Tear down walls to optimise the supply chain - Supply Management
Kroger, which owns Murray's Cheese, has made an alliance with Ocado to boost its online capability © SIPA USA/PA Images
Kroger, which owns Murray's Cheese, has made an alliance with Ocado to boost its online capability © SIPA USA/PA Images

Tear down walls to optimise the supply chain

28 June 2018

Supply chain leaders need to “tear down the walls between business units and open up to their external environment, whether that’s towards customers, suppliers or business partners”.

That is the message from Erich L. Gampenreider, KPMG’s global head of operations advisory, reflecting on the findings of No Normal Is The New Normal, the sixth KPMG Global Consumer Executive Top of Mind survey.

The global survey of 530 top executives in the consumer/retail sector, representing companies with combined revenues of $3.2tn, suggests that one of the walls supply chain leaders need to tear down is to the CEO’s office. Four out of five executives believed that their organisation’s supply chain was not optimised to suit changing customer needs, while only 22% said their supply chain is fully integrated.

Gampenreider says: “Many managers in the rest of the business do not understand the complexities of supply chains. For some time, companies have focused purely on cost efficiencies, but market leaders have realised that the main purpose of supply chains is to balance cost with keeping customers happy and providing a better consumer experience.”

To do that, he argues, supply chain leaders need to “embrace open and collaborative platform models that draw on ecosystems of manufacturers, distributors, partners, suppliers and customers to create value”.

In a marketplace being disrupted by new competitors – America’s biggest selling ice cream brand, Halo Top, was only founded in 2012 – the relentless growth of platform businesses (not just Amazon, but Flipkart in India, Alibaba and JD.com in China), the blurring of roles between manufacturers and retailers and the exponential growth of artificial intelligence, many organisations recognise they can no longer do everything themselves and are buying, hiring or partnering with specialist expertise.

In the past three months, the global consumer and retail sector has begun to move to a new more open supply chain model. The most significant deals include:

  • French retailer Carrefour’s deal with rival Système U to jointly negotiate purchasing with their key suppliers.
  • Nestlé paying Starbucks $7.2bn for the exclusive global licence to sell its packaged coffees and teas.
  • American grocery chain Kroger’s alliance with – and investment in – Ocado to use the online retailer’s smart fulfillment technology.

The cultural challenge, Gampenreider says, is for supply chains – and the organisations they belong to – to embrace risk. Companies that are not willing to experiment with new manufacturing models, new technologies and new approaches could fall behind.

The 2018 Top of Mind survey suggests this may already be happening – while only 6% of consumer-facing companies are using AI, 28% of platform-businesses already are. This is not an isolated example: while the average company invested 4.8% of revenue in technology, that figure soared to 13.1% for platform-businesses.

The survey does suggest that companies that create integrated, demand-driven supply chains will get a return on their investment. In their current financial year, supply chain leaders grew revenue by 4.2% and increased profits by 5.6%. The comparable figures for companies just starting to transform the function were 2.8% and 3.0%.

Willy Kruh, global chair consumer & retail, KPMG International, says: “Many executives tell me they expect more change in the next five years than in the past 50.” That makes building a flexible, fit-for-purpose supply chain even more urgent. As Gampenreider says: “Companies need to think about what their supply chain may look like in 10-20 years’ time. Goods may take just hours to go from the factory to the consumer. The last mile may be fulfilled by a robot courier. And the supply chain may start in the consumer’s home, where they place an order through a personal digital assistant.”

To compete in this disruptive, turbulent marketplace, consumer goods companies and their supply chains need, said Gampenreider, to develop a similar kind of “fail fast, stand up, do it again” culture to the software industry. The bottom line for companies in consumer and retail, the KPMG Top of Mind survey suggests, is: if you don’t reinvent your supply chain, your customers will do it for you.

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