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Route to Market & Supply Chain Blog

Cost Savings: Boosting FMCG Bottom Lines

Posted by Dave Jordan on Tue, May 28, 2024

Cost saving klaxon alert!!!!!!!

Picture the scene in many an FMCG boardroom. A terse note has arrived from the suits at HQ telling the boss to urgently reduce costs as the H1 or year-end result is not going to look pretty. Why do all the board directors then adjust their gaze to look silently at their supply chain colleague? Of course, there are significant costs associated with the modern supply chain but you cannot suddenly achieve savings from that infrastructure overnight. Supply chain budgets very rarely contain significant discretionary spend unlike the bank busting sums in the well-tailored pockets of sales and marketing!

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Surprise, surprise!

If you are not continually looking to trim costs in SC then I would be shocked. As is usually the case, let us assume the SC team is indeed, constantly looking at ways to reduce cost in MRP, SP, PD, DRP, manufacturing, logistics networks, 3PLPs, etc. What other areas could be challenged without causing discontinuity and unnecessary stress in the supply chain and the wider company? The SC leads many cost efficiency projects which I think is fair enough as the discipline is most familiar with the cost control and customer service balance challenge.

Here are five areas I feel are always worth visiting when looking for rapid-return bottom line benefits.

  1. Do not tolerate poor customer service.

    Every small % loss (failure) in Customer Service costs you money. Are you really on top of repeated failures to deliver products to key customers? Your service loss tree may well tempt you to point fingers in the direction of colleagues but that will seldom produce rapid improvements. The problem is us, not them and that attitude is the only one which can make a difference, quickly. 

    For example, many companies struggle with transshipments or repositioning where stock is available but not in the right place to respond to orders. Urgently moving stock around to meet demand is really like a dog chasing its tail. By the time the stock arrives, the order has been cancelled or you have missed the delivery slot. Moving stock around your network is extremely costly as it tends to be at spot rates and more often than not, uses trucking space inefficiently. Every single repositioning expense must be thoroughly examined now, not at month end.

  2.  Potential waste needs haste.

    Old promotions, close to expire stock, old artwork/label packs, slow movers are all potential sources of write-off but can be a decent contributor to sales, albeit usually in a once-off situation. All companies (particularly FMCG) will have some or all of this and for various reasons - some good, some not so good. If you do not routinely address these items you will be hit with an unexpected loss at year end or at the next stock count.

    Bring the list to the S&OP meeting and hold accountable the people responsible for creating this stock in the first place. Sales and marketing cannot wash their hands of it even though this stock is not as sexy as all those relaunches. Sell it out, make a sale and stop paying for storage etc., before it goes missing and appears at a Sunday car boot sale!

  3. Promo no-go, no-no? 

    Are all of those promotions really necessary and do they actually pay back? Do you know how much of your original pristine packaging carefully assembled in the factory is destroyed in the name of the latest promotional whim? Plastic film, outer cases and trays litter the floors of repacking operations everywhere.

    You have paid for that original packaging and the expensive assembly and now you are paying someone to destroy that and replace it with different materials. Just think of all those Dollars/Euros that could be spent in a much more customer-focussed way or simply saved? When you consider all the extra labour, logistics, packaging plus the onerous planning challenges, just how much value is really generated for your business?

  4. Portfolio profit problem? 

    Do you know how many SKUs your business has when you include all the promotions and specials? Every single SKU costs money to source, transport, plan, store and deliver etc. Also, the more you have the more likely you will generate the problems discussed in points 1-3 above. Analyse your current portfolio and see what is really driving value in your company. Conversely, see what is sucking value and life out of the business at the other end of the scale. Every unnecessary low value, low performing SKU clogs up the wheels of your Sales & Operational Planning (S&OP) process and costs money.
  1. Discretionary spend to end.

    If there is any in SC budgets then do not make it discretionary! If budgets exist for team building and entertainment you can bet your life those funds will be used. Do you really need to 'team build' every year? Annual or more frequent team buildings suggest that the team dynamics remain far from ideal and that the events did not work. These occasions tend to be considered as a perk of the job and I am not convinced of their value when they happen so often. If team building sessions are to go then you should ensure this applies to all departments. Letting the marketing extravaganza event slip through the net will simply demotivate the rest of the company.

Achieving visible buy-in at the top table which is cascaded to teams will generate the best initiatives and ensure alignment. Paying consistent attention to these and many other cost areas might save you from the ultimate saving of issuing redundancy notices including possibly your own!

Help! I need somebody.

If you have any Supply Chain problems or opportunities you would like to discuss then please reach out to Enchange.com via telephone, email, or live chat.


Tags: Brewing & Beverages, FMCG, Dave Jordan, Forecasting & Demand Planning, Cost Reduction

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