During my 35 years in sales, customer logistics, and supply chain innovation at Procter & Gamble, I participated in many supply chain optimization initiatives. Invariably, the challenge started with a cost cutting or working capital improvement goal. Of course, productivity, efficiency and savings are important. But I also helped lead a project that challenged us to turn our thinking “outside in” and begin to look for topline growth from our supply chain operations. Could we commercialize our supply chain to drive incremental sales?
The answer is, “Yes.” To the tune of several points of top line growth annually...with little or no additional marketing/sales investment. In order to realize this kind of growth, however, I found that there are 5 critical factors to success.
What do I mean by supply chain commercialization?
Simply put, commercializing supply chain capabilities means working with your customer to “reinvest” a portion of the value created from supply chain initiatives to drive incremental sales. In the Fast Moving Consumer Goods (FMCG) business, key drivers of sales are additional distribution, shelf space, or merchandising (advertisements, displays, etc.), and sharper pricing. Anyone of these, or a combination thereof, will generate top line sales growth.
- Retailer X and Manufacturer Y work together to reduce inventory by shortening the time from order to delivery. Through process and value stream mapping, the customer and supplier reengineer work processes to take 3 days out of the cycle. The value of three days inventory is quantified and agreed upon by Finance at both Retailer X and Manufacturer Y. They mutually commit that a portion of those savings will be used to fund additional merchandising support for the next new item launched by Manufacturer Y.
- Manufacturer A redesigns the primary package of Brand X to create a case configuration and count that better aligns with the available shelf space and velocity requirements of Retailer B. The efficiencies in the customer supply chain are quantified. Those savings are used to support additional merchandising and expanded shelf space.
- Manufacturer Z creates shelf-ready packaging for a specific class of trade, which reduces in-store stocking labor. The productivity improvement for store operations is quantified. A portion of the resulting savings go to the customer bottom line, but the balance is committed to fund incremental merchandising events, secure additional distribution points and/or expand shelf space, all of which drive sales.
For suppliers and co-packers to FMCG companies, examples might be more service based, such as re-palletizing to create theme-based product assortments, creating mixed loads to support smaller stores, serving as a forward distribution center for pick-ups, inventorying materials and supplies for on-demand pulls, etc.
5 Critical Factors for Successful Supply Chain Commercialization
- Flawless execution of service basics. First and foremost, you must already be a reliable, excellent supplier. A poor service record is the biggest barrier to commercializing supply chain capabilities. Your customers will only support the required project work and agree to reinvest the value created if they are confident in your ability to consistently deliver “perfect orders” today: on time, complete, and accurately invoiced. If not, you will invariably hear, “Talk to me about these ideas when you have proven to me that you can deliver what I order, when I want it, day in and day out”. Consistently great service is truly ‘jacks to open’ for this type of work.
- Leadership commitment and support. As with all concepts that require collaboration across different functions and reward systems, top management alignment and support are essential. Executive and functional leadership must declare supply chain capabilities and their commercialization as a key strategic pillar in the plan to deliver top line goals. Further, they must measure it and hold all parties accountable for its delivery.
- Multifunctional collaboration within the manufacturer. Sales, Supply Chain and Finance must work together seamlessly. Sales provides the voice of the customer and should include Supply Chain and Finance in the development and presentation of Joint Business Plans. This helps everyone on the team understand the customer’s goals, priorities, and pain points. Working together to map current processes, the team begins to think creatively about opportunities for improvement and mutual growth. Supply Chain provides the expertise and resources to execute the selected projects. Finance drives agreement on how value will be quantified, validates the value created, and establishes the systems to account for savings in a way that supports the agreed-to commercialization activity (distribution, shelf space, merchandising, or price).
- Multifunctional collaboration between the manufacturer and customer. Growth through supply chain commercialization only occurs when the manufacturer enjoys an enterprise-level, consultative relationship with their customer…at multiple touchpoints across both organizations. Information sharing is essential, including mutual understanding of their respective financial systems and performance metrics and ensuring business plan alignment within and between sales, merchandising, marketing, and supply chain.
- Agreement and alignment before the work begins. Even with factors 1-4 (above) in place, work cannot begin until there is confirmed agreement between the manufacturer and the customer on the nature and scope of the project, how value will be measured, the projected value that will be created, and how that value will be shared between, and reinvested by, both companies. This should be documented, communicated, and reported against at key milestones and at the end of the project.
If you have trouble getting started, you’re not alone. Sometimes it’s hard to break out of the cost- cutting mindset. Contact me and we can discuss experts, models, or approaches to help you begin the process. Check out the webinar below about unlocking Supply Chain value in today's market.
About Tom Torre: Tom is the former Associate Director of Global Customer and Distributor Logistics for Procter & Gamble. During his 35-year career at P&G, he held senior sales and supply chain leadership roles in both developed and developing markets, including Central and Eastern Europe, Middle East, Africa, Latin America and Asia. As a YourEncore Expert, Tom helps consumer goods companies and their suppliers and co-packers identify and create new opportunities for supply chain optimization and commercialization.