Supply Chain Blog

FMCG – Hunkering down for Supply Chain Analytics

Posted by Dave Jordan on Wed, Aug 24, 2016

Have you ever “hunkered down”? I remember being asked to hunker down during a supply chain training course many years ago and I had no idea what I was supposed to do. Eventually I had to ask as failing to follow the hunker downwards request appeared to be causing a bit of a problem for the presenter.

This hunkering failure occurred during one of the many versions of the Beer Game in which I have taken part or run over the years. Anyone who has been involved with supply chain activities will probably have taken part in the Beer Game, or the Moussy Game as it is sometimes known in dry countries of the Middle East.

What does the beer game do? The rules are relatively simple and in summary the overall objective is to meet consumer demand for cases of beer in a complex, extended supply chain while controlling unplanned expense on back orders and inventory. The game involves four overlapping and inter-dependent supply chains, i.e. manufacturing, distribution, procurement and a retail outlet. There is a cost penalty for holding excess stock and any backlog unfulfilled orders.

Players rely on colleagues in the other departments to do the right things for the business but frustration soon surfaces. Usually, things do not go well and players feel frustrated because they are not getting the results they expect. Assumptions are made about consumer demand and erratic patterns emerge as backlogs mount and/or massive unnecessary stocks accumulate. It was at this stage in the game I was told to “hunker down……….”.

Does that sound like your own supply chain – not the hunkering bit? Frustration is common between departments who all aim to do the right thing but only have the necessary data and information to do the right thing for their specific area of responsibility at that specific time. Even after careful consideration and informed debate, the real effect of an adjustment can only be seen in the future.

supply_chain_analytics_fmcg_inventory_performance.jpgIF - a big if -  nothing else changes and all assumptions are correct and accurate then there is a chance the desired effect will develop. However, life is not like that and certainly not supply chain life. What can happen?

New launches kick-in and are successful, or not.

Competition by definition is designed to disrupt your plans.

The weather turns out rather different to the forecast.

The economy takes a turn up or down.

Factories, 3PLPs and distributors all suffer performance variability.

Customers and consumers change their needs and habits.

Etc., etc., etc., this list really is endless. Absolutely anything can happen to turn apparently sensible decisions into foolish, forecast failure.

Hey, what about all that IT we have? Doesn’t that help us understand what is going on? This should tell us what is really going to happen in supply chains? No, not necessarily. Common supply chain IT tells us what has happened, what is happening, where and when but not precisely why an event happened or what will happen.

Subtle differences perhaps but to up your game you need to hunker down with Supply Chain Analytics to gain a full unexpurgated understanding of how changes you make today will impact the future and more importantly, how you can change that future.

Yes, you can.

Image courtesy of Enchange at Enchange.com

Tags: Customer service, FMCG, CEO, Inventory Management & Stock Control, Supply Chain Analytics, IT

Olympic level FMCG performance or simply distributor over-stocking?

Posted by Dave Jordan on Tue, Aug 16, 2016

Wow, four years have flashed past since the London Olympic bunting was packed away and the metal polish put back under the sink. The 2016 Rio games are well and truly underway and the cauldron flame is alight for the duration.

Over 11,000 competitors from nearly 200 countries and even a refugee team have been getting up ridiculously early to sweat and train at whatever sport they excel. That is a huge number of really fit people who are focused on being in peak condition for a once in a lifetime event that might last less than 10 seconds or several hours.

Taking the 100m sprint as an example; the top sprinters will have 4 opportunities to perform. A combined window of 40 seconds to reflect all that money, time and effort that has been expended to qualify and perform to the best of their ability. What if they stumble or don’t hear the starting gun, drop the baton or worse still, get disqualified?

FMCG_INVENTORY_DISTRIBUTORS_CEO.jpgAll that planning and careful preparation to get to the final of the competition only to be disqualified for being a little twitchy waiting for the starting pistol to crack out loud. Or, sticking your foot just a millimeter into the triple jump plasticine. Hey, don’t worry, there will be another chance for you in Tokyo………

You are not in the final to perform in front of millions of people watching around the world. Nobody will see you perform and instead of your stock rising and attracting more lucrative advertising deals you will be remembered as that poor guy with the twitch or that girl with the too-big training shoes.

Cue segue. The global economy seems permanently stuck in “weak and unpredictable” performance mode with no obvious way out even for the dis-United Kingdom of Brexit. Imagine you are a yellow CEO Pac-Man (do they have female Pacs?) nibbling away at the dots and then getting stuck in a dead-end. What next, nowhere to go, panic, panic! Despite this, many CEOs will be under extreme pressure to “make the numbers”. How exactly? While all this Olympic activity is taking place is your physical FMCG stock rising as we move through the second half of the year?

Despite what sales and finance colleagues will spout, there is a limit to how much stock can you push into your trading channels and this includes International Key Accounts. Coercing (or more likely forcing) a distributor to take more and more stock may appear an easy option but it is an unsustainable action that damages your business in the long run.

At some stage a brave CEO has to say enough is enough and start a period of controlled destocking despite the effect this will have on top and bottom lines. Loading the trade does not happen by accident; you know you are doing it so stop deluding yourself and HQ and do something! Put a stake in the ground that sets the tone for the future.

You may believe that excess inventory means you will never be out of stock or off the shelves but this is not the case. The available stock will inevitably be unbalanced and just when you expect your long planned relaunch to fly out of the blocks and hit the shelf you also twitch and realise you have 9 months’ stock of the old product sitting in distributors warehouses.

What a disappointment. A waste of money, time and effort, i.e. an Olympic gold medal-sized goof and HQ is unlikely to give you another chance in a lot less than 4 years’ time.

Image courtesy of stockimages at freedigitalphotos.net

 

Tags: FMCG, CEO, Distribution, RTM Assessment Tool, Inventory Management & Stock Control

Supply Chain – regular IT to Supply Chain Analytics

Posted by Dave Jordan on Thu, Aug 11, 2016

I am an App-free zone. I have to admit I am not a big App fan but at least I now know what an App is after a lengthy period of ignorant denial. Originally used only by cutting edge, bearded techies (sorry Steve), Apps have become a major part of routine as life seems to revolve around getting more out of mobile phones.

Some of these telephones are more powerful than desktop PC’s and the cameras are certainly as good as mid-range stand-alone versions. In fact, why is a mobile phone called a telephone anymore? The functionality is such a long way from the house brick sized “hand” sets you see on old shows like The Sweeney that another moniker seems appropriate.

Supply_Chain_Analytics_FMCG_PLANNING_PHARMA_IT.jpgWe do not call a modern car a wheel simply because that’s what started things rolling in that technology, do we? Nor do we call our curved, slimline HDTVs cathode ray tubes. Find a new name people!

Apps in industry and supply chain in particular tend to be rather larger in size and far more expensive but do they all do what it says on the tin? Largely, yes.

  • ERPs do bring a high degree of rigour, data collation and transactional integrity to complicated manufacturing and distributive supply chains.
  • WMS systems do provide you with inventory control, performance measurement and stock surety as a basis for excellent customer service.
  • DRP helps you plan the efficient distribution of your finished product.
  • TRP works to ensure your stock is on the move to clients in good time and with efficient fuel and time consumption.
  • APO can certainly help a company improve planning across the extended supply chain.

These and more apps or IT packages are certainly good news for people running complicated regional or global supply chains. While they all have a value and a role to play there is something they do not provide. 

Despite spending millions of Euros in sophisticated and not so sophisticated systems, are there any significant new opportunities to improve supply chain performance? Yes, and here is why:

  • All those increasingly complex IT-led projects have automated ways of working whether they are optimum or not. Generally, this provides incremental improvement at best and with significantly increased variability and caution in the planning processes.
  • The sales forecast is often blamed as the cause of whatever problem is current. In reality the issue lies within the supply chain processes, the set-up of the IT and/or how the various tools are being used in parallel and in tandem.
  • Managing this never ending supply chain complexity becomes the real challenge. Faced with this complexity and increasing uncertainty, planners buffer their supply chains with inventory and lead-times. Inventory becomes that large eared elephant in the room. Everyone knows it reduces free cash and adds unnecessary cost but nobody knows exactly what to do about it and even fewer are brave enough to propose anything.

There really is nothing positive about unnecessary inventory in the supply chain.

The answer? What is needed is better and more accessible data analysis to drive decision making across the supply chain and not in one stand-alone sub function. Decisions need to be taken based on facts and without the emotion or gut feel that is often the default motivation for immediate action.  This is where the App and half that is Supply Chain Analytics can contribute to your business success.

SC Analytics Apps or IT can sit above your existing transactional IT to overcome these challenges and help you ensure all the individual sub-functions are working seamlessly and synergistically. You do not write off your existing systems or put them in a box on a shelf; they all have a major part to play but they would benefit from supply chain analytics help.

Thinking about it, the term “supply chain” actually does reflect the reality for companies yet to operate with some sort of Supply Chain Analytics. Think of a heavy stainless steel chain draped across the desk. Yes, all the functions are indeed joined together but some links are not fully aligned, some lie at odd angles and overlap with others while others are stretched out and only just connect at the extremes. Doesn’t that sound like something that can be further improved?

Maybe the supply chain should actually be the “supply artery” without all the spatial confusion of a chain. The artery would continually supply the precise amount of product required at any time to any location as demand dictates and taking all environmental factors into account. Now, that is an App I would buy!

Image courtesy of Stuart Miles at freedigitalphotos.net

Tags: Performance Improvement, ERP/SAP, Forecasting & Demand Planning, Supply Chain Analytics

Frock Stocks & FMCG Supply Chain Inventory Decisions

Posted by Dave Jordan on Thu, Aug 04, 2016

Senior Management has been on quite a shopping spree over the last few months taking advantage of various big name high street stores that have lost their lustre and even their premises in some cases. The demise of these familiar UK brands has nothing to do with Brexit and the variable value of Sterling but in one case a run on the Green pound has been responsible…..

Of course this has had several knock-on effects and not least the amount of money “invested” in clothes and shoes is now significant and that money is largely sunk - the market for unwanted or out of style apparel being extremely limited. I hate to think how much money is hanging in the wardrobe but that raises a second issue.

The trusty old Grink pine wardrobe from IKEA has reached capacity. As a result, the small Allen Keys have been out causing blistered fingers in order to erect another Grink plus a wall mounted Plop shoe tidy. Another investment to store items that are not in regular use. In fact, if you consider that the vast majority of clothes and shoes are seasonal, at any one time most of the space is taken with things you would not dream of wearing. Fake leather Boots in August? A floral summer dress in December? (NB Northern hemisphere before someone comments!) A Superwoman onesie at any time!

FMCG_INVENTORY_STOCK_SERVICE_CONTROL.jpgWith so many clothes squeezed into the now two Grinks they are so full that finding anything in a reasonable time is difficult. Senior Management might well be correct that there is a perfect dress in there for a particular special event but can you find it? Sooner or later all recollection of what is in the wardrobes has been lost as the memory grey matter section diminishes.

Worse still, fashion trends do not stand still so what was a “must have” last year may be considered an insult to the designer where they to be worn the following season, luvvie!  

So, what have we got and what have many, many FMCG and pharmaceutical companies?

High working capital – all that money tied up on stock that may not be useful.

High storage costs –  you will be paying too much for storage whether you manage logistics internally or outsource to a 3/4PLP. (Don’t expect them to reveal that you are storing too much!)

FIFO - stock age is not monitored and write offs persist. Old stock is not liquidated before expensively assembled relaunches hit the shelves. You do not actually know what is there contributing to ongoing working capital.

High stock shrinkage – loss and damage have a higher incidence when stock is not correctly monitored and inventory levels are kept high – harder to miss.

Stock accuracy - cycle and annual stock counts are difficult to execute and usually provide unwanted shocks at reporting period ends.

Efficiency -  when warehouse capacity utilisation above 80%, operational efficiency stalls and soon plummets. Picking becomes a hazard and the warehouse simply does not have sufficient doors to move goods in and out.

When supply chain processes are inefficient and specifically inventory build decisions are not fully assessed and evaluated, you inevitably overstock as planners do not know what else they should do to protect sales and customer service. Conversely, when this happens you actually lose sales and offer poor customer service.

Does this provide the basis for a profitably growing business? Of course not but so many companies remain oblivious to the processes applied and decisions that are taken that bulk-out the supply chain.

Image courtesy of photostock at freedigitalphotos.net

Tags: Customer service, FMCG, Pharma, Inventory Management & Stock Control, Supply Chain Analytics

FMCG Supply Chains: Searching for the next “big thing” – it’s here!

Posted by Dave Jordan on Wed, Jul 27, 2016

I had an informal discussion with a small group of FMCG Supply Chain VP/Directors last week. I well remember the occasion as it was the day UK had its annual summer but the discussion was memorable for more than that fact. After rushing back to base in the inevitable evening rain with my briefcase as the only shelter I wrote out some notes from the session and they worried me.

Supply chains have moved on a long way from the early days when bits and pieces from other usually incongruous functions were glued together to form a nascent coherent function. I cannot list the huge number of initiatives that have taken place in the intervening years but some global supply chains are so slick that even sales people are almost impressed! Not all new ideas resulted in sustainable changes but some of the more obvious candidates like S&OP, corporate buying, ERP deployment and 3PLP partnerships have more than earned a return on the investment.

Unfortunately, you cannot stand still and supply chains everywhere are continuing to eke out incremental improvements in some of the more mature cases or substantial step changes in those less developed. Some companies clearly have plenty of scope for improvement but what about those who are at the top end of the Gartner Oscars list?

Is there anything left for Supply Chain VPs and Directors to achieve? Has all the cutting edge, innovative stuff happened? Are there really no more storming, monster initiatives coming over the hill? Is this as good as supply chain is going to get?

Talking of monsters, let me go back to the senior group discussion I mentioned at the top of the page.  S&OP and its younger sibling Integrated Business Planning have stabilised virtually all of the major multinational supply chains. Bringing a degree of discipline across all functions and a smaller improvement in sales forecast credibility has helped companies squeeze positives in top and bottom line performance.

Heavy investment inFMCG_Supply_chain_analytics_inventory_stock.jpg ERP upgrades have added a degree of financial rigour and reliability to businesses although the underlying thought is that even now, nobody really gets value for money from those slick and shiny IT packages.

I can imagine all these hungry supply chain executives searching for something that can make a lasting difference. You know what? They are standing there while it’s raining soup but they’ve all got forks!

The one area which has been largely untouched by the various supply chain initiatives and IT tools is inventory. Boring, boring stock levels; the planning manager’s crutch, the sales manager’s obsession, the working capital bane of management finance managers lives.

You may argue your stock is under control. The level is the right number of weeks cover. The value is at or below the annual plan targets. Even the number of pallet spaces is on track at the 3PLP warehouse. All highly likely but are those stock levels really supporting the business or simply just propping it up? 

Look carefully and I think you will find it is the latter. Inventory will not be aligned with precise market activation and selling out plans and is therefore stifling rather than facilitating growth. All the numbers may apparently support the business objectives but look closely and you are likely to find very little science in how forward stock cover is defined and specifically by SKU.

There is a solution. A sensible low cost solution that works and tellingly, it has been designed by supply chain experts for supply chain people!

Put your forks away and read about SupplyVue supply chain analytics. This works!

Image courtesy of Ohmega1982 at freedigitalphotos.net

Tags: FMCG, S&OP, Inventory Management & Stock Control, Supply Chain Analytics, Integrated Business Planning

Postman Pat, Postman Pat, Postman Pat & his Supply Chain hat

Posted by Dave Jordan on Wed, Jul 06, 2016

I recently peeped outside of the FMCG and Pharmaceutical world and took a look at the amount of empty beds in the National Health Service in UK and how a little alternative thinking plus basic demand and supply planning expertise could improve bed utilisation. Today it is the turn of the Royal Mail and all those “black and white cat” postie types to be in line for my critique. 

Before you say that the Royal Mail is not a proper supply chain, it is a supply chain and a very complicated one at that. Apart from the reducing but still significant Christmas card peak, this is a business that cannot really forecast how many letters and parcels will be dropped into Post Offices and Post Boxes for delivery on a daily basis. Or perhaps they can or should? Is it any different from the daunting, daily, dynamic demand volatility experienced in Tesco, Asda and Aldi etc.?

Anyway, that is not the issue on this occasion but it is about the Royal Mail redirection service which should be a very straightforward formality. You move to a new address and pay the Royal Mail to keep an eye on your letters and parcels and forward them to your new abode. This is not as simple as it sounds as finding that gas bill in a plain brown envelope must be very close to searching for a needle in a haystack. Nevertheless, they have been doing this for ages and in large numbers so should be very proficient.

FMCG_MAIL_POSTAL_SUPPLY_CHAIN_SERVICE.jpgNot this time. They got it horribly wrong from day one and continued to do so as even “signed for” mail which must be capable of automatic sorting was sent to the old address. Luckily we are still in the locality and in contact with the remaining Neanderthal student residents who in their few conscious periods send vowel-free texts letting us know Postman Pat has left something in the heiress’s name. Before they have the chance to eat or smoke what has arrived we quickly pop down and rescue items that slipped through the redirect net. That net must have holes the size of Ronaldo’s ego.

After repeated telephone calls and emails and the release of only a minor amount of my pent up frustration from afar, Postman Pat has refunded all costs and is now carrying out the service – very efficiently now, incidentally – free of charge. What a waste of time, energy and other resources!

I have no idea what the inside of a sorting office looks like or what processes and procedures are in place or their daily challenges but failure to carry out core advertised service is very disappointing. Delivering enveloped and packaged mail is what they do best; if they cannot get that right then what chance do they have with other value added services?

Walk into a pub on a scorching day (ok, so that is not going to be in UK) to be told sorry, no beer. Step into a supermarket to find no bread, milk, tea or cheese! Pull up at the McDonalds drive-in to be told no fries today - actually no bad thing!

You have to get the basics right or your credibility with existing and potential new clients is severely limited. Some organisations bend over backwards to gain new business and rightly so but why don’t they bend further backwards to keep that business? In FMCG and Pharma I find business retention is far harder than finding it in the first place.

Image courtesy of Ohmega1982 at freedigitalphotos.net

 

 

Tags: Customer service, FMCG, Performance Improvement, Pharma, Forecasting & Demand Planning

UK NHS Supply Chain: bed-busting benefits of patient SKUs

Posted by Dave Jordan on Wed, Jun 29, 2016

Some time ago I looked at the often dreadful customer service offered by FMCG and Telecoms companies in CEE. Of course, this avoidable malaise is not restricted to that part of the world. After being in UK for a few weeks I have experienced really poor service from organisations you would think had top notch, high performing supply chains.

The Royal Mail and all those “black and white cat” types will be the subject of a later blog but first in line for critique is the National Health Service.

The NHS in the UK is a precious gem and really is the envy of most other countries where credit cards have to be produced before you hear the Marigold’s snap on. The NHS is supported by a seriously complex, unpredictable and volatile supply chain. On this occasion supply chain certainly includes the provision of medical supplies, equipment, foods to multiple locations around a hospital site. (I am tempted to bang on about the quality food or to be more exact, the amount of wasted food as most of what I see is not going to win any awards.)

My bone of contention with NHS service is about beds, the availability of which is a constant battle which is seemingly never won. Operations are regularly postponed when there are no beds available for post-op recuperation. Yes, some beds are certainly blocked by long term patient residents but my observations suggest there are actually many beds woefully under utilised. To alleviate the problem, I am certainly not suggesting bed sharing which does occur elsewhere. (I have personally seen a single bed with 4 occupants at the same time in a certain country.)

While it is important patients are treated with the utmost dignity and with the best care in the world I think NHS bed availability would be improved if patients were considered as SKU’s on a supermarket shelf. Just take the emotion away for a moment and consider how this might work.

Each bed is shelf in a shop and the optimum situation is to see all these shelf locations full and more importantly, replenished as soon as stock (patients) moves off the shelves (beds). As with transferring stock from the Lidl back of store to gondola ends, this should not be rocket science. And quite right too as long as decisions are made in the optimum sequence and information is in full flow.

Admittedly based on my massive sample of 1 hospital, I see the following sequence of activities:

  1. NHS_SUPPLY_CHAIN_BED_PLANNING.jpg1. Patient gets ready to leave and sits in a chair waiting for discharge.
  2. 2. Nothing happens at the bed.
  3. 3. A patient leaves the bed and is discharged.
  4. 4. Nothing happens at the bed.
  5. 5. The bed is stripped and all cups, jugs etc. are removed.
  6. 6. Nothing happens at the bed.
  7. 7. Bed and surrounding area are cleaned and the bed re-made.
  8. 8. Nothing happens at the bed.
  9. 9. Eventually, a new patient arrives to fill the bed but this can be several hours and often overnight, after the vacancy was first identified.

Just a little bit of basic demand and supply forecasting plus timely information transfer would see a far higher utilisation of available bed space and over the period of a year, noticeably shorter waiting times.

Ok, so I know little about the intricacies of the NHS and maybe other hospitals are slicker in their bed allocation but I feel it is a huge opportunity. A change in mindset and a willingness to learn from other supply chains could prove invaluable. I did offer my services to look at this acute bed shortage problem and was welcomed as long as I had previous experience of working within the NHS…….

Isn’t that the problem? If you are not open to new ideas and innovative solutions, you will get nowhere while the NHS wastes money on incestuous internal studies and reviews. Remember Einstein, who probably did have good knowledge of rocket science; “Insanity: doing the same thing over and over again and expecting different results.”

Image courtesy of Suriya Kankliang at freedigitalphotos.net

 

Tags: SKU, FMCG, Dave Jordan, Forecasting & Demand Planning, IT, Information

FMCG & Shakespeare? Macbeth S&OP Soliloquy

Posted by Dave Jordan on Mon, Apr 25, 2016

As we one again celebrate St George's Day and the 400th birthday of William Shakespeare (also the date he died, coincidentally) what would the great bard think about Sales & Operational Planning (S&OP) in FMCG businesses? Let us take a look......

S&OP ala Shakespeare

Is this a plan which I see before me, 
The numbers are as we planned? Come, let me see.
They are not, I see two numbers, still.
Art thou not following S&OP, incredible!
Your “gut feeling” could be right? or is this but
A plan of the sales mind, a false creation,
Proceeding from the bonus-obsessed brain?
I see this yet, inform others
As this which you cannot ignore.
Thou shall assure me S&OP gets going;
And the S&OP instrument I want used!
Mine eyes see the foolish lack o' consensus,
Or else worthless at best; I see this ill,
And on thy supply plan remove doubts of “could”,
Which was not so before. There's no such thing:
It is the demand plan which conforms
Thus to mine eyes. I must see minutes recorded
Pre-SOP must go ahead, and ERP is in use.
The gaps could be deep; discussion eliminates
Take extra offerings, and work even harder,
Align by this meeting, calm the sales wolf.
More minutes you attach, thus with stealthy pace
With colleagues at your sides, a single plan design
Move on to the Board. Ensure a firm-set plan,
Fear not our quips, the way we talk, no fear.
Some small adjustments we may talk about.
And take the present plan and deploy as,
This now suits the Board. S&OP is done, and leads
Towards defeat of those where S&OP lives not.

For fans of the man himself, here is the original William Shakespeare work.

Is this a dagger which I see before me,
The handle toward my hand? Come, let me clutch thee.
I have thee not, and yet I see thee still.
Art thou not, fatal vision, sensible
To feeling as to sight? or art thou but
A dagger of the mind, a false creation,
Proceeding from the heat-oppressed brain?
I see thee yet, in form as palpable
As this which now I draw.
Thou marshall'st me the way that I was going;
And such an instrument I was to use.
Mine eyes are made the fools o' the other senses,
Or else worth all the rest; I see thee still,
And on thy blade and dudgeon gouts of blood,
Which was not so before. There's no such thing:
It is the bloody business which informs
Thus to mine eyes. Now o'er the one halfworld
Nature seems dead, and wicked dreams abuse
The curtain'd sleep; witchcraft celebrates
Pale Hecate's offerings, and wither'd murder,
Alarum'd by his sentinel, the wolf,
Whose howl's his watch, thus with his stealthy pace.
With Tarquin's ravishing strides, towards his design
Moves like a ghost. Thou sure and firm-set earth,
Hear not my steps, which way they walk, for fear
Thy very stones prate of my whereabout,
And take the present horror from the time,
Which now suits with it. Whiles I threat, he lives:
Words to the heat of deeds too cold breath gives.

For a view of the lighter side of all things supply chain please click here.

 

Tags: FMCG, CEO, Humour, Performance Improvement, S&OP, Sales

FMCG Supply Chains; Swiss legal entities & local Op-Cos - a taxing question

Posted by Dave Jordan on Wed, Apr 13, 2016

Personal and corproate taxation has been top of mind this week. Suddenly all sorts of UK policticians are publishing their tax returns in an attempt to show themselves whiter than white. Well, the tax returns will be Persil-white won't they or otherwise the tax man will already have had a word?

In an attempt to divert attention from the personal evasion/avoidance debate the politicians have announced a fresh look at how corporates pay (or not) tax across each of the EU states and this could have significant implications.

In Europe and Asia at least, there is a fashion for creating a new supply chain legal entity and housing it in a friendly canton in Switzerland (or the Singaporean equivalent). The prime benefit appears to be tax although operational and efficiency savings are often claimed to offset the nasty sounding “tax avoidance” or "tax efficiency" motivation.

Certainly, you cannot just put your name above a B&Q shed, buy a Twonkie desk from IKEA, install a phone and employ an office–sitter and meet the undoubted Swiss tax benefit requirements.

You really do have to locate your operational supply chain organisation in the tax beneficial location. This means the relocation of potentially large numbers of departments, employees and their families which is a challenge in itself but how does such a change affect the actual operation of the regional supply chain?

In theory, the Swiss legal entity takes ownership for the sourcing, supply planning and making, partial delivery logistics and support service elements of the chain and the actual stock until a 3rd party sale takes place. The satellite operations essentially concentrate on demand planning, secondary/customer logistics and customer service from a local distribution centre. This sounds simple yet you still have to maintain one unbroken chain and frankly, customers do not see nor why shoudl they care about some far away alpine, chocolate box, snow-topped tax advantage.

FMCG_SUPPLY_CHAIN_EUROPE_TAX_.jpgThe local face to the customer will always enjoy the wrath of retailers when product is delayed or unavailable or of poor quality and that is irrespective of whatever corporate financial model is in place. The local people still have to take the blame for problems which may have occurred in a factory in a different hemisphere. However, the key is ensuring the entire chain really is one slick and seamless operation from start to finish AND all the players feel part of the same team. You must have shared objectives with KPIs and equal pain and gain in the wallet/purse at year end or failure is inevitable.

A centralised supply chain legal entity raises the importance of the local op-co S&OP working within a regional S&OP managed by the new, remote supply chain entity. Only one side working is simply not good enough. If you can generate a living team spirit in groups bound by shared objectives and integrated S&OP then you will have a regional supply chain working like the seamless movement of a quality timepiece rather than that of gloopy cheese dripping off a fondue fork.

Which one is most reminiscent of yours?

If the EU (+/- UK) gets tough on tax then we may be in for a fresh round of upheaval in blue chip supply chains.

Image courtesy of Sira Anamwong at freedigitalphotos.net 

 

FMCG Company disbands the Supply Chain function……..

Posted by Dave Jordan on Wed, Mar 23, 2016

I am back on line again after a few days’ holiday post completion of some challenging factory footprint project work. One of the first catch-up meetings I have had was with an FMCG CEO. No names of course, but this is a medium-large sized player knocking on the blue-chip door. The company has a broad European supply network and is present in most markets. I have disguised the identity to protect the innocent or not so innocent!

I recall how many companies plodded along blindly with what we now accept as supply chain functions dispersed around other departments, e.g. procurement/buying and logistics in finance, planning with sales – I, along with many, am so pleased that the latter is no longer the case!

Many years flew by before all the essential elements of supply chain were brought under one organisation. Looking backwards now, it hardly seemed like rocket science but it was a painful process as established empires were dismantled and begrudging recognition given to what is still an undervalued function in a large number of companies. How many actually have a Chief Supply Chain Officer even now?

Although many were dragged kicking and screaming into the newly created function, there is no doubt those companies operating an integrated supply chain have seen huge benefits over succeeding years. Nothing happened overnight of course, as slowly but surely companies made massive strides in understanding cost, efficiency, service and innovation. Is it naïve to believe that supply chain is now considered equally important as say finance or those darlings in sales? The jury is probably still out on that one.

FMCG_SUPPLY_CHAIN_CEO.jpgSo, you could imagine my jaw dropping onto the worn leather inlay of the table when I heard from Mr./Mrs. CEO that this company had taken the decision to dissolve their supply chain and relocate elements across the other departments. The Supply Chain Director role just vanished off the top table in one fell swoop. Without doubt, there must be a leading edge reason for this bold and brave (yes, insert “crazy” or “stupid” or “daft” as you wish) move and I waited for the disclosure of the divine inspiration and associated logic.

No, there was none on offer in my humble opinion. The insight behind the decision was that the company wanted more direct board control over various areas of business and believed that a dispersion of roles was required. The fact that segregation of roles is necessary for auditable control and accountability has been at best over-looked let alone the impact on business performance.

The only outcome is a lack of cross functional clarity on how the Supply Chain contributes to business performance excellence. A return to functional silos where people will not take responsibility or be accountable and resort to lobbing blame-grenades over the office walls.

Why would you make such a decision? What are they really hiding from? Answers on a post card please as this one beats me. I am not suggesting supply chain development has finished and we have the ultimate design (far from it) but reverting to a disjointed 1980’s model in an effort to improve control is a contradiction.

Image courtesy of Stuart Miles at freedigitalphotos.net

 

Tags: FMCG, CEO, Performance Improvement, Supply Chain