There's a reason companies committed to redesigning their supply chains will spend big sums on processes and tools designed to do that: It's because they work.
That, it seems, is the takeaway from a just-released survey of 350 top executives of large global consumer goods manufacturers commissioned by a division of Morris Township, N.J.-based conglomerate Honeywell International Inc. The survey, which measured respondent attitudes about their direct store delivery (DSD) operations, found that 32 percent re-engineered their DSD processes from the period between September 2012 and September 2013. On average, those companies reduced, or expected to reduce, their annualized costs by $734,000, according to the survey.
The savings got larger when the survey looked beneath the hood. Of those who had undertaken process improvements, 20 percent have saved or expect to save $1 million a year. Of the larger firms, defined as companies with more than 3,000 employees, 20 percent said they reaped or expected to reap $3 million a year in savings, the survey found.
Of the total universe, 40 percent said they had implemented DSD process improvements before the period covered by the survey. Organizations that have yet to act report they are constrained by budgetary concerns and other competing issues that have taken priority within the organization, according to Brian Schulte, industry director for direct store delivery at Honeywell Scanning and Mobility, a unit that, among other things, designs and implements process improvement technology in this category.
The respondents were executives of companies that mostly make "fast-moving consumer goods," household staple items that require rapid replenishment because of the frequency of their turnover. Improving the way these products are ordered, sold, and delivered to the store level—either direct from the factory, from a retailer's DC ,or through a wholesaler—is the Holy Grail. Nearly 60 percent of the surveyed organizations view DSD as key to their strategy. About 71 percent of respondents said they generate at least half of their revenue from DSD operations.
About 35 percent of respondents said "operational efficiency and productivity" have been the primary goals of their DSD re-engineering efforts. That was followed by 19 percent each for revenue generation, operating cost reduction, and improving in-store execution (for example, building in-store promotional displays on time).
The executives represented businesses from all over the world, with less than one-third from the U.S. The annual revenue of the typical company was more than $2.7 billion. The Honeywell unit could not identify any of the companies or provide examples of strategies, tactics, or projects that yielded cost savings. A third-party research firm conducted the survey on a confidential basis, and the unit had no access to that level of detail, Schulte said.
The respondents who undertook re-engineering efforts projected $889,000 annualized fuel savings; $725,000 in savings from more cost-effective merchandising; $686,000 in savings at the receiving level; $682,000 a year in delivery savings; and $665,000 a year in improved payment processes. The respondents added that they could shave 2.5 hours a day from each DSD route by utilizing workflow optimization tools and processes, according to the survey.
Schulte said that although the challenges confronting companies with DSD operations differed by world region, some were universal. These include fast-changing expectations from an increasingly demanding customer, the proliferation of social media, the explosion of so-called big data and the task of synthesizing the numbers into actionable information, and the rapid growth of stock-keeping units to satisfy growing consumer tastes in expanding geographies.
For example, Schulte cited data from the National Beer Wholesalers Association (NBWA) that showed that, between 2007 and 2011, the average number of SKUs carried by beer distributors more than doubled to 536 from 262.