Attention consumer products companies: how efficient is your supply chain performance?
Consumer spending has slowed and recession-related shopping behaviors are becoming more widespread. How can your company prepare for what lies ahead and/or even capitalize on today’s environment? Management must seize every opportunity to drive value, optimize cash and reduce costs. By improving supply chain performance, your company can begin its journey to accomplishing all three.
We know this because we researched the largest 32 consumer product companies with a global footprint in the S&P 1200 and discovered that, on average, 55% to 70% of companies’ costs and 45% to 60% of companies’ working capital was tied up in the supply chain. Consequently, these companies combined could have generated $6bn more in EBITDA had they sustained their performance over the last 3 years.
Despite companies’ efforts to improve supply chain performance, their initiatives are not succeeding. Our analysis of two key measures of success — the cost of goods sold (COGS)1 and the level of inventory held (DIO)2 for the period 2006 to 2008 indicates performance has in fact deteriorated.
To ensure your supply chains really deliver, we suggest companies ask themselves the following:
„ Do you know the total delivered cost to your customers?
„ How effective are your make vs. buy decisions for new products?
„ How tax effective is your supply chain operating model?
„ Do you have visibility to act on the total landed costs from your suppliers – material, freight, taxes, duties, agent fees, etc?
„ Do you design new products based on desired market price and margin expectations?
„ Does your inventory strategy account for differentiated service levels for various customer segments?
„ Is your forecasting and demand-planning efforts really improving customer service and reducing inventory?
„ Are you systematically eliminating root causes for inventory under-performance, and incentivizing the right personnel for this change?
„ Are you benefiting from volume economies by pooling capacities with industry peers (for example, leveraging the available capacity of your logistics provider)?
„ Do you track the cost impact of trade terms to the business while serving the customer? These might encompass a range of costs, including: debtor management, dispute resolution, penalties recovery and receivables outstanding.
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