plan 6 to 18 months into the future for [Multiple responses permitted] S&OP/IBP process. Sales & Marketing Data Collection

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1 CUSTOM RESEARCH BY KARA ROMANOW Supply Chain Imperatives Supply chain management has always been a critical capability for CG companies, but as complexity and pressure increases, organizations are challenged to keep up. This month s survey takes a look at the drivers facing today s supply chain organizations and the supporting processes and technology in place to handle a rapidly changing consumer marketplace. Those pressures, particularly shrinking profit margins, better return on assets, and complexity caused by growth in new products or services, are driving organizations to improve their supply chain capabilities. While technology can certainly be leveraged as an important tool in such an initiative, existing architectures can also be barriers to success. Two-thirds of our respondents cited lack of integration between applications as a major challenge, followed by difficulty in performing what-if scenario analysis. Of the 43 percent who cited cost as a barrier, 18 percent more were smaller companies under $1 billion, as expected. Ironically, of the 42 percent who claimed users preferred spreadsheets, 10 percent more were larger companies over $1 billion. The good news, however, is that there are many processes where supporting technology, is being leveraged. Almost two-thirds have software in place to support sales and market data collection, while 58 percent use technology for demand forecasting and collaboration, and 46 percent use it for sales and operations planning (S&OP) (including integrated business planning (IBP)). Interestingly, only 23 percent have supporting technology for supply chain visibility, one of the three top primary areas for supply chain investment according to Gartner. Visibility to changes or supply chain disruptions are key, and unfortunately, timeliness varies widely. Almost one-quarter only have visibility into customer locations in a 24 to 72-hour window, while roughly one-third of our respondents can see supplier locations, inbound material delivery, and DC inventory within 8 to 24. Insights into manufacturing plants, outbound orders, and wholesale distribution channels are slightly more timely at 4 to 8, and one-quarter have visibility in less than 4 at brick-and-mortar and online retail. Contrast that with ability to respond to a disruption, where the 4 to 8-hour window was the most popular response in most cases, and it becomes obvious why the need for greater visibility is such a high priority. Data regarding supply chain disruptions is not integrated and manual adjustments are made by half of those surveyed. Shifting gears, we also asked about S&OP/IBP and inventory optimization. Planning is typically the first process that companies look at for improvement projects, and minor improvements can have a huge impact on the bottom line. One-third of our respondents plans 6 to 12 months into the future, and another third plans 12 to 18 months out. Over half plan both volume and financial numbers at the product family level of aggregation. Inventory optimization has grown in priority over the last few years, with 84 percent now leveraging the capability at some level. Local safety stock optimization at the finished goods level is performed by 48 percent, while 45 percent perform multi-echelon optimization across multiple stages and locations of the supply chain. Technology may be lagging in this area, however, as 33 percent are using a rule of thumb (like 30 days of supply), 29 percent are using spreadsheets, 18 percent are using built-in components of finished-good focused systems, and only 20 percent use specific tools for multi-echelon inventory optimization. We expect that to continue to change as the factors driving these initiatives increase in priority, particularly the 48 percent who cited improved customer service levels as highly influential CR_v1.indd CGT SEPTEMBER 2016 CONSUMERGOODS.COM 66% plan 6 to 18 months into the future for S&OP/IBP process. Processes that leverage supporting technology (excluding spreadsheets/homegrown systems) EXPERT PERSPECTIVE By Karin Bursa, EVP, Logility [Multiple responses permitted 62% 58% Sales & Marketing Data Collection Demand Forecasting and Collaboration 46% S&OP/IBP 76% Scope of Inventory Optimization [Multiple responses permitted will use forecast accuracy metrics to measure supply chain improvement. 2 Better return on net assets while maintaining or improving customer service 3 Complexity caused by growth in new products/ services 33% use spreadsheets for inventory optimization. 16% 45% Pressures to Improve Supply Chain Shrinking profit margins Local safety stock at several stages Local safety stock at finished goods level TOP % 48% Don t perform inventory optimization Multi-echelon across multiple stages/locations Visibility to Disruption and Ability to Respond Note: Top time frame only included. VISIBILITY RESPONSE At supplier location 8-24 hrs. Inbound material delivery 8-24 hrs hrs. At manufacturing plant 8-24 hrs. At distribution facility 4-24 hrs. Outbound order delivery At customer location hrs hrs. Online retail <4 hrs. Brick + mortar retail <4 hrs. Wholesale distribution hrs. The Three Pillars of Supply Chain Preparedness Consumer goods supply chains must focus on shoring up three pillars of preparedness: 1) improve organizational efficiencies, 2) raise customer service and 3) reduce supply chain costs. To be successful, your consumer packaged goods (CPG) supply chain team should pursue these three key capabilities: 1) integrated business planning (IBP), 2) multi-echelon inventory optimization (MEIO) and 3) supply chain visibility. IBP takes your S&OP initiative to the next level and ensures a continuous alignment between demand, inventory, supply, manufacturing, and financial plans. It unites tactical and strategic planning efforts to maximize operational performance. Powerful what-if scenarios predict and compare multiple futures side-by-side so the team can evaluate trade-offs of revenue, profit, investments, capacity, customer service, and other vital parameters. IBP is an essential tool for developing optimal business strategies, managing risk, and preparing effective mitigation plans. MEIO right-sizes safety stock buffers across the interdependent stages of the end-to-end supply chain, rooting out excess inventory caused by long lead times, demand uncertainty, and supply volatility. Supply chain teams can confidently achieve service level goals with the minimum level of inventory, expediting, stock-outs, and obsolescence. Visibility creates assurance-of-supply and enables shippers to remove just-in-case inventory. Outbound visibility provides track and trace capability which allows the shipper to provide more accurate delivery information to customers. You must also boost visibility of market demand, inventory investments and performance goals. Despite fast-growing business complexity and ever-increasing competitive pressure, CPG companies can gain a competitive advantage by adopting supply chain technology in these key areas. Visit consumergoods.com to download the full research report. CONSUMERGOODS.COM SEPTEMBER 2016 CGT 21 9/6/16 12:03 PM

2 Consumer Goods Technology August 2016

3 1. What was your company's annual revenue in the last fiscal year? Annual revenue % Less than $50 million 16% $50M to $249M 9% $250M to $499M 6% $500M to $999M 10% $1 Billion to $5 Billion 40% $5 Billion to $10 Billion 10% More than $10 Billion 7% Less than $50 million 40% $50M to $249M $250M to $499M $500M to $999M $1 Billion to $5 Billion 16% $5 Billion to $10 Billion 9% 6% 10% 10% 7% More than $10 Billion

4 2. In which category does your company primarily compete? Category % Food / Beverage 30% Consumer Packaged Goods 25% Apparel / Footwear / Accessories 18% Consumer Durable Goods 10% Health and Beauty 4% Retail 4% Transportation / Logistics 3% Consumer Electronics 1% Distribution / Wholesale 1% Medical Devices 1% 30% Food / Beverage 25% Consumer Packaged Goods Apparel / Footwear / Accessories Consumer Durable Goods 18% Health and Beauty Retail 10% Transportation / Logistics Consumer Electronics 4% 4% 3% 1% 1% 1% Distribution / Wholesale Medical Devices

5 3. Please rate the importance of the following pressures to impoving your supply chain. Not Important Somewhat Important Important Very Important Shrinking Profit Margins % 0% 7% 27% 42% 24% Slowdown in business growth 6% 13% 30% 28% 22% Complexity caused by growth in new products / services 4% 16% 33% 33% 13% Rising customer order fill rate expectations 3% 12% 36% 34% 15% Extended and uncertain lead-times due to global supply sourcing 10% 15% 39% 28% 7% Key Driver Complexity due to increase in choices for sourcing because of international manufacturing facilities 13% 28% 36% 16% 6% Increasing transportation and logistics costs 0% 17% 36% 33% 14% Rising variable costs (energy, RM costs, etc.) 2% 15% 39% 27% 17% Better return on net assets (RONA) while maintaining or improving customer service 1% 10% 30% 39% 19%

6 4. Which of the following metrics will your company use to measure improvement due to your supply chain initiatives / implementation of supply chain technologies? Multiple responses permitted. Metrics % Forecast Accuracy 76% % Gross Margins 69% Profitability 69% % Complete Order Fill Rate / Customer Services / Perfect Orders 66% Inventory Turns 64% % Out of Stocks 58% Stockouts 52% Days of Supply 51% Increased Sales / Increased Assets 51% Lead-times 51% Other 4% Forecast Accuracy 76% % Gross Margins 69% 69% 66% 64% 58% Profitability % Complete Order Fill Rate 52% 51% 51% 51% Inventory Turns % Out of Stocks Stockouts Days of Supply Increased Sales / Increased Assets 4% Lead-times Other

7 5. What are the top three barriers to realizing value due to your current technology architecture? Multiple responses permitted Barriers % Applications are not integrated to each other 66% Difficult to do "What if" Scenario analysis 60% Data gets outdated too quickly 45% Inadequate reporting capabilities 45% Applications are too expensive to implement and maintain 43% Users are more comfortable with spreadsheets 42% Applications are too complicated to implement and maintain 36% Too difficult to run the S&OP application more frequently 33% Other 6% 66% 60% Applications are not integrated to each other 44 Difficult to do "What if" Scenario analysis 40 45% 45% 43% 42% 36% 33% Data gets outdated too quickly 30 Inadequate reporting capabilities 30 Applications are too expensive to implement and maintain 29 Users are more comfortable with spreadsheets 28 6% Applications are too complicated to implement and maintain 24 Too difficult to run the S&OP application more frequently 22 Other 4

8 6. How far into the future do you plan as part of your S&OP / SIOP / IBP process? How far % 0 to 3 months 6% 3 to 6 months 10% 6 to 12 months 33% 12 to 18 months 33% 18 to 24 months 6% 2 to 3 years 6% 3 to 5 years 1% Greater than 5 years 4% 33% 33% 0 to 3 months 3 to 6 months 6 to 12 months 12 to 18 months 10% 18 to 24 months 6% 6% 6% 4% 2 to 3 years 1% 3 to 5 years Greater than 5 years

9 7. At what level do you plan in your S&OP process? Multiple responses permitted. What level % Both Volume and Financial numbers at product family level of aggregation 55% Volume numbers at some intermediate product grouping level (more granular than the product family but not at the individual SKU level) Both Volume and Financial numbers at some intermediate product grouping level (more granular than the product family but not at the individual SKU level) 36% 35% Financial numbers at product family level of aggregation 35% Financial numbers at some intermediate product grouping level (more granular than the product family but not at the individual SKU level) 30% Volume numbers at product family level of aggregation 26% Other 2% Both Volume and Financial numbers at product family level 55% Volume numbers at some intermediate product grouping level 36% 35% 35% 30% 26% Both Volume and Financial numbers at some intermediate product grouping level Financial numbers at product family level of aggregation Financial numbers at some intermediate product grouping level Volume numbers at product family level of aggregation 2% Other

10 8. Please select the process areas where you use supporting technology excluding spreadsheets and homegrown solutions. Multiple responses permitted. Process areas % Sales and Market Data Collection 62% Demand Forecasting and Collaboration 58% Sales & Operations Planning (Integrated Business Planning) 46% Demand Shaping (Promotion Management) 38% Supply and/or Production Constrained Plan 38% Inventory Optimization 37% Transportation Planning 34% What-if Scenario Analysis 29% Performance Based Alerts and Metrics 28% Supply Chain Visibility 23% Sales and Market Data Collection 62% 58% Demand Forecasting and Collaboration Sales & Operations Planning 46% Demand Shaping 38% 38% 37% 34% 29% 28% 23% Supply and/or Production Constrained Plan Inventory Optimization Transportation Planning What-if Scenario Analysis Performance Based Alerts and Metrics Supply Chain Visibility

11 9. What is the scope of your inventory optimization initiative? Multiple responses permitted. Scope % Local safety stock optimization at the Finished Goods Level 48% Multi-echelon inventory optimization across multiple stages / locations supply chain 45% Local safety stock optimization at several supply chain stages 37% Don't perform any inventory optimization 16% 48% 45% 37% Local optimization at the Finished Goods Level 16% Multi-echelon inventory optimization Local optimization at several supply chain stages Don't perform any inventory optimization 10. Our team's primary inventory optimization tool is: Primary tool % Rule of Thumb (e.g. 30 days of supply) 33% Spreadsheets 29% Specific software tools for multi-echelon inventory optimization 20% Built-in components of our existing ERP / APS system focused on finished goods 18% 33% 29% 20% 18% Rule of Thumb Spreadsheets Specific software tools Built-in components of our existing ERP / APS system

12 11. What factors drive your efforts in inventory optimization? Please rate the influence of each Not Influential Somewhat Influential Influential Highly Influential Free up working capital 13% 31% 27% 28% Cost effectively meet demand 4% 25% 37% 33% Improve customer service levels 3% 15% 34% 48% Improve SKU-by-SKU target setting / efficiency 7% 33% 37% 22% Identify causes of excess inventory 11% 27% 38% 23% Provide all stakeholders with a common perspective on the supply chain 12% 29% 38% 21% Minimize the impact of demand uncertainty and forecast error 9% 21% 39% 30% Prevent supply volatility and long lead times from creating excess inventory 12% 25% 42% 21%

13 12. At what locations in your supply chain do you have visibility to a change or disruption and how quickly do you sense this change? Please select the best answer for each question. < >72 At a supplier location? 12% 17% 30% 21% 20% Inbound material delivery? 5% 22% 37% 18% 18% At a manufacturing plant? 21% 23% 18% 18% 20% At a distribution facility? 15% 33% 33% 9% 9% Outbound order delivery? 16% 33% 28% 15% 7% At a customer location? 21% 19% 21% 24% 16% On-line retail channel? 26% 19% 23% 11% 21% Brick & mortar retail channel? 25% 21% 6% 24% 24% Wholesale distribution channel? 16% 23% 19% 20% 22%

14 13. When you do collect information on changes or disruptions, what do you do with this information? Multiple responses permitted. Information % Information is not integrated with planning systems and is used to manually make adjustments Information is integrated with planning systems but is only used as advisory input when making adjustments Information is integrated with planning systems and is included during next system batch update Information is integrated with planning systems and is used to conduct simulations and "What-if" scenario analysis to determine optimal response Do not have visibility to changes or disruptions 14% 50% 41% 39% 24% 50% 41% 39% Information is not integrated Information is integrated but only used as advisory input 24% Information is integrated and is included during next system batch update 14% Information is integrated and is used to conduct simulations Do not have visibility to changes or disruptions

15 14. Once you sense a change or disruption in the supply chain, how long does it take you to develop a response? Please select the best answer for each question. < >72 At a supplier location? 15% 32% 15% 30% 8% Inbound material delivery? 17% 23% 32% 17% 12% At a manufacturing plant? 22% 18% 32% 18% 9% At a distribution facility? 20% 30% 21% 23% 6% Outbound order delivery? 23% 34% 20% 15% 8% At a customer location? 16% 22% 29% 22% 11% On-line retail channel? 19% 28% 19% 17% 16% Brick & mortar retail channel? 22% 24% 16% 22% 16% Wholesale distribution channel? 14% 24% 21% 27% 14%