When Marico Industries, the Rs 700 crore FMCG company, decided to set up its third manufacturing plant in Pondicherry, it wanted to cut down on outsourcing costs that amounted to Rs 4 crore annually. Hence, the company chose indiamarkets’ e-procurement and reverse auction solution, which has helped them reduce the total cost of outsourcing by 20 percent, says Akhtar Pasha

According to Rohan ajila, indiamarkets, which has 42 e-business centres across the country, was the only vendor who could meet Marico’s requirements

For over a decade Marico Industries has been manufacturing a variety of products including its flagship Parachute coconut oil. The company’s portfolio of nine brands includes Sil jam, Sweekar and Saffola cooking oils. Today Marico has six factories, 32 depots and 3,500 distributors spread across India.

Costly outsourcing process
Marico has two plants at Goa and Kanjikode that manufacture Parachute coconut oil. These plants have three Integrated Ancillary Units (IAU)—each of them catering to outsourcing processes such as blow moulding of oil containers, printing, filling oil containers and despatching the finished products to suppliers across the country. This procedure of outsourcing business processes to suppliers cost the company Rs 4 crore annually.

When the requirement for a third plant in Pondicherry came up, Marico decided to do things differently. In September 2001, Marico approached indiamarkets for its e-procurement and reverse auction services. indiamarkets’ e-commerce services include supplier catalogues, e-procurement and sales and distribution solutions and online and reverse auctions. These services are delivered using the Internet through a nationwide network of e-business centres from where suppliers can access an online marketplace. Rohan Ajila, the CEO of indiamarkets says, “During those times there was no other vendor who could have met Marico’s requirements. We operate from 42 offices in locations across the country with 200 procurement specialists who have domain expertise in 30 verticals and a database of 75,000 suppliers.”

In November 2002, the company decided to set up a plant in Pondicherry with three Integrated Ancillary Units located within the plant premises. The idea was to slash outsourcing costs and improve process efficiencies, thereby boosting the bottom line by increasing sales and marketing revenues. Moreover Ajila adds that with all three IAUs within the premises, the company could do away with the existing fragmented structure of the supply chain and help in bringing down transport costs and time. This also helped cut down its list of suppliers. Getting trusted suppliers in a short time was the most challenging task, say Marico officials. Says Ajila: “After getting the project our first step was to identify the right kind of suppliers. Marico had given us some parameters for the selection process,” says Ajila.

Zeroing in on key suppliers
In the first phase, indiamarkets identified thirty-three suppliers from fifteen locations across the country. Ajila says, “All our 42 e-business centres across the country took part in identifying suppliers. We did the selection process using our procurement management service.” After the physical validation of suppliers (this process involves conducting interviews with suppliers, making factory visits to check their expertise and infrastructure), indiamarkets, in collaboration with Marico, narrowed it down to ten suppliers. “The entire process of screening the suppliers took 45 days,” adds Ajila.

Prior to the auction, the participating suppliers were familiarised with the rules and procedures of the bidding mechanism by the indiamarkets team. A team of indiamarkets experts trained the short-listed suppliers on using indiamarkets’ reverse auction engine that uses Ariba’s ‘Dynamic Trade’ e-business engine to conduct online reverse auctions. indiamarkets has networked 200 PCs to Dynamic Trade used in the online auction. The back-end database is on Microsoft SQL Server 2000. Three IBM Netfinity and three Sun E250 enterprise servers are being used for the e-procurement system.

In April 2002, Marico’s Pondicherry plant went on stream with three IAUs set up by suppliers to cater to the entire process — supplying oil containers, labelling of containers and supply to dealers and distributors across the country.

Payback
Harsh Mariwala, the CEO of Marico Industries, says, “indiamarkets brought their project management expertise in addition to understanding our business processes, thereby helping us to get this project up and running in five months. The tangible benefits are—we have been to able to reduce total cost of outsourcing by 20 percent in just five months of operations, which otherwise used to cost Rs 4 crore per annum.” Without actually travelling to each supplier’s premises, Marico has got the best of the lot and that adds to the other benefits of using indiamarkets’ solution.

Marico today looks to a future without the procurement bottlenecks faced by its competitors. The company is evaluating the pros and cons of adopting a similar system at its existing plants at Goa and Kanjikode that continue to use conventional outsourcing processes.