Supply Chain Blog

FMCG cost savings versus sales & marketing budgets!

Posted by Dave Jordan on Mon, Aug 13, 2018

There is your dilemma. You need to save cash towards an expensive year-end holiday but you really do not know the best place from where to take the money. Do you take it from your day to day current account which is already set up to pay the routine monthly bills and invoices? Do you take funds out of an investment account that has not yet actually matured?

In effect, the money in the current account is already committed and the expected appreciation in the investment account is still to be delivered which puts me on my soap box for today’s topic.

When times are tough and cost savings are required why do the senior bods always look to Supply Chain in the first instance? Unlike those colleagues with a fondness for endless agency lunches there is very little discretionary spend to be found in the vast majority of Supply Chain operations. OK, there may be some team building budget, business travel and a small entertainment allowance but where else can you save money?

There is not a lot you can do to have an impact in the short term. What could you do?

1. Negotiate better RM/PM prices? Yes, but this will not filter through to the bottom line very quickly.

2. Increase efficiency in your factories? Yes, but again not likely to hit the balance sheet any time soon.

3. Reduce head count along the Supply Chain? Certainly effective but think about notice periods and compensation obligations and not least the effect on efficiency and reliability.

FMCG Pharma cost savings supply chain resized 600You will have contracts in place for most services with 3 or 4PLPs for warehousing but as long as pallet space utlisation, storage efficiency and shrinkage etc is under control there really are few opportunities and certainly no “low hanging fruit”.

People often rant on about how sales and marketing people are the real stars of any FMCG or Pharma show and without them nothing happens. Think about it, if you do not have any product available to sell it does not matter if you have the best sales pitch or the most memorable TV advert, does it? In simple terms the SC gets the stuff there and S&M might, repeat might, sell it!

Supply Chain people and processes get the product into Traditional Trade and Key Account outlets and how they do it is relatively inflexible in terms of discretionary spend along the way. So when you are looking for savings why do you assume they must come from Supply Chain and not from the huge sales and marketing budgets? The promised client discounts have not yet delivered and the proposed new TV advert is a long way from having an in-market impact.

Certainly, you have to keep control of costs and a rolling annual target is a sensible plan for any business but 2-3% Supply Chain reduction every year is commonly small beer compared with multi-million S&M expenses. Diverting your valuable Supply Chain resources to scrimp and save these small percentages simply takes people off the day to day priority of getting your SKUs onto shelves.

Those Supply Chain “savings” may not actually be money in the bank.

Image courtesy of cooldesign at freedigitalphotos.net

Tagss: FMCG, Dave Jordan, CEO, Pharma, Supply Chain, Traditional Trade, Cost Reduction