Storyline - Grocery Manufacturers Association | GMA

Report
Not Just More Collaboration…
…Better Collaboration
In the course of working with each of our clients, we identify a range of possible alternative options to improve
its position and profitability. These options may relate to your conduct in the marketplace and may, therefore,
be governed by competition or antitrust laws. Our recommendations and analyses assume action consistent
with, and in no way are meant to imply that steps be taken contrary to, any applicable laws. McKinsey does
not render legal advice; if you have any legal questions relating to these options or our advice, we
recommend that you seek legal advice prior to taking action.
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McKinsey and the TPA have partnered to
develop new insights on collaboration
What we’ve done
▪
Surveyed 70 retailers & manufacturers
and spoken with executives across
supply chain, merchandising and
sales/marketing functions
▪
Interviewed ~30 industry executives
and experts on collaboration
▪
Incorporated insights from over 25
studies on collaboration
Who we’ve spoken to*
*sample of companies
| 1
Collaboration efforts are already widespread in
the industry
83%
of companies engaged in
collaboration efforts last year
# of collaborations last year
100%
More than
three
Two or
three
32%
22%
One
29%
None
17%
SOURCE: 2011 McKinsey TPA survey, CCM survey 2010, McKinsey analysis
| 2
However, collaboration efforts have delivered
mixed results to date
added
little or no value
had
not met expectations
produced
significant
results
Why do many collaboration efforts
fail to reach their full potential?
SOURCE: 2011 McKinsey TPA survey, CCM survey 2010, McKinsey analysis
| 3
Transformation in one company is challenging,
let alone across multiple
Retailers
Manufacturers
Category
growth
Buying
income
Hundreds of
categories
Efficiency
imperative
Brand
penetration
A few
categories
Product
margin
Sales growth
imperative
These inherent characteristics result in
different collaboration priorities
SOURCE: 2011 McKinsey TPA survey, McKinsey analysis
| 4
Despite hurdles, the size of the prize from
successful collaboration is large…
up to
4
p.p.
up to
5
p.p.
Increase in EBIT margin
for retailers
$8-12 bn.
EBIT value
for industry
Increase in EBIT margin
for manufacturers
given areas where
collaboration applies
… so don’t give up trying!
Note: Estimate of margin increase assumes collaboration across all categories and levers of collaboration; total industry value calculated
using impact of collaboration for top 25 categories, top 3 brand manufacturers in each category, and top 10 retailers in each category
SOURCE: McKinsey analysis, industry interviews
| 5
We have identified six initiatives that unlock the
most value: many are supply chain related
Area
Revenue
Growth
Category assortment
▪ Up to 3% sales improvement*
and promotion strategies
Merchandising and
in-store layout
▪ Up to 4% sales improvement*
Product development &
packaging innovations
▪ Up to 20% sales lift for NPI
▪ 5% savings on raw materials and pkg.
▪ 20 - 30% savings on inventory
▪ 30% obsolescence reduction
▪ 1 - 2% profit margin improvement
▪ Up to 5% procurement savings
▪ Up to 5% packaging savings
Demand planning and
fulfillment
Collaborative sourcing
Cost
Reduction
Impact
Product flow from
line to shelf
▪ 20-30% warehouse & inventory savings
▪ Up to 50% labor savings in shelving
▪ 1 - 2% sales lift from reducing OOS
* Estimate limited to category expansion opportunities
SOURCE: McKinsey analysis, industry interviews
| 6
Planning: Leading CPG and retailer created
savings in inventory through reducing volatility
Both parties wanted to reduce volatility
Demand volatility
Before
Monitored
real-time
POS data
Q2
Q3
Q4
Joint focus
on critical
SKUs
Developed
joint
demand
prediction
Demand volatility
After
Shipments
Consumption
Optimized
promo
shipment
flows
Q2
Q3
Q4
FY 2009
3% profit margin improvement from reducing volatility
Inventory reduction of 18% for CPG, and 16% for retailer
Decrease in stock-outs by 1%
SOURCE: Client engagement
| 7
Product flow: Jointly developed retail ready
packaging that drove sales and increased velocity
Both parties wanted to improve product flow to shelf
Improvement in order cycle time
Designed retail
ready packaging
Hours
Retailer
144
Manufacturer
Co-developed in-store
display units
Segmented
distribution network
Coordinated inventory
replenishment
8
-91%
13
3
136
10
Reduced order cycle time from 144 to 13 hours
Slashed consumer selection time from 58 to 8 seconds
Increased sales by 5-8% through reduced stock-outs
SOURCE: Client engagement
| 8
Effective collaboration requires a shift in
mindset
What to
collaborate
on
Whom to
collaborate
with
How to
collaborate
From…
To…
▪
Collaborating in response
to deficiencies
▪
Collaborating in areas where
your house is in order
▪
Choosing only win-win
opportunities
▪
Turning win-lose to win-win
through benefit sharing models
▪
Selecting partners mostly
based on size
▪
Selecting partners based on
size and strategic alignment
▪
Driving collaboration
“top-to-top” while frontline
drives day-to-day business
▪
Aligning incentives and
empowering frontline to
involve entire organization
▪
Dedicating limited
resources to collaboration
▪
Consciously investing in
infrastructure and people
▪
Giving up or declaring
victory too quickly
▪
Committing to long-term actions
and jointly measuring impact
| 9
Take the first step by reviewing your
collaboration efforts
What can you do tomorrow…
What mindset shifts can you initiate to improve
the odds of existing collaboration efforts?
How can you better engage your organization
and your collaboration partners?
What can you do long term…
How do you assess and select the right
partners for collaboration efforts?
Where can you identify the next collaboration
opportunities?
| 10

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