viewpoint Your Emerging Market Retail Supply Chain: Is it Demand Driven? Abstract Consumer-driven companies eyeing the pot of gold at the end of the emerging market rainbow face a wide spectrum of challenges in reaching it. Demand and competitive dynamics, fragmented supply chains and complex logistics are some of these. To add to these, visibility is even harder to achieve in diverse emerging markets that are at various technology maturity levels in terms of business processes and execution. Adopting a demand-driven strategy that gears the entire supply chain to actual consumer demand can help better sense and respond to consumer purchases and behavior. In light of the considerable opportunities these markets offer, companies that put in place a demand-driven supply network for retail execution in such markets with the right strategy, technologies and implementation will emerge ahead of the pack.
Introduction Emerging markets can prove to be veritable gold mines for consumer-driven product companies that face slowing growth in developed markets. Mining that gold profitably, however, is a whole new ballgame compared to their existing operations. Even in developed markets, consumerdriven companies are today grappling with fast-changing consumer demand, availability of a wide range of alternative and substitute products, and shortened product lifecycles. This is true across consumer packaged goods (CPG), fast-moving consumer goods (FMCG), pharmaceuticals and medical devices, consumer electronics, and high-tech equipment. Measures like moving manufacturing to low-cost locations improve margins is extending already stretched supply chains. To add to the complexity, organizations must work with a wide and ever-growing network of partners to improve operational efficiencies. Managing raw materials and energy procurement costs in such a scenario is another monumental challenge. In emerging markets, the opportunities are immense they account for 40% of sales and 60% of growth for CPG companies. However, the challenges of retail execution too are magnified manifold. These markets are typically characterized by economies that are opening up, young and growing populations driving a new consumption culture, low value but high volumes of transaction, and intermediary-driven fragmented supply chains. As more companies turn to these regions for future growth, there is clearly a strong case for better understanding emerging markets, improving visibility and reach, and supporting government initiatives such as financial inclusion drives and health coverage. It is critical to put visibility on priority especially in such multi-level fragmented supply chains considering the low margins involved a couple of missteps can erase the profitability of an operation. The upside is that companies can build a strong physical supply chain in such markets without owning most of it given the cost structures involved, very often there is a surfeit of intermediaries willing to handle part of it for relatively modest returns. Retail in emerging markets The innovative approach in these markets involves taking this diverse and **Dimensions Adoption by distributors Maturity of ERP system System readable input data format Follow-up calls to send data SLA adherence to send data Multiple changes in agreed format Data quality Market metadata variance India China Russia Latin America fragmented physical infrastructure and putting on top of it a highly evolved information technology infrastructure to ensure enhanced visibility, agility and reach. A word of caution: Even with similarities between the emerging markets, there are stark differences in the business processes and execution across different markets such as India, China, Russia, Latin America, Africa, Middle East, etc. The table below shows the technology maturity levels of retail supply chains in these developing economies. Africa Middle East For e.g. In China readiness for adoption was higher Multiple ERP systems in India with varying levels of maturity In India there are varying file formats. China formats are more consistent System and manual follow-ups and reminders are typically required higher in the initial few cycles SLA compliance moderate to start and improved over a period of time Formats were changed frequently during the initial few cycles. Stabilized after few cycles Measured through rejected files or records based on business rules set-up Metadata like hierarchies were seen to moderately vary across countries Technology maturity levels in developing and emerging markets based on experience
To capitalize on the opportunity presented by these markets, consumer-driven product companies need to optimize business processes such as demand visibility and planning, supply chain optimization, order and claim (dispute) management, product management, trading partners operations, channel management, product promotions, loyalty management, buyer space integration, payment gateway services, mobile payments, digital promotions, and mobile financial services. While technology solutions are available to drive these initiatives, successful implementation requires customizing global best practices to meet local compliance requirements and providing flexibility for multicountry processes, languages, reporting requirements, and currencies. Such technology initiatives can deliver tangible results such as increased order fill rates to stores, ability to execute trade plans tailored to different channels, improved effectiveness of the field sales teams, and reduced un-productive costs (e.g., distributor inventory) across the value chain. Further, organizations can optimize the entire front-end value chain system (CPG-Distributor-Retailer), increase sales and release precious capital for market expansion. Demand-driven approach to retail Industry research shows that organizations that adopt demand-driven retail have demonstrated success in understanding and responding to consumer demand signals, building value networks, and using the supply chain to support product and services innovation. To manage uncertainty, especially in hardto-predict emerging market scenarios, businesses need to enhance their ability to anticipate and respond to unplanned events. This necessitates evolving the supply chain strategy from push to pull driven. Organizations that develop the capabilities to redistribute, reallocate and reroute inventory in response to real-time consumer demand will emerge as industry leaders. In today s regime of shortened product lifecycles, an organization can end up with costly inventory or lost revenues owing to a mismatch between demand forecasts and the order fulfillment processes potentially fatal for fledgling operations in developing markets. Hence it is critical for distributors, retailers, vendors and manufacturers to work cohesively in order to prevent stockouts or expensive inventory pile-ups. A Demand Driven Supply Network (DDSN) ensures that all supply chain activities are based on actual consumer demand. By adopting this strategy, companies can accurately sense and respond to actual consumer purchases and behavior, resulting in lower inventory management costs. It also ensures that the consumer finds the right product in the right place at the right time. Experts see demand-driven retailing as a system to continuously capture consumer behavior through technologies and processes. By aligning demand, supply and product to fulfill customer expectations, it helps improve operational performance. It further enables quick response across the entire network.
DDSN for your emerging market operations Consumer-driven product companies need to maintain very high service levels. This is because consumers will not wait if their preferred product is not on the shelf. They will simply go to another retailer or choose a competitor s product. Industry data shows that reduced demand visibility at retail stores leads to out-ofstocks, higher markdowns, sub-optimal product allocation, and higher product returns. It is worth considering that: Nearly 30% of out-of-stocks leads to CPG manufacturer losses Nearly 45% of out-of-stocks leads to retailer losses For new operations in emerging markets, such issues can imperil the entire initiative. DDSNs can address these challenges that consumer product companies face today. They help empower local leadership to respond to changing market conditions through better coordination between sourcing, manufacturing, distribution, and warehousing. They make actionable insights available across the entire value chain. Leveraging collaboration and workflow tools, DDSNs facilitate joint planning and execution with upstream suppliers and downstream customers. This enables organizations to receive timely data from distributors with the desired accuracy, to deliver the market insights for decisionmaking. An effective DDSN will provide companies with the following capabilities: Connected front-end supply chain that provides consumer product companies timely and improved channel visibility services such as demand, paired with actionable insights Smart selling aids that enable the frontline sales force to carry out a perfect sales call at each point of sale Optimized trading partners operations, all with ability to rapidly expand services as well as coverage Mobility solutions to expand reach and improve services Data consolidation from multi-tier distribution channel partners Validation and reconciliation of consolidated sales and inventory data Enriched POS data with granular view of reseller and end user records Managing and enabling channel incentive programs Driving loyalty for value chain partners
Engage with digital consumers and evolving sales channels Mobile devices have become the preferred medium for almost all interactions, from social networking and sharing information to shopping and entertainment. Digital consumers have embraced the Internet, telecom, media and social space, changing how they communicate, transact and make purchase decisions. This new breed of active, informed and assertive consumers are making themselves seen and heard by their need for participation and uniqueness. A successful DDSN strategy cannot afford to ignore or treat them lightly. Organizations must adapt to the new digital media to acquire such consumers ahead of the competition. Further, merely acquiring these consumers is not enough winning their loyalty is a major challenge for many businesses. By enabling self-service mechanisms, offering personalized products, customized service, and rich experience, businesses can redefine the rules of engagement. Engaging successfully with the digital consumer offers the following business advantages: Better integration and collaboration with consumers and partners based on consumer insights Improved supply chain visibility and efficiency Improved service levels Increased revenue growth Financial inclusivity for consumers Global, scalable managed service offerings
Conclusion Emerging markets hold the promise of enormous opportunities for consumer product companies. They also present significant challenges in terms of retail execution. Fragmented physical supply chains and limited visibility can be serious obstacles for companies considering expansion in such markets. Many CPG companies have poor or no visibility into the demand and inventory at intermediaries which is crucial for success of demand-driven supply network. A well thought-out strategy to build a demand-driven supply network (DDSN) on the back of new technologies with the right implementation approach can help overcome these challenges. An effective DDSN spans the entire supply chain from manufacturing, warehousing and logistics, to promotions, distribution, retail and consumer touch-points including digital and social media. It enables clear visibility into consumer needs and behavior, accurate demand forecasting and efficient product lifecycle management. A well-implemented DDSN drives greater collaboration across the entire supply chain and helps companies: Reduce cost through productivity enhancements Reduce cycle times for processes such as order acquisition Reduce inventories in chain to increase stock turn-around Standardize terms of trade with trading partners To successfully implement DDSN initiatives, consumer product companies need to consider the following factors carefully: Implementing IT systems and facilitating data synchronization Deploying global solutions serving local market needs at various levels of maturity Defining processes that use timephased planning methodologies across the supply chain Using demand estimates for operations and strategy planning Creating agile supply chain processes to enable quick response to demand changes Establishing control of processes and activities between CPG manufacturers and retailers
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