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Overhaul Your Understanding: Fast-Moving Consumer Goods Supply Chains in 2020

Welcome back to our expert interview series, Overhaul Your Understanding. You can listen to our interview with Chuck McDaniel, founder of McDaniel Consulting and 28-year Procter & Gamble veteran, or read the interview below.

Welcome to Overhaul Your Understanding, an expert interview series. I’m Amy Shortman, Director of Product Marketing at Overhaul and today I’ll be speaking with Chuck McDaniel. Chuck is the founder of McDaniel Consulting and has spent 28 years at Procter & Gamble, with his penultimate role there being within global logistics.

To share with our audience a little bit about who Chuck McDaniel is and some of your experience, would you mind just going into your background and sharing with us some of your roles you’ve done and the companies that you’ve worked for, please?

As you mentioned, my career really revolved around Procter & Gamble in the supply chain, and I’ve worked in a variety of assignments there, everything from contract manufacturing, where we were looking at outsourcing production of our goods, raw material procurement, and then a bit of time in the finance side looking at accounts payable, supply chain, and finance optimization.

And then as you mentioned, I ended up in international logistics, working predominantly, for our space, in predominantly ocean cargo. There’s a bit of air as well. And then of course coordinating the domestic truckload as we interface with each of the regions around the world and how those modes come together in the planning for the international supply chain.

Since leaving Procter & Gamble, how many years have you been working within McDaniel Consulting?

It’s really just been two years now, or I guess two and a half at this point. So just in my retirement, I had a number of colleagues who were introducing me to other firms who are looking for opportunities to optimize supply chain planning. And of course this was before COVID. And since COVID has hit, the supply chain world has really been turned on its ear. And so there’s a lot of changes that have come out, not only on the physical side of the supply chain, but also on the planning side and how people think through what are strategies and priorities and how do we make more effective decisions to become more agile.

Fantastic. So I guess with your combined time that you spent at Procter & Gamble, and then within the consulting sphere, it’s been about 30 years. Can you share with us how the FMCG world has changed over the past 30 years? We’re obviously coming up to peak time with Christmas and Black Friday as well. At this time of year, I guess there are certain strengths. Has that changed over the last 30 years as well?

Well, yeah. This year, peak season is really going to be an extraordinary time. But your question starts with what’s happened over the last 30 years. Honestly, probably the most difficult change, but the evolution has been more towards SKU proliferation. There’s just many, many variations on every theme. And frankly, when COVID hit, that really reversed itself and you suddenly see as supply chains become constrained, production planners begin to focus primarily on, “Okay, how can I optimize my output?” which frankly goes against the grain of proliferation. And so that’s been almost a reversal, not a complete reversal, but a bit of a reversal this year. The peak season this year from a rate standpoint is going to be, I heard one professional call it “peak-on-peak” because we’ve built up well beyond a normal peak, just in terms of rates and capacity planning going through the last six months. And so coming into it this summer, it’s just been exacerbating the pain points.

In terms of the trends of peak seasons and different times of the year being traditionally more busy, has that remained consistent over the last 30 years or has there been a shift?

I would say generally there patterns are there. Again, the proliferation has been a bit of an issue as we build up towards peak. This tends to be also very fairly segmented. So if we think about consumer packaged goods, some of those are fairly steady in terms of their supply chain and demand planning, not entirely. You can’t say that across the board, but the bulk of things, toothpaste and ordinary everyday consumable products. On the other hand, when you get into retail and apparel products, that’s definitely much more seasonal. And so it really depends on what sectors you’re looking at.

As we’re still in the COVID-19 pandemic, I’m interested in how that has specifically affected the FMCG world with regards to logistics and international freight. And kind of a second question to that would be, what lessons do you feel have been learned, or maybe we’re still going through them and how will that shape our industry in the future?

Yeah, fantastic questions. So again, I’m going to step back just a decade or two and talk a little bit about what are some of the things that have come into the FMCG supply chain planning. And again, talking about consumer goods or consumer packaged goods, the focus has been on manufacturing as close as possible to the consumer. Translated, what that means is you see a lot more production plants being set up around the world, perhaps smaller than the mega sites that there used to be. But they tend to be the design is to get as close as possible to the consumer’s market. And that tends to shorten supply chains. There are obviously exceptions to that rule where you have certain raw materials that only come from special parts of the world or so forth. Or if you’re in the Western markets, North America, we’re still heavily dependent on the lower cost of labor overseas.

And so it tends to be a statement that is not uniform, but you see parts of the world that didn’t use to have a lot of manufacturing that are now picking up a lot of FMCG production. And so in many sense, the supply chains have become shorter. Again, there are exceptions to any one of these general statements. But I think the biggest impact that we’ve seen coming from COVID is not so much the primary supply. There are some obvious examples we’ve seen, the famous toilet paper shortage and hand sanitizer, things of that nature, and of course, PPE.

It’s not talked about as frequently, but the bigger impact across the board has been really in secondary and tertiary planning. And so many cases, things that you wouldn’t have expected, where if you’re depending upon a vendor to produce your product, that vendor may be having difficulty getting access to the materials that they need, or maybe in the third leg of the supply chain. So it’s that level of planning horizon to where you can actually see down into the depths of the supply chain and understand how the parts are coming together. That’s probably been the biggest “Aha!”, aside from the ones that make it into the everyday normal media. The people who are really working on solutions and supply chain enhancement have been focused more and more on getting to that tertiary visibility.

Do you think that from a business resiliency point of view, that we became complacent with the kind of drive for just-in-time making our supply chains very lean and very efficient and that that has had an impact on the COVID situation, or do you think it was just an exceptional time and that would have happened even if we had maybe some more or different methodology behind how we were planning and projecting our supply chains?

Yeah, I think there truly is a fundamental shift in thinking, particularly if you come at it from a finance point of view, where in the past, the emphasis had been on just-in-time and how does that optimize the cost structure, the supply chain. Today, the question being asked is more, what’s the cost-benefit analysis of a just-in-case inventory strategy rather than a just-in-time? And it’s not a clear cut answer, for obvious reasons.

A just-in-case would tend to be more expensive. And so the finance people are coming at this thing and saying, “Okay, if this is truly the cost of doing business going forward, let’s analyze how we look at whether we invest in these more expensive solutions or more expensive sourcing solutions and sourcing opportunities. And then how do we justify that?” So the technology piece of it comes in, in doing the analysis and understanding what are the impacts of the supply chain? What are the risk factors? How do we put a dollar value on those risk factors and thinking through questions that frankly never really would’ve come up in a just-in-time discussion.

Talking of technology, how has the FMCG industry adapted and adopted technologies within their current supply chains? And what does the future look like? What areas are they specifically looking for technologies to solve certain problems? And what are your thoughts of trends within FMCG?

Well, to be a little bit cynical, I’ve always felt that logistics as a whole was a little bit late to the technology space. Other parts of the world were operating on smartphones a lot faster than logisticians were. Today, it’s very commonplace to hear technology companies talking about the ability to push alerts and the ability to drill down into some pretty sophisticated dashboards and find trouble spots that quite honestly, the problem has been sometimes what I’ll call “the sins of Silicon Valley,” where the marketing gets in front of actual technological advancement. And so you ask about how has it affected FMCG? There’ve been a lot of brilliant marketing campaigns in the technology realm to approach the FMCG shippers and some of them frankly, have been a bit oversold.

So the shipper’s perspective or the customer’s perspective in this case, is that they’re now becoming wary of looking at the cost of technology and saying, “Look, we’ve invested in this once before. We didn’t quite get what we thought we were signing up for. And so how do we do a better job of vetting the technology platform before we make this second round of investment to get us the visibility? We know that we want it because we’re suffering now in the face of COVID and all the other things we just discussed.” But it’s also become a harder sell in the sense that fool me once, shame on you. But now we’re going at the second round of funding for logistics technology and getting into some really critical financial analysis. And it’s becoming a much more intense discussion.

Oversold, under-delivered is something I’ve certainly heard quite a lot within the industry. What would your suggestion be to shippers and manufacturers out there who are looking for technology within the supply chain, whether that be for visibility or for logistics optimizations? What advice would you give them in terms of not falling for that particular trap that you just mentioned?

If it’s possible, I would say test drive the car. Sign up for pilot projects, run a few critical lanes, get a feel for how the data actually flows before you invest heavily. It’s a difficult discussion to have because oftentimes there’s cost involved in that. So it’s like I said, it becomes a much trickier negotiation, the early stages of building that relationship.

With regards to technology, what aspects of it are you particularly excited about within the supply chain and how do you think that will benefit the FMCG space?

There’s a lot more visibility coming into the marketplace. There’s a number of technical solutions on the market today. So there’s competition and there’s access to things, we talked about tertiary visibility a minute ago. The idea of putting all of your supply chains into a single dashboard to where you can see the interconnectivity between these different input providers and giving you a much more robust picture is something that, even as recently as three, four years ago, it was really just a conversation. And today we’re starting to actually see it.

Over the next five to 10 years, are there any insights or trends that you can share with us of developments that are going to be particularly exciting within the FMCG industry?

So I probably come across as a bit of a — I think the phrase is economic hawk, fear of inflation. And I say that not for the traditional reasons, but more as you think about the just-in-case inventory plan. I mean, it does come with a price tag. And frankly, I think it’s appropriate. I’m not saying that we should ignore the risks that we’ve just experienced in COVID. There may be another black swan event, you don’t know. But I think that’s the conversation that you’re hearing today is that the supply chain planners are saying, “Look, we cannot be caught with our guard down again.” And so, as we prepare for those types of events, I think by the very definition of what’s a just-in-case supply plan, you have to build in a certain expectation for inflation, not only in the manufacturing expense, but also in the warehousing and distribution expenses.

And so to some degree, I guess I’m probably a bit of an inflation hawk in terms of how does that impact the consumer? The reality is that imported goods have been our source of economic margin for a number of years. And so that’s not likely to change quickly. As we prepare for that, in terms of the sales forecast, the demand planning and so forth, people are going to be looking carefully at what’s the cost balance between these different options, and how does that affect consumer habits going forward?

To finish with, we’d like to ask you to leave some words of wisdom for our audience. What is the best piece of advice that you’ve ever received?

Contracts and business relationships are really built around the relationship. There was a saying that I heard that a contract is only as good as a signature at the time, which sounds fairly obvious, but it’s more a question of even in large multi-million dollar supply chains, it’s the strength of those relationships that matters more than the terms and conditions and the various legal things in the contract language. It’s knowing that in a black swan event, that your suppliers or your service providers are going to do whatever it takes, whatever they’re capable of doing. They may not be able to fulfill every order, but they’re going to do everything within their power. And that prioritization of which relationships take precedence over the others. Because if you’ve got limited production capacity or limited transport capacity, and you have to prioritize your clients, that’s where relationships really prove their worth.

And so to me, even when negotiating multimillion dollar signature deals, it was always the true value of the relationship, which sounds trite enough, except that I guess another thing I’ve learned over the years is that relationship isn’t really known until it’s been stress tested. And so if you’ve been through difficult times together with a vendor or a service provider, and you survive those tests and you come out the other side, the relationship is much, much stronger and much more reliable than even new relationships that sound wonderful on everybody’s, it’s win-win all the way around, everybody’s happy. But until you’ve been through a stress test, you really don’t know what you’re dealing with.

In terms of the skills that you need to be able to develop those relationships, is there anything you can share with us in terms of either skills that you would look for when you were working at Procter & Gamble for new employees to have, or skills that you’ve seen people have that you’ve really rated?

I think it comes back to people skills. What do they call it? Emotional intelligence, the EQ of evaluating either a job candidate or the person sitting across from you at the negotiation table and understanding, is it really a good fit? Do we have common culture between the two companies? Do we set our values the same and how are they going to respond when we face the stress test? That ability to sense those things out before you get to a critical juncture, to me is again, far more valuable than necessarily having the fantastic financial analysis that tells you, are you going to hire a couple of percentage points here or there. It’s still the human side of the business relationship that matters, I think at the end of the day.

Perfect. That’s a lovely point to end us on today. People still do buy from people and being compatible is pretty critical to the success of any business relationship. Well, I would love to thank you so much for being part of Overhaul Your Understanding podcast. Shared a huge amount of very valuable information with our audience today. So we really appreciate it. Thank you for your time, Chuck.

Missed the last episode of our podcast where Andrew Boyle discussed the American trucking industry? Listen here.

 

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