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    Customer-centric Focus Can Yield Value for CPG Cos.: Report

    Complexity management, collaboration with retailers are key

    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.
     

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