SOURCE: The Boston Consulting Group

The Boston Consulting Group

September 10, 2013 00:01 ET

Customer-Centric Levers Can Release Value for Consumer Goods Makers

By Honing Their Outbound-Supply-Chain Logistics With a Focus on Better Complexity Management and Collaboration With Trading Partners, CPG Manufacturers Could Unlock Nearly $50 Billion of Hidden Value

BOSTON, MA--(Marketwired - Sep 10, 2013) - In the face of challenging economic headwinds, consumer goods manufacturers have focused on cutting costs and optimizing working capital. Those routes still offer opportunity, but recent analysis indicates that traditional assumptions regarding tradeoffs among costs, inventory, and service don't always hold true, and leading companies are using new, customer-centric levers to unlock value. These actions could yield a potential value of nearly $50 billion industrywide, according to research conducted by The Boston Consulting Group (BCG) on behalf of the Grocery Manufacturers Association (GMA). The resulting report, titled "GMA Supply-Chain Benchmarking 2012: Unlocking the Hidden Value of Complexity Management and Collaboration," is being released today.

This report, the eighth in GMA's benchmarking series focused on manufacturers' outbound-supply-chain logistics, finds that higher inventory does not always equate to better service, and scale does not automatically lead to lower costs. Instead, the winners manage the tradeoff between cost and service by focusing on less utilized, customer-centric levers such as complexity management and collaboration with trading partners.

The latest report in the series covers the 2010-2012 period and is notable for several distinguishing characteristics, including its rich data source. The report is based on a survey of 51 companies using warehouse-based supply chains, direct store delivery, or both; interviews with 65 supply-chain executives at those participating companies; and 116 polling responses from the 2013 GMA/FMI Supply Chain Conference.

"This report clearly shows that CPG companies have successfully driven efficiencies along the supply chain to meet current economic challenges," said Elise Fennig, GMA's vice president of industry affairs. "It also provides a roadmap for even greater efficiency and savings through improved trading partner collaboration -- savings that can drive innovation and sustainable business growth."

Is Cost-Cutting Putting Service Levels at Risk?

CPG manufacturers' supply-chain-logistics costs as a percentage of sales fell by 9 percent from 2010 through 2012, on average. However, for the first time in a decade, service levels have begun to show slight signs of a decline, albeit from 2010's historic high. Several interviewees expressed concern that the drop in service could be the downside of the relentless cost-cutting.

However, the analysis found that some companies have successfully balanced lower costs with high levels of service.

Better Complexity Management Is a $25 Billion-Plus Opportunity

Of the companies studied, 90 percent cite complexity management as a strategic problem, yet only about 25 percent are systematically addressing the issue. Most manufacturers are doing only basic, ad hoc complexity management, often focused on SKU rationalization.

Yet better complexity management could unlock more than $25 billion of additional value industrywide. Manufacturers that excel at complexity management treat it as a holistic, companywide exercise, supported by senior leadership and cross-functional teams. They quantify the costs and benefits, and they focus on profit maximization, not just cost reduction.

"There are still significant opportunities for nearly all companies to improve their supply-chain performance, but, to reap the major rewards, manufacturers need to look beyond their SKUs and think and act both more strategically and more holistically, with everyone aligned behind supply chain improvements," said Jeff Wray, a BCG partner and coauthor of the report.

More-Sophisticated Collaboration with Trading Partners Could Unlock More Than $20 Billion

Collaboration is a strategic focus for their business, according to 95 percent of manufacturers, and nearly all of them have initiated related projects or established dedicated collaboration teams. But most companies are at the beginning of their collaboration journey; few manufacturers have built long-term, strategic relationships with retailers.

Approximately one-third of manufacturers consider lack of trust and commitment to be a significant barrier to collaboration. Other major obstacles include issues with capabilities and technology.

If the industry can overcome these challenges, BCG estimates that collaboration could release more than $20 billion of additional value across the industry. "Companies that successfully collaborate at an advanced level have a long-term strategic vision, supported by 'top to top' alignment between senior management of both trading partners, as well as supporting infrastructure such as dedicated cross-functional collaboration teams," observed Aaron Brown, a BCG partner and coauthor of the report.

A copy of the report can be downloaded from the websites of both GMA (www.gmaonline.org) and BCG (www.bcgperspectives.com).

To arrange an interview with one of the authors, please contact Eric Gregoire at +1 617 850 3783 or gregoire.eric@bcg.com.

About the Grocery Manufacturers Association
Based in Washington, D.C., the Grocery Manufacturers Association is the voice of more than 300 leading food, beverage and consumer product companies that sustain and enhance the quality of life for hundreds of millions of people in the United States and around the globe.

Founded in 1908, GMA is an active, vocal advocate for its member companies and a trusted source of information about the industry and the products consumers rely on and enjoy every day. The association and its member companies are committed to meeting the needs of consumers through product innovation, responsible business practices and effective public policy solutions developed through a genuine partnership with policymakers and other stakeholders.

In keeping with its founding principles, GMA helps its members produce safe products through a strong and ongoing commitment to scientific research, testing and evaluation and to providing consumers with the products, tools and information they need to achieve a healthy diet and an active lifestyle. The food, beverage and consumer packaged goods industry in the United States generates sales of $2.1 trillion annually, employs 14 million workers and contributes $1 trillion in added value to the economy every year.

About The Boston Consulting Group
The Boston Consulting Group (BCG) is a global management consulting firm and the world's leading advisor on business strategy. We partner with clients from the private, public, and not-for-profit sectors in all regions to identify their highest-value opportunities, address their most critical challenges, and transform their enterprises. Our customized approach combines deep insight into the dynamics of companies and markets with close collaboration at all levels of the client organization. This ensures that our clients achieve sustainable competitive advantage, build more capable organizations, and secure lasting results. Founded in 1963, BCG is a private company with 78 offices in 43 countries. For more information, please visit bcg.com.

About bcgperspectives.com
Bcgperspectives.com features the latest thinking from BCG experts as well as from CEOs, academics, and other leaders. It covers issues at the top of senior management's agenda. It also provides unprecedented access to BCG's extensive archive of thought leadership stretching back 50 years to the days of Bruce Henderson, the firm's founder and one of the architects of modern management consulting. All of our content -- including videos, podcasts, commentaries, and reports -- can be accessed by PC, mobile, iPad, Facebook,  Twitter, and LinkedIn.

Contact Information

  • The Boston Consulting Group
    Eric Gregoire
    Global Media Relations Manager

    Tel +1 617 850 3783
    Fax +1 617 850 3701
    gregoire.eric@bcg.com