Infosys Archives

How a Large CPG Company Runs an Efficient Supply Chain in Developing Countries

Consulting Services | By Steve Banker • 09/12/2011

Infosys, the global IT services company with an offshore model, held its annual Infosys Connect conference last month. Two directors from a very large consumer packaged goods (CPG) client spoke during a track session for analysts.

Like many Western multinational firms, this company’s growth will largely come from developing countries, where the company has a goal to acquire 1 billion new customers. But running an efficient supply chain in these regions is very difficult. There are many very small retail outlets, which are really little more than store fronts, and they have no supply chain technology and are served by small distributors with limited technology.

This CPG company is using the Distributor Edge platform developed by Infosys, a combination of technology and managed services, to drive more efficient forecasting, trade plans, inventory management, and fulfillment. This company has achieved double-digit improvements in case fill rates and is using Distributor Connect to improve fulfillment to emerging market distributors that account for 70 percent of its dollar volume in these markets.

But the presentors did not say how this system worked, so I talked to Sanjay Nambiar, the Platform Head for this solution, to dig into the details.

In developed nations, getting data via EDI from leading distributors about what they are selling, to whom, their inventory counts, and which goods are being promoted to whom, is a standard operating procedure. In developing countries, however, the barriers to obtaining this information from distributors are not just technological–they don’t use EDI for the most part–but cultural and structural too. The entrepreneurs who run these companies want to know what is in it for them. Any solution must have minimum barriers for the distributors and show them how sharing data will improve their sales and margins.

First, let’s examine the business case for the distributors. Infosys has sold this solution to three large multinational consumer goods companies. Sanjay claims that the distributors using this solution at the behest of those three multinationals are averaging a double-digit increase in revenues associated with those manufacturers’ products, with improved case fill rates, and a 3-4 percent drop in inventory. The manufacturer identifies the distributors, but then it is up to Infosys to close the deal.

This is not, strictly speaking, a Vendor Managed Inventory (VMI) process. But it is close. In some developing markets, anti-dumping laws prohibit a manufacturer from shipping product to a customer without getting an order approval first. But the manufacturer can provide the distributor a suggested Purchase Order (PO) with what their analysis shows to be an optimal order from a demand replenishment perspective, and then make it easy for the distributor to confirm the PO. Infosys personnel do the forecasting, suggest products they think will sell well that may have a better margin than what the distributor is currently selling, and even look to see if the distributor is close to a truckload size order (which will generate a discount) and make suggestions about what to add to get the discount. The suggested multi-echelon replenishment orders occur on a daily basis. For distributors with multiple warehouses/branches, the suggested orders also contain information on which products and product quantities will go to which warehouses. There is also reporting that lets a distributor see how they are doing now versus in the past.

The other key piece of this solution is using managed services to drive timely and accurate data transmission. The distributor may choose to share their inventory and associated data via fax, spreadsheet, or EDI. Infosys personnel will massage this data and get it into their system in the correct format. If data on the returned PO looks incorrect, or if the distributor is not responding in a timely manner, Infosys personnel will make every effort to contact the distributor, including by mobile phone, to rectify the situation. The coverage is global in nature, with personnel who speak the local languages.

Infosys tells me the heavy lifting around Distributor Connect is not the software; it is the managed services. Without managed services, you would never be able to drive large scale adoption and usage.

Finally, and this may seem obvious (although it wasn’t to me initially), if the distributor base is increasing their product revenues associated with a particular CPG company by double digits, and these distributors represent a great majority of sales in these markets for that CPG company, then the manufacturer is also in all probability experiencing double digit growth in these markets. This is a case where supply chain excellence drives sales.

(Note: Infosys is an ARC client)

General Mills and Tesco: How Supply Chain Boosts Profits

Consumer Packaged Goods (CPG) | By Steve Banker • 02/03/2010

Every once in a while it is interesting to conduct an internet search on the phrase “supply chain profits.” Here are two interesting stories from the fourth quarter of 2009 that I uncovered.

In a Wall Street Journal article by Ilan Brat and Anjali Cordiero published in September, supply chain initiatives were credited with helping General Mills raise its earnings forecast for its fiscal year and the company’s profit jumped 51 percent that quarter. The biggest factor was lower commodity costs, but General Mills’ supply chain initiatives were clever. Here is an excerpt of the article:

In the recent quarter, General Mills reduced the gallons of fuel it used by 10% through changes in how it manufactures and distributes. In one case, the company increased the number of plants churning out its Honey Nut Cheerios cereal to four from two, allowing it to save gas by driving fewer miles to deliver the cereal to stores, said John Church, senior vice president of global supply chain. The company has also used new software to keep its trucks fuller, improving shipping efficiency.

The software that allows General Mills to pack out its trailers more efficiently is from ORTEC. The article highlights another example:

General Mills used to overproduce its Gushers and Fruit Roll-Ups fruit snacks by about 1% to 2% because of inefficiencies in the ordering and manufacturing process. It typically stored the extra fruit snacks, but last year it launched a new product of “mystery” fruit snacks that combines the once-warehoused Gushers, Fruit Roll-Ups and other snacks in one pouch. The new product has become the sixth-fastest selling fruit snack in the U.S., Mr. Church said.

Tesco, the large retailer headquartered in the UK, is renowned for its excellence in supply chain management. In a posting on its Supply Chain Management blog, Infosys highlighted how Tesco’s commitments to being ‘green’ are helping both its image and bottom line. Here is an excerpt of the blog posting by Suresh Patel:

Tesco is aware that climate change impacts its entire supply chain. It needs to minimize the carbon from cradle to grave of the products on its shelves.

This is what Tesco is doing to minimize its carbon footprint in [its] supply chain:

Most of the products are now transported by train and not by road. It is also looking at alternate ways of transportation. Tesco is cutting down 9 million miles a year by using the canal to transfer its good[s] from Liverpool to Manchester.

The way the goods reach the store is changing too. Most of the vehicles are powered by natural gas. It eventually wants to power all its vehicles using methane – which is produced by rotting fruits and vegetables. The waste that used to go to the landfill will now power Tesco’s fleet.

Operational data like average speed, braking etc. is processed for each truck and the driver receives a report with personal tips [for] efficient driving. Tesco predicts that the fuel bill will drop by 7% because of [these actions], resulting in less emissions and [better] fuel economy.

For most companies, excellence in supply chain management is not enough to ensure growth and profits, but it certainly is a key contributor to a company’s ongoing success.

Advance Warnings

Consumer Packaged Goods (CPG) | By Steve Banker • 04/30/2009

I recently wrote a piece called “The Reset Economy” where I argued that for various macroeconomic reasons, demand may not bounce all the way back after the recession ends. Consequently, many manufacturers may end up with more capacity than they need. I believe this is the biggest supply chain problem many companies will confront over the next few years.

If that is the case, then companies need to conduct some strategic planning and scenario analyses -e.g., if demand does not fully bounce back, which factories should I shut? I have been asking myself another question lately: How much advance warning can companies get about demand patterns once the economy rebounds?

I came across an article by the Infosys supply chain consulting team where they made the following statement: “Economic data such as wage inflation and price inflation should be leveraged in econometric forecast models particularly for CPG, Hi-Tech and Automobile sectors.”

This motivated me to go out and look for firms that can help companies incorporate econometric models into industry, or company specific, demand plans. It turns out that there are consulting firms made up of economists that do this kind of work. One of the biggest is IHS Global Insight, and they published an article called “Selecting a Marketing Mix Strategy: Why the Economy Matters,” where the authors (Antonia Prlic and Hemant Sangwan) make the following points:

Consumer goods manufacturers and retailers regularly make critical decisions about pricing, product, distribution, and promotion (the “marketing mix”). During a recession, consumers become more cost conscious, buying lower priced store brands, for example. If a manufacturer’s product is priced lower that competing products, they should highlight this point in their promotions. They should also promote large product packages, which have lower unit prices, more extensively than smaller packaged items.
Manufacturers and retailers should keep track of key economic indicators (e.g., consumer confidence, fuel prices, disposable income, etc.) and take into account overall macroeconomic conditions when developing their marketing mix strategy.
Tracking some of these macroeconomic indicators can provide advance warnings into a category’s sales!

For example, the authors provide a chart in the article that shows the historical change in gross domestic product, along with their forecast for coming quarters, and a second chart that shows the percentage change in consumer spending on furniture and food categories based on GDP. The correlation between the two charts is impressive.

Econometric models can be far more complex, taking into account things like discretionary versus nondiscretionary spending, consumer spending, household income, tax rates, employment rates, and other variables. Most companies would probably need help developing the initial models, but afterwards they could track the statistical correlation to the various variables themselves, as well as make the appropriate changes to their demand models.

From the perspective of longer term demand-supply balancing, these models are only helpful if the longer term forecast of the underlying macroeconomic variables, like GDP, are reasonably accurate. We certainly know that economists have not been very good at forecasting recessions. Still, I’m intrigued by this. I’d love to hear from you. Are any of you using econometric forecasts effectively at your companies?

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