EY - Unlocking value with an effective operating model

Unlocking value with the operating model

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  • Nine questions
  • Three steps to transformation
  • Industry perspectives

Nine questions

Nine questions

Existing operating models are no longer effective for today’s market environment. To sustain profitable growth, companies need to meet changing consumer demands and reconfigure their operating models. Companies must take a holistic approach that takes into account both business and regulatory issues.

  • What are the core drivers of value in the business?

    Operating models activate business strategy. Design requirements flow from an organization’s business models. Understanding each business model segment and its unique performance needs will guide how investments are made across the business (for example, capability requirements and what is shared versus distinctive).

  • How do you overcome organizational inertia and create the impetus for change?

    Reconfiguring the operating model cannot be taken lightly. It is often triggered by acquisitions and divestments. It is a major business transformation, requiring change across every aspect of the company, such as:

    • Relocation of key employees and revamp of their roles
    • Changes to existing infrastructure investments
    • Overcoming regulatory and tax hurdles
  • To what extent are you considering the tax implications of operating model changes?

    Tax opportunities and costs could result with operating model footprint changes on a cross-border basis. A company may need to close multiple plants in a high-cost location serving local customers and would then relocate the capacities to an emerging economy serving regional and local customers. The company’s tax and finance professionals will need to be included in the team that evaluates such options so that the decision can be made holistically.

  • Which activities will benefit from global or regional scale?

    There is always a tension between the need to realize the benefits of scale and the ability to capture growth opportunities at the local level. Companies need to make decisions about centralizing or decentralizing high-value activities and locating management functions operationally where it makes the most sense.

  • Do the classic geographical groupings, such as EMEA or Asia-Pacific, continue to make sense?

    EMEA or Asia-Pacific markets may be too broad geographical clusters. Companies should consider clustering markets based on the following factors –

    • Stage of development
    • Channel structures
    • National tastes and preferences

    Read more on how consumer products companies are structuring their operations in emerging Asia

  • How do you retain local agility when centralizing a function?

    The benefits of scale must be balanced with local operations to retain agility. Some larger consumer products companies have created procurement organizations with a combination of global and regional characteristics. The key question to answer is how much should be left with the local operations. This approach allows for setting effective strategies, innovating and deploying sustainable procurement practices at a local level.

  • What are the benefits of establishing procurement as a stand-alone company?

    The central procurement model is increasingly implemented as a stand-alone company serving the group companies. This provides chief procurement officers (CPOs) with greater control.

  • How do you navigate the complex and dynamic global tax environment?

    Companies are looking for greater clarity about their regulatory and compliance obligations. They need to understand the following and adjust the operating model accordingly. This includes:

    • How to navigate the various tax regimes
    • How tax regimes trickle down to different regulatory or legal requirements
  • How do you need to rethink the commercial aspects of the operating model?

    The rise of omni-channel, social media, changing consumption patterns and the shift of economic gravity to emerging markets - demand a change in commercial strategies to ensure profitable growth.

    There are six key shifts that companies need to consider:

    • Moving from supply-led innovation to demand-led innovation
    • Bringing together fragmented brand portfolios into a single, centrally managed portfolio
    • Adopting and fully integrating new channels, including e-commerce, into the supply chain
    • Replacing supply-led pricing approaches with customer-led, above-market pricing decisions
    • Establishing clear account segmentation strategies and treatment
    • Adopting a core brand management strategy rather than traditional brand product management

To read a detailed account, download a copy of our full report.



Three steps to transformation

Three steps to transformation

EY - Next steps for consumer products firms
EY - Next steps for consumer products firms
EY - Next steps for consumer products firms

For further information, download a copy of our full report.

Industry perspectives

Industry perspectives

EY - Apparel — speed and agility come to the fore

Apparel — speed and agility come to the fore

The trend toward centralization

Today, apparel companies have a trend toward greater centralization, with the main hub often located in Asia. Centralized procurement models tend to deliver the most operational benefits, enabling the creation of economies of scale. Regionally focused principal companies adapt quickly to changing consumer demands and provide rapid time to market. Read more

EY - Beverages — leveraging global scale

Beverages — leveraging global scale

Untapped potential

There are strong, global-scale dynamics at play within beverages. Products are frequently global and may only differ subtly across markets. Only a few beverage companies have, however, implemented true regional or global supply chain management. There is significant untapped potential to pool resources across countries to improve product availability, working capital and asset utilization. Read more

Effective procurement operating models

The most effective procurement operating models typically consist of: a centralized core, with regional and local variants for specific categories also mega categories, like packaging or bottles. This provides maximum control while also enabling a degree of local variance. By optimizing procurement, beverage companies have cut input costs by 3% to 12%.

Exploring the buy-sell model

CP companies are exploring buy-sell models, where the central procurement company becomes the only supplier to the group. This ensures optimal forecasting and capacity planning across the supply/demand network. For some, toll manufacturing is the next step. The manufacturing entity charges a “brewing fee” to the supply chain company but never owns the product.

Co-location with other functions

Co-location of procurement with other functions enables a more integrated approach. Procurement teams could play a bigger role in areas such as product and packaging.

For more information, contact:

EY - Joost Vreeswijk

Joost Vreeswijk
EMEIA Operating Model Effectiveness Leader, Consumer Products

+41 58 286 24 09

 
EY - Food — a new approach to market clustering

Food — a new approach to market clustering

Tailoring the supply chain to the needs of the consumer

Food companies must constantly adjust their operating models to “unlock” value from their global business operations. Many food companies have arguably become too centralized in recent years. They recognize that they need a more regionally driven model. Proximity to the consumer is key because tastes vary widely from market to market. Read more

Clustering markets by stage of development

Companies should consider clustering markets according to their stage of development.

Markets such as Japan, Australia and South Korea can be grouped together due to similar dynamics in terms of the maturity of modern trade. Another cluster could comprise Myanmar, Vietnam and Laos, where traditional trade still dominates.

This clustering approach enables companies to stay close and relevant to the market, while still realizing some scale benefits by bringing similar markets together within the same regional structure.

Taking constraints into consideration

The constraints of markets should be factored into the design of these clusters. For example, various economies in Asia-Pacific have restrictions on the cross-border movement of products, and may apply significant duties or not provide the required licenses. While this may restrict the size of clusters, it can also introduce further opportunities in choosing locations where fiscal regimes and talent differentials exists.

For more information, contact:

EY - Kimjin (KJ) Gan

Kimjin (KJ) Gan
Asia-Pacific Advisory Operating Model Effectiveness Leader, Consumer Products

+65 81448078

 

For further information, download a copy of our full report.

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