A recent survey conducted by a leading Indian business magazine shows that health food products is one of the fastest growing industries in India. It is growing at 15-18 per cent per annum. The growing health consciousness among the educated families, particularly in the urban areas, is contributing to the growth of health food requirements. The health food concept is not new to India. Traditionally, educated mothers conscious about the health of their growing children fed them milk mixed with dry fruits or Chavan Prash (an Ayurvedic preparation) once or twice a day. However, during the past three decades the health drink companies have succeeded in convincing the mothers to switch over to ready-to-make food drinks for their school-going children. Branded products such as Horlicks, Bournvita, Maltova and Protinex, earlier recommended by doctors and used for ailing patients for speedy recovery of their health, now occupy the kitchen shelves. Due to the changing food habits and growing health consciousness among educated youth (both male and female), the consumption of the branded food drinks is growing every year. The total market for health food is estimated at 60,000 tonnes.
Kapil Health Food Products was established in 1960 as a subsidiary of an American multinational pharmaceutical company with total capital outlay of INR 50 million. It started its manufacturing operations at Nahar, which is situated 325 kilometres west of New Delhi. The place is now well developed and has a population of 8500. It is located 800 metres above the sea level and witnesses a temperature variation of 5 to 47°C during the year. Nahar is a semi-urban town supported by the village’s economy. In 1980 the foreign holding of the company was diluted to 51 per cent with 49 per cent shares offered to Indian nationals and financial institutions. The company got registered as Kapil Health Food Products Ltd. As milk is the major raw material for the firm’s products, their major focus is on dairy development activities. They undertake programs such as animal health, animal nutrition, farmer development, animal breeding, animal insurance, mechanized milking, and so on. The company spends around INR 750 million per annum on the above- mentioned activities.
The operations at Nahar are managed by 20 managers, 60 executives, 120 staff, and 900 fulltime and 600 contract workers.
KHFL is a continuous success story since its inception in 1960. It is now a leading health food manufacturing company contributing 32 per cent of the total health food powder production in India. The major competition is from leading brands such as Bournvita, Boost, Horlicks and Nutramul Maltova. The company faces indirect competition from the health drink preparations of the Ayurvedic pharmaceutical companies in India. All together, they command around 10-12 per cent of the health food market in India.
KHFL is an ISO 9002 accredited manufacturing firm with a state-of-the-art manufacturing and packaging facility. The key equipments include the pilot spray drier with the latest technology and the automatic packaging line. They have an excellent environmental management system that includes an effluent treatment plant and eco plantation.
KHFL runs three product lines—two for health foods (HOR and BOS) and the third for ghee. The company also supplies the products in bulk to the various repacking stations across the country to take advantage of freight economy. The following are the common sizes for product packaging (see Table 24.5.2).
The products are packed in polythene bags, corrugated paper boxes, cartons and tin containers. The company started automated packaging operation in 1995 using state-of-the-art machinery from Germany with a capacity of 60 packs per minute and capable of handling 200-1250 gram pack sizes.
KHFL has a full-fledged procurement department headed by the procurement manager, who is assisted by a team of four purchase officers. The firm has developed its own software for material requirement planning. Since the number of raw materials handled is restricted to six, the management has good control on the inventory and the suppliers. Except milk, which is the major raw material, for all the other raw materials, the firm has restricted its supplier base to four to five selected vendors. The firm is very particular about the quality of ingredients going into its final products, and hence the vendor selection criteria are very scientific and conform to the ISO requirements. The firm banks on the reliability and consistency in raw material quality and delivery.
Packaging consumption (units per day) is 1800 tin containers, 250 cartons and 435 polythene bags. The total number of truck arrivals at the Nahar plant is 35 per day. The transportation cost is borne by the company.
The milk procurement is done within 55 kilometres of the area around the Nahar plant from 25,000 milk producers, 200 dairy farmers and 20 contractors and distant suppliers.
4. Manufacturing Process
The process starts with mixing of malted barley and wheat flour. The mixture is washed, sieved for husk removal and finally squeezed. The squeezed mixture is then mixed with milk, oily vitamins, malt extract and other ingredients. It is further evaporated in two stages, oven dried, and undergoes a food scalping process. The mixture is mixed with sugar and further undergoes grinding and final mixing. The final product is health food in granular form that is taken to the bulk packaging section for quality clearance, and is afterwards stored in the warehouse. The bulk packages are sent to packing stations for making small packs as described before.
With few modifications and without major investment, the present installed processing capacity can be increased by an additional 30 per cent. This increased capacity will enable them to take care of the upcoming requirements in the next two years; provided the market share is maintained at the level of 60 per cent.
5. Finished Products Dispatches
They produced 35 kilo tonnes of finished products in 2001 averaging 100 MT per day. In the total production, health food contributes 95 per cent by weight and the balance 10 per cent is contributed by ghee. The break-up in terms of bulk and flexible packs is presented in Table 24.5.4.
6. Marketing Arrangement
KHFL is marketing its products through the dealer network. The firm has four regional offices at all the major metros headed by the regional managers, who report to the general manager (marketing) sitting at the Delhi head office. The regional managers are responsible for the sales administration, C&F agents, stockiest and wholesaler network in the region. Currently, KHFL has a network of 8 C&F agents, 45 stockists and 200 wholesalers. The products are sold through all grocery and pharma shops. The product requirement flows from wholesalers to the stockist to the regional office, which directs C&F agents for organizing dispatches. The regional offices prepare the forecast, which is forwarded to the factory for manufacture and execution. The replenishment at C&F warehouse is done as per the requirement of the regional office and the consumption pattern in the region. KHFL maintains 15/18 days stock of finished goods at the factory warehouse, 12/15 days at C&F agents and 8/10 days with stockists and 7/8 days with wholesales. Currently the order-filling rate at C&F warehouse is 89 per cent. Wholesalers are unable to fulfil two orders in every twenty orders placed by the retailers. The regional offices and C&F agents are connected online through VSAT. Due to the severe competition in markets, KHFP is in the process of reviewing its supply chain for cost reduction and enhancing its customer service. The management is planning to reduce the inventory to less than 10 days at factory and at C&F agents. The distribution cost at the present level of sales is 8.5 per cent, which they want to reduce by 40 per cent. In addition, they would like to reduce the inbound transportation cost through proper planning and scheduling.
Source: Sople V.V (2013), Logistics Management, Pearson Education India; Third edition.