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Consumer Products

Industry Challenges 1

Consumer product companies are faced with unprecedented challenges. They must contend with uncertain market conditions, rising material & production costs, slow growth coupled with changing business models. As an outcome of these obstacles, companies face cash flow constraints which impede growth and their future-readiness. These conditions complicate and impede strategic decision making and hence there is no clarity on their differentiated value proposition. Innovation and competitive edge creation have subordinated to the tried-and-tested. Consumer product companies appreciate the importance of the supply chain for their sustainable growth though the solutions adopted do not enable high availability with low inventory. Instead, the supply chain creates excess inventory of unwanted material and constantly stocks-out of the fast-movers. This leads to sales-losses on one-hand, while incurring high inventory carrying costs, further dampening profitability. Without clarity on how to avoid this constant recurrence of sales losses, each function reasons for improvements in other functions.

Industry Structure 1

Consumer products can be further categorized in consumer goods and consumer durables.  These are products that customers purchase for their personal consumption.  Consumer goods have a short consumption-period, while consumer durables have a longer consumption lifecycle.  Consumer goods are purchased frequently, while consumer durables have a long period between successive purchases. 

Historically, the primary focus of consumer product companies has been product manufacturing, sales & marketing.  In the last few decades, supply chain started to play a prominent role to enabling high service levels and inventory control at the primary point of sale.  Business focus on secondary points of sale and end consumers has become relevant areas of interest for creating differentiated solutions. 

The industry structure is complex with multiple options for finished goods procurement (internal & external), and diverse market outreach opportunities.  A effective & efficient supply chain is expected to align the raw material and finished goods availability to market dynamics, without high system inventory.  With the levels of uncertainty and variability internal and external to the company, supply chain will definitely require a crystal ball or third eye to manage.

Theory of Constraints Intervention 1

Borrowing from Dr. Eli Goldrat and Theory of Constraints, the objective of for-profit corporations is to make more and more money.  This can be achieved by ensuring high levels of availability for the channel partners and thereby achieving high service levels for the end customer.  As professed in TOC, inventory control is actually the flip side of the same coin of availability. 

Consumer product companies are overwhelmed with availability challenges for their fast runners, while are overflowing with inventory of all other products (slow movers, obsolete products).  This undesirable effect is equally visible with their distributor / dealer partners, as well as the retail outlets.  High inventories limit cash flow, creating obstacles for speedy introduction of new products.  These effects are actually an outcome of our own creation – the way we manage companies using forecasting as the primary basis of business!  Variable lead times from production and procurement further stress the system’s boundaries, and occasionally a breakdown is observed across the system.  Our current management paradigms have created disharmony and conflicts within the function, leading to increased stressful working conditions!

Theory of Constraints offers a powerful alternative management paradigm, a paradigm-shifting mechanism to streamline the holistic supply chain.   Deploying the Five Focusing Steps for consumer product companies, TOC offers two primary business level interventions for consumer product companies, with the objective of sustainable business growth in sales and profitability.

1. Production Level Intervention: Release capacity and reduce production lead time enabling faster and real-time response to market dynamics.  By leveraging the capacity constraint resource and focusing on product flow, TOC maximizes effective production output for profit maximization.  This leads to significantly higher availability with significant improvement in the inventory health, while total system inventory reduces. As an outcome, inventory turns more than double, measured availability surpasses 95%, and the health and inventory profile across the system is optimized. 

 2. Distribution & Supply Chain Intervention: TOC Way of Working promises a three-fold increase in Return on Investment of the channel partners.  By ensuring that the channel inventory is healthy and agile, and by ensuring very high availability and large product portfolio at each point of sale, the TOC Solution is able to increase sales with a smaller inventory base.  With this differentiated value proposition, consumer product companies can provide irrefutable offers to the channel partners to expand their market share.

Theory of Constraints professes establishing a Decisive Competitive Edge, creating and winning market share through a unique way of managing business!  The different paradigm for managing business is not based on forecasting, instead based on speedy response to real-time market dynamics.  The replenishment solution is the basis for production planning and servicing the channel partners.  This solution leads to minimizing lost-sales coupled with reducing system inventory.  High service levels to the distributor / channel partners are guaranteed.  Process based execution ensures transparency, eliminates manual intervention and reduces inter-function conflicts, enabling effective cross-function working for the common business objective of sales & profitability growth!  Some of the benefits observed within 3-6 months of the TOC Solution implementation are:

  • Production lead time reduces by 50%;
  • Sales growth of ~ 20%;
  •  System inventory reduction of 30% – 50%;
  • Inventory turns growth more than 100%;
  • Reduction of obsolescence and high aging of inventory;
  • Improved relationships between functions, suppliers and channel partners; Harmony in the system.

Avenir Expertise

Avenir, with its team of TOC Experts deliver significant growth for their clients.  Our engagement model is based on closely working with the client in strategy development and implementation of the TOC Solution.  Within a six-eight month period Avenir consultants are able to establish and deploy the solution.  Immediate internal gains are observed within three-six months, while system gains of financial benefits may lag by two-three months. 

We have deployed TOC Solutions across various industry segments in India and abroad – a national player in the white-goods industry, the market leader in locking solutions, a dominant player in a niche apparel market with international presence, a new entrant into the beverages market in India are some of our successes.