Hear two former Supply Chain executives discuss Efficient Growth in the CPG industry.
Five years ago, a prominent player in the global beverage industry gazed into its crystal ball, prophesying substantial growth in the market. This was good news for the company, save for one issue: it had yet to fix its capacity constraints. To address this, an intensive 10-month project was undertaken, successfully identifying existing and future bottlenecks inhibiting company growth.
By carefully examining these critical constraints, implementing a revised production planning process, and creating a comprehensive CAPEX roadmap, the company achieved a remarkable 15% increase in production capacity while keeping the required investments at a minimum. The project leveraged the expertise of a data scientist who developed a digital twin of the complex equipment network, helping to support and solidify the initiative’s success. Still there was one catch. The decision-making process suffered from significant effort and latency, aggravated by unforeseen factors, such as the impact of the COVID-19 pandemic and shifts in global geopolitics.
In light of these challenges, the ability to promptly detect and address upcoming bottlenecks based on the latest demand outlook, adapt the product portfolio accordingly, and optimize asset utilization before investing further has become invaluable.
Recent advances in planning tech have significantly improved companies ability to accommodate today’s volatility and required speed of decision-making. This paper explores these new capabilities and their relevance to the efficient growth journey, including:
- Where to find the following pockets of profitable growth
- Managing constraints across the value chain
- How to shape demand to better leverage competitive value chains
- How to generate extra capacity
- Where to cut the long-tail
- How to optimize production and distribution patterns without sacrificing responsiveness
- Finding a better price-volume sweet spot, considering supply bottlenecks and market dynamics
Key questions answered:
Drawing from extensive conversations with consumer operations leaders and leveraging practical experience in delivering planning solutions, we address the following key questions:
- What role does supply chain and planning play in supporting the organization’s growth ambitions?
- What are the essential technological and planning capabilities required for growth?
- How can the organization effectively implement and sustain a growth delivery engine?
By exploring these questions, we aim to offer actionable guidance for leveraging supply chain planning to drive growth and achieve long-term success.
The current climate and the crucial role of planning excellence in efficient growth
Uncertainty is the new certainty
While effective planning is essential for achieving efficient growth, it often falls behind in excellence. Why? Because longstanding trends and recent uncertainties influence the current economic landscape. These include the unprecedented inflation swings in the last few years, marked by price increases exceeding 10% and a decline in volumes starting from Q4 2022.
Additionally, energy prices have seen double-to-triple- digit increases, with an uncertain outlook. Geopolitical factors such as the war in Ukraine and the emergence of a multipolar economy, coupled with the ongoing impact of the COVID-19 pandemic, have also led to supply disruptions. The ‘great resignation’ phenomenon has resulted in labor and talent shortages, and, finally, sustainability imperatives and the presence of volatile and fragmented demand make it increasingly challenging to discern trends and anticipate competition shifts.
What can we learn from these events and movements?
Continuing to operate in the same manner as before will result in higher costs. The only consistent phenomenon is the surge of new disruptions requiring a fluid approach to adaptation.
So, meticulous cash management to safeguard core operations and adapt to disruptions is now more critical than ever.
Grow to survive
Several consumer companies have experienced significant growth in recent years, with an average of 3% over the past decade.¹ In 2022, some industry giants even achieved growth rates exceeding 20% (for Beauty and Luxury players) and 10% (for select Food and Beverage players). But, these companies need to maintain revenue growth to ensure profitability and competitiveness.
For example, they may need to absorb fixed costs, e.g., indirect operations costs account for 8-12% of total operational costs.² Or, they may need to preserve market share in a growing market, financial investments, meet shareholder requirements, and respond to the influence of activist investors.
Growth leaders have been found to generate 80% more shareholder value than their peers.¹ Consequently, according to a May 2023 Gartner study, CEOs have identified growth as their top priority for 2023, with 49% of their time allocated to this objective, followed closely by technology at 37%.³
Price increase shows diminishing returns
In 2022 and at the start of 2023, several CPG players experienced growth by strategically navigating the price elasticity curve. By implementing price increases, they were able to support revenue growth and achieve strong performance despite challenging circumstances.
However, we are now approaching the limits of the elasticity curve, and some players are beginning to see a decline in revenues due to the high prices they have set. That means that the next phase of growth may not be able to rely on further price increases, and instead, volume growth will plan an even more important role in the coming years. Seizing opportunities in new markets and outperforming competitors should, therefore, be on the strategic radar.
Complete focus on cost-competitive growth
When we take stock of the past decade, it is clear that Fast Moving Consumer Goods (FMCG) companies have struggled to expand profit margins alongside revenue growth. Interestingly, the years with the highest revenue growth yielded the least percentage increase in earnings before interest and taxes (EBIT%).
This underscores the need for action in redefining the operating model to achieve growth in both top-line (revenue) and bottom-line (profit) performance. In fact, a recent analysis by Gartner reveals that 38% of corporate business leaders have already shifted their focus from revenue growth to margin growth, highlighting the growing importance of profitability in strategic decision-making.
In addition to growth pressures, companies continue to feel pressure to optimize cash management due to limited available budgets. In such a scenario, we see an urgent need for cost-competitive growth, where additional volumes are produced at the lowest possible incremental costs. This approach, which we refer to as Efficient Growth, is crucial to achieving growth targets effectively while optimizing resource allocation.
How planning unlocks efficient growth: integrated tech for cross-functional decision-making
Once growth opportunities have been identified from product and market perspectives, three typical operational strategies deployed to achieve volume growth.
The first strategy involves capital expenditure (CAPEX) to create additional in-house capacity. But, given the current budget uncertainty, this approach may not be compatible initially. So, reinvestment of captured savings made from a first improvement phase can be an option to forge that path.
The second strategy is outsourcing. Outsourcing can prove challenging due to global production and logistics capacities, geopolitical risks, potential qualification complexities, and margin dilution due to supplier value capture. Nevertheless, it remains a preferred option for supporting the 20% of growth outside the core portfolio. Therefore, the main driver for Efficient Growth is the third strategy: asset saturation through operational and planning excellence.
Companies experiencing under-capacity typically see asset saturation as an intuitive move. Top-quartile companies tend to achieve 70-85% overall equipment effectiveness (OEE) on opening time and 70-80% asset utilization.⁴ However, these figures only capture approximately 50% of the maximum value that can be derived from installed assets.
This is where planning excellence comes into play, as it can significantly support maximizing asset value creation. The critical question for companies with excess capacity is how can we right-size our assets’ capacity and optimize production and distribution patterns to achieve the most cost-efficient saturation?
It is certainly worth noting that a history of manufacturing excellence (including OEE improvement and single-minute exchange of die (SMED) initiatives) is often complemented by portfolio rationalization efforts. However, planning excellence remains an area that is often overlooked and stands today as a crucial enabler of Efficient Growth. Over reliance on OEE metrics often conversely leads to higher working capital levels, inventory holding costs, obsolescence and shrink.
In the context of increased scrutiny on resource consumption and the environmental impact of industrial operations, optimizing value from existing assets strongly aligns with both environmental and economic imperatives. By optimizing asset utilization and minimizing waste, companies can simultaneously drive profitability while contributing to sustainability goals.
”“CEOs should be able to expect their supply chain and planning organizations to deliver operational orchestration. One that extracts maximum value from the supply chain activity system, the go-to-market plan and leverages all the company’s capabilities. Providing the right and best available technologies and talents altogether is definitely the very first step towards that expectation.”Gustavo Lopez GhoryFormer CSCO at Kimberly-Clark and VP Global Manufacturing at Procter & Gamble
Deploying a new set of capabilities
Implementing an efficient growth planning infrastructure requires a holistic approach to enhance capabilities, prioritizing end-to-end visibility and optimization over isolated local efforts and challenging integrations with best-of-breed systems.
Seamlessly constructing and manipulating various end-to-end constrained marketing, commercial, and demand scenarios, while incorporating financial considerations, is truly transformative. When designing your advanced planning infrastructure with an efficient growth mindset, it is crucial to consider the following key characteristics:
1. Robust demand capture engine
- Leverage market knowledge and demand-sensing capabilities to swiftly identify both short and long-term growth opportunities.
- Utilize multi-hierarchical and best-fit forecast techniques at the appropriate level of granularity for different time horizons.
- Employ machine-learning-driven forecasting to identify volume drivers, enabling proactive and cost-efficient adjustments to the supply infrastructure.
- Ensure service reliability by implementing short-term demand sensing with rapid alert mitigation processes through a control tower.
- Foster collaboration through a robust collaborative forecasting environment that incorporates inputs from cross-functional teams, facilitating proactive decision-making.
2. Single digital twin of the value chain
- Establish a planning solution encompassing the entire value chain, from demand and suppliers to the last mile of supply.
- Model and consider alternatives, multi-sourcing strategies, and physical constraints within a multi-tier ecosystem.
- Incorporate granular constraints, inputs/outputs, business rules, and optimization objectives to generate feasible plans.
- Employ fast and accurate end-to-end solvers that provide decision-makers with scenario options and estimated impacts while maintaining demand granularity for prioritization and explainability.
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3. Value mindset
- Develop granular costing of operations (SKU x step), gradually improving accuracy over time to enable financialized scenario capabilities.
- Assess costing accuracy and availability in areas critical for cost/margin- driven decisions.
- Adopt a relative cost mindset, focusing on influential SKUs and steps when making margin-driven choices.
- Document missing costs to transition from cost comparison to a total cost perspective, enabling P&L outlook for various scenarios.
4. Supply-backed RGM
- Deeply integrate RGM and planning to evaluate the supportability and future margin of portfolio, promotional, and pricing strategies.
- Combine commercial planning, revenue initiative and spend management, key account planning, and revenue AOP within a unified platform.
- Gain visibility into the expected margin of commercial plans and adjust assumptions based on the supply situation.
- Identify opportunities for opportunistic commercial events based on efficient cost supply options (e.g., available inventory, spare capacity).
- Improve volume prioritization in supply shortages by considering detailed commercial vents and pricing/margin assumptions.
- Transition from sporadic and disconnected RGM efforts to continuous RGM/planning synchronization for comprehensive opportunity capture.
5. Strong planning leadership across horizons
- Adopt a Growth IBP operating model that facilitates rapid iterations across sales and marketing, planning, and finance functions.
- Establish transparency across trajectories such as market, target, unconstrained demand, and constrained demand, focusing on gap closure.
- Transition from multi-cycle decision-making to an in-cycle process for agility.
- Create end-to-end planning roles to support cross-functional decision-making and orchestration—securing adoption and execution outputs.
By incorporating these key characteristics, companies can establish a robust planning foundation that enables efficient growth and supports integrated decision-making across various functions and horizons.
”“The pandemic and the associated supply chain disruption have, in my experience, been an inflection point from which CEOs have realized the need to become involved in the tactical and strategic issues. On the other hand, the supply chain has moved “from the Engine Room to the Bridge” in many organizations. The overriding point is that an efficient growth strategy alone is insufficient. It needs to be integrated into the external environment and, in itself, be agile enough to adjust. This cannot be done without technology and data, which needs to increasingly be real-time. The organization needs to have one effective source of that data.”Chris Tyas OBEFormer Global Supply Chain Head at Nestlé
Companies spearheading efficient growth: Real stories and real-world benefits
Mid to long-term margin optimized business plan
A global food and beverage company aligned commercial plans, supply responses, and growth targets, allowing for the rapid identification of gaps between targets and plans, impacting both top and bottom-line performance. Leaders can also simulate gap-closure activities and predict P&L outcomes, and the results integrate with planning systems and enable scenario-based execution.
Similarly, a dairy player in Oceania uses a digital twin and alternative configurations to proactively plan months ahead, optimizing flows, volume allocation, and partnerships. This approach ensures operational consistency in the short term, and both companies prioritize securing bottom-up margins when planning for future volume increases.
Demand-Supply deep integration to combine efficiency and responsiveness
A global beer manufacturer shows another notable example of how deep integration between demand planning and supply planning across various time horizons drives efficient growth.
Through a unified o9 platform, decision-makers can accomplish two critical objectives:
- Projection of incremental demand signals throughout the detailed value chain: Leveraging the capabilities of the o9 platform, decision-makers can project incremental demand signals and thoroughly assess the true delivered incremental margin associated with each demand signal. This assessment considers the capacity availability along the value chain, providing valuable insights for effective decision-making.
- Optimization of the end-to-end plan: By using the integrated demand planning and supply planning capabilities on the o9 platform, decision-makers can optimize the entire strategy. This optimization process involves re-sequencing and re-prioritizing operations to ensure production at the lowest possible costs while meeting service level and inventory targets. Additionally, considerations for ESG factors will be addressed in subsequent discussions.
This deep integration of demand planning and supply planning empowers decision- makers to drive efficient growth by making informed decisions based on comprehensive assessments of incremental demand signals and optimizing operations to minimize costs — all while meeting performance targets.
Automated efficient response to short-term needs
A global dairy company faced value loss due to slow adaptation of internal planning to demand fluctuations, resulting in waste and missed short-term opportunities—especially for perishable products with limited buffer inventory. To overcome this, they implemented short-term demand sensing and automated rescheduling, shifting from weekly to daily or even intraday plans. Granular modeling and rapid optimization led to automated “right-first-time” scheduling, recapturing lost service points and promoting efficient growth.
In another industry context, a large confectionary player implemented the o9 Control Tower solution to ensure service reliability and automate the resolution of service gaps. By deploying resolution strategies with full cost transparency, the company could assess the true incremental margin achieved post-resolution.
This control tower approach enabled proactive management of service issues and enhanced decision-making, contributing to the company’s ability to drive efficient growth in its operations.
Several global food and beverage companies are building fully integrated RGM infrastructures. This departure from fragmented, ad-hoc RGM studies enables continuous decision-making, from sales and marketing to shop floor execution. This allows teams to consider factors like supply support and expected margin when optimizing growth strategies across pricing, promotions, assortment, marketing, and innovation. This broad integration guides efficient growth by tapping into its full potential.
Get started: Among capacity creation options, planning excellence provides the best ROI with rapid value drops
We recognize that initiating a planning transformation during a period of uncertainty may be challenging. But, we firmly believe that implementing a well-defined set of new capabilities is crucial for achieving a successful growth trajectory. When evaluating the return on investment (ROI) and risks of various strategies, planning transformation is clearly the most compelling option. For instance, one of our global :o9 clients saw an 8% increase in demand supportability within their own factories in less than a year, without incurring additional fixed costs.
Industry leaders have already embarked on this journey, and the gap between leaders and followers in next-generation planning will only widen.
So, what does this journey entail?
1. Shape the ambition and build the case for change
Work with commercial, finance, and supply chain teams to identify the factors driving efficient growth, both in the long and short term. Identify associated planning challenges. Define the necessary processes, planning technology, and data requirements to address these challenges. Create a compelling value case to align the entire organization and lay the foundation for a successful pilot program.
2. Deliver first value drops
Choose a pilot scope, like a particular region or product group with core growth but asset saturation. Assess data readiness, especially costing data in that area. Execute the pilot within a few months, stress-testing new processes and roles. Show quick and meaningful impact on incremental growth at minimal extra costs. Share successes widely.
3. Scale and sustain
Based on early pilot successes, determine the optimal scaling approach, factoring in key considerations like growth potential, data readiness, and local team support. Expand geographically and/or into additional product areas, incorporating capabilities not included in the pilot. Utilize pilot teams to establish a Center of Excellence.
4. Maximize the value from the new operating model
As your organization reaps the benefits of scaled planning capabilities for efficient growth, anticipate and encourage more strategic, cross-functional recommendations from planning teams. These insights should span from local business reviews to boardroom discussions. Embrace the enhanced value proposition of planning and continue to grow efficiently.
- Bradley, C. et al. (2022), The Ten Rules of Growth, McKinsey & Company.
- Altmeier, M. et al. (2023), Indirect manufacturing costs: An overlooked source for clear savings, McKinsey & Company.
- Wiles, J. (2023), Survey Signals Pause-and-Pivot Year for CEOs, Gartner.
- Lal, S. et al. (2013), My manufacturing plant is better than yours—or is it?, McKinsey & Company.