Posted by Dave Jordan on Thu, Sep 09, 2010
As the recession struggles on and governments continue to drip feed “corrections “ into national economies, e.g. VAT rises 19-24%, FMCG markets are spluttering. Discretionary spending is under tremendous pressure and items previously seen as simple necessities are becoming luxuries.
Take the humble beer, for example. The most popular way for workers to signal to end of the working shift in Western Europe and as you move eastwards beer begins to pop up considerably earlier in the day! Premium brands have certainly taken a knock but those at the lower end of the supping spectrum are also suffering. See Beer Sales Droop. Eating out is in decline and this is contributing to a difficult period for brewers. I am not picking on beer; I just like drinking it!
Just think about your own product range and consider how many brands and/or sku’s are necessities. Yes, there are many items we must have to get through our daily lives but the amount of choice available at all price points means competition for the available cash is tough. The best financial brains tell us we will have such conditions for some time to come so what are you going to do about this?
One fact above debate is that when your product is not on the shelf you are going to miss out on precious pennies.
Some big-name FMCG companies still underestimate the importance of Traditional Trade. Sure, the % of TT business may well be dropping but it still represents a huge market opportunity for a competitor to steal. (Surely one day the price of petrol and cat tax will also diminish the desire to make a weekly pilgrimage to out of town mega stores?).
Sort out your Route to Market Distributor network and do it now before it is too late. Here is some useful background to read.
Finally, take a look at this free evaluation tool and see how your current network stacks up against these standards.
Free tool to get you started
Final, question; if you have challenges in your FMCG Distributor network why are you still reading this blog?
Posted by Dave Jordan on Thu, Sep 09, 2010
"Yes, I know what you said you could sell but this is my target!" An all too familiar "demand discussion" between Producer Sales Rep and Distributor Manager. The Producer may operate a
tight S&OP process but this commonly falls flat on its face with this type of interaction with Distributors.......that is, if they are involved at all!
If your Distributors account for say 30% of your FMCG business then they need to be an intimate part of demand creation and measurement or you are simply giving business away to competition. McDonalds make most of their sales inside the restaurant but do you think they pay less attention to the smaller Drive-In sales demand?
However simple or complex your business you need a tool to capture market demand at Distributor level. (Let us assume the Producer has a suitable in-house S&OP to consolidate all demand signals into one number across all sectors!) The tool does not have to be sophisticated but it has to be agreed between the parties as the only reliable indicator of expected demand for the period. I am not suggesting that the Distributor presses a button, sends in his Demand Forecast and that is the end of debate. It should be the start of a two-way discussion based on shared data AND decision making to agree a deliverable sales plan leading to an internally deliverable supply plan.
Ensure Demand Forecasts are under-written by staff with direct trade interaction and experience and while no demand forecast is ever perfect you will not go far wrong. Consider how powerful it is to have a good Demand Forecast with the stamp of the Distributor AND the Producers Sales Rep. No double guessing, no hedging and no pointless debate after the month end. Sure, there will be differences to talk about but as market assumptions are agreed in together in advance then at least you have a basis for discussion about what went wrong and how to improve for next month.
As ever, monitoring is important as you cannot improve what you do not measure. The Distributor should be monitoring his demand forecast accuracy at SKU level. Ok, if you have a few thousand SKUs this might cause a drain on resources but you can monitor those key SKUs which drive the business. "If SKU X is out of stock we do not worry but if SKU Y is out of stock then it ripples all the way through my own business and into the Producer." The earlier a variation in demand signal (up or down) is transmitted to the producer, the better for all.
Lastly, the old chestnut of promotional activity. If you really are working in close collaboration with your Distributor then you will already be discussing the timing and effects of trade and consumer promotions. However, I consider this a rarity in Romania. Not only should this discussion include Distributor activity but be honest and brief them on parallel activity with Key Accounts and C&C etc. If the Distributor really is your partner then he needs to know what else if happening on his patch which is likely to impact his own and therefore your sales.
Move on from "you did not sell what you said you would" to "OUR Demand Forecast was good last month but let us see how we can make it even better". This simple mind shift can add to your bottom line without the need for investment.
Image credit: HikingArtist.com on Flickr
Posted by Dave Jordan on Tue, Sep 07, 2010
While third-party logistics outsourcing is accepted business practice (though not without risk), corporations are now looking to outsource to a single partner who will assess, design, build, run and measure integrated comprehensive supply chain solutions on their behalf. This evolution in supply chain outsourcing is Fourth-party Logistics or 4PL.
A 4PL provider is a supply chain integrator. The 4PL assembles and manages all resources, capabilities and technology of an organisation’s Supply Chain and its array of providers.
An experienced and reliable 4PL provider will bring value and a reengineered approach to your organisation as it will manage the logistics process, regardless of what carriers, forwarders or warehouses are used. As the centralised contact with the client, 4PL has overall responsibility for logistics performance and the ability to impact the entire supply chain and not just single elements. Consider how many discrete discussions you need to have in your company to ensure your product gets into consumers hands!
Like Business Process Outsourcing, a 4PL solution aims to manage people, process and technology. Importantly, 4PL outsourcing must not be seen as a pure cost reduction issue and if it is considered as such then it is prone to failure. Adopting a 4PL approach brings a different perspective, knowledge, experience and technology to the existing in-house function. Successful 4PL partnerships will see both parties work side by side motivated by mutual success and reward.
Some of the 4PL benefits include: access to a broader base of potential suppliers; back-end system integration; increased market transparency for goods and services; standardisation and automation of order placement; reduced procurement costs and order cycle times. If your business and people are sufficiently mature you might also integrate the 4PL into the S&OP process. Think how powerful that could be!
Organisations are exploring this solution because it can improve their own bottom line through increased and sustainable business efficiency. A word of warning; do not go down this road unless your existing supply chain is already robust AND people are sufficiently experienced to cope with a very different way of doing business.
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FMCG Producers! Why not take a critical look at how you manage your Distributors and how they manage your business on your behalf! Learn more!
Posted by Dave Jordan on Wed, Sep 01, 2010
If you seek to run a slick Supply Chain you should aim to have your key sku’s in one place where they are easy to find. These 3 insights into holding too much inventory are now in one place.
Do you agree? If I have overlooked something please do leave a comment.
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Posted by Christian Cusworth on Tue, Aug 24, 2010
Reading through commentary and professional opinion on the subject of S&OP, best practice processes, its alignment to ERP etc, it’s pretty clear that raving about the importance of embedding S&OP will always grab popular support and light applause. It’s a little like election hopefuls pledging extra funds to the health service and to lower taxes. I am as guilty as everybody else on this one. The less prominent message seems to be the given that the businesses Order to Cash processes are robust and responsive enough, not only to execute the S&OP plan but to deliver it at low cost and to the maximum level of customer service. Following a week in Central Eastern Europe discussing Supply Chain issues with a number of multinational businesses, I have decided to put down my S&OP drum for a few weeks. (was that a distant hurrah !) – and pick up on some current issues around cash flow and customer service. The following series of blogs will look at some common faults in order to cash processes and how they can end up costing the business far more than first thought if not addressed. Over the coming weeks I will look at some practical solutions that could deliver great results. If any of the below targets touch a nerve – keep track of our updates over the next few days :
- Providing accurate information to customers (eg delivery / availability)
- PCO/CCFOT or equivalent order fulfilment/case fill KPI improvement
- Invoicing accuracy & timeliness (working capital benefit)
- Clear definition of internal roles and responsibilities across the OTC process
- Transport cost reduction
- Streamlined Order capture and more efficient working
- Sales force automation
- Organisation re alignment (automation / improved ERP utilisation / freeing up time for customer focussed activities particularly in sales)
After all business is primarily about customers and cash ?
Posted by Dave Jordan on Tue, Aug 24, 2010
Ouch! Did I touch a nerve there? I think I did judging by the reaction but a good debate is always worth having. I have been challenged to expand on my top ten moans and explain precisely what I mean and why the criticism is not always fair. Here goes then!
- They are always late with Innovations.
Networks are always notoriously tight and once commitments have been given to customers the launch dates become cast in stone. The problem arises when the artworks are not in place in time or the language translation on a pack is not quite right. Inevitably this delays the arrival of the product while the launch date stands.
- They lose sales as they do not have the right stock in the right place.
Supply Chain people do not guess what stock should be in place. Stocks are (or should be) placed against an educated forecast based on knowledge of market demand. While this is a joint responsibility nobody should know a customer demand signal better than the Sales and Marketing teams. Forecasting in FMCG is usually poor.
- The first answer is always “no”.
Maybe because the best answer is “no”! I have seen many examples where Supply Chain people have succumbed to pressure and agreed to a change in plan and then they have lived to regret the decision.
- They can never cope at month-end; not enough trucks and time.
Well, how about not pushing 3 weeks of sales in the last week to chase your bonus? No warehouse, transport and logistics system can cope with huge month end peaks as seen in some FMCG companies. Do consumers suddenly buy more products at the end of the month, no!
- Why do they hold so much stock?
The stock was ordered for a reason. Sometimes launch quantities are grossly over forecasted and stock cover for several months has to be stored somewhere. Promotions that do not go as planned sit in warehouses gathering dust and then there are customer returns. Seldom agreed in a contract, customer returns are always tolerated by Sales without regard for the impact on the business.
- Repacks and co-packs are always delayed.
See point 2. If the number of promotional packs was reduced the Supply Chain might stand a better chance of providing the right stock. Have you seen how many promotions compete in different channels and even in the same store?
- They stopped me getting a bonus this month.
Tough! Invariably nobody else except Sales people benefits from sales bonuses (now, there’s a thought!). The motivation to secure a bonus causes disruption in even the best run companies. “If sales are good it’s because of me. If sales are bad then it must be someone else’s fault”.
- They are a huge cost and what do we get for it?
Try working without a Supply Chain and see what happens. Better still why not move some Sales and Marketing colleagues into SC for a while to see how “easy” life is. Sales and Marketing colleagues always appear to get the higher salaries the fast track promotions. Can you imagine a Salesman working in SC helping to generate a bonus for someone else?
- The SC people are just not good enough, they don’t understand.
Indeed, nobody is perfect. Many years ago SC was not seen as a decent career path but not now. Professional qualifications are now available in SC, e.g. APICS and increasingly blue-chip companies are funding training towards such qualification. If you think they do not understand then pop along too an S&OP meeting and help them understand.
- Why do they insist on this Supply Chain S&OP nonsense?
I won’t even answer that question. Anyone who thinks S&OP is still a Supply Chain problem is working for a company that is going nowhere fast.
I feel much better after that!
Posted by Christian Cusworth on Tue, Aug 17, 2010
Sales & Operational Planning (S&OP) has been used by companies now for many years as the planning process that provides “one set of numbers” for the organisation on which to base its business planning. In many countries and cultures S&OP in its current format works extremely well and brings considerable bottom line benefits. However in many emerging markets their culture has not provided companies with an effective S&OP process due to a lack of many of the key organisational and performance drivers required to make S&OP work. S&OP needs a working culture with totally committed leadership providing a disciplined and coordinated management approach that is totally supportive of the process not just in words but in actions.
For all its benefits S&OP is seen by some as a rigid, lengthy, expensive and cumbersome process of up to seven meetings and numerous reports to be repeated each monthly cycle. These meetings can tie up the company’s management talent for considerable periods of time in preparing for and attending the S&OP meetings. If the meetings are seen as a chore and not a valuable use of time then attendance will be erratic, preparation of data may not be as detailed and accurate as required and discussion and challenge may not provide the best use of the meetings assembled expertise.
Success is a great motivator and if the S&OP process fails to deliver a consistent level of demand planning accuracy and then subsequent operational planning accuracy the S&OP will not deliver the levels of customer service required to attain competitive advantage and bottom line results. Reliable indicators of an ineffective S&OP process are the accuracy of the demand plan, levels of customer service performance and the number of times the plan changes each month.
So if we agree that “one S&OP size does not fit all” we need a different approach to developing effective S&OP in many emerging markets. With all the time and expense spent implementing S&OP in a manufacturing company in these markets then an approach that improves what is already there and builds upon the positives found in the system is found to be the best way forward and to be the most cost effective and successful.
Typical symptoms of S&OP processes in emerging markets often include the following: – for each symptom we recommend a “lite solution”.
- Obtaining the information required for S&OP monthly cycle is not always as easy as it should be. In a perfect world the ERP system would provide all the reports required but in many cases the system holds the information but is not configured to provide it so spawning a plethora of standalone, varying format XL spreadsheets that of course take much time to design and populate with the inherent risk of keying errors and inaccuracies.
The lite solution - Define the basic S&OP data requirement, its source and procedures for information gathering. Develop departmental process alignment (ie. consistency of approach to the same task e.g. forecasting or capacity planning). Rationalise the multiple standalone spread sheets into a concise set of interim IT tools that are simple by design. In parallel specify developments or enhancements to the ERP system to support a gradual transition to one data source, removing manual workarounds.
- Meetings are too long, poorly attended, sometimes missed altogether with in some cases different managers representing the same departments each monthly cycle with too and much time is spent reviewing and discussing information presented at the meeting rather than discussing the exceptions from pre-circulated reports.
The lite solution - Implement a simplified meeting structure and define a small number of required inputs and outputs for each step of the cycle. Assign an S&OP leader to control the meetings including duration, discussion points, minutes and follow up. Begin to include individual S&OP accountabilities in job descriptions and reward structure. Ensure that the GM has an active role in the process and attends the key meetings. Develop a meeting calendar with a one year rolling time horizon.
- The process is in the main paper intensive with reports printed out for each member at each meeting, folders and filing cabinets get fuller and fuller. The investment in the company ERP and intranet is not fully realised.
The lite solution - Establish a shared file on the company network for the organised storage of S&OP materials. During the meetings use a PC and projector to display the relevant information to the group. Ensure version control and access limitations of the files.
S&OP requires a dedicated meeting room equipped with network connections for each manager attending. The manager will now be bringing his laptop rather than a folder full of papers. Meetings are now paperless with all information being received and entered on the network.
Image credit: HikingArtist.com
Posted by Michael Thompson on Mon, Aug 16, 2010
The CEO listened while the Commercial Director & Supply Chain Director tried to reach an agreement during the monthly S&OP meeting. Not only was he disappointed to hear a version of the same arguments from previous months (“we are short of stock this month” ..., “ we had too much stock last month” ..., “unexpected order” ..., “we don’t have the raw material”..., etc), he was aware that many of these issues would have been resolved by better process & agreement at the pre-S&OP meeting.
“Let’s go ... this is supposed to be a sailing holiday ... we’ve already been here for two days ...”
“Please can we stay for another day ... we haven’t been to Decathlon yet (French sports retail shopping chain) ...”,
“Why can’t we go to Aqualand?”,
“If we don’t leave by tomorrow, we may not get back to Port Napoleon in time ... remember the Mistral ...”
Mike tried in vain to reconcile the conflicting demands of the crew (and keep them satisfied, let’s not forget) with the need to get the boat back to port & keep everyone safe. How could agreement be reached?
Finally, after two & a half hours, a consensus was reached. The production plan was revised in favour of the new order, in future raw materials would be ordered in anticipation of the tender award (a review revealed that the same tender had been awarded 85% of the time in the past 5 years) & the tender process would be totally redesigned (“let’s find out what is best practice”) & integrated into S&OP. The S&OP meeting finished with everyone in agreement if not totally satisfied.
Dinner finished with a plan to leave tomorrow morning, head east back towards Port Napoleon & visit Decathlon at the next port (by bus), provided we left early. Aqualand would have to wait for another year; after all this was supposed to be a sailing holiday.
Consensus broke out in the Board Room & on board.
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Image credit: stock.xchng
Posted by Dave Jordan on Tue, Aug 10, 2010
FMCG producers seem far too ready to blame their Distributors when sales do not go to plan and targets are not met. However, it is not all their fault particularly if you are not clear on what is expected of them.
To assist FMCG Producers to understand the real state of their Distributors Enchange has released a free tool to guide an assessment of Distribution networks. Download the tool here.
The RTM Evaluation Tool has been designed to guide your evaluation of four key capability areas:
Partnership – is the relationship a one way street or do you actually talk to your Distributors? Do you treat him as a real partner aligned with your business objectives?
Planning & Logistics – how does the Distributor Supply Chain stack up? Your Supply Chain maybe a Rolls Royce but what about his, can it do what you want it to do?
Sales Management – how does the Distributor take orders and execute them? You would be surprised at how some major Producers are represented in front of customers.
Finance & Back-Office – how well is the Distributor organised? What is his financial health? Does he exploit IT or is it still a paper based system?
The tool is not difficult or complicated and will not take too long to run through the various questions and benchmarking statements. The important point is that the tool is completed as accurately and honestly as possible and certainly in collaboration with the Distributor. I recommend you use someone unrelated to the FMCG Distributor Sales function or even a 3rd party to run the process to ensure you receive a reflection of reality.
Of course, the tool is not comprehensive but it can be used to provide a reasonable guide to how your current Distributor network operates. Why not try it out; you may well be very surprised by the results!
Posted by Michael Thompson on Thu, Aug 05, 2010
I had planned to write something about the importance of teamwork & S&OP & then try & link it to sailing – this would be an easy association. And then a real live incident made the story for me.
We finally set sail again – break in the weather - & planned for a weekend in the “Les Calanques” east of Marseille. These are the steep-sided fjord-like limestone inlets that have been carved out over millennia & make for quite spectacular sailing and anchorages.
Sunday afternoon arrived all too soon & we decided it was time to leave & head for port as more wind was due in the evening & an anchorage was no place to be in a mistral.
So off we went motoring towards the east. There was a slight breeze but not strong enough to sail. We had just left a calanque & were about ½ mile from the coast.
Then it happened.
There was a total electrical failure of the engine. The engine was still running but no engine instruments were working.
Then a big mistake.
I stopped the engine to investigate – engine compartments are no place in which to stick your head when they are running. And of course with no electrics, it wouldn’t start again. So we had no power & were steadily drifting towards the coast – sheer rock faces in this case.
I thought of Dad’s Army & considered doing a Corporal Jones impression – “don’t panic ... don’t panic” but instead something strange happened.
Everyone was calm. Margaret & the children quickly raised the sails to catch what little breeze there was – no instruction from me needed. I (relatively) calmly worked out that the engine battery was OK, there were no loose wires in the battery compartment. Then a breakthrough – a loose wire on the engine relay – yep that would do it. There is a spade connector that had fatigued & broken.
So I set about the task of repair. I had spares. But of course no spares the right size. In fact just about every shape & size of spare accept the one that was needed.
We were now drifting close to the rocks; about 100 metres.
We had an emergency process for such an incident (see earlier blog) - deploy the dingy, lash it to the side of the boat & use it to gain some headway. The dingy had the outboard attached & was fuelled & working.
Time to deploy the dingy or could I affect some kind of temporary repair?
In the end, it’s amazing how the proximity of rocks & a possible wreaked boat can spur speedy invention. A temporary connection was made, battery switched on & engine started all in less than one minute.
And we were off & out of danger.
No wild celebrations – yes relief – but we were not out of trouble yet. We maintained a steady speed & didn’t change the engine revs for fear of a different frequency of vibration causing the temporary repair to fail.
By the way, we did consider issuing a Pan Pan at the start of the incident but had an indifferent response in France the last time we did so a few years ago (another story). We didn’t consider a Mayday alert was warranted – maybe it was with the benefit of hindsight.
We headed for the nearest port about eight miles away. A couple of plans were made in the event of another failure - plenty of leeway when lowering the sails for example – neither involved switching the engine off! The port were radioed & informed that we were in potential difficulty.
Sure enough when it came to slowing down to lower the sails (at the last minute before rounding a point into port), the temporary fix failed resulting in loss of engine electrics again. The engine continued & the battery was still charging so I figured that the alternator was still OK.
And we made it safely into port with no further incident.
And what has this got to do with S&OP?
Well we had several contingency plans that came into effect including the tools to make a temporary fix.
However, what struck me was how we reacted & behaved instinctively as a team. No raised voices. No panic – the children were wonderful – “is it time to lower the dingy yet Daddy?” Just calm application & deployment of the plans. We each seemed to acquire a role. And we each executed the role well.
And perhaps therein lies the similarity with S&OP.
S&OP only works for an organisation when the team works. And it’s not just the Supply Chain Team that has to work. It’s the senior management team lead by the CEO. It’s the Commercial Team responsible for the demand side of S&OP. It’s the Make Team where there is a production facility. It’s the Finance team. Everyone needs to understand & execute their role well in order to achieve the desired optimum balance of service & cost.
P.S. The following day a spare spade connector was ‘borrowed’ from Peter (our neighbour & new best friend for the night) & the relay was repaired. Happiness is a well crimped relay connection.
Image credit: Nautic News