Organizations have started restructuring and realigning business models after the success of certain sectors and businesses last year. As a result, there have already been a number of announcements in the market of sizable shifts in business direction and this is only going to continue.
The mistakes and successes of last year’s supply chains, analysed by boards and business leaders, are now at implementation stage.
The call for senior level talent has been rapidly rising over Q1. Businesses are looking to attract top leadership away from their closest competitors to plug and play. It has seen a real need for ‘complete recruitment management’ to try and negate post offer buy-back and retention of staff. This is something we expect will be more prevalent in 2021.
Businesses know that sustainability must be at the forefront of their 2021 plans. However, many have not yet solidified the right strategy or people to ensure success. Companies cannot and do not become sustainable overnight. They need to be fully integrated into a commercial plan, as transformation is expensive and cannot simply be a PR exercise. This perspective is now receiving more traction. But seeing as only 6% of directors at the top 100 companies in the US have relevant credentials in environmental protection, the size of the problem at hand is clear. Businesses need to be appointing Chief Sustainability Officers. This way, they will drive change right from the top and down through the value chain.
Organisations also need full life cycles of sustainability as this will impact the cost of goods moving forwards. Even when looking at packaging, the sizable shifts from plastic to paper globally are going to impact the final price. This is due to the 20-40% rise in the price of virgin pulp, as well as the technology needed to impart the necessary properties onto the more sustainable material.
Looking at the category of ‘refills’ to reduce the amount of waste created, being a first mover is going to affect the bottom line. These products are cheaper to the customer, but just as expensive to make, until a certain economy of scale is hit.
One of the hottest roles currently on the market is that of Sustainable Procurement Professionals. SPPs are those who can look at the full life cycle of their supply chain and assess the vendors all the way down to raw materials.
Mars goes 100% renewable
Mars Australia announced its transition to offset its’ six factories and two Australian offices with renewable electricity. The move comes as part of Mars’ Sustainable in a Generation goals, kicked off in 2017 with a USD $1 billion commitment.
Mars is obtaining its electricity offset through Kiamal Solar Farm. This isVictoria’s largest solar farm, which they’ve acquired as part of a power purchase agreement with Independent Power Producer (IPP) Total Eren. Last year, Mars consumed over 85GWh of electricity in Australia. In light of Australia’s fluctuating energy costs, it’s a sound business decision for Mars to invest in that amount of solar power.
Greenpeace REenergise campaign director, Lindsey Soutar, praised Mars for becoming one of the first Australian companies on track to hit its 100 per cent renewable goal. “Mars is shifting the dial on corporate renewable energy commitments and showing that stepping up to tackle emissions isn’t just good for the climate,” she said. “It’s a sweet deal for business too.”
Cost v Agility
When COVID-19 paralysed global operations, supply chains – for many an unseen cost centre – were plunged into the spotlight. Research conducted by Bain & Company revealed several flaws with supply networks. For instance, companies with supply networks designed for maximum cost efficiency were unable to respond quickly enough to the sudden supply shocks and demand spikes. The price of efficiency came at the cost of resilience.
As a result, boards and executives continue to review lessons learned and realign their supply chain goals. The study shows that the share of executives rating cost efficiency as one of their top two supply chain goals fell by 13%, while agility rose by 24%.
The profile of the Supply Chain Executive has been elevated in many boardrooms as the debate continues. How do we increase resilience and crucially, how much will it cost? The most popular agenda points continue to include omnichannel fulfilment, predictive planning, demand forecasting and flexible manufacturing operations.
As consumer organisations continue to adapt throughout the ongoing pandemic and subsequent lockdowns, one key aim is to streamline the number of products that they carry. One way of doing this is to reduce SKUs, thereby reducing costs and offering better service around more popular products.
As the Wall Street Journal reports, panic buying in March 2020 cleared supermarket shelves of staples. When this followed with the rush to replenish supplies, it forced producers to cut back on options and focus on the most in-demand products.
More recently, with McKinsey observing that over 61% of FMCG businesses were planning to reduce their SKUs moving forwards, it appears most CPG businesses will continue with this leaner approach in a post-COVID world. Analysts have highlighted that one of the world’s largest FMCG organizations may axe up to 30% of its SKUs. This is one of many steps in its post-COVID recovery plan.
As we move into 2021, this will also have a knock-on effect on internal supply chains. So we can expect greater emphasis placed upon consumer analytics to better predict demand.
Digitalization and Ecommerce
The use of technology is now imperative to understand market trends. Additionally, the use of AI is taking on a pivotal role going into the future. Data is paramount to this and every major company is looking to capitalize on emerging technologies. The thought is to sift through massive amounts of raw data, hoping to find a competitive advantage when forecasting accuracy and agility. Candidates with digital supply chain knowledge can significantly improve S&OP whilst also optimizing logistics operations to minimize lead-times.
The development of the digital twin continues to drive efficiencies across manufacturing sites. More and more organisations are following Unilever’s example and adopting the technology to make this happen. In a recent McKinsey Lighthouse presentation, a number of CEOs were highlighting this as a real game changer in cutting waste and inefficiencies, driving best practice through data and analysis.
The companies that invested in their ecommerce channels during the pandemic were the ones that succeeded and the consumer now expects this more than ever. A common pain point for many companies is finding the balance between reengineering entire supply chains to cater for E-Com dominant strategies and managing the disruptions from COVID-19 from a logistics standpoint.
Candidates with experience in setting up the ecommerce supply chain strategies can successfully connect all areas of the supply chain. This will help give the customers what they expect; speed and reliability. Digitalization is one of many sizable shifts that has been on the horizon for a long time. However, with the advent of the coronavirus pandemic, its implementation has sped up exponentially.
Moves and Investments
Location shifts continue across Asia in 2021 with SEA still the primary beneficiary. CNA reported that Foxconn’s latest plan is to invest USD $700 million and add 10,000 jobs in Vietnam this year. The plant is expected to produce 8 million products per year, including the iPad and MacBook. “This seems to be the result of Apple asking suppliers to move their production out of China,” said Taiwan News. Foxconn’s total revenue in Vietnam amounted to $3 billion in 2019 and $6 billion in 2020. It is predicted to reach $10 billion this year.
Yum! Brands, Inc. (NYSE: YUM) announced earlier this month that it has entered into a definitive agreement to acquire Kvantum. Kvantum is a leading artificial intelligence-based consumer insights and marketing performance analytics business. The move further emphasises the importance Yum! and other businesses are putting on data analytics. The incorporation of artificial intelligence on this scale is another of many sizable shifts we see. This is paramount to the success and future profitability of businesses like this.
Yellow Wood Partners LLC, a Boston-based private equity firm focused on investing in consumer brands and companies, has purchased the Scholl footcare brand, which operates globally outside of the Americas, from Reckitt. The acquisition will reunite Scholl with the Dr. Scholl’s brand as one entity after 31 years of separate ownership.
In conclusion, we are seeing a number of sizable shifts taking place throughout the supply chain across the globe. For more developments and the latest trends in supply chain, check out all our Proco Insights.
This article was originally published with our March 2021 edition of our Proco Thinking New, read the full newsletter here.