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Marico aligns expenses to budget allocation with financial planning software

Anup Varier and Sunil Shah | July 10, 2013
The solution covers eight global subsidiaries and supports between 25 and 30 key number crunchers. By running operations based on up-to-date monthly numbers the company spent 8 percent less than it estimated.

Unless you're one of those people who uses nothing but foreign goods, it is pretty likely you have been touched - figuratively and literally - by Marico's products. According to the manufacturers of Parachute, one of the world's largest coconut oil brands, their products are used by one out of every eight Indians. In a country of over 1.15 billion, that's a big number - and a lot of bottles of oil.

Which would gladden the hearts of the folk at Marico, unless you were part of a budgeting exercise. Planning budget for production on that scale was a humungous task. At Marico, budgeting yearly expenses - like how much to set aside for its trademark blue plastic bottles - was a three-month exercise - and potentially a huge waste of time if the company couldn't stick to numbers it promised to spend. But how do you ensure you stay within budget when the price of your raw materials fluctuates?

It's a question the Rs 2,660-crore company needed answers to fast.

Slippery Data
As a major FMCG player, Marico has seen growth rates of over 25 percent in the last year. Still, it wanted to do better and there was certainly room to grow. The Indian FMCG market is currently estimated at around Rs 192,600 crore about $ 42.8 billion), according to the Associated Chambers of Commerce and Industry of India (ASSOCHAM). And it's poised to touch about Rs 333,000 crore (a growth of 1.7 times) by 2018, says a FICCITechnopak report.

To keep up with that growth, Marico needed to run a tight ship. Which meant that if it penciled in a number for its expenses at the start of the year, it needed to stick to it. Key to doing that was watching its COGS: the cost of goods sold. Also referred to as cost of sales, COGS is what it costs a company to produce goods, including material and direct labor costs. But monitoring COGS for a month's worth of Parachute, for example, is hard because it depends on the cost of raw materials and packaging, which are volatile.

"The cost of packaging, for instance, is dependant on the cost of petrol, because Parachute is packaged in PET bottles," says Girish Rao, Head-IT, Marico Industries What made it harder was that the company used an Excelbased approach. Collating all the different costs that goes into a final product data - from the cost of oil to the cost of PET bottles - from multiple stakeholders was hard and inaccurate work. As a result, the company didn't have an expenses-vs-budget check as frequently as it wanted. "It was an ad hoc exercise - about once every quarter - and it only gave us a ballpark figure, which didn't help much in course correction," says Rao.


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