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Unilever, an Agile Supply Chain, and the decline of Scenario Planning
Last month Unilever, the CPG giant, released its Q1 sales results. Unlike P&G, which saw an increase of about five percent, Unilever was relatively stagnant.
Sales of the company’s hygiene and cleaning brands, including Cif surface cleaners and Domestos bleach surged by double digits as consumers stocked up to clean their homes to fend off coronavirus. In-home food product sales also rose as shoppers loaded their trolleys.
But ice cream sales and the company’s food service business, which sells ingredients to chefs and restaurants in 180 countries, were hit hard by the pandemic. The company, which also owns the Magnum brand, said it missed out on the start of the ice cream season in Europe, with outlets closed and distributors reluctant to buy stock with an “uncertain holiday and tourism season” ahead.
All of this is understandable. As the table below shows, 79% of Unilever’s revenue comes from two categories: Beauty & Personal Care and Foods & Refreshment. Under COVID-19 quarantine people are spending less time doing their hair and make-up. They’re also eating out less. Packaged foods are flying off shelves, but unfortunately for Unilever, the bulk of its Foods & Refreshment margin comes from Ice Cream and Food Service—two categories crushed by social distancing.
Its last category, Home Care, which includes cleaning solutions, is doing fairly well—but it’s also it’s smallest and least profitable. In 2019, it accounted for about 21% of Unilever’s overall business—but just 16% of operating profit. Meanwhile, Beauty and Personal Care accounted for 42% of sales and 52% of operating profit.
Unilever accelerates an agile supply chain to meet COVID-19 demands
In my opinion, the most interesting tidbit from the earnings call had nothing to do with coronavirus. It had to do with an agile supply chain. When asked about how the pandemic changed the company’s operations, CEO Alan Jope responded:
Earlier in the pandemic we changed our monthly operational forecasting cycle to a weekly basis so we can reflect the rapid changes in consumer demand. And we have been using people data centres to pick up the changing consumer sentiment early.
Forecasting is a huge component on any CPG company’s supply chain. A company needs to not only know how much it plans to sell, but how much it needs to produce and accrue. A large CPG company will produce multiple forecasts, here’s just a small sample:
Most CPG products have relatively predictable demand. Forecasting is centralized at a corporate level and done at a monthly basis. Demand Planners and Forecasters will run through a handful of different business scenarios and develop a forecast. Given the mass uncertainty caused by covid-19, Unilever is increasing forecasting frequency. This gives them more information and enables quicker decisions—reducing stock-outs. This is interesting, but not particularly unique. Most CPG companies are doing so.
What is interesting is something Alan Jope told Bloomberg Businessweek this month.
We’re actually moving away from scenario planning and trying to focus on building agility and responsiveness into the company. And I don’t know that we should all be spending too much time locking in particular views or scenarios for the future, but rather unleashing the trapped capacity that most big organizations have by letting go and letting people close to the markets, close to the front line, exercise their judgment and their decision-making. We’ve discovered a new responsiveness in Unilever that I wish we had unlocked years ago, but it’s taken this crisis to do that.
This is almost the definition of an agile, resilient supply chain. What does this mean in practice?
Unilever is moving away from mass centralized forecasting and into a decentralized model—putting decision making power in the hands of the front line. Centralized planners won’t spend their time modeling various scenarios—the front-line worker will drive opportunities. It’s potentially a revolutionary change that requires flawless execution of technology and business process.