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Global consumer products companies have a US$6b supply chain opportunity
Growth in sales revenues outpaced by rising costs
LONDON, 11 SEPTEMBER 2009 – Rising supply chain costs have resulted in global consumer products (CP) companies losing up to US$6b in the last three years, according to a new report released today by Ernst & Young.
Making your supply chain perform, an analysis of the 32 largest global consumer products companies in the S&P 1200, reveals that a tendency to focus on single performance measures – such as the cost of goods sold or the number of days’ stock tied up in operations – has cancelled out the great improvements in performance made elsewhere – for example in cutting general, sales and administrative expenses.
Andrew Caveney, EMEIA supply chain transformation leader at Ernst & Young, says: “The supply chain arguably represents one of the greatest opportunities to drive value, optimize cash and reduce costs. Results indicate that CP companies are pursuing a single-measure approach instead of focusing on true end-to-end management of the supply chain. Improving these aspects of the supply chain management is business-critical in driving CP companies’ competitiveness.”
Two-thirds of companies have a below par supply chain performance
Both cost of goods sold (COGS) and days’ inventory outstanding (DIO) are key measures of supply chain performance. Only 20% of the 32 analyzed companies performed better than average on both measures. By contrast, over two-thirds (68%) performed below average on one of these measures, while the remaining 12% were weak on both measures.
High degree of sector variation
There is a high degree of variation between consumer product sub-sectors. Household and personal care came top on both COGS and DIO measures. Brewers, food and beverage companies performed better on inventory, whereas winemakers and distilleries performed better on cost of goods sold. The tobacco sector came last on both measures.
The report indicates that the 32 companies in the sample could gain an additional US$1b by reducing inventory by one day, US$7b by making a 1% reduction in the cost of goods sold and US$2b by reducing cost to serve (the customers) by 1%.
Caveney adds, “As we start to move out of the recession, locking in those kinds of savings will provide companies with a welcome boost to the bottom line. Since on average, 55-70% of companies’ costs and 45-60% of companies’ working capital is tied up in the supply chain, the size of the prize for consumer products companies that do manage to drive sustained supply chain performance improvement has never been greater.”
Changing the supply chain culture
Other factors influencing the overall performance of CP companies, according to the report, include changing the supply chain culture to deliver a better level of customer services.
Caveney explains, “Leading companies are empowering their employees to take more end-to-end responsibilities that improve customer services. In doing so, they are looking to overcome existing barriers between the traditional supply chain and the commercial organization to align all functions internally.”
About the report
The report analyzed the 2006-2008 published information from the S&P 1200’s 32 largest consumer products companies with a global footprint. Industry sub-categories analyzed include food and beverage, wine and spirits, household and personal care, consumer durables and tobacco. Luxury goods companies were excluded.
Data was taken from a variety of sources, including resource database One Source, company annual reports, Thomson Financialy (Thomson-Reuters), and SEC 8-K and 10-K filings.
About the Global Consumer Products Center
Whether it’s squeezed margins, brand erosion, business complexity or new regulatory requirements, today’s consumer products companies must think differently in order to prosper. Ernst & Young’s Global Consumer Products Center brings together a worldwide team of professionals to help you achieve your potential — a team with deep technical experience in providing assurance, tax, transaction and advisory services. The Center works to anticipate market trends, identify the implications and develop points of view on relevant industry issues. Ultimately it enables us to help you meet your goals and compete more effectively. It’s how Ernst & Young makes a difference.
About Ernst & Young
Ernst & Young is a global leader in assurance, tax and legal, transaction and advisory services. Worldwide, our 135,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve their potential.
Ernst & Young expands its services and resources in accordance with clients’ needs throughout the CIS. 3,700 professionals work at 16 offices throughout the CIS in Moscow, St. Petersburg, Novosibirsk, Ekaterinburg, Togliatti, Yuzhno-Sakhalinsk, Almaty, Astana, Atyrau, Baku, Kyiv, Donetsk, Tashkent, Tbilisi, Yerevan and Minsk.
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