III: Model Performance- Implementation for the Supply Chain
Forecasting technology and inventory policies can systematically influence the degree of demand
variability in the supply chain than exponential smoothing techniques. Furthermore, when all companies in
a supply chain use the same demand data, the same forecasting technique (i.e.) forecasting is centralized),
the same inventory polices, the supply chain experiences reduced demand and inventory fluctuation (the
bullwhip effect). On the other hand when forecasting is not centralised, or when forecasting techniques
require estimation of smoothing parameters to address factors such as trend and seasonality, a more
substantial bullwhip effect can be experienced in supply chain inventory.
Quadrant IV: Forecasting Management Performance in the Supply Chain
Forecast development and application in supply chains is affected by two dimensions of management. The
first is intra-organizational and is concerned with forecasting effectiveness within companies. This
dimension draws from insights revealed in the discussion of quadrant II. The second is inter organizational
and is affected by the extent each company in the supply chain has adopted a supply chain
orientation(SCO) and activities affiliated with such orientation.
The inter-organizational dimension extends the concept of forecasting management performance across the
supply chain. FMP is defined as the forecast users’ perception of forecast accuracy and credibility, as well
as their application of the forecast without modification (Smith, 1999). In the FMP model (Figure 7.2)
forecast users include individuals and operations within an organization who must satisfy product and
service demand, and who use forecasts to plan and execute tasks to accomplish this goal. In the supply
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chain forecasting management performance (SCFMP) model (Figure 7.4), forecasts’ users extend to
include other companies in the supply chain that rely on forecast to plan and execute tasks to satisfy
product and service demand.
In supply chain environment in which companies share forecast information, the effectiveness of the
forecasts used by an upstream company for planning and management can be influenced by measurement
error (accuracy), a commonly recognized approach to measuring forecast performance. It ma also be
affected by the extent that forecasts received from a downstream supply chain partner are used to plan and
manage operations. In other words, if a forecast shared between companies in a supply chain were devoid
of measurement error, performance could still be affected by the extent that each company uses the
forecast, ignores the forecast, or modifies the forecasts prior to its use.
Let us now analyse some of the channel relationships
This is the most traditional channel relationship. This is how it used to be managed. In this channel
management, there was no exchange of information from both the sides. The wholesaler will come to know
about the plans of the retailer at the time when he will get the order and the manufacturer will come to
know about the wholesaler at the time of order only.
In this caste Manufacturer has to forecast about the wholesaler’s forecast and similar is the story for
wholesaler to retailer. Only the retailer is able to concentrate on forecast of customer who should be the
target of all the three.
Further market has moved towards sharing some information and the next stage appeared as
IIPM/ PGP-SS-2003-05/ SS03517 Indian Institute of Planning and Management
ManufacturerForecasting Management
WholesalerForecasting Management
RetailerForecasting Management
ORDERORDER
59
In this case the forecasting is been shared with the supplier at all the levels. This has improved the working
of the whole chain. In this case the problem is that the manufacturer can plan things as per the forecasting
of the wholesaler and the retailer as he has got the information needed to plan the production. The problem
arises in that case when retailer has to change his plans or make his plans and is in need of the forecast of
his suppliers, thus it needs to have a sharing of the information from both the sides. Another reason for
sharing of information from both the sides is that the person at a higher level can put much better inputs
and can predict for a market much better that a small player of that market. Thus a retailer to be successful
and make the company successful in a particular market needs to have a better insight about the market and
the company.
Let us now see that what kind of relation is needed for a optimal combination
IIPM/ PGP-SS-2003-05/ SS03517 Indian Institute of Planning and Management
Sharing of Forecasting&Plans
Sharing of Forecasting&Plans
ManufacturerForecasting Management
WholesalerForecasting Management
RetailerForecasting Management
ORDERORDER
Sharing of Forecasting&Plans
Sharing of Forecasting&Plans
ManufacturerForecasting Management
WholesalerForecasting Management
RetailerForecasting Management
ORDERORDER
60
In this case every supply chain partner can plans things as per the information that is available to him. A
retailer can plan things better in this case as he can know about the status of the orders he has given and
also is knowledgeable about the activities happening in the market. At number of times he might be able to
give some valuable information to the company that he might have thought to be irrelevant.
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Let us now move to the Paint industry and understand how is the forecasting in the particular trade.
As it was been discussed in the first chapter that there are many products, which are been covered by a
company in the paint, trade thus it is very important to have a accurate amount of forecast. If at any level
the forecast goes wrong then he might loose either sales or he has to bear an additional cost for having the
stuff available at the time it is needed. To make all the products available at all the time for the customers is
a very costly affair as to do so one has to carry huge amount of inventory, which will charge carrying cost,
capital, which is been blocked in the inventory, and also the products are getting older in the Godown.
To forecast the market very accurately for so many products is not only difficult but is merely impossible.
The forecasting has to be as close as it can be so that the manager who is forecasting can offer the right
product at the right time in the right market without having any additional cost. Some plans have also to be
made for the uncertainties so that a manager should not loose any kind of sales if the market does not
moves as per the forecast.
In the forecasting patterns both the companies move in a different pattern. Let us see that how both the
companies plan their future in the market and how well they are able to perform.
The paint market is so uncertain that to forecast is very difficult for any company but still all the companies
in the market are looking to have better growth than the other. Berger Paints who was able to keep the
growth level in the positive side since 1980 is having more of human touch in the forecasting process. The
plans of forecasting is been decided both top to bottom ways and also bottom to top ways. This can be
explained as a growth for the company is been decided by the top management of the company and is been
further divided as per the growth potential of the Zones( Berger Has 5 Zones in India), the Zones then
further divide the plans in the Regional Level (Every Zone has 2 regions), further regions divide their plans
into depot wise which is finally been given to the territory level. In this process the division is been done as
per the growth potential of the place. In a depot to have an average of 10% Growth he might give one
territory a target of 5% and the other a target of 15% as the growth potential of the first is low and the
second is high. This happens other wise also as the plans for up to down is for the plans of overall growth
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but when it comes to product wise growth then the plans are made at a depot level which is decided at a
territory level. These plans are been compiled and moved up to the regional level, then zonal level and then
finally goes to the corporate level.
The planning in Berger is done twice a year, once it is done for the first 3 months of the year which is
January, February and march. The other planning is done for the rest of 9 months. The planning is then
been divided in month wise and then unto the territory wise level. This exercise is called phasing. In this
phasing exercise one has to forecast for all the SKU’s (Stock keeping units) that can be divided in product
name, colour and pack size.
The planning is also done at a dealer wise level and is been communicated to the dealer at the beginning of
every month. There are many schemes run for various fast running products, these schemes are generally a
cash discount through credit notes or given in the system of some gift. For every dealer to achieve the
discounts or gift they have to qualify the criteria, which is generally based on the forecast made for the
particular dealer. if a dealer is not able to qualify for the scheme, then he will not be able to enjoy the
benefits of the scheme and thus at times he is not able to make himself competent in the market.
The system of schemes will better be understood by an example
Suppose a particular dealer has purchased Luxol Snow White (A Berger Brand) 200Liters in the month of
may in the previous year, then he might be given a target of 12% growth on the last year lifting and he is
been told that if he achieves the target then he will be issues a Credit note of Rs. 2 Per Liter of the total
purchases of the same product in this month. If the dealer is able to achieve the target given by the
company then he will be able to get products cheaper than the rate which is given to the dealer who are not
able to qualify in the market. If in case he is not able to do so then he will be getting products 2Rs costlier
than the dealers who are able to achieve the scheme. If these dealers decide to sell the products in the
market only after making profit of Rs.1 then this dealer who is not able to qualify will not be able to sell the
products in the market.
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With these schemes running in the market there is a advantage to the dealer as to that he can purchase the
products in the cheaper cost and also to the company so that they can achieve the targets they made for a
particular dealer. With having the targets achieved for the dealers they are trying to achieve the target of the
territory which is go up to the depot, region, zone and finally to the company as a whole.
In the case of forecasting Asian Paints has a upper hand as they have a better technology in their hands.
Asian paints have implemented ERP in their working from i2. They are able to get the market data very
accurately and so do they can plan things in a better manner but at the same time as been discussed that the
forecasting now a days is more of a human factor than the technical factor. To forecast a market in a better
manner one has to have good knowledge of the market and also to have a insight about what the competitor
is doing, one who has the better idea of all this is able to do things in a better manner and is able to get
better results. In the present days Asian has a bigger problem in having fight with ICI as their rivals as they
both are having a strong presence in the same segment, they both are more aggressive in the emulsion
market as they both feels that emulsions are the future of the paint industry. Thus it is very difficult to
forecast in a better manner. Asian most of the time works on the targets of the dealers, they have targets or
all the dealers, these targets are based upon the performance on the last year sales. As also in Berger, Asian
also gives additional benefits on achievements of these targets. One thing that is different in Asian is that
they have a very keen eye on what the market is going towards, as they don’t prefer having surprises. Asian
always keeps a check on the product lifting of every dealer, through which they can come to know about
the dealer in a better manner as to is the dealer selling as in the retail market or he is selling the stuff to
other dealers also. This can be seen as if one dealer who is lifting 300 liters of Paint in a week and another
is lifting 20 liters. Suddenly if 300 liters person stops buying and the person having 20 liters shoot his order
then they come to know that the stock is been transferred by the second dealer to the first dealer. They at
Asian Paints does not stops at the point by thinking that the lifting is still the same but they work on the
reasons of having such kind of activity, they prefer to check the reasons and try to get the things back to
their own control. Asian Paints prefer that their products in the market should not be wholesaled but should
only be retailed. This helps them to keep the control in their hands only so that one dealer will not be able
to harm them to a high volume.
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CHAPTER 5
CUSTOMER SATISFACTION
(The Key to Supply Chain Value Creation – A Customer Focus)
&
INTERFIRM RELATIONSHIP
(The Key to deliver the promised components – A health partnership)
Delivering just what your customers need, when they
need it, isn’t easy. But some leading companies are
combining strategy, business processes, and
technology to create what’s known as demand-driven
supply chains—a highly efficient mode of operating
that scores a perfect 10 for businesses and customers
alike.
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An increasing number of businesses are turning their attention to supply chain management to create
competitive advantage and improve the bottom line. Many managers still view supply chain management
as a mechanism to improve profits through cost containment. However, it is important to recognize that
effective SCM focuses primarily on meeting customer needs, rather than on cutting costs. Improved
relationships with customers and more efficient product delivery processes can result in a clear distinction
between firms and lead to sales growth. Alternatively, if cost cutting goes too far, the company may
unknowingly eliminate services or product features that may be valued by customers.
The notion of leveraging supply chain service is particularly significant in situations where there exists
intense competition on price, product features and promotional initiatives. In commodity-type markets
where the standard is high-level service at the lowest cost, firms must reduce wasteful practices across the
entire supply chain to create significant value. For example, in businesses like consumer packaged goods
and automobile parts, firms have little choice but to compete on service to gain differentiation. Adopting a
customer-driven perspective enables firms to view SCM as a tool for creating market value, rather than
simply controlling costs.
Management of the supply chain can help firms distinguish themselves from competitors. Rather than
limiting promotion efforts to the products they offer, the processes that accompany the products can be
viewed as an additional means of adding value for customers. For example, many manufacturing firms
have produced brochures that detail how their customizable distribution capabilities benefit customers.
It is rare that cost cutting alone can enable a company to improve long-term profitability and competitive
position in a growing economy. Thus financial professionals must look beyond cost containment and focus
on customer satisfaction as a major component of the strategic direction of the company. Embracing a
customer-driven focus in the SCM process offers many tangible opportunities for financial professionals to
actively participate in strategic planning and business decision-making, and to be perceived as valued
members of the management team.
To help their firms develop customer-driven SCM, financial professionals should:
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Appreciate the true differences between customer-driven and asset-driven SCM
Identify and support initiatives that capitalize on customer value-creation opportunities in the
supply chain.
Let us now see that what is the difference between a Customer-Driven Supply chain management and a
Asset-Driven Supply Chain Management
While many companies openly claim to be customer-driven, in reality, they tend to be more asset-driven.
Managerial effort, performance evaluation and rewards are based primarily upon internally-oriented
efficiency and productivity metrics rather than on the satisfaction of customer needs. In terms of SCM,
customers value — and are often willing to pay a premium for — high-quality service, flexibility,
reliability, customization and responsiveness. Unless firms adopt a focus broader than asset-driven cost
control, the attributes critical to customer satisfaction may be overlooked.
In contrast to the internal focus of asset-driven companies, customer-driven companies maintain a more
balanced focus by allocating time equally to tracking internal processes and external issues like customer
needs and competitor actions. Senior managers may spend as much as one day a week meeting directly
with customers. Formal customer service and satisfaction data is collected and regularly evaluated. Joint
problem-solving meetings are routinely held with customers. A key determinant in performance evaluation
and reward allocation is customer satisfaction.
Extensive familiarity with customers operations is important because SCM is essentially a trade-off
between cost and service. In order to realize the potential benefits in terms of increased sales and profits,
management needs to understand the customer and recognise the value that customers assign to the various
dimensions of service. It is essential that managers work across functional boundaries. SCM should not be
considered the domain of any single functional group.
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Now let us see that how a Supply Chain can add value
Supply chain management adds customer value in three generic ways: effectiveness, efficiency and
differentiation. It is important for finance professionals to recognize the product differentiation opportunity.
As an increasing number of businesses use SCM to create competitive advantage, it is important to
recognize the importance of customer-driven SCM. If financial professionals are expected to help their
firms develop customer-driven SCM programs, they must first appreciate the differences between
customer-driven and asset-driven perspectives as applied to SCM. This important distinction will enhance
the credibility of financial managers when operating in cross-functional teams and prepare them to best
identify and support initiatives that capitalize on customer value-creation opportunities in the supply chain.
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Lets now again go to the paint industry and analyse it.
In the paint industry the involvement is very less to but the product as it is not the product that is in direct
contact to the end customer, the product is used by a applicator who is generally a painter. It is in hand of a
painter to give a product a desired output, if a painter is will to work on the product from his heart then he
can give the product a better output than the company claims to have as he knows that what is the right
move and what is not appropriate to be done. Thus in this case it is very important to keep a painter
knowledgeable on how to use the product in a proper manner and also to keep him happy with the products.
Thus in the paint industry the painter is equally important that to a customer.
Thus if we have to give importance a per a company to the painter, dealer and the end customer then it
might happen that the customer will loose and will not be able to get as much importance as the painter and
the dealer is given. The reason is simple that the painter is the applicator and he is the sole person who is
responsible for success or failure of a product. The next importance is that of a dealer as there are three
reasons for it. One is that the dealer is keeping the product at his shop thus he is a aim for a company, the
second reason is that every dealer have a few painter attached to him and he is in direct contact with them
and is also responsible for a better or a poor picture in the painters mind. Last but not the least is that at
times when a customer is willing to buy the product by himself then he is moving to a dealer and asking for
a particular product, but due to lack in confidence, which is due to lack in knowledge it is very easy to
convert the customer from one brand to another. So due to all the three reasons the dealer even scores very
high points for the company.
As when we compare the companies like Berger and Asian which are two market leaders then we look at a
very opposite story as they both are very opposite in their working. At one side is Berger Paints who is
mainly concentrating on the dealers network and likes to give heavy discounts or supports to the dealer
network they have as they feels that if the dealer is happy with them then he will stock only the products
they are providing. The further result will be that the dealer will be working on the painters he have and
convince him to apply that product. This will finally help them making their product reach maximum
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number of houses. As the result they are able to take lead in a number of markets, one of them is Delhi,
which is the biggest market in India as far as the paint industry in India is concerned. The company even
after having services like Home Décor, which is a service provider for all the solutions for a home in the
paint concern, the perception in the mind of consumer is that the product is more of value for money
product. Now keeping this picture in mind the company is trying to change the perception in the mind of
consumers with a initiative to change the branding and the services which they are providing. The company
is now changing the brand name from the previous name generally used as Berger Paints “Colours of Joy”
they are now moving to some thing like Lewis Berger “Paint your imagination”. Thus with having all the
initiative and also are starting the products like illusions which is a paint that looks like a wallpaper they
might be able to change the perception in the mind of a customer. By this work they are also hoping that
they will improve the market share of Berger paints in the next few years.
On the other hand is Asian Paints who is the market leader for India as a whole. They are more of customer
centric and they prefer to work more on the promotions for the products. With the heavy spending on
promotions they want that on the name of paints every customer should remember only one name “Asian
Paints”. They have even kept their advertisements in the T.V. keeping that thing in mind and always kept
the tagline the same “Har rang kuch kehta hai”. In fact they are the only company that is promoting the
Brand Asian as a whole, other companies like Berger and ICI are always willing to promote one of the
product that is been provided by their bucket. With having so much interest in the customer centric they
even go for demonstrations whenever a customer is not satisfied or is confused to choose the products. This
has helped them to have a perception of premium companies in the mind of the customers.
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INTERFIRM RELATIONSHIP
Internet age challenges have been accompanied by a handsome promise, that being, the promise of being
able to collaborate and cooperate with strategic partners to deliver better products to customers in a faster
and more efficient fashion.
As a manufacturer, wouldn't you welcome a system where there are no warehouses, inventories or paper
invoices, just plug-ins that monitor your supplier network automatically, in real-time, everywhere,
simultaneously?
Synchronised execution of manufacturing and supply across a dynamically re-configurable supply chain
network, to profitably meet demand, is an ideal scenario.
The mantra is moving from just measuring performance, on internal cost and efficiency, to external
processes targeting customer-satisfaction at the shelf. Having a well-harmonised network maintaining high
operating margin — not just profits or growth rate — is the goal of any organisation.
Manufacturers must learn to collaborate internally and externally. This builds the culture of information
sharing empowering everyone across the board. Collaboration makes it easier for companies to adjust to
changing scenarios.
Collaboration facilitates real-time focus on inventory levels, capacity outlooks and new technology drivers,
which, in turn, helps in better management of demand. Setting up a collaborative network will help build
effective supply chain components.
Collaboration in Supply Chain Management
Partnership, which can be another name for collaboration, is a label used for a variety of innovative
approaches to managing relationships between organizations in construction.
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These arrangements have one thing in common - an intention to move beyond the limitations of traditional
project relationships. In these, there is little or no integration of the processes used by the different
members of the project 'team'; all too often one party seeks to improve business performance by
manipulating cash flows and enhancing profit margins at the expense of someone else.
Partnering is not another new form of contract nor a new way of relating between people. It is a different
way of structuring business relationships, which has profound implications for both contracts and the ways
people work together.
Most ideas of Partnering draw their inspiration from manufacturing - vehicles, food, aerospace and
electronics - where long-term supply relationships have developed between product assemblers and key
first-tier component suppliers. Rather than constantly put out tenders and choose different suppliers on the
basis of lowest price, assemblers enter into long-term, but relatively informal, agreements with a few
suppliers. Commercial pressure is maintained by benchmarking supplier performance on a number of
fronts, with agreed targets for improvement. Suppliers work together with the assembler to deliver
continuous improvement in products and processes over time. As a result, all parties deliver lower costs
and improved quality without squeezing each other's profit margins. Steady profits then provide the basis
for investment in improved products and processes, and a virtuous circle of continuous improvement is
established.
This goes for the manufacturing side now let us look at the marketing side and look at how partnership
affects marketing strategies
Marketing strategists are increasingly realizing that making better decisions faster is crucially important in
the Internet age. No longer a luxury, the ability to make effective decisions quickly is practically a
prerequisite for mere survival. Fortunately, these uniquely Internet age challenges have been accompanied
by a handsome promise; that being, the promise of being able to collaborate and cooperate with strategic
partners to deliver better products to customers in a faster and more efficient fashion.
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Partnership can also help in making each other profitable as both can work together to make the system of
the other better and more effective in a cheaper cost. By partnership another benefit can also be that the
expansion the business of both the supply chain partners. This can be better understood with a example.
Let us see that the companies have partnership between each other and have collaborated to work, then the
with having the faith in each other the dealer who is buying the products from the company and forwarding
the products in the market can forward some of his major accounts to which he is supplying a major
amount of products from the company. by doing so he does not have to worry for the supplies as the
company will do it directly and he will get his commission as he has given the deal to the company. the
benefit on the company side can be that the company is in contact with the customer directly.
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Inter firm relations in the paint trade.
One common thing about the trade is that every company in this trade is very dealer centric. This is because
of the reason that he has a very important part to play in the sales. He is not only the facilitator of the
product but also plays a part as a influencer in the final sale. Keeping these things in mind every company
is having a club. The company has given targets as in slabs or has given any other criteria through which a
dealer can enter into the club. The members of the club are once in a year are taken on a foreign tour, which
is fully paid by the company. In addition to that they get stationary and gifts in which it is mentioned as
their being a member of the Club (Whichever they belongs to). In addition to the yearly club there are
various schemes that are been run for the dealers as some may be of a tour to some place in India, some
might be for a free gift as in the shape of a T.V. of a home theater. The dealer gets a lot of privilege from
the companies for being loyal to the company.
As already been discussed that both the companies have a very different way of working in the market.
Berger is more of working in the wholesale kind of structure and is willing to spend more on giving to the
dealer. They are always more aggressive to give better discounts to the dealers and getting higher market
share thus the relation that is been shared by dealers from Berger paints is most of the times in negotiation
to the company and getting the maximum that they can get. It is been seen that the dealers are most of the
times discussing the rates at which they will be getting a product (In the paint trade it is called the landing
rate of a dealer). This can be better seen with that most of times when a products discount in Berger is
changed, then the major concentration of the, manager taking the decision is kept on the rates at which the
products of Asian is been sold to the dealers and at what price Asian products are been retailed in the
market. It is seen that generally the products of Berger will be sold at a good discounts than the
comparative products of Asian paints.
Asian paint is trying to keep a most hold in their hand by having the pull from the market instead of giving
push to the dealer. They spend so much on the marketing that the dealer has a compulsion to keep a
moderate amount of products of Asian Paints to serve the market properly. If the dealer won’t do so then he
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might loose a few of customers, as they are strict to take Asian paints for the painting of their house. This
can be better understood with the example that a product Apex (Asian Paints), an exterior product, is
having the name of the category. It is having such good name in the market that if a person needs exterior
paint of any other company then he will say that “please give me Apex of Berger”. It was that the customer
was in need of Weathercoat of Berger Paints, which is a competition brand of Berger to Apex of Asian
Paints. With having such good name ion the market it doesn’t means that they don’t keep any care of the
dealers but is in such a manner that they try to rely on the dealer as less s they can. This helps them to built
a brand image of their product in the market and also are getting minimum threat of the buyer shifting from
your brand to any other brand. This can be seen that they are reducing the bargaining power of the buyers
and are taking care of one force of Michael Porter’s 5 Forces Model.
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CHAPTER 6
ROLE OF SALES AND MARKETING IN
SCM
The two roles which focus totally towards market.
One designs about how to sell and what should be
done and the other actually sells the product in the
market. Let is see what the experience of marketing
and sales talks about it.
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The role of sales in Supply Chain Management
Given that the role of the contemporary salesperson is changing dramatically, and that in many situations,
the old models of selling are simply outdated, ineffective, and counterproductive to supply chain
management goals and objectives
While most sales organizations focus on pre purchase activities, supply chain partners focus on managing
relationships and conducting post purchase activities to enhance supply chain performance. The sales force
is well positioned to implement, facilitate, and coordinate many supply chain management activities. In
short, the supply chain sales force should be involved with any supply chain activity that goes beyond
organizational boundaries. More specifically, the sales force should be an integral part of implementing
cooperative behaviors (i.e., joint planning, evaluating, and forecasting), mutually sharing information, and
nurturing supply chain relationships.
To be effective at their new role, the supply chain sales force must gain new expertise in logistics and
supply chain management. Salesperson logistics expertise is defined as a customer’s perception of a
salesperson’s knowledge, experience, or skills relevant to logistics issues. Salesperson logistics expertises
concern the seller’s and supply chain partners’ logistics operations, systems, and processes at both tactical
and strategic levels. Thus, salesperson logistics expertise includes internal (company) logistics expertise,
external (supply chain partner) logistics expertise, tactical logistics expertise, and strategic logistics
expertise. While the logistics manager may be the primary person designing logistics solutions, the
salesperson is likely to be the primary person representing the supply chain partner’s needs and
requirements. For effective teamwork and innovative solutions, salespeople and logistics managers need to
be able to communicate effectively and work together on supply chain management issues.
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Role of marketing in supply chain management
Choosing which marketing channel, or channel of distribution, to use is a major decision in the
development of a marketing strategy. The major role of marketing channels is to make products available at
the right time at the right place in the right amounts. In most channels of distribution, producers and
consumers are linked to each other through a marketing intermediary. Of the two major types of
intermediaries, retailers purchase products and resell them to ultimate consumers, and wholesalers buy and
resell products to other wholesalers, retailers, and/or organizational customers.
Marketing channels serve many functions. They create time, place, and possession utility by making
products available when and where customers want them and by providing customers with access to
product use through sale or rental. Marketing intermediaries facilitate exchange efficiencies, often reducing
the costs of exchanges by performing certain services and functions.
Marketing channels also form a supply chain, a total distribution system that serves customers and creates a
competitive advantage. Supply chain management involves manufacturing, research, sales, advertising,
shipping and most of all, cooperation and understanding of tradeoffs throughout the whole channel to
achieve the optimal level of efficiency and service.
Channels of distribution are broadly classified as channels for consumer products and channels for business
products. Within these two broad categories, different marketing channels are used for different products.
Although consumer goods can move directly from producer to consumers, consumer product channels that
include wholesalers and retailers are usually more economical and efficient. Distribution of business
products differs from that of consumer products in the types of channels used. An example of a direct
distribution channel, which is common in organizational marketing today, is the use of industrial
distributors. Most producers have multiple channels so that the distribution system can be adjusted for
various target markets. Two types of multiple channels are dual distribution and strategic channel alliances.
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A marketing channel is managed so that products receive appropriate market coverage. Marketers can
choose the type of coverage, intensive distribution, selective distribution, or exclusive distribution.
Although many marketing channels are determined by consensus, some are organized and controlled by a
channel captain. To attain desired objectives, the channel captain must possess channel power. Channels
function most effectively when members cooperate. When they deviate from their roles, channel conflict
can arise.
Integration of marketing channels brings various activities under one channel member's management. The
two types of integration are vertical channel integration and horizontal channel integration. Integration has
been successfully institutionalized in marketing channels called vertical marketing systems (VMS), which
may be corporate, administered, or contractual.
Avoid Marketing and Supply chain Conflict
Scenario: To meet customer demands a company needs to maintain a significant level of inventory. But, the
cost of inventory deeply erodes company's profits. On the other hand missing an order erodes company's
future profits, the forecasts are inaccurate and replenishment takes too long. We are stuck between a rock
and an abyss.
Globalization of products and service along with technology enhancement has resulted in increasingly
dynamic markets and greater uncertainty in customer demand. Difference in customer requirements across
different regions/countries may require different strategies or different product designs, brands and
packaging.
Supply chain management is the systemic, strategic coordination of one or more downstream and upstream
flow of products, services, finances and information for the improving performance.
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The phenomenon of supply chain has challenged the traditional way of working with introduction of
functional departments and division of work. Supply chain approach is to view the channel as a single
entity, rather than as a set of fragmented elements, each performing its own function. Similar to other
functions like procurement, logistics, order fulfillment, Supply chain encompasses Marketing too as a key
function.
Primary objective of marketing function is creating avenues for exchanges, costumer focus, customer
satisfaction, products and service visibility, revenue generation and maximizing profitability. On the other
hand Supply chain management's focus is coordination from suppliers to customers for maximizing product
availability, delivery performance, order fulfillment, responsiveness to market demand while minimizing
the total cost of the process.
Conflicts arise between marketing and supply chain due to difference in perspectives and focuses regarding
department deliverables.
Marketing stresses on the revenue maximization while supply chain works on cost minimization.
The main areas of conflict between marketing and supply chain can be
Control mechanism: Who encompasses what process, Ownership of functions and activities for
better performance.
Information and Data availability: Data unavailability restricts better control, hampers decision-
making capability and increase in conflicts.
Risk Reduction: Difference in Strategy definitions for mitigation of risk by maximizing product
inventory and inaccurate forecasts.
Situation and scenario handling: Crisis situations and event handling roles definitions undefined
Failure mechanism: Responsibility and ownership in case of underachievement of targets and
failure.
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These conflicts are very common and widely prevalent in the industry. In the cross functional environment,
if the situation is not controlled at the initial stages, it can aggravate in to a fireball giving rise to chaos,
buck passing and loss to the company. The conflicts could be handled or rather avoided by
Integrated system: Standardized IT system for data collection and acquisition, for better visibility
in the forecasts, customer behavior and marketing effectiveness.
Analytical tools: Usage of analytical and scientific tools for planning processes and policy
decisions like Inventory policy (finished goods and WIP), Forecasting models, Logistics
optimizations for maximizing product availability and minimizing cost.
Role and Job definitions: Restructuring of the process flows for control on activities of the entire
cross-functional areas. Performance linked job and role definitions for process owners and teams.
Alignment of Key review areas: Linking of Key review areas and Key Performance indicators of
the marketing and supply chain functions for avoiding conflicts. IT based Performance
management for visibility and faster corrective actions
Strategy formulation: Supply chain and marketing to work together with Top management in all
the strategy formulation in order to achieve company goals.
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Paint is a seasonal product
Presently, the companies have 2 different strategies going for the 2 different sectors.
1) For the urban sector they are giving high quality products for a marginal high cost. They are coming up
with incentives like wide variety of colors combinations.
The companies are going for interior designing consultancies this is to attract the customers and create a
customers value feeling. The example of the same can be the tinting machines, which all the companies are
working on now days.
2) For the rural segment they are trying to reach the customers with the help of their distributors network.
The per capita consumption of the paints is still .5 kg which is too low compared to the others countries.
The paint products are too price sensitive the competition in the market is so very high hence the players
control the balance in the market.
The major players in the organized sectors are trying to create its own image through advertising. The main
aim of the advertisement is to inform the end users about the product and create Brand awareness. In Paints
the companies have CRM policies with local builders and most importantly with local painters who are the
main influencers for paint buying decisions and have privilege schemes with dealers on the basis of volume
purchases. Here these sections of people have a saying in the retail pricing of paints. In Paints there is no
universal pricing policy, as volume sales is the major consideration for pricing.
The pricing is always having a price band between which a sales person can sell the product to the dealer.
Further the sales person has to decide about the amount of rebates, which are to be given to a particular
dealer. This is generally based on the volumes that the dealer is doing the business with the company. if the
dealer is doing high volumes with the company then he might be offered a more attractive prices than the
one who is doing lesser amount of business. This is entirely on the basis of the understanding of the sales
person that the person is of what worth.
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Another job that the sales person is doing is to get the information of the pricing of other company in the
market. This is based on the practice that the paint company is primarily driven by the price of the product,
the company that is giving higher amount of rebate in the market is able to sell better in the market. Thus to
keep the working of other companies ion the market is one of the primary job of any sales person in the
paint company.
The sales person in a paint industry is having the job profile revolving around the job of keeping the
relation with the dealers he is working with. In doing so he has to take care of the services of delivery,
promotions, keeping him updated about the products, any technical help in the tinting machines and any
other work which will be able to help him sell better to the dealer. In the profile even he have to decide
about the business capability of the dealer, on that basis the company decided about the credit limit of the
dealer. The primary and most important job of the sales person and the reason for giving all these services
to the dealer is to get maximum sale out of the dealer for the company. To do this at times he even have to
get the rates of other companies that are offered to him and even have to negotiate the rates that he is
providing the products at.
With all these jobs of the sales person also as being the industry consisting of 60% in organized sector, the
existing big players have created an enormous brand image for themselves and by providing superior
quality paints has provided limited choice for buyers to shift to local products. The inferior goods and
limited choices offered by local players has created a negative demand for local players and with the large
dealer base and ATMs (Automated Tinting Machines) the organised sector has left very few empty spaces
for its customer base for themselves. The wider reach and large variety of choices has provided the
customers the bargaining power to choose amongst the players. This demands more brand building
exercises for the organised players that always add to cost and more challenges for them to trim operations.
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Charter 7
TINTING MACHINES
If somebody asks you that I will give you one thing
which will help you work many times more efficient
and accurate than what you do right now than what
will you say?
Might be “Is it a magic or what”
So lets see what the magic is all about.
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One of the major and immensely useful innovations in the paints industry was the sue of tinting machines
at retail outlets. Earlier, all SKU’s – slow and fast moving – were factory made. That means not just
making hundreds of shares but also the massive complexity of sourcing of raw materials, packaging and
transportation. Most of the companies have to carry stocks for a number of days. Most of the companies
use to carry stocks for more than a month. The story does not ends here even the channel partners have to
stock the products up to a limited period as they even have to satisfy the customer coming to them. This
small illustration can explain that the products were previously been stocked for around 2 months at an
average. This means that a company that is of turnover of 1200 Cr has to keep a stock of around 100 Cr
with the company and same with the dealers, this finally adds up to the investment of almost an additional
of 200 Cr.
So what are these wonderful machines, what does the machine do?
Quite simple, the tinting machine offers computer aided mixing and colour matching. Each machine carries
a base paint which, as per instruction of the customer, can be mixed with the colorants and thousands of
shades can be prepared right there in the shop in a few minutes. There is no need to get paint from the
factory, no need to send order or follow up for the deliveries. This immediatelt translates into better service
levels, a far superior retail experience and increased sales and lower costs of time and transactions. To do
this the retail has to carry only bases of the products and likewise the company also has to only produce a
large quantity of bases only.
These machines apparently have given a benefit at a number of places to each and every individual attached
to the industry being it be the producer, the supplier of raw material, the middle man in face of dealer or
C&F agent, being it the painter and finally being it the End customer. This small magic has added a major
value to the paint industry and has helped in a major way to implement the Supply Chain Management in
the Paint Industry.
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With various big companies there are different names involved as the names of the tinting machines. The
machines are known as
Colour Bank - Berger Paints
Colour World - Asian Paints
Colour Solutions - ICI Paints
Colour Scapes - Nerolac Paints
As to explain the colour tinting machines let us first move to the various categories and see that how the
tinting machines have changed the working area and then further in the end we will compare the tinting
machines of various companies and will see the working of all the machines in the market.
Benefit of the tinting machines to:
1. Customers
- Previously there were only 30-40 shades available in the market in which one have to decide
the colours and there was no choice available in the market but now as because of the tinting
machines there are thousands of colours available in the market. Practically one can make any
colour one can imagine to have.
- Repeatability of the same shade was not that easy as the shades were made in the factory and
two batches might have a little bit of variation in each other, thus the repeatability was not
possible. Now as the formula is been put with the computer and the machine is making it, the
repeatability is very much possible and the shade variation is very rare.
- Previously there might happen that one has to wait for a particular shade out of the available
shades as the batch will be produced in the factory and will be dispatched to the place where it
is been sold, this whole process use to take some time. Now as the bases are common for
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many products and it is very easy to tint thus the customer doesn’t have to wait for a long time
for a particular shade
- As with the implementation of tinting machines the quality of colours has also improved so
this is an additional advantage to the customer.
- Another major advantage to the customer by the tinting machines is that he can not see the
product getting tinted in front of him and he can be now sure about the authenticity of the
product and can be better satisfied than the previous case.
2. Dealer
- The biggest advantage to the dealer by the tinting machines is that now they have to keep less
amount of inventory as one product can now give the output of many products. Dealers
previously have to keep a big amount of inventory and even after that they were not sure that
they will be able to satisfy the customer or not.
- The product range that the dealer can now offer is endless, this can be said as now with a
tinting machine one can tint any colour that they imagine. Thus the product range has gained a
major growth.
- As after having the tinting machines not the inventory cost which he was having previously
has reduces with a great extend and with keeping one product he can provide services of
many products. Thus with keeping both the things in mind a dealer will take chance to add
more variety of products so that he can gain more profit and also can provide full range of
products to the customers.
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- With the tinting machines even the margins of the dealer’s have improved, as a same shade is
available as a product and also can be tinted in a machine. A dealer is making more money if
he sells a product after tinting even in comparison to the product, which is available in the
same colour.
- When a dealer is getting a tinting machine installed in his store, then his faith in market
improves, as people will have faith in him that he is giving a genuine item. This might help
the dealer to convert his customer to a higher product or sell him other products also.
3. Company
- To produce some products, which are slow moving, was a problem and the company has to
produce large number as they are in a batch, so that they can gain the cost advantage of the
product. With the tinting machines now the company does not have to produce many products
but only to produce the fast moving products and the bases for many added colours.
- Previously inventory was a major problem for any company in the paint industry as there
were many products and with it many shades of every product, which are, accompanied with
all the pack sizes. Now with the bases being introduced the inventory of a company has
reduced drastically.
- The product range which a company can offer in the market has grown with a great level, now
a company can provide any shade of any product required in the market. With the
introduction of photo spectro meter in the computers a customer can get any colour he wants
by scanning the colour on that product.
- Product awareness has also grown in the market as the customer can now identify the product
with the machines.
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- Fast rotation of products is possible as one product can serve many purposes.
- With the tinting machines the inventory of slow moving and non moving have reduced
drastically
- With the machine a dealer is now compelled to keep the full range of the company as he has
to but the full set when he is getting a machine installed in the place.
- With the tinting machines even the job of keeping the record has reduced and it is very easy to
keep the records of the products.
Even after looking at the advantages to most of the supply chain partners let is give a look at the applicator
who is applying the product at the customer end.
- Now with the variety of shades which he can offer he can make the customer much more
happy than he was previously.
- He is now able to provide a high accuracy of shades in the market. Thus he can improve his
reliability on the end customer.
- When providing repeat service now he can provide the same shade to the customer which was
Previously made by using colour stainers at the customer end, thus the variation in shade was
very much possible.
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Let us now take a look at the tinting machines of companies and analyze that which company is better in
what area.
Nowadays the core competency of any company in the paint Industry today lies in 2 areas out of which one
is the Distribution base and second is Placement of tinting machine. This is one of the reasons that Asian is
able to hold its share of being the market leader. Asian has the maximum number of tinting machines in the
market. Even after not being the first one to introduce the concept but they have recognized the importance
of the concept in time and have given the importance in time. They are the one who started the concept of
getting a machine financed for a dealer or even giving the machine to a dealer on lease. All these reasons
together made them the fastest to capture the market. With the concept of tinting machines as being the first
one in the concept of making the machine easily available to the market, thus they were able to take
advantage of that and they were able to put the machines at most of the bigger and retail counters thus it
was a competitive advantage to them. Asian has another competitive advantage over Berger Paints as Asian
is producing all the colorants in India and are making them available in the market in a cheaper cost.
Now coming to Berger Paints, they being the second one in the race of having the tinting machines are
trying to tap all those counters, which were not been covered by Asian, and also the counters, which are
coming up. Now as the concept of tinting machines is little bit old and there are many counters who have
the capability of having two machines in their shops. All these counters are well tapped by Berger Paints.
The advantage that Berger has in comparison to others is that, Berger is still importing the Colorants and
due to the same reason the quality of colorants is high. Where with other companies the colorants is much
more reliable. The major competitive advantage, which is there with Berger Paints, is that they are the only
company in the market who is able to provide the good quality of bright colours. This is because of the
usage of good quality of colorants thus they are the company who is preferred by a lot of dealers for the
Colour Bank Machine.
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Charter 8
FUTURE TRENDS IN THE INDIAN PAINT
MARKET
THE ROAD AHEAD….
The future of any trade is Environmental Changes has been divided into two parts one is
the Macro level and other is the Micro level. Let us now understand both of them
separately.
Macro Level Changes
Environmental changes happening in our country
– GDP growth at around 6-7%
– Increasing prosperity of rural segments
– Lowering of customs duties
– Entry barriers dropping: New MNC’s entering the market
– Increased spending on Infrastructure projects
– Fragmentation of television audiences
– Automobile explosion
– Increasing consciousness of environment and health
– Low Interest rates
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– New Technology
Micro Environmental Changes…
Individual Level
– Increased disposable incomes
– Family structure changing to nuclear families
– Increasing incidence of double income families / Increased Inherited
wealth
– Increased awareness: Internet / Television
– Income tax breaks: On housing
– Increased expectations from products and services
Further let is now see all the factors that are affecting the economy as a whole of affecting the paint industry as in specific.
Impact of Changes…
Factors
– GDP growth at around 6 –7 %
– Family structure changing to nuclear families
– Income tax breaks: On housing
– Low Interest rates on loans
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Impact
– Increased demand for new houses -- generic growth of 10 to 12 % for decorative paints
for the next 3 to 5 year period.
– Expanding base of the paint industry -- the new homes will enter the re-painting cycle in 2
to 3 years
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Factors
– Lowering of customs duties
– Entry Barriers dropping: New MNC’s entering the market
Impact
- New MNC’s are likely to step into the Indian market using one or a
combination of the following strategies;
- Introduce new products that may not have high volumes at present. They
might import these products.
- Develop a new distribution channel such as retail chains, company stores
- Resort to hi-decibel advertising in a focused area
- Tie-up with / Buy out an existing company to take advantage of an existing
distribution channel
Factors
– Increased disposable incomes
– Increasing incidence of double income families / Increased Inherited
wealth
Impact
– Demand for high end products like interior & exterior emulsions will
continue to grow at a rapid pace
– This trend will be more evident in exterior coatings, with the category
continuing to grow at more than 20% for the next 3 years
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– The trend to experiment with new colors, product categories and services
will increase – essentially to elicit the “Wow effect”
Factors
– Increased expectations from products and services and companies
– Increasing incidence of double income families
Impact
– Companies will be forced to introduce new products and services to
satisfy the customers
– Companies will need to start looking at providing customers with complete
solutions rather than piece meal options as the customers no longer have
the time co-ordinate the entire process
– The tinting machine will become de rigueur for all shops and this will lead
to factories being geared to produce bases only especially with wall
coatings.
Factors
– Increasing prosperity of rural consumers
Impact
– This will open up the demand for basic products like enamels, distempers
and primers
– Lower price points , small pack sizes and pouch packing will become
increasingly popular in these markets
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Factors
– Increasing consciousness of environment and health
– Increased awareness: Internet / Television
Impact
– Companies will be forced to become more socially responsible with
respect to production and waste treatment, etc.
– Products will have to adopt environmental and health friendly formulations
– The range of products will have to be diversified to bring India on par with
the developed paint markets
Factors
– Fragmentation of television audiences
Impact
– The media spend levels for national companies will become much larger
to cater to a fragmented audience
– Media planning will become increasingly complex for pan-Indian players
– New alternative methods of reaching consumers will have to be found
– Fragmented markets will allow Regional players to focus promotions on a
small area to strengthen their presence compared to the national player in
that market : Advantages of Concentrated resources
Factors
– Increased spending on Infrastructure projects
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Impact
– Protective coating products will most probably see the advent of new
technology
– Demand for these products will also go up substantially
Factors
– Automobile explosion / White goods
– Low Interest rates
Impact
– Low loan interest rates and attractive financing schemes have led to a
splurge on purchases of vehicles and white goods
– One of the highest growth rates in the automotive coatings market in the
world – 1 million plus cars, 18% growth – 26% + growth in two wheeler
segment - OEM market booming
– The organized second hand market is also gathering pace – demand for
refinish segment will perk up.
Factors
– New Technology
Impact
– New products are likely to be introduced in the Indian market. Some such
likely products are:
• Exterior Coatings with a 10 +year durability
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• Faux Finishes for interiors
• Non-drip paint
• Single Coat Finish
• Multichrome paints
• UV cured Coatings
• Water based specialty coatings in automotive and protective segments
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Charter 9
CONCLUSION
In this chapter let us first see that where is SCM going and what is the future of SCM
The next generation of supply chain systems will include supply chain process
management or event management capabilities. These capabilities will enable close
to real time, event based escalation of relevant pieces of information through the
organisation to appropriate individuals, who will then execute decisions to minimize
organisational impact and/or leverage opportunities created by this event. As an
example, a production scheduler based on real-time in-transit inventory information
will proactively mitigate (by adjusting production schedules, etc.) the unintended
consequences of a raw material shipment not arriving on time. However, that same
piece of information combined with the detection of a supply demand imbalance,
spotted by detecting a spike in the price of a related commodity in the spot markets,
can lead senior managers to conclude that the supplier may have suffered a major
outage in one of its units. Resulting strategies, potentially system-recommended,
could involve the following options: confirmation of the event with the supplier, an
examination of the possibility of replacing the material, or an assessment of the
impact on downstream value chain coupled with an evaluation of alternate suppliers.
Real-time visibility of the supply chain, combined with a monitoring and an event-
management system, will increase the proportion of decisions that are taken
preemptively to minimize unintended consequences or exploit unforeseen situations.
Increasingly, key decisions will be made by cross-functional teams, chosen explicitly
with the right skill set mix, and sometimes assembled just for the purpose of solving
the problem at hand.
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The demands for supply chain efficiency will emphasize a combination of both
centralized and decentralized structures and approaches—collaborative and
centralized planning with decentralized execution—requiring real time visibility for
monitoring and rapid response mechanisms for event-driven management involving
close to real-time problem escalation and remediation. Effective management of
supply chains will occur through the deployment of integrated organizational team
structures at multiple levels—executive through senior and middle management—
executed through physical and/or virtual facilities such as “war rooms.”
As in one of the previous chapters we have seen that the controlling of such a huge bunch of products is
very difficult and is not possible to attain a optimal formula to get all the products at the right time, at the
right place and also at the right price, which is one of the key area’s on which the paint company works.
The first area where the industry has to move is that they have to make the customer involved in the
process of purchasing the products, in fact the industry should try and make paint as a product that should
be a part of a person’s life. This should be done as a person is spending most of the time in a day in his
office or at his home and he is only able to see the colours of the walls. This has also been proved
scientifically also that the colours that are surrounding us have a major effect.
By doing the above they will first be able to create demand in the market, which will finally force the
dealers to stock the product in the market. This will improve the reach of a company in the market and will
create presence in the market.
By creating the presence in the market a company can create fast turnover of the product. i.e. the product
will quickly get cleared from the dealers counter which will finally help the company to quicken the whole
process and this will lead to an effective supply chain management. A company if have the fast moving of
the products from the counter can even plan things in a better manger as on the forecasting front. This
company can very well forecast that what will the market be demanding in this particular period. The
existing system of paint industry, which mainly runs on the rebates base, will also not affect the player; this
is because of the market demand that is been created in the mind of a customer.
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For getting best results of the promotions a company also need to educate the customer as to how to use the
products. This is needed because of the painter involvement in the final output of the product. if a painter
works well on the paint then only the paint will give the best result. As also been discussed earlier that if a
painter uses a 3rd grade paint in a proper manner and a 1st grade paint in not a proper manner then he will be
able to get a better result from the 3rd grade paint. This is the reason that a company needs to educate the
customer also so that the customer will be well equipped to supervise the whole process and will be able to
notice about the mistakes made by the painter.
In addition to educating the customer a company also needs to educate the painters in a better manner, a big
initiative is to be taken as to make a better class of painters in the country. This is needed as that by
improving the whole class of painters one is improving the whole paint industry. Painters are the first point
of interaction for the paint industry, even to many they are the only level of interaction for getting the work
done. To improve this some of the companies have taken the initiative as by introducing Home Décor by
Berger Paints and Home Solutions By Asian Paints. These two services that are been provided by these the
companies provides all the painting services to the customer. This service starts from giving quotation to
the customer to shifting the stuff back to the places where it was before the painting work started. This all
will be take n care by a well-educated executive of the company. By providing all these services companies
are trying to improve the customer satisfaction by getting the products from a company. This is one of the
most important focuses of the supply chain management.
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ANNEXURE – 1
These are the discussion guidelines made for the discussion with the company person’s for the research of
the thesis. They are also been headed by the topic for which the question was primarily been made and is
been used.
Discussion Guidelines for the Company person’s of various companies
BASICQ 1. What is the kind of sales organizational structure?
Q 2. What is the role of the company’s sales force in your sales?
Q 3. How do you decide the sales force size?
Q 4. How do you decide the quotas of the sales force?
Q 5. Who is the final customer for the dealers? Who decides upon the brands? (Painter
or the customer)
LOGISTICSQ 6. What is the logistic system of the company? How the product flows from the
company to the distributors and the dealers?
Q 7. Order processing time? How much is the order processing time taken by the
company to deliver the requested volume of amount?
Q 8. How reliable is the delivery to the dealer in regard to the invoice clarity, invoice
accuracy, delivered quantity and quality?
Q 9. How does the information flow of the same?
SALESPERSONQ 10. Does the salesperson understand the intricacies of the order cycle, order
processing, packaging, inventory control policies and delivery of the firm’s product
lines?
Q 11. How accurately the delivery is been made as is been promised to the dealer /
distributor.
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Q 12. Does the salesperson understand the intricacies of the order cycle, order
processing, packaging, inventory control policies and delivery of the supply chain
partner’s product lines? (How can the supply chain partner serve the market better)
Q 13. In the case of emergency does the salesperson intervene in the supply route and
recommend specific courses of action tailored to the supply chain partner’s operation?
Q 14. Wow is the performance of the sales team evaluated and what is the Rewarding
system of the company?
FORECASTINGQ 15. The forecasting techniques used by the company? Who decides upon the
forecasting of the demand in the market?
a.Kind of forecasting
i. Top down
ii. Bottoms up
Q 16. What kind of forecasting techniques used by the company?
Q 17. Is the forecast done by a combined effort of company higher management, the
sales force and the dealer?
Q 18. How much do you believe is the open communication in the market of your
company?
Q 19. Training program schedule of the company over the salespersons? To give the
salespersons the up to date and accurate knowledge.
Q 20. Reward system of the company?
ADDITIONALSQ 21. What is the effect of online selling on your business?
Q 22. What is the effect of the phone helplines on your business?
Q 23. What are the difference in the working of the tinting machines and the normal
conventional way?
Q 24. How often does a shade get obsolete? What happens to the lot left with the dealer/
distributor/ stockiest?
Q 25. What are the potential capabilities and limitation of his your firm?
Q 26. What is the strength and weakness in the supply chain partner’s work?
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ANNEXURE – 2
These are the discussion guidelines made for the discussion with the Channel Partners for the research of
the thesis. They are also been headed by the topic for which the question was primarily been made and is
been used.
Discussion Guidelines for the Dealers/Distributors of various companies
BASICS
Q. 1 What kind of channel member are you in the channel structure?a. Dealer b. Distributor
FORECASTINGQ. 2 How is the targets forecasting done? Are you always been included in the
forecasting process of the company?
Q. 3 What is your role in the forecasting?
Q. 4 How difficult is it to forecast?
Q. 5 How often do you achieve those targets?
Q. 6 How accurately you been able to forecast the demand in the market?
Q. 7 How often does a shade get obsolete? What happens to the lot left with the dealer/
distributor/ stockiest?
SALES PERSONSQ. 8 Role of the company’s sales force in your sales?
Q. 9 Does the sales person always knows about the time taken by the product you
order?
Q. 10 Do you always receive the delivery of product in time as been promised by the
sales person?
Q. 11 What happens to the response of the sales officer and the delivery if the order is
given on an urgency basis?
Q. 12 How much is the order processing time taken by the company to deliver the
requested volume of amount?
MARKETINGQ. 13 Who decides about the final decision of the brand of paint to be bought? (Painter or
House Owner)
LOGISTICSQ. 14 How accurate is the Delivery in terms of quantity of the product, quality, invoice
clarity, etc?
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Q. 15 Order cycle time?
Q. 16 What
all steps are involved in the product from the company to reach to the dealer? (for
tranceperency)
CUSTOMER SERVICE/ SATISFACTIONQ. 17 How offen the company do customer satisfaction surey?
Q. 18 What is the effect of online selling on your business?
Q. 19 What is the effect of the phone helplines on your business?
Q. 20 Have you taken a tinting from the company?
If yes.
a. What is the response of the tinting machines with you?
If No
b. Why have you not opted for one?
Q. 21 What are the difference in the working of the tinting machines and the normal
conventional way?
INTERFIRM RELATIONSHIP
Q. 22 Role of other channel members in your sales?
Q. 23 Do you voluntarily share the information with the company and share the
advantage you have in the market with the company?
Q. 24 Do you believe in the open communication in the market?
Q. 25 Do the company pass the favorable motives and intentions to the distributor?
Q. 26 Will you share the information’s with the company if they will take the initiative and
work for the better future of both the company as well as the dealer?
Q. 27 What is the amount of inventory do you carry with you? (Can be in value or no of days)
Q. 28 How much is the sales turnover you have with the company in a particular financial year?
Q. 29 Are there any other kinds of benefits you are been given by the company?
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ANNEXURE – 3
This is the list of some of the products that are regular in use from the bucket of Berger
Paints India Ltd. Many of these products have colours in the range of 20 to 50 fast
running shades. this adds up with the various packing available for the products.
000 - LUXOL HI GLS SYN ENL 190 - BISON SUPER EMLBS W0002 - BUTTERFLY GP SYN ENL 194 - WOODKPRLGNDEXTDGSELR003 - LUXOL HIGLS SNOWHITE 198 - WALM CLSC CREAM BASE004 - LUXOL HIGLS SMALL 293 - WALMASTA WHITES006 - BISON ACRYL DISTEMPR 294 - RANGOLI WHITES012 - HAPPY WL AC WL PUTTY 296 - BISON WHITES013 - WALMASTA W0 BASE 298 - WEATHERCOAT WHITES015 - LHG DAZZLING WHITE 381 - NT-UNIVERSAL COLORNT017 - WCOATSMT BROWN BASE 382 - BR-UNIVERSAL COLORNT019 - DUROCEM EXTRA 383 - GF-UNIVERSAL COLORNT021 - WK MELAMINE FINISH 384 - GC-UNIVERSAL COLORNT026 - RANGOLI SUP ACR EMLN 385 - BC-UNIVERSAL COLORNT028 - WEATHERCOAT SMOOTH 386 - BF-UNIVERSAL COLORNT034 - BISON SP DS BS PT WO 387 - VB-UNIVERSAL COLORNT035 - BISON SP DS YL BS PT 388 - MG-UNIVERSAL COLORNT038 - LUX G SPE BASE PTW0 389 - RD-UNIVERSAL COLORNT039 - LUX G SPE BASE PTW1 390 - SP-UNIVERSAL COLORNT040 - LUX G SPE BASE PTN 391 - RE-UNIVERSAL COLORNT041 - RNG FF SAE BASE PTN 392 - OR-UNIVERSAL COLORNT042 - RNG FF SAE BASE PTW1 393 - OC-UNIVERSAL COLORNT043 - RNG FF SAE BASE PTW0 394 - NS-UNIVERSAL COLORNT045 - LUX SLK SPL BS PT N 395 - LM-UNIVERSAL COLORNT046 - LUX SLK SPL BS PT WO 396 - WT-UNIVERSAL COLORNT047 - LUX SLK SPL BS PT W1 417 - B P WHITE PRIMER WT049 - APEXIOR NO. 3 421 - BP REDOXIDE PRIMER053 - WCOAT SM FN BS PT WO 422 - BP WHITE PRIMER054 - WCOAT TX FN BS PT WO 435 - RED OXIDE PRIMER055 - LUX PRL LST BS PT WO 460 - WDKPR LGND INT GLOSS056 - LUX PRL LST BS PT W1 462 - WDKPR LGND INT MATT058 - WCOAT SM FN BS PT W1 499 - RNG EASYCLEAN BSPTW0059 - LUXOL GOLD GREY BASE 665 - BP ROZC PR TO IS2074062 - SURERIOR ALUMNIUM PT 681 - WCOAT SM FN BS PT N1065 - WALMASTAEXTEMLSNBRBS 697 - RNG EASYCLEAN BSPTW1066 - LUXOLGOLDYELLOWBASE 699 - WALMASTACLASSICN1BS067 - LUXOLGOLDENMLBROWNBS 704 - LUXOL SATIN069 - COLORBANK PRIMER S/T 705 - LUXOL GOLD SATIN W0070 - COLORBANK PRIMER W/T 709 - WCOAT SM FN BS PT N072 - PARROT WOOD PRIMER 736 - LUXOL STAINERS
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073 - BP CEMENT PRIMER S/T 767 - A/A H/R BLACK IS-158074 - WOODKEEPER PU CWF GL 775 - WCOAT EXT PRIMER075 - WK MELAMINE SEALER 786 - RNG FF SAE BASE CREM077 - BP CEMENT PRIMER W/T 800 - THINNER 800 [ A/D078 - JADOO ENAMEL (White) 899 - WOODKEEPER MM THINER078 - JADOO ENAMEL (Colour) A07 - RNG EASYCLEAN BSPTN1083 - WALMASTACLASSICWIBSE A36 - RNG EASYCLEAN REG086 - CASTLE DRY DISTEMPER T12 - WOODKPRLGNDPUTHINNER088 - WCTSMOOTHCREAMBASEPT095 - JADOO CEM120 - BP INTERIOR FLAT179 - WDKPRFINESSEPUWOBASE180 - WDKRMLMNCLSCGLOSSYWO189 - BISON SUPER EML
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BIBLIOGRAPHY
Primary knowledge of the subject was been taken from the books
1. Supply Chain Management
By John T. Mentzer
2. Supply Chain & Logistics 2002
From the ET Intelligence Group (Mainly used the paint industry section)
Further knowledge was been gained from the full site of companies like
1. SAP
www.sap.com
2. i2
www.i2.com
3. The Council of Supply Chain Management Professionals
www.cscmp.org
4. Supply Chain Council
www.supply-chain.org
5. Economic Times Strategic Marketing
www.etstrategicmarketing.com
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In the case of gaining more knowledge of the market and the supply chain management the Logistics pages
of Economic Times have given me a lot of inputs.
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