Supply Chain Blog

A Practical Guide to FMCG/Pharma SKU Complexity Reduction

Posted by Dave Jordan on Mon, Feb 28, 2011

Get your business in shape to take advantage of the expected upturn in economic conditions by giving your sku list a thorough review. Few businesses are lucky to operate with just one or two monster skus but an excessive list of items on offer can severely affect your customer service performance.

In the customer service article above we looked at the cost to have an sku on the price list and it is not insignificant when you take all elements of supply into account. If skus do not pay for themselves and contribute to bottom line then why do they exist? Skus plodding along with low margin AND low sales turnover cannot be worth the cost and effort of maintaining them, can they? They are simply getting in the way of more profitable skus.

If you could base your business on high margin/high turnover skus then of course you would. Life is not that simple and the market place is ever more competitive so you need to constantly review the wisdom of what you are putting on shelves. Unless your business is in dire straits a large proportion of your skus will be either low margin/high turnover or vice versa. Both situations can provide reasonably healthy growth but wouldn’t it be better if you could edge them towards the high/high green quartile as per the diagram below?SKU ComplexityThe first step is to make an estimate of what your business spends on keeping an sku on the pricelist. This is not an accurate science but you need to put a “stake in the ground” and agree a number, say 30000Euros. If your margin does not at least break-even then delisting may be the way forward. Staff who look after those skus in the yellow segments need to be challenged on a quarterly basis to get their skus away from the red and towards the green.

If you carry out such an assessment and find that a majority of your skus are in the segment then you might benefit from a professional spring clean of your portfolio. Such an approach will remove any emotion and bias when clinically assessing what you should be placing in front of consumers.

Tags: SKU, FMCG, Dave Jordan, Performance Improvement, Pharma

Enchange Supply Chain Blog of the Year 2011

Posted by Michael Thompson on Fri, Feb 18, 2011

Oscar2 resized 600It’s that time of year.

With just over a week to go until the cinematic version, it is time to reflect upon a year of supply chain blogging.

Ladies & gentlemen I give you the nominations for the inaugural 2011 Enchange supply chain blogs. 

 

Supply Chain Blog of the Year

Best Route to Market Blog

Best Sales & Operational Planning Blog

Best Supply Chain in Africa Blog 

Best Supply Chain in Central & Eastern Europe Blog

Light Entertainment Category

Best Adaptation of a Supply Chain Theme

And the winner is?

Cast your vote before the 27th February 2011. For every click on one of the above links, Enchange will make a donation of £1 to our supported charities in Kenya & Romania.

Tags: Route to Market, Michael Thompson, S&OP, Distribution

Top 6 Critical Success Factors of S&OP in Africa

Posted by Michael Thompson on Thu, Feb 17, 2011

I have been delighted by the response to my recent blog on the 11 critical success factors in Route to Market programmes.

One comment in particular has inspired this week’s blog.

It went along the lines of "we are about embark on an S&OP programme in Africa and want to understand if similar critical success factors apply."

The short answer is that some do & some don’t. 

Success factors of S&OP implementation in Africa

So here is the Top 6 Critical Success Factors to consider when implementing S&OP Programmes in Africa:

1. End Market (EM) Commitment & Ownership:

  • End Market Senior Management – all of them - need to be convinced.  Generally they are sceptical about such programmes that originate from HQ.  Time spent doing this properly is always time well spent.
  • The CEOs/GMs can make or break the programme; the success of S&OP is directly proportional to the commitment & ownership shown by the CEO.  It is not a supply chain programme.
  • Programmes need a ‘sell’, NOT a ‘tell’ approach.
  • End Market operational team engagement is always critical but will not happen if CEO buy-in is below 100%
  • The initial message from HQ will be very important in establishing realistic expectations.

2. S&OP Process Design (assuming a standard S&OP Design):

  • Standardisation – key is establishment of the ‘S&OP Template’ of key processes (e.g. SCOR Levels 1, 2 & some 3) with local End Market adaptation within ‘reasonable’ boundaries.  Keep the ‘rules’ robust and to a minimum.
  • Level 3 Design – use some End Market development as an opportunity to develop local ownership with local teams.
  • Keep it simple for Op Co execution.

3. People & Management of Change:

  • Most S&OP programmes involve significant change.  Ensure that as a minimum, the following are addressed in some way: 
  • Create a change management strategy - start with readiness assessments;
  • Engage senior managers as sponsors of the change;
  • Ensure communication develops a strong message and awareness of the need for change;
  • Involve people through the transition including by workshops in the design and implementation stages;
  • Ensure ample education & training to support the change;
  • Measurement & Reward - gauge progress (e.g. KPIs), reward appropriate behaviours (e.g. bonuses) and reinforce (e.g. award schemes) to sustain the change.
  • Avoid excessive delay (for any reason) – people will lose interest.
  • Above all, appoint a dedicated Change Manager.

4. People & Culture:

  • One size does not fit all in Africa & Middle East.
  • Any S&OP programme must be adapted to account for the local business culture.  Failure to do so will likely be disastrous – I have seen many examples.

5. Information Technology:

  • S&OP should not be an IT led project.
  • But the business & financial success of the programme is usually directly proportional to supporting ERP (e.g. SAP) effectiveness, planning tools, data capture and master data management.
  • Consider interim IT tools – these can work extremely well & maintain programme momentum before the full IT solution is implemented.

6. Measuring Performance & Managing for Success:

  • Decide programme outcomes in advance.
  • Decide what is not negotiable.
  • Be prepared to learn and adapt during the programme.
  • Use established Project Management methodology (e.g. Prince 2 – a ‘Lite’ version please) – plan, review etc.
  • Establish KPIs – consider a Balanced Scorecard.
  • Indicate the benefits early.
  • Build End Market success into CEO/GM/Board bonuses.

I have focussed on our experience from S&OP programmes in dozens of African countries.  Upon reflection, the above also apply in varying degrees to S&OP programmes in other parts of the world; I would welcome your views.

If you are wondering if you need S&OP in Africa, I wrote about this last year in an article - Doing business in Africa - 11 signs that your S&OP needs improvement.

And of course, if you need any advice, including on an informal basis, please just contact us.

PS

If you are interested in S&OP, you may also be interested in some other Enchange blogs:  Many are light hearted. 

Oscar Supply Chain Blog

Tags: Michael Thompson, S&OP, Forecasting & Demand Planning, Doing Business in Africa

Time to Spring Clean your Supply Chain in Brewing, Pharma & FMCG

Posted by Dave Jordan on Mon, Feb 14, 2011

Is the market getting any better, really? Many big name companies have announced indifferent full year 2010 results recently and all caution about the continuing “difficult market conditions”. Ok, so 2010 has been put to bed but many will be paying the price for the mammoth last quarter efforts which must have made the advertising and promotional agencies extremely rich. I wonder what a snap-shot of bottom line profitability looked like over the final 3 months of 2010?

If the economy is not much better than last year what exactly can you do differently to keep ahead of your competitors in 2011?  If you had all the time in the world you could apply all of the Top 10 New Year Supply Chain Resolutions. You might not have the time and resources to tackle all of them but there are a couple you can take advantage of for some quick wins. Give your Supply Chain a much needed “twin pack” of a Spring Clean and see the difference this can make.

Most businesses will have carried out a stock count at year end. You do count your stock don’t you? If you don’t then I guarantee you will have less than you thought! You should now have a clear list of those items which are clearly overstocked, close to expiry, old label etc. Every day you keep hold of this stock is wasted as the expense slowly but surely chips away at your bottom line making your life unnecessarily difficult. Get rid of it! Give it to charity. You could even sell it! If you clear out your stocks you will naturally create a slightly more responsive and faster Supply Chain.

Reduction of SKUs resized 600Do you know how many “must have” core and promotional skus you added in 2010 in order to get as close to HQ targets as possible? In difficult times it is easy for processes and procedures to be overlooked in the search for more sales. Every sku costs you money even if it is difficult to quantify in your business. Do all of the skus actually contribute to profit? If you do not monitor profitability by sku then a considerable proportion may exist for no benefit. You need to be dispassionate about culling skus that are not performing. As far as possible you should keep Sales and Marketing out of that decision making process until your business case is water-tight.

Each of these initiatives is relatively straightforward and certainly not resource intensive. Carrying out this simple Spring Clean and getting your house in good order will help you focus your efforts on winning in the market place.

Tags: SKU, FMCG, Dave Jordan, Pharma, Inventory Management & Stock Control

11 Critical Success Factors for Route To Market Programmes

Posted by Michael Thompson on Fri, Feb 04, 2011

Trying to get the best out of distributors in some less developed markets is particularly challenging.  The traditional non-key account trade is unstructured and characterised by very many players many of whom are opportunists and not interested in developing a professional business.

So how does a Producer (manufacturer) deal with this state of affairs?

RTM Programme key Success FactorsMany manufacturers have responded by introducing programmes aimed at trying to get the best out of their distributors.  These programmes are many & varied.  Collectively I will call them Route to Market (RTM).

I have been discussing RTM with a number of Senior Managers from multinational organisations in various markets in Africa and Central & Eastern Europe in the last few weeks. 

Invariably discussions regarding these programmes have led to the following questions:

  • What do we have to do?  &
  • How do we do it?

I have been working in Africa since 1993 & Central & Eastern Europe since 1996 including on RTM programmes.  Although every market is very distinctive and offers its own specific challenges, there are similarities with how to approach RTM Programme and get the best results.

I offer the following 11 Critical Success Factors for RTM Programmes:

  1. ‘Model’ Distributor.  Define this in terms of size (e.g. minimum volume / turnover), processes (front office & back office) and financials (balance sheet, P&L, cash flow).  It is worth considering the world from the view of a distributor shareholder and ask what (financially) the business must look like, in order that they are encouraged to invest in assets, systems, people?  Distributors can be graded according to compliance with a predefined set of standards (e.g. gold, silver, bronze).  With a reliable audit process, they can then be rewarded according to demonstration and maintenance of these standards.  Enchange has developed a series of distributor assessment tools; a ‘Lite’ version is free to download.
  2. Data.  RTM programmes should try to capture Distributor key data including Point of Sale (POS) data.  The minimum is POS contact details.  Ideally it could include sales / stock out of the distributor and POS sales / stock data.  This data greatly improves supply chain demand visibility, enables stock replenishment and reduces distribution risk in the event that a distributor fails.  With a ‘manageable’ number of distributors, the producer can help implement the same system in each distributor.  This is ambitious in many markets and should only be attempted if there is a strong business case to do so.  Often a data capture process is sufficient.
  3. Process Design & Integration.  New standardised distributor processes raise the possibility of process integration with the producer / manufacturer, particularly if a stock replenishment model is being implemented.  In particular there is the opportunity to capture more reliable sales forecasting data (from sales out of distributor) and integrating this data capture process with the Sales & Operational Planning (S&OP) processes of the producer.  Once implemented this can drive dramatic improvements in customer service and significantly reduce inventory in the outbound supply chain.
  4. Order capture.  Try to insist on a standard process including electronic order capture and where possible use of a standard order form.  As a minimum, insist on the capture of data that supports the above.
  5. Key Performance Indicators (KPIs).  At each stage of the programme, the producer / manufacturer must decide upon the desired outcomes.  This is not always an increase in sales as, for example, movement to a stock replenishment model can lead to a one-off decline in sales to distributors as the trade destocks.  Decide upon the desired performance of the distributors (sales, promotions, stock, returns, service levels, forecasting accuracy, etc) and implement the appropriate supporting KPIs.  Keep KPIs to a manageable number (max of 10) and consider using a Balanced Scorecard approach.
  6. Distributor Contracts.  Align these to the KPIs and include Service Level Agreements (SLAs).  Be clear about expected performance levels and visibility, implementation of any RTM programme, information and data exchange, etc.  Include a review & monitoring process and be clear about expected performance improvement by the end of the contract period.
  7. Roles.  Most RTM programmes involve a significant change in roles for the Logistics / Supply Chain and Sales Departments.  For example, the role of Sales can change from a traditional selling role to one of support for distributor partners.  If a stock replenishment model is implemented, the key selling activity moves to the point of sale under the auspices of the distributor with the role of the producer / manufacturer Sales Department being one of support and training.  It is not unusual for this change to be resisted by Sales as it can be perceived as a loss of power within the Sales Organisation. 
  8. Keep it Simple (KISS).  The ‘KISS’ principle should apply.  If the change is too difficult to easily explain to the distributors, the chances are that the programme will stall or fail. 
  9. Timing.  At each key stage of the programme, aim to use any ‘low’ season for design, piloting, briefing and training.  Ideally rollouts should have taken place before volumes pick up in any high season.
  10. Pilot.  Whatever the design, it will likely be a major change that should be piloted with selected distributors.  It is often wise not to over-commit to elements of the design (i.e. create ‘wriggle room’) in the event that significant changes are needed for rollout. 
  11. Change Management.  Most RTM programmes involve very significant change.  Ensure that as a minimum, the following are addressed in some way: a) Create a change management strategy (start with readiness assessments of distributors; a strategy map can also greatly help); b) Engage senior managers as sponsors of the change; c) Communication that develops a strong message and awareness of the need for change; d) Involve people (producer & distributors) through the transition including by workshops in the design and implementation stages; e) Education & Training to support the change especially within the distributors; f) Measurement & Reward - methods to gauge progress (e.g. KPIs) , reward appropriate behaviours (e.g. bonuses) and reinforcement (e.g. award schemes - distributor / employee of the month) to sustain the change.

    For more information about RTM, we have an RTM e-book; the new second edition, focussing on RTM in CEE is available as a free download.

    And most of all keep in mind why you are doing this.  When correctly implemented, RTM programmes always deliver an increase in sales revenue and often at very significant levels.

    Good luck.

     

    RTM ebook 2nd edition

    Oscar Supply Chain Blog

    Tags: Route to Market, Michael Thompson, KPI, Traditional Trade, Distribution, RTM Assessment Tool

    FMCG Supply Chain - What do all those initials really mean?

    Posted by Dave Jordan on Wed, Feb 02, 2011

    SC Abbreviations resized 600Like many business functions Supply Chains use multiple initials and/or acronyms to describe various tasks they manage on a daily basis. Those not familiar with SC-speak will often sit bemused in meetings as various initials are quoted and debated and then usually blamed for some tenuous lost sale claimed by Sales and Marketing. Here we take a look at just a small selection of those SC initials.

    SC – Super Colleagues. Well, I may be biased but that is what you find is usually the case. Supply Chain people have to react to sometime wildly varying demands and impossible timings but more often than not they succeed to get stock in the right place at the right time.

    SOP - Secures Our Performance. If you do not follow an S&OP process and your business is doing well and is robust then a pat on the back to you. If your business is struggling then you might consider the benefits of S&OP which can make all the difference.

    SAP - Spreadsheets Are Preferred. A common problem in many businesses and what is also common is the number of CEO’s who believe spreadsheets are not being used in their workplace! They probably are but what can you do about it?

    IKA- Irritating, Keep Away. In W Europe the big name Key Accounts may well be the future of retailing in the FMCG sector but in many other parts of the world the reality is quite the reverse. TT is a very important part of many businesses yet most fail to pay sufficient attention to the continued development and growth of the Traditional Trade channel.

    SKU - Sales Keep “Upping”. Introducing new skus really should be a cross business decision taken within the context of S&OP and sound financial analysis. Sadly, this does not happen very often as businesses rack up lengthy sku lists where the tail items do not even pay for themselves in turnover and /or profit.

    KPI - Keep People Interested. The old adage of “if you don’t measure it then you cannot improve it” is certainly true here. Be careful not to have too many KPI’s but make sure you have a set which ensures everyone knows how they impact team performance and results. Reward against the relevant KPIs and your staff will follow them keenly.

    3PLP - 3 People Loading Products. Think long and had before outsourcing your logistics operations to a 3rd party. They may not be ready to take on your business seamlessly.  Prepare thoroughly and ensure you know exactly what you want from them and the relationship. A big step that is difficult to reverse so be careful!

    WMS - Where’s My Stock? Your 3PLP partner should be left to run their own business as that is what you pay them for. However, you need to be involved in the stock counting process or you will lose sales and experience costly year-end write offs.

    4PLP - 4 People Loading Products ………..but perhaps slightly faster? If you have successfully used 3PLPs for some time you might wish to take a look at what a 4PLP can offer your business. This is not for everyone but can be very effective.

    RTM - Retail Takes Money. Whether your focus is on IKA or TT how you manage your distribution network will be a key driver of your success in the market place. It is a fact that companies spending time and effort getting their TT distributor networks in good order are more successful.

    There are many, many more initials used in Supply Chain but this set will do for a kick off. TTFN!

    Tags: SKU, FMCG, Route to Market, Dave Jordan, KPI, Traditional Trade, S&OP, Logistics Management, Distribution