Supply Chain Metrics That Matter - A Focus on Household Products and Beauty Companies - 21 July 2016
Consumer Packaged Goods supply chains serve global markets. Growth agendas dominated supply chain strategies. Pressure on companies to reduce cash flow, and to improve working capital to invest in growth, drove a focus on improving inventory turns. Heavy M&A activity and product proliferation resulted in an increase in items by 32% since 2010. Product complexity grew faster than growth as average sales per item dropped 22% . This increase in complexity lengthened the long tail of the supply chain, adversely impacting cost, and Return in Invested Capital (ROIC).
Within the Household Products and Beauty industries, companies are stuck on the critical metrics that drive value. In the post-recession years of 2009-2015 most regressed in delivering improvement on the Supply Chain Metrics That Matter. For many supply chain leaders who attend industry conferences this may seem unfathomable. There is a pervasive industry belief that Household Products and Beauty companies implemented new technologies, and evolved processes to drive improved balance sheet results. As will be shown in this report, most companies regressed.
Why did this happen? The rate of market change was slow, but impactful. It is a story of death by a thousand cuts. As power shifted to the consumer, the Household Products and Beauty organizations drove continuous improvement programs to fund growth versus redesigning outside-in. In the face of subtle change, no company in the peer group effectively redesigned supply chain processes to use retail or channel data to build demand-driven processes. Similarly, the industry was slow to adopt new business models like e-commerce and drive growth through alternate retail formats. Throughout the decade the focus was on functional efficiency: traditional marketing program effectiveness while the supply chain group attempted to drive efficiency gains, labor reductions, and reduce costs. The alignment gaps between commercial and operational teams are higher than what we see in other industry peer groups. As a result, in this period no company effectively managed complexity. As a result, growth slowed, costs increased, and asset effectiveness worsened.
This is in sharp contrast to an industry like consumer electronics where the market thrusts and changes were swift and direct. To survive, consumer electronics companies adopted new processes and technologies at a quicker rate than those in the Household Products and Beauty industries. Here we share these insights.