Supply Chain Blog

FMCG Supply Chains - For Whom the Bell Tolls in Romania?

Posted by Stefan Cucu on Thu, Oct 30, 2014

We hadn’t seen R. in the last three years.  Now this happened in the middle of the street and after the kisses and hugs, the usual ‘how do you do’ followed. People were pushing us angrily, a clear sign that we had to continue this conversation elsewhere, in a quiet place. And so we did. R. visited us the next day to give us the big news.

“I have decided to move in France!” The was not a big surprise as most Romanians learn from  childhood that one of the best things that can happen to them is the opportunity to leave the country. For some reason, I didn’t imagine R. was part of that category. That's because R. had a solid, local family business. Also, she was  living in a beautiful house, a true architectural masterpiece and her family’s heritage, full of valuable art.

On top of that, the house was located in a quiet area, but just few metres away from the city, near the old church – which was itself a beautiful piece of national patrimony.  Clearly, moving was not an easy decision.  “Well, the church is the problem. In fact, we have a new priest. And this new priest installed a new bell which is more powerful than the old one. There was no authorisation for this new bell and it is just a few meters from my bedroom. Every morning I wake up I feel electrocuted! I cannot stand it!”

Supply chain romanian companies resized 600“Well, did you complain or try to talk to the priest?” Do you think only once? He said he will never talk to a woman. I measured the level of noise pollution with the local H&S officials four times. The result was 120 dB compared with the limit of 50 dB allowed in residential areas. Eventually, I had to sue him. So we went to court but do you want to hear the final decision? The bell is OK. That's because for centuries, the Romanian people used the bells to signal the approach of invaders. This bell is needed in case of an air attack so does not need the neighbours’ permission, nobody needs to agree on the construction plans and everything is fine. This is the Municipality and the court’s final decision!”

I know, this story is absurd. It has a lot of local charm, has a bitter taste at the end but unfortunately it is very true. So what does it have in common with Supply Chain principles? My friend R. hit the nail on the head by saying: “I want to be treated like a client, their (local authorities) client, who pays the taxes and receives a good product in return. I want to witness the respect for the law, the respect that I’m a woman, the respect that I’m a citizen”.

Well, from a Supply Chain perspective, R. was clearly the client but the bureaucrats did not understand that and this is indeed a problem.

To know very well who your clients are and give them what they want - this is a basic Supply Chain rule. And we miss that so much in Romania, in the entire society. If you don’t believe that, just turn on the TV, ride a taxi or listen to the politicians.

Do you believe we can introduce Supply Chain educational programs in primary school? Yes, I know the answer. It was just a joke J! But what about educating the Romanian companies in the value of Supply Chain departments and Customer Service? Maybe it is not too late.

Image courtesy of taoti at freedigitalphotos.net

 

 

Tags: Customer service, FMCG, Humour, Stefan Cucu, Supply Chain

FMCG/Pharma: Sales time running out fast in Q4; load the trade?

Posted by Dave Jordan on Wed, Oct 22, 2014

Like students cramming for examinations, a squirrel storing up acorns for dark, cold, winter hibernation or a politician telling all sorts of lies before an election, time is running out and that time is nigh for FMCG/Pharma CEO’s. If your business closes the books at the end of December then you have less than three months left to make a difference before the year slams shut. Will your next job be Country Manager Falkland Islands or VP Europe?

FMCG Pharma CEO year end sales loading resized 600If all your competitors had the same book closing deadline then the task might be easier or at least the playing field may be level. However, depending on the home country of competitors they could be closing their book at a completely different time of the year and some are not even close to calendar year timings.

That adds a bit of spice doesn’t it? You are searching for every last penny of sales and savings while your competitor with a registered office in South Africa is still sitting on a huge advertising support budget. Yes, at some stage in the future the financial advantage boot is on the other foot but now is the time you have to dictate the success (or failure) of the year.

On the 1st October you think you have three months to go but you probably don’t! You might have Thanksgiving taking a few days out of your retail opportunity or Christmas which really queers the pitch at the end of the year. Christmas may well be a peak time for many FMCG brands but it is also a difficult time for producers as days and staff are lost to holidays and the weather in the northern hemisphere can dump a lot of snow on your logistical efforts to get stock delivered. In other parts of the world you have moving religious eid holidays placing pressure on the sales numbers.

Will you resist the temptation to sacrifice Q1 next year in order to reach current year targets? Even if you have a juicy new role in the pipeline decisions you make now will still impact executives even if they move on before the effect of any “trade loading” arises. Top team pay increasingly includes elements relating to the ongoing performance of the previous employing unit. So, if you invoice your entire warehouse contents to customers at 23.59 on 31 December and the company sells very little in Q1 you know you will be found out. Don’t do it!

You cannot stop time – even Joan Collins has finally realised that – so get the top team together, make some choices, make some decisions, insist on alignment and openness and plan to activate the required sales off-take for the few remaining selling days available. (Psst, that’s called Sales & Operational Planning (S&OP).)

Image courtesy of Renjith Krishnan at freedigitalphotos.net

 

Tags: FMCG, Dave Jordan, CEO, Pharma, Supply Chain, S&OP

FMCG Supply Chains – What are the most important roles?

Posted by Dave Jordan on Thu, Oct 16, 2014

I am often asked which job in the extended Supply Chain is the most important. For FMCG producers this may be the demand planner while for retail partners the key role could be innovation planning. I do have a view on this so park the question and read on.

I was in Tunis recently in the final few days before the eid holidays celebrations commenced. At just about every traffic junction farmers were selling sheep and goats for the upcoming big family feast that is a very important part of the local culture. Possibly incongruous when surrounded by so much soon to be red meat, I was eating a delightful fish lunch when I studied a temporary pen containing about 100 sheep and goats.

I noted how straw and other feed was being offered to each of the animals almost on a personal basis. Normally, farmers would drop a bale of straw or hay and leave the flock to fight it out on who gets the largest share and who goes hungry. Not here; each animal was encouraged to eat, eat and eat again. Why would they be so generous?

With the sheep sold by weight it was a cheap way to increase income. A kilogram of hay and feed costs a lot less than a kg of lamb!

I didn’t think I had seen this trick before then I remembered I had and it was much closer to home. If you are ever lucky enough to visit the Danube Delta in Romania then on the road back towards Bucharest you will see men and women stand up at the side of the road and outstretch their arms. This is not a weird salute to the Village People but it seeks to tell you they have very large fish available for sale.

You have floated on the Danube and probably seen many fish so why not buy some fresh local samples to cook at home in Bucharest or wherever your destination may be? Good prices too but more often than not you will find your fish has been stuffed full with stones. When you buy by weight you are paying for stones at the price of quality fish.

Ok, so if you don’t live in Romania or visit countries celebrating eid you may not have seen this cunning slight. Hold on! Yes, you have. This same is happening in virtually every country and I can almost guarantee you have been on the receiving end.

When I was younger I remember my mother buying fruit and vegetables from a little green van driven by a fellow Tranmere Rovers fan, Mr Talbot. Mr Talbot would weigh the requested fruit and veg in an old fashioned scale that had a detachable bowl. The contents of the bowl would then be poured into whatever bag was available. You wanted a kilo (well, 2.2 pounds at the time) of potatoes and that is exactly what you received in return for your hard earned.

FMCG RETAIL SUPPLY CHAIN IMPORTANCE resized 600Today of course, supermarkets provide rolls and rolls of bags for you in which to collect your fruit and vegetables and then weigh the contents............ and the bag. I know, it is a small bag but you are paying for the bag at the price of the items you have purchased.

I used my local medium sized supermarket for a one off survey. Their bags weigh a surprising 1.5g but even so if you are buying potatoes at 0.15 Euro cents a kilo you are not losing much to plastic. However, if your tastes include lemon grass at 15 Euros a kilo then it starts to get significant.

My local shop tells me they use 1400 bags on a typical day so if there is a run on expensive stuff like lemon grass – I know, highly unlikely – then they are selling 2.1kg of bag at a price of 15 Euros per kg. A quick search of the internet shows that the most expensive purchase would be something called hop shoots which retail at a staggering 1000 Euro per kilo. Now that would be on expensive poly bag. I wonder how many bags are "sold" across the globe each day?

So at least one part of the original question now has an answer. The most important role in a retail supermarket Supply Chain is the person who makes sure those hard to open bags are always available. Having no bags makes it difficult to buy any loose fruit and veg while having bags is a real money earner!

Image courtesy of stockimages at freedigitalphotos.netfreedigitalphotos.net

Tags: FMCG, Dave Jordan, Supply Chain, Forecasting & Demand Planning

FMCG 4th Quarter Sales Challenges - some things never change!

Posted by Dave Jordan on Tue, Oct 14, 2014

I am not going to pretend I wrote this blog once again but when I came to sit down and look at the last quarter of the year I could not really see any difference from last year. The same challenges are clearly there and what is astonishing is that the same companies as last year are still making short term and expensive efforts to “make the numbers”. What folly; instead of pouring cash in to a black hole without return why not divert some of this hard earned cash to sort out the underlying problems? When the economy does recover those companies that had the vision to be critical of how they do business will be the winners. All the others will simply be loading the trade….again and again.

Ok, the third quarter is behind us and results will be available soon. In any event you will have a good feeling for how things have gone in Q3 and what is still needed in Q4 to reach the numbers you committed to over 12 months ago. "Committed" may well be the wrong word as you were probably forced to accept figures you knew would be difficult if not impossible to achieve. However, for the greater corporate good you took it on the chin and said “yes, we will do it”.

Exactly how are you going to achieve those seemingly distant numbers? The corporate world is indeed still firmly in recession but so are consumers. The two groups are not disconnected; consumers are having a very tough time considering the increasingly clueless government austerity measures that continue to drip out around the globe. Consumers simply do not have the money to prop up your annual plan and what money they do have is likely to be rationed to be sure of a reasonably happy Christmas. Remember, consumers owe you nothing!

One thing you will be doing whether you like it or not is to fall into the trap of month-end loading. Let us consider this scenario which is far from uncommon even in “blue-chip” FMCG companies. October sales are poor for the first 2 weeks and then the word is given to “push” stocks into the trade. Discounts are given, favours called in and hey presto, the required target is achieved and you think you are back on track.

FMCG Month End LoadingYou have pushed so much promoted stock into the trade that distributors are short of cash and Key Accounts platforms are overstocked. Consumers do not drink more beer or wash their hair or eat more snacks because you sold at a discount. They have taken advantage of your offers and have filled their own domestic warehouses ready for Christmas and possibly beyond.

November. This time sales are poor into the third week and the rallying call to push does not seem to be working. Support budgets are raided again and yet more stock is pushed into places where it has no demand. Despite this, the motivation of achieving targets and securing a bonus ensure that the right number is flashed to HQ at the end of the month.

Ok, just December to get through……even if it is really only a 16/17 day month for selling. You are so close that a few more discounts and the promotion of high value skus means you end the year on target. It’s a champagne moment, get the cigars out!!!!

Think about what you have just done for the sake of kudos and bonus. You have turned the operation of the company upside down, contravened numerous policies, abused S&OP (if you use it) and unfairly stretched your staff

If you are brutally honest you will know you have sold January’s demand over the last quarter the year. You will not get away with that for long as it will come back to bite you eventually!

Tags: FMCG, Dave Jordan, CEO, Performance Improvement, S&OP, Forecasting & Demand Planning, Sales, Distribution

Supply Chain : When a bicycle is better than a Mercedes.

Posted by Stefan Cucu on Tue, Oct 07, 2014

The summer of 2004. It was 3 weeks after I had changed the job and the company. It was  a new (Supply Chain) position in an FMCG company with many people speaking native French. At that time, the mayor of Bucharest- the future Romanian president established almost overnight what the companies called at the time "blockade of Bucharest”. All trucks over 5 tonnes were not allowed to enter into Bucharest during day light.

Do you remember the time? Food spoiled on the ring road because drivers had consumed their diesel, stocks blocking the warehouses and sales plummeted dramatically. For a few weeks it was a total mess. After a while things calmed down and zones A, B, C were created in Bucharest each with appropriate entry fees. Something which Paris, Vienna, London had taken a few years to set up we made in Bucharest in a few weeks. Our style, obviously.

At the beginning things got out of control and no one knew what to do.  In Romania, politicians “defended the people from the noise and pollution made ​​by multinational companies” (I quote from the mayor’s answer to my humble attempt to make known the situation). Eventually they realised that people became nervous and probably hungry if they do not find milk and bread at the corner store.

“Why the Logistics and Sales people cannot collaborate?” - Asked my GM in a board meeting in which I was replacing my boss.  "Do not bother me unless the warehouse is on fire” said my French boss before taking his annual leave. And because the warehouse did not catch fire, on the contrary, it was blocked with merchandise up to the ceiling, I had to answer something to my GM. Well,  I tried to say something about the SCOR principles, about how bad integrated were the departments and a possible internal SLA -  but people looked angrily at me as obviously I was wasting their time.supply chain sales warehouse stock distribution mercedes

The GM saved me then, God bless him, he translated my complicated supply chain jargon into something very simple: I can understand that , Ahaa- to  organise a meeting between sales and logistics. Let`s call it VELO  (from the french Ventes et Logistique)! "

Yes, this is how VELO was born. The first version of an SLA between Sales and Logistics. The document:  one page off 2 reciprocally asked  indicators, 5 by Sales and 5 by Logistics. From what I know, it still operates successfully in that company. The power of VELO is huge. Often, a VELO is worth more than S&OP, it was proven to me on many occasions. When that happens? Usually, when S&OP is transformed into a long line of endless discussions without targets other than getting signatures on useless piece of paper. Or simply when S&OP is not known, you are under pressure and have to do something for your organisation.

A Supply Chain is strong as long as it is integrated. The problem with that is this integration is not simply possible to be achieved overnight. The vast majority of companies in Romania that I know have made real progress in integration with suppliers and customers, but still neglect internal integration. This is another important reason why S&OP fails:  lack of supervision from the GM as the power of dissolution coming from various the departments is huge. It is the famous "silo mentality" that manages to impose its strength. "I'm right" is the priority instead of profit and turnover.

S&OP, with all its simplicity, is also expensive. Obviously it can be very efficient, as efficient as a Mercedes engine: purring smoothly while the vehicle takes you to your destination, and your indicators panel (KPI`s obviously) keeps you in control.  

Just remember, on bad Romanian roads, sometimes it is simply not worth it to drive a Mercedes!  If your company departments struggle bitterly between each other, you are driving on a damaged road (the dimension of the hole is proportional to the long e-mails’ which people exchange in your organisation when blaming each other)...

Then it's time to think a bicycle (VELO) can be more effective than a Mercedes!

C`est absolument normal!

Partial image courtesy of www.freedigitalphotos.net


Tags: FMCG, Route to Market, Stefan Cucu, Supply Chain, S&OP, Forecasting & Demand Planning, Logistics Management, Inventory Management & Stock Control

FMCG Retailers: Large chains v discounters. Time for a change?

Posted by Dave Jordan on Wed, Oct 01, 2014

The municipality in Voluntari near Bucharest is not noted for its town planning excellence. Our local Silicone Valley of Str Erou Iancu Nicolae contains at least 11 education establishments. There should be no surprise at all that twice per day during school term time the road is gridlocked and even a nimble motorbike rider struggles to navigate the badly parked “Chelsea Tractors”. Someone even has a horrible pink 4WD. Pink! This could possibly be owned by Lady Penelope of Pipera.

Trailing only slightly behind schools is the number of supermarkets in a very small geography. Currently, we have 4 Mega Image (Delhaize) shops, 2 Carrefour Market, 1 Penny, 1 Lidl and 1 independent 24/7 outlet in the greater Silicone Valley area. If you look over one of the large walls along the road you can also see a Billa slowly rising from the mud just a few metres from a Mega Image on the opposite side of the road.

Do we really need all of this FMCG retail capacity? Pipera is not hugely populated so I think it is fair to say not all of these outlets will be sustainable. Without doubt not all of them will be profitable so at some time in the not too distant future we will see a couple dropping out of the race. Before that happens there will be the inevitable price war as the retailers try and defend volumes ahead of profit. Great news for consumers but worrying for retailers already under the discounter price cosh in Western Europe.

In UK at least, the discounters took some time to understand the shopping habits and attitudes of the UK shopper and in that time the usual big-name suspects continued developing out of town stores and internet shopping. Once the discounter threat became apparent they all opened new high street formats that made goods more locally available and also a cosy throwback to the good old days – 1960’s probably.FMCG_Retail_Brands_Supply_Chain

Now the discounters can see past those stiff upper lips they have really hurt the traditional retailers right where it hurts and as far as I can see they will continue to do so. How can the big names fight back? What can they do differently that they have not already tried? I have no doubt Tesco will recover from the accounting gaffe but I fear they will not reach the same dominant heights again.

Here is a thought. If all the FMCG giants are tired of retailers paying their invoices in 30, 60 or more days – with deductions - while the retailers themselves get most of their income in cash at point of sale, why not set up retail outlets? Unilever, Kimberly Clark, Heineken, Pepsico, Kelloggs and Mars, for example, could set up a supermarket chain that contains many of the worlds’ top brands in a largely complementary environment.

Slick supply chains could avoid retailer platforms where product is inevitably damaged, lost or both. The cost and frustration of transport queuing at warehouses or shops for an agreed slot which is hours overdue could be avoided. No more listing fees? Such producer shops would provide what consumers need rather than what retailers want to sell driven by margin or discount.

Maybe it is just too far-fetched but discounters cannot/will not support branded producer aspirations alone while the large chains flounder.

Image courtesy of sploid.gizmodo.com

Tags: FMCG, Dave Jordan, Supply Chain, Forecasting & Demand Planning, Sales