Case Study: FastGo

FastGo Inc. is a household name in the Indian fast moving consumer goods (FMCG)
industry. Over the past century, the company has established a reputation for
supplying high quality products to the market at reasonable prices. Its competitive
edge is enhanced by its extremely low time to market – it sells its goods a mere 9
calendar days after manufacturing them. The Average for the competition is
between nine months to one year.

These fundamental strengths enabled FastGo to leverage increasing disposable

incomes in India’s middle class and grow reliably eventually becoming one of India’s
largest and most respected companies. FastGo is a firm favorite with shareholders
both for its reliable growth as well as for the dividend it offers year on year. The
shares however are closely held and the company is an unlisted public limited
company.

Six years ago, FastGo decided to diversify into another FMCG product line. Key
reasons for this diversification were:

The company had built a large amount of cash reserves and it wanted to invest
these into the business to fuel the next stage of growth.

The market size for the existing product line was shrinking. The company’s strategy
group had predicted that the existing product line would be far less attractive than
it had been in the past.

To determine which product line to enter, the company hired a reputed

management consulting firm. After a detailed study, the consultancy recommended
that Fastgo diversify into ready to eat food products as well as related foods like
pickles, papads, and spices. FastGo agreed, and acquired a reputed food product
company Southern Foods. FastGo also acquired state of art machinery to enhance
Southern Foods existing manufacturing facilities.

FastGo was not expecting any profits from its foods division for the first five years.
However, the division continued in the red even ten years after its initial entry.

The company’s board of directors, concerned at the sustained losses being incurred
by this division, requested one of its members to look into the matter. The member
had previously been involved in supply chain activities for FastGo’s traditional
product line.

After his first week of looking at the division, the board member organized his
thoughts and wrote down the following facts about the food division’s supply chain:

• Manufacturing:
a. The products of the food division have an expiry period of about 12
months.
 b. Material is sent to the regional warehouses from the factory warehouse
based on the sales forecast received each month from each regional
warehouse manager.
c. Material is sent to the factory warehouse after being manufactured at the
plant in pune.
d. It is not economical to send the material to the regional warehouses
unless a full truck load of the material is available.
e. The regional warehouses do not send a request for the material directly to
the factory.
f. There is no formal method of inventory planning
g. Regional warehouses are not set up to analyze how old the stocks are
h. There is no cross shipment done between warehouses.

• Marketing
a. Existing stocks in the market are 3 – 4 months old.
b. Sales are not uniform throughout the month or between regions.
In a place like New Delhi, 89% of all monthly sales occur in the last week
of the month.
In Mumbai, Sales are almost uniform during the month. The maximum
figure is only 39% higher than the average monthly sales.
Maximum sales in Chennai are 62% of the average monthly sales.
c. Stocks on super market shelves are nearly six months old.
d. Most customer4s check the date of manufacturing before purchasing the
product. Customers are reluctant to buy a product older than 2 months.
e. Most competitors are able to keep stocks that are just a month old.
f. The customers refuse to buy any product older than six months causing
FastGo to replace the for free.

In addition to these operational facts, the board member put together some
strategic perspectives about the food division’s products.

• The demand for the products varies according to the regions. For instance,
demand is primarily in the urban market, and not the rural market, with most
sales happening in the four Indian metros.
• Some products are fast moving while some are slow moving, and a product
that is fast moving in one region does not move as quickly in another. For
instance, a product meant for South India moves quickly only in south and
not in the North.
• FastGo has an ambition to merge and regionally recognize food brand.
• Most competitors are local players who manufacture the products in the local
markets and they send them in the state markets adding further to the
marketing complexity for the ABC company.
After writing down all of this, the board member paused, sighed and gazed into the
distance before adding another.

What on earth should FastGo do now?

What do you think?