2013 Report: CPG customer-centric practices can increase efficiency/unlock hidden value

By sharpening their outbound supply chain logistics with a view to improving complexity management and collaboration with trading partners, CPG companies could unlock almost $50 billion of hidden value, according to research conducted by The Boston Consulting Group (BCG) for the Grocery Manufacturers Association (GMA).

“GMA Supply Chain Benchmarking 2012: Unlocking the Hidden Value of Complexity Management and Collaboration,” the eighth report in the Washington, D.C.-based trade group’s benchmarking series focused on manufacturers’ outbound supply chain logistics, found that higher inventory doesn’t always mean better service, and that scale doesn’t automatically result in lower costs. Instead, successful companies negotiate the tradeoff between cost and service by honing in on less used, customer-centric levers such as those noted above, as well as relying on traditional methods like reducing costs and optimizing working capital.

Covering the 2010–2012 period, the report is based on a survey of 51 companies using warehouse-based supply chains, direct store delivery, or both; interviews with 65 supply chain executives at participating companies; and 116 polling responses from the 2013 GMA/FMI Supply Chain Conference.

“This report clearly shows that CPG companies have successfully driven efficiencies along the supply chain to meet current economic challenges,” noted Elise Fennig, GMA’s VP of industry affairs. “It also provides a roadmap for even greater efficiency and savings through improved trading partner collaboration — savings that can drive innovation and sustainable business growth.”

CPG companies’ supply chain logistics costs as a percentage of sales dropped by 9 percent from 2010 through 2012, on average, but for the first time in a decade, service levels have begun to dip, albeit from 2010’s historic high. Several interviewees worried that this decline could be the downside of ruthless cost-cutting. The research found, however, that some manufacturers have effectively balanced lower costs with high levels of service.

Of the companies studied, 90 percent identified complexity management as a strategic problem, but only about 25 percent said they were systematically addressing the issue. Most manufacturers are performing only basic, ad hoc complexity management, often focused on SKU rationalization, even though better complexity management could unlock more than $25 billion of additional value industry-wide.

Manufacturers that are successful at complexity management regard it as a holistic, companywide exercise, backed by senior leadership and cross-functional teams. They quantify the costs and benefits, and they focus on profit maximization, not only cost reduction.

“There are still significant opportunities for nearly all companies to improve their supply chain performance, but to reap the major rewards, manufacturers need to look beyond their SKUs and think and act both more strategically and more holistically, with everyone aligned behind supply chain improvements,” explained Jeff Wray, a BCG partner and co-author of the report.

Ninety-five percent of manufacturers called collaboration a strategic focus for their business, and almost all have implemented related projects or formed dedicated collaboration teams. But most companies have just begun collaborating with retailers; few manufacturers have established long-term, strategic relationships with them.

About one-third of manufacturers considered lack of trust and commitment to be a major barrier to collaboration; other big obstacles included issues with capabilities and technology.

If these challenges are overcome, BCG estimates that collaboration could yield more than $20 billion of additional value across the industry. “Companies that successfully collaborate at an advanced level have a long-term strategic vision, supported by top-to-top alignment between senior management of both trading partners, as well as supporting infrastructure such as dedicated cross-functional collaboration teams,” observed Aaron Brown, a partner at the global consulting firm and co-author of the report.

A copy of the report is available from both GMA and BCG.

Article posted Sep 10, 2013 on PG and can be found here.

Category Management: Planograms Are Not Just Pretty Pictures

Apollo, JDA, ProSpace and the Fundamentals of Space Management... 

The consumer packaged goods industry invests billions of dollars every year in effective sales, marketing and supply chain support for retail.  These investments focus primarily on things like  consumer advertising, marketing new products, distribution, data systems and technology, market research, and so on.  Space management determines how all of these other investments come together at the shelf  – where shoppers meet products “face to face” and most importantly, where purchase decisions are made.  In many cpg organizations, space management is left to the space management professionals,  with little consideration for how new products are going to fit in the planogram, and how the new items will affect the productivity of the total planogram for the retailer.

Merchandising is also regaining importance, especially within Category Management & shopper-centric merchandising models.  A combination of shifting demographics and changing industry dynamics, coupled with all of the new software and technologies available in the industry, is resulting in a shift in the thinking on merchandising best practices. There’s an opportunity for retailers and suppliers to take advantage of all of the knowledge and capabilities related to space management through category management training, resulting in more focus on the consumer, more strategic space management, and ultimately, enhanced business results.

Space management is not well understood by many sales and marketing teams within supplier organizations – there tends to be a belief that space management understanding should be left to the “tekkies” or space management professionals.  The opportunity is for sales and marketing to learn more about the fundamentals of space management, including key terms, measures, and the basics about planograms.  This knowledge arms cpg companies with space management knowledge, including the strengths & weaknesses of their brands on the shelf vs competition, and the implications of shelving recommendations on the retailer’s planogram and total category.  This results in win-win solutions for both supplier and retailer.

Following is a video entitled “Category Management Training:  Planograms Aren’t Just Pretty Pictures”, which will walk you through 5 tips that relate to space management that are relevant for sales, marketing and category management:

httpv://www.cmkg.org/u/CMKG026.aspx

Originally posted on www.category-management.ca and can be found here.

Involving all aspects of supply chain in S and OP can lower inventory carrying costs

The "S" in S and OP Can Stand for Supply Chain, Too

Involving all aspects of supply chain in S and OP can lower inventory carrying costs.

(Written Apr. 18, 2013 by Becky Partida, research specialist, supply chain management, APQC on and for Industry Week. Original article can be found here.) 

Sales and operations planning (S&OP) has the potential to promote visibility within the enterprise and foster collaboration among business functions. However, the functions involved in the S&OP effort can vary from organization to organization. APQC asks organizations participating in its Open Standards Benchmarking in supply chain planning to indicate the business functions they involve in S&OP (Figure 1). Not surprisingly, sales and marketing is involved more often than not, with more than two-thirds of responding organizations indicating that they involve this function. Less frequently involved are supply chain functions, with 65% of responding organizations indicating that they include the purchasing and manufacturing functions and less than half reporting that they include the logistics function.

Given that S&OP can affect demand forecasts, inventory levels, raw material purchase projections, production plans and forecasted labor utilization, it is worth considering whether the involvement of all supply chain-related functions in S&OP could have a positive effect on supply chain performance. APQC compared the cost of supply and demand planning and the inventory carrying cost of organizations that involve each of these groups in S&OP to the costs of organizations that do not involve the groups.

Demand and Supply Planning Costs

Table 1 presents the median performance of organizations with regard to demand and supply planning costs per $1,000 in revenue. Organizations that involve the logistics function and the manufacturing function in the S&OP process spend slightly less at the median on demand and supply planning per $1,000 in revenue than organizations that do not involve each of these functions. However, organizations that involve the purchasing function in S&OP spend $0.72 more per $1,000 in revenue on demand and supply planning than organizations that do not. For an organization with $5 billion in annual revenue, this would result in $3.6 million in additional demand and supply planning costs associated with involving the purchasing function in the S&OP process.



Table 2 presents organizations’ median inventory carrying cost as a percentage of average inventory value. Organizations that involve each of the supply chain functions spend much less to store and maintain inventory than organizations that do not involve each of these functions. The difference is largest when considering the involvement of the logistics function: the median inventory carrying cost for organizations that involve the logistics function in the S&OP process is almost half as much as that of organizations that do not involve this function. Organizations that involve the purchasing function have a 1% lower inventory carrying cost than organizations that do not involve this function. Although this difference may not seem large, for an organization with $1 billion in average inventory value, a 1% difference would translate into $10 million in additional inventory carrying cost.

The difference in performance illustrated in Table 2 indicates that involving the supply chain functions in S&OP can have a significant effect on the ability of an organization to plan for demand and thus to maintain an optimum amount of inventory. Keeping these functions involved in discussions regarding demand and production plans can enable the organization to optimize planning, purchasing and manufacturing to reduce the amount of inventory that must be stored.

Weigh the Effects

APQC’s data show that involving the supply chain functions (purchasing, logistics and manufacturing) in the S&OP process is associated with a lower inventory carrying cost and lower cost to conduct demand and supply planning. The exception to this is with organizations that involve the purchasing function, which incur higher costs for demand and supply planning than organizations that do not involve this function. However, the lower inventory carrying cost obtained by this group of organizations may help offset any additional costs generated in the demand and supply planning process.

Because S&OP affects the entire supply chain, organizations should give serious thought to involving representatives from the supply chain functions in this process. Organizations should consider whether any additional costs incurred in the planning process would be offset by increased efficiency or costs savings generated within the procurement, manufacturing, or logistics functions. It may be that involving the supply chain in S&OP is worth the investment.

Becky Partida is a research specialist, supply chain management, with APQC, a member-based nonprofit and one of the leading proponents of benchmarking and best practice business research.