A sweet Transformation

The lines of a com mercial, featuring a girl happily savoring a candy, scream

"Enjoy Cofitos ka Jaadu". Though this is not something that crosses

your mind while you relish your candy, the maker of Cofitos and Alpenliebe,

Perfetti, has indeed come a long way down candy lane.

Perfetti VanMelle, an Italian-Dutch major in the world of confectionery, came

to India in 1994. Since then, it has grown by leaps and bounds to become India’s

No. 1 gum and candy company (approximate revenues of Rs 250 crore).

In India, Perfetti VanMelle’s offerings include Alpenliebe, Mentos,

Chlormint, Center Fresh, Golia and Cofitos. In India, Perfetti VanMelle is

headquartered out of its corporate office in Gurgaon and has plants in Manesar

and Chennai.

IT-driven Improvements Market intelligence software gives critical data on market and competition Inventory optimization Quicker and better decision-making Per-unit costs have been stable, as efficiencies have been improved

Sweet tooth, complex dynamics



The confectionery space is known by the following characteristics–highly

price-sensitive, extremely low value, and a distribution-driven market. While it

stands at Rs 1,200 crore, a Mckinsey-FICCI report predicts that this segment

would soar to Rs 6,000 crore by 2004. With major players such as Nestle, HLL and

Gujarat Co-operative Milk Marketing Federation eyeing this space for a bigger

bite of the pie, competition can only heat up. Other operators in the same space

include Joyco, Candico, Parle, Ravalgaon and Cadbury.

Since the pocket money of children does account for a bulk of confectionery

purchases, pricing is low and generally under Rs 1. Prices of key brands have

been more or less constant over the past five years, leading to a massive

pressure on margins. This has led to companies thinking of new strategies, such

as moving from low-margin products like toffees and candies to higher-margin

products such as gum and chocolate confectionery. There is, thus, an attempt to

reposition confectionery for the entire family, as against the earlier

perception when only children were the expected target audience. Faced with such

a challenging background, Perfetti had to look inwards to improve efficiency and

ability to capture greater marketshare. IT proved to be a vital tool in this

process.

An intelligent transformation



What is remarkable in the case of Perfetti has been the transition from

being a low-IT-usage firm into an IT-savvy and networked enterprise within a

span of three years. From a few PCs and scattered platforms to the standardized

system in place today, it has been a long journey. Says Sandeep Parikh, head

(IT) at Perfetti India, "The effects of the ramped-up IT resources within

the firm have definitely been felt by the enterprise as a whole." In 1999,

Perfetti did not have a proper IT infrastructure in place. The IS infrastructure

consisted of a number of assembled PCs, some software packages like FoxPro

installed on them, and no WAN in place. Parikh decided to build a foundation of

an information architecture highway and went in for deploying WAN. To address

the issue of connectivity, Perfetti deployed VSATs through its vendor HECL. It’s

connectivity is a hybrid mix of VSATs, VPNs, radiolink and ISDN. This resulted

in an extremely flexible, scalable and robust network. Facility management was

outsourced to IBM.

In late 1999, Parikh came out with an IT security document which specified

the deliverables to other end-user departments–rules on e-mail usage, data

ownership, back-up policy creation and vendor contact details. This was

essential, given the small size of the IS team, with a strength of only four

employees.

Once the infrastructure had been built, it acted as a facilitator for

information sharing between different departments. Lotus Notes mail messaging

was implemented to share databases and presentations. This helped the marketing

team take quicker decisions on analyzing competitor campaigns. The hardware

component was standardized by doing away with the assembled PCs and installation

of branded PIII PCs. Licensed software was installed and standardized across

various locations. Weekly sales information began to be sent out as SMS on the

mobiles of key individuals within the organization to enable quick and location

free access of data. The knowledge management initiative allowed discussion

forums on different topics.

IS Challenges Ahead Giving more accurate secondary sales data to retailers Keeping abreast with technology obsolescence Ensuring user-ownership of applications

After a detailed analysis of its requirements, Perfetti decided to go in for

an ERP deployment. As the level of customization was high and costs had to be

kept under control, Perfetti India conceptualized an ERP package called JIT

in-house and this was developed by Rensol Systems. Implementation began in

October 2001 and the rollout took place in April 2002. Says Parikh, "The

customization required was to the order of 35-40%, which was not possible in the

major packages offered by ERP vendors. Also, in the FMCG segment, which is a

high-value game, supply chain costs could change overnight, and this

functionality is not provided by the larger vendors." ERP costs came to Rs

40 lakh over 40 locations, a remarkably cost-effective

approach. Parikh adds, "The costs are one-sixth of what we would have

incurred if we chose one of the conventional packages."

There is a 5Kbps WAN link over VSAT. Only filtering is done, with no IP

traffic flows and no broadcast. The central server resides at the headquarters

in Gurgaon.

Perfetti’s e-business initiatives are currently limited to conducting

reverse auctions at the emarketplace 01markets.com. Here, the firm buys bulk

material from different bidding suppliers, thus saving costs. Asked why there

was no move to increase business on the Internet, Parikh says, "Selling

confectionery on the Internet would not make sense, given the low value per

unit, which is usually 50 paise".

Gaining a competitive advantage



Infotech has clearly been used to deliver a competitive advantage to the firm.
This is evident in quicker decision-making, faster turnaround times and an

optimization of inventory cycle.

Perfetti uses its market intelligence software, which has critical

information on the market, competition, and is extensively used for

decision-making activities. Says Parikh, "This is indeed an asset and has

never failed us."

In addition, voice over IP, webmail and chat–frequently used and forming a

critical backbone for the organization, allow for interaction with remote

locations. These have helped in reducing communication costs.

Parikh adds, "The proof is that per-unit costs have been stable for

years. This would not have happened except for improved efficiency." As the

confectionery industry begins to heat up, every contribution made towards

retaining and even enhancing the competitive edge would be welcome. Given this

high-volume, low-cost scenario, IT initiatives have started yielding dividends.

Building a robust IT infrastructure and ensuring timely availability of

information is a step in that direction.

But the road ahead is not all smooth. Major IS challenges ahead include

giving more accurate secondary sales data to retailers, coping with technology

obsolescence and ensuring user-ownership of applications, complete management

support being essential for the success of the IT transformation. Says Parikh,

"Without that, no initiative would succeed".

With competition becoming tougher by the day, it may just be IS initiatives

like these that could provide that extra edge.

Amit Sarkar in New Delhi