Welcome to the Strategy edition of our FMCG supply chain guide. The related Source, Plan, Make, Deliver, Digital & HR overview articles can be found here. Each discipline is a key room in the Enchange Supply Chain House which provides a simple to follow guide for your supply chain improvement journey.
In the desire for supply chain excellence, strategy sometimes gets lost as the daily focus is on shorter term operational execution. The senior team has to take the longer term view to ensure current resources are being expended in line with that future vision. You may have the best people, popular brands, top-notch IT and agile processes but if you do not know where you are going, all this is wasted. You might as well adopt “Road to Nowhere” by the Talking Heads as your company strategy.
What strategy definitions can be found on the internet?
- A plan of action to achieve a long-term goal, e.g. development of a cohesive economic master plan.
- The planning and directing of military operations and movements in a conflict, eg. she was a genius when it came to military strategy.
Nothing surprising there so let us see what a couple of famous people said about strategy.
“The determination of the basic long-term goals and objectives of an enterprise, and the adoption of courses of action and the allocation of resources necessary for those goals.” (Credit to Chandler, 1962, p. 13)
“Essentially, developing a competitive strategy is developing a broad formula for how a business is going to compete, what its goals should be, and what policies will be needed to carry out those goals.” (Credit to Porter, 1980, p. xvi)
Both strategy quotes may well be over 40 years old but they remain 100% relevant to supply chains and businesses today.
Strategy in the Enchange Supply Chain House
Let us look at some of the important Strategy elements you should address to ensure your supply chain is entirely fit for purpose. This, of course, assumes you have a strategy in place, however relevant it may be.
If you do not have a strategy, you need one, quickly. When you do have a strategy, do not sit back and think that is the end of the story as nothing stays the same. Global, regional and local market dynamics change (e.g. BREXIT) competitors come and go and even a pandemic can force an adjustment in strategic thinking. When did you last review your supply chain strategy? Did staff at all levels contribute? Is the strategy widely communicated and understood?
Portfolio & SKU Segmentation
SKU proliferation is possibly the largest self-inflicted pain you can cause to an FMCG supply chain. Every single SKU requires resources to manage it throughout the chain until it is in consumer’s hands and very few companies adequately gauge real SKU profitability. Do you know how many SKUs are in your portfolio? Do you know which SKUs actually deliver a sensible profit margin? Do all SKUs receive the same priority within the supply chain?
Post M&A SC Integration
Merging with or acquiring another company causes discontinuity in all departments but particularly in supply chains. Many businesses get M&A badly wrong and this leaves business cases in tatters and companies in real turmoil. M&A should not come as a surprise to the senior leaders who should have an integration plan ready even if it will be imperfect. Are you planning M&A activity? Have you developed an outline integration plan? How will the merged supply chain look?
Global, Regional, National?
Your strategy definition will depend on where you wish to do business. A single market focus can provide for a relatively simple “local for local” supply chain although factories could be external or 3rd party. A different design is required should you operate across borders/water and deal with different customs regimes and logistics infrastructures. Inevitably, a global supply chain offers huge potential in simplification and utilisation of supply chain assets plus the challenge of ensuring all markets are served on time and at the best possible cost. What are your geographic aspirations? Could your supply chain support a wider theatre of operation?
Just as brands demand continuous innovation to survive and thrive, supply chains are no different. Continuing to operate with a “we’ve always done it this way” mentality is a sure recipe for a stagnant business. Innovation could be at any stage of the extended supply chain, e.g. analytics, supplier collaboration, new planning tools, production efficiency, logistics capacity utilisation. Do you set objectives for supply chain cost and efficiency savings? Do you monitor competitor innovation? Do you work with external bodies on specific opportunities?
Cost To Serve
Cost to Serve is a calculation of the profitability of your service to different channels or customers based on the actual supply chain activities and associated costs incurred. The analysis of costs at each discrete step in the chain allows you to identify where expenses may be excessive in relation to final margin delivery. Do you know where your supply chain budget is spent? Is every customer sufficiently profitable, i.e. worth the expended expenses and effort? Do all channels deliver adequate return on investment?
In subsequent articles we will look in more detail at the strategy specifics you need in place to support and fuel the extended Supply Chain in support of your Route to Market deployment.
Read all of the posts in my series on the Supply Chain Excellence page of our blog where you can also subscribe to our updates.