10 Steps. to Achieve Virtual Integration. A guide to building a bond of game-changing collaboration

Transcription

1 10 Steps to Achieve Virtual Integration A guide to building a bond of game-changing collaboration

2 Capturing the power of integration without a merger Virtual integration Manufacturer Benefits Jointly pursue margin enhancement and growth opportunities across the entire manufacturer-retailer value chain Extend the scope to integrate assets, resources, and capabilities ( What if we were just a step away from merging? ) Innovate Plan Source Make Sell and merchandise Plan Deliver Procure Deliver Merchandise and sell Retailer Challenges The focus is on local optimization with a zero-sum game mentality (for example, a retailer s focus on inventory results in a demand signal bullwhip for the manufacturer) The ability to capture cross-firm synergies, such as economies of scale and scope, is limited The new offering is undifferentiated (for example, it is not distinctive enough to create absolute growth or provide superior value to consumers) Source: A.T. Kearney analysis 2

3 Context As competition forces retailers and manufacturers to get closer to their customers, both sides will find that abandoning their adversarial relationships and going beyond secrecy and distrust will clear the way for building a bond of collaboration. It is a lot like a merger integration minus the merger. Virtual integration is already a market reality. Leading consumer packaged goods (CPG) and retail players have seen tremendous value in closer collaboration. Some have realized category growth of 5 to 15 percent, up to 50 percent faster new product innovation, and 4 to 20 percent reduction in addressed cost pools. However, success hinges on strategically committing assets to address the end-to-end value chain and jointly tackling both the top and bottom lines. A.T. Kearney s 10 steps for transforming relationships into collaborative virtual integration is a comprehensive framework to help retailers and manufacturers implement a new way of working, reducing costs along the value chain, improving time to market, and fostering growth. 3

4 10 Steps to Achieve Virtual Integration Define the partnership 1 Strategic assessment 2 Partner engagement Develop the partnership 3 New product development prioritization 4 Collaborative category development 5 Opportunity pilot and calibration 4

5 Operationalize the partnership 6 Supply and manufacturing synchronization 7 Merchandising and store operations alignment 8 Collaborative business planning Sustain the partnership 9 Opportunity realization 10 Ongoing partnership management 5

6 % A.T. Kearney has helped leading players with virtual integration Virtual integration between a retailer and a manufacturer Joint category growth for a CPG and a global retailer Joint logistics operations in the food industry We identified industry-transforming opportunities tackling joint cost, working capital reduction, and top-line growth by: Establishing a clean room Developing a value chain waterfall Evaluating the innovation development Defining a road map to transform the relationship A leading retailer and CPG player were experiencing slow growth. We developed a joint program to understand the underlying value and the approach to sharing benefits We integrated the business planning for volatile category leading to capital productivity A joint infrastructure led to cost advantage in procurement, transport, and network For a group of food manufacturers and retailers, we bundled information and transport flows between manufacturing sites and transportation hubs for the inbound logistics A combined management board Coordinates and optimizes logistics flow Agrees on the allocation of goods Supervises manufacturers Incremental 5 to 15 percent category growth 5 to 20 percent reduction in addressed cost pool $ 500 million value created, 14 percent increase in shipment, forecast accuracy, 15 percent decrease in packaging costs 32 percent reduction in carbon dioxide emissions Shorter loading time 10 percent higher loading capacity Note: CPG is consumer packaged goods. Source: A.T. Kearney analysis 26

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8 A.T. Kearney is a leading global management consulting firm with offices in more than 40 countries. Since 1926, we have been trusted advisors to the world's foremost organizations. A.T. Kearney is a partner-owned firm, committed to helping clients achieve immediate impact and growing advantage on their most missioncritical issues. For more information, visit For more information, permission to reprint or translate this work, and all other correspondence, please insight@atkearney.com. Authors Sean Monahan, partner, New York Sean.Monahan@atkearney.com Americas Asia Pacific Europe Middle East and Africa Atlanta Bogotá Calgary Chicago Dallas Bangkok Beijing Hong Kong Jakarta Kuala Lumpur Amsterdam Berlin Brussels Bucharest Budapest Copenhagen Düsseldorf Frankfurt Helsinki Abu Dhabi Doha Detroit Houston Mexico City New York Palo Alto Melbourne Mumbai New Delhi Seoul Shanghai Istanbul Kiev Lisbon Ljubljana London Madrid Milan Moscow Munich Dubai Johannesburg San Francisco São Paulo Toronto Washington, D.C. Singapore Sydney Taipei Tokyo Oslo Paris Prague Rome Stockholm Stuttgart Vienna Warsaw Zurich Manama Riyadh Markus Stricker, partner, Zurich Markus.Stricker@atkearney.com Mirko Warschun, partner, Munich Mirko.Warschun@atkearney.com Emmanuel Hembert, principal, Zurich Emmanuel.Hembert@atkearney.com Contributors The Authors would like to thank A.T. Kearney consultant Ludovic Battard for his valuable contribution to this paper. A.T. Kearney Korea LLC is a separate and independent legal entity operating under the A.T. Kearney name in Korea. A.T. Kearney operates in India as A.T. Kearney Limited (Branch Office), a branch office of A.T. Kearney Limited, a company organized under the laws of England and Wales. 2015, A.T. Kearney, Inc. All rights reserved. The signature of our namesake and founder, Andrew Thomas Kearney, on the cover of this document represents our pledge to live the values he instilled in our firm and uphold his commitment to ensuring essential rightness in all that we do.