Volume 4, Issue 10, October – 2019 International Journal of Innovative Science and Research Technology

ISSN No:-2456-2165

Application of Operations Research in Supply Chain

Management of FMCG Industry
Sinjini De Sarkar, Sakshi Kanchan, Shaurya Manohar, Saumya Patodia, Senthil Ramachandran

Abstract:- It is essential for FMCG companies to profit margins of FMCG goods. Therefore , using
manage their supply chain by reducing costs and at the operations research tactics on supply chain management on
same time maintaining quality of their products. In this FMCG goods is important as they will make sure that the
paper we have tried to explore ways in which we can products are profitable while also ensuring that the
make a small aspect of supply chain a little more products are available at the right place at the right time.
efficient, and sustainable in the process. The first
technique looks at how to optimize the delivery of For example linear programming models can be used
products to minimize costs. This includes finding out to reduce the production, distribution and the inventory
number of units to be transported so that demand as costs while maximising profits. Here we are also going to
well as supply is satisfied. The second technique assume perishability of products is also an important factor
analyses the product mix that should exist within a to be considered while optimizing the problem. This is
truck to maximize weight constraints and reduce because the retailers will expect to have a certain amount of
number of delivery times. The third technique used is shelf life left when they receive the product. Therefore, the
the vehicle routing method, to account for efficient only a part of the shelf life can be used up during the
logistics taking into consideration time and cost supply chain process. Also another reason is because if
constraints. shelf life is not considered then some of the goods may
exceed shelf life period causing the company extra disposal
Keywords:- Supply Chain Management, FMCG, costs. Due to this some of the demand will not be utilised.
Transportation Problem, Linear Programming, Vehicle This will cause loss of missed sales.
Routing, Sustainability.
II. OVERVIEW OF THE INDUSTRY
I. INTRODUCTION
Most authors have emphasised on the broad scope of
“Liquidity constraints and lower farm incomes will supply chain as a systems in the value chain far beyond just
likely affect revenues at India’s leading consumer the traditional production-to-customer concept. Supply
companies.” Economic Times (Sagar Malviya, Sanam chain management covers the processes of demand
Mirchandani, 2019)s. The FMCG is facing a huge management, manufacturing planning and scheduling,
slowdown in the past 4 quarters due to the reducing inventory management, order processing and fulfilment,
consumption in the rural market. The consumers are warehousing, transportation, distribution management,
shifting Towards cheaper and local daily essential goods in import/export management, product development,
the urban and the rural market. The statistic shows that the promotions planning, and customer service. (Gupta,
revenue earned has fallen from 16.5% in the July- Managing Supply Chain in Indian FMCG Sector , 2002). A
September in 2018 to a 2 year low of 10% in the June customer-focused definition is given by Hines (2004:p76):
quarter this year. Even the FMCG index in BSE has "Supply chain strategies require a total systems view of the
dropped by 7.4% in 2019. All of the above facts are links in the chain that work together efficiently to create
indicating to economic slowdown in the near future for the customer satisfaction at the end point of delivery to the
FMCG sector in India. consumer. As a consequence, costs must be lowered
throughout the chain by driving out unnecessary expenses,
Fast Moving Consumer Goods (FMCG) are movements, and handling. The main focus is turned to
commonly named as consumer packaged goods. Items in efficiency and added value, or the end-user's perception of
this category include all types of consumables other than value. Efficiency must be increased, and bottlenecks
groceries/pulses. The FMCG products are normally used up removed. The measurement of performance focuses on
within a short amount of time.it ranges between a couple of total system efficiency and the equitable monetary reward
days to a year. Therefore they are quickly substituted when distribution to those within the supply chain. The supply
they are not available. Due to this large quantity of goods chain system must be responsive to customer
are sold which gives a high profit margin despite the low requirements.”

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Volume 4, Issue 10, October – 2019 International Journal of Innovative Science and Research Technology
ISSN No:-2456-2165

Fig 1:- Supply Chain for a Manufacturing Organization (Supply Chain Management ) by Welingkar

Fig 2:- Supply Chain for a Service Organization (Supply Chain Management ) by Welingkar

 Fast-moving consumer goods (FMCG) and, due to time constraints, barely get time for cooking.
Sector is the 4th largest sector in the Indian economy (IBEF, 2019)
with Household and Personal Care accounting for 50 per
cent of FMCG sales in India. Growing awareness, easier Thus Supply Chain management using quantitative
access and changing lifestyles have been the key growth methods is about optimizing the millions of decisions that
drivers for the sector. The urban segment (accounts for a need to be made by the company every day, computers
revenue share of around 55 per cent) is the largest play a central role in this undertaking. SCM at present is
contributor to the overall revenue generated by the FMCG about taking digitalization one step further.
sector in India.
To some extent, Quantitative Supply Chain was born
Rural consumption has increased, led by a out of those mistakes: instead of pretending that the system
combination of increasing incomes and higher aspiration somehow knows the business better that its own
levels; there is an increased demand for branded products management, the focus needs to place on executing the
in rural India. The rural FMCG market in India is expected insights generated by the management, but with a higher
to grow to US$ 220 billion by 2025 from US$ 23.6 billion degree of reliability, clarity and agility. Software
in FY18. In FY18, FMCG’s rural segment contributed an technology done right is a capable enabler, but, considering
estimated 10 per cent of the total income and it is the present capabilities of software, removing people
forecasted to contribute 15-16 per cent in FY 19. FMCG entirely from the solution isn’t a realistic option.
sector is forecasted to grow at 12-13 per cent between (Lokad.com, n.d.)
April–June 2019.
III. RESEARCH OBJECTIVES
On the other hand, with the share of unorganised
market in the FMCG sector falling, the organised sector 1. To understand the overall value generated by the levels
growth is expected to rise with increased level of brand of value chain of the product by increasing the
consciousness, also augmented by the growth in modern efficiency of supply chain using OR techniques.
retail. 2. To discuss possible reduction in supply chain costs by
working on logistics and truck turnaround time.
Another major factor propelling the demand for food 3. To elaborate on possible application and knowledge of
services in India is the growing youth population, primarily supply chain management to reach the maximum
in the country’s urban regions. India has a large base of possible consumer group in the FMCG sector.
young consumers who form the majority of the workforce

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Volume 4, Issue 10, October – 2019 International Journal of Innovative Science and Research Technology
ISSN No:-2456-2165
4. To find applications of sustainable methods in supply The possibilities of applying Operations Research
chain to help FMCG industry work towards a more (O.R.) techniques in the design of real-world systems are
green model. vast. The optimization and design of the supply chain
network (SCN) is one of the relevant topics that has
IV. RESEARCH METHODOLOGY directed the attention of many scholars. Sound decisions in
this regard, including the proper selection of the facility’s
We have referred to 12 research papers and 5 articles location, transportation modes and routes and inventory
related to supply chain management in various industries management policies, can noticeably improve the systems
for the purpose of understanding the processes and applied performance. We have relied on secondary data for our
the concepts to write our paper on supply chain in FMCG paper on the basis of current practices adopted by
industry. We have only used secondary data as a means of conglomerates and the upcoming FMCG companies to
data collection. The first technique used is transportation increase the scope of their supply chain to integrate
problem and formulated the same using references from a sustainability as well as cost- effectiveness into the models.
research paper. The second technique used is Linear
Programming Problem where-in we have formulated the VI. FINDINGS AND ANALYSIS
equation to show how to optimize truck utility. And thirdly
we have explored vehicle routing problem to minimise time A. Transportation Problem: (Federal, 2014)
and cost utilisation. We have also written about the future Transportation problem is a type of linear
capacity of a sustainable supply chain management system. programming problem with the objective of minimizing the
cost of distribution of a product from a number of sources
V. LITERATURE REVIEW say for eg warehouses to the destinations which could be
retail outlets. In the case of supply chain problems,
Supply chain has been a topic of wide discussion and transportation problem methods can be used to identify the
importance ever since the advent of the Industrial best possible methods through which we can satisfy
revolution. This is simply because of the fact that supply demand taking into consideration supply constraints at the
chain has increased its definition by leaps during the past minimum cost possible.
two decades. FMCG is the sector that caters to the biggest
demographic pool in the world and thus has been a point of To demonstrate how the technique can be used we
contention for increasing its efficiency and effectiveness to assume an FMCG company subsidiary ABC Ltd.
the maximum communities in the world. All FMCG
companies follow a point of contention to increase their The company has 4 plants and 5 retail outlets. The
sales by playing on their reach in deeper markets of India following outlines the transportation problem table.
as these are inelastic products, and even a slight change in
price could trigger a price war within the big players in the 1 2 3 4 5 Supply
market. Though the consumers could benefit from the A 960 720 1080 1200 480 15
same, this would resist the entry and sustainability of
smaller players. That is when these companies try to B 672 792 864 1080 624 15
instead tweak their production cost ,i.e., cost incurred in the C 1008 864 1584 360 552 15
supply chain process. Transportation cost represents D 1272 792 528 288 864 15
approximately 40 to 50 percent of total logistic costs and 4
to 10 percent of the product selling price for many Demand 8 12 10 11 19
companies. (P.Shirisha, 2014). Therefore, transportation Table 1
decisions directly affect the total logistic costs.
Transportation being an important component of supply  A, B, C, D are the supply centres in the warehouses
chain competitiveness has also been a major focus area for  1, 2, 3, 4, 5 are the retail outlets.
studies by authors on refining the efficiency using  The cost consists of transporting goods in each truck.
operations research.  The transportation cost is assumed to be Rs 12 per mile
which consists of maintenance, fuel, personnel and
One of the constructs to improve supply chain loading on and off.
efficiency is to look at truck utilization. (Joris van de  This cost is multiplied by the distance between each
Klundert, 2011)explore different models to improve the supply and demand centre and multiplied by 2 to get
Less than Truckload (LTL) utilization. The argue that the roundabout cost.
motive is to increase the vehicle utilization of already
scheduled road transportation activities which not just After solving this particular transportation problem,
benefits the freight sender by reducing costs but also we can arrive at the best possible allocations of truck routes
reduces congestion and pollution for the society at large. with lowest cost.
These models were established and put into practice with
the help of O.R. techniques and finally refined by AI in the
modern days.

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ISSN No:-2456-2165
B. Linear Programming Problem: (Chikhalkar) (Banik,  The first problem is to vehicles to customers, where
2011) either multiple vehicles need to be delivered to a
In our research paper we have used Linear customer, multiple destinations, where one customer
Programming Model to decide what product mix to put on needs to be served more than once etc.
a truck to either minimize weight, volume or floor position.  The second kind of problem arises when we need to
In our research we have decided the objective function to create sequences in cases where trucks need to deliver
be minimization of weight however it could be either of the to customers as well as pick up goods from certain
other two as well. places. This means finding out the ways in which trucks
can get to the assigned destinations keeping constraints
In this study we pick a particular customer who has such as order of delivery in mind.
enough demand or orders to formulate the linear  The third kind of problem deals with time constraints
programming problem. In our case we have assumed the with respect to the customer.
customer to have order 5 shipments in a period of one
month. The three ways in which we can help solve the
problems are,
To create the linear programming problem we define  Vehicle Flow Formulation : Integer Variables are used
the objective function along with the constraints. More to find the solution.
weight is allocated to the initial shipments and then  Commodity Flow Formulations : Additional Integer
decreased as the shipments increase. This is called Variables are used to take into consideration flow of
decreasing-weighted average objective function. This is commodities.
done to maximize the weight progressively.  Set Partitioning Problem : Developing the Set Partition
Formulation In the SPP formulation each of the
 Objective Function : columns represent a (feasible) route, and each of the
5(Truck 5 Xi* Weight) + 4(Truck 4 Xi* Weight) + rows represent a customer. So aij = 1 if customer i is
3(Truck 3 Xi* Weight) + 2*(Truck 2 Xi* Weight) + included into route j. For each subset of customers Sj
1*(Truck 1 Xi * Weight) the cost cj is determined by solving a Transportation
Problem over the customers.
Xi are SKU decision variables and Xi is binary with 1
representing that a SKU has been selected for a shipment, VII. SUSTAINABILITY IN SUPPLY CHAIN
or 0 representing that that SKU has not been selected for a MODELS
shipment.
Supply chain is the first link of the manufacturing
Subject to constraints : industry to its output and hence provides the possibilities to
Weight : ∑Wi * Xi ≤ 50000 say gain a factorial-fold gains from incorporating sustainable
Volume : ∑Vi * Xi ≤ 5000 say practices at this stage of the value chain.
Floor Position : ∑F * Xi ≤ 30 say
As and how supply chain management (SCM) added
Using this objective subject to these constraints we to its scope of definition, different policies and means have
can find out the optimal number of trucks by maximizing been taken into consideration for increasing competence of
weight which could eventually result in a decrease of the SCM activities. The emergence of lean Supply Chain
number of trucks required and hence cost of transportation. brought in the established concept of efficient utilization,
where cost reduction, flexibility and process improvement
C. Vehicle Routing Problem (Shukla, 2017) were targeted through the minimization of different types
This technique is used to find out the optimal route of wastes in the system. After a few years, agility was
that can be used taking into consideration time and cost introduced as a competency with the aim of developing an
minimization. Under vehicle routing problem there arises Supply Chain with a high ability to respond to the market
three kinds of problems. changes.

Fig 3

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ISSN No:-2456-2165
These models have been put in place with a manufacturing sector which could make or break a
significant success rate ranging from providing both sustained growth trajectory.
economic and environmental aid. Since the Paris Peace
Agreement, climate change and global warming has The following numbers elaborate that to cut their
become the major concerns of international society leading emissions in line with the Paris target while increasing
to a surge in scientific and technological solutions for sales at the projected rate of 5.3 percent a year, FMCG
various business aspects. The ‘green’ concept has evolved companies would have to lower their carbon intensity—the
rapidly to reduce pollution and the negative environmental amount of greenhouse gas emitted per unit of output—by
impacts of Supply Chain activities. Supply chain efficiency more than 90 percent between 2015 and 2050. (Swartz,
have proved benefits for profitability and is soon going to n.d.)
be the differentiating factor for both the service and

Fig 4

VIII. CHALLENGES also that how long will the product last at the customers
shelf. However this can be solved using the vehicular
 Shelf Life routing model.
Not all FMCG products have a good shelf life. A lot
of these products need to from producer to retailer to For example- A grocery store owner figures out that
customer within a couple of days. This makes the linear buying a particular product having a shelf life for 5 days
programming and the transportation problems more from seller A is more efficient than buying it from seller B.
complicated as it adds a time constraint to it as well. The He also finds out that seller A takes 3-4 days to get the
business owners now have to bring into consideration that product from the manufacturer/farmer whereas Seller B
for how long can the product stay in their own shelfs and takes only 2-3 days. The grocery store owner might prefer

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Volume 4, Issue 10, October – 2019 International Journal of Innovative Science and Research Technology
ISSN No:-2456-2165
seller B as the product might expire even before he could [5]. Sagar Malviya, Sanam Mirchandani. (2019,
sell or it might expire after one day after the customer buys september 19). The Economic Times. Retrieved from
the product. The Economic Times:
https://economictimes.indiatimes.com/industry/cons-
 New Technology products/fmcg/worst-fmcg-show-likely-in-15-years-
Operations research was made easier by developing credit-suisse/articleshow/71193810.cms?from=mdr
advanced computer and machines. It made easier for [6]. Supply Chain Management . (n.d.). Welingkar.
business owners to find the best routes and ways to [7]. P.Shirisha, G. K. (2014).
transport the products. Technology has grown even more [8]. Chikhalkar, R. (n.d.). Analyse and design an Efficient
and instead of helping the growth of complimenting Logistics System.
operations research, it’s working towards substituting [9]. Banik, J. (2011). Modeling Order Guidelines to
operations research. Improve Truck Utilization. Massachusetts Institute of
Technology.
Automated truck loading system, a method [10]. Federal, A. I. (2014). Supply Chain Management
companies are working on where the trucks will be docked Optimization Problem.
to the machines at the factory. These machines will put the [11]. Shukla, H. (2017). Application of Operations
products directly into the truck according to the orders. Research in Logistics and Warehouse Optimization.
This is expected to work by 2025 and will completely [12]. Joris van de Klundert, B. O. (2011).
nullify the use of OR in this particular scenario. [13]. Swartz, A.-T. B. (n.d.). McKinsey.com. Retrieved
from https://www.mckinsey.com/business-
IX. LIMITATIONS functions/sustainability/our-insights/starting-at-the-
source-sustainability-in-supply-chains
 Inadequate time to research well enough about the
supply chain pertaining specifically to FMCG products.
 Lack of technical knowledge on how to simulate real
life situations to give a more holistic perspective into
the working of the supply chain.
 Limited access to related research papers and journals
and other such resources to deepen our knowledge of
the entire system.

X. CONCLUSION

This research paper attempts at finding out the most

obvious problems and summarizing how it could be solved.
It shows that trucks are not fully optimized according to
their weight, volume and floor capacity and companies
could look into optimizing either one of them or in
combination to optimize the delivery and reduce costs. It
also looks into problems of finding best possible routes and
sequence of routes to satisfy not only the order but also the
time constraints.

REFERENCES

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https://www.researchgate.net/publication/287813236
_Supply_Chain_Management_in_Indian_FMCG_Sec
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Managing Supply Chain in Indian FMCG Sector :
https://www.researchgate.net/publication/287813236
_Supply_Chain_Management_in_Indian_FMCG_Sec
tor
[3]. IBEF. (2019, August). Retrieved from
https://www.ibef.org/industry/fmcg.aspx
[4]. Lokad.com. (n.d.). Retrieved from
https://www.lokad.com/introduction-to-quantitative-
supply-chainv

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