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Route to Market & Supply Chain Blog

FMCG Regional & Global Manufacturing; Is the factory tide turning?

Posted by Dave Jordan on Thu, Sep 20, 2012

This post on migration and return of retailers to the high street had me thinking about a similar effect in manufacturing.  No, I don’t mean FMCG companies are now placing factories in towns and villages next to post offices and fast “food” outlets. The days when industrial units were located in residential areas are rightly long gone in most countries.

Once upon a time, most countries – particularly in Europe - covered by multi-national FMCG giants would have their own dedicated factory to make detergent, margarine, soap, shampoo and soup for the local market. Service and cost was very much local-for-local and very rarely did stock cross borders except for a few export markets. Local-for-local product innovations also meant that the same brand would have a different formula in different markets.

Regional Manufacturing SmallEventually, the FMCG giants realised the potential for consolidating manufacturing facilities in much larger purpose built facilities strategically located in places served by good infrastructure. For example, producing all your soap in a small number of factories inevitably saves cost through capital efficiency and consolidated buying. Yes, you may pay more to get the product to the final destination and that may indeed extend lead times but overall the decisions to close smaller factories were financially sound.

Many of these large strategic manufacturing units also house integrated 3rd party packaging production operations. This factory in a factory approach allows key packaging items to be readily available and easily interchangeable with lower cost and very short lead times. The FMCG giants also win by renting their own space to the 3rd party producers for packaging production.

How far can this go? Can we expect to see more factories the size of a large town making product for the whole continent or even the globe? Are regional/global factory locations sustainable or will we see some degree of reversal?

Through the use of Swiss/Singapore based legal entities many of the large FMCG players are already taking tax advantage of “owning” manufacturing facilities and stocks. Precise factory locations within trade agreements are becoming irrelevant and manufacturers are keen to take advantage of subsidies and grants offered by growth opportunities.

Watch this space!

Tags: FMCG, Dave Jordan, Manufacturing Footprint, Supply Chain, Cost Reduction

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