Executive Briefings

Customer-Centric Levers Can Release Value for Consumer Goods Industry, Report Finds

In the face of challenging economic headwinds, consumer goods manufacturers have focused on cutting costs and optimizing working capital. Those routes still offer opportunity, but recent analysis indicates that traditional assumptions regarding tradeoffs among costs, inventory and service don't always hold true, and leading companies are using new, customer-centric levers to unlock value. These actions could yield a potential value of nearly $50bn industrywide, according to research conducted by The Boston Consulting Group on behalf of the Grocery Manufacturers Association (GMA).

The resulting report, entitled GMA Supply-Chain Benchmarking 2012: Unlocking the Hidden Value of Complexity Management and Collaboration, is the eighth in GMA's benchmarking series focused on manufacturers' outbound-supply-chain logistics. It finds that higher inventory does not always equate to better service, and scale does not automatically lead to lower costs. Instead, the winners manage the tradeoff between cost and service by focusing on less utilized, customer-centric levers such as complexity management and collaboration with trading partners.

The latest report in the series covers the 2010-2012 period and is notable for several distinguishing characteristics, including its rich data source. 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 those 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," said Elise Fennig, GMA's vice president of industry affairs. "It also provides a road map for even greater efficiency and savings through improved trading partner collaboration - savings that can drive innovation and sustainable business growth."

Is Cost-Cutting Putting Service Levels at Risk?

CPG manufacturers' supply-chain-logistics costs as a percentage of sales fell by 9 percent from 2010 through 2012, on average. However, for the first time in a decade, service levels have begun to show slight signs of a decline, albeit from 2010's historic high. Several interviewees expressed concern that the drop in service could be the downside of the relentless cost-cutting. However, the analysis found that some companies have successfully balanced lower costs with high levels of service.

Better Complexity Management Is a $25Bn-Plus Opportunity

Of the companies studied, 90 percent cite complexity management as a strategic problem, yet only about 25 percent are systematically addressing the issue. Most manufacturers are doing only basic, ad hoc complexity management, often focused on SKU rationalization.

Yet better complexity management could unlock more than $25bn of additional value industrywide. Manufacturers that excel at complexity management treat it as a holistic, companywide exercise, supported by senior leadership and cross-functional teams. They quantify the costs and benefits, and they focus on profit maximization, not just 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," said Jeff Wray, a BCG partner and coauthor of the report.

More-Sophisticated Collaboration with Trading Partners Could Unlock
More Than $20Bn

Collaboration is a strategic focus for their business, according to 95 percent of manufacturers, and nearly all of them have initiated related projects or established dedicated collaboration teams. But most companies are at the beginning of their collaboration journey; few manufacturers have built long-term, strategic relationships with retailers.

Approximately one-third of manufacturers consider lack of trust and commitment to be a significant barrier to collaboration. Other major obstacles include issues with capabilities and technology.

If the industry can overcome these challenges, BCG estimates that collaboration could release more than $20bn 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," said Aaron Brown, a BCG partner and coauthor of the report.

A copy of the report can be downloaded from the websites of both GMA
and BCG.

Source: The Boston Consulting Group

The resulting report, entitled GMA Supply-Chain Benchmarking 2012: Unlocking the Hidden Value of Complexity Management and Collaboration, is the eighth in GMA's benchmarking series focused on manufacturers' outbound-supply-chain logistics. It finds that higher inventory does not always equate to better service, and scale does not automatically lead to lower costs. Instead, the winners manage the tradeoff between cost and service by focusing on less utilized, customer-centric levers such as complexity management and collaboration with trading partners.

The latest report in the series covers the 2010-2012 period and is notable for several distinguishing characteristics, including its rich data source. 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 those 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," said Elise Fennig, GMA's vice president of industry affairs. "It also provides a road map for even greater efficiency and savings through improved trading partner collaboration - savings that can drive innovation and sustainable business growth."

Is Cost-Cutting Putting Service Levels at Risk?

CPG manufacturers' supply-chain-logistics costs as a percentage of sales fell by 9 percent from 2010 through 2012, on average. However, for the first time in a decade, service levels have begun to show slight signs of a decline, albeit from 2010's historic high. Several interviewees expressed concern that the drop in service could be the downside of the relentless cost-cutting. However, the analysis found that some companies have successfully balanced lower costs with high levels of service.

Better Complexity Management Is a $25Bn-Plus Opportunity

Of the companies studied, 90 percent cite complexity management as a strategic problem, yet only about 25 percent are systematically addressing the issue. Most manufacturers are doing only basic, ad hoc complexity management, often focused on SKU rationalization.

Yet better complexity management could unlock more than $25bn of additional value industrywide. Manufacturers that excel at complexity management treat it as a holistic, companywide exercise, supported by senior leadership and cross-functional teams. They quantify the costs and benefits, and they focus on profit maximization, not just 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," said Jeff Wray, a BCG partner and coauthor of the report.

More-Sophisticated Collaboration with Trading Partners Could Unlock
More Than $20Bn

Collaboration is a strategic focus for their business, according to 95 percent of manufacturers, and nearly all of them have initiated related projects or established dedicated collaboration teams. But most companies are at the beginning of their collaboration journey; few manufacturers have built long-term, strategic relationships with retailers.

Approximately one-third of manufacturers consider lack of trust and commitment to be a significant barrier to collaboration. Other major obstacles include issues with capabilities and technology.

If the industry can overcome these challenges, BCG estimates that collaboration could release more than $20bn 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," said Aaron Brown, a BCG partner and coauthor of the report.

A copy of the report can be downloaded from the websites of both GMA
and BCG.

Source: The Boston Consulting Group