I am told by big food manufacturers that innovation in product and packaging design is the key to medium-term profit growth. The message is clear - innovate or perish!
Is the same assumption valid for physical distribution design and its associated costs?
You might think not: after all, warehousing cost is largely determined by storage needs and location. Transport costs are a function of customer demand: ie, drop size and distance from your warehouse. Your warehouse location is determined (tactically) by where you are today and how long you are committed to that location. So how much flexibility do you really have to innovate?
A supply chain director complained to me the other day that all he ever gets from his staff is more of the same: "Not an ounce of innovation from anyone - it's all left up to me to do it!"
Having worked with his staff, I can promise you that they are at least as good as average on the UK food supply side. The reason they cannot innovate is that they have inadequate visibility of the true cost drivers. If they could create that visibility, they would soon spot where the non value-added activity is taking place and they could then start to eliminate it and reduce costs.
Most food suppliers have excellent demand information hidden away in their enterprise resource planning systems. They are only a few weeks away from the clarity of vision that would release the skills of their supply chain staff to start the innovation process.
Those that have done it have improved their negotiating skills with retailers that demand change.
They can now avoid the pitfall of thinking that saying 'No!' to Tesco, Sainsbury and Asda is the only option open to them, other than continuing to trade under pressure. You do not have to be Procter & Gamble, Heinz or Unilever to change your negotiating leverage, but you must enter the arena armed with the right weapons. Why not start now!
Tim Knowles is partner at supply chain consultancy TKA.