Supply Chain Blog

FMCG SKU complexity: range extension by stealth!

Posted by Dave Jordan on Wed, Nov 13, 2013

What made me think of that? Do you remember that playground game called Statues? One person is the “museum” Curator and stands at the end of a field or yard. Everyone else stands an agreed distance away from the Curator.  The aim of the game is for a "Statue" to touch or tag the Curator.

The Curator turns away from the Statues and then they run and try to tag the Curator. However, whenever the Curator turns around, the Statues must freeze for as long as the Curator looks their way.  If a Statue is caught wobbling or moving, they are sent back to the starting line to begin again.

The same is happening in FMCG board rooms across the globe.

I am a frequent visitor to FMCG retails outlets for both business and the “pleasure” of seeing domestic senior management investing our money. When in different countries I always take a look at the local retailers to see what is different or innovative. One thing struck me on recent visits to three different countries. My word there are a lot of skus on the shelves, on racks, on gondolas, on the floor and even hanging from the ceiling. Do you really need all of them?

CEO’s speak about “necessary complexity” and “selective assortment” but as far as I can see skus are being added to portfolios willy-nilly, with major emphasis on the willy. Every time you add an sku you are incurring extra cost and less efficiency in the Supply Chain but these are rarely used as the basis for a new introduction. Do all your skus actually pay their own way or are they actually destroying value?

SKU complexity cost resized 600Analysis at a brand level is for sales and marketing to either brag or invent excuses about in-market performance. You really do need to ensure every single sku is adding something to the corporate pot over and above what it costs to have the sku on the portfolio. Once you have established the status quo you then need only to focus on those with turnover and profit/margin at the lower end of whatever scale you define.

When an sku is clearly not paying its way then notice should be served and if improvement is not forthcoming, delist. Get rid of the dead wood and spend scarce resources behind what is actually successful. I am not suggesting a ruthless sku rationalisation process in the style of King Henry VIII (strictly 1 in: 1 out) but a routine process with board level involvement will pay dividends.

Whatever process you put in place there are team members who simply worship skus. They like variants and different colours and numerous pack sizes and X number of facings like the competition, whether they make money or not. Oh, and don’t forget promotions and special editions as this is where the Statues mentioned earlier come in.

When the CEO is not looking, skus that were meant to be temporary or tactical become permanent skus. The CEO looks around and asks if sku numbers are under control and he gets nods from sales and marketing but turns away again before the Supply Chain and Finance guys can get a word in. As the Curator of your business you need to be firm but fair with what is on your portfolio. If some people don’t like that then perhaps divorce is the only answer – beheading is best avoided.

Why not check out the SKU Complexity e-book?

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Tags: FMCG, Dave Jordan, CEO, Supply Chain, Cost Reduction, Sales

FMCG Foods: Shocking Retailer & Producer Waste

Posted by Dave Jordan on Tue, Oct 29, 2013

That is an astonishing amount of food waste. Tesco in the UK has held its hands up and admitted it has generated 30,000 tonnes of food waste in the first 6 months of 2013. If that waste rate continues unabated it will reach an enormous 60.000 tonnes for the year. That is roughly the annual production volume of a decent sized food factory.

This refers only to Tesco so if you add in Asda, Morrisons, Sainsbury’s etc and the smaller retailers and assume a similar level of waste, the actual amount of goods produced but not consumed must be around 500,000 tonnes! Plus, that is just in the retailer’s possession, what about the food that ends up in millions of domestic rubbish bins?

If the same is true in other developed markets the figure wasted must be measured in millions of tonnes. Rightly, various organisations have spoken out about such excessive food waste when large parts of the global population struggle to feed themselves every day.

FMCG Tesco Waste resized 600Shocking figures indeed but think about what that means for the UK foods business as a whole. Based on my rough estimation this tells us that half a million tonnes of food were produced to a high quality standard for top-notch retailers and they and the producers received no income in return. Yes, some contracts may pass the financial burden onto producers but whatever way you look at it the waste pyramid expands significantly when you take into account all associated costs.

When all those fruit, vegetables, bakery goods and more start rotting in the ground or feeding livestock what else goes with it?

Someone was paid to source and order the raw materials and packaging.

A truck was loaded and brought the RM/PM to the factory.

The goods were unloaded and stored in a warehouse.

Production planning called-off the RM/PM.

Someone brought the materials to the production area.

Product was manufactured, packed and palletised.

Someone carried out relevant QA checks.

Finished goods were moved back in to another warehouse where they were stored before someone picked the pallet for despatch.

Once loaded on a truck the goods were delivered directly to a retailer or to a cross-docking platform.

Once at the supermarket the goods were unloaded into the back of store warehouse before finally reaching the shelf ready for sale.

All standard costs which will be included in COGS but they didn’t sell did they? So….

Someone had to empty the shelves and move the stock back into storage.

Someone had to pay for the storage and isolation of the stock.

Someone had to arrange destruction or donation or recycling.

A truck was loaded and took the goods to their final resting place.

As the quoted value of the wasted food is at the retailer level then it will include their lost margin but it does not show the full cost of failure to sell. Add in the disposal costs, promotional expenses, an untold volume of unaccounted telephone calls and endless paperwork/certification and the actual loss is probably even higher than these incredible published figures.

In an industry suffering from stalling economies these losses are not sustainable for bottom line and Corporate Social Responsibility (CSR) reasons. Sort it out!

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

FMCG/Pharma European Supply Chain Quality challenges

Posted by Dave Jordan on Thu, Sep 12, 2013

We took a weekend break in Prague recently. I have been there before but only saw the inside of a taxi, a hotel and a soap factory that also makes margarine so this was a real tourism opportunity with the family. These days I do actually relax on holiday but there are always opportunities to see Supply Chains in action.

I have never seen so many tourists, even in London and to cap it all it was Gay Pride weekend. At times we didn't know which way to turn.

Prague was forecast to be very hot and indeed it was so we were pleased our hotel choice had a swimming pool. Cannot wait! On arrival the check-in desk our thoughts of relaxing aching limbs in a cooling pool were shattered. A small digital sign (yes, very posh) on the desk told us the pool was not available as it was being sanitised. There must have been some virulent contamination as I found out the pool had been closed since mid July, i.e. 6 weeks previously.

This Customer Service failing inevitably put us on the front foot when evaluating everything else the hotel had promised to provide. If they knew the pool was unavailable the decent thing to do would be to tell people. Sure, some bookings may have been lost but at least you know what to expect on arrival. What next? “I am sorry sir but your bed has been taken away for repair so you will have to sleep on the floor.”

toast customer service efficiencyBreakfast the next day provided two further instances of customer service woe and neither required a rocket science degree to avoid.

Toast. Can you really get anything wrong with toast? You can at this hotel. Those tunnel toasters can really spoil your day if your carefully chosen bakery item is purloined by someone else while you were away pouring out your muesli.

Breakfast bread battles were not the cause of disappointment on this occasion, however. This toaster had a grill which rotated and took your bread between the glowing elements. The problem was you needed three passes to get even a tinge of a toasty look as the heat setting was on low and the speed was set at fast.

Being a bit of a practical type I reversed the settings to maximise the toasting opportunity in one pass. World War 3 nearly started in a Prague hotel breakfast room. Black-clad waiters appeared from every angle to give me stern looks and even sterner words I could not understand. Perhaps the Czech Republic had borrowed some of the UK’s ridiculous Health & Safety rules and touching the toaster could have put the entire city at risk?

I was completely lost for words when told that operating it this way uses up too much electricity and therefore money. My discussion on efficiency fell on deaf ears and they quickly reset the machine and bread continued to be “toasted” three or more times in front of a watching audience of hungry guests.

Could things really get worse? Oh yes!

Rice Krispies. What can go wrong with a bowl of this well known FMCG cereal? I filled my bowl with said cereal, added milk and sat to eat expecting to hear that famous snap, crackle and pop. Stale. They had the texture of cardboard and a similar taste too. They must have been around for weeks soaking up moisture and various odours from the environment. I took a waiter over to the large serving bowl of cereal and he was rightly horrified. Turning smartly he used the “out” door to enter the kitchen and quickly returned with a brand new unopened catering pack. With a Fawlty-esque flourish and smile of proud satisfaction he poured the new stock on top of the decaying stale stuff. Aaaaagh! Perhaps the police should be told about this cereal killer.

Customer service, operational efficiency and FIFO stock control all compromised and it was only day one!

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Tags: Customer service, Dave Jordan, Humour, Cost Reduction, Inventory Management & Stock Control

FMCG Customer Service & Complaints: Why do you plan for failure?

Posted by Dave Jordan on Wed, Aug 28, 2013

Do you remember those long running TV advertising campaigns for probably/possibly the best lager/beer in the world? The specific advert from the UK that sticks in my mind is the one where Mr. Middle Manager is leaving the office for the evening when he hears a telephone ringing.

Drinks FMCG Customer Service resized 600He is not sure which room it is coming from but then realises the source is an office marked as “Complaints Department” or something similar. Walking forward Mr. Middle Manager opens he door and enters an office that looks like it hasn’t been occupied for many years. (Anyway, how on earth did this available office space not get gobbled up in any number of corporate office relocations and redesigns?) On lifting up the telephone - yes a real old one with a curly cable - he discovers that the caller has the wrong number.

The subtle tongue in cheek message being that this particular brand of beer is so good and quality so consistently high that a “Complaints Department” is simply not relevant. If you think about it anyone with an unequivocally named Complaints Department probably expects to receive calls and letters from dissatisfied consumers and customers whether they are quality, service or performance based.

A clear double whammy! You pay people to who unfortunately make the mistakes and then pay another group to deal with the fall-out! I know life is not perfect nor are human beings or any process so the concept of the beer advert is an impossible to reach utopia. Similarly, you cannot keep everyone happy all of the time and some people and organisations believe complaining is a part of the producer-client game.

Nevertheless, recently I studied the regional Customer Service organisation of an FMCG blue-chip company. The brief was to ensure resources were aligned with the relative sizes and importance of the clients in the Key Accounts (KA) and Traditional Trade (TT) sectors. Changes to the split between KA and TT meant some people were twiddling their thumbs while others were clearly stressed.

While looking at possibilities it became clear that this company was spending more on complaints handling than on real Customer Service and cash collection. A whopping 38% more to be precise! A significant proportion of the non-sales force customer facing resources were employed to deal with problems. Talk about planning for failure!

Do you have a Complaints Department or perhaps it is hidden under the Customer Service umbrella? Take a look at how much you are spending in maintaining a team of people plus infrastructure to receive and deal with communications from unhappy callers and writers. Or let me present this another way, how much are you spending to correct the mistakes you are making at some stage of getting finished goods to consumers and customers?

Be careful or the next call to your office might be to discuss another role or even gardening leave!

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Tags: Customer service, FMCG, Dave Jordan, CEO, Performance Improvement, Cost Reduction

FMCG Logistics: Are you optimising trucking weight & volume capacity?

Posted by Dave Jordan on Wed, Aug 21, 2013

I crossed a border in Eastern Europe recently and although the private and car traffic sailed through without delay there were a surprising number of trucks parked in a snake on the approach roads. Both countries are in the EU so I guess someone was carrying out a bit of thorough drugs or human trafficking checking or looking for some other equally vile trade.

I know this is not an unusual sight but something struck me as very unusual for transportation logistics in 2013. A majority of the waiting trucks had their curtains and/or doors opened probably awaiting the sniff test of a slobbering customs hound. What jumped out and hit me in the face making my jaw drop was that most of these 40 foot beasts were empty. Well, at least empty of any palletised or loose stowed goods depending on what the dog found under the boards!

I thought we had all been through the pain of back-hauling and similar opportunities to save money on fuel, assets and operational costs. Whether it was brewers bringing back empty bottles or FMCG producers shipping finished goods on trucks that had arrived with raw materials aboard or simply pallet poolers recovering their wooden stock, I thought the days of wasted trucking miles/kilometers were behind us. (I know this activity can never be a perfect fit as 100% back-hauling is just not going to happen due to the timing and geography of supply and demand fluctuations.)

transport pallets space utilisation resized 600To be fair, some of the trucks in the crossing queue were very well packed, e.g. bottles of fizzy drinks on the bottom with pallets of high volume/low weight snacks on top to maximise the available volume/weight capacity. Another was loaded with FMCG on the bottom and paper tissues above. Simple solutions to maximise available resources and certainly not rocket science. The last example was actually for goods from different producers so there is probably a proactive 4PLP involved who is financially motivated to squeeze every last penny of value out of any logistics expense.

You cannot mix just anything in loads of course. Tea is not going to taste very good after a few hours rocking about above perfume-rich detergent powder and you don’t want liquids above anything electrical but I think we could do a lot more to maximise transport resources. Some companies adopt a “not on your life” attitude at suggested capacity sharing but I think that shows a lack of innovation capability and desire.

On the subject of logistics optimisation and flexibility I stumbled across this excellent use of space and transport expenses. Click on this link and take a look at how soft drinks producers can help to distribute medicines in D&E regions. A simple solution to the distribution of medicines in very difficult environments where cost pressure usually means the people who need don’t get.

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Tags: Brewing & Beverages, FMCG, Logistics Service Provider, Logistica Management, Dave Jordan, Cost Reduction, Logistics Management

Sales & Operational Planning (S&OP): From Chaos to Cruise Control

Posted by Dave Jordan on Mon, Mar 04, 2013

You could hear the groans around the room when the CEO announced to the company that they had decided to finally implement Sales & Operational Planning (S&OP). Enchange was asked to facilitate the implementation - no, they were not groaning at Enchange! The groaning was partly generated by previous failures at S&OP introduction and the misconception that S&OP means more work.

The previous attempts at implementation were not well structured with meetings having far too many attendees for decent debate and decision making. These mass meetings could take up a whole day and run into the next on occasions. A complete waste of time and resources and in this context you could understand why staff associated extra work with S&OP.

S&OPMeeting dynamics made the UK Prime Ministers Question Time look like a well behaved school for nuns under a vow of silence. All basic meetings within S&OP were crammed into one disorganised rabble of a meeting. A gang fight, a rugby scrum and January sales all rolled into one.

The Finance guy would ignore all protestations and insist the monthly forecast must be exactly equal to the volume and financial number in the annual plan. The planners would double guess demand as there was no forward forecast or reliable history. The marketing representative arrived late, left early and his contribution was miniscule - when an empty lift arrived at the floor the marketing guy stepped out! The salesman present did not really know why he was invited as he had nothing to do with supply and maintained a bemused frown that said “I’m a salesman, get me out of here!"

No, not good.

Introduction to a series of meetings with different objectives, data input/output requirements and actions was never going to be easy. Some heads needed banging together and some egos needed to be massaged but slowly but surely the semblance of a functional S&OP was ground out. Discrete meetings for demand and supply planning, NPD/innovation, Finance and pre-S&OP were inserted in diaries 12 months ahead and rolling. Meaningful minutes and actions were issued and blame-storming reduced as team members realised the value and purpose of S&OP.

The Board S&OP meeting was a short session where the decision makers helped the junior team overcome issues and challenges before one set of numbers were fixed and everybody worked towards the shared target. 

The biggest revelation of this often painful implementation exercise? Work load DECREASED significantly as people worked more efficiently on what really mattered to the business and not what was best for their department or themselves.

Psst, note to CEO’s only – the company in question actually reduced staff and increased sales!

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Tags: Dave Jordan, CEO, Performance Improvement, S&OP, Forecasting & Demand Planning, Cost Reduction

“Lean” FMCG/Drinks factory operations mean excess manpower

Posted by Dave Jordan on Mon, Feb 04, 2013

Back in the days when the only reality TV was live sport, a tablet got rid of your headache and a mobile was a normal phone with a longer cable, I used to run a large FMCG factory. Long before TPM was implemented the factory cost base was huge and unsustainable. There were people everywhere and everyone seemed to have their own assistant or “mate” to do any tasks that were difficult or labour intensive.

The factory did not really need conveyors on the filing lines as the high operator numbers could pass the filled bottles or stamped tablets to one another towards the packing station. Even the packing stations were only semi-automatic and required a human helper. There were so many operators that 50% of them could have all gone to the toilet at the same time – space permitting – and production efficiency and output would not even blink.

In D&E countries the labour cost is usually so low that capital proposals for automation investment don’t really get too far. People can do the jobs far cheaper although excess manual handling can lead to unacceptable quality variation.

Production SupplyChainAfter some time listening to the raft of reasons why staff numbers could not possibly be reduced I started to observe a little more closely and at unexpected times of the day. I noted that most production lines were actually running reasonably well with little or “no touch” from humans. Line operators were slouched against walls or leaning on machinery and that is when I realised that this type of “lean manufacturing” was not helping and had to stop. The only place where more people were being paid to do nothing was in the EU parliament.

With a liberal helping of Non Violent Direct Action (NVDA) aided by non-unionised labour:

  1. Slowly but surely remove people from overstaffed operations. If after making a reduction you are not sure if more can be removed, remove 1 more and see what happens….. and repeat.
  2. Residual staff will now have to actually work. Ease the pain by sharing some of the saved salaries across the new team in return for KPI efficiency improvements.
  3. Train the staff in multi-disciplinary skills to facilitate seamless sickness and leave substitution as well as job rotation.
  4. Avoid having a separate maintenance or repair department. The people who run a machine need to be the ones to fix any problem right now, immediately and not at the whim of another group.
  5. Get people motivated to implement one of the continuous improvement programmes, e.g. TPM, 6-Sigma. High profile leadership is required for success.

This is just for starters. Once you get some momentum and operator involvement in decision making you will start to see significant cost, efficiency and reliability benefits and no leaning!


Tags: FMCG, Dave Jordan, Performance Improvement, Manufacturing Footprint, Supply Chain, Cost Reduction, Brewing & Beverages

FMCG S&OP: Enabling change as good as the best CEO

Posted by Dave Jordan on Mon, Dec 17, 2012

Nearly the year end. Have you started planning for that party? Are the presents all sorted out? Cards ready before the final posting date? No, I thought not. All the fuss will be over before you know it and then January will see the usual raft of short-lived New Year resolutions made with all the best intentions.

What are the favourite resolutions? Top 3 contenders could be losing weight, stopping smoking and cutting down on booze. Exactly! Attempts to make any progress on these three challenges are futile after 14 days or so of excess in all cases. Having spent the holiday eating far too much and far too much of the worst possible food combinations hoping to make waistline inroads is very optimistic.

Sales & Operational PlanningWhen your behaviour has been defined and ingrained over a number of years making a sustainable change is extremely difficult. Yes, of course there are always exceptions but they are few and far between and they usually have the added incentive of impending death!

Similarly, imagine the difficulty and indeed resistance in implementing a new practice, way of working or IT in a company that has NEVER planned even remotely sensibly. Fire fighting, OOS, write offs and declining sales are some of the symptoms seen in FMCG & Pharmaceutical companies. Add a liberal sprinkling of failed “this one will work” initiatives and you can imagine the chaos under which some companies operate.

While a wise decision would be to introduce Sales & Operational Planning (S&OP) if you do not plan the change you will fail to reap the benefits. Asking your team to work in a different way will meet with scepticism and resistance if there is a history of failure.

Top 10 tips for facilitating S&OP change:

  1. The CEO needs to understand what S&OP is and how it operates. No, I really do mean the CEO should have thorough knowledge and not just top line awareness.
  2. Ensure your Board colleagues are equally briefed and committed.
  3. Attend only the meetings you should attend and give the junior team the space to grow.
  4. Appoint a dedicated employee to lead and ensure quality leadership. The person must be of the right seniority and with wide experience.
  5. Appoint a dedicated employee to run the discipline side of implementation and ongoing operation – at least in the early stages. This includes ensuring meeting calendars are set and meeting minutes are issued in a timely fashion.
  6. Train yourself and all employees. While a small number will be intimately involved in the S&OP meetings it is important everyone in the company knows what is happening and why.
  7. If you do not already have a KPI booklet or a Balanced Scorecard create one quickly so progress can be measured.
  8. Publish your KPIs widely and celebrate the success which will come after some time and effort.
  9. Review progress regularly and make any tweaks to the process to suit your changing needs and improving business.
  10. Never give up! S&OP will make a step change in how you operate and how you perform in the market place.

Will you resolve to make a change next year?


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Tags: Dave Jordan, CEO, KPI, Supply Chain, S&OP, Cost Reduction, Inventory Management & Stock Control

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

FMCG Food Stocks Purchasing: Student House Supply Chain:

Posted by Dave Jordan on Fri, Aug 17, 2012

The student house. What a great idea to join with some university friends and rent a house together. This is far better than university halls as you can have parties 24/7 without security telling you to keep the noise down.  Ok, if you are still all singing badly to Bohemian Rhapsody using kitchen utensils as microphones at 4am your new house neighbours are likely to call the police sooner or later.

You share the monthly rent equally 4 ways even if the girl gets the attic flat with her own bathroom and the boys have to share a bathroom that will eventually give Domestos a run for its money. There will be a rota for doing the housework and making sure the black bin bags of lager cans and polystyrene-framed rotting take-away remnants are put outside every Wednesday.

But the refrigerator and the freezer are a totally different kettle of fish. Food ownership and the associated storage space are fiercely guarded and god forbid if anyone eats that cling-film wrapped tuna and mashed potato belonging to the girl. All hell breaks loose as accusation and counter accusation fly across the crumb covered and ketchup stained kitchen table. Traps are set to try and find the culprit. Cheese is weighed to ensure the bloke with the limp doesn’t slice off a piece to eat with his milk-free muesli at 2am after the pub.

So does sharing really save any money? Well, seeing as the students all eat the same sort of meals they could indeed save a few pennies for extra cider if they overcame their food protectionism and bought in bulk. Cheaper, simpler and a far fewer kitchen table fall outs. (However, I am not sure how good students are at forecasting!)

Corporate procurement Sounds so simple but even in big grown up companies we still see money wasted through failing to agglomerate demand and take advantage of economies of scale. Individual departments all have their own stationery stores. The sales force has a deal for buying diesel and petrol from one chain that is not shared with the Logistics team or 3PLPs – and why not the distributors? Why does every separate office in the company need to have their own and different brands of coffee making machine and coffee – I see this often!

Every time you buy in small quantities you pay a higher price – fact. You waste time with so many people involved in buying activities and suppliers take you for an expensive ride and don’t think they do not. Call it what you will but bulk buying or corporate procurement makes sense and money and particularly so in these gloomy economic times yet many businesses large and small ignore the opportunity. Or perhaps you do not need to save relatively low hanging finance?

Who eats tuna with mashed spuds anyway………..?

Image credit: iprole

Tags: Dave Jordan, Humour, Supply Chain, CEE, Cost Reduction, Inventory Management & Stock Control