Why bigger can mean better with supply chains

Over the past 15 years, many consumer products companies moved to regional supply chain operating models to drive efficiencies. More recently, a new trend has begun to emerge: moving away from the traditional regional model to a “global-local” operating model.

This new model aims to create further efficiencies through increased standardization of processes and economies of scale while also preserving agility and responsiveness in local markets.

In 2014, a leading consumer products company, which had already achieved significant advantages by forming regional supply chains, wanted to create further synergies by merging two supply chain hubs: one serving Western Europe and the other Eastern Europe, the Middle East and Africa. It wanted to know: How can we get beyond effective and become more efficient?

At stake was the company’s ability to remain competitive in a rapidly changing world, because those businesses that remain complacent soon find themselves falling behind. So it turned to EY for support in designing and implementing the new operating model, which was seen as a springboard to developing a global supply chain organization in the near future.

We began by helping our client’s team members widen their perspective by introducing them to industry peers with “best in class” supply chains. Having identified role models outside the business, we turned our attention inward, analyzing the processes of the two existing regional centers to make sure the best features of each were incorporated in the merged organization.

The project not only created a streamlined mega-region but also integrated the primary and secondary supply chains, from source of supply to end customer. Under the previous structure, the secondary supply chain had been managed separately.

This holistic approach, along with our strong relationship with the client, sparked two further projects: a review of the logistics network to pinpoint specific initiatives, and the development of a new supply chain planning approach.

The merging of the regional centers delivered cost savings of approximately £20m and enabled other benefits, including working capital and inventory reduction. The logistics overhaul identified specific initiatives to provide savings of £30m. And the improved planning process meant inventory reductions of up to 20% and raw material cost savings of up to 3% could be achieved. 

The success of the new mega-region paves the way for the company to move to a true global model — an even more fundamental transformation that will drive efficiency while boosting effectiveness more.

That efficiency will free up capital to potentially fuel other ambitions for the company or to add or preserve jobs. And consumers stand to benefit from a smoother flow of the goods they rely on.