THE AGILE SUPPLY CHAIN IN TURBULENT AND VOLATILE MARKETIAEME Publication
Agility is the fundamental characteristic of a supply chain needed for survival in turbulent and volatile markets, which are becoming normal, as product life cycles shorten and environmental forces create additional uncertainty resulting in higher risk in the supply chain management. Agility further helps in providing the right product, at the right time to the consumer, which is the main objective of any supply chain.
Being responsive is an increasingly important skill for firms in today's global economy; thus firms must be agile. Naturally, it follows that an organization's agility depends on its supply chain being agile. However, achieving supply chain agility is a function of other abilities within the organization, specifically supply chain flexibility and technology integration. The integration enables a firm to tap its supply chain flexibility which in turn results in higher supply chain agility and ultimately higher competitive business performance.
5 Reasons Why Blockchain is a Financial Services Game ChangerCognizant
Financial institutions can’t linger in their experimentation with blockchain technology — they need to move aggressively or be left behind by the rapid pace of innovation, according to our study.
How to Add Agility and Customer Focus to the Healthcare Supply ChainUPS Longitudes
The global pharmaceutical and healthcare industry has
experienced a number of severe shocks to the system in
recent decades. What was once a sector where profits flowed
from ‘blockbuster’ drugs and a customer base willing to
pay premium prices has transformed into a quite different
world as a consequence of competition from generics along
with reduced budgets available to healthcare providers.
Compounding these problems are increasing regulatory
constraints and more challenging logistics requirements as
bio-pharmaceuticals and related products increase the need
for stricter control of temperature and shelf-life as they move
through the supply chain.
As a result there is now a significantly greater focus across
the sector on supply chain management. Previously, when
margins were higher and logistics costs were a relatively
small proportion of total costs, supply chain issues tended
to take a back seat. Now things have changed. Recent
research by UPS® has highlighted that many companies are
finding it difficult to develop supply chain capabilities that
can simultaneously take out costs whilst ensuring regulatory
compliance, track and trace, product security and stricter
temperature and shelf-life control.
Because of these pressures, a new approach to the design
and management of supply/demand networks in the industry
becomes imperative. In today’s marketplace, there is a need
for supply chains that are cost-effective, efficient and agile.
Companies operating in every industrial sector and in
every market around the world have been confronted in
recent years with significant challenges. These challenges
have come from numerous sources – economic recession,
demographic changes, geo-political upheavals to name but
a few. The healthcare and pharmaceutical industry has been
no exception and has been impacted by major changes in the
competitive and market environment.
Future supply chain designs will need to be monitored using new performance measures such as:
Resilience
Re-configurability
Responsiveness
Cost
Quality
Delivery
How Advanced Analytics Will Inform and Transform U.S. RetailCognizant
Macroeconomic trends, changing consumer behavior and increased data volumes – these trends are forcing retailers to devise mechanisms or seek out partners who can quickly transform raw data into bankable insights.
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THE AGILE SUPPLY CHAIN IN TURBULENT AND VOLATILE MARKETIAEME Publication
Agility is the fundamental characteristic of a supply chain needed for survival in turbulent and volatile markets, which are becoming normal, as product life cycles shorten and environmental forces create additional uncertainty resulting in higher risk in the supply chain management. Agility further helps in providing the right product, at the right time to the consumer, which is the main objective of any supply chain.
Being responsive is an increasingly important skill for firms in today's global economy; thus firms must be agile. Naturally, it follows that an organization's agility depends on its supply chain being agile. However, achieving supply chain agility is a function of other abilities within the organization, specifically supply chain flexibility and technology integration. The integration enables a firm to tap its supply chain flexibility which in turn results in higher supply chain agility and ultimately higher competitive business performance.
5 Reasons Why Blockchain is a Financial Services Game ChangerCognizant
Financial institutions can’t linger in their experimentation with blockchain technology — they need to move aggressively or be left behind by the rapid pace of innovation, according to our study.
How to Add Agility and Customer Focus to the Healthcare Supply ChainUPS Longitudes
The global pharmaceutical and healthcare industry has
experienced a number of severe shocks to the system in
recent decades. What was once a sector where profits flowed
from ‘blockbuster’ drugs and a customer base willing to
pay premium prices has transformed into a quite different
world as a consequence of competition from generics along
with reduced budgets available to healthcare providers.
Compounding these problems are increasing regulatory
constraints and more challenging logistics requirements as
bio-pharmaceuticals and related products increase the need
for stricter control of temperature and shelf-life as they move
through the supply chain.
As a result there is now a significantly greater focus across
the sector on supply chain management. Previously, when
margins were higher and logistics costs were a relatively
small proportion of total costs, supply chain issues tended
to take a back seat. Now things have changed. Recent
research by UPS® has highlighted that many companies are
finding it difficult to develop supply chain capabilities that
can simultaneously take out costs whilst ensuring regulatory
compliance, track and trace, product security and stricter
temperature and shelf-life control.
Because of these pressures, a new approach to the design
and management of supply/demand networks in the industry
becomes imperative. In today’s marketplace, there is a need
for supply chains that are cost-effective, efficient and agile.
Companies operating in every industrial sector and in
every market around the world have been confronted in
recent years with significant challenges. These challenges
have come from numerous sources – economic recession,
demographic changes, geo-political upheavals to name but
a few. The healthcare and pharmaceutical industry has been
no exception and has been impacted by major changes in the
competitive and market environment.
Future supply chain designs will need to be monitored using new performance measures such as:
Resilience
Re-configurability
Responsiveness
Cost
Quality
Delivery
How Advanced Analytics Will Inform and Transform U.S. RetailCognizant
Macroeconomic trends, changing consumer behavior and increased data volumes – these trends are forcing retailers to devise mechanisms or seek out partners who can quickly transform raw data into bankable insights.
Infosys – Manufacturing Industry Restructuring | IT Infrastructure ComplexityInfosys
B.G. Srinivas of Infosys explains four strategies to restructure manufacturing industries, to be leaner and more nimble, and to overcome the current economic crisis
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Fortifying your supply chain stability through enterprise information managementSatesh Kumar
In today's information world, supply chain is essentially flow of information in addition to the traditional view of goods movement. This Whitepaper titled ‘Fortifying your Supply Chain Stability through Enterprise Information Management’ highlights on how information can be used by supply chain entities to guard their supply chain against potential risks.
The paper also briefs on how organization’s with different information maturity levels can adopt to EIM and leverage better insights to get their tough business questions answered.
Larry Savage Birmingham Points out the Challenges in Logistics IndustryLarry Savage Jr
Over time, every brand wants to grow and continue to attract and serve current and new customers. Unfortunately, reaching this goal requires more complexity. It is important to remember that there is a wide range of issues and potential solutions in the field of global supply chains. Companies require assistance in grasping the genuine expenses associated with supply chain intricacy. Understanding of these unexpected complexities on day-to-day operations, material accessibility, and crucial customer service and satisfaction poses a challenge. Below, we will discuss the underlying causes of supply chain complexity.
Manufacturers, Retailers Look to Adaptive Supply Chains to Increase Revenue, ...Cognizant
Changing market dynamics and emerging technologies enables players across the consumer goods value chain to revisit their supply chain strategies to propel growth and gain operational efficiencies.
Supply Chain Metrics That Matter: A Focus on the Consumer Products Industry 2...Lora Cecere
Supply Chain Metrics That Matter will be a series of reports published intermittently throughout the year by Supply Chain Insights LLC. Within the world of Supply Chain Management (SCM), each industry is unique. To help companies understand differences, each report is a deep dive on a different industry.
While we find it useful to understand the evolution of supply chain excellence by comparing industries, we feel that the true stories of supply chain excellence can only be really understood by comparing what happened within a period by peer group. The goal of this series is to share these insights. These reports are intended for you to read, share and use to improve your supply chain decisions.
The average Consumer Products (CP) company is stronger in the execution of supply chain management practices than their retail or pharmaceutical counterparts, but as companies will see in later reports, CP progress has not been equal to that of High-tech and Electronics manufacturers.
CP companies (including both consumer packaged goods (CPG) and food & beverage companies) tend to be marketing-driven. They are struggling to understand the differences between new market-driven, and their well-oiled marketing-driven, supply chains. With a strong legacy in building persuasive marketing programs, the companies have leveraged a global “one-size-fits-all” push-based supply chain strategy. These traditional supply chain management (SCM) definitions have produced supply chains that respond, but don’t sense. They are efficient, but not adaptive. They tend to be long (greater than twenty weeks) with waste pockets between nodes.
The landscape of the industry has been greatly affected by mergers and acquisitions. In the past decade, 57 companies were absorbed into ten. The industry is still digesting this change. While most companies have 150 unique systems, the manufacturers in this industry will often have five times the industry average. Getting to the right data to improve decision making continues to be a challenge.
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Organizations rely on analytics to make intelligent decisions and improve business performance, which sometimes requires reproducing business processes from a legacy application to a digital-native state to reduce the functional, technical and operational debts. Adaptive Scrum can reduce the complexity of the reproduction process iteratively as well as provide transparency in data analytics porojects.
Our white paper on Costa Rica as a Nearshore software service solution and how our services came to be of greate service to a local food distribution company.
Fortifying your supply chain stability through enterprise information managementSatesh Kumar
In today's information world, supply chain is essentially flow of information in addition to the traditional view of goods movement. This Whitepaper titled ‘Fortifying your Supply Chain Stability through Enterprise Information Management’ highlights on how information can be used by supply chain entities to guard their supply chain against potential risks.
The paper also briefs on how organization’s with different information maturity levels can adopt to EIM and leverage better insights to get their tough business questions answered.
Larry Savage Birmingham Points out the Challenges in Logistics IndustryLarry Savage Jr
Over time, every brand wants to grow and continue to attract and serve current and new customers. Unfortunately, reaching this goal requires more complexity. It is important to remember that there is a wide range of issues and potential solutions in the field of global supply chains. Companies require assistance in grasping the genuine expenses associated with supply chain intricacy. Understanding of these unexpected complexities on day-to-day operations, material accessibility, and crucial customer service and satisfaction poses a challenge. Below, we will discuss the underlying causes of supply chain complexity.
Manufacturers, Retailers Look to Adaptive Supply Chains to Increase Revenue, ...Cognizant
Changing market dynamics and emerging technologies enables players across the consumer goods value chain to revisit their supply chain strategies to propel growth and gain operational efficiencies.
Supply Chain Metrics That Matter: A Focus on the Consumer Products Industry 2...Lora Cecere
Supply Chain Metrics That Matter will be a series of reports published intermittently throughout the year by Supply Chain Insights LLC. Within the world of Supply Chain Management (SCM), each industry is unique. To help companies understand differences, each report is a deep dive on a different industry.
While we find it useful to understand the evolution of supply chain excellence by comparing industries, we feel that the true stories of supply chain excellence can only be really understood by comparing what happened within a period by peer group. The goal of this series is to share these insights. These reports are intended for you to read, share and use to improve your supply chain decisions.
The average Consumer Products (CP) company is stronger in the execution of supply chain management practices than their retail or pharmaceutical counterparts, but as companies will see in later reports, CP progress has not been equal to that of High-tech and Electronics manufacturers.
CP companies (including both consumer packaged goods (CPG) and food & beverage companies) tend to be marketing-driven. They are struggling to understand the differences between new market-driven, and their well-oiled marketing-driven, supply chains. With a strong legacy in building persuasive marketing programs, the companies have leveraged a global “one-size-fits-all” push-based supply chain strategy. These traditional supply chain management (SCM) definitions have produced supply chains that respond, but don’t sense. They are efficient, but not adaptive. They tend to be long (greater than twenty weeks) with waste pockets between nodes.
The landscape of the industry has been greatly affected by mergers and acquisitions. In the past decade, 57 companies were absorbed into ten. The industry is still digesting this change. While most companies have 150 unique systems, the manufacturers in this industry will often have five times the industry average. Getting to the right data to improve decision making continues to be a challenge.
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Building a More Responsive, Intelligent and Demand-driven Supply Chain
1. • Cognizant Reports
Building a More Responsive, Intelligent
and Demand-Driven Consumer Goods
Supply Chain
Executive Summary price multiples even if earnings per share and
Achieving supply chain management excellence growth rates are similar between the companies.1
requires organizations to sit at the intersection
of supply and demand and deliver exemplary Yet, leading up to the Great Recession, supply
customer service without inadvertently allowing chains across many consumer goods sectors
inventory to swell. That’s easier said than done. were not exceptionally nimble or flexible. Few
In the intensively competitive PC industry, Dell, companies were able to adjust supply to declining
for example, has deployed analytics to zoom demand, and even those that could were unable
into “not normal” peaks and troughs to balance to show bottom-line improvements that were
supply with demand. directly related to better use of capital.
But Dell is an exception to the rule. Supply chain In addition, there are several external factors
management practices have a long way to go in that influence the consumer goods supply chain
helping organizations achieve this long-sought- (see Figure 1). These drivers, and their implica-
after demand-driven equilibrium. In fact, it is tions, include the following:
really only in the last decade or so that the direct
link between supply chain management and Economic volatility. With globalization,
corporate cash flow generation is well understood emerging economies are growing at a rela-
or, more accurately, has received a broad level of tively faster pace than established markets.
interest that can enable organizations to more Consumers in these markets are demand-
effectively utilize precious capital. ing more, causing demand volatility, which
requires increased supply chain flexibility.
According to Gerry Marsh, a supply chain financial Consumer preference. Consumer tastes and
consultant who works with some of the world’s preferences change at lightning speed and
largest companies, businesses that are able to vary from region to region. Supply chains must
use the supply chain to generate more cash flow be optimized to address these ever-changing
than their competitors typically have higher stock preferences.
cognizant reports | december 2011
2. Regulatory compliance. With the advent of offered chips that tracked their carbon foot-
government initiatives such as the U.S. Food print along the supply chain. The company was
Safety Modernization Act, it is mandatory for able to command a premium for this product
importers to track and trace the entire supply line, until recession-induced pricing pressures
chain for irregularities. This has benefits for emerged.
customers but adds cost to the supply chain. Technological advances. This relates to the
Sustainability. Consumers are showing exponential growth in basic computing power
increased sensitivity to their carbon footprints. and the enormous quantities of data available
They want to ensure that the products they to companies across the value chain. Compa-
consume originate from a supply chain that is nies can make use of “big data” to optimize
environmentally friendly. It has become ever their supply chains and enhance their profit-
more critical to integrate sustainability objec- ability by intelligently responding to contin-
tives with the broader supply chain objectives gencies. By analyzing big data, they can more
of the organization. Before the downturn of easily create supply chains that are green,
2008, for instance, a UK semiconductor maker responsive, flexible and intelligent.
Drivers of Change in CE Supply Chains
Drivers Implications Recommendations
Economic volatility Worldwide demand has increased for Use flexible supply chains to enable regional
Growth in emerging consumer goods products, as has the customization.
markets need for regional customization. An
example is Frito Lay, which has applied
Pricing fluctuation a successful practice of developing Design agile supply chains that can cost-effectively
of raw materials regionally popular snack food flavors offer regional customizations.
in India to North America, where it
now offers flavors developed to suit the
palate of different areas of the U.S.2
Pressure has intensified on operating Accommodate price volatility by shifting
costs. production to the segment of the supply chain
with minimal price changes.
Changing consumer Demand patterns are changing from Optimize the supply chain by using demand-sensing
preferences region to region. applications, which apply customer order flows,
sales histories and shipping calendars. This enables
organizations to more accurately forecast demand and
address changing demand patterns.
Regulatory compliance Adverse supplier responsibility reports Proactively embed regulatory aspects into the supply
can damage company reputation. chain. This can lead to the generation of real-time
alerts that identify non-compliance.
The U.S. Food Safety Modernization Act
stipulates that importers track and trace Use IT to track and trace the entire supply chain.
everything in the entire supply chain.
Use existing solutions to track the food supply chain
from “farm to fork,” which helps consumer goods
companies manage compliance at much reduced costs.
Sustainability issues Health concerns, environmental awareness Integrate sustainability objectives within supply
and food scares are increasing. chain strategies.
Technology advances Legacy technologies help supply chains Enhance supply chains with “big data” to reduce latency
respond with some inherent latency. and create more responsive supply chains.
Figure 1
Improving Supply Chain Management which is a 4% increase from June 2011. In fact, in
The U.S. consumer goods industry has seen March 2011, the monthly value of shipments had
rapid growth, despite minor hiccups, since June exceeded the pre-crisis peak level. As shipment
2009. This is indicated by the growth of shipment volumes increase, timely fulfillment requires a
values from $120 billion to $130 billion3 in the more robust and efficient supply chain. In fact,
intervening period (see Figure 2, next page). New the consumer goods industry is only as good as
orders increased to $201.5 billion4 in July 2011, the various supply chains that support it.
cognizant reports 2
3. Monthly Value of CG Shipments
its operational complexity. Consumer goods
130 companies must respond with supply chains
125 equipped to accommodate vast differences in
preference and demand elasticity.
120
CG Shipments ($B)
115 Supply chains need to be flexible and agile;
110 one size does not fit all. The volatility of
exchange rates and pricing of raw materials,
105
as well as wage increases across the value
100 chain, are wreaking havoc on supply chains.
A CG company with a manufacturing facility
Mar-11
Sep-10
Dec-10
Jun-10
Mar-10
Dec-07
Sep-09
Dec-09
Sep-08
Dec-08
Jun-09
Jun-08
Mar-09
Mar-08
in China and retailers and customers in the
U.S., for example, could face problems if the
Source: PricewaterhouseCoopers and Grocery Manufacturers
Association. U.S. dollar were to decline against the Yuan,
Figure 2
China’s currency. If this happened, the price
of raw materials would rise, as would the cost
of shipping, since fees collected by offshore
One way consumer goods companies have shippers tend to be denominated in dollars.
prospered is by dividing their supply chains This would put the supplier in serious jeop-
into smaller, more manageable pieces. These ardy as a result of a significant reduction in its
pieces are tailored to individual compo- operating margins. The decline in the U.S. dol-
nents and stock keeping units (SKUs). Size lar would also increase wages in China in dollar
is driven by scale; the smaller the piece, the terms, further reducing operating margins.
more optimized the supply chain is likely to
be. This drives the need to create an “area of Organizations need to ensure their supply chains
comfort” for each SKU/group. For instance, a are flexible enough to avoid the aforementioned
multinational CG company was able to reduce issues. Building a more flexible supply chain
its cost of goods sold by 15% by using efficiently around product segmentation is one proven way
segmented supply chains. to address these challenges.
To improve supply chain performance, we believe A U.S.-based CG company, which had shifted all
consumer goods companies must effectively its manufacturing to China, faced this problem.
respond to five key drivers: economic volatil- Its China plant was accustomed to producing
ity (growth in emerging markets and price fluc- the company’s entire range of products, as well
tuations of raw materials), changing consumer as the underlying components. Amid an increase
preferences, regulatory compliance, sustainabil- in global demand volatility, customer complaints
ity issues and technology advances. spiked as a result of product delivery delays.
Some customers also experienced service issues,
Economic volatility and forecasting was a problem, as well.
Amid ongoing global economic turbulence, geo-
graphically distributed demand, volatile exchange The company analyzed its portfolio of products to
rates and wage inflation in emerging economies, learn more about the volatility of demand for each
supply chains are becoming exponentially more SKU, as well as the overall volume of each SKU
complex. The following are two cases in point: produced every week. This analysis was performed
using cluster analysis on proprietary software.
With globalization and growth in emerg- The impact on operational performance of the
ing markets, the demand for products can volatility in demand and volume of each SKU was
come from any part of the world. This also also analyzed, using advanced regression models.
creates a situation where the tastes and pref-
erences of global customers can vary signifi- The company divided its products into four cat-
cantly. Colgate-Palmolive,5 for example, has egories (see Figure 3, next page). For the high-
operations spread over 57 facilities in 11 dif- volume and low-volatility products, it kept pro-
ferent markets worldwide, which increases duction in China. For high-volume/high-volatility
cognizant reports 3
4. Demand Analysis by SKUs
Volume
Huge and stable demand Huge and unstable demand
Volatility
Low and stable demand Low and unstable demand
Source: Cognizant Research Center assessment of Boston Consulting Group calculations
Figure 3
and low-volume/high-volatility products, produc- network7 (CDSN), a continuous replenishment
tion was shifted to the U.S. For low-volume/low- process (CRP) and efficient consumer response
volatility products, it moved production to both (ECR). CDSN uses demand-data and exception
the U.S. and Mexico. This reduced the company’s events data to inform decisions on product man-
cost of goods sold by 15%.6 It also improved prod- ufacturing and replenishments. CRP is a usage-
uct quality and service levels. triggered, vendor managed inventory system that
frees up cash at both the supplier and retailer
The above segmentation also increased the ends. ECR involves collecting sales data at the
company’s supply chain velocity, which is defined retailer’s end and immediately replenishing stock
as distance over time. If the time is reduced, using automated order generation. The desired
needless to say, the velocity increases. The outcome of all these initiatives is a focused
end-to-end pipeline time was reduced by the supply chain effort, starting at the customer.
reconfiguration of the production facilities. Further, performance consistency8 and value
delivery form the bedrock of the supply chain.
Changing Consumer Preferences
Consumers have become more demanding, which It has been observed that there is an exponen-
creates more time-to-market pressure. They seek tial increase in cost savings as a percentage of
better levels of service delivery. A quick analysis potential production savings if more ordering is
of the books of CG companies reveals that a few done through CRP (see Figure 4, next page). In
customers are often responsible for the major- CRP, the focus is on the tradeoff between increas-
ity of profits. Therefore, all customers cannot be ing inventory and reducing out-of-stocks. Inven-
treated equally. Customers need to be segmented tory or out-of-stocks occur when the supply does
depending on their profitability, and as a result, not respond to demand immediately. It involves
supply chains need to be altered and configured mapping of supply chain processes for product
accordingly. Demand profiles can be used to seg- and data flow, assessing current capability and
ment supply chains for better results. Customer addressing improvement opportunities.
analytics should provide insights into demo-
graphic trends that contribute to targeted adver- CDSNs have also demonstrated their value
tising and proportion management initiatives. in improving organizational profitability. P&G
reported $1 billion in incremental sales, a nearly
Procter & Gamble is a leader in tracing consumer 50% reduction in inventory and 20% lower
preferences back to its supply chain. P&G has supply chain costs, from the time it implemented
created methodologies to aid and abet this CDSN in the mid-1990s to 2010.9
analysis, such as a consumer-driven supply
cognizant reports 4
5. Projected Manufacturing Cost
suppliers in China was using a chemical that was
Savings using CRP Ordering harmful to employees on the production line.10
100%
Savings as % of Potential Production Such findings can mar the reputation of any com-
80%
pany. To prevent harm to employees and company
60% reputations, companies can use data centers
40% across the entire supply chain more effectively, to
generate an alert when violations occur, analyze
20% the situation and decide on an appropriate action.
0%
Feihe International, a leading producer and
-20%
distributor of premium infant formula, milk
0% 20% 40% 60% 80% 100%
powder, soya bean, rice and walnut products
Percent of Total Product Ordering via CRP in China, deployed an integrated food safety
Source: William D. Peace Jr., “Supply Chain Management: solution, with the objective of increasing
The Real Wow Factor,” Feb. 3, 2011. customer confidence and improving quality. This
Figure 4 solution enabled the company to trace foods,
feeds, ingredients and food-producing animals
Regulatory Compliance through all stages of production, processing
Recent years have witnessed a major spike in the and distribution. It also enhances traceability
contamination of packaged food and other con- across all stakeholders to significantly improve
sumer products. The list is long, starting from quality, safety tracking, compliance monitoring
melamine-contaminated milk powder, lead-tainted and issue resolution. Such solutions are becom-
toys and salmonella-containing peanuts. Some of ing increasingly important, as consumers become
these tainted products resulted in thousands of more demanding and regulations, more strict.
hospitalizations; a few deaths were also reported.
Sustainability Issues
Therefore, regulations are important to assess the Consumers have become increasingly conscious
impact on human health by tracing all imported, of their carbon footprint and increasingly want
fully assembled goods and components that insight into the entire production process before
factor into the entire U.S. supply chain. These they consume a product. Is the process green?
regulations are also beginning to impact What is the environmental cost of product manu-
how global supply chains are managed and facturing? Are there any negative externalities
monitored. Such regulations would add further in the entire process? Many CG companies hear
— but necessary — costs to the supply chain. To about these issues directly from consumers and
enable this, regulators would need voluminous from social media. The answer to these questions
information and analysis on compliance activi- is the use of green supply chains.
ties. With today’s massive computing power, CG
companies should be able to crunch data and Companies that follow green supply chain prac-
present it to regulators in near real time. This tices proactively manage supplier environmental
data analysis, with the ranges specified, should performance. Adoption of environmentally effi-
be used to generate alerts whenever certain com- cient manufacturing methods, such as those used
pliance parameters are crossed, meaning that a by 3M, Procter & Gamble and Xerox, can help
regulatory mandate has been breached. reduce the carbon footprint. This involves using
improved technology like carbon dioxide filters
Consumer goods companies are also required to reduce environmental impacts, more tightly
to publish a supplier responsibility report on managing product lifecycles and taking back
their Web sites, consisting of labor and human expired products.
rights violations, if any, employee health and
safety, environmental impacts and ethical The CG industry is increasing its efforts to
business practices, collected across the entire reduce the weight and increase the recyclability
supplier base. One such report published recently of products. The recycling11 rate of CG product
by Apple disclosed that one of the company’s containers and packaging in the U.S. is 40%,
cognizant reports 5
6. compared with the national recycling average capabilities of big-data supply chains. This data
of 34%. This not only reflects strong community would help identify consumer sentiment toward
support for green manufacturing initiatives, but particular brands, as well as strong advocates for
it also influences the existing regulatory regime, the company’s goods and services, who can be
wherein new regulations are framed to increase positioned as product ambassadors. Companies
recycling rates. can engage such ambassadors to help convey
positive brand messaging far and wide via social
Exploration of bio-technology-based products is media, thus reaching a wider pool of consumers.
another step in greening the supply chain, as is
disposal of products when they have approached In this way, supply chains would become
their “end of life.” Xerox has almost perfected demand-driven. To get there, processes need
this art,12 with an initiative that encourages to be designed from the outside-in, taking
customers to return products to Xerox for demand-side factors into consideration. Much
recycling, which the company then uses when of the data residing across the supply chain is
remanufacturing machines, using strict specifica- hidden in isolated systems. The IT depart-
tions of quality and performance.13 ment has little awareness, for instance, about
sales and marketing data. If this data can be
European legislation also plays an important integrated across all business functions, then
role in sustainability issues. The EU regula- new market opportunities can be identified, new
tion on product quality and safety assurance product launches can be improved, and product
requires organizations to identify, measure and recalls can be avoided. It is necessary to gain top
control potential dangers related to food safety. management support to make this happen.
Critical values must be defined that serve as a
benchmark against which actual outcomes are With technological advances, sophisticated mod-
measured. Systems such as integrated food els of data analysis become available for use by
safety solutions can cost-effectively deliver all companies. Multi-tiered causal analysis (MTCA)
the product quality and safety information is one such model. MTCA integrates point-of-sale
required for decision-making. data and syndicated scanner panel data into the
forecasting process to determine the effects of
Technological Advances consumer demand on factory shipments. Another
For years, consumer goods companies have used causal model can be applied to predict POS data,
enterprise resource planning (ERP) systems, using variables such as retail price, in-store
advanced planning solutions (APS) and supply merchandising vehicles, sales promotions and
chain execution (SCE) software, along with busi- competitive retail activities.
ness intelligence tools. Although such systems
result in more responsive supply chains, there is For most manufacturers, up to one-third of
a huge amount of latency involved, between data procured parts will be “new” each year, with
collection and operational action. only small variations from earlier versions.15
A predictive model can identify these varia-
Data collection process optimization and trans- tions and use them to determine what the net
parency across the supply chain is the future. price change should be, sparing manufacturers
With the advances in computing power and ubiq- unnecessary expense.
uity of data, there is a case for big-data supply
chains14 to reinvent the game. Such supply chains Importance of Supply Chain Risk
would not only be more responsive, but they Management
would also operate more intelligently. The conver- Responding to these five drivers does not guar-
gence of technologies such as mobile, geoloca- antee growth and survival. There is another set
tion and digital is a big driver for big-data supply of events that can interrupt the most efficient of
chains. E-commerce players are using new tech- supply chains: natural disasters. The frequency of
niques of capturing and combining structured weather-related natural disasters has increased
data from smartphones and other digital devices, tremendously over the last 30 years, from
as well as unstructured data from social net- fewer than 400 annual events in 1980 to more
working sites such as Facebook, to enhance the than 1,000 in 2008.16 Tsunamis, earthquakes
cognizant reports 6
7. and hurricanes can damage supply chains, A poignant example of supply chain risk manage-
making global supply chain crisis management a ment emerges from a fire in 2000 that destroyed
key item on the CG agenda. a New Mexico electronics component plant that
supplies parts to both Nokia and Eriksson. Since
CG companies typically dispatch crisis teams Nokia had a risk management plan in place, it
to monitor supply sources, find substitutes for was able to secure parts from another supplier.
scarce inputs and assess potential risk factors. On the other hand, Eriksson faced overwhelming
After a crisis strikes, these teams are tasked with supply shortages that led to estimated losses of
finding patterns in price volatility and demand $390 million that year.18
fluctuations. But such contingencies are often not
enough to avert disaster. Greater real-time supply chain visibility can offer
data from both the supply side and the demand
Toyota was significantly impacted by the March side (point of sale, etc.) If supply and demand
2011 Japanese earthquake and tsunami. As result, chain information is shared just-in-time, then a
the auto maker is taking steps to implement bet- back-up plan can be put into effect in the event
ter supply chain risk management practices. As of a natural disaster. This plan could include
Shinichi Sasaki, Toyota Executive Vice President switching over to another supplier that may
commented, “We are making checks now to see be waiting in the wings, or it may mean keep-
what needs to be done to enable recovery within ing inventory of repair components on-hand to
two weeks when the next one — expected in the quickly deal with a shortage caused by natural
central Tokai region — hits.”17 The company is disaster.19
also working on a three-step program for risk
mitigation, which includes standardizing auto Demand analysis can play a key role here.
parts across Japanese manufacturers; asking Demand signal data should include inputs from
suppliers further down the supply chain to hold disaster prediction models to ensure the plan is
a few month’s worth of inventory for specialized comprehensive. The challenge arises from the
components; and mandating that each produc- ways and means of accessing and integrat-
tion process operates independently in terms ing huge volumes of data. With scalable data
of parts procurement. warehouses and integration techniques that
compress latency to near-zero wait times, these
To mitigate the risk of natural disasters, supply challenges can be overcome. Deeper supplier
must be diversified. And if particular suppliers relationships can also minimize losses from
are critical, then companies should consider business disruptions caused by natural disasters.
acquiring component suppliers.
Footnotes
“Global Commerce Management: The Executive Business Case for Operational Excellence,” Supply
1
Chain Digest, 2005. http://www.blinco.com/casestudies/whitepapers/scd_gcm_jan05.pdf
2
“Frito-Lay Tastes from Home # Giveaway,” Cuzinlogic, Aug. 23, 2011. http://cuzinlogic.com/2011/08/23/
frito-lay-tastes-from-home-giveaway/
3
“2011 Financial Performance Report: Thriving in a Connected World,” PricewaterhouseCoopers and
Grocery Manufacturer’s Association, 2011. http://www.pwc.com/us/en/retail-consumer/publications/
food-beverage-consumer-products-sector-issues.jhtml
4
“Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders,” U.S. Census
Bureau, October 2011. http://www.census.gov/manufacturing/m3/adv/pdf/durgd.pdf
5
Peter C. Witton, “Colgate Rethinks a Supply Chain,” Outlook Journal, Accenture, 2000, No. 1.
http://www.accenture.com/SiteCollectionDocuments/PDF/colgate2.pdf
cognizant reports 7
8. 6
Yogesh Malik, Alex Niemeyer, Brian Ruwadi, “Building the Supply Chain of the Future,” McKinsey
Quarterly, January 2011. http://www.mckinseyquarterly.com/Building_the_supply_chain_of_the_
future_2729
7
Dan Gilmore, “Supply Chain Lessons from Procter & Gamble,” Supply Chain Digest, Aug. 5, 2011.
http://www.scdigest.com/assets/FirstThoughts/11-08-05.php?cid=4822
8
“Supply Chain Lessons from Procter & Gamble,” Supply Chain Digest.
9
“Supply Chain Lessons from Procter & Gamble,” Supply Chain Digest.
10
David Barboza, “Workers Sickened at Apple Supplier in China,” The New York Times, Feb. 22, 2011.
http://www.nytimes.com/2011/02/23/technology/23apple.html?_r=2&pagewanted=all
11
“Reducing our Footprint: The Food, Beverage and Consumer Products Industry’s Progress in
Sustainable Packaging,” Grocery Manufacturers Association, March 2011. http://www.gmaonline.org/
file-manager/Sustainability/ReducingOurFootprint.pdf
12
“Global Imaging: Can You Say ‘World of Uncertainty?’” Digital Printing Blog, March 2, 2010.
http://digitalprintingevolution.blogspot.com/2010/03/ricoh-ikon-canon-oce-konica-minolta.html
13
“Xerox 2010 Report on Global Citizenship,” Xerox Corp., 2010. http://www.xerox.com/corporate-
citizenship-2010/sustainability/waste-prevention.html
14
Lora Cecere, “Trends I Am Watching,” Supply Chain Shaman Blog, Nov. 28, 2011. http://www.sup-
plychainshaman.com/
15
“Supply Chain Analytics: How Hard Should You Squeeze?” Deloitte Debates, Deloitte
Development LLC, 2010. http://www.deloitte.com/view/en_US/us/Insights/Browse-by-Content-Type/
deloitte-debates/cefe46d054aaa210VgnVCM3000001c56f00aRCRD.htm
16
“After Japan’s Earthquake: Rethinking the Supply Chain,” The Boston Consulting Group, June 2011.
http://www.bcg.com/expertise_impact/publicationdetails.aspx?id=tcm:12-80669
17
Kevin Scarpati, “Toyota Eyes Quake-Proof Supply Chain,” Supplychaindigital.com, Sept. 6, 2011.
http://www.supplychaindigital.com/procurement/toyota-eyes-quake-proof-supply-chain
18
“Supply Chain Risk Management: A Delicate Balancing Act,” IBM Global Business Services, 2008.
ftp://ftp.software.ibm.com/common/ssi/sa/wh/n/gbw03015usen/GBW03015USEN.PDF
19
“Preparing for the Worst: Natural Disasters and Supply Chain Risk Management,” CFO Research
Services, CFO Publishing Corp., 2009. http://www.fmglobal.com/assets/pdf/P09179.pdf
Author
Sanjay Fuloria, Ph.D, Cognizant Research Center
Subject Matter Experts
Ramji Mani, Raghu Ramamurthy and Ganesh Iyer are Principal Consultants with Cognizant Business
Consulting, with extensive experience advising companies on supply chain management issues across
the consumer goods and manufacturing industries.
cognizant reports 8