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Supply Chain Management of Unilever - December 29th, 2010

Unilever is an British-Dutch multinational corporation that owns many of the world's consumer product brands in foods, beverages, cleaning agents and personal care products.

Unilever is a dual-listed company consisting of Unilever N.V. in Rotterdam, The Netherlands and Unilever PLC in London, United Kingdom. This arrangement is similar to those of Reed Elsevier and Royal Dutch Shell prior to their unified structures. Both Unilever companies have the same directors and effectively operate as a single business. The current non-executive Chairman of Unilever N.V. and PLC is Michael Treschow while Paul Polman is Group Chief Executive.

Unilever's main international competitors include Nestlé and Procter & Gamble. They also face competition in local markets or product ranges from companies such as ConAgra, Danone, General Mills, Henkel, Kraft Foods, Mars, Inc., Pepsico, Reckitt Benckiser, Sara Lee and S. C. Johnson & Son.


A supply chain is the system of organizations, people, activities, information and resources involved in moving a product or service from supplier to customer. Supply chain activities transform raw materials and components into a finished product that is delivered to the end customer.
Supply Chain

The business strategy of Unilever is to achieve the highest profitability, growth, and return-on-assets. It has sold many plants and has had to put in place processes to coordinate with the third parties that own them, complicating its processes to meet its asset goals. Unilever’s operating model has three components: quality, service, and cost. While keeping its global branding, the company’s strategy is to have local supply chain for local demand to minimize complexity.

Non Production Items (NPI) Organizational Model
Unilever has recognised the importance of implementing a global supply management programme focused on reducing Non Production Items (NPI).

The NPI organisation model being implemented in both Europe and North America (which will be extended to the rest of the world) is founded on clear cross-business governance and effective executive buying. Strategic sourcing is being supported by the global rollout of e-procurement and participation in some key Exchanges, particularly in Transora, where an equity stake is held. Regional and a few global NPI cluster teams have been formed which are undertaking a rigorous methodology to deliver the strategic sourcing strategies and implementation plans required to achieve the targeted savings.

Historically the majority of NPI's have been purchased locally, although there has been an increased move towards national and in a few instances, trans-national negotiations. European and to some extent global supply markets are becoming well established enabled in many instances through e-procurement. In such areas as IT hardware and software, travel & accommodation, energy, logistics and fleet management European and in some cases global supply markets and suppliers already exist. European markets are also emerging for office facilities, telecommunications, marketing point-of-sale items and technical supplies.

The supply-chain model's primary function within Unilever is to provide the Group’s business with shared understanding of the scope of the supply-chain and its sub-processes. The model provides the common language for the different Business Groups and thereby enables the identification and implementation of synergies. Some of Unilever's most important supply-chain model applications are assessing supply-chain performance and KPI development and alignment.



Distribution and Selling
# Unilever’s products are generally sold through its sales force and through independent brokers, agents and distributors to chain, wholesale, co-operative and independent grocery accounts, food service distributors and institutions. Products are distributed through distribution centres, satellite warehouses, company operated and public storage facilities, depots and other facilities.
# Home and Personal Care in North America (HPCNA) has also developed distribution centres for third-party manufacturers where products are collected to create heavier more efficient loads to re-supply customer distribution centres.
# Home & Personal Care business in Europe (HPCE) selects hauliers on cost, performance and environmental impact.

E-Procurement
Unilever meets two of the key corporate strategic thrusts: World Class Supply Chain and Simplification by implementing NPI strategic sourcing and e-procurement enablement. These are two of the six thrusts for implementation of world-class supply management:
# Implement executive buying
# Attract, develop and retain world-class buyers
# Professionalise NPI sourcing
# Enable e-procurement globally
# Accelerate and leverage simplification
# Drive information and measurement

Aggregation of demand and access to new suppliers through real time partnership has enabled Unilever to improve efficiencies of the extended supply chain. Workflow automation has helped in simplification of the internal processes, which has created scale for Unilever to leverage. For Unilever e-procurement represents the opportunity for sustaining the benefits gained from strategic sourcing through information, compliance and business process simplification. There are four ways of defining the benefits of e-procurement:
# A structural enabler for re-engineering the NPI procurement process enabling further benefits to be gained through strategic sourcing, business simplification, visibility of total spend and effective integration routes both internally, e.g. ERP, and externally.
# The means for conducting electronic business upstream using lowest cost links, i.e. cXML.
# A business model prompting re-evaluation of the mechanisms for connecting customers, enterprises and suppliers (incl. Exchanges and Marketplaces)
# A single front-end interface both externally to suppliers and internally for ERP and other areas of integration

Strategically e-procurement complements Unilever's overall e-initiatives. Learning from these and the strategic sourcing expertise gained during implementation, has improved business ability for the future e-procurement of both NPI and direct materials. Workflow automation and simplification to global sourcing processes has resulted in increased productivity and reduction of transaction costs. Data made available can then be applied to harmonise items purchased, rationalise needs with suppliers and monitor and reduce usage, thus further increasing Unilever's buying opportunities.



Exports
Unilever sells its products in nearly all countries throughout the world and manufacture in many of them. The company exports a wide range of products to countries where it does not makes them. For example, inside the European Union, Unilever makes many of its products in only a few member countries, for sale in all of them. The chosen manufacturing configuration is generally determined by an optimized regional sourcing strategy, which takes account of requirements for innovation, quality, service, cost and flexibility.

Global Supply Chain Management Solutions Providers
In an effort to streamline its daily operations, Unilever has partnered with several technology and logistics providers on a worldwide basis. Some of the major providers are:

Technology Providers


Some other technology providers are: -
# Manugistics Group Inc.
# SSA Global
# Syncra Systems Inc.
# Vastera Inc.

Logistics Providers


SCM Technologies in Unilever’s Business Model
Unilever's overall technology vision includes a strong push from client-server to thin-client architecture, Web technologies that bring the company closer to its customers, and business analytics to make management information easier to access, according to Rick Ballou, IT business-area director for Unilever Home and Personal Care North America.

With a market capitalization of $28 billion, the consumer-products giant reported that its recent IT achievements include the rollout of business-intelligence software from Hyperion, and "SAP ERP wall-to-wall" as a global standard. Unilever also has seen significant cost savings from its investment in Ariba's sourcing technology, which has resulted in a reduction of the office-supply purchasing budget by millions of dollars, and a consolidation of data centers from 18 to five; eventually, the number will fall to three.

A cross-functional global committee already is working on the shift from desktop client-server to portal technology. On the B2B front, in addition to its RFID efforts, Unilever is participating in an industry-wide effort to standardize data elements throughout the supply chain through UCCNet. Unilever has also expressed their continued interest in CRM.

Unilever collaborates on statistical and market promotion forecasts for key products with a few large customers, using a collaborative system from Waltham, Mass.-based Syncra Systems Inc.

The organization as whole had multiple ERP and CRM systems from several vendors, and 34 custom-built data warehouses. Unilever currently runs 100 separate, complete SAP enterprise resource-planning systems.

Similar on these lines, some of the major SCM technologies and IT solutions implemented in the business model of The Unilever Group are discussed below: -

ISIS Supply Management Information System: ISIS is Unilever’s integrated supply management information system. It helps its local, regional and global supply managers make appropriate sourcing decisions, allowing them to collate and analyse information quickly and easily. The system enables its managers to negotiate with suppliers in a transparent and efficient way, benefiting both parties. For more details on this, please visit https://isis-unilever.com/Sourcing.

E-procurement Solutions from Ariba: Unilever selected the Ariba Buyer software for e-procurement following a rigorous selection process and initial pilot in North America. Although initial success has been achieved Unilever believes that these are still early days and that the return of investment has still to be proven. While e-procurement is an inevitability for future supply chain optimisation the supply market, particularly in Europe, is still suffering from under-development. There is an emerging recognition that e-Procurement can affect total supply chain operation rather than just transactional activity. Until recently few have taken action to implement or sponsor the necessary changes. Encouragingly though, Unilever believes that this position is changing and unquestionably e-Procurement provides a catalyst for positive improvement in supply management profile.

Enterprise-Scale Data Warehouse and Business Intelligence Solutions: In order to gain a clear view of business performance across its 34 companies in 19 countries, Unilever Latin America has embarked upon an enterprise-scale data warehouse and business intelligence project called Sinfonia.

At the heart of Sinfonia, KALIDO® enterprise data warehouse creation and management software (KALIDO) provides a solution that will grow to encompass one of the largest databases in the world by 2007. KALIDO delivers an aggregated view of data across Unilever Latin America at high speed throughout constant business change such as acquisitions and market consolidation. KALIDO is now making it possible for Unilever Latin America (Unilever LA) to build and manage a fully functional, adaptive data warehouse throughout its lifecycle while simultaneously rolling out an underlying regional SAP system in a 4 to 5 year sister project called Harmonia.

The flexibility of KALIDO is enabling Unilever LA to maintain business continuity as the Sinfonia and Harmonia projects continue to roll out. The KALIDO data warehouse will grow both in geographic coverage and in scope, and is expected to reach 12 TB in size. Throughout this period of growth it will deliver consistent business information, taking increasing volumes of data from the ongoing SAP implementation.

Unilever LA is converging processes, systems and information to enable a truly regional approach to business. Using the KALIDO enterprise data warehousing solution, the organization is successfully delivering a large-scale enterprise data warehouse, on time and within budget, while simultaneously rolling out a region-wide SAP system.

The new information architecture Sinfonia, powered by KALIDO, will deliver high-quality data to 4,000 users by 8 am every day across five time zones. The solution will enable better understanding of regional supply chain processes, brands, customers and suppliers, and will allow Unilever to respond rapidly to new opportunities, even against a backdrop of constant internal and external business change.

Finally, KALIDO will facilitate strategic planning and drive improved decision-making, by delivering tailored information at high speed to key business users, enabling Unilever LA to realize substantial cost savings and improved ability to capitalize on business opportunities.

Supply Chain Information Systems: Using a variety of information systems and several other supply chain management technologies, Unilever aims to enhance its supply chain business model. The following diagram describes the company’s supply chain system vision: -


Discussed below are the various types of information systems used within the business model of The Unilever Group with their specific usage: -
# R&D; System R&D; System (LIMS): Used for formula development
# Specifications Systems: Used for Packaging, Raw Material, Formula, Master BOM, Finished Products and Process Specifications
# Manufacturing Planning Systems: Used for MRP, Production Orders, Purchase Orders, Standard Costs, RM/Pack/WIP Inventory, Financial Transactions, Material Masters and Production Reporting
# Planning Systems: Used for Demand Planning (DP), Demand Req Planning (DRP), Constrained Prod Planning (CPP), VMI and Finite Scheduling
# MFG Execution Systems (Various): Used for Finished Goods Production, Compounding/Batching, Quality/Lab Systems and Plant Maint Systems
# Order to Cash Systems: Used for Order Entry/Management, Terms of Sale, Deduction Tracking, Stock Allocation and Invoicing
# Finished Goods Management Systems: Used for Shipping, FG Warehouse, Transportation, Finished Goods Production (PIN) and Traceability

Supply Chain Strategies of Unilever N.V
Unilever’s logistics operations present perhaps the biggest opportunity to streamline its supply chain and boost the company’s ability to achieve its lofty growth goals. The company is in the process of consolidating its nearly 30 warehouses down to five massive distribution centers capable of shipping customer orders within a day’s time.

Much of that consolidation is a recognition that retailers are adopting zero-inventory policies, which require an optimal use of flow-through and cross docking in the warehouses. To increase asset utilization, lower inventories and improve service, Unilever adopted collaborative planning, forecasting and replenishment (CPFR) relationships with some retail customers. Thanks to those CPFR efforts, Unilever has been able to achieve 10% inventory reduction, 10% forecast accuracy improvement and 5% increase in sales due to better on-the-shelf availability.

According to Fred Berkheimer, vice president of logistics for Unilever Home and Personal Care, since orders are often impacted by factors that cannot be projected, collaboration between manufacturer and retailer is necessary to increase forecast accuracy. “High accuracy in replenishment can only be achieved through order forecast collaboration and extended supply chain visibility,” says Berkheimer. Today, Unilever’s logistics department is experiencing include improved relationships with retailers, better planning, improved on-time performance and more efficiency in handling promotions.

Path to Growth

In 2000, the company launched a five-year Path to Growth initiative to drop the total number of brands down to 400 by the end of 2004, achieve 5%-6% annual sales growth and a 16% increase in operating margins.

Three years ago, the company was running hundreds of manufacturing sites under an umbrella of 300 operating companies. Path to Growth mandates a reduction in sites to 150 locations.

Unilever's supply savings programme is one of the cornerstones within the Path to Growth Strategy towards the implementation of a world-class supply chain. Through Path to Growth, Unilever’s five-year strategic plan announced in February 2000, the company has greatly strengthened its business.

Unilever's Path to Growth Strategy
=> Reconnect with the consumer - to anticipate the future
=> Focus the brand portfolio - reflecting consumer appeal and growth potential
=> Pioneer new channels - to be in the right place at the right time
=> Develop a world-class supply chain - simplifying sourcing, manufacture, and marketing
=> Simplify the business - reducing complexity

Significant progress has been made towards the achievement of its strategic ambitions with a much more focused brand portfolio and faster growth in the leading brands, while the major reductions in costs and streamlining the asset base have resulted in sharply higher margins and improved capital efficiency.

Under the so-called "Path to Growth" strategy, Unilever first reorganized into two units—foods and nonfoods—in each major geographic area. Path to Growth also calls for Unilever, by 2004, to cut its collection of brands to 400, from a high of 1,600 two years ago. That core of 400 strong sellers—which includes SlimFast, Dove, Ben & Jerry's ice cream and Lipton tea—is expected to make up 90% to 95% of Unilever's total sales, up from 84% today. So far, 700 slow-moving brands, plus an incongruous industrial dry cleaning business, have been sold. Five hundred more are still to be divested, including a group of oils and spreads put up for sale last month.

Over the period 2000 – 2003, Unilever has generated over €16 billion of un-geared free cash flow. The company has also successfully integrated Bestfoods, one of the largest acquisitions ever made in the industry. With one more year to go under Path to Growth this creates a strong basis for the next phase of company’s development.

"Chipping of "Goods" Initiative – RFID
Unilever's Supply Chain Innovation team wants to understand how better tracking of products will affect manufacturing plants, distribution centers and stores. Unilever anticipates that manufacturing plants will have to reduce the length of product runs and make other refinements to react more quickly to changes in demand. And retailers will have to provide more timely information to suppliers.

In continuation to this strategy, on July 29, 2002, Unilever launched its third phase of a supply chain-tracking project under Britain's "Chipping of "Goods" initiative. The company planned to put RFID tags on 30,000 six-packs of Lynx deodorant and monitor them as they move from a manufacturing plant to three Safeway stores. As part of the initiative, Unilever's U.K. home and personal care products company, Lever Fabergé, is putting RFID tags on six-packs of Lynx deodorant at its factory in Leeds. After the individual cans of deodorant are made, they are vacuum-sealed and a small white label with an RFID tag in it is affixed to the package.


Why so Difficult to Match Supply and Demand?
Uncertainty in demand and/or supply
Changing customer requirements
Decreasing product life cycles
Fragmentation of supply chain ownership
Conflicting objectives in the supply chain
Conflicting objectives even within a single firm
Marketing/Sales wants: more FGI inventory, fast delivery, many package types, special wishes/promotions
Production wants: bigger batch size, depots at factory, latest ship date, decrease changeovers, stable production plan
Distribution wants: full truckload, low depot costs, low distribution costs, small # of SKUs, stable distribution plan



Total Supply Chain Cost is the sum of all supply chain costs for all products processed through a supply chain during a given period
Inventory Turnover is the ratio of the cost of goods sold to the value of average inventory.
Weeks of inventory is the ratio of average inventory to the average weekly sales
Customer Service
Average Response Time is the sum of delays of ordering, processing, and transportation between the time an order is placed at a customer zone and the time the order arrives at the customer zone

Inventory Turns
Inventory Turns
Inventory Productivity

DC’s functioned as the hubs in a hub-and-spoke network
Distribution costs accounted for 2-3% ofrevenues compared to 4-5% for other retailers
mastered large scale “Cross Docking”
Automation of distribution: RFID technology
Inventory turns were a key measure of the overall performance of the supply chain
Efficient S. Chain: Product Assortment
Stocked mix of nationally branded and private label products
What are the pros and cons of nationally branded and private label products?
Product assortment managed by store ⇒ more variety
What are the pros and cons of offering more variety?
Pro: More variety than competitors ⇒ customer satisfaction
Con: More variety than competitors ⇒ higher costs

Pricing Strategy: EDLP
Wal-Mart: every day low price (EDLP) retailer
What are the advantages of EDLP?
Store managers allowed to match or beat the lowest competing price
What is really allowing Wal-Mart to have lowest prices?
Wal-Mart: Market Position
First: Small town rural strategy
Only 55% compete directly with Kmart and 23% with Target
Have displaced small local merchants
Only competition is the Wal-Mart in the next town
Second: Clearly defined competitive position: emphasis on nationally branded products and EDLP
Reinforce EDLP by posting competitors’ prices weekly
Supply Chain Design
Meet Spun.com
Supply Chain Design

Marketing expenditure of the Internet Retailer
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Last edited by abhishreshthaa; April 29th, 2011 at 05:08 PM..
   
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