Best supply chain in the world: A case study

Efficient supply chain management has become a vital factor in deciding the fate of a business. Irrespective of product appeal and design, if your supply chain can’t coordinate delivering what your sales department promises to the customers, your business isn’t going to shine in the market. Without further ado, let’s dive into the topic at hand, which is the best supply chain in the world?

There are many reporters and analysts who publish ‘The Best Supply Chain’ ratings, but the most reliable and celebrated ratings by far, are published by Gartner. Gartner Inc. is the world’s leading research and advisory company that focuses on equipping business leaders with indispensable insights, advice and tools to build successful organizations of the future. Each year, Gartner publishes the ratings for the best supply chain for each year based on the following parameters:

  1. Peer opinion (25%)
  2. Gartner opinion (25%)
  3. 3-year weighted ROA (20%): 50% of (Net income/ Total assets) in first year + 30% of (Net income/Total assets) in second year + 20% of (Net income/ Total assets)
  4. Inventory turns (10%): Cost of goods sold/ Quarterly average inventory
  5. Three Year Weighted Revenue Growth (10%): calculated in the same manner as three-year weighted ROA.
  6. CSR Component Score (10%):  Index of third party corporate social responsibility measure of commitment, transparency and performance.

The final cumulative score obtained is used to rank the best supply chains in the world. And the best supply chain of 2019 was (*drumroll*) Colgate-Palmolive.

Figure 1: The final ranking of the top supply chains in the world (as obtained from the website, Source: Gartner)

Who is Colgate-Palmolive? 

Colgate-Palmolive is one of the biggest names and a leading MNC in the FMCG industry. Each one of us would have used at least one of their products in our lifetime. They have product lines in oral care, personal care, pet nutrition and home care. With operations in over 80 countries, spanning across 6 continents of the world, Colgate-Palmolive has their products sold in over 220 countries, carrying over 200 years of heritage from its origin in the US. A truly global company with revenues in excess of 17 Billion USD(Source: Supplychaininsights), Colgate-Palmolive has been steadily emerging as one of the most well managed supply chains in the world, consisting placing their products on shelves in accordance to the customers’ demands.

Colgate is a silent, global leader. Staying away from the spotlight, Colgate merged with Palmolive in 1928 and ever since, it has been known as Colgate-Palmolive. With sourcing, production and delivery of products happening through the same organization Colgate-Palmolive has managed to maintain the homogeneity despite scaling and expansion. In doing so, its vision and values are reflected in Colgate-Palmolive’s consistency in delivering value to its consumers. 

So, what is driving the success of Colgate-Palmolive’s Supply Chain?

  • Consistency and growth: Colgate-Palmolive have always believed in consistency and focus on improving supply chain processes of their partners and consumers, by investing in growth. Close to 60% of the leadership’s efforts goes into business expansion or driving productivity. These efforts are heavily driven by customer/partner collaborations that ensure efficient communication of targets through the value chain. Irrespective of which country you buy the product in, Colgate has managed to deliver the same product experience decade after decade. 
  • Increasing Profitability: Colgate-Palmolive has a strong financial leadership which drove 42 consecutive quarters of operating margin improvement (Source: Supplychaininsights). This was achieved through manufacturing excellence that delivered high volume products in shorter cycle times. The sales and operations planning teams were exceeding expectations each year, thereby reducing the risk in the supply chain. In the process of doing so, Colgate achieved the highest returns on assets investment that enabled them to drive the same growth in profits despite economies of scale. Another contributing factor is, Colgate controls close to 95% of manufacturing while vertically integrating some of their supply activities. By virtue of having control over manufacturing, Colgate can improve operating margin and return on assets (ROA). 
  • Global resource utilization providing high visibility: Colgate-Palmolive adapted quickly to emerging technologies in database management systems (DBMS). With new and innovative systems incorporated in the organization, such as SAP R/3 ERP software along with Oracle’s DBMS, Colgate was able to take advantage of a well-integrated global setup. Efficient technologies such as these meant that with increase in number of shipments, the number of improper or incomplete orders were reduced significantly whilst achieving lower inventory. The control procedures in these integrated systems are supported by SAP that is dependent on the signals of daily demand along with the replenishment orders of inventory. The result being, consistent supply and demand levels that helps the company in being more responsive to significantly high-volume orders. 
  • Sweet spot between customer needs and supply chain efficiency: Here’s an excerpt from a conversation between a business candidate and Mike Corbo, the Chief Supply Chain Officer for Colgate-Palmolive, 

On the manufacturing side, we standardize the production of all the products under one platform for up to 85% of production, only to customize the products in the last 15% of the manufacturing process. Standardizing so much of the production process allows us to improve manufacturing efficiency”.

In doing so, Colgate has managed to identify low value SKUs and concentrate their efforts on providing high value products to customers. They have managed to identify the 20% of SKUs that drive 80% of Revenue. This has enabled Colgate in increasing promotions by conducting cross functional exercises with marketing and technology. Material simplification plays an important part in balancing product proliferation and achieving supply chain efficiency through product rationalization. Backed by a supreme R&D team, Colgate manages to simplify materials based on colours and products to cut costs. Following this, I want to point out an incident from 2013 ,which Josue Munoz, Global Operations, Commercial and Supply Chain Executive of Colgate-Palmolive, described in a presentation about supply chain profitability. According to Josue, in an effort to cut costs when Colgate was identifying potential savings, they identified 30 shades of blue toothbrushes that were being offered in the market. When the stakeholders were asked to identify the difference between each of them, they realized the need for material simplification. However, this reduced the shades of blue to 14 which released more funds to be invested elsewhere. 

  • Sustainability as a driver for profit: Long before sustainability became a trending topic, Colgate determined means to achieve zero waste manufacturing factories. Cycle time reduction and increased post additional usage meant that Colgate achieved increased capacity with low losses in material wastes and energy. The American giant has achieved GBCI TRUE Zero Waste certification at 16 plants in 4 continents. Their commitment towards using less plastic in packaging is evident in their efforts to develop a completely recyclable vegan toothpaste. It took Colgate 5 years to develop and finally release it in January 2020. Through the new product line, Colgate hopes to make the world a more sustainable place to continue living with tubes part of the circular economy. 

 

Figure 2: Colgate’s all new vegan certified toothpaste with industry first recyclable tube (Source: CNN)

Colgate-Palmolive has gone onto show that excellence in supply chains can be achieved by doing the fundamentals right. The think tanks behind Colgate-Palmolive’s success have beautifully illustrated how transparent communication can unlock supply chain profitability and efficiency. The integration of DBMS with their global supply chain, eliminated the most common problems in supply chains, the bullwhip effect. Colgate-Palmolive has adapted to changing technologies and consumers for over 200 years, by fulfilling all orders on time and controlling the costs that have been instrumental in making investments in further expansion. Colgate-Palmolive has managed to demonstrate every supply chain enthusiast’s dream, which is to align business strategies with supply chain management that can ensure achieving objectives effectively, productively and profitably.   

Written by:

Gokul Pankaj

Web Content Manager at SupplyTech Insights

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