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Through Collaboration
A case study in improving collaboration between a retailer and its CPG suppliers
S
uccess in today’s hotly competitive business environment requires
consumer-packaged-goods (CPG) companies to perform increas-
ingly complex tasks — from coordinating global supply chains,
and organizing myriad new-product introductions to scuttling obsolete
products and managing electronic catalogs. Such tasks have made it
challenging to maintain fill-rate levels above 90 percent — and particu-
larly to rely on old fill-rate strategies. Keeping shelves stocked with
products requires total collaboration between retailer and CPG, not only
along the supply chain but also in commercial areas.
Figure 2
17 fill-rate improvement areas were identified across the supply chain
Suppliers Retailer
Sales Purchasing
Purchasing Manufacturing Distribution
Customer service Replenishment
1. Eliminate 3. Boost manu- 4. Reduce number of rejected 9. Strengthen product catalog management
delays facturing products (damaged or exchanged) (upload, discharges and changes)
in finished capacity for 5. Lessen loss of perishable 10. Streamline order management process
product high-demand products
imports products 11. Reduce delays in commercial agreements to
6. Raise fill rates at remote discharge products
2. Improve distribution centers
material 12. Decrease delays in price updates because
procurement 7. Reinforce demand forecasts by of complex negotiations
planning reducing gaps between physical 13. Eliminate demand distortion due to salesforce
and theoretical inventory incentives to hit monthly targets
8. Increase transportation 14. Minimize changes in agreed-on promotion terms
reliability
Demand planning
15. Strengthen demand planning (such as forecast, detail level and collaboration)
16. Improve demand forecasts for new products
17. Bolster suppliers’ response to unexpected increases in demand Source: A.T. Kearney analysis
Figure 3
Fill-rate opportunity areas fall into three main categories
Commercial-
logistics processes 1.3
Figure 4
Improvements in retailer-supplier interaction areas could result in 3.2 million cases delivered
1.3
Decrease Bolster suppli- Streamline Reduce delays Eliminate Minimize Strengthen Total
delays in ers’ ability to order in commercial demand changes in demand
price updates respond to management agreements to distortion due agreed-on planning
because of unexpected process discharge to salesforce promotion
complex increases products incentives to terms
negotiations in demand hit monthly
targets
Sources: Retailer database download, October 2009, databases of three suppliers; A.T. Kearney analysis
Figure 5
Improvements in supplier-driven areas could represent 600,000 previously undelivered cases
0.10
0.10
0.13
Boost Reduce the Eliminate Lessen loss Improve Raise fill Improve Increase Total
manufacturing number of delays in of perishable demand rates at material transpor-
capacity for rejected finished products forecasting remote procurement tation
high-demand products product for new distribution reliability
products (damaged or imports products centers
exchanged)
Sources: Retailer database download, October 2009, databases of three suppliers; A.T. Kearney analysis
Information about demand changes can only obsolete products or receiving the wrong products
be put to optimal use if it is shared early with from suppliers. The impact is even greater if pro-
CPG companies. cesses are not automated or do not utilize the
Retailer-driven. Retailer-related opportuni- latest industry standardized platforms. Such inef-
ties account for 200,000 undelivered cases (see ficiencies can cause supply-chain problems that
figure 6). Only one significant issue was identified result in out-of-stocks and lost sales.
in this category: product-catalog management.
With a cadre of new-product introductions, pro- Focus on Three Areas
motions, renewals, product terminations and Of the issues identified, three were selected
others, keeping the product catalog up-to-date for further investigation: poor collaboration in
is a daunting task for most retailers. Problems in the demand-planning process, suppliers’ poor
catalog management can easily lead to ordering response to unexpected demand surges, and
delays in commercial agreements to discharge
products. These issues had a significant impact:
Figure 6 They were relevant to all three participant sup-
Improvements in retailer-driven areas could pliers and to many other suppliers in the CPG
result in 200,000 delivered cases sector. The following offers brief descriptions of
the challenges in all three areas and the solutions
developed.
Millions of cases
0.0003 0.2 1. Poor collaborative demand planning.
There are two components to an efficient and
collaborative demand-planning process: open
0.2
and timely communication and built-in plan-
ning flexibility. We often see different levels of
communication between a retailer and individ-
ual suppliers. Both parties sometimes differ in
Strengthen Reinforce demand Total function and position, or messages and frequency
product catalog forecasts by
management reducing gaps of communication are not the same. Templates
(upload, discharges between physical
and changes) and theoretical and timelines for sharing sales and expected
inventory
demand information either do not exist or are not
Sources: Retailer database download, October 2009, databases of three suppliers;
A.T. Kearney analysis used in a consistent manner across the various
companies. In this fast-paced industry, timely In program two, the team increased flexibility
communication of product promotions and intro- in the demand-planning process by setting spe-
ductions is important so that all involved are well cific shared planning horizons for each category
prepared to deliver the promised value and fulfill and department, and by negotiating a mutually
customer expectations. agreeable standard process to incorporate changes
Another problem with collaborative demand to the execution plan (defining times, responsibil-
planning is lack of flexibility. While suppliers can ities and critical paths).
freeze demand plans up to six weeks in advance 2. Suppliers’ poor response to unexpected
of the expected sale date, retailers can still be demand surges. Unexpected surges in demand
adjusting replenishment parameters after that are an everyday occurrence in retail. A promo-
date. These parameters will have an impact on the tion — whether it is a price reduction or a product
size and frequency of orders, and ultimately can bundle — draws in customers and their wallets.
result in orders to the suppliers that are different In consumer goods, promotions can be initiated
from what’s expected. Granted, these adjustments not only by retailers but also by CPGs and com-
might follow inherent industry price competitive- peting retailers. This makes demand patterns even
ness, but problems will occur if they are not com- less predictable, as the only certainty is that retail-
municated in a timely fashion so that contingency ers will react to a non-internal promotion either
plans can be developed. by matching or even outdoing it. We found that
Two programs were designed to resolve these when these “surprise” promotions occur, orders
issues. In program one, the collaborative process spike and fill rates plummet (see figure 8).
was strengthened by capitalizing on a retailer’s Not surprisingly, retailers typically keep
and suppliers’ existing accomplishments in pro- promotions fairly confidential so not to lose
cesses, systems and organization. This involved market advantage. They can be too secretive,
specifying clear roles and responsibilities between however, to the point that even key suppliers are
suppliers and the retailer during the demand- kept in the dark about promotion details such
planning process (who talks to whom, timing, as discounts, duration and channels. Retailers
and controls) and establishing data flows and also often extend successful promotions without
deliverables (level of detail, inputs and outputs informing their suppliers.
and templates, for example) to promote efficient The team designed two programs to address
use of information. Figure 7 highlights some of these issues. The first was a contingency plan for
the opportunities. unexpected demand peaks. The plan outlined an
Planning Execution
Sharing promotional
information
at category Sharing plans Detailed joint- Sharing details
Interaction (demand- business-plan about retailer-
and product level
purchase) development supplier agreements
Soliciting inputs
Using consistent from customer
Purchasing service (supplier) Purchasing and
Retailer forecast structures replenishment
to share and replenishment
(historical) (retailer) consensus
internal plans
Figure 8
Surprise promotional periods cause fill rates to plummet Client example
2,000 100%
1,800 90%
1,600 80%
1,400 70%
Ordered cases
1,200 60%
Fill rate
1,000 50%
800 40%
600 30%
400 20%
200 10%
0 0%
Oct 1 Oct 31
Orders outside promotional period Orders during promotional period Fill rate
Note: Average order is based on 52 weeks Source: A.T. Kearney analysis
Figure 9
Delays in revealing product discharges are a commom cause of fill-rate problems Illustrative
Retailer
Ret inventory Supplier inventory
Su Liquidation inventory Unfulfilled orders
Time
Supplier discontinues SKU Supplier announces
discontinuation;
retailers start liquidation
Time
Supplier discontinues SKU Supplier announces discontinuation;
retailers start liquidation
Note: SKU = stock-keeping unit Source: A.T. Kearney analysis
Authors
Ricardo Haneine is a partner in the consumer goods and retail practice. Based in the Mexico City office, he can be
reached at ricardo.haneine@atkearney.com.
Alejandro Martinez is a principal in the consumer goods and retail practice. Based in the Mexico City office, he can
be reached at alejandro.martinez@atkearney.com.
Fidel Tamayo is a principal in the operations practice. Based in the Washington, D.C. office, he can be reached
at fidel.tamayo@atkearney.com.
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