Although advanced planning software can help companies improve supply chain management, companies must also develop local skilled personnel.
As consumer product companies move into emerging markets, they need to balance efficiency with market responsiveness as never before.
Cost reduction efforts are becoming more sophisticated
Companies help lower supply chain costs by centralizing and growing more sophisticated.
Remember that total delivered cost includes:
- Costs of goods sold
- Inventory holding costs
- Cost to serve
All of these costs increase when companies respond to consumer requests, such as a request to customize packaging.
Now that there is a greater understanding of the real costs involved with SKU (stock keeping unit) proliferation, companies are increasingly able to make fact-based financial decisions on new products and promotions.
Some companies are responding by cutting the number of brands in their portfolio. Other companies implemented multi-country label packs to pool inventory across countries.
We believe companies can do more.
Where can you start?
Use inventory optimization tools and more sophisticated sales and operations planning. This will further reduce inventory levels while maintaining customer needs.
Tailoring the approach for developing markets
The focus of supply chain management differs in established and emerging markets.
- Established markets: Companies focus on driving out costs and reducing the fixed asset base.
- Emerging markets: Companies focus on flexibility to respond rapidly to unpredictable demand.
Although advanced planning software can help companies improve supply chain management, companies must also develop local skilled personnel. This is essential to improve forecasting and planning.
Companies must also take into account the need to produce different variants of existing branded products—single servings rather than packs, for example—as well as the need to tailor manufacturing to the shortcomings of the local infrastructure.
Additionally, in a large emerging market such as China, companies will often deal with an extensive number of distributors, particularly when serving markets outside the first tier cities.
This impacts their ability to reduce inventory while remaining flexible to shifts in demand.
While the specific challenges of optimizing the supply chain in emerging markets differ from the developed world, the underlying message is consistent across all markets: supply chains will continue to leak value until companies take a more holistic and data-driven approach to balancing efficiency and responsiveness.
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