With the rise in importance of supply chain management at leading companies in recent years have come new expectations around this function’s ability to do more. While cost-focused supply chain improvements like sourcing, lean manufacturing, contract manufacturing, and third-party logistics have all helped to improve the bottom line, the next challenge for supply chain strategists is to achieve full alignment with the strategic intent of the business to create value and enable growth.

Value creation requires delivering brand growth and exceeding the requirements of key customers in order to drive significant margin and cash flow improvements for the business—now and well into the future. As the connector between brand strategies and execution at the customer level, supply chain alignment seems a natural objective.

However, at a time when many consumer packaged goods companies are still struggling to achieve alignment within their current supply chain or chains, aligning the supply chain with the business strategy poses a substantial challenge. On one side, growth goals and innovation streams lead to more complex product portfolios that require new capabilities. At the same time, ever-changing customer requirements (for example, customization, lead times, fill rates) provide pressure from another side. And financial objectives pressure cost and capital (fixed and working) performance from yet a third side. As a result, the supply chain appears stuck between the proverbial “rock and a hard place,” unable to sacrifice performance against what may appear to be conflicting objectives. To succeed in the future, supply chain and business (sales, marketing, finance) strategies must reflect an integrated design that includes effective tradeoffs between the various business and supply chain elements.

Aligning the supply chain with the business strategy allows the organization to capture cross-enterprise opportunities that not only generate cost and capital efficiencies, but also help to drive top-line opportunities. Getting there requires abandoning traditional thinking around the supply chain and adopting a new understanding of and concurrent focus on both the business and supply strategies. It also requires a logical approach and a substantial amount of hard work, as Unilever U.S. has learned over the past several years while developing and implementing its Supply Chain 2010 strategy.

With 2006 net sales of $50 billion in the Americas, Europe, Asia, and Africa, Unilever is a truly global enterprise. The corporation has a presence in 150 countries around the world with some 179,000 employees, and offers a product portfolio that spans the grocery store with well-known trademarked brand names in categories like spreads (I Can’t Believe It’s Not Butter), sauces (Ragu), dressings (Hellmann’s and Wish-Bone), beverages (Lipton teas), ice cream (Good Humor and Breyers), frozen food (Bertolli dinners) and personal care products (Dove, Suave, and Axe).

In North America, Unilever’s supply chain strategies have steadily evolved over the decades and followed industry trends in tandem with the retailers that it sells to. Twenty years ago, the company’s supply chain was essentially thought of as little more than a required path from the factory to the retailer’s warehouse. Under this philosophy, Unilever was able to focus on manufacturing and marketing while retailers made the sale. Barcode scanners were coming into wide use at the time, leading to a focus on enterprise resource planning, whereby the retailer would feed data back to its own distribution centers for replenishment of most products.

More recently, thinking around the supply chain has expanded to encompass all points from raw material to the store shelf. Real-time information, data synchronization, and radio-frequency identification (RFID) became the buzzwords. Companies like Unilever worked with retailers to share data and insights into consumer behavior. While the company kept pace with these developments, it became clear over time that doing so was only keeping it competitive. Breakthrough growth would require that the supply chain do more.

As at many companies, Unilever was challenged by the need to align its North American supply chain strategies with the broader business strategy. These challenges grew over time as product lines were purchased and sold off, product line portfolio priorities shifted, assets were rationalized, technologies were introduced, and channels/customers were increasingly provided with differentiated services. Unilever North America had multiple supply networks rather than a single chain, with each network reflecting different product technologies, trade channels, and sourcing, manufacturing, and distribution networks.

Early in 2005, Unilever began to flesh out Supply Chain 2010, a five-year supply chain program focused on its North American supply chain operations. To do this, the company engaged A.T. Kearney to help develop the vision, which centered on properly aligning the supply chain to meet business priorities and the needs of a changing product portfolio. Management also set its sights on driving Unilever’s North American supply chain performance into the top tier of consumer packaged goods companies.

The company recognized that one size would not fit all, and that the “right” supply chain model would require the integration of many supply networks linked through organizational structure, a common back-office infrastructure, and common ways of working. An integrated supply chain strategy would require appropriate tradeoffs between the cost of sourced items, manufacturing productivity, working capital, and transportation rates.

Moving forward, the supply chain strategies will focus on total supply chain management via the point-of-sale-driven chain. Special packs and promotion management are coming into the purview of the supply chain function, aimed at increasing sales and delivering value beyond just “perfect deliveries” (accurately invoiced, on-time, damage-free deliveries that include the exact quantity of goods ordered) by linking to the business strategy. The transition from the manufacturer to the retailer supply chain will not be a handoff, but rather a seamless, integrated flow.

Leading consumer products companies like Unilever have begun to reinvent the supply chain’s organizational alignment, breaking away from the constraints of the historical retailer-manufacturer relationship model. Customer business development has become the new order of the day, as the company looks to effectively collaborate with each key customer to increase sales. Where the old model was hampered by limited communication links and a myopic emphasis on transactions, the new customer business development model combines a range of elements from the consumer products company and the retailer to help increase sales—to the benefit of both parties.

As one retailer recently remarked, “It’s not about what comes in our store, but what goes out. If it’s not on the shelf, it doesn’t go out.” To help push its products to store shelves, Unilever’s supply chain, sales, customer service, finance, and information technology groups are interfacing directly with retailers’ buyers, information technology, distribution, and finance functions. The objective: to identify cross-functional and cross-business opportunities.

To promote the Unilever supply chain beyond support function status and position it as a key driver for the company’s success, we needed to have a clearly defined business strategy. In 2005, then-recent business realignment and portfolio strategy work at Unilever provided clear direction for the supply chain strategy development. Key considerations included brand and technology growth rates, geographic, channel and customer investment focus, and the capabilities that would be used to achieve differentiation in the market. The company could then begin to articulate those characteristics that the supply chain would need to support the business strategy going forward and use this as a key input to the supply chain strategy, as shown in Exhibit 1.

As at many companies, Unilever’s supply chain strategy prior to 2005 was still very much focused on cost reduction and capital productivity. Its supply chain was largely reacting to rather than aligning with and supporting the overall business strategy. Supply chain management was aware of the industry trends for best-in-class performance and began the move to align the supply chain strategy with the business strategy.

The movement to repurpose the supply chain and make it a source of competitive advantage would begin with a new, customer service orientation that synchronized with the company’s overall growth strategy. At the same time, the company was being pulled to change by customer supply chain demands and the need to increase the use of information technology like point-of-sale data and RFID.

Impacting the strategy development scope was Unilever management’s decision to combine the Foods and the Household and Personal Products divisions in North America—a change that included the supply chain operations. These changes would come to result in some immediate reprioritization with respect to systems integrations, service center consolidations, and distribution integration. However, this also made it possible to very quickly provide a single supply chain facing to retailers, thereby better servicing customer supply chain needs.

Because the Supply Chain 2010 Strategy would be centered on customer needs and collaborative efforts, Unilever North America in 2005 embarked upon a wide-ranging study of retailers’ future requirements and industry trends to help shape the strategy.

Unilever employed a wide range of resources to assess its existing performance and practices and began to define what it meant to be top tier. Working with several industry organizations and specialized firms, A.T. Kearney benchmarked the company’s performance against nearly a dozen competitors in both the foods and home and personal care segments. Performance on inventory turns, perfect order percentage, order cycle time, financial performance, organization, supply chain practices and services, and complexity management were all examined.

The project team also fielded a customer survey to develop a complete understanding of future requirements and anticipated trends. All U.S. retail channels were surveyed, including warehouse clubs, supermarkets, and mass retailers. Topics touched upon included ordering and inventory management practices and techniques to reduce retail out-of-stock situations, outsourcing, distribution models and service differentiation, order profiles and frequency trends, collaborative planning through POS data and other means, and product customization needs. Recognizing that change is constant, the survey emphasized the need to look ahead to expected requirements five years into the future.

These data-gathering efforts made it clear that retailers had increased expectations around the performance of the 2010 inbound supply chain. The vast majority of them favored 24- to 48-hour order lead times, with more than half expressing a need for daily order delivery. Nearly half of all retailers expected to use scan-based trading, and all major chains would require data synchronization with consumer packaged goods companies and distributors. Nearly two-thirds of respondents expected significant order or product customization. Demand for special packs and mixed pallets would dramatically increase. Almost 80 percent of retailers preferred that consumer packaged goods companies increase ownership of inventory. The data was examined by channel and customer to steer clear of any potential fallacies around what a particular customer might desire that could be created by overreliance on the aggregated data.

A major takeaway from the customer surveys was that Unilever U.S. should strongly focus on customer-specific strategic supply chain initiatives in order to attain best-in-class status. While retail mix, consumer insights, innovation, and on-time in-full deliveries were all points of current emphasis, strategic supply chain initiatives were seen as the top characteristic of future best-in-class performance. Thought leadership in identifying opportunities as well as the capability and availability of resources to pilot new systems and processes offered potential as additional avenues of collaboration that could lead to mutual growth. Thus, Unilever U.S.’s scale and breadth of product portfolio provided (and continues to provide) a distinctive opportunity.

The customer needs assessment made it clear that incremental supply chain improvement would only allow Unilever to hold its market share; growing it would require step-change improvement, as shown in Exhibit 2. The Supply Chain 2010 Strategy was partially driven by the expectation that much of the company’s growth would come about through a focused extension of Unilever’s key brands. Thus, its supply chain needed to build the ongoing capability to create new supply networks for new technologies and channels. Additionally, the future-state supply chain would need to proactively support customer requirements by going beyond fundamental performance criteria and allowing for selective development of new capabilities to support the business. Priority areas to address included customer service, manufacturing strategy, information technology and organizational support.

Because a single supply chain strategy could not adequately support all business segments and customers or their emerging expectations, the Unilever U.S.-A.T. Kearney team developed a differentiated customer service framework, as shown in Exhibit 3. Customers were clustered based upon retail channel, the feedback they had given, key trends, and their overall supply chain needs so as to develop multiple supply chains tailored to the requirement of each cluster. (In this context, the development of “multiple supply chains” is not meant to imply the development of distinct physical networks, but rather the development of capabilities to efficiently and effectively manage the varied and distinct requirements of different customers.)

The need to grow and innovate, coupled with the anticipated business trends and corporate financial objectives, collectively suggested that strategic third-party relationships would be crucial to the 2010 Supply Chain Strategy. These relationships were expected to bring significant value through access to new markets and channels, improved time to market, increased geographic coverage, improved product development processes and new technologies, among others.

In exploring outsourcing possibilities, the company’s manufacturing infrastructure and strategy came under scrutiny. Assets were viewed in terms of their strategic value and performance; those that were low in both were noted as especially good candidates for transitioning to a contract manufacturer. A make-versus-buy framework was also introduced to assist in the decision-making process for future innovations, as shown in Exhibit 4.

This new make-versus-buy framework was applied to several product lines that were just coming to market, including Bertolli premium frozen meals (which Unilever U.S. opted to produce internally) and the refrigerated Country Crock Side Dishes (produced by a contract manufacturer). But more important than any individual decisions that this particular framework made possible is that the organization is now able to evaluate the product portfolio and make insource and outsource production decisions on a continuous basis and make changes as customer and market factors warrant.

With the requirement for point-of-sale-enabled planning factored into the mix, the need for improvements to the IT infrastructure became clear. The new design would have to improve linkages between the company’s suppliers, plants, distribution centers and customers, with planning and execution more closely linked to actual movement at the retail point-of-sale.

Once the high-level, customer-driven supply chain strategy was developed, the project team set about assessing the gaps that would have to be overcome to deliver on that strategy. The entire physical network—from supplier to factory to Unilever U.S. distribution center to customer distribution center to store shelf—was examined for current and needed capabilities. The information and planning cycle, asset and cash impacts, and customer service key performance indicators (KPIs) were also examined as part of this effort, as shown in Exhibit 5.

The strategy development team then reviewed a series of potential options for resolving the capability gaps. These options were assessed based upon the need to address basic operational gaps or to develop future capabilities that would enable a gain in market share.

Five key areas of supply chain capabilities were identified to fulfill the supply chain strategic needs for 2010:

• Distribution
• Planning and collaboration
• Information technology
• Asset management
• Organizational alignment

With the 2010 Supply Chain Strategy established and the capability requirements defined, the team assessed capability priorities that would best fulfill the future needs of the business. In late summer 2005, Unilever’s North American supply chain management identified ten broad initiatives that would have to be undertaken to establish the capabilities to deliver against the new supply chain strategy. The majority of these initiatives centered upon the development of a customer-driven supply network, which included the formation of integrated customer-facing teams, a focus on retail in-stocks, customer business planning, improved demand planning, distribution network optimization and customization capability improvements. Supply chain management also began defining how to best leverage thought leadership to provide growth opportunities.

Success would not necessarily be defined by the achievement of specific metrics, but rather by the embedding of the desired capabilities throughout the supply chain.

A multiyear program was developed with priorities based upon such factors as the impact of holding versus driving market share, ongoing business portfolio and organization changes, and available resources. Additionally, the program phasing was impacted by the fact that the capability development initiatives required multiple work streams with many interdependencies and program phases. For example, the implementation of a common SAP instance for North American operations (recently completed) represented a key milestone that significantly impacted other initiatives.

Implementation of these capability initiatives has been and will be ongoing. Some key supply chain projects supporting the 2010 strategy that have been completed to date include:

• Implementation of multifunctional customer-facing supply chain teams.
• Development of a new distribution network to meet future order fulfillment capabilities and the kickoff of a two-year plan to implement.
• Several factory rationalizations.
• A make-versus-buy process development to enable the development of supply network capabilities for new product platforms.
• Implementation of a company-wide sales and operations planning process.
• A Manugistics upgrade and the implementation of a common supply and planning framework.
• Improved transportation management and the implementation of Lean Logistics TMS.

It should be noted that while executive management endorsed the strategy back in 2005, it decided against committing to a full five-year project budget in a cost-constrained environment. Instead, priority decisions are being made on an annual basis according to which investments make the best business sense for the coming year.

In 2007 Unilever once again realigned its supply chain to better leverage its sourcing across a combined Americas region (Canada, U.S., and Latin America) and provide a local customer-facing structure focused on logistics and customer services.

“The most recent supply chain organizational changes presented an opportunity to renew our strategy and develop go-to-market capabilities needed to deliver excellent customer service,” said Steve Innes, Vice President Supply Chain, Unilever U.S. This includes improving internal and external supply chain collaboration to provide an efficient and effective supply network that ensures product availability at the shelf. Halfway through the time horizon for Supply Chain 2010, the focus is coming to change from maintaining market share while undertaking improvements to gaining share through improved customer-serving and collaboration capabilities.

Unilever U.S. also continues to address complexity management resulting from the increasing number of supply networks generated by changes to the product portfolio and channel and retailer customization requirements. Additionally, new capabilities are needed to address the ever-increasing operational requirements of effective cost and asset management, order fulfillment and cycle time.

Several factors make the Unilever U.S. Supply Chain 2010 program unique from our perspective. First off, the company was working from a position of relative strength rather than a burning platform. This allowed for a more measured approach as the company moves from above-average to best-in-class performance. Second, rather than pushing out a series of metrics and then trying to determine how to meet them, the company emphasized the development of new capabilities, as with the new make-versus-buy process that will allow it to maximize responsiveness to customer needs.

Each company’s situation is unique. Yet we hope that sharing our perspectives on the need to link the supply chain strategy to the business strategy and sharing some of how we did so at Unilever U.S. has whetted the reader’s appetite and will factor into their strategic decision-making process moving forward.