Review & Outlook 2015: Supply Chain
Doug Bethea
Vice President of Consumer Goods Solutions
Datalliance
A key challenge facing CG companies in the year ahead is the increasing retailer interest in better integration of store-level consumer demand with advanced supplier replenishment solutions. Retailers are stepping up their push for solutions that enable greater supply chain collaboration to deliver better end-to-end performance and efficiency. To meet this demand, CG supply chain leaders need to actively pursue initiatives that better connect store demand with highly responsive distribution networks. Over the past few years, leading CG companies have rationalized their distribution networks while making investments in new Distribution Center (DC) mixing centers with a greater assortment of products located closer to store shelves. To fully capture the benefits of this new era, CG companies must re-evaluate how they do business with each of their retailers. Clearly, one size does not fit all. Solutions exist today that combine available data flow with advanced distribution capabilities to serve retailers in ways not possible before. CG companies need a fresh assessment of where they stand relative to approaches that have emerged in the past few years. A fresh look at the solution landscape is critical for a successful path forward.
Patrick Bower
Senior Director, Global Supply Chain Planning
Combe Inc.
The subject might not be as hot as S&OP or as intriguing as big data, but freight optimization is one of the highest-value opportunities facing CG companies these days. Over the next three to five years, CG companies, especially those that rely heavily on LTL shippers (less than truckload) will be significantly impacted by driver shortages and carrier capacity shortfalls. Changes in hours-of-service regulations that were implemented in mid-2013 came home to roost this past year, resulting in driver productivity levels falling to historical lows. Companies that initiate freight operation improvements in the new year will be less impacted by lost freight capacity in the marketplace. This is not new or revolutionary thinking. But revisiting opportunities to maximize the benefit stream and to help assure high service levels might just be one of the most important projects an organization can undertake. Here are three specific approaches that will add maximum value:
Robert F. Byrne
CEO
Terra Technology
While “growth through innovation” is a popular corporate strategy, SKU proliferation has become a very large and unmeasured cost to industry and is eroding profits. Long tails are celebrated in businesses like online music where digital assets have no recurring production, inventory or obsolescence costs, but represent tangible expenses for physical goods manufacturers and create disproportionate cost burdens compared to other items. In CG, the tail is out of control.
It seems marketing has run amok. Innovation programs create new SKUs but fall short on generating new revenue and erode margins by raising complexity. In short, innovation is driving costs, not growth or the bottom line. Every year, roughly 40 percent of items for sale are new, yet sales have remained essentially flat, with only a marginal two percent increase. Each new item drives a wide range of supply costs including setup changes to manufacturing, inventory of raw materials, packaging and finished goods, as well as write-downs.
It is time for supply chain professionals to stand up to the challenge of SKU proliferation by using factual information on new item growth, costs and revenue performance to break this unhealthy trend.
Lora Cecere
Founder and CEO
Supply Chain Insights
Companies have lots of systems, but they cannot get to data. 2015 is the year for analytics. It is my recommendation that companies take a five-step approach. Analytics is much, much more than reporting. It is about the use of data in descriptive, predictive, and cognitive analytics approaches. Visualization and in-memory reporting are the easy first steps to take. They add great value. If you can only make one investment this year, this is the step to take. Move the organization out of the spreadsheet ghetto and make sure that your organization can drive a data-driven discussion based on a common set of data. The second step is the use of concurrent, in-memory supply chain planning deployed as a SaaS deployment. This in-memory approach enables what-if optimization and deeper modeling. The third step is forming an analytics team to forge a strategy to use data. The fourth step is the use of network design tools to consciously design and reconfigure the value network. This work is concentrated on inventory and product flows as well as hard asset decisions. The fifth step, for the more advanced leader, is the use of cognitive computing and building rules-based ontologies to drive new insights on planning master data, available-to-promise, supply chain visibility and demand insights. Cognitive computing is so exciting and applicable that it is hard to stop with one or two.
Mike Gillespie
Lead Channel Manager, CP Vertical
AT&T
Collaboration, visibility and optimization within the supply chain will lead agendas and initiatives in 2015/2016 and beyond. The 1:1 customer experience and brand promise delivery that consumers expect, whether through traditional retail partnerships or direct to consumer, requires the supply chain architecture, business insights and real-time response capabilities most CPG firms don’t have today. Collaboration with consumers, retail partners, vendor partners and internal cross-functional teams is critical to reducing cost and driving productivity increases. Visibility in the supply chain needs to be leveraged across upstream, internal and downstream partners. Optimization will occur when the value chain partners collaborate and provide visibility into the value delivery process and beget a co-created value chain that delivers the customer brand promise experience. The use of IoT/M2M sensors, secure global networks, cloud-based shared data platforms and actionable BI will give CPG firms, their partners and consumers information and insights that have not been possible in the past. The potential for reduction in out of stocks, mitigation of “bullwhip” and developing deeper consumer relationships will contribute to revenue and margin growth.
Seth Goldman
Co-Founder & TeaEO
Honest Tea
We are at an unprecedented and exciting moment where business ideas that improve the health of our population and the health of our planet also represent amazing business opportunities. In fact, brands that fail to be transparent about their impact on wellness and the environment will be disadvantaged.
Jake Barr
CEO
BlueWorld Supply Chain Consulting
The 2014 Ho — No Hangover
2014 — Have we ever been more prepared to say good-bye to a chaotic year! Prepare your favorite New Year’s hangover remedy because 2015 looks to be bringing more of the same. Unstable economic conditions in both the developed and developing world, along with a brain twister yo-yo effect on energy costs will leave you longing for the predictable boring days gone by.
We could state the case in “maturity model” terms but let’s keep it simple. 2015 should be the year where your supply chain achieves complete visibility of everything that is moving (raw/pack/intermediate/finished product) and importantly allows you to know IN ADVANCE where the disruptions in your demand or supply flows are about to occur.
If you’ve been especially good in 2014, you might want to double down and ask Santa for help with sitting a toolkit over the top of your ERP investment to allow you to make near real time trade-off decisions on cost/cash/service/margin when these disruptions occur. You simply can’t add enough people nor work through data fast enough to do this the old school way any longer.
2015 can be a year where it “rains money” on you as long as you put in the effort to bring these two areas under control. Here’s to your success, or best wishes for a value pack-sized bottle of Advil.
Jan Kohler
Supply Chain Research Director
Gartner Inc.
For years, CP companies have largely operated in a push mode based on traditional demand forecasts. Portfolios in the CP industry continue to expand, making forecasting near-term demand at the daily/weekly and SKU/location granularity more difficult. Production schedules and deployment orders based on traditional forecasts with high error results in multiple challenges for CP companies. It is time to leverage available downstream data to better align the supply response to actual downstream demand in a pull replenishment mode. Leaders continue to work to improve their forecasts for planning purposes. They are also beginning to leverage downstream data to better predict average daily usage by SKU to align replenishment in the near-term based on what is being consumed downstream. Some companies are seeing improved alignment with downstream demand by working closely with key retail accounts using Vendor Managed Inventory (VMI). They determine replenishment orders based on retail warehouse inventory and stock movements along with some POS data reflecting consumer pull through the pipeline. Those using demand-sensing technology are seeing improvements in near-term demand accuracy based on downstream data, pattern recognition and predictive analytics. The few that have aligned upstream production with downstream consumption are experiencing improved service, reduced inventory and operations stability.
Wendy Karhu
Vice President Industry Strategy
JDA
Consumers are more empowered than ever. They are socially connected. They know exactly what they want, when and how they want it. The competition is fierce and consumers do not have the same level of brand loyalty. Now more than ever, you need to deliver on your promises to them. It is not enough to deliver a front-end omnichannel experience and satisfy customer commitments. For CG companies to stay alive, they must be able to fulfill consumer demands in a profitable way.
To satisfy consumers, information such as inventory visibility and labor and transportation costs are taken into consideration based on rules to determine the fulfillment method. This is a good start but it is not enough. In order to maximize profitability companies should also be incorporating the forecasted demand of inventory into that equation. Understanding static inventory positions are not enough. Companies should be incorporating the same unified forecast used for merchandise and financial planning, promotions, replenishment and workforce management for intelligent omnichannel fulfillment. Those that do will be positioned to both satisfy empowered consumers and maximize profit.
Michael McLaughlin
Sr. Vice President, Food Supply
Clif Bar & Company
The food supply system today is largely out of sync with what is good for people and good for the planet. Companies need to deliver what consumers are asking for up to a point. We also have a responsibility to create products and ways of supplying them that are efficient and sustainable.
Company’s supply chains that are only focused on capacity and margins are underserving the business. They need to be joined at the hip with marketing and R&D, and have laser-like focus on supporting innovation and how to deliver it in order to sustain the business long term.
Diane Palmquist
Vice President of Manufacturing Solutions
GT Nexus
A top priority in 2015 will be an amplified emphasis on the customer and assurance of supply. Outsourced production continues to be a growing challenge. CPG companies are under pressure to maintain tighter control of parties, products and practices that extend far beyond their reach. In the supply chain, havoc can result from an infinite number of factors — natural disasters, suppliers going out of business, an upsurge in demand that wasn’t foreseen. The most effective mitigation against these forms of risk will continue to be agile, transparent and collaborative supply chain execution. This will be a growing priority at the C-level. Currently, a major misconception is the belief that this type of capability can be bolted on or added to a CPG’s infrastructure. It can’t. Initiatives that focus on assurance of supply and the ability to effectively serve customers are forcing businesses to evolve towards a model that views trading partners as an extension of the business. In this environment, CPG companies and their suppliers are united within a common ecosystem, enabling parties to perform and compete as a single network — opposed to a series of individual parties. Collaborative cloud-based platforms that foster collaboration, visibility and agility will be essential to achieving this in the coming years.
Jim Preuninger
CEO
Amber Road
As a top priority in 2015, CG companies should look to bolster the performance of their international supply chains. While 88 percent of companies have global supply chains today, the average company has invested one-fifth as much in international supply chain technologies as they have in domestic supply chain technologies. This investment disparity is counter intuitive, as a typical international shipment costs twice as much as a domestic one, takes five times longer in transit and has five times the lead time variability. The best way for CG companies to see dramatic operational improvements is to invest in technologies that automate and optimize the end-to-end global supply chain, including sourcing optimization, foreign supplier management, international transportation management, import/export management, duty minimization and global supply chain visibility.
CG companies that recognize the need for these investments can expect to see impressive returns. In fact, supply chain leaders realize annual cost savings of $17 million in freight charges alone compared to laggards by adopting global trade management/international supply chain technologies. Additionally, duty minimization and global supply chain visibility technologies typically yield duty savings of two to three percent and order cycle time improvements of four to seven days. In short, CG companies that invest in their international supply chains in 2015 will be able to expand their consumer base more rapidly and at a lower cost.
Tom Sauder, P.Eng.
Director of Supply Chain Management
Andrew Peller Limited
A well-functioning S&OP program for small and mid-sized CG companies will close the competitive gaps to larger companies; it may not close them entirely. Even if closing competitive gaps is not a priority, improving the bottom line and working capital position must be. In the past, smaller companies may have shied away from embarking on an S&OP implementation due to the perceived prohibitive cost of the integrated software required to support the S&OP process. Underlying the cost perception may be the false assumption that software implementation will drive business improvements. Better forecasting will drive better production, material, procurement and inventory plans. Customer service levels will increase and with any luck staffing levels can be reduced. Since the software is too expensive companies don’t embark on S&OP and live with what they have.
The best practice is to balance business processes, people structure and skills, and supporting software. Experience has shown that getting people with the required “new” skills into the right positions must happen first. They can then design the new S&OP processes AND the most appropriate software to support these processes. The most appropriate software isn’t necessarily the most expensive or fanciest package. The biggest gains will come from people and process improvements; software will increase their efficiency and allow for faster analysis and decision making.
J.D. Sieg
Vice President of IT
Kimberly-Clark North America
With current business conditions, many companies are laser focused on near term volume growth. The companies that will begin to emerge as leaders will begin their journey towards Integrated Business Planning (IBP). IBP evaluates and revises time-phased projections for demand, supply, new product introductions and the annual operating financial plans. This process is strategic in nature and forces the discipline to focus on an 18 to 24 month rolling horizon instead of the next month or quarter.
An organization doesn’t begin orchestrating an IBP process overnight, it must mature over time. The foundation of IBP is robust S&OP planning which has traditionally been a people centric process filled with hundreds of spreadsheets. Technology has finally caught up and can be the framework to take strategic planning to the next level of maturity.
Companies will begin to leverage the technological advancements in big data analytics and in-memory computing to reduce forecasting cycle times, enable “what-if” scenario planning and provide transparency to the areas of risk and opportunities. Technology will enable companies to unlock the benefit in having access to social sentiment, e-commerce sales demand and POS data to help shape the outcomes of the future.
Andy Smith
President of Consumer and Industrial Logistics
GENCO
DC adaptation to changes in shipment profiles will be a strategic initiative for CG companies in 2015/2016 to offset increased costs and drive efficiencies for favorable financial outcomes. The forces of omnichannel and improved forecasting capabilities of ERP systems are impacting the CG industry most significantly in the size and frequency of orders. Retailers are stocking more SKUs, with shorter life cycles, and in smaller quantities. At the DC, pallet picking is shifting to layer picking, case picking, and each picking, which requires added labor and longer processing time than pallet-in pallet-out facility configurations. Whether managed in-house or outsourced, CG supply chain executives will need to address changes in distribution networks and facility design to accelerate order processing while maintaining quality, safety, and financial goals.
The solution will be to design a warehouse facility with flexibility and insight into the velocity of each item relative to forecast for the current year. The ability to collect and control data from diverse systems will enable the CPG supply chain executive to customize each facility layout, with the identified level of automation, to build flexibility and agility into the network. What’s needed to solve this problem is a best-in-breed Warehouse Management System (WMS). It would be powerful enough and flexible enough to have visibility into inventory across the extended supply chain network — no matter how many channels, partners, or SKUs.
Pat Smith
General Manager
ToolsGroup
Eighty-five percent of the engagements ToolsGroup saw in 2014 were focused on leveraging demand modeling to improve forecast accuracy, inventory, and service level performance. Demand modeling involves a thorough assessment of demand signal properties and is a key component to unlock sustainable business outcomes. Successful demand modeling has the following characteristics:
Dr. Matt Waller
Chief Data Scientist
Orchestro
Over the last several years, much has been written about the importance of analytics for CPG companies. To date, the preponderance of CPG and retail analytics has focused on reporting past results. While some companies are beginning to embrace predictive analytics, what’s clear is that predictive analytics alone can’t solve problems. A new approach is needed — one that solves problems before they occur and prevents them from recurring in the future. Orchestro calls this ‘pre-emptive analytics.’
One way to think about this is to look at the improvements in manufacturing performance during the 80’s. U.S. companies learned from their Japanese rivals about the importance of continuous process improvement or “kaizen.” Basically, what Japanese manufacturers were doing was predicting where manufacturing problems might occur, uncovering the root causes of those problems and then fixing the root causes — resulting in fewer production errors, higher quality and happier customers. What CPG and retail companies need to do is translate this spirit to managing their supply chains. Get started by investing in a demand orchestration system, which incorporates predictive capabilities and pre-emptive alerts. Use these capabilities to uncover and address service level exceptions and you’ll be on your way.
Peter Zaballos
Vice President of Marketing
SPS Commerce
Omnichannel retailing. While it may sound simple, giving consumers what they want, when, where and how they want it, isn’t as easy as it was during the early days of e-commerce. To meet the expectations of these mobile-savvy consumers, retailers and suppliers must reinvent how they do business. The simplicity consumers demand isn’t possible without suppliers and retailers working together to create compelling experiences that span multiple channels, including e-commerce, mobile commerce and social commerce. In this age of cloud-based collaboration, a critical supply chain capability for omnichannel retail success is your retail business network. Made up of your suppliers and other trading partners, your network must be integrated into your business. What’s more, your business must also be integrated into that of your trading partners.
Social networks such as Pinterest, Facebook and Instagram are made possible with critical cloud-computing capabilities that provide the information consumers use to connect to one another and to make well-informed buying decisions. Today’s supply chains must use those same cloud-computing capabilities to connect trading partners and form communities, offer space to exchange information in a common language and jointly measure performance. Cloud-based supply chains and their networks deliver the capabilities retailers and suppliers need to take advantage of today’s omnichannel retail market.
RELATED ARTICLES:
Vice President of Consumer Goods Solutions
Datalliance
A key challenge facing CG companies in the year ahead is the increasing retailer interest in better integration of store-level consumer demand with advanced supplier replenishment solutions. Retailers are stepping up their push for solutions that enable greater supply chain collaboration to deliver better end-to-end performance and efficiency. To meet this demand, CG supply chain leaders need to actively pursue initiatives that better connect store demand with highly responsive distribution networks. Over the past few years, leading CG companies have rationalized their distribution networks while making investments in new Distribution Center (DC) mixing centers with a greater assortment of products located closer to store shelves. To fully capture the benefits of this new era, CG companies must re-evaluate how they do business with each of their retailers. Clearly, one size does not fit all. Solutions exist today that combine available data flow with advanced distribution capabilities to serve retailers in ways not possible before. CG companies need a fresh assessment of where they stand relative to approaches that have emerged in the past few years. A fresh look at the solution landscape is critical for a successful path forward.
Patrick Bower
Senior Director, Global Supply Chain Planning
Combe Inc.
The subject might not be as hot as S&OP or as intriguing as big data, but freight optimization is one of the highest-value opportunities facing CG companies these days. Over the next three to five years, CG companies, especially those that rely heavily on LTL shippers (less than truckload) will be significantly impacted by driver shortages and carrier capacity shortfalls. Changes in hours-of-service regulations that were implemented in mid-2013 came home to roost this past year, resulting in driver productivity levels falling to historical lows. Companies that initiate freight operation improvements in the new year will be less impacted by lost freight capacity in the marketplace. This is not new or revolutionary thinking. But revisiting opportunities to maximize the benefit stream and to help assure high service levels might just be one of the most important projects an organization can undertake. Here are three specific approaches that will add maximum value:
- Make sure your outbound shipments to retailers are as efficient as possible.
- Look to improve vendor/retailer coordination. Each opportunity to consolidate helps streamline freight operations, netting significant economic and operational benefits.
- Scrutinize any existing consolidation programs between carriers and retailers to uncover additional value.
Robert F. Byrne
CEO
Terra Technology
While “growth through innovation” is a popular corporate strategy, SKU proliferation has become a very large and unmeasured cost to industry and is eroding profits. Long tails are celebrated in businesses like online music where digital assets have no recurring production, inventory or obsolescence costs, but represent tangible expenses for physical goods manufacturers and create disproportionate cost burdens compared to other items. In CG, the tail is out of control.
It seems marketing has run amok. Innovation programs create new SKUs but fall short on generating new revenue and erode margins by raising complexity. In short, innovation is driving costs, not growth or the bottom line. Every year, roughly 40 percent of items for sale are new, yet sales have remained essentially flat, with only a marginal two percent increase. Each new item drives a wide range of supply costs including setup changes to manufacturing, inventory of raw materials, packaging and finished goods, as well as write-downs.
It is time for supply chain professionals to stand up to the challenge of SKU proliferation by using factual information on new item growth, costs and revenue performance to break this unhealthy trend.
Lora Cecere
Founder and CEO
Supply Chain Insights
Companies have lots of systems, but they cannot get to data. 2015 is the year for analytics. It is my recommendation that companies take a five-step approach. Analytics is much, much more than reporting. It is about the use of data in descriptive, predictive, and cognitive analytics approaches. Visualization and in-memory reporting are the easy first steps to take. They add great value. If you can only make one investment this year, this is the step to take. Move the organization out of the spreadsheet ghetto and make sure that your organization can drive a data-driven discussion based on a common set of data. The second step is the use of concurrent, in-memory supply chain planning deployed as a SaaS deployment. This in-memory approach enables what-if optimization and deeper modeling. The third step is forming an analytics team to forge a strategy to use data. The fourth step is the use of network design tools to consciously design and reconfigure the value network. This work is concentrated on inventory and product flows as well as hard asset decisions. The fifth step, for the more advanced leader, is the use of cognitive computing and building rules-based ontologies to drive new insights on planning master data, available-to-promise, supply chain visibility and demand insights. Cognitive computing is so exciting and applicable that it is hard to stop with one or two.
Mike Gillespie
Lead Channel Manager, CP Vertical
AT&T
Collaboration, visibility and optimization within the supply chain will lead agendas and initiatives in 2015/2016 and beyond. The 1:1 customer experience and brand promise delivery that consumers expect, whether through traditional retail partnerships or direct to consumer, requires the supply chain architecture, business insights and real-time response capabilities most CPG firms don’t have today. Collaboration with consumers, retail partners, vendor partners and internal cross-functional teams is critical to reducing cost and driving productivity increases. Visibility in the supply chain needs to be leveraged across upstream, internal and downstream partners. Optimization will occur when the value chain partners collaborate and provide visibility into the value delivery process and beget a co-created value chain that delivers the customer brand promise experience. The use of IoT/M2M sensors, secure global networks, cloud-based shared data platforms and actionable BI will give CPG firms, their partners and consumers information and insights that have not been possible in the past. The potential for reduction in out of stocks, mitigation of “bullwhip” and developing deeper consumer relationships will contribute to revenue and margin growth.
Seth Goldman
Co-Founder & TeaEO
Honest Tea
We are at an unprecedented and exciting moment where business ideas that improve the health of our population and the health of our planet also represent amazing business opportunities. In fact, brands that fail to be transparent about their impact on wellness and the environment will be disadvantaged.
Jake Barr
CEO
BlueWorld Supply Chain Consulting
The 2014 Ho — No Hangover
2014 — Have we ever been more prepared to say good-bye to a chaotic year! Prepare your favorite New Year’s hangover remedy because 2015 looks to be bringing more of the same. Unstable economic conditions in both the developed and developing world, along with a brain twister yo-yo effect on energy costs will leave you longing for the predictable boring days gone by.
We could state the case in “maturity model” terms but let’s keep it simple. 2015 should be the year where your supply chain achieves complete visibility of everything that is moving (raw/pack/intermediate/finished product) and importantly allows you to know IN ADVANCE where the disruptions in your demand or supply flows are about to occur.
If you’ve been especially good in 2014, you might want to double down and ask Santa for help with sitting a toolkit over the top of your ERP investment to allow you to make near real time trade-off decisions on cost/cash/service/margin when these disruptions occur. You simply can’t add enough people nor work through data fast enough to do this the old school way any longer.
2015 can be a year where it “rains money” on you as long as you put in the effort to bring these two areas under control. Here’s to your success, or best wishes for a value pack-sized bottle of Advil.
Jan Kohler
Supply Chain Research Director
Gartner Inc.
For years, CP companies have largely operated in a push mode based on traditional demand forecasts. Portfolios in the CP industry continue to expand, making forecasting near-term demand at the daily/weekly and SKU/location granularity more difficult. Production schedules and deployment orders based on traditional forecasts with high error results in multiple challenges for CP companies. It is time to leverage available downstream data to better align the supply response to actual downstream demand in a pull replenishment mode. Leaders continue to work to improve their forecasts for planning purposes. They are also beginning to leverage downstream data to better predict average daily usage by SKU to align replenishment in the near-term based on what is being consumed downstream. Some companies are seeing improved alignment with downstream demand by working closely with key retail accounts using Vendor Managed Inventory (VMI). They determine replenishment orders based on retail warehouse inventory and stock movements along with some POS data reflecting consumer pull through the pipeline. Those using demand-sensing technology are seeing improvements in near-term demand accuracy based on downstream data, pattern recognition and predictive analytics. The few that have aligned upstream production with downstream consumption are experiencing improved service, reduced inventory and operations stability.
Wendy Karhu
Vice President Industry Strategy
JDA
Consumers are more empowered than ever. They are socially connected. They know exactly what they want, when and how they want it. The competition is fierce and consumers do not have the same level of brand loyalty. Now more than ever, you need to deliver on your promises to them. It is not enough to deliver a front-end omnichannel experience and satisfy customer commitments. For CG companies to stay alive, they must be able to fulfill consumer demands in a profitable way.
To satisfy consumers, information such as inventory visibility and labor and transportation costs are taken into consideration based on rules to determine the fulfillment method. This is a good start but it is not enough. In order to maximize profitability companies should also be incorporating the forecasted demand of inventory into that equation. Understanding static inventory positions are not enough. Companies should be incorporating the same unified forecast used for merchandise and financial planning, promotions, replenishment and workforce management for intelligent omnichannel fulfillment. Those that do will be positioned to both satisfy empowered consumers and maximize profit.
Michael McLaughlin
Sr. Vice President, Food Supply
Clif Bar & Company
The food supply system today is largely out of sync with what is good for people and good for the planet. Companies need to deliver what consumers are asking for up to a point. We also have a responsibility to create products and ways of supplying them that are efficient and sustainable.
Company’s supply chains that are only focused on capacity and margins are underserving the business. They need to be joined at the hip with marketing and R&D, and have laser-like focus on supporting innovation and how to deliver it in order to sustain the business long term.
Diane Palmquist
Vice President of Manufacturing Solutions
GT Nexus
A top priority in 2015 will be an amplified emphasis on the customer and assurance of supply. Outsourced production continues to be a growing challenge. CPG companies are under pressure to maintain tighter control of parties, products and practices that extend far beyond their reach. In the supply chain, havoc can result from an infinite number of factors — natural disasters, suppliers going out of business, an upsurge in demand that wasn’t foreseen. The most effective mitigation against these forms of risk will continue to be agile, transparent and collaborative supply chain execution. This will be a growing priority at the C-level. Currently, a major misconception is the belief that this type of capability can be bolted on or added to a CPG’s infrastructure. It can’t. Initiatives that focus on assurance of supply and the ability to effectively serve customers are forcing businesses to evolve towards a model that views trading partners as an extension of the business. In this environment, CPG companies and their suppliers are united within a common ecosystem, enabling parties to perform and compete as a single network — opposed to a series of individual parties. Collaborative cloud-based platforms that foster collaboration, visibility and agility will be essential to achieving this in the coming years.
Jim Preuninger
CEO
Amber Road
As a top priority in 2015, CG companies should look to bolster the performance of their international supply chains. While 88 percent of companies have global supply chains today, the average company has invested one-fifth as much in international supply chain technologies as they have in domestic supply chain technologies. This investment disparity is counter intuitive, as a typical international shipment costs twice as much as a domestic one, takes five times longer in transit and has five times the lead time variability. The best way for CG companies to see dramatic operational improvements is to invest in technologies that automate and optimize the end-to-end global supply chain, including sourcing optimization, foreign supplier management, international transportation management, import/export management, duty minimization and global supply chain visibility.
CG companies that recognize the need for these investments can expect to see impressive returns. In fact, supply chain leaders realize annual cost savings of $17 million in freight charges alone compared to laggards by adopting global trade management/international supply chain technologies. Additionally, duty minimization and global supply chain visibility technologies typically yield duty savings of two to three percent and order cycle time improvements of four to seven days. In short, CG companies that invest in their international supply chains in 2015 will be able to expand their consumer base more rapidly and at a lower cost.
Tom Sauder, P.Eng.
Director of Supply Chain Management
Andrew Peller Limited
A well-functioning S&OP program for small and mid-sized CG companies will close the competitive gaps to larger companies; it may not close them entirely. Even if closing competitive gaps is not a priority, improving the bottom line and working capital position must be. In the past, smaller companies may have shied away from embarking on an S&OP implementation due to the perceived prohibitive cost of the integrated software required to support the S&OP process. Underlying the cost perception may be the false assumption that software implementation will drive business improvements. Better forecasting will drive better production, material, procurement and inventory plans. Customer service levels will increase and with any luck staffing levels can be reduced. Since the software is too expensive companies don’t embark on S&OP and live with what they have.
The best practice is to balance business processes, people structure and skills, and supporting software. Experience has shown that getting people with the required “new” skills into the right positions must happen first. They can then design the new S&OP processes AND the most appropriate software to support these processes. The most appropriate software isn’t necessarily the most expensive or fanciest package. The biggest gains will come from people and process improvements; software will increase their efficiency and allow for faster analysis and decision making.
J.D. Sieg
Vice President of IT
Kimberly-Clark North America
With current business conditions, many companies are laser focused on near term volume growth. The companies that will begin to emerge as leaders will begin their journey towards Integrated Business Planning (IBP). IBP evaluates and revises time-phased projections for demand, supply, new product introductions and the annual operating financial plans. This process is strategic in nature and forces the discipline to focus on an 18 to 24 month rolling horizon instead of the next month or quarter.
An organization doesn’t begin orchestrating an IBP process overnight, it must mature over time. The foundation of IBP is robust S&OP planning which has traditionally been a people centric process filled with hundreds of spreadsheets. Technology has finally caught up and can be the framework to take strategic planning to the next level of maturity.
Companies will begin to leverage the technological advancements in big data analytics and in-memory computing to reduce forecasting cycle times, enable “what-if” scenario planning and provide transparency to the areas of risk and opportunities. Technology will enable companies to unlock the benefit in having access to social sentiment, e-commerce sales demand and POS data to help shape the outcomes of the future.
Andy Smith
President of Consumer and Industrial Logistics
GENCO
DC adaptation to changes in shipment profiles will be a strategic initiative for CG companies in 2015/2016 to offset increased costs and drive efficiencies for favorable financial outcomes. The forces of omnichannel and improved forecasting capabilities of ERP systems are impacting the CG industry most significantly in the size and frequency of orders. Retailers are stocking more SKUs, with shorter life cycles, and in smaller quantities. At the DC, pallet picking is shifting to layer picking, case picking, and each picking, which requires added labor and longer processing time than pallet-in pallet-out facility configurations. Whether managed in-house or outsourced, CG supply chain executives will need to address changes in distribution networks and facility design to accelerate order processing while maintaining quality, safety, and financial goals.
The solution will be to design a warehouse facility with flexibility and insight into the velocity of each item relative to forecast for the current year. The ability to collect and control data from diverse systems will enable the CPG supply chain executive to customize each facility layout, with the identified level of automation, to build flexibility and agility into the network. What’s needed to solve this problem is a best-in-breed Warehouse Management System (WMS). It would be powerful enough and flexible enough to have visibility into inventory across the extended supply chain network — no matter how many channels, partners, or SKUs.
Pat Smith
General Manager
ToolsGroup
Eighty-five percent of the engagements ToolsGroup saw in 2014 were focused on leveraging demand modeling to improve forecast accuracy, inventory, and service level performance. Demand modeling involves a thorough assessment of demand signal properties and is a key component to unlock sustainable business outcomes. Successful demand modeling has the following characteristics:
- Reliable baseline forecasts that are common to account teams, marketing, finance and supply chain entities in organizations.
- The ability to separate what is demand signal (predictive) versus noise (not predictive) in the demand stream.
- Understanding the true impact of promotional behavior from the shelf back using advanced methods.
- Automating the statistical processes of forecasting to remove human bias (machine learning).
Dr. Matt Waller
Chief Data Scientist
Orchestro
Over the last several years, much has been written about the importance of analytics for CPG companies. To date, the preponderance of CPG and retail analytics has focused on reporting past results. While some companies are beginning to embrace predictive analytics, what’s clear is that predictive analytics alone can’t solve problems. A new approach is needed — one that solves problems before they occur and prevents them from recurring in the future. Orchestro calls this ‘pre-emptive analytics.’
One way to think about this is to look at the improvements in manufacturing performance during the 80’s. U.S. companies learned from their Japanese rivals about the importance of continuous process improvement or “kaizen.” Basically, what Japanese manufacturers were doing was predicting where manufacturing problems might occur, uncovering the root causes of those problems and then fixing the root causes — resulting in fewer production errors, higher quality and happier customers. What CPG and retail companies need to do is translate this spirit to managing their supply chains. Get started by investing in a demand orchestration system, which incorporates predictive capabilities and pre-emptive alerts. Use these capabilities to uncover and address service level exceptions and you’ll be on your way.
Peter Zaballos
Vice President of Marketing
SPS Commerce
Omnichannel retailing. While it may sound simple, giving consumers what they want, when, where and how they want it, isn’t as easy as it was during the early days of e-commerce. To meet the expectations of these mobile-savvy consumers, retailers and suppliers must reinvent how they do business. The simplicity consumers demand isn’t possible without suppliers and retailers working together to create compelling experiences that span multiple channels, including e-commerce, mobile commerce and social commerce. In this age of cloud-based collaboration, a critical supply chain capability for omnichannel retail success is your retail business network. Made up of your suppliers and other trading partners, your network must be integrated into your business. What’s more, your business must also be integrated into that of your trading partners.
Social networks such as Pinterest, Facebook and Instagram are made possible with critical cloud-computing capabilities that provide the information consumers use to connect to one another and to make well-informed buying decisions. Today’s supply chains must use those same cloud-computing capabilities to connect trading partners and form communities, offer space to exchange information in a common language and jointly measure performance. Cloud-based supply chains and their networks deliver the capabilities retailers and suppliers need to take advantage of today’s omnichannel retail market.
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