In our Supply Chain Matters 2014 Predictions Research Report (full research report available for complimentary downloading in our Research Center) we specifically addressed consumer product goods supply chains where combinations of external forces are providing unique challenges. These forces include, among others, contraction of global growth rates and margins from previously expanding emerging markets, a certain group of activist investors demanding more cash value, and now, increases in key commodity costs.
While we have already provided a previous specific CPG supply chain commentary, an event held last week provided stronger evidence for additional thoughts.
One of the premiere events for consumer product goods companies is the Consumer Analyst Group of New York (CAGNY) Annual Conference, traditionally held in February. For those unfamiliar with CAGNY, it represents an organization of Wall Street analysts, investment bankers and others whose focus is specifically on CPG industry investment and performance. The conference which was held last week, is where a number of CPG senior executives provide a detailed business overview of their companies’ strategic goals.
Since 2008, Supply Chain Matters has utilized the content presented at this conference as reliable indicators for the upcoming challenges for CPG supply chains, and this year was no exception.
Thus far, we have reviewed presentations from Campbell Soup, Mondelez International, The Hershey Company and PepsiCo. We elected this initial grouping because these firms are exercising product growth strategies predicated on higher growth and margin businesses such as snacks, and because this grouping represents differences of corporate size, culture, as well as different perspectives, positive or otherwise, on supply chain challenges, capabilities or accomplishments.
Our initial analysis was to screen for common messaging regarding industry challenges and required business outcomes. That was not difficult, at all.
Mondelez, which has its sole business focus on a global snacks business, addressed the potential of a $1.2 trillion global snacks market, yet has experienced some realities of declining growth rates among snack categories in 2013. Hershey, a company that traditionally has been grounded in North American markets addressed a growth plank indicating that geographic expansion will be the key to growth and become Hershey’s #2 market by 2017. Campbell Soup, a company demonstrating positive results of late, stated its goals as growing faster in snacks and healthy beverages and expanding international presence.
As each CFO addressed his or her company’s segment it was clear that current signs of slowing growth among emerging markets has placed a pointed emphasis on improved operating margin and cost savings. Once more, such savings are to be re-purposed into product innovation, acquisition and/or increased sales and marketing initiatives to accelerate consumer demand. A clear common message was increasing stockholder value and operating cash flow, the obvious response to activist investors circling the industry. As examples: Mondelez expects to deliver an additional $3 billion in gross productivity savings, $1.5 billion in net productivity, and $1 billion in incremental cash; Campbell Soup stated its restructuring programs have yielded $160 million in annualized savings.
That leads to the stated priorities for each company’s supply chain.
Mondelez addressed four current supply chain priorities:
- Step change in leadership talent and capabilities, articulated as changing 40 of 115 key leadership roles;
- Transform global manufacturing platforms with an emphasis on new biscuit, chocolate and gum platforms across a global presence;
- Redesign the supply chain network- with 30 plants already “streamlined”, closed or sold and 3000 FTE’s reduced; and
- Drive additional productivity and margin improvement programs to fuel growth.
Hershey, which has demonstrated positive supply chain successes to-date, addressed its supply chain goals as:
- End-to-end supplier integration focused on increased on-shelf availability, improved freshness, and localized regional production;
- Strategic procurement partnerships for product innovation, sustainability and cost control;
- Insights-driven supply and value-chain stressing deeper analytics; and
- Global shared-services
Campbell Soup and Pepsico similarly articulate expansion of on-shelf availability, innovative direct-store delivery programs, leveraging direct online commerce and expansion in faster growing markets as supply chain priorities.
We highlight CPG industry challenges because our industry readers need to quickly internalize the implications, both for their organizations and for their careers.
CPG supply chains have always been driven by sales and marketing, along with efficiency and responsiveness. That is not, obviously, going to change. What is changing is the need for bolder leadership skills which is now articulated by talent management being ranked as a top goal. There are many implications to talent management, too many to articulate in this singular commentary. Suffice to state, it implies a far broader set of management skills that span international business markets, translating required business outcomes for margin improvement into prioritized strategies, and in-depth understanding of what is required to be both market and business outcomes driven.
Emerging CPG supply chain leaders will require more depth in the tradeoffs of incremental business process improvement with cost-conscious information technology investments that enable the best end-to-end network response capabilities grounded in more predictive insights as to what to expect. They will now have to manage with less fixed capital and resources, with no choice but to have more reliance on partners and suppliers, including third-party logistics providers. That unfortunately, will lead to the dynamic of passing more cost and risk burden lower into the supply chain. We maintain that this will require total visibility to what’s occurring across the global supply chain, and that implies an end-to-end B2B platform integrating suppliers, contractors, trading partners and other key value-chain participants.
The notions of striving for product forecasting accuracy, driving incremental improvements in business performance based on historic metrics, or elongating timetables for achieving certain levels of supply chain maturity no longer make the cut, and are a relic of the past.
We, as thought leaders and/or consultants, need to stop feeding these fallacies and deliver more straight talk on what skills and competencies supply chain leaders, and their teams, need to be more successful in their efforts, keep teams motivated as well as enjoy coming to work every day. Technology vendors need to stop the endless re-purposing of supply chain visibility or competency acronyms and get to the essence of supporting CPG supply chains with more cost-effective and responsive solutions to immediate needs.
Finally, CPG firms themselves in need to quickly come to the realization that the supply chain leaders and individuals they require, today and in the future are indeed scarce, and be willing to recognize such leadership and technology savvy skills in compensation, incentives and management development and mentoring opportunities.
Throughout 2014, Supply Chain Matters will do our part in hard-hitting straight-talk commentary.
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