GCPL makes strategic moves
Jayashree Mendes, Manufacturing Today, 01 May 2016
When you work with a company that has been around for more than 100 years and offers a combination of great careers and rewards, a good work environment and intelligent engagement, it's half the battle won. Pack in innovation and a spree of global acquisitions and strong on-ground execution, and you are set. With a keen eagerness, we set out to Godrej One, the company's new global headquarters at Vikhroli, to meet the two key people at Godrej Consumer Products Ltd (GCPL) - Vivek Gambhir, MD, and Dr Rakesh Kumar Sinha, head (global supply chain, manufacturing and IT), and understand how the imperativeness of globalisation has tempted them to acquire and absorb far-off competitors to achieve global presence. Importantly, and a tough one to meet, is the manner in which the duo have created great synergies and a respectful courtship.
Companies do not simply snap together like plastic building blocks. This is particularly true where different national cultures are involved, but even a cross-town merger can disrupt the key driver of value creation. The most important asset in any company is esprit de corps: the motivation of individual employees and their ability to collaborate in teams. And Gambhir understood that early on when he joined the Godrej Group in 2009 and was responsible for enhancing the strategic capabilities within the Group companies, guiding overall Group strategy, conducting portfolio analysis, leading M&As and driving special projects. He says, "What we have been trying to do over the last few years across the globe and at GCPL is bring in cohesiveness and focus into our strategy. So we took a good look at our portfolio, determined our strengths and looked at ways to become stronger. The first part was to understand places we have leadership positions. The second part was to plant seeds for the future and look at areas that could be new growth vectors for us over the next 10 years, while understanding what bets to place going forward."
In keeping with this, Gambhir set about defining the goals for the company through CREATE, the 10×10 objective and the 3×3 strategy. "CREATE is about defining the set of businesses we want to remain focused on, 10×10 was a goal in terms of the financial vision for the company over the next 10 years, and 3×3 is building a presence in three emerging markets (Asia, Africa, Latin America) across three categories (home care, personal care, hair care).
Innovating for growth
GCPL garners about 35-40% of its incremental growth through innovations. Gambhir says, "Besides looking at disruptive new products, there is a constant effort to invigorate the core portfolio through renovations."
One of its biggest successes in India, and it has been the first company to do so, is to launch a hair colour, Godrej Expert Crème, in a sachet. Recently it launched the deodorant gel In India in a tube format under the Cinthol brand. Gambhir says that besides being the first to the market, they are sold at disruptive price points. Most of the company's innovative products involve collaboration between R&D, packaging, manufacturing, marketing, and design.
GCPL does not follow the staid industry practices in its manufacturing too. For one, it refrains from looking for key trends it can spot through demand forecasting techniques. Dr Sinha says, "We run our supply chain largely without the need for a robust demand forecasting. Immaterial of the forecast accuracy, we run an efficient supply chain and meet consumer demand. That comes through cultivating an agile supply chain. We believe in tracking the market place on a daily basis through sale of our products and consider that as the trigger."
A little known fact in the industry is that GCPL is one of the few FMCG companies in India to implement a replenishment model based on Theory of Constraints (TOC). The fact that it eliminated forecasting implied that it needed to switch to a model like TOC to identify and empower the bottlenecks in the supply chain for quicker replenishment.
Dr Sinha stresses that the efforts of the whole organisation are directed towards fulfilling consumer requirements. "The first process is telling the employees that their main KPI is not shop floor productivity, but recognising and fulfilling consumer demand," he adds.
So how does the company realise if they are missing out if they are losing a certain amount of consumer demand in the absence of demand forecasting? Dr Sinha says with a smile: "When we start TOC implementation in a new country, we find that about 15-20% of consumer demand is unmet. We take steps to bring that to as low as 2-3%. That's a straight 12-13% increase in top line. The other factors that matter to us in manufacturing are steps to cut down costs, and make manufacturing more responsive. But overall, the employees must believe that we are here for the consumer."
GCPL manages 20 in-house manufacturing facilities across Baddi (Himachal Pradesh), Puducherry and has its biggest plant in Malanpur (Madhya Pradesh). A major chunk of the plants are in the North East. A facility in North East might increase logistics cost, but it is not concerned with that. So long as the cost to serve the consumer is lower, it makes good sense. Gambhir says, "The excise tax benefits we accrue are more than the logistics cost we incur. Our manufacturing strategy globally is also largely local. The main differentiator between us and other players is that we have kept manufacturing close to the consumer. So whether it is Indonesia, Africa, or India, our belief is that closer the manufacturing is to a consumer the more relevant we can be to tailor products to a consumer's needs and agile in serving them. Not only have we managed to increase production capacity and reduce conversion costs, but we are also making our overall system more 'green' by lowering specific energy consumption."
Dr Sinha is quick to jump upon the flexibility of manufacturing processes it has adopted in terms of Just-in-Time. It prefers that one assembly line make 20-30 different kinds of products instead of being dedicated to one product. Homing in on his favourite subject, Dr Sinha says, "This allows us to make production schedules switches, and now we have the capability to switch at short notice. We are the only company that makes daily changes in production schedule. Typically companies talk of freezing production to a particular schedule for a certain number of days. But we believe that the moment you freeze production schedule, you are doing a disservice to consumers. Some demand could go unmet. Hence, this flexibility allows some freedom. And we are talking about 100 different lines across the 20 facilities we have."
Acquiring global companies offers another advantage - strategic sourcing of raw materials, and if the same material is being sent to other factories, GCPL stands to gain as it can negotiate with suppliers as volumes increase.
An agile facility requires responsive software that will allow the manufacturing unit to plan and schedule production, implement lean processes, and manage lifecycle quality levels of goods. GCPL has turned to the SAP platform to run its operations in India and other geographies too. SAP manages the entire workflow right from the ordering system to distribution, also helping the company manage its supply chain. It uses APO (advanced planning and optimisation), a module of SAP to plan efficiently and manage the front-end distribution system. Since the company manufactures multiple products at a facility, SAP's Manufacturing Operations Solutions help them execute batch-managed materials precisely with continuous in-process control. Built-in reports detail batch lifecycles and quantities enabling product traceability. Some benefits the company has gained are: Higher asset utilisation; shorter manufacturing cycle time; improved on-time delivery performance; and lower procurement and manufacturing costs.
For its distributor network, the company has installed a separate package, G One (Godrej One), which is integrated in a seamless manner with SAP.
Across its global acquisitions, aiming at alliance and absorption was important to taste success. Gambhir says the principle it used was values based partnering. "We require strong local brands, and it is important that we do not over-integrate. We begin with selective integration where operational autonomy continues to remain with the local business, even when we feel the tremendous opportunity for synergies. So after an acquisition, we spend time in integrating the backend, which starts with IT and then finance."
This is followed by working with the local teams to identify synergies - mainly in the supply chain. "It could be helping the companies to reduce cost, improve manufacturing efficiency and productivity, and improve workforce engagement. We tell them that savings generated should partly flow to the bottom line and a certain amount ploughed back into brand building. It's remarkable that a few years later the foreign company would have seen a significant improvement after becoming a part of the Godrej group," says Gambhir.
The increasing global footprint could also mean a neck-and-neck competition against players who are also global in their approach. Hence, GCPL quickly needed to cater to customers who began demanding global packaging, global fragrances and global design. "We follow a multi-local model, centred on values-based partnering and operational autonomy at the local level. What has worked well for us is that in our categories we have become innovation leaders. As we start looking at bringing in more global benefits, it allows us to up the ante in terms of quality and innovation we can create in our products," says Gambhir.
The company is quite clear about the kind of acquisitions it wants to make: Remain focused in areas where it has a competitive advantage. The first choice would be the geographies it wants to focus on, followed by the category. "Typically, we acquire largely market leaders, who are strong and can be made stronger. Then we figure out whether the acquisition makes strategic sense before getting into due diligence. We tend to retain as many of the management team as possible. So lot of time is spent on the fit, the chemistry and the cultural alignment. An important metrics is economic value added (EVA). So we look for acquisitions that will break even or become EVA positive in 5-7 years. We are fairly conservative in the kind of valuations we need to pay; the reason we don't participate in bidding situations," says the Harvard educated Gambhir.
He reiterates that the advantages of working in a company that fosters the entrepreneurial spirit helps make a difference to people's lives, which is what GCPL wants to do.