2012 Supply Chain Trends

Almost half way down 2012, I think we can start to have mid-year roundup of top Supply Chain transformation initiatives being undertaken by major CPG & Retail players. 

Starting of a new era after so called recession, focus of the industry shifted back from cost cutting to expansion strategies and that is what we are observing in supply chain organizations now. Many companies increased their budget for significant investments in SCM transformation initiatives. Industry experts and market leaders quoted loads of anecdotes on growing importance of supply chain efficiencies to increase shareholder value. While existing supply chain consultants are overbooked with projects started in 2011 and early 2012, many boutique consulting firms are gaining momentum. From what we have gathered and researched, the below list would give some insight on what are some top initiatives which these firms are undertaking:

1.       Mergers, Acquisitions & Disinvestments: With huge amount of cash build up in the safe, many CPG companies are out shopping. Some to gain diversification, others to attain efficiencies & increased reach and the rest to edge competition out. Some of the highlights from recent times-

a.      COTY again made a far reaching bid to acquire bigger-in-size AVON for $10.69 Billion and this time Avon is considering the offer

b.      Bed Bath & Beyond is buying out Cost Plus which is having 259 retail outlets in US and was store-within-a-store partner with Bed Bath & Beyond. The deal is said to contribute to improved synergies and transaction cost

c.       ACCO Brands recently completed merger with MeadWestvaco’s Consumer & Office Business to increase scale & cash flow, to attain synergies, to compete in new markets and to improve financial health of the combined entity

d.      Hallmark Cards Inc. acquired SpiritClips to develop a new channel for engaging consumers and increasing distribution reach via digital products

e.      ConAgra Foods, Inc. completed its acquisition of Del Monte Canada to enter into new categories and new markets 

2.       Sales & Operations Planning: As I mentioned in my previous blog entry on S&OP, this area gathered a lot of interest in year 2011 and entered mainstream. S&OP brings all aspects of business together to get align strategy, product, demand, supply and finance. Several service providers focused on S&OP witnessed a huge growth in requirements from clients and eventually revenues. One of the known service provider in this area (Steelwedge) launched planning application to address common issues in the industry. They even have started webinars and lectures to educate the management on S&OP process.

2 years back less than 25% of the CPG companies had formal S&OP processes, while now this number is over 50%. Among the $1 Billion plus (in annual revenue) companies, this number is even higher than 70%. And remaining companies are working to define their S&OP processes. The focus on S&OP is expected to grow further considering ‘overall slowdown of business growth’ and ‘rising customer order fill rate expectations’. 

3.       "Green" initiatives and corporate social responsibility: I had posted an article on Green Initiatives generating interests some time back. The year 2011 saw a lot being done in this arena and has become the new frontier in the industry. Consumer has become "Green-Savvy" and this has got attention of the big manufacturers. In 2011, many companies included Green Initiatives even in their annual financial reports and quarterly reports. Companies touched several aspects of their supply chain to make their products and services more environmental friendly.

Mattel for instance made their procurement policies greener by abandoning Asia Pulp and Paper as a supplier, courtesy Greenpeace. Similarly Honda of America in recent years has made it a point to strengthen waste free manufacturing processes. Method Products, Kraft, and Kellogg’s made recent efforts to become greener with their packaging initiatives. Hasbro has also significantly reduced product-to-package ratio. Other manufacturing companies are focusing on making manufacturing processes environment ‘friendlier’ by reducing energy consumption, limiting use of plastic products and using renewable sources of energy. While on distribution front, increased fuel costs have got major retailers and CPG firms relooking at low-cost environment friendly transportation options. All in all, 2012 and beyond would see lots of traction on green initiatives because of its positive impact on environment and also on corporate treasure chests. 

4.        Getting more out of IT: IT has been considered backbone to supply chain and any reorganization / improvement in supply chains is augmented in parallel by change in IT landscape of the organization. What changed in 2010-11 significantly was the reorganization in organization wide structure of IT departments. The importance in separating demand side of IT and supply side of IT was realized and companies changed the structure of the organization's IT in the same way.

Apart from that, companies focused on IT to deliver further advantage in terms of cost savings, revenue increase and market capitalization. 2012 is witnessing an increase spend in Business Intelligence, Trade Promotion Management, Product Life cycle Management and Multichannel management solutions and integration. And these words are expected to continue as buzzwords in 2012-13 as well.

5.       Consolidated Procurement: Many who work in product design often comment that over 80% of the cost of manufacturing a product is determined during the design and procurement phases.  By rationalizing the purchased materials and the suppliers, the quantities purchased from each supplier increase dramatically providing great leverage to the purchasing organization. Also, planning for aggregate procurement, considering many brands and acquired entities, procurement costs are being rationalized drastically.

One of the projects I undertook in 2010 focused on this area and seeing the improvements and benefits of that project I can definitely say that this is one of the simplest options for organizations to cut cost and significant ROI. Several organizations worked on this area for a short span of time in 2011 and start of 2012 gained tremendously. Going by the trend, this could be one of the new initiatives global supply chain may undertake aggressively in 2012-2013.

6.       Trade Promotion Optimization: While Trade Promotion Management has been one of the biggest buzzwords for the last couple of years, has helped CPG companies realize significant $ savings, its not-too-distant cousin Trade Promotion Optimization has seen increasing demand now that companies are more aware of advantages of getting more out of trade spends. Companies who had invested in Trade Promotion Management initiatives and have benefited from them are not moving towards more analytical solutions to optimize trade spends for leveraging higher ROI.

Software vendors have also developed industry leading and highly analytical solutions which seamlessly integrate with POS data feeds and TPM solutions to provide insights into trade spend ROI at customer and category level. SAP Trade Promotion Optimization (TPO) is one such solution which leverages its analytical engine to process complex POS data and provide easy to understand insights. It features comprehensive promotion pre-assessment tools which help in creation of trade promotion scenarios, forecasting sales / ROI and perform complex what-if analysis.

7.       Multi-channel Management Solutions- Last 2-3 years have seen exponential increase in number of sales channels which consumers have been exposed to. Gone are the days when Brick-&-Mortar stores were the preferred consumer channels. E-commerce, m-commerce, catalogues, call centers, kiosks and direct-to-home are the new consumer facing channels and it has become extremely important for CPG companies to project a unified and synchronous brand image via all these channels. Providing the same product information across all consumer touch-points is becoming equally important. Surveys indicate that over 50% of the customers are dis-satisfied with cross channel experience, while 59% of the customers switch vendors after having single bad experience. This has led to a lost revenue of $338 Billion by enterprises in 16 key global economies. Reference- Oracle & ATG Acquisition Presentation.

This has led CPG companies to head into the direction of Multi-channel management initiatives which helps companies manage consumer interaction across diverse sales channels. Such solutions integrates all sales channels to help enterprises develop unified product strategy and for customers to have unified experience across sales channels. Several companies are already head-in with multichannel management solution implementations. Keeping up with the pace, technology solutions & services providers have also come out big bang with MCCS solutions. Leading the race is Oracle ATG’s multichannel management solution, which is being picked up by many CPG companies due to it’s off the shelf features.

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Posted in: Mergers and Acquisitions,Multichannel Management Solutions,Sales and Operations Planning,supply chain management,Supply Chain Planning,Supply Chain Trends,Trade Promotion Management

S&OP in a Nutshell

S&OP process is backbone of a supply chain. It brings together the demand and supply components to enable advance planning for smooth functioning of supply chain. It all began sometime back when it was realized that independent isolated departmental plans can not be continued to attain efficiency. And thus the need for a consensus plan became apparent for which all the silos of the enterprise must be united to execute an agreed upon strategy.

Nowadays the interest in S&OP activities has surged due to evident benefits achieved by leading companies including increased forecast accuracies, reduced inventories, waste, costs and planning efforts. Qualitatively companies have achieved business alignment between the functional units, increased supply chain visibility and improved customer satisfaction due to harmonization between demand, supply and finances. These reasons are not the only ones which have led to surge in S&OP activities in industry. Those are only the advantages, while the actual reason is cut-throat competition, increased demand volatility and shorter product lifecycles.

Ideally S&OP process is done proactively with sales, marketing, and operations team allocating constrained products to customer orders, expediting product shipments or reconfiguring products to create the required models. The process is better depicted below which resembles to Kaplan's balanced scorecard (sales & marketting representating customer and operations representing internal processes):

The basic elements of the S&OP process are the stakeholders, which must include Sales, Marketting and Operations departments of the organization. Nowadays to align S&OP process to IBP process (Integrated Business Planning), the Finance department has got also deeply involved in S&OP processes the main indicator of success is bottom line. In layman's term, each of these departments come pre-prepared for S&OP with agenda of their own and brings forward their concerns on the table in the form of metrics, KPIs and objectives. For instance, Marketing department might present the budget of the present year and corresponding allocation for the next 3 months while at the same time Operations department might present constraints on the existing capacities or logistics concerns, and sales might display outstanding customer orders for next 1-2 months. The data presented by each of the department is usually presented at different levels such as organizational level, brand specific level, product level, and even SKU level. Thus pre-planning of a S&OP becomes an exhaustive excersize.

Different consulting and IT organizations might have redefined S&OP process, metrics, steps, frequency, but most of those have been mere marketing gimics providing limited differentiation to the actual output of the process which is finalized production and distribution plan.

**Sometimes S&OP process might also lead to reconsidiration of adding capacity in future or identification of sub-contractors for additional capacity.

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Posted in: Sales and Operations Planning,Supply Chain Planning

Changing focus from Lean to Green

There was a time when the focus of the CPG and manufacturing companies was to have a lean supply chain and projects such as six sigma, kaizen etc were omnipresent in the industry. Every company had strategic agenda to have least possible inventory, minimized wastage and optimization of bottlenecks. Some of the companies even included suppliers to the lean value chain initiatives with a vision of enabling better quality and decreased overall prices for material.

Now that most of the major CPG companies have imbibed lean principles, the focus is changing towards Green Supply Chain Management (GSCM). And green does not mean just revitalized packaging and changing the looks of the organization logos, but it deals with overhauling whole supply chain with the objective of reducing environmental impact. Companies are devising strategies to help minimize the impact throughout the value chain- from design to manufacturing through disposal & recycling of waste / products. Some of these initiatives also address the niche market segment consisting of customers who are highly concerned about the changing environment and amount of harmful / non-biodegradable materials in the products.

Whatever the reason is for CPG companies to enable green supply chain, the final outcome is a sustainable supply chain and ultimate effect is reduced costs and increased revenues in long run. Most of the initiatives are managed in 3 basic steps- Direction by executive body, execution by management and control & monitor by all involved parties.

GSCM (Green Supply Chain Management) Framework

Below is an elaboration of how above framework is being enabled at major CPG companies:

1. Product Design with End Considerations:

In order to achieve green supply chain, CPG companies are looking at the initial stage of the product life cycle- Design. Most of the companies have started designing products considering packaging and shipping costs. Also various attributes of the products are being considered for recycling opportunities.

Reducing paper consumption while ensuring product's perfect condition is sure a challenge for all CPG companies but can result in significant cost savings considering that wrapping and packaging consists of 10-15% of end product cost (for some of the CPG companies).

2. Manufacture with eco-efficiencies

Manufacturing is one of the areas which can contribute a lot towards sustainability and thus initiatives in this domain can be most effective for an eco-considering CPG company. For instance, in many CPG Manufacturing plants the focus is on 3REs - Reduce, Recycle and Reuse.

3 REs Framework for Go-Green

Some of the green examples in manufacturing locations include:
- Reducing energy utilization via energy saving lighting units, eliminating compressed air leaks, use of solar power
- Water savings via installation of rain water collection tanks
- Reducing waste and Reusing the material / byproducts (Plastic, oils, paper) wherever possible
Some of the CPG companies have saved several $100Ks in cost saving while reducing the environmental impact.

3. Greener Transportation & Delivery
Transportation and Delivery has one of the biggest impacts on Environment in whole supply chain. In effect the supply chain is movement of goods across suppliers to manufacturers to retailers and to customers. And this all leaves a big carbon footprint on the environment.
Some of the common initiatives in this area are optimizing routes of the vehicles to save fuel and also maximizing the load on vehicle to enable higher delivery per fuel unit consumed. While most of the companies have stopped at the above initiatives, some innovative companies are further gaining grounds in reducing environmental impact by finding new ways in this area. One such way is to make delivery or conduct transportation during past peak times. This leads to lower fuel consumption and faster delivery. While this obviously can be applied to roadways transportation, but the maximum result of this can be achieved when applied to ocean carriers. Docking / undocking, Loading / unloading time reduces significantly thereby reducing carbon emission and fuel usage.

4. Evolve Marketing and Promotion to Imbibe Green Principals:Though this area does not have many options for going green, several CPG have reduced use of paper on catalogs and door to door advertisement / promotional notifications and have moved towards web based platform for similar activities. Also E-mail is being leveraged as a way to manage the growth of catalogue circulation.

5. Green Performance Indicators (GPIs)
I had heard from my boss that managing without monitoring results in failure, and thus while going green, several CPG companies forget to monitor environment performance. A few of the companies have established set of metrics which I have renamed here as GPIs. These can be varied depending on the type of the company, but most of the companies can relate and rely on these:
Energy Based GPIs:
- Total energy consumption per employee
- Total CO2 Emission
Material Based GPIs:- Total Waste generation (in metric tons)
- Hazardous waste generation
- Waste Disposition (Hazardous & Non Hazardous)
Water Based GPI:
- Water consumed
- Water recycled

While above initiatives are driven towards sustainable environment, they also lead to less wastage and cost savings envisioned by lean supply chain concepts. Thus going green and becoming eco friendly provides an added incentive for CPG firms. And did I say that green was any different than lean?

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Posted in: Environmental Impact of Supply Chains,Green Supply Chain,supply chain management,Sustainance

Supply Chain Evolution

Things evolve, sometimes for better and at other times for worst. Supply chain for one has been prevalent to every other thing we know of. Its just that Supply Chain got recognized and defined in recent times and has evolved continously to what we are witnessing today. Supply chain evolution really geared up with recent innnovations occuring due to IT strategy being intertwined with supply chain strategy.

Supply chains today have been going through a lot of changes, some of which are:- Improved demand planning- wherein the demands of all the geographies are forecasted through not only current orders or industry experience but also with simulation tools providing "what-if analysis". Also the reliance on historical data is being reduced and new forecasting models take care of seasonalities, promotions and events in the global markets.

- Inventory optimization- While earlier due to lack of collaboration between suppliers and distributors, a manufacturing / cpg company had to ensure ample stock of inventory. Nowadays through increased collaboration and visibility on account of complex sophisticated applications, manufacturing / cpg companies are able to reduce their inventories to the level that it does not hurt their pockets and neither the customer has to wait for several days for order fulfillment. Companies are focussing on lean but not mean supply chain to ensure least inventories and informed supply chain partners to enable streamlined operations.

- Product lifecycle management- Increased competition has led to various changes in PLM area and companies are thriving for improvements for reduced time to market, prototyping costs, and saving through complete integration of engineering workflows. Present PLM has extended beyond traditional PLM and integrates even real time 'lifecycle event data' along with sharing this information with different players in the lifecycle of product.

- Green initiatives- This is one of the recent developments which picked up focus in last couple of years and has reduced the impact on pockets along with reducing impact on environment. Manufacturers are finding ways to reduce carbon footprint while creating a sustainable supply chain via either looking at water usage reduction, improving transportation routes, reducing power usage by plants or using economical packaging. Even consumer's perception has tilted towards greener products making companies to adopt and adapt to the changing environment. For some manufacturers the green initiatives are direct result of public outrage / environmental agencies investigations, such as one against Mattel by Greenpeace, while for others it is a preventive measure to avoid such instances. Some may find that "Green Initiatives" are nothing but cost saving initiatives, which have just been re-branded and repackaged to show consumers the contribution to the environment. Most companies have derived benefits and created value through changing focus on Grean SCM initiatives. Dell saves over $20MN annually, Texas instruments $8MN, Pepsi $44 MN to name a few.

Outsourcing supply chain activities- There was a time when vision of the manufacturing companies was to execute all parts of supply chain by themselves. For instance, Ford in early 1990s (under Henry Ford) began to expand into a company encompassing several suppliers, distributors, logistics apart from usual manufacturing operations. But later they evolved outsource most of these areas and began focus on core competencies.
More recently, many CPG companies and Manufacturing giants have began outsourcing their operations to low cost / efficient destination / specialists in the world.
- For Logistics, 3PL has been there for some time and while 4PL is becoming a new trend wherein all the responsibility of transportation (delivery, customs, multi channel) is managed by a 4th Party Logistics company who in turn manages several 3rd party vendors for individual activities.
- Some big companies have even started to outsource their manufacturing to small time vendors but have tightened quality and product integrity procedures to ensure defect free products.
- IT outsourcing is nothing new to mention, but it has evolved to the extent that virtualization has become a new buzzword. Managed services are the things of past and Cloud computing & SaaS are the latest trends in this area.

All being said and done, the end motives for evolution are still the same and will remain the same, which are increased Revenue and reduced Cost (profit). And the companies which successfully adapt and evolve their supply chain are now not the survivors but the leaders in this competitive economy.

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Posted in: Supply Chain