When the problem is in the supply chain
A global multibillion-dollar food manufacturer used to enjoy double-digit growth in its worldwide sales. But over a 10-year period, sales growth dropped into the low single digits, and the company’s profit margins shrank commensurately. And the company anticipated that volatile business conditions would hurt its margins even more in the coming years.
One significant issue was that the supply chain leadership team was in flux. With no succession plan in place, the team became leaderless when one of its top executives retired. What’s more, the company had lost its competitive cost advantage. To stabilize the supply chain function, improve its sales-and-operations-planning (S&OP) processes, and regain cost competitiveness, the food manufacturer engaged AlixPartners.
Logistics leadership has to be a priority
As a first step, AlixPartners appointed an experienced logistics professional as the interim vice president of the company’s supply chain and worked to bolster operational performance while building a leadership succession plan. The VP quickly began cultivating strong working relationships with key stakeholders throughout the company, including the heads of sales, finance, manufacturing, agriculture, and other stakeholders. We also restructured the North American supply network to focus on a more regional production and distribution approach, with the goal of reducing distribution costs.
The newly revamped supply chain was challenged to manage some of the most-dynamic conditions the business had seen in recent times, including the loss of a critical warehouse from the network, a shake-up in the company’s over-the-road carrier base, a port strike, and significant challenges to raw-materials availability. During all of those setbacks, we represented the supply chain function on the company’s internal crisis-management team.
Throughout the engagement, we analyzed the company’s S&OP processes to uncover improvement opportunities. At the same time, we mobilized a focused improvement team to attack inefficiencies at plants throughout the company’s global network, with the aim of reining in costs across a range of categories.
When it really matters
Thanks to the revamped supply chain leadership team, the food manufacturer successfully weathered its crisis and began serving its customers with far fewer interruptions. Ultimately, as part of the succession plan we jointly developed, the company appointed a permanent VP of supply chain. The supply chain team’s steady performance during the tough times enhanced the function’s reputation among key stakeholders within and outside the company. In addition, our analysis of the company’s S&OP processes enabled us to offer recommendations for streamlining them and dramatically improving sales forecast accuracy.
Collectively, cost reduction efforts delivered an overall year-one impact of more than $200 million, with $100 million of additional impact planned for year two. Net margin improved by more than 100 basis points, and SG&A costs dropped by $50 million per year. The company captured more than $80 million in annual cost savings from the focus improvement team. Cross-category cost reduction initiatives delivered spending reductions of more than $30 million per year. And a strategic shift to a regional production and distribution model for the supply chain lowered total delivered cost by $40 million per year.