Supply chain efficiency: What every VP of operations should know

Consumer Products Writer

In the consumer packaged goods (CPG) industry, vice presidents of operations must increase operational efficiency — from back-end supply chain optimization to category management on store shelves.

In the past, leaders of CPG companies were limited by a lack of direct access to, and knowledge of, a retailer's in-store shoppers. CPGs had to partner with retailers to obtain the consumer insights necessary to align supply chain operations to actual market demands and constraints. Thanks to new technologies, this dynamic has completely changed. Supply chain leaders now can access a direct lens into their market and better focus their initiatives for improving operational efficiency.

Big data and analytics play a crucial role in the emerging technology ecosystem. Here are three steps that VPs of operations should utilize in order to align back-end processes to actual market constraints and needs:

1. Improve inventory turns, on-shelf performance

Using data and analytics in supply chain planning can increase insights, cohesion and productivity throughout the entire supply chain, to the moment that products hit store shelves. Consider the case of European sugar supplier Südzucker as an example. In the past, the company relied on a manual approach to supply chain planning, which was effective but limited. The organization lacked full transparency into production, warehousing, transportation and service requirements. The company is now utilizing data and analytics to better connect its disparate systems for production and distribution.

"Our goal was to create and maintain the most flexible, cost-efficient European supply chain network, while continuing to ensure the same level of superior service to our customers," according to Christoph Bauer, head of the company's strategic sales development.

Südzucker now collects detailed information on production capabilities for all plants, down to production lines and product groups. Using distance and cost matrices, the company can create and analyze multiple solutions for "what-if" scenarios to optimize inventory turns and on-shelf its performance. The company can better utilize its network to improve overall sales as a result.

2. Reduce cost of goods sold

Costs, competitive pressures and consumers' expectations are all rising, with more CPG brands venturing into global markets. VPs of operations must connect companies' front-end operations to back-end infrastructures. Using big data and analytics, CPG leaders can create supply chain optimization models that align organizational processes to market constraints.

Data and analytics are helping companies create total profit models that reduce costs and maintain customer service levels, according to Supply Chain 24/7. Analyzing a combination of operating scenarios, coupled with processes to forecast shareholder value, CPG leaders can more effectively manage their capital assets and increase operational efficiency.

3. Accurate, efficient, localized demand forecasting

As one MediaPost article points out, Internet of Things (IoT) technology has sparked significant innovation in the CPG industry. From smart shelves to customer loyalty programs, brands are developing new ways to reach and engage customers. In 2015, according to MediaPost, the next phase will be sensor-enabled smart shelves able to determine data about consumers such as gender and age.

It's up to VPs of operations to connect the dots and ensure that systems are running efficiently. IoT can easily cause customer acquisition and retention costs to rise. That's why leaders need to work directly with marketing to increase operational efficiency. It's this alignment that will ensure an integrated supply chain and go-to-market strategy.

Now more than ever before, the VP of operations needs to be a cross-functional leader. Working closely with marketing to connect back-end infrastructure to front-end operations, supply chain optimization is the key to keeping costs low. Data and analytics are a mission-critical part of the equation.

Improve your supply chain with the help of big data and analytics. Learn more on IBM's Consumer Products Industry Solutions Page.