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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