From the Outside In: Supply Chain as Strategic Advantage
Even non-supply chain executives appreciate the value of flexible and agile operations.
Leading companies have come to realize that supply chain management is vital to success in the global market. Organizations now put logistics operations on the agenda for management discussion—including in the C-suite.
CEOs recognize that their supply chains are strategic assets, both for delivering on the customer promise and for fueling growth. Overall, they give their supply chains reasonably high marks for client satisfaction and operational efficiency, according to a recent study by IBM’s Institute for Business Value.
Executives in outperforming enterprises, however, rate their supply chains even more highly. "Sixty-five percent say their supply chains are very effective at satisfying clients, and 62 percent say they are very effective at generating higher revenues, compared with just 42 percent and 27 percent, respectively, of executives in other organizations," the study reports.
To gain better insight into how "outsiders" perceive supply chain management, Inbound Logistics asked senior non-supply chain executives at two leading companies to share their views. They discuss the supply chain’s role in business generally, and within their enterprises specifically; how that role has changed over the past few years; and how it contributes to profitability, success, sustainability, innovation, customer service, and competitive advantage.
AT Unilever, flexible Supply Chain is The new table stakes
On any given day, two billion people use Unilever’s products to look good, feel good, and get more out of life. From long-established names such as Lipton, Knorr, Lifebuoy, Sunlight, and Pond’s to new innovations such as the Pureit affordable water purifier, Unilever’s range of brands is as diverse as its worldwide consumer base.
The company markets more than 400 brands, ranging from nutritionally balanced foods to indulgent ice cream, affordable soap, luxurious shampoo, and everyday household care products. Many of these brands embrace long-standing, strong social missions, such as Lifebuoy’s drive to promote hygiene through hand washing with soap, and Dove’s campaign for real beauty.
In 2013, Unilever reported annual sales of $66.6 billion. Emerging markets account for 57 percent of its business. The company employs more than 174,000 people.
"Unilever sees the supply chain as strategic, driven through global scale and deep expertise, and fully integrated into the business strategy," says Kees Kruythoff, president, North America, Unilever. "Supply chain is absolutely critical to Unilever’s success. Most importantly, it is about delivering value to customers. In an increasingly omni-channel environment, it becomes even more important to create a channel-segmented, responsive, and flexible supply chain—and to do so at the lowest possible cost. That has become the new table stakes."
Supply chain plays a lead role in supporting the global Unilever Sustainable Living Plan (USLP). Launched in November 2010, the USLP "sets out to decouple our growth from our environmental impact, while increasing our positive social impact," Kruythoff says. "It is our blueprint for sustainable business.
"By 2020, the plan calls for helping more than one billion people enjoy better health and well-being; halving our environmental footprint; and achieving 100-percent sustainable sourcing," he adds.
Supply chain has played a significant role in advancing the company’s sustainable sourcing initiative. "We went from sourcing 18 percent of our commodities sustainably in 2011 to 48 percent in 2013," Kruythoff notes. "That strategy includes a big drive to source from small farmers.
"We’ve also realized an 18-percent improvement in CO2 efficiency since 2010," he continues. "By 2020, our goal is to have CO2 emissions from our global logistics network at or below 2010 levels, despite significantly higher volumes."
To achieve this, the company plans to reduce truck mileage, operate lower-emission vehicles, employ alternative transport such as rail or ship, and improve warehouse energy efficiency.
"Supply chain is strategic, critical, and an enabler of change," Kruythoff concludes. "As the world gets increasingly digital and connected, supply chain will only become more important."
Supply chain creates value in three key areas, according to Salwan Sumeet, Unilever’s senior vice president, human resources, North America. "First, delivering cost effectiveness—the most obvious and direct benefit," he says. "Second, driving brand preference through product and service quality. Finally, driving growth, which is the most critical role.
"Customers are increasingly driving channel-specific business strategies, and adapting to a highly volatile world," he adds. "Being a partner of choice as they see opportunities or difficulties in the marketplace is a huge driver of growth."
Logistics operations also influence Unilever from within. "Nearly 65 percent of our employees work in supply chain," Sumeet says. "We can never underestimate this large and diverse workforce’s impact on our culture, values, and implementation of broader company strategies."
Supply chain also plays a major role in business strategy. "Delivering reliable customer service is top priority, and a critical foundation to engaging in strategic joint business planning with customers," says Todd Tillemans, Unilever’s senior vice president, customer development. "Supply chain is critical to our U.S. strategy, and especially to our goal of being our customers’ choice for top strategic partner.
"A flexible and responsive supply chain enables us to be thought leaders for our customers, drives overall market development, and makes it possible to achieve consistent top- and bottom-line growth for us and for our customers," he adds.
"Supply chain is important to delivering our USLP goals—not only for Unilever, but also for our customers, through our Joint Sustainability Plans," Tillemans explains. "These wide-ranging partnerships include building a sustainable future via renewable energy initiatives, cutting greenhouse gas emissions, and reducing solid waste.
"We are investing heavily in supply chain infrastructure to continuously improve, add more value for customers, and create competitive advantage," he adds.
Total Wine & More: Raising a Glass to Supply Chain Efficiency
Headquartered in Potomac, Md., Total Wine & More is the largest independent fine wine retailer in the United States. Its 105 stores across 16 states typically comprise 20,000 to 25,000 square feet.
Total Wine’s business strategy is based on three pillars: selection, price, and service. The supply chain is critical to delivering on each of these value propositions, says Edward Cooper, Total Wine’s vice president of public affairs and communications. Without an effective supply chain, the company would be hard pressed not only to meet the challenges of succeeding in this heavily regulated industry, but to deliver growth and profitability for today and tomorrow.
"We are committed to offering the best wine selection, with an emphasis on fine wines," Cooper explains. "This differentiates us from many U.S. retailers that specialize in one geographic area or price category. Our typicalstore carries more than 8,000 different wines from every wine-producing region in the world.
"Total Wine & More stores also carry more than 2,500 beers, and more than 3,000 different spirits in every price range and category," he adds.
Since opening its first store in 1991, Total Wine & More has focused on being the price leader in every community it serves. "Our tremendous buying power and special relationships with producers, importers, and wholesalers offers us considerable savings, which we pass on to customers," Cooper says. "This includes matching prices with such retail powerhouses as Costco, the largest seller of alcoholic beverages in the United States."
Because Total Wine is a direct-to-customer retailer, the company designs its stores to be welcoming and easy to navigate, with products displayed and organized clearly. Recent generation Total Wine stores, for example, offer beverage selection and wine/food pairing programs on iPads, as well as televisions broadcasting educational information. Its more than 2,000 store associates receive constant training to stay current on the latest wines, beers, and spirits offerings.
Managing large stores with extensive inventory requires an effective and efficient supply chain. "Our supply chain team facilitates product movement between suppliers and stores," says Cooper. "They work to ensure we have the right product in our stores at the right time for our customers by managing orders, inventory, and store replenishment functions."
This is no easy task, given the unusual complexities of alcohol control regulations and taxation in the United States. Alcohol distribution involves a three-tier system, comprising producers (wineries, breweries, distillers, and importers), wholesale distributors, and retailers.
Some states—or even counties—operate as alcohol beverage control (ABC) jurisdictions. Producers may only sell to distributors, who, in turn, may only sell to retailers. Distributors store product under strict security regulations, shipping it to restaurants for on-premise consumption, or locations such as ABC stores, Costco, Walmart, and other retailers for off-premise consumption. Internet sales of alcohol in the United States are low—just two percent of wine is purchased online—primarily due to these complex and strict regulations.
In the context of this arcane regulatory structure, Total Wine’s supply chain team is charged with working with producers and distributors to ensure a smooth operation.
"Jay Clarke, senior vice president of supply chain, works with our partners in the two supply-side tiers to ensure we are rarely out of stock, and customers can get what they want," Cooper says. "They expect that of us, and we do everything we can to deliver. This includes managing seasonal and holiday sales peaks and valleys.
"In summer, for example, beer consumption in the United States jumps by 15 to 20 percent," he notes. "Our supply chain team has to coordinate closely with producers and wholesale distributors to ensure the products we need get to our stores.
"To deliver on our lowest-price promise, Total Wine must closely manage its cost structure—and the supply chain comes into play in a big way," he continues. "Having a mature supply chain capability helps make sure products move from one location to another effectively and efficiently.
Supporting Small Business
"Our business model is to seek out new small brewers, vineyards, and artisanal spirits distillers, and bring these products to customers," Cooper says. "The big breweries have sophisticated distribution capabilities, but small companies do not. So our supply chain team works with them to design the logistics needed to support our stores."
Part of this forecasting support includes the craft beer market, which is expanding 20 to 25 percent year-over-year, making it the fastest growing part of the industry. It is also, incidentally, the sector of the industry that is most desired by customers, and most underrepresented in distribution. That’s why Total Wine seeks out purveyors of the latest craft beers, and puts together schematics for their distribution.
"These beers—along with new brands of liquor and various types of cigars—are exactly what Total Wine’s customers are looking for," Cooper says. "They are also the kind of business partners we want to build lasting and beneficial relationships with.
"Our supply chain team streamlines inbound-to-store deliveries to keep costs down—buying by the pallet load, for example, so we are not being inefficient by moving a few cases of wine on a big truck," he continues. "Supply chain takes our demand forecasts, determines what we need overall, how much inventory we can hold in our stores, and how we can move product efficiently to our locations."
Throughout all these activities, Total Wine’s supply chain group tracks and manages compliance with federal, state, and local regulations. "Our supply chain team works closely with the state alcohol and tobacco regulators to ensure paperwork is done, taxes are paid, and product gets from Point A to Point B in the most streamlined way," Cooper says.
Total Wine’s primary focus lies in being a brick-and-mortar retailer, and providing the in-store experience as a value-add to customers. But the company is also exploring the online channel. "We are looking at competitive threats such as Amazon, and the opportunities presented by Internet sales," Cooper says. "We are working with our supply chain group to work out compliance, taxation, and final-mile delivery issues. It’s an ongoing exploration.
"We want to grow together with our producers and wholesalers," he adds. "We are big enough, and have enough heft to help build brands, and we like to do that. It’s good for our customers, the producers, and wholesalers."
Total Wine’s supply chain helps make this goal a reality.
Building Agile Enterprises
As CEOs plan their strategies to take advantage of transformational shifts such as emerging markets, e-commerce, connected consumers, sustainability, and all forms of volatility, they increasingly turn to supply chain management to provide the adaptive execution they need to thrive.
Inside the Boardroom
“It is critical for non-supply chain executives to understand the way supply chain has evolved from a back-office operation to being the first agenda item in management meetings,” notes Carlos Alvarenga, partner/principal, advisory services, at consulting firm EY. “Not only has supply chain been elevated to the boardroom, but it is now the corporate strategy, especially in start-ups and e-commerce. The supply chain is the physical bridge to the Internet, so companies are built first as a supply chain, and then a business.
“If companies are not good at supply chain management, they pay a high price; the business may even fail,” he says. “Companies won’t achieve their goals if they don’t master this issue. McDonald’s, for example, is more a supply chain company than it is a food company. What it does logistically is remarkable.
“At other companies such as Apple, where product is preeminent, an efficient supply chain allows the business model to operate at a much higher level.
“Supply chain has been a fantastically successful discipline,” Alvarenga adds. “It was invented for manufacturing, but has expanded beyond its original borders into areas such as healthcare, staffing and human resources, and knowledge management. That demonstrates how much supply chain has evolved, and how effective it is at managing large, complex systems.”