An Ict Analysis Of Global Shampoo Industry

Shampoo Industry Lecturer: Mr. Daniel Vidal Batch: MBA – `83 Module No: 4.702 Managing Information & Technology

Assignment Due Date: 22nd July 2008. Name: Keyurkumar Shukla (20080542) Rakesh Modi (20080524) Shaurin Patel (20080541) Yaseer Arafat (20071229)

(Word Count: 3346)

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Executive Summary: The purpose of carrying out the Shampoo Industry Analysis is to study the ICT used by them internally and externally. Shampoo Industry uses various ICT’s effectively for the purpose of Growth and development. For this analysis, we have analyzed Shampoo Industry by using Porter’s 5 Force Model and showed the Positive and Negative forces with High and Low Power. We have also done Implications of ICT in the 5 Force analysis. After that we have done Internal Analysis of this Industry by using Porter’s Value Chain Model. We have analyses Linkages in the value chain and further marked the ICT’s for increasing the value of the Industry. We than finally Concluded our Report on a note that Industry is reaching at the saturation point but they are fighting hard with the help of ICT’s for survival and managing profit with the race of Innovation and Imitation. Further more we have given our Recommendations to finish the Analysis. Objectives: •

How to convert Negatives into Positives by using ICT’s in Porter’s 5 force Analysis.

•

How to add Value by showing linkages using ICT’s

•

How to sustain for long run in the rat race of Innovation and Imitation.

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Table of Contents: 1) Introduction………………………………………………………………………. 2) Porter’s 5 Force Analysis with Implications of ICT’s……………………………

3) Value Chain Analysis……………………………………………………………… 4) Conclusion…………………………………………………………………………. 5) Recommendation…………………………………………………………………... 6) References…………………………………………………………………………

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Introduction: History: The word “Shampoo” was originated from Hindi (Indian) word “champi” which on purpose means “to massage”. It was originated way back in the year 1762. To begin with it was actually Hair and scalp massage provided in British Saloons. The first detergentbased hair product was innovated in Germany in the 1890s; it was this innovation that give shampoo identity as a cleaning material. (Dave D, 2008) The first powder shampoo was developed by a famous company of Germany named Schwarzkopf Professional in 1903. Another Innovation in this industry was seen in 1927 by the same company was the first liquid shampoo in front of the world. (Schwarzkopf, 2007)Further Innovation entered this industry with the use of the technology and in 1960s the real form of shampoo that we are using today was first time ever introduced. (JRank, 2007) The Industry: Shampoo is part of Fast Moving Consumer Product (FMCG). FMCG are the products that consumer use on frequent basis. Shampoo is one of the most frequently moved products which are used for cleaning of hair. With the world Shampoo Industry, New Zealand also plays a part in Manufacturing of Shampoo. Some Industry in New Zealand is in Manufacturing of main surfactants like alkanolamides, betaines, cocoamidopropyl betaines, amine oxides that are used in Shampoo. New Zealand also imports the same product from countries like Australia, Asia and rest of the world. (Foster I)

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Furthermore, FMCG goods are also said to be the goods that has low manufacturing and low consuming cost that’s why they are called quick movers. This Industry is also as other FMCG Industry is both adaptable and responsive. Proctor & Gamble, Unilever are couple of best example of the FMCG Industry as they are in the top 5 organization operating in the FMCG arena. (Mingrong Li, 2007)

Industry Analysis: Porter’s Five Force Model:

Potter’s five forces for Shampoo Industry Power of Buyer

Threat of New Threat created by

entrants

(-ve)

New Entry in the

that decreases Firm’s effectiveness

Same field

Power of Supplier

(+ve)

Competitive Rivalry Competitors in the

Power of Buyer

(-ve)

(-ve)

same product

Supplier apply products which cease or decrease Firm’s power

Threat of substitutes

Substitutes implicate

(+ve)

Same or better alternative product

The above mentioned figure shows the Porter’s 5 Force Model which is used in analyzing the Industry. Here, we use it to analyze the Shampoo Industry. This is actually the first step of the industry analysis. If a strategist wrongly delineates any of this strategy in the

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analysis, the Industry analysis is blemished. This analysis provides the viable advantage. Now we will peep in the Shampoo Industry using the Porter’s 5 Force Model.

Porter’s 5 Force Analysis: (Insinuation of the use of ICT in Shampoo Industry) Threat of New Entrants: The threat of New Entry is quite high in the Shampoo Industry. This is the Perfect competitive Market, so it is open for any body. So entry is quite easy. But there are many back foots as well such as, in this Industry if there is a new entrant trying to enter this industry he can’t justify himself or measure himself in Economies of Scale. He can’t do mass production to start of with! The current players in the industry i.e. if we talk about UniLever or Proctor & Gamble (P & G), a small player can’t compete with them as they are big brands. This is the product that deals in the FMCG market hence; it would not be easy to switch cost for the new entrant. There would be a huge amount of Capital requirement to compete to this big brands so it’s not easy to invest right from the word go. Hence, Threat of New Entrant is high and the Force that’s why is Positive for the Shampoo Industry. Implication of ICT: Here current firms that are operating in the Industry spend so much time and money power in the Research & Advancement Program. This kind of R & D increase the value for an industry as it improves the product that results into the extension of the product life cycle. For new Entrants this is not easy. They can’t directly come and compete with these

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players to start of with in the firm with well established and Hi tech complied technology of established players. Power of Buyer: In today’s high competitive era Buyer is the most attentive part for the Industry. In Shampoo Industry buyer are the retailers/distributors of the product. Buyer always looks out for the extra bit that they can acquire than the real time. Buyers always play for the dilution of an Industry. In Shampoo Industry the Power of Buyer is certainly high which makes this force –ve for the firm. Buyers have certain variety and likings of the products. They always look out for the cost effectiveness and in good quantity. They sometimes go for less quality but some are also interested in that. This thing forces a firm to switch their costs. They always look out for Incentives. They also have their own liking for particular brand. Hence all these makes Buyer power high which makes this force –ve. Implication of ICT: ICT can be used to lower down the buyer’s power in the following ways. Implementation of cost effective sachets instead of shampoo bottles to attract buyers was the best example of ICT implication. It cut the cost of production and buyers gets good and better incentive on selling that. And because of less quantity in sachets the sales also zooms up. Also now with the use of Internets the ordering has also become easy and due to this the buyers has in time delivery of stocks. The company using ICT to manage all this can decrease buyer’s power to some extent.

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Competitive Rivalry: Shampoo Industry has the enormous growth rate as it is the FMCG product. In this industry the competitive rivalry is quite high and it is always negative for a firm operating under this kind of Perfect Competitive market. There are number of players in the industry. They all are competing with the same kind or imitative products so the competition level is quite high. More over in the present time of mall culture, every product is kept side by side so the rivalry becomes more extreme. A plus point is there is fast movement in the product so there are high chances of survival as well. Implications of ICT: There could be much done with the use of ICT in the Shampoo Industry to achieve advantage. Firstly as some of the big player dose can eat up or merge small firms to gain advantage. Now with the use of ICT big players plays an important role in R & D as and improve technology cut down cost add features and differentiate their product to gain advantage. The journey of Shampoo Industry from “Chumpi” in 1762 to ‘Soap Powder” in 1890’s and from “soap Powder” in 1890s to Normal liquid shampoo in 1960s and still innovations are going on for different kind of hair different shampoo like non-sticky one to thin hair shampoo, etc. this innovation give a firm advantage. (Schwarzkopf, 2007) This give advantage but other firm also imitate and competition get more intense. So Innovation cycle further carries on and on and industry keeps on going. Power of Supplier: Power of Supplier is low as far as the shampoo industry is concerned and it is + ve for the Shampoo Industry. As it is a perfect competitive market there are heaps of suppliers in the 8

market. If the producer wants to switch on with the supplier they can do it easily. As we have seen above in the Introduction in New Zealand Shampoo Industry firms has its own supply unit. They prepare their own surfactants and use it to prepare shampoo. Thus this gets the Supplier power down. So in this Industry Firm Concentration is higher than Supplier concentration. The only threat in the Supplier power is if the supplier is supplying to more than one firm and if a big firm integrates him, than other firms has to look out for new supplier and it can cost their couple of months time. Hence this is the only threat. Implications of ICT: As there are number of small to big supplier in the Industry the supplier power is low and the force is + ve for the industry. So there is nothing much to do with this force as If big company produces there own surfactants, they are their own suppliers. Hence by using Technology and Market Information they can easily cut down their production cost to gain extra edge. Moreover Bottle manufacturer, sachet manufacturer remains the other supplier, but they are also lots in number as plastic Industry of New Zealand is good in Packaging and also Plastic is easily available in different countries. Though in many countries Plastic usage is banned but still with the usage of ICT the suppliers has overcome the problem by using Recyclable or Bio Degradable plastics. Threat of Substitute: In Shampoo Industry the threat of Substitute is not high. As a result of constant Innovation and wide range of cheap shampoo to the costly one it is easy for the customer to select one of there choice. And the quality provided is quite significant, so there are

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none or just couple of Substitutes for this Industry. If we peep in further, In India and many Asian countries, some few people uses some herbal powder like Avala, Aretha, Beda, etc that are believed to be strengthen the hair and some herbal soaps like Shikakai, A M Amla No 1, etc. But they haven’t affected the Shampoo industry at all. Hence the threat of Substitute is very low and the power is + ve for Industry. Implication of ICT: In the threat of Substitute the power is already low so nothing much to do, but Shampoo Industry is already doing enough to cut short the chances as if any Substitute tries to threaten them. They used ICT and mixed all these Herbal powder in the shampoo and by using ICT the Industry comes out with yet another option or innovation of Herbal Shampoo. Vatika Shampoo of Dabur company in India is the best example of that. So people who have shifted to that herbal powders before returns back to the shampoo again, so like this they have kept the threat of Substitute down by the usage of ICT.

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Value Chain Analysis:

Value chain is important for gaining competitive advantage for any firm and how to gain that advantage. By this analysis firm can identify the value adding activities and can also detect the non value adding activities. There are primary and support activities in the value chain. Generic ingredients of, Primary activities: Inbound logistics, Operations, Outbound logistics, Sales and Marketing support, and service.

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Support activities: HR management, Firm infrastructure, Technology development, and Procurement. (Dr. Akkermans H.) As the industry goes back to 1762 that is around 250 years and the industry has continuously improved its value chain and tried to giving its customers the best value added product. Most of the changes have been made by improvements various value adding activities of the industry. Impact of ICT’s on the business environment is good. Internal Value Chain Linkages: An analysis of primary activities in the value chain. Primary activity Inbound logistics and Supportive activity Procurement have internal linkage. These activities include warehousing of raw materials, ordering materials, etc. Internally in the firm Inbound logistics and Procurement activities have linkage regarding raw material handling. As procurement department works out the purchasing of raw material, machinery and mainly choosing the best supplier for the company. As inbound logistics is the primary activity they need help of the procurement department whenever they need raw material, machinery, etc. So the procurement department in the shampoo industry is important value adding activity. Shampoo manufacturing companies use intranet/internet to handle raw material efficiently. Use of ICT in industry: Some firms use intranet to provide the supplier as well as the assigned persons for that job to access the real time data about material. For example, P&G uses the inventory

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optimization process to improve the inventory management process and technology. The ICT software (Multi-Echelon Inventory Software) gives planner the information about the inventory across places. By using the system both departments can work more efficiently together. The software provides the probabilistic demand forecast so both activities can access to those data and procurement department can order according to that data. By this way company will improve its inventory handling cost, storage cost, improved customer service, etc. They got 99% order filling rate by using ICT. P&G also improved relation ships with the suppliers to cut inventory materials so that it can add the value to the company. Unilever is also planning e-procurement in few years for nippy growth. (Kerr J, February 2008) The Operation one of the primary activity is linked to HR department. The operation includes machining, manufacturing, etc. which is related to manufacturing processes which demand technical knowledge. So that activity links to HR department so that operations department of the firm can ask HR department to recruit the personnel with the specific knowledge for that manufacturing process. The operation activity is linked to the one of the support activity Technology Development which deals with R&D, and product and process improvements. An operation which is related to manufacturing the technology development activity could benefit by doing some R&D to find better shampoo products. The shampoo industry also uses CAD/CAM for the manufacturing of shampoo. Infect it is the first industry to use the CAD/CAM for manufacturing.

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Using ICT in industry: It is by using ICT company carries out the computer enabled manufacturing processes. By the use of ICT the company produces on the mass scale to achieve economies of scale. By using the new technology the companies are making shampoo from the polymers, silicones and surfactants so that the shampoo will not be much irritating, it will save the cost of production, it would be more environmentally friendly and provides better functionality and performance. One of the R&D result is Paper shampoo which is sign of innovation, in the shampoo industry which shows that products are transforming continuously. (Trei M, June 2008) As we know the shampoo has been transformed from the soap to the shampoo by use of technology. (JRank, 2007) For example, P&G has made “preventive codes” where by the company identifies the dangerous or harmful substances which are not good for the body, environment, etc. and by that law the company prevents them. Talking about HR,Unilever has outsourced its HR operations to Accenture which provides HR solution like IT learning, IT training, recruitment, payroll administration, performance management, etc. by which they employ the right person to the shampoo units. (Finlaw J, Johns T, Payne B, June 2006) Primary activity outbound logistics is linked to the firm infrastructure which is a support activity. Outbound logistics handles activities such as warehousing finished products, distribution of products, etc. For those activities the firm must have sufficient infrastructure for storage, vehicles for distribution, etc. The outbound logistics also links to the marketing and sales activity. For example sale and marketing gives its forecast of

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the demand to the warehouse and the distribution of shampoo products to be made to other retailers or customers using a database. Use of ICT in industry: The intranet and the central database are used to access the information about the warehousing and distribution. They use systems such as electronic scheduling of deliveries and managing the shampoo products. They use automated shipment system for the distribution of the shampoo products. So that firm must have the infrastructure like computer systems, software, enough finance to support the activities. There is linkage between sales and marketing with the technology development which is one of the support activities. Sales and marketing activity deals with the functions like advertising, promotion, pricing, and channel relations. The technology department which provides help to marketing and sales activities in terms of providing faster systems to get the data’s of the stock in warehouse. IT department provides access to the data of the other departments to the marketing and sales. There should be enough flow of the information at each stage of the value chain so that marketing and sales can access that data and can decide about promotion for that product. Use of ICT in industry: E-business is one way of improving brand awareness and cutting costs on promotion and advertising. Now a day for fast growth e-business is very essential for the firms to gain competitive advantage over the competitors. For example Unilever is using e-business to enhance its growth plans. For enhancing its e-business activities the company jointly announced strategic alliance with i-village, AOL, Microsoft, Excite@home, WOWGO to 15

improve the communication of the shampoo brands. The company by using its IT facilities developed the integrated regional networks to support their brands and better ordering system for the retailers. By e-business the company can provide e-catalogues to the retailers. By using e-business the company will develop e-consumer by which the company will provide personal portals which will aim to the specific customer group e.g. woman’s portal for women customer. They will do online advertising on alliance partner. They will use e-commerce to enhance the supply chain of the company. They developed the ECR (existing efficient customer response) by which they will develop relations with existing customer and find new customers through them. By using the intranet company shares the information about innovation projects and enhances global marketing through that system. (Unilever, 2008) The last primary activity which is service is not applied here because it is FMCG product. But companies do try to provide after sales service like if the customer is not satisfied with the shampoo, company do give them their money back. For the customer’s benefit the industry players introduced the ‘sachets’ which is very cheap for the consumers to buy. They also study the consumer behavior at some intervals and continuously introduce new shampoos which are health friendly. (Anderson J, & Markides C, 2006)

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Conclusion: The Shampoo Industry has a significant role in the FMCG Industry. It is one of the fastest moving goods with cheap price. The Industry has a major contribution in the FMCG sector. There is Intensive Rivalry in the Shampoo Industry this has caused these Industry to the penetration period. But Shampoo Industry Players are effectively using ICT’s to their potential in developing the strategy for survival and sustainable profit and growth. There has been constant rat race among the rival firms in Innovation and Imitation process in Research and Development to eat each other’s profit by using ICT. They have also eliminated threat of Substitute by constant Research and Development. We have also seen the affectivity in usage of ICT’s in the Value Chain linkages that adds value in the Internal Chain system of the firm. So in all the players of Shampoo Industry have effectively followed the big sayings, “Imagination is not the limit, Strategies (ICT’s) that follows Innovation through R&D is the key to success for any firm”.

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Recommendation: Shampoo Industry undoubtedly has maintained its sustainability as on of the most popular selling product in the FMCG Industry. Shampoo Industry continuously keeps on Innovating from Soap Powder to Shampoo. Shampoo industry should continuously find new ways of innovation. It should use ICT to find new developments in products to avoid the threat of substitutes. Strategic innovation in future will help the industry to overcome the gaps in the industry, by gaps we mean •

Identifying new customers

•

New ways of manufacturing shampoos (Anderson J, & Markides C, 2006)

The use of ICT can help the industry to manufacture in a cost-effective way. By more use of ICT industry could attract new customers and it could provide the products in economically and innovatively. As some large manufacturers like P&G and Unilever have moved strategically towards use of ICT in raw material handling, finding new customer, customer relationships, e-catalogue, etc. They can even give their employees rest at home and allowing employees to work from home. The ICT can help industry players to provide efficient and on-time delivery of shampoo products. Shampoo industry players can use ERP (Enterprise Resource Planning) and CIM (Computer-IntegratedManufacturing) for effective supply chain of product, to deliver the value added shampoo products. (Wikipedia, March 2007)

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References: 1. Dave D, 24/7/2008, Shampoo, Industry sector Cosmetics & Hygiene, Retrieved on July 17, 2008 from http://www.industryplayer.com/licenceinfo.php?licid=021026 2. Schwarzkopf, 2007, A remarkable history of innovation, Retrieved on July 16, 2008 from http://www.schwarzkopf-professional.com/?id=1295 3. JRank, 2007, How products are made :: Volme-3, Retrieved on July 17,2008 from

http://www.madehow.com/Volume-3/Shampoo.html 4. Foster I, The Cosmetic Industry, Retrieved on July 18,2008 from http://www.nzic.org.nz/ChemProcesses/detergents/11B.pdf 5. Mingrong Li,2007, Introduction to FMCG, Retrieved on July 19,2008 from

http://www.shentrepreneur.org/news/2007_05_06_intro_FMCG/fmcg.html 6.

Dr. Akkermans H, Porter’s Competitive Forces and Value chain Models, Retrieved on July 16, 2008 from http://e3value.few.vu.nl/docs/misc/Porter.pdf

7. Kerr J, February 2008, Procter and Gamble takes inventory up a notch, Retrieved

on

July

18,

2008

from

http://www.scmr.com/article/CA6531989.html?q=shampoo+industry 8. Trei M, June 2008, Paper shampoo lets you travel with clean hair without being

branded

a

terrorist,

Retrieved

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July

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from

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9. Finlaw J, Johns T, Payne B, June 2006, Accenture to help Unilever transform

Human

Resources

Operations,

Retrieved

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from

http://newsroom.accenture.com/article_display.cfm?article_id=4358 10. Unilever, 2008, Unilever Plans Faster Growth , Retrieved on July 17,2008 from

http://www.unilever.com/ourcompany/newsandmedia/pressreleases/2000/growth.a sp 11. Anderson J, & Markides C, 2006, European Journal of Innovation Management,

Retrieved

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from

http://www.jamieandersononline.com/uploads/ANDERSON_EJIM_Creativity_is_ Not_Enough_2006.pdf 12. Wikipedia, March 2007, Enterprise resource planning, Retrieved on July 17, 2008

from http://en.wikipedia.org/wiki/Enterprise_resource_planning

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