Road miles was key topic of discussion at IGD summit
Road miles was key topic of discussion at IGD summit
With stagnant volumes and volatility in costs putting pressure on margins, more companies are turning their attention to supply chains to eke out savings. But other changes in the market, not least shopper promiscuity and the rise of non-traditional outlets, means manufacturers have to weigh up a series of factors when looking to make changes to their supply chains. just-food reports back from the IGD Supply Chain Summit on what executives in the field believe are the key issues to consider.
Fragmentation in demand
The changes in the landscape of markets like the UK are putting new pressures on supply chains. In markets like the UK, mainstream grocers now have a portfolio of outlets of varying size, with different opening hours and often in contrasting locations. Serving these different types of store format is a challenge for retailer and supplier. Keeping costs down while supplying smaller stores, for example, is a challenge. However, convenience and online, at least in the UK, are two of the market's more buoyant channels and the industry needs to change its operating models to adapt. While once consumers wanted the convenience of everything under one roof, shopping little and often has become the norm, adding cost to the chain.
"The market is changing at a pace that it's never done before," Natures Way Foods chief executive Susan Barratt said. "People are buying different things and are buying in different ways. Salad is now a myriad of different of things and that means a significant increase in SKUs that we are dealing with and increased complexity through the supply chain. People are also eating in different ways; they're buying their food from different places. There is a huge explosion in food-to-go outlets out there - there's street food, there's pop-up food - and somehow we've got to hit those consumers."
Morrisons supply chain director Malcolm Basey said the convenience, discount and online channels are expected to grow to 42% of the industry by 2020. "That is a headwind, those smaller parcels of movements we are going to contend with. How are we going to overcome that?"
The importance of collaboration
The IGD Supply Chain Summit was held in London last week (11 November) and much of the discussion at the event was either focused on the UK market or had trading conditions in the country at the forefront of the debate. However, delegates did travel in from further afield and there were issues that could translate to other countries, particularly the developed markets of western Europe.
One topic emerged time and time again - the importance of collaboration between stakeholders in the supply chain and, particularly, between supplier and retailer and also between suppliers. This is not a new issue. When just-food has attended the summit in the past, delegates have been urged by their peers in the supply chain to try to work together to find savings and improve efficiency. However, the fact the topic came up in each session this year indicates the industry knows it has to do more.
Why were there persistent calls for collaboration? Tackling costs is often held up as one reason. Tony Mitchell, supply chain director for forecasting and ordering at Tesco, said the industry needs to build relationships to work on supply chains together. "An efficient and cost-effective supply chain is a competitive advantage in today's retail environment," he said.
However, Mitchell sought to highlight another benefit. "We really believe the supply chain is a real opportunity to drive cost out of the business but also to be the guardians of availability for customers. This movement of goods, there's massive opportunity when you look beyond our own internal ordering systems. A lot of our priorities going forward is how we can be more efficient and effective with the movement of goods. When you start looking at how we move product from A to B in the most effective way, we really need to collaborate really well with your partners."
Barratt put forward perhaps a more basic benefit but an important one nonetheless. She noted there can be a higher "churn" of people at the company's retail customers. "Their knowledge base is not quite as good necessarily as ours and so we spend a lot of time trying to collaborate with our customers to make sure we are making decisions together."
She said those working together in the supply chain need to "align objectives and your KPIs" and try to obtain a "true knowledge of the whole supply chain". The Natures Way Food boss used jelly as a metaphor for the challenge of working together. "We've all seen this many times before. One person in the supply chain will say: 'I've found some value over here', they'll push it down and some costs pops up over here." 
Road miles
The summit kicked off with a breakfast briefing on road miles. One of the speakers, Morrisons' Basey, said the industry was facing pressure on margins and insisted there was an "enormous" opportunity to capture savings in this area.
However, Basey pointed to other reasons for actions. The UK Department of Transport estimates there will be a 25% increase in road congestion in the next ten years. He cited stats from the Freight Transport Association, which claimed there was a shortage of drivers to the tune of 60,000 and said over 75% of drivers are over 45 years old. And the Morrisons executive warned legislators could act on still-rising emissions.
Basey is part of an industry workshop looking at transport flows. The group has produced a white paper and its conclusions were outlined by Darren Smillie, the IGD's supply chain insight manager.
Smillie said there were five ways businesses could look to improve their supply chains:
- sharing assets in networks, from trucks and facilities, to using data to pool information on flows, although he cautioned about a "hosepipe" of data and said companies should focus on "actionable insight"
- making sure networks are flexible, which Smillie suggested would involve working together to design networks, as well as developing multichannel solutions. "Fewer people are focusing on what future structural changes are coming down the line," he said. "Way down the bottom really is, when they are designing networks, people considering opportunities for collaboration - sharing warehousing or transport. The more companies who come together to design networks, the more the size of the prize that can be actually delivered."
- Using data to optimise decisions. Smillie gave examples of how routes are structured or scheduling orders. He reflected on the early development and use of the Internet of Things in the FMCG sector. "A lot of companies still haven't got their head around EPOS data but a revolution on data is coming. This will give the supply chain visibility of demand ahead of the consumer."
- Considering different types of transport, which is perhaps the most obvious solution when weighing up road miles. Much of the industry are using rail; Smillie said large volumes are needed to make rail work and said collaboration could help the mode of transport "viable". However, he suggested an "external influence" like technology or legislation would be the catalyst to accelerating efforts in this area.
- looking at the product, which is a factor some forget, Smillie argued, when analysing road miles. Packaging and the form in which the food is shipped could be areas to consider. Perhaps unsurprisingly, collaboration has a role to play. "Just because a company owns a warehouse doesn't mean all the stock in the warehouse has to belong to them," he said.
But why are many in the industry reluctant to work together on road miles? Keith Smith, supply chain director at Mars Inc and another member of the working group on road miles, said there is feeling in parts of the industry collaboration could add to business risk. However, Smith disagreed. "By bringing together more parties and having a bigger network, you're spreading your risk against future bumps you may see in the supply chain."
On-shelf availability
Availability is perhaps the key measure used to judge the success of a supply chain. Nestle gave a presentation to the conference on how the food giant has sought to increase the availability of its products on store shelves.
Maria Clara Esguerra, the head of global customer supply chain at Nestle, said the company wanted to "win with the shopper at the point of sale" and last year started a programme to improve on-shelf availability in 30 markets.
Esguerra highlighted the importance of ensuring the processes Nestle put in place to improve its availability took into account "the commercial agenda" of the wider business. "We have to align with our sales colleagues. We have a very proportional alignment between operations and sales."
She acknowledged engaging the wider business to make availability "our first priority" had been "very challenging" but outlined a series of initiatives the company had developed that involved staff from outside the core supply chain function.
One programme was called TADIS - or "Take a day in store" -  Esguerra said the initiative had produced "very good results" "A group of people from different areas of Nestle go with the customer and fill shelves very early in the morning. We get to the store at 5am. We want to understand what is happening. We have a lot of good insight but I think the most important thing is to engage people to be more aware of the shopper's point of view."
The company has so far looked at its on-shelf availability in 30 markets, with Esguerra insisted it had seen "a 100 basis point" improvement. "We still have a long way to go," she said.
Nestle has developed an app to take its work further - and which is a further sign of the importance it places on trying to build engagement across the company. The app - called !nShelf - can be used by any Nestle  employee while grocery shopping to measure product availability and freshness on shelf.