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

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