Coca-Cola Thinks More in Terms of Value Chain
By Dan Alaimo
Coca-Cola is taking a fresh look at the way it does business and is thinking more in terms of a value chain than a supply chain.
“We are seeing a power shift from the supply side to the demand side, from the supply chain
to the consumer,” said J. Alexander (Sandy) Douglas, Jr., president, Coca-Cola North America, Atlanta. “Therefore, it is useful to start to talk about it as a value chain because the power
has shifted.”
Coke views data-driven collaboration as the way to make this change. “At Coca-Cola, we
see an opportunity to partner with retailers around the ultimate opportunity of creating value,” said Douglas, speaking at the opening session of the recent U Connect 2010 conference in San Antonio.
The event was hosted by GS1 U.S. and VICS (Voluntary Interindustry Commerce Solutions). Douglas is chairman of GS1, which defines ‘value chain’ as the result of information communicated through the common language of GS1 standards, creating greater visibility, efficiency, security and sustainability. However, other executives speaking at the event referred to “value” in the broader sense of how they can better serve the consumer.
Another speaker at the session, Bob Carpenter, president and chief executive officer, GS1 U.S., Lawrenceville, N.J., says this is a direction the standards organization can bring to the industries it serves. “There is a need to broaden our space beyond what was traditionally viewed as the supply chain into more of the value chain,” he said.
Rollin Ford, executive vice president and chief information officer, Wal-Mart Stores, Bentonville, Ark., also spoke at the session.
While supply chain issues such as showing sustainability metrics and having visibility to raw material suppliers remain, consumer-facing data is becoming an increasing need. “We know now that upwards of 50% of purchase decisions by consumers are influenced by information that they get off the web, and that’s only likely to grow with the capacity of handheld phones,” Carpenter said.
Coca-Cola is working aggressively to provide consumers with this kind of information using GS1 standards, Douglas says.
“We want to be the ultimate single source for fact-based information about our products regardless of the consumer source or mode of access. We think it this area of consumer information integrity is going to be critical in the ‘new normal’ as the power shifts to the consumer through technology,” he said.
The “new normal” references frugal shopper habits that are expected to continue even when the economy improves.
“We are learning every day how to leverage GS1 standards to make our business more valuable and the service to our customer even better. Standards are not only for our connections with retailers and foodservice partners, but also ultimately directly to consumers and shoppers, as well as to government and industry,” Douglas said.
“Whether you get your information through a mobile phone, or a retailer application, a restaurant menu, a government agency, a consumer web site, an industry association, or social media, we need to all make sure it is accurate and true, and ultimately we want to make sure that we are the source. This will allow us to continue to improve our supply chain, but also be an enabler of consumer understanding,” he said.
In the past year, Coca-Cola has been building an “integrated organizational approach” to provide accurate information about products for internal use, regardless of who needs to use it. “This allows us to know that the information is consistent throughout the company and our global system, and it allows us to know where and how the information will be shared,” Douglas said.
Douglas said GS1 can be much more than the place to buy a bar code, referring to its history as the originator of scanning. “As technology becomes more a part of everyday life, GS1 will continue to grow as an enabler of commerce.”
Coca-Cola believes that the value of standards – and partnering with others in the industry to develop vision, process and capabilities – is an important part of its future. “Ultimately we believe it is the key to eliminating non-value-added costs, and improving the service to the ultimate customer, and allowing us each to have the time to focus on more value-added activities like innovation and marketing and sales,” Douglas concluded.
Providing one example of using data to add value for consumers, Rollin Ford, executive vice president and chief information officer, Wal-Mart Stores, Bentonville, Ark., described how the retailer took a shopper insight about how certain customers, who live paycheck to paycheck, have less money at predictable times during the month.
“In some countries around the world, we are offering different pack sizes at the end of the month because of the paycheck cycle,” Ford said. In some markets, Walmart will sell individual diapers because the cost of the large packs is not affordable to those consumers,
he added.
“Right place, right time, right price. We’ve got to get it right, and we’ve got to start from a foundation, a framework and a standards perspective that makes sense for all of us,” he said.
“What will continue to enhance the entire market as we move forward is knowing the role standards should play in providing value to the customers around the world. Technology and an efficient supply chain help us get the right products to the right place at the right time at the right price – that story hasn’t changed for a long time,” Ford said.
Noting that Walmart’s core customer is female and a heavy user of new technologies, such as mobile phones and social media, Ford concluded, “It’s up to us to give her the products she wants when she wants them, whether it is in the emerging market or the open market. Our job is to anticipate what she wants and to delight her with whatever she chooses, and meet her at whatever channel she wants.”
Market Watch
Record Supply Chain Performance
Despite Global Economic Downturn
By Lynne Cooke
Consumer packaged goods companies report that logistics costs as a percentage of sales have decreased from 2005 and 2008 levels, when they held steady at 6.9%, to 6.75% in 2009.
These overall cost reductions are more impressive in the context of rising freight costs, which were up 11% from 2008 levels, according to a study released by the Grocery Manufacturers Association (GMA), the 2010 Logistics Benchmark Report. Conducted by IBM’s Institute for Business Value on behalf of the GMA Logistics Committee, the report is issued every two years and is based on a survey of logistics executives at CPG manufacturing companies.
“In the face of a global recession, food, beverage and consumer product makers are reporting overall supply chain performance improvements in all categories of cost, service and time,”
said study author Karen Butner, supply chain management global leader, IBM Institute for Business Value. “These improvements are the result of a vigilant focus on customers and containing costs.”
In addition to reducing cost per case, survey respondents reported that on-time delivery rates to customers, case fill rates (the number of cases shipped on the initial shipment versus the amount of cases ordered) and inventory management all markedly improved over the past two years. The report indicated that supply chain executives are gearing up for demand-driven supply networks, enhanced supply chain visibility, sustainability initiatives, and risk management issues as emerging priorities.
“The 2010 Logistics Benchmark Report confirms that a key to continued improvement for companies will be more accurately predicting customer demand and reacting to demand variability,” noted Bruce Hancock, director, supply chain management, The Hershey Company and chairman of the GMA Logistics Committee. .
The report is based on the responses of 26 senior logistics executives from GMA member companies to a 50-question survey. The average annual revenue of responding companies was $5.8 billion. The report is available online at www.gmaonline.org/publications.
VICS Awards Trading Partners
Top CPG companies and their trading partners were among the award winners at the VICS/U Connect Annual Conference recently in San Antonio.
Receiving the awards from The Voluntary Interindustry Commerce Solutions Association (VICS) were Timothy Smucker, Chairman of the Board and Co-CEO of The J.M. Smucker Company, and Danny Wegman, CEO of Wegmans Food Markets. The two winners of the Roger Milliken Lifetime Achievement Awards were decided by votes of the VICS Board
of Directors.
The VICS Roger Milliken Lifetime Achievement Award is one of the most prestigious awards a businessperson can receive. It honors the leadership and outstanding contributions of an individual who has advanced the entire industry over his or her entire career to date. The award is named after Roger Milliken, a founder of VICS who at 94 remains chairman of his family’s textile firm.
In addition, among the recipients of the 2010 VICS Collaborative Commerce Achievement Awards were:
- Kimberly-Clark for Supply Side Excellence. The company partnered with Expeditors International and implemented the VICS Global Logistics Model which enabled it to automate purchase order transmissions, the carrier booking process, ocean and air shipment tracking, shipment document imaging and invoicing;
- Walmart Stores for Retail Excellence. A team of experts from Walmart and Schneider National partnered to produce real-time electronic feeds of the transport process enabling the first-of-its-kind, comprehensive end-to-end snapshot of supply chain activity. Through this partnership, Walmart was able to integrate and synchronize supply chain activities, while leveraging global relationships to lower the overall transportation cost.
ScottsMiracle-Gro Turns to CHEP
CHEP, the world’s leading pallet and container pooling company, has expanded its commercial relationship with The Scotts Miracle-Gro Company, the world’s largest marketer of branded consumer products for lawn and garden care.
ScottsMiracle-Gro, based in Marysville, Ohio, is now shipping its Scotts and Miracle-Gro growing media, Nature Scapes mulch and Songbird Selections wild bird food to home centers, mass market retailers, supermarkets and wholesale clubs across the USA, Canada and Mexico on CHEP pallets. The company previously used limited-use white wood pallets. .
JUNE 2010
Pepsi Beverages Sees Manufacturing
Processes Moving into Distribution
By Dan Alaimo
Manufacturing concepts and processes are finding their way into the distribution side of the business, according to Pepsi Beverages.
With the decline of all types of domestic manufacturing, top executives are finding their way into supply chain positions, and bringing their knowledge and experience with them, says Shekar Natarajan, supply chain director, Pepsi Beverages Co., Somers, N.Y. Pepsi Beverages, formerly the Pepsi Bottling Group, merged with PepsiCo, Purchase, N.Y., in February and became a division.
The result of this influx is increased automation and a more efficient use of facilities, Natarajan notes. He spoke recently at the 2010 North American Material Handling and Logistics Show
in Cleveland.
Many manufacturing plants may have left the U.S., “but the mindset of manufacturing still remains,” he says. “You take classic manufacturing principles and efficiencies for building products, and apply it to [distribution] orders, asking: ‘How can I build the orders more effectively and efficiently?’”
Using auto-fulfillment systems, “we can take those orders and use manufacturing-like systems to make the assembly of the final order more efficient,” he notes. That saves on labor, which saves money, but also addresses the problem of a shrinking work force.”
For example, a soft drink merchandiser working at a store may spend a lot of time gathering what is needed to put up a display. Looking at it from a manufacturing perspective, “you want to take that work back to where it logically belongs: in a distribution center,” Natarajan says.
By using manufacturing systems and technologies, a company could create custom-built orders economically that can be efficiently delivered to the stores, he notes. “Then you are really talking about game changers,” he adds.
At Pepsi Beverages, “we are using some advanced storage systems, and also some order fulfillment systems, like robotic picking, to take the orders as they come in, and assemble them,” he notes. Additionally, the company is using a network-based strategy for order fulfillment in one location. By doing the order fulfillment more efficiently in one location, it frees up needed space in other facilities, Natarajan says.
The trend to using manufacturing concepts in distribution started around 2001. When Natarajan joined Coca-Cola Bottling Co. Consolidated in 2004, they had begun “the journey” addressing questions like: “What would an automated warehouse look like?” “How much automation is too much automation?” and “How can we optimize delivery?” He moved to Pepsi in 2006.
Now the distribution firms have the attention of the materials handling companies, who are coping with fewer manufacturing customers. “For them to survive, they have to think about putting together designs, concepts and technologies” as they look at their “next frontier,”
he says.
The result will be more affordable and innovative solutions for supply chain. Because the
labor force is shrinking, while the number of products is growing, “you need to do more with less, while carrying less inventory so as to drive your revenues and margins. The only way you can do that is to seek unconventional ways of picking, packing, moving and storing things,”
he notes.
This ultimately translates into customer service, Natarajan says.
“Our mantra has always been ‘never drop a case.’ By knowing what you have, where you have it, storing it the right way, picking and moving it efficiently, you are filling the customers’ orders in the most efficient manner, with close to zero out-of-stocks. You can never get to zero out-of-stocks, but at least you can be moving toward it,” he notes.
“Then you are addressing the fact that people want more choices. They don’t want just a carbonated soft drink, they want a carbonated soft drink and an apple juice, or something else. So you should give the customer many different profiles, and you need to be agile enough to do that. The only way you can be agile is to change the game in your warehouse and your distribution,” Natarajan comments.
He also discussed several concepts for the consumer packaged goods industry to embrace as it moves toward the future.
For one, they need to be able to change quickly. “You want the manufacturing to be more agile. You want to be able to make more products, because people like the idea of choices, and innovation is the name of the game. There’s a lot of emphasis now on using capacity more efficiently and effectively,” Natarajan says.
Compression of products is another emerging trend. For example, detergents are being made more concentrated in smaller packages. This can address the sustainability issue and reduce shopping trips for the consumer, he notes.
Many CPG companies are working on network optimization, which includes looking at where products are made, how materials are sourced, how much is manufactured, and how it is transported, he says.
Also, “there is a big push on energy efficiency,” either in waste management or energy conservation, he adds.
People can get their purchases customized for them either in-store or through an online Web site. “You as a consumer can pick and choose what you really want,” Natarajan says.
Finally, companies have had to address capacity rationalization because volume has been declining steadily, he notes. “You spend a lot of time, money and capital, and you want to make sure that you are maximizing the value you get out of your manufacturing,” he concludes.
