Most consumer-packaged-goods (CPG) companies know that a thoughtfully designed, high-functioning supply chain plays a crucial role in overcoming today’s business challenges. It can, for example, drive innovation and reduce time to market—critical capabilities in light of slowed growth in developed countries. It enables shorter lead times and better customer service, helping CPG companies cope with a fiercely competitive retail landscape and heightened retailer expectations. And a well-run supply chain yields significant savings, which can then be reinvested in growth initiatives.
But as companies expand globally, designing a supply-chain operating model—which encompasses the supply chain’s organizational structure, governance, and processes—becomes an increasingly complex undertaking. It requires finding the best answers to tricky questions such as, “Should my supply chain be organized primarily by product categories, functions, or regions?” and “To what degree should each function be centralized?” Companies tend to make their decisions based on gut feeling, resort to trial and error, or simply mimic the operating models of more successful competitors. The result, too frequently, is an arbitrary operating model that fails to deliver on the company’s strategic goals.
Drawing on our experience working with leading CPG companies worldwide, we have developed a methodology that takes the guesswork out of the design process and helps companies implement a supply-chain operating model aligned with their aspirations. Our methodology begins with a definition of the strategic vision. In our experience, only after a company has articulated its specific ambitions can it intelligently move on to the next steps: agreeing on operating principles, undertaking a detailed design of the supply-chain operating model, and implementing the new operating model as part of a broader supply-chain transformation.
Such an initiative can have tremendous impact. We’ve seen companies reduce materials costs by 5 percent, manufacturing and logistics costs by 10 percent, and inventory by as much as 30 percent, while improving service levels and shortening time to market.