Case study

Case study: How EY optimized the supply chain of a leading Indian MNC

EY helped a leading FMCG company optimize vendor costs, eliminate redundancies, and create a common sales and operations platform.

 

Related topics
Supply-chain
Consulting
Ashish Nanda
EY India Market Segment Leader for Consumer and Health Services (CHS)
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1

The better the question

How can we unlock synergies from two businesses post acquisition?

After acquiring several iconic brands, a leading FMCG company needed to capitalize on the synergistic benefits of the opportunity.

In 2018, one of India’s leading FMCG companies acquired a consumer business which housed several reputed brands. After the acquisition, the immediate priority for the company was to identify and tap into synergistic opportunities of the acquisition. Supply chain and procurement was one of the primary focus areas for cost, operation and capacity optimization. Both sets of businesses had many overlaps across the supply chain, including suppliers, locations, and raw materials. The company had to quickly identify all existing overlaps and eliminate redundancies.

2

The better the answer

We optimized the supply chain of the complete brand portfolio

The optimization covered three critical areas ꟷ procurement synergies, logistics and network optimization, and sales and operations planning.

As the company wanted to ensure that it leveraged the benefits of synergies from the acquired entities, it employed EY to optimize the complete supply chain. The core areas of supply chain optimization included:

  • Realizing procurement synergies and optimizing vendor costs.
  • Lowering of warehouse and freight costs by identifying logistics overlaps.
  • Integration of sales and operations planning across the complete brand portfolio. 

EY led three critical areas of supply-chain optimization: procurement synergies, logistics and network optimization, and sales and operations planning.

Procurement levers to extract synergistic value

 

To realize value from various synergistic opportunities in packaging, EY investigated several cost levers and their potential impact. The team deep dived into cost sheets and identified saving opportunities for major packaging material through index-linked buying. In addition, EY also consolidated vendor bases and leveraged scale across key categories for negotiation, besides leveraging different price floors which the two organizations had.

 

EY also conducted market assessments and index identification for synergistic raw material categories and alternate vendor and price discovery for high priority categories. It also developed a scientific price forecasting model for better indicative price visibility.

 

End-to-end network optimization from analysis to implementation

 

EY conducted an end-to-end investigation to identify network cost optimization opportunities. It included, sales gravity analyses, cost and service lever optimization runs, and network footprint implementation. The team also conducted center of gravity analysis for CFAs and hubs and determining cost baseline values and identified a list of several CFA locations and determined their associated cost savings.

 

The value drivers of the network optimization exercise included warehouse and freight lanes consolidation, price discovery and alternate vendor identification, and primary freight management. EY also piloted the 3PL logistics model in key regions.

 

Building a common sales and operations planning strategy

 

Since the two entities had different sales and operations planning approaches, the company needed a common governance model and tech-enabled process to establish visibility and control across the integrated entity’s complete value chain. EY’s intervention was targeted at bringing three crucial components of the sales and operations planning processꟷ demand planning, replenishment planning, and sales and operations planning meetings. These included overhaul to the company’s forecasting processes and reporting mechanisms, improving responsiveness of the entity’s replenishment planning approach, and establishing a formalized decision-making process.

3

The better the world works

An efficient supply chain led to lower costs and better value

The company realized lower supply chain costs, more operational efficiency, and better decision-making across the complete brand portfolio.

EY’s approach was premised on several value drivers spread across different cost or value measures across all three optimization categoriesꟷ procurement synergies, network and logistics, and sales and operations planning. It involved investigation of different pricing models, alternate vendor discovery, and rightsizing different logistics costs. As a consequence of the supply chain optimization, the company identified and started implementing synergies across the target areas.

Cost and value improvements which EY’s delivered for an Indian FMCG company

  • Procurement synergies
Identified procurement synergies of
~7-10%
across key packaging material categories
  • Network and logistics
Optimized network and logistics cost reduction helped in identifying opportunities of
~12-15%
in logistics spend
  • Sales and operations planning
Identified
~20%
inventory reduction potential

(Contributors include Nishit Bhatia, Shreyan Sarkar, Abhijeet Vaidya, Amit Kumar, Shivagurunathan Narayan, Chirag Goel.)

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