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Part 1: The supply chain as an enabler of profit and growth

supply chain

Executive Summary
Research company Gartner releases an annual report entitled “The Gartner Supply Chain Top 25”. This report, based on equal weightings of public financials and peer opinion, not only ranks top 25 global supply chain giants, but offers insights into what some of these leading supply chain companies are doing that makes their supply chains so competitive.

Though this report is not without its quirks — it excludes certain industries such as mining, aviation, logistics, etc., and only reports on publicly listed companies — we still believe that it offers excellent insights into what some of the best global supply chain giants are doing differently.

In this two-part article, we’ve selected some of these companies to discuss what they’re doing in their supply chains to enable growth and/or increase profits. Whether they play in your industry or not, these organizations are choosing innovative solutions that offer lessons that transcend industry boundaries.

 

Introduction
The leading supply chain companies discussed below, many of which are pace- and trend-setters in supply chain excellence, offer lessons that span industry boundaries. The recent global economic downturn has led to an exciting and introspective time for global organizations: they’re all coming to the realization that the supply chain organization should no longer be seen merely as an opportunity to cut costs or push for efficiency gains. As Gartner’s Top 25 Report says, “It [the supply chain organization] sees itself — and is seen by its CEO — as a growth enabler.” 1

Amazon (Gartner Ranking: #3)supply chain
Don Wirth, VP of Global Operations, Corporate Supply Chains at DuPont, began his presentation at a TRACC Summit discussing the wonders of Amazon’s supply chain. Says Don, “… Amazon is changing the world. I’m an Amazon prime member, and as such they deliver to me in two days. I get 95%+ performance from them on their two-day delivery … Everyone in the world is going to expect that [level of service], and if we don’t have a way to do that, it’s going to be tough.”

Amazon’s focus is customer experience. Their supply chain enables fast shipping — in some instances even same-day delivery, and across certain lines even offers free shipping and returns through their supplier network. How are they doing this? Amazon is investing in distribution centres and warehousing technology. The Gartner report also hints at Amazon’s plans for penetration into new markets, differentiating its service offering into digital product offerings, such as streaming video.

Unilever (Gartner Ranking: #4)
Despite reporting slow growth in emerging markets and developed markets being flat to down, Unilever is still seeing profitable growth. In fact, this is the second year running that this organization ranks in Gartner’s Top 10, surpassing competitors Procter & Gamble and Colgate-Palmolive. Last year, Unilever said of their inclusion in the top 10: “Unilever’s recognition in the Gartner ranking reflects the strategic role of its supply chain in achieving the organization’s ambition to double the size of its business whilst reducing its environmental impact. During the past three years, Unilever’s supply chain has been instrumental in enabling top line growth, enhancing the quality of its products whilst driving significant savings and trade working capital excellence. By partnering with its suppliers, Unilever has achieved important milestones at the core of the Unilever Sustainable Living Plan.”  Pier Luigi Sigismondi, Chief Supply Chain Officer, said: “… Our supply chain represents the backbone of Unilever’s success and it is making the difference to our business thanks to our unique blend of global scale and local agility, combined with our focus on speed in execution. We have created a talent powerhouse that has secured us a podium finish among FMCG companies.”

How are they achieving this? Unilever’s mature supply chain is the vehicle for implementing an array of best practices that are putting them at the top, including, amongst others, a center-led supplier management program. Closer supplier relationships is a prominent trend in these leading supply chain firms, as tighter supplier management opens up further opportunities for savings, efficiencies, innovation and growth, and offers improved visibility across the end-to-end supply chain.

The Coca-Cola Company (Gartner Ranking: #9)
Coca-Cola has, for the last three years, been executing activities towards its 2020 vision — a long-term strategy that seeks to improve the organization across multiple facets including profit, people, portfolio, partners, planet and productivity. Muhtar Kent, Chairman of the Board of Directors and CEO, said in his annual review, “We also launched a productivity and reinvestment programme to create US$550 million to US$650 million in annual savings by 2015. By freeing up resources via supply chain optimization, improved marketing effectiveness, operational excellence and systems standardization, we can invest more in innovation, marketing and additional ‘Feet on the street’ to drive our growth.” 2

Under Profit, the organization intends to “more than double system revenue while increasing system margins” by maximizing company and bottler long-term cash flow. It intends doing this by boosting system investment in sales and market execution, operating the lowest cost manufacturing and logistics in every market, while maintaining their quality standards, and using their size and expertise to create economies of scale. These tactics have hit the nail on the head — in the last financial year the organization increased volume by 4%, generated net operating revenues of more than US$48 billion and operating income of nearly US$11 billion.

As part of the People element of their 2020 vision of being a great place to work at, Gartner reports that “[Coca-Cola] is investing to expand the leadership capabilities of its supply chain talent base, partnering with universities to develop specialized programs in everything from network design to negotiating skills.” Clearly Coca-Cola recognizes that competent people are better equipped to execute the organization’s goals. Further, the company was ranked number four on FORTUNE’s Most Admired Companies list, and in early 2013 was named one of the world’s most innovative companies by Fast Company.

Under Productivity, the organization seeks to minimize complexity by standardizing and simplifying business processes, data and IT systems. Resources are being redirected to drive profitable growth, a continuous improvement and cost management culture is being built across the business, and they intend to minimise their energy use. By the end of 2012, when in that year the Coca-Cola system replenished 52% of the water used in making their finished beverages, the organization was then halfway towards their goal of reaching water neutrality by 2020.

Colgate-Palmolive (Gartner Ranking: #10)
This company’s focus on efficiency gains and taking unnecessary costs out of the supply chain is certainly paying off. Commenting on their 2012 financial results, Ian Cook, Chairman, President and CEO said, “Net sales grew 2.0% to an all-time record level, and global unit volume from continuing businesses grew 3.5%, led by strong growth in emerging markets. We achieved our profit goals, with diluted earnings per share increasing 7%, despite an intense competitive environment, volatile foreign currency exchange and challenging macroeconomic conditions worldwide. All of the Company’s fundamentals are strong and getting stronger. Gross profit margin, operating profit margin and net income as a percentage of sales all increased versus a year ago.”

So how is this consumer goods company managing to deliver such strong performance in the face of challenging macroeconomic conditions? One of their efficiency wins can be attributed to Commercial hubbing which, Colgate-Palmolive report, “drives smarter and faster decision-making by strengthening the resources available to the smaller operations in the region. This allows the local operations to focus more on building market share, professional recommendations and retailer engagement to drive growth. Hubbing also improves cost structure by reducing redundancies.”

Furthermore, the organization is focusing on simplifying and standardizing how work gets done. In Europe for example, their “financial shared service centre in Warsaw, Poland, has significantly reduced structural costs for the region by first lifting and shifting transactional work to a central location, then standardizing those processes. We have also seen an increase in the speed and value of services provided to subsidiaries.” 3
supply chain

In Closing
On the whole, trends that are delivering the most returns are “finding new synergies across best practices, partnering more productively for growth, and inspiring the hearts and minds of their supply chain talent in new ways.”1 When it comes to using your supply chain to enable growth, there are many ways to succeed. These leading organizations are taking their supply chains to new strategic heights through creativity and innovation.

Reference list
1
The Gartner Supply Chain Top 25 for 2013
2 Coca-Cola Annual Review: Letter to Shareowners
3 Colgate-Palmolive Message from the CEO

Note: Read Part Two of this article to find out what Starbucks, PepsiCo, Nestlé, and DuPont are doing differently in their supply chains.

Disclaimer
This resource has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained herein without obtaining specific professional advice. Competitive Capabilities International (CCi) does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this resource or for any decision based on it.

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