Supply Chain Blog

FMCG Co-packing and Re-packing Management

Posted by Dave Jordan on Mon, Jul 30, 2018
Whether you call it co-packing or re-packing this involves the further manipulation of a previously finished and complete SKU. Look around the shelves and the evidence of extra expense and work is displayed by special stickers, multi-packs and banded promotions amongst many others. The impact this has on your Supply Chain is potentially huge.

Wincanton_Copacking_SmallI will park the question of the value (or waste) of these activities for another day but where is the best place to carry out such operations? When you consider that some blue-chip FMCG producers co-pack/re-pack a majority of the volume coming out of their factory gates you realise this is not a small issue. How many products carry the original bar code into consumer’s houses? Not many!

The best location for these operations?

1. At the producing factory? From an operating company (OPCO) perspective this provides the least complexity downstream in the chain. For factories seeking higher and higher efficiency and asset utilisation this can be nightmare for cost and complexity. Even if the factory is part of the same company many will refuse to entertain “abnormal” requests from sister operating companies.

If an SKU requires a label that can be applied online without affecting speed then you might be ok. However, anything like banding together 2 different SKUs is unlikely to get a positive response. In any event, the 2 promotion-bound SKUs may be produced in different factories, countries and even continents.

2. At the OPCO warehouse? The stock is certainly closer to the final market destination so this makes sense but there are drawbacks to what providers call “added value services”. Seldom is a third party logistics provider (3PLP) set up to operate what is essentially a mini factory. If promotional volumes are low then you can deal with them on an ad hoc basis but where levels are higher you need a factory mentality and facilities and this is not common in 3PLPs.

Stock control is vital and a good quality WMS with added value functionality is a must. Knowing what product is where requires meticulous attention to master data detail. What goes into a re-packing location will come out with a completely different bar code – chaos prevails otherwise.

You are essentially locked into your 3PLP and he may well take advantage of that when it comes to pricing the work. Get this wrong and you will suffer unexpected and rising costs, stock “shrinkage” and a resultant drop in Customer Service Level.

3. At a specialist 3rd party? They do exist and if they are set up well and sensibly staffed this can work. You can expect a professional service and a well managed operation. Quality and flexibility will be higher and costs can be keen as the assets are not dedicated to a single company. Such a 3rd party is likely to have a wider portfolio of promotional options available and will invest in plant against a sound business case.

Of course, the downsides frighten potential clients away. You have the added cost and hassle of moving stock in and out of your logistical 3PLP and the associated longer lead times.

4. At the point of purchase (POP)? No, not as crazy as this might sound. If you can manage to get the same unadulterated SKU from the factory gate to the shelf then you are very lucky and secondly, you probably operate a slick chain.

Obviously, you will not be able to carry out the full menu of promotion assembly and display but this route does provide a tactical advantage that can catch competitors napping. An unannounced special price sticker or “buy 1 get 1 free” (BOGOF) promotion can pay dividends. You need the cooperation of the retailer but when there is mutual benefit, why not?

A blend of all 4 sounds like quite a unique opportunity. What do you think?

CTA 3PLs in CEE 0.03 Small resized 600

Image credit: Wincanton

Tags: Customer service, FMCG, Logistics Service Provider, Dave Jordan, Manufacturing Footprint, Logistics Management

7 Top Tips for Spare Parts Management in Factories

Posted by Dave Jordan on Mon, Jun 04, 2018

Well, I find it strange anyway. Some very large companies spend countless hours and cash in finding and securing a third party logistic provider (3PLP) to take great care of their finished goods assets. The performance of the chosen 3PLP is then measured and monitored very closely using a suite of KPIs, e.g. damages and losses are recorded and usually debited to the 3PLP under the contract terms. A 3PLP is charged with “storing your stuff” as safely and cost effectively as possible and providing easy picking for dispatch.

I often wonder why some blue chip companies fail to adopt similar warehousing and logistics principles in the operation of in-house engineering stores. Depending on the industry, the value of the components can be several millions of Euros. If you do not pay attention to this area then the same things happen as they do with finished goods warehouses, including:

1. Shrinkage or more accurately, theft! Your spare parts stores will be helping to repair private cars, replenish home tool-boxes and raise personal funds through the sale of stolen goods. This might seem harsh but I have seen it first-hand and continue to in large organisations.

Bottling line resized 6002. Important parts are not in the right place. If you do not have clearly labelled storage bins you can stop production lines very quickly losing valuable operating time. At the end of the day an idle line can probably lead to more lost sales than a badly picked finished goods pallet.

3. Spare parts not replenished. If stock control is not rigorous then you will go out of stock on important items just when you need them. Sod’s Law dictates that they will also be the parts with lengthy lead times.

A few simple principles loaned from big scale warehousing will help:

  1. Operate some sort of stock management system. This can be done on Excel with some discipline but specifically designed software packages are available. You need to know where each spare part is located just like in a finished goods warehouse.
  2. Carry out cycle and annual stock counting. Keep a close eye on your high value and production-critical items by counting them on a rotating basis. Do not wait for a year-end count to reveal a gaping hole in your stock value.
  3. Carry out an ageing analysis. Many large stores are full of spares for machines that were last running when “Shep was a pup”. They are of no use to you yet they sit on a shelf and on your books as working capital. Any materials with specific shelf lives also need regular checking to ensure you are not holding something which is at best useless or at worst dangerous!
  4. Secondary store for critical items. Items of high value or those which will stop production can be held in a “store within a store”, e.g. a wire cage with 2 locks. Access to these items requires a more senior employee to be present at issuance, e.g. maintenance manager.
  5. Operate some relevant KPIs. These do not have to be wide ranging or difficult to calculate, e.g. ageing, stock rotation, shrinkage etc. An important KPI can be the value of your spares as a % of the operation asset value. Do you know yours?
  6. Order and stock only what you need. Avoid the temptation to buy in bulk as the price is keener. If you are able to calculate a forecast plus some safety stock then you can minimise your inventory and your working capital. Also, ensure that spares purchasing and receipt are spilt responsibilities or you may find you are buying items you do not actually use in the factory..………
  7. Restrict access to the spare parts stores. If you allow anyone to wander in and remove items then your stock control will be out of control, no doubt. If you require access to spares on a 24 hour basis then ensure the facility is staffed appropriately at all times. Leaving the stores unmanned and the door open should be a disciplinary offence.

When looking at factory operating efficiency people will often focus only on the production line and RM/PM supply. Take a look at how you manage spare parts and you may be able to influence your level of efficiency from an unexpected source close to home.

Image credit: Hi.WTC

Tags: Logistics Service Provider, Dave Jordan, Manufacturing Footprint, KPI, Logistics Management, Inventory Management & Stock Control, Spare Parts

FMCG Manufacturing, Sourcing and the Ukraine-Russia Unrest

Posted by Dave Jordan on Wed, Sep 24, 2014

The unrest – what a terrible BBC understatement that is – in Ukraine does not look to be going away in the near future and will possibly be hanging over us for considerably longer. The “unrest” is not localised and it obviously involves many other countries and regional bodies with political, economic and territorial interest in the area. One recent escalation has been to ban the sale of EU goods inside Russia which is rather a throw-back to Cold War days when the same rule applied to iconic western branded goods like Coke and Wrangler jeans.

In Cold War times big brand name FMCG consumption behind the iron curtain was probably driven by the efficiency of the black market and wider Russia was probably just a tempting white spot on the corporate globe. Now it is a different matter as Russia is a little bit more important, if you allow me to adopt some BBC understating diction. As part of the BRIC countries Russia is important in driving the growth aspirations of many of the world’s largest FMCG companies. Or it was.......

Most of the large companies have developed pan-European sourcing strategies and gone are the days when each individual region or even country had its own small “local for local” factory operations. This means that tea maybe sourced from Russia for EU countries but olives are imported from EU into Russia, for example. Companies with a local for local approach in Russia will be largely immune to the EU ban whereas others may actually have exports to Russia as a critical part of their businesses.

What can companies do about this? Well, legally and above board, not a lot. There is always someone willing and able to get passed all manner of regulations and restrictions but usually not in significant volumes and certainly not at the same overall cost of supply. Organisations with local manufacturing operations may well keep the Russian market supplied without hindrance and with little impact on cost and efficiency.

Mfmcg factories russia ukraine resized 600eanwhile, those big names relying on exports into Russia from EU may be far less comfortable as they may be saddled with higher costs as production reduces and fixed costs have to be reallocated across residual volumes. In turn this makes factory gate prices higher for existing EU MSO buying offices if sourcing units do indeed pass on the full hit and wood-panelled HQ does not put its hand in its pocket. Turnover of the Russian MSO is also hit as it cannot get hold of products to sell.

“Really not very good at all” says the man from Aunty Beeb in a clipped English accent brimming over with deep concern and gravitas.

As the region is so important to FMCG growth is it just remotely possible that Russia will come out of this conflict with a far larger local manufacturing footprint and a huge amount of western investment?  Indeed, that may sound ridiculous now but will this turmoil force or persuade more companies to be present on the ground and behind the invisible curtain?

Image courtesy of exdos4 at freedigitalphotos.netfreedigitalphotos.net

Tags: FMCG, Dave Jordan, Manufacturing Footprint, Supply Chain, Sales

Improve Supply Chain Performance via Total Productive Maintenance

Posted by Dave Jordan on Wed, Jun 25, 2014

When I first came across Total Productive Maintenance (TPM) I was sceptical of yet another ”blue sky” approach to pursuing manufacturing excellence. Surely, this would soon be replaced by the next set of buzz-word initials dreamed up by smart-suited consultants. But no; I saw the light and now I’m a believer (RIP Davy Jones) in this technique that originated in Japan.

If you have a factory that is running below par in terms of efficiency, output, reliability or cost etc then TPM could be the ideal tool to achieve a sustainable turnaround. Companies do not like under-performing factories and there is usually somewhere else they could make their products better, faster or cheaper. So, if your factory is under threat of closure you might consider following the TPM principles.

TPM is not rocket science but it requires just as much senior management buy-in and patience as an S&OP process demands. There are multiples levels of TPM success but even the basics will require a significant and sustainable change in behaviour. Kick off with the Kaizen 5S approach which is remarkably simple stuff.

Total Productive MaintenanceKaizen 5S is based on the translation of 5 Japanese words relating to systematic improvement and maintenance of a clean, efficient, well organised operation.

  1. Sort – Sort out what you really need – I mean really need! Throw out anything that has been hanging around for a few years “just in case”. Check out your spare parts store and see what items are held for equipment you no longer own!
  2. Straighten – Have you ever mislaid your car keys? This system creates a dedicated space for every tool or spare part located near to where it is needed.
  3. Scrub – Clean the machines and the production area thoroughly. Dust can affect quality, spills can be hazardous and well maintained equipment lasts longer.
  4. Standardise - If you use identical working practices for maintenance and cleaning your employees will become highly proficient. Standardisation provides you with a flexible workforce that can be deployed where needed and without a training period.
  5. Sustain – From the factory manager to the tea boy you must keep the faith and sustain every initiative. This is very difficult at first but you have to grit your teeth and keep going.

Of course, this is merely a snap-shot of what TPM entails but it shows the basic elements you need to start the journey. As mentioned, the first tentative steps can be painful but if you stay the course the benefits are immense in efficiency and employee satisfaction. The principles apply equally to logistic centres, offices; essentially everywhere people work.

Oh, but don’t try this at home or a divorce is highly probable, believe me!

Image credit: corbindavenport.blogspot.co.uk

Tags: FMCG, Dave Jordan, Performance Improvement, Manufacturing Footprint, Supply Chain, S&OP, Cost Reduction

FMCG/Pharma IT: The Supply Chain of the Future?

Posted by Dave Jordan on Thu, May 23, 2013

Do you agree that Supply Chains seem to evolve very, very slowly? I cannot recall any major ground-breaking innovation in recent times. Yes, we have had bar-coding, RFID and S&OP etc but nothing that sticks out as significant or a major leap forward. Is there a revolution around the corner? Will Producers continue to make small incremental steps or will someone take the industry by the scruff of the neck and drag Supply Chain kicking and screaming into a brave new world.

I have dusted off my crystal ball and after a bit of gazing I saw a version of the future through the swirling mist.

Consumers

Rightly, consumers drive the largest change by buying exclusively on line as premium pricing applies to shopping in stores. Petrol will cost around 25 Euros per litre so driving will be prohibitive any way.

Advance consumer purchase demand accumulated by “Cloud IKAs” and automatically fed to brand owners SC IT.

Manufacturing

Today’s big name Multi-National Companies (MNC’s) will not own manufacturing assets. Products will be produced by versatile 3rd party factories in an automated supply support network.

Few people involved in the entire process and that sadly for those currently working in Supply Chains, is a recurring theme.

Factories will have seamless automated supply of RM/PM to mixers and machines without man handling. Not a “just in time” approach but “right on time” on each at each and every stage of the process.

Automated changeovers will maximise asset utlisation and output efficiency leading to lower and controlled product costing.

Late post dosing/late differentiation will be perfected to further streamline manufacturing  and provide supply agility.

Where no quarantine is required there will not be any intermediate factory storage of finished goods as produce to order is in place.

Planning

No people. Repeat, no people involved. Simply, SC IT analysing, collecting and accumulating consumer driven demand signals and allocating supply requirements on the manufacturing network.

Supply Chain Future ImprovementsDeliver

High quality “Super 4PLPs” will deliver around the clock to retailer picking platforms and not necessarily to stores.

Some PLPs will offer order assembly to cut out a stage and deliver directly to consumer’s homes or workplaces.

Fuel and time efficiency will be gained from having trucks filled with goods from all suppliers and products from compatible industries. (Always puzzled me this one. Producers keep goods apart apparently as long as possible yet you get Knorr mixed with Signal and Lipton next to meat in the back of store warehouse, shopping baskets and in the car. Although some items like tea will indeed soak up flavours and fragrances I think producers are far too cautious.)

Route To Market (RTM)

In Developing & Emerging (D&E) markets D&E the Traditional Trade (TT) will still exist as the prime method of getting products in front of consumers. In TT there will be a small number of distributors per country or region acting solely as 3PLPs and moving competing products.

Increasingly, the key players in your Supply Chain will be found in your IT department!

As the mist slowly clears once again I stop playing Nostradamus and put the crystal ball back in its box.

Image courtesy of Salvatore Vuono at freedigitalphotos.net

Tags: FMCG, Route to Market, Dave Jordan, Performance Improvement, Manufacturing Footprint, Forecasting & Demand Planning

FMCG/Brewing/Pharma Factories : Manufacturing Golden Rules

Posted by Dave Jordan on Thu, Apr 25, 2013

When I was managing an FMCG factory in Saudi Arabia one of the most frustrating challenges was the lack of factory capability understanding of Sales & Marketing colleagues and some detached Board members. People who have never worked in factories tend to have little understanding of what can and cannot be done in terms of flexibility.  Commonly however, factory guys are their own worst enemies by always striving to meet S&M requirements by overcoming significant time and equipment hurdles.

If you are experiencing unfair pressure or you simply want to be very transparent about your factory capability then a set of Manufacturing Golden Rules will come in handy. Written simply and based on hard manufacturing reality this will diffuse and divert a large number of requests and allow colleagues to focus on what is possible in the short term.

FMCG ManufacturingThe aim of a Manufacturing Golden Rules booklet is to unambiguously state in-house manufacturing capabilities and limitations. This information should be widely circulated around the business to ensure the Marketing & Sales Organisation (MSO) and the S&OP process teams all have the same information and understanding. This provides one consistent voice from the factory and is designed to avoid misconceptions and misunderstanding in MSO staff. This operates in parallel with the Service Level Agreements (SLA) which should also be in place between MSO and SourcIng Units (SU).

This is a dedicated factory and we are committed to providing the lowest cost and highest flexibility in service. If we only had one SKU this factory would be able to meet all your needs 100% of the time with very little notice. We have more than 1 SKU and therefore we need to put these rules in place so everybody knows what we can do while ensuring optimum factory operation and supply surety.

Rules

  1. We make Bloggo and Brand X in the same mixers and filling lines so they cannot be produced at the same time.
  2. Liquid production will follow a light to dark colour approach to minimise or even avoid cleaning downtime between different products.
  3. The downtime between chemically different products is 1 hour.
  4. The downtime between variants of the same chemical base is 45 minutes.
  5. The minimum production length is one complete 8 hour shift
  6. Batch size is fixed and cannot be reduced.
  7. The factory will only accept planning communication and adjustment requests from the MSO Supply Planner as an output from the MSO S&OP.
  8. The plan for the following week must be frozen 1 week in advance. Any requirement for deviation due to RM/PM availability or factory downtime will be discussed between the SU and MSO planners only.
  9. New Product Development/Change (NPD) trials require 30 working days notice.
  10. NPD and product change first production runs assume that first shift output is unfit for sale. This includes new suppliers of the same material and change in supplier and/or supplier production site.
  11. One working day each month will be allocated to plant maintenance and/or staff training.
  12. The ABC filling line produces the following quantities of SKU pieces  per shift:                                                                                                           300ml       5000 piece
    1000ml     4000 pieces
    2000ml     3000 pieces 
  13. The XYZ filling line is also capable of filling the following SKUs with due adherence to the NPD/product change procedure: 100ml, 1500ml, 3000ml, 5000ml 
This is simply an example but you need to keep the list reasonably concise or people will not read through to the end. The more unnecessary debate and misunderstanding you remove from your processes the easier it will be to delight customers and consumers as often as possible.

Image courtesy of Stuart Miles at Freedigitalphotos.net

 

 

Tags: SKU, Brewing & Beverages, FMCG, Dave Jordan, Pharma, Manufacturing Footprint, S&OP

Supporting S&OP & pre-historic factory managers

Posted by Dave Jordan on Thu, Mar 07, 2013

Back in the murky depths of time before the birth of humanity and Supply Chains, only dinosaurs roamed the Earth. Fighting and killing their way around the bubbling, steaming globe before an asteroid cut short their existence, allegedly. Sharks, crocodiles and the humble tortoise are just a few of the species that remain from that period in ancient history.

I can cope with the theory that the sharks and crocs were underwater predators, cold blooded and did not need the sunlight but what about Tommy the tortoise? Hardly the most threatening of creatures. Anyway, there is actually one dinosaur which still roams the planet in surprisingly high numbers. You would not recognise them as dinosaurs as millions of years of development and change have passed but nevertheless they walk amongst us.

S&OP in FactoriesMany of the species have adapted to continuous change but others remain uncompromising, aggressive and lonely figures. No hunting in packs for this beast that avoided fossilisation and subsequent digging up with a small spoon and a paint brush by a man in a brown nylon kagool on day-time TV. I refer to the breed of autocratic and dictatorial Factory General Manager (FGM) – with emphasis on the “General”. I have reported a sighting only this week from within an FMCG/Brewing/Pharmaceutical business.

Nothing happens in their domain without the decision and direction coming from the FGM. All activities are focused on making the factory the slickest, cheapest and most efficient source for their product range. TPM, Lean, TQM and other initiatives are designed to continuously improve the factory operation and in many ways, rightly so.

What is wrong with this? Sounds like a standard approach? This is certainly what an FGM should be doing but the key element missing is internal customer service. All decisions are internally driven and not in support of the Marketing & Sales (MSO) activity. The MSO diligently develops a monthly forecast and a 6 month+ forward plan within S&OP but all that effort is then wasted as the factory does what it believes is right for the manufacturing operation.

If your company fails to attract and delight consumers then having a Rolls-Royce factory becomes irrelevant. And if volume drops substantially you could find yourself with a redundant FGM in a redundant factory.

The challenge and appropriate behaviour is to accept the plan as the best indication of what will happen in the market and then align the factory operation behind this. No, of course the MSO forecast will be wrong as it is really just and educated guess but by responding to the market demand rather than factory efficiency the company will have the best chance of in-market success.

Factories that continue to operate with a narrow minded, internally focused approach will soon end up alongside the dinosaurs.

Image courtesy of Popover/ FreeDigitalPhotos.net

Tags: Brewing & Beverages, FMCG, Dave Jordan, Performance Improvement, Manufacturing Footprint, Supply Chain, S&OP

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

5 Reasons to Improve FMCG Factory Performance in Recession

Posted by Dave Jordan on Thu, Oct 11, 2012

There remains so much discussion and debate around planning, S&OP and APO etc that the “make” element of Supply Chain has not had much air time. Regional and global strategies are reasonably well represented but it is what is actually going on inside factories that concerns me. The signals coming into factories ought to be much improved when you consider the time and money being spent on improving the demand input.

Factory performance and reliability in recessionPerhaps all factories are now at a peak of fitness and slickness and no further attention is necessary. I don’t think so.

Unless your factory is one of the lucky few who have benefitted from the closure of others and consolidation of volume your output may well be flat or dropping. The recession continues and producers are generally hanging on to over capacity for when the economy picks up – whenever that might be! Certainly, if you have made a heavy capital investment you will not be popular in suggesting a closure, write off or write down before any payback has materialised.

Factories can get lazy in low volume periods as the pressure is relatively low. There is enough time to cope with breakdowns, cleaning and variant changeovers and if the market is being supplied what is the problem?

  1. Efficiency improvements you have sweated over will be lost. Line operators will no longer be trying to push equipment capability to or even beyond name plate capacity.
  2. Initiatives such as disciplined TPM will suffer as the pressure is off and perhaps factory management is not so closely involved.
  3. Operators will be influencing downtime to maintain shift patters and payments – this will happen.
  4. Raw materials in and finished goods out processes become slack as the source and deliver colleagues share the malady. “I’ll move that finished goods pallet tomorrow.”
  5. When the market perks up again your factory will not be fit to ramp up and ably support increased demand.

You have to keep the pressure up.  Many FMCG  factories that have been advised of closure usually perform extremely well to the end; almost in defiance.

Athletes who do not train for a while lose their edge. Politicians become more honest during parliamentary recesses. Premier league footballers forget how to dive in the penalty area during the close season. The status quo is disrupted and it takes time to recover.

Adjust working patterns, work flexible shifts, refresh training but do anything to ensure you maintain pressure on performance and KPI targets – keep factory teams on their toes. If you keep your factory operating in top condition you will be ready for the keenly awaited boom.

No, I have no idea when that will be either!

Tags: FMCG, Dave Jordan, Performance Improvement, Manufacturing Footprint, Supply Chain

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