Business students are all exposed to the Strengths, Weaknesses, Opportunities and Threats (SWOT) analysis tool. This last week I came across several interesting stories – or in one case a presentation – that all centered on different aspects of SWOT in the supply chain realm.
First, STRENGTHS; Greg Toornman – the Director of Global Materials, Logistics, and Freight Management at AGCO – spoke last Wednesday (February 14th) at ARC’s 22nd Annual Industry Forum. AGCO is an $8.3 billion farm equipment manufacturer. Greg gave a great speech, in my opinion the best I saw at the forum. AGCO has won awards for their accomplishments over the last few years, including winning the 2017 European Logistics Association Award.
Following their analysis of their capabilities, which undoubtedly included a SWOT, AGCO did a worldwide integration of their inbound supply chains across their various brands – Massey Ferguson, Challenger, Valtra, Fendt, and GSA. Their key tools were a transportation management system (TMS) from 4flow, SAP’s Supply Network Collaboration tool, and a supply chain risk management solution from riskmethods.
The result? Freight savings of over 20 percent while maintaining service levels! Putting in a TMS and achieving freight savings is not all that unusual, but AGCO’s freight savings are the greatest I’ve ever come across.
But the risk management capabilities they’ve developed are particularly ground breaking. Greg told the story of an important supplier to the industry having a fire at their plant. AGCO knew about the fire before the owner of the company! Their call to his house to discuss the situation woke him up. By getting to this supplier first, they continued to get their full allotment while their competitors were forced to go on allocation. That is a supply chain strength!
Now let’s move to WEAKNESSES. In the news today – February 19th – fast-food chain KFC has had to close hundreds of outlets across the UK after they ran out of chicken. Until last Tuesday, KFC’s chicken was delivered by South African-owned distribution group Bidves. But to save money, they switched the delivery contract to DHL, which blamed “operational issues” for the supply disruption. Eventually, they will get this straightened out, but this division is unlikely to hit its revenue targets this year; not just because of the business they’ve lost, but because existing customers who were disappointed will be less likely to risk eating at the restaurant for some time.
OPPORTUNITIES! An interesting story in the Wall Street Journal last week discussed 3G Capital, a Brazilian investment firm. 3G Capital is expert at buying mature companies and then wringing savings out of the acquisitions. 3G owned H.J. Heinz and Heinz in turn took over Kraft in 2015. When Heinz finalized the deal, they put many of their executives in control of the new merged company Kraft Heinz. Their goal was to drive two billion dollars in savings by closing some plants, adding automation to others, running lean on inventory, and running a far more efficient supply chain network. Their acquisition/cost cutting playbook had been honed with previous acquisition that created Anheuser-Busch InBev and the acquisitions of Burger King and the Tim Hortons fast food restaurant chains.
A couple paragraphs caught my attention, “’A lot of times products are basically…shoehorned into a factory,’” said Mr. Shannan, the supply-chain chief. “’It’s not always an optimized design of how things should work.’ In the broader overhaul of nationwide production, the company used computer modeling to analyze where it sourced ingredients, where it needed to ship finished products, and the cost and availability of labor and other resources. The model spit out ideal locations for factories and warehouses… Product lines were grouped more logically. The bologna line in the old Davenport plant was shifted to join the chopped ham line in Kirksville, Mo., which uses similar ingredients and processing techniques.”
The software that drives this kind of analysis is known as supply chain design. LLamasoft is the best known supplier of this type of software, and they have several case studies on their site about how their software has been used to drive these kinds of network efficiencies after a merger or acquisition.
But this was also a story about challenges. Kraft Heinz now has the highest operating margins among its peers. But because Kraft Heinz sells foods like bologna which are going out of favor among more health-conscious consumers, their challenges are not over. It is unlikely that marketing can goose sales for these types of products, so financial analysts are pressuring the company to continue to grow by making more acquisitions.
Finally, THREATS! It is no secret that Amazon has used an innovative supply chain to steal market share from retailers. A new category of retailers has been threatened. Amazon announced they have introduced free, two-hour delivery from Whole Foods stores to its Prime members in four cities. We can expect Amazon to continue this trial until they work out the wrinkles and then to begin offering this service in other cities. Amazon purchased Whole Foods last year and this move was expected. Nevertheless, grocery chains face the same threats other swaths of retail have faced for some time.
Success is by no means guarantied. Delivering refrigerated and frozen products is more challenging, consumers may reject produce deliveries – driving up returns costs, and over the past few decades several companies have tried to crack the home delivery grocery market unsuccessfully. Nevertheless, traditional groceries would be foolish to ignore this new threat.
Finally, it is perhaps obvious that every organization should do a SWOT analysis of their supply chain at least once a year, but many companies do not.