In the backdrop of the ongoing global COVID-19 coronavirus outbreaks, the Supply Chain Matters blog continues to highlight for readers where specific industry product demand and supply chain management response are making a visible difference to customer and business performance outcomes. In this commentary, we focus on response to global wide cleaning and sanitizing product demand, and specifically providers Reckitt Benckiser Group and Procter and Gamble.
In a two-part series of Supply Chain Matters blogs published in early August, we highlighted for readers how select cleaning and disinfecting product producers will responding to the unprecedented market demand for such products brought about by this ongoing pandemic.
In our Part One commentary, we highlighted Reckitt Benckiser Group, producers of Lysol branded cleaners and disinfesting products. The company’s CEO told Business Network CNBC at the time that Reckitt was producing 20 times the amount of sanitizer in July as was produced the previous year. He further cautioned that the company had not anticipated that level of bullwhip demand to stick around for a long period of time, but that demand levels would generally increase. On the supply network side, The Financial Times had reported in May that the production plant that produces disinfectant products is located in Hubei province China, the center of the original outbreak. According to the report, the factory had increased its daily capacity from 40 tons to more than 400 during the pandemic. Further reported was that hundreds if not thousands of local suppliers were impacted by virus lockdowns and shortages of lower-tiered materials. Globally the company eventually had to make provisions to house upwards of 1,000 factory workers that could not travel to and from production facilities. According to executives, while supply chain agility was demonstrated, it came as a detriment to costs and margins.
Here we are in late October and Reckitt has now reported its sharpest quarterly sales growth on record, with a year over year sales growth of 13.3 percent, driven mostly from the firm’s hygiene business unit. Reckitt declined to report on profitability performance. The company’s CEO indicated to analysts that he now believes that renewed interest in hygiene products will outlast this pandemic.
Revenues for the hygiene unit reportedly increased by 19.5 percent. The company continues to report booming demand for its products which continue to challenge the ability to keep retail or wholesale channels stocked with available product. Meanwhile, the manufacturer reinforced that global production capacity has doubled in its line of disinfecting products. Overall SKU availability has been cutback to try to satisfy global product demand for core disinfectant product needs.
Reckitt has further pivoted in launching new businesses directed at selling cleaning expertise to airlines, hotels, railroad operators and other service firms.
Procter and Gamble
In our prior Part Two commentary, we highlighted Procter and Gamble and for its fiscal year that ended on June 30, reported an overall 6 percent sales gain, the manufacturers strongest annual sales gain since 2006. CFO Jon Moeller indicated to analysts and investors at the time that on the whole, health, hygiene and cleaning needs have changed forever. The company’s Tide, Mr. Clean, Dawn, and Cascade cleaning products had posted 14 percent product gains.
In a Supply Chain Matters blog commentary published in late in April, we highlighted for readers P&G’s impressive fiscal third-quarter response to the pandemic. Company executives have attributed the company’s successful response to the challenge of the pandemic to recent years of restructuring and simplification of processes and decision-making. Selective price increases and the ability of the company’s supply chains to pivot and respond to disruption are added factors. The consumer goods giant reportedly kept all of its U.S. manufacturing facilities operating at the height of the pandemic across the U.S. and many were able to operate at 90 percent capacity even as staffing levels were halved.
P&G has long been recognized and admired in supply chain management circles, especially for its relentless customer fulfillment perspective that focuses planning outside-in, from the customer retailer’s fulfillment facility and back among supply network, production and distribution capabilities. Five years ago senior management recognized a need for improving efficiency and lower costs for its North America based production, supply chain and distribution footprint. A transformation initiative was undertaken with a goal to reduce a cumulative $10 billion in cost savings over five years, where various products would be produced in fewer, but larger manufacturing and distribution facilities. For this consumer goods icon, the outside-in tenet that customer order arrival dictates supply chain response remained fundamental as contrasted to localized optimization of production and other supply and demand network elements.
Last week, P&G reported what was headlined as the company’s biggest quarterly sales increase in 15 years as consumers and businesses continued to be concerned with cleaning and disinfecting needs during the pandemic. Organic sales growth reportedly grew 9 percent on a year-over-year basis. While sales levels increased in each of the company’s business units, the fabric and home care product areas led in that increase.
Beyond Tide and other branded laundry detergent the consumer goods producer benefitted from the strongest growth in unit sales of Swiffer branded mops and Dawn dish detergent. Sales of branded toilet paper and paper towels also increased in midst of continued constrained supply challenges. The antibacterial surface cleaner Microban 24, introduced in February, reportedly is on track to reach $200 million in annual sales.
Company CFO Jon Moeller now indicates that he does not see any reason why the company should not be able to sustain its growth momentum, including fabric and home care businesses. The company’s guidance for fiscal 2021 now reflects revenue growth of 4 to 5 percent, an increase from the prior forecast of 2 to 4 percent growth.
Despite his overall optimism, Moeller indicated that P&G is not immune to looming challenges and that the biggest risks or upside opportunities lie in supply network constraints.
Our goal is these ongoing profiles is to provide evidence of how various supply chains have been able to respond as well as pivot to the unprecedented challenges brought forward by this pandemic. In the specific case of cleaning and disinfecting products, the challenge remains extraordinary added product demand, levels that before the pandemic could not have been foreseen or planned for. The other obvious challenge was having to plan for unprecedented increases in supply levels when raw materials are constrained, workers requiring added safety measures, and supply chain management support workers mostly working from personal residences. Reliance on added digital tools was not an option.
Finally there are the opportunities that come from exploding consumer demand, and the ability for teams to further demonstrate the agility needed to plan for and execute new product deployments.
These provide definitive examples of where Supply Chains Do Matter in business outcomes.
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