The ongoing consolidation among grocery and other retail channels is concentrating more and more market share and power in fewer retail chains, increasing their leverage to dictate price, service and supply chain technology terms to their food and beverage suppliers. Competition at all levels is intense, driving most retailers to invest heavily in supply chain technologies that force corresponding process and technology changes in their suppliers. Retailers continue to use financial and operating leverage on their suppliers to drive more and more supply chain and information services. As a result, food and beverage companies must invest heavily in supply chain technologies just to remain in the game.
To achieve competitive advantage requires advanced thinking and strategic technology investment, while coping with the relentless demands of retailers to take costs out of their own supply chains by pushing responsibilities back up the channel. Yet, the need to focus on operating cost reduction and functional excellence in such areas as distribution and transportation shines through as critically important.
A recent survey of 30 prominent food and beverage companies showed that most are sticking with core concerns (e.g., high focus on reducing operating costs), while simultaneously making investments in many of the new application areas (Figure 1). Given the relatively low growth in end-consumer markets for food and beverage companies, continued retail price pressure and fierce competition, this cost-reduction focus is not surprising.
Figure 1: Key Logistics Initiatives for Food and Beverage Companies
(1 = not important and 10 = critically important)
Nevertheless, many food and beverage companies have not taken advantage of several opportunities that represent “low hanging fruit” for cost and profitability improvement. Among the opportunities that promise immediate impact are scorecarding and metric systems.
There has been a significant level of interest and investment in online business intelligence and analytic applications by corporations in recent years, typified by such frameworks as “the balanced scorecard” for managing overall company performance.
Generally, these corporate scorecarding systems have not focused on the needs of the company’s supply chain and logistics organizations. This is clearly indicated from the survey results (see Figure 2), in which only 16 percent of food and beverage logistics executives surveyed characterized their scorecarding systems as “highly effective,” while 12 percent indicated their scorecarding systems were “highly ineffective.” The vast majority characterized their metric and scorecarding systems as either “moderately effective” (56%) or “moderately ineffective” (16%).
Figure 2: Current Logistics Score Carding Effectiveness
The reason for this lack of satisfaction is clear from the tools the respondents use for managing scorecard information. No respondents (zero percent) were using online analytic applications (see Figure 3). Conversely, 60 percent were using scheduled (e.g., monthly) static reports, versus 40 percent that obtain such reports on an as-needed or requested basis.
On-Line Analytical Decision Support System |
0% |
Scheduled Static Reports |
60% |
Requests For Reports As Needed |
40% |
Figure 3: Current Scorecard Systems
Clearly, the supply chain and logistics organizations of food and beverage companies must invest in systems that provide more robust, powerful capabilities for scorecarding, performance measurement and decision support.
Performance measurement is essential to achieve functional and corporate objectives and to drive continuous improvement. Yet, many food and beverage companies have substandard metric and scorecard systems. This is true at individual facilities and in functional areas (e.g., for a particular distribution center or the transportation department) and certainly for the enterprise logistics system as a whole.
“Business intelligence” tools have gained widespread acceptance in other areas of the corporation, such as finance and marketing, but have had very low adoption in supply chain and logistics functions. This is evident from the survey results, where all respondents were using either standard computer reports or periodic queries, with no company indicating use of an online analytic tool.
Simply adopting a more comprehensive set of metrics and distributing them to the appropriate managers can drive significant benefits. For example, one large food industry company is tracking more than 250 metrics to manage its own logistics operations and those of its 3PL providers.
However, use of existing logistics scorecarding tools can turbo charge performance measurement. The benefits of these tools, available from a few leading supply chain and logistics application providers, include the following:
Improved customer satisfaction: By including a robust series of customer-focused metrics in the scorecarding tool, companies can ensure a much higher level of customer satisfaction. Graphical performance metrics can also be delivered over the Web to customers.
The results of this survey are clear. The food and beverage industry has invested heavily in cost-reduction initiatives without much success, while the pressures to reduce costs have increased. Mergers and acquisitions have created even more powerful entities, but the cost reduction attempts of these stronger, more powerful players have had mixed results.
Efficient Consumer Response (ECR) continues to be important, but it has not provided the anticipated benefits. Vendor managed inventory (VMI) has strengthened relationships, but not delivered reduced costs. With costs being such an important driver in these industries, how can companies unlock value without wasting efforts on yet another program? The answer lies in developing processes that hinge on cooperation and collaboration, with a focus on the ultimate customer. Technology must be used appropriately to foster this collaboration and the execution of a total operations supply chain strategy. It is no longer company versus company, but supply chain versus supply chain.
Companies must move from a “customer service” orientation that measures how well they conform to internally generated performance metrics to a “customer satisfaction” focus that understands how the company’s supply chain performance is meeting customer expectations and requirements. It is the customer who must dictate the definition of customer satisfaction and the pace of change.
Prudent supply chain leaders in the food and beverage industry must recognize the link between performance measurement, cost reduction and continuous supply chain improvement. As the survey indicates, many companies recognize that their existing scorecarding systems are ineffective and will continue to invest in improved scorecarding processes and technology during the next several years.
Improved metrics can provide a highly dependable payback while your company pursues other higher-level technology supply chain strategies. Tompkins Associates can help you exploit the scorecarding opportunities in your business. Tompkins is uniquely qualified to support customers in achieving this goal because Supply Chain Operations is our core business. Tompkins’ years of experience in operations and systems will help you:
We will help you achieve improved costs at all levels of your supply chain – in real time, for realizable cost reductions, while attaining improved service.
Tompkins is an industry leader in supply chain strategy, network design, distribution center (DC) design and implementation, and IT systems selection and implementation. Our business model provides comprehensive services to assist our clients from conceptual strategy through implementation while minimizing risks.
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