Note: The following posting can also be viewed and commented upon within the Kinaxis Supply Chain Expert Community web site.
Last week, the Consumer Analyst Group of New York (CAGNY), an association of Wall Street related analysts who follow consumer packaged goods companies (CPG), held their annual winter conference in Florida. The conference features a who’s who of global consumer product companies who make presentations to this audience in an effort to increase investor confidence in these companies. In fact, last week, Supply Chain Matters published specific commentary related to Kraft Foods, which was a presenter at the CAGNY conference.
I took the opportunity to scan some of the CPG presentations in an effort to ascertain both the impact as well as the future objectives of supply chain organizations within this industry. Thus far, I’ve reviewed presentations from Colgate Palmolive, Con Agra Foods, General Mills, Hershey Foods, HJ Heinz, The Kellogg Company and Procter and Gamble. While it’s somewhat of an unscientific sampling of some of the major players and industry influencers, I believe it can be a specific indicator of upcoming supply chain challenges for this industry.
If I were to summarize common business themes among each of these companies, they clearly focused on maintaining top-line sales and profitability growth from an unprecedented and challenging 18 months of economic recession. Almost all of these companies noted that they have targeted enormous opportunities for future growth from the emerging consumer markets in the developing regions, most notably the BRIC countries (Brazil, Russia, India, China). A lot of current and planned future product innovation stems from these regions.
Because of market challenges, the looking glass for required cost reduction rested squarely on the supply chain. Many of the presentations positively touched upon the specific cost and productivity contributions driven among supply and value-chains. Many cited specific programs and results attributed to cross-functional supply chain teams.
That’s the good news. The not so good news is that more seems to be required.
To provide a sampling:
- Con Agra Foods is projecting $375M in cost savings in each of the next three years
- HJ Heinz is targeting better than $1B in incremental global supply chain cost savings over the next five years
- Kellogg has instituted a three year $1B plus challenge
Other commonly mentioned initiatives included:
- SKU and product rationalization
- Reduction of waste and increased productivity programs, including consolidation of manufacturing and distribution
- Reduction in cash conversion cycles
- More leveraged procurement sourcing
- SAP ERP optimization, broader deployments/adoption
Surprisingly, only one company, HJ Heinz specifically cited an enterprise risk management initiative. That really surprises me considering both the rapidly increasing occurrences of product contamination, along with more extension of supply chains to the developing regions. In fact, some of these same CPG companies, Kellogg specifically, experienced a recent incident with its Eggo product line.
There has been much commentary around the blogsphere as to whether continuous cost cutting has taken a toll on cross-functional supply chain organizations and people. Over on Supply Chain Digest, Dan Gilmore notes that supply chain managers are simply worn down and dispirited with constant pressures for cost reduction along with high hurdle rates for any new productivity or systems investments.
It seems to me that if this sampling of the CPG industry is referenced as an indicator, there are far more challenges yet to come.
Something obviously has to give. Supply chain managers need to be upping their executive level communications and game plans, since constant cost cutting without some offset investments in productivity and faster decision-making can be a prescription for both lower morale and lower organizational energy.
How do others feel? Is your industry and organization being affected by these same forces?
What proactive strategies have you exercised to manage such trends?
Disclosure: Kinaxis is one of other paid sponsors of the Supply Chain Matters blog, and a client of The Ferrari Consulting and Research Group LLC.