Supply Chain Mastery in the Consumer

Goods Industry
Making your
Supply Chain Famous
2
Rapidly changing consumer
preferences, growth in
emerging markets, greater
private label penetration and
volatile market conditions
are creating significant
challenges for consumer
goods companies and their
operational capabilities.
Consumer preferences are
changing rapidly in both
developed & emerging markets.
Increased urbanization and
growth of modern trade have
all fueled worldwide demand
for convenience products. At
the same time, health concerns,
food scares, and environmental
awareness are powering a
desire for sustainable products.
Such rapidly evolving and
diverse demand patterns are
increasingly requiring consumer
goods supply chains to support
regional customization,
sustainability and compliance
with regulations.
Higher private label penetration
means retailers now compete
with and buy from branded
goods makers, challenging
market share with low-priced
house brands and creating
intense cost pressure on
consumer goods supply chains.
These margin pressures are
pushing consumer goods
companies to develop more
innovative products and
packaging as well as optimized
supply chain operating models.
The dramatic increase in price
volatility of raw materials is
placing significant pressure on
operating costs and influencing
many corporate decisions and
practices, from sourcing to
product development to pricing.
Strong growth in demand for
consumer goods in emerging
markets is countered by flat
growth in U.S. and European
markets. At the same time,
many consumer goods sectors
remain highly fragmented. In
the food and non-alcoholic
beverages sector, for instance,
the top 20 companies represent
less than a quarter of a global
market characterized by vast
differences in local taste,
perishability issues and varying
food technologies.
How do consumer goods
companies best respond to
these market conditions and
challenges to build world-class
supply chains that make their
organizations famous?
We are all familiar with
corporations that have famous
supply chains: Dell, Cisco,
Apple and others. However, it
is difficult for many consumer
goods companies to gain
insights from these companies,
as they often are executing
against unique business models
(Dells configure-to-order), or
a complex real-time supply
network (Ciscos multi-tier
supplier integration), or a very
specific consumer market
(Apple with a focused product
portfolio where constrained
new product supply is part of
the market strategy). What is
clear is that these companies
supply chains did not become
famous through a sudden
strategic transformation.
They were built through
the pursuit of continuous
improvement and a relentless
focus on building those leading
capabilities that would provide
competitive advantage within
their industries.
Given limitations on supply
chain development resources,
selecting the supply chain
capabilities in which to invest
is critical to a companys
ability to compete. Different
sectors within the consumer
goods industry have particular
challenges and constraints
that require specific supply
chain capabilities to respond
effectively. However,
Accentures Supply Chain
Mastery Research has
identified six ways in which
consumer goods companies are
responding to todays market
challenges and making their
supply chains famous:
Upgrading supply chain
processes and systems to better
support regional and global
supply chain structures
Intensely focusing on
customer service performance
through the re-invigoration of
sales and operations planning
at a regional and global scale
Optimizing manufacturing
and distribution networks to
improve service and reduce
cost-to-serve
Outsourcing non-core
operations to reduce costs or to
access increased capability
Collaborating with retail
customers to drive growth,
reduce end-to-end costs and
plan new product introductions
more effectively
Integrating sustainability
objectives within supply chain
strategies
3
4
In recent years, consumer
goods companies have built
regional and global supply chain
structures to achieve scale
and tax efficiencies. In fact,
consumer goods companies
have moved more significantly
toward regional and global
fulfilment models than other
industries (Figure 1). To better
support these structures,
consumer goods companies
need to upgrade their supply
chain processes and systems.
The consumer goods industry
was an early adopter of
enterprise systems, including the
now-common use of advanced
planning and scheduling (APS).
However, many consumer goods
companies still use internally-
or custom-built systems, and
few APS systems are being
used across all of a companys
products and channels. There
is clearly more value to be
gained from planning systems
by more fully integrating them
with transactional systems and
achieving greater user adoption.
From a planning process
perspective, while many
consumer goods companies
have centralized their
planning organizationsto gain
analytics based insights, there
is opportunity for further
centralization of processes and
systems, (Figure 2).
Upgrading supply chain processes and systems to better support
regional and global supply chain structures.
SABMiller, the $24 billion
global brewing company, is one
example of a company in the
midst of revamping its supply
chain management system.
The group has begun a major
business capability improvement
program that will simplify
processes, reduce costs and
allow local management teams
to enhance focus on their
markets. Finance, human
resources and procurement
activities will be streamlined by
deploying global information
systems, establishing a global
procurement operation and
selectively outsourcing certain
activities. Sales, distribution
and supply chain management
processes will also be enhanced
and moved onto common,
regional systems platforms. The
programme is expected to take
four years to complete.
1

In the area of procurement,

consumer goods masters have
achieved a controlled direct
spend of 98 percent, and have
consolidated their supplier
base four times as much as
the average consumer goods
company. And while two-
thirds of consumer goods
companies have centralized
their procurement operations,
less than half have a formal
strategic category planning
process in collaboration with
key business partners (Figure 3).
Procurement systems also
need improvement.
5
Figure 1: Use of Regional/Global Operating Models
Figure 2: Centralization of Supply Chain Planning
Do you have a centralized planning organization?
Sourcing and Category Management
What functions does it perform?
Figure 3: Globalization of Procurement Processes and Systems
Warehouse
Management
20%
43%
48%
54%
20% 20%
Order
Processing
Transportation
Management
60%
50%
40%
30%
20%
10%
0%
Masters
Total (CG&S)
Masters
Total (CG&S)
Masters
Total (CG&S)
Masters
Total (CG&S)
100%
80%
60%
40%
20%
0%
84%
65%
Yes, for all/some products or channels
84%
75%
86%
84%
80%
82%
78%
74%
70%
72%
76%
Simply statistical
forecasting generation only
Analytics
70%
60%
50%
40%
30%
20%
10%
0%
48%
62%
48%
33%
We have a centrally led category
management organization
Intensely focusing on customer service performance through the
re-invigoration of sales and operations planning at a regional and
global scale.
In order to win shelf-space
and maximize a products sales
potential, consumer goods
companies have intensified
their focus on customer service
performance. Consumer goods
masters have achieved average
customer order fill rates of 98
percent, which is well in excess
of the 91 percent average
for consumer goods industry
respondents overall.
With high demand variability,
increased portfolio complexity
and long lead times, there are
limits to how much service
improvement can be achieved
through physical supply chain
changes. Consumer goods
companies have already
invested in more flexible
manufacturing and better
fulfilment execution. In fact,
71 percent of consumer goods
companies stated they can
quickly switch production
between product variants in
response to market changes.
Many consumer goods
companies are addressing
customer service challenges by
re-invigorating the sales and
operations planning (S&OP)
process for improved cross-
functional planning. Their
construction of regional and
global structures has been
accompanied by the re-design
of S&OP processes to extract
maximum benefits from these
structures and to operate more
effectively at scale. Indeed,
consumer goods companies are
leading other industries in using
custom-built or specialized
tools to support sales and
operations planning.
For example, JohnsonDiversey
recognises that the cornerstone
of their sustainable growth is
customer service. Following
the merger of DiverseyLever
and Johnson Wax Professional,
JohnsonDiversey focused on
implementing effective sales
and operations planning across
all European countries through
a regional European S&OP
program. Its intention was to
exploit the synergy generated
from the alignment of these
different businesses and to take
the company to the next level
of performance
2
.
As in other areas of the supply
chain, there is significant
opportunity for consumer goods
companies to improve their
S&OP processes still further
(Figure 4). Only seven percent
of consumer goods companies
feel that their supply chain
and financial planning are
completely integrated.
Figure 4: Integration of Sales, Marketing, Operations Planning
Masters
Total (CG&S)
Our supply chain and
financial planning
functions operated
independently of one
another
Our supply chain and
financial planning
functions share
information, but not in an
organized, automated way
Our supply chain and
financial planning
processes and systems are
completely integrated and
automated
16%
24%
52%
56%
2%
11%
4%
7%
27%
6
60%
50%
40%
30%
20%
10%
0%
7
8
Optimizing manufacturing and distribution networks to improve
service and reduce cost-to-serve.
As the rate of business change
increases and as volatility in
input costs (such as transport
fuel) remains high, there is
greater need for consumer
goods companies to regularly
review their manufacturing
and distribution networks to
accomplish two objectives:
improving customer service
and decreasing cost-to-serve.
One recent example of this
optimization focus is the
move by LOreal to reconfigure
its distribution network in
Europe by moving to regional
distribution centers.
Another example is the
wide-ranging plan recently
announced by Coca-Cola to
reconfigure its manufacturing,
supply chain and logistics
operations to achieve cost
reductions. The restructuring
is expected to generate
efficiencies and operational
synergies worth $350 million
over four years. It will also
create a unified operating
system that will strategically
position Coca-Cola to better
market and distribute its non-
alcoholic beverage brands
3
.
Consumer goods masters
demonstrate the capabilities
that are required to optimize
manufacturing and distribution.
They use sophisticated
modelling techniques to
make manufacturing location
decisions, strategically evaluate
networks at least once every
six months, and undertake
computerized network modelling
simulations and extensive
what-if analyses.
Consumer goods masters also
link supply chain and product
costs to tiered service level
key performance indicators.
They regularly measure and
monitor the cost-to-serve by
channel, and use advanced
ordering and replenishment
software to manage the trade-
off between service and safety
stock levels. The end result is
that consumer goods masters
are achieving significantly lower
transportation and expediting
costs than other consumer
goods companies (Figure 5).
Figure 5: Supply Chain Costs of Masters versus Overall Consumer Goods Companies
Masters
Average (CG&S)
Total expediting cost as a
percent of total revenue
Total outbound transportation
cost as a percent of total
revenue
Total transportation cost
(inbound, outbound, intra-
company) as a percent of total
revenue
13%
6%
9%
1%
2% 2%
0%
3%
6%
9%
12%
15%
9
Outsourcing non-core operations to reduce costs or to access
increased capability.
Outsourcing has enabled
consumer goods companies to
achieve cost savings in non-
core operations. But, with only
46 percent of consumer goods
companies regularly assessing
their planning operations,
there is an opportunity for
organizations to do more
regular reviews and to
outsource non-core operations
for cost benefits.
Outsourcing has enabled some
consumer goods companies
to tap into supply chain
capabilities that would be too
risky or costly for them to build
and maintain individually. But,
to date, only a few consumer
goods companies have taken
advantage of this type of
outsourcing (Figure 6). Many
leading consumer products
companies have undertaken
across functions, business units
and geographies, negotiating
better market pricing, improving
spend compliance and leveraging
advanced procurement
technologies
4
.
outsourced procurement
including Kimberly-Clark,
Chiquita, Whirlpool, Pinnacle
and Colgate-Palmolive
Company. Each has chosen
to focus internal resources
on core spend areas and
business activities, while
reducing cost on indirect and
other non-core spend through
outsourced services.
Colgate-Palmolive outsourced
procurement and accounts
payable processes for Europe
and North America to
capture new capabilities and
efficiencies. With approximately
$3.2bn in indirect procurement
spend, Colgate believes that
improving the efficiency of
these business processes could
generate more than $30m
annually in incremental after-
tax savings through such
activities as consolidating spend
Yes for all/ some products,
channels, or geographies
We regularly evaluate our
company to determine core and
non-core operating processes and
as a result have moved...
22%
36%
56%
46%
Masters
Total (CG&S)
Masters
Total (CG&S)
60%
50%
40%
30%
20%
10%
0%
0%
5%
10%
15%
20%
25%
30%
35%
40%
Figure 6: Use of Outsourcing in Planning and Procurement
Collaborating with retail customers to drive growth, reduce end-
to-end costs and plan new product introductions more effectively.
Many consumer goods
companies understand the
importance of extending supply
chain planning operations
beyond internal processes
to include customers and
suppliers. However, most
consumer goods companies do
not collaborate regularly and
systematically, and only half
have formal agreements with
their customers to participate in
collaborative planning activities
(Figure 7).
In contrast, consumer
goods masters regularly and
systematically include key
customers in supply chain
planning activities. Eighty
percent of the consumer goods
masters plan on a weekly
or more frequent basis. In
addition, masters have formal
agreements in place with their
customers that include metrics
tied to financial incentives
and penalties.
And while the majority of
consumer goods companies
effectively connect marketing
and planning to manage product
launches, consumer goods
masters go a step further,
systematically monitoring point-
of-sale (POS) data to ramp
supply up or down accordingly.
Procter and Gamble is one such
organization. The company
gets dates and locations for all
events with its retail partners
such as a cluster of Wal-Mart
stores in south Florida and
prepares for predictable
increases in demand. So, for
instance, if a set of stores
is going to do a "buy-two,
get-one-free" promotion on
Pampers diapers, P&G can better
coordinate its production and
distribution in that region.
Another example of the
extensive collaboration between
Wal-Mart and Procter & Gamble
lies in the joint venture the
organizations formed in 2008
to support Wal-Marts entry
into the Indian market. P&G has
shared its understanding of the
Indian market to help Wal-Mart
build efficiencies in supply chain
and merchandising through
the joint venture Bharti-Wal
Mart. In addition to knowledge
collaboration, P&G shipped its
first personal-care products to
Bharti-Wal Mart in April
of 2008
5
.
60%
50%
40%
30%
20%
10%
0%
Masters
Total (CG&S)
We regularly and systematically include key
customers, suppliers and all distribution tiers in our
supply chain planning activities
47%
60%
10
Figure 7: Collaborative Planning with Customers and Suppliers
11
12
Integrating sustainability objectives within supply chain strategies.
Consumer goods companies
recognize the demands their
stakeholders place on their
organization to operate
sustainably. The challenge
is integrating sustainability
objectives into supply chain
strategies and executing on
them. Most consumer goods
companies acknowledge
that there is a long way to
go in understanding the
environmental impact of their
operations. For example, a
full 35 percent of consumer
goods companies have no
awareness of the level of carbon
emissions within the supply
chain network.
Yet some have become more
aggressive on sustainable
supply chains. For instance,
Procter & Gambles Supplier
Sustainability Board includes
members from over 20 leading
global suppliers and is charged
with guiding the development
of supplier-related sustainability
activities and goals. After
18 months of work with the
Board, P&G recently launched
the Supplier Environmental
Sustainability Scorecard and
rating process to measure and
improve the environmental
performance of key suppliers.
The new scorecard will assess
P&G suppliers environmental
footprint and encourage
continued improvement by
measuring energy use, water
use, waste disposal and
greenhouse gas emissions on a
year-to-year basis
6
.
Another consumer goods
company moving aggressively
on its sustainability vision is
Unilever. As early as the 1990s
Unilever formally integrated
sustainability factors into its
strategy. Then, in 2005, it
began to embed sustainability
into product brands using a
process the company named
Brand Imprint. Since then, Brand
Imprints have been completed
across all product categories.
Social and environmental
considerations are now
integrated into the innovation
and development plans of major
brands. Unilevers commitment
to reduced environmental
impact extends right across the
value chainfrom the sourcing
of raw materials through
production and distribution
to consumer use and eventual
disposal of residual packaging
7
.
Even with such advances,
however, many consumer
goods companies have not yet
achieved their goals of creating
products with substantially
reduced environmental impact.
In comparison, consumer goods
masters see sustainability
as a cornerstone of their
product design, with most
new products being designed
with sustainability in mind.
Take Cadbury Plc, for example
(now part of Kraft Foods): In
2009, Cadbury's Dairy Milk,
Britain's bestselling chocolate
bar, became one of the biggest
brands so far to adopt the
Fairtrade mark. The cocoa beans
for Dairy Milk come from Ghana,
where Cadbury has been trading
for about a century. To obtain
the Fairtrade mark, Cadbury
had to change arrangements
with some of its farmers
and start buying from
some who were already
Fairtrade-accredited
8
.
Unlike industry counterparts,
75% of consumer goods
masters said sustainability
was a cornerstone of product
design, compared to 24 percent
of average consumer goods
performers. Furthermore, just
over half of masters design new
products with sustainability
principles in mind, compared
to 24 percent of average
performers (Figure 8).
Making your consumer goods supply chain famous.
Accentures Supply Chain
Mastery Research has clearly
documented what supply
chain masters do differently to
achieve high performance in
todays challenging consumer
goods environment. It has
also quantitatively defined
the capabilities that correlate
with operational mastery.
Using the results of this
research initiative, supply chain
leadership teams can create
a plan for achieving supply
chain mastery within their own
business, thus taking greater
strides to high performance
and making their supply chains
famous.
60%
70%
80%
50%
40%
30%
20%
10%
0%
Sustainability is one
of our cornerstones of
product design. We strive
to create a sustainable
product portfolio through
well developed design
principles, processes and
specific targets
More than 51% of the
products are designed
with sustainability
principles in mind
Strongly agree that our
company has achieved
its goals of creating
products with a minimal
or subtantially reduced
environmental impact
75%
50%
24%
50%
29%
24%
Figure 8: Sustainability Integration into Product Design
Masters
Average (CG&S)
How Accenture helps consumer goods companies
fully utilize the supply chain mastery research.
For companies that want
further help defining and
shaping the specific supply
chain capabilities they need
to achieve high performance,
Accenture has developed
the Supply Chain Mastery
Summit based on the results
of this research initiative. By
participating in this data-
driven, highly interactive
workshop, a companys senior
executives are guided through
the process of developing a
strategy for achieving supply
chain mastery. The result
is an actionable roadmap
specifically tuned to their
business strategy and supply
chain objectives to achieve
sustainable performance
improvements.
Accentures research
and expertise in building
world-class supply chain
organizations have helped
many global companies
develop the physical,
technological and managerial
ability to cope with rapid and
unpredictable change. We
have extensive experience in
developing superior supply
chain strategies and assisting
with efficient execution to
help clients on their path to
achieving high performance
in consumer goods.
13
About the supply chain mastery research.
In 2003, Accenture was
the first to quantify the
connection between supply
chain performance and
overall business performance
in a landmark study
conducted with graduate
business school INSEAD.
Accenture found that
companies with strong supply
chain performance enjoyed
a market capitalization
compounded average growth
rate (CAGR) premium of 7 to
26 percentage points above
the industry average.
Accenture has sought
out the approaches that
supply chain masters take
to maintain their forward
momentum. During 2008,
in our most comprehensive
supply chain study to date,
Accenture surveyed more
than 1,500 executives from
nine industries and more than
20 countries across North
America, Europe and Asia.
The research spans the entire
physical supply chain, as well
as the intersecting product
design and development
chain. Executives completed
surveys and participated
in interviews to provide a
detailed look at what supply
chain mastery entails and the
benefits that can be gained
by achieving it.
Our research team analyzed
the supply chain performance
of this research base to
distinguish operational
masters from midrange-
and low-performers. The top
10 percent of companies
in terms of selected
performance indicators
(cost and service metrics)
were identified as masters.
We then identified specific
supply chain capabilities that
were most highly correlated
with superior performance
at an aggregate as well as a
detailed level.
Accenture now has taken a
deeper look into the Supply
Chain Mastery Research to
analyze key opportunity areas
for particular industries,
comparing the characteristics
of industry respondents
supply chains with those of
masters. With this industry-
level analysis, Accenture
has clearly documented
what supply chain masters
do differently to achieve
high performance in todays
challenging environment, and
has quantitatively defined
the capabilities most highly
correlated with operational
mastery in the consumer
goods industry.
14
15
About Accenture Supply Chain Management About Accenture
The Accenture Supply Chain
Management service line works
with clients across a broad range of
industries to develop and execute
operational strategies that enable
profitable growth in new and existing
markets. Committed to helping clients
achieve high performance through
supply chain mastery, we combine
global industry expertise and skills in
supply chain strategy, sourcing and
procurement, supply chain planning,
manufacturing and design, fulfillment,
and service management to help
organizations transform their supply
chain capabilities.
We collaborate with clients to
implement innovative consulting
and outsourcing solutions that align
operating models to support business
strategies, optimize global operations,
enable profitable product launches,
and enhance the skills and capabilities
of the supply chain workforce.
For more information, visit
www.accenture.com/supplychain.
Copyright

2010 Accenture
All rights reserved.
Accenture, its logo, and
High Performance Delivered
are trademarks of Accenture.
Accenture is a global management
consulting, technology services
and outsourcing company, with
more than 190,000 people serving
clients in more than 120 countries.
Combining unparalleled experience,
comprehensive capabilities
across all industries and business
functions, and extensive research
on the worlds most successful
companies, Accenture collaborates
with clients to help them become
high-performance businesses
and governments. The company
generated net revenues of
US$21.58 billion for the fiscal year
ended Aug. 31, 2009. Its home
page is www.accenture.com.
Endnotes
6 P&G launches supplier environmental
sustainability scorecard, Penton Insight,
13 May 2010
7 Unilever corporate website, http://
www.unilever.com/sustainability/
strategy/vision/
8 Fairtrade chocolate sales set to treble
as Cadbury's Dairy Milk carries ethical
logo, The Times, 22 July 2009
1 SABMiller corporate website,
http://www.sabmiller.com/index.
asp?pageid=149&newsid=1110
2How JohnsonDiversey Implemented
S&OP In Europe, Journal of Business
Forecasting, October 2005
3 Coca-Cola restructuring to generate
immediate efficiencies, Latest
Procurement News, 01 March 2010
4 Procurement strategies: Procurement
outsourcing trend continues, as Colgate-
Palmolive turns over many purchasing
functions to IBM, SC Digest, April 2006
5 Wal-Mart takes retail tips from P&G
India, The Economic Times, 8 April 2008
Contact
For more information on Accentures
Supply Chain Mastery Summit,
consumer goods and services industry
group or offerings please visit www.
accenture.com or contact one of
Accentures industry supply chain
leaders:
Jeffrey Russell
New York, USA
jeffrey.s.russell@accenture.com
Bill Read
Cleveland, USA
bill.read@accenture.com
Pedro Bejar
Barcelona, Spain
pedro.bejar@accenture.com
Mark Austin
London, UK
mark.austin@accenture.com
Anu Sekhri
New Delhi, India
anu.sekhri@accenture.com
Special thanks to Mitul Shah for all
of his contributions to this research
initiative.