quick wins, so the collaboration starts delivering value
as rapidly as possible.
When companies take a long-term perspective, their
collaborative efforts can become a virtuous circle: a
greater understanding of each other’s capabilities,
knowledge, and costs will often reveal new potential
sources of value, while the experience of working
closely together means that later initiatives will take
less time and be easier to execute than early ones.
POTENTIALLY HUGE PAYBACK
It should be clear by now that successful supply chain
collaboration is neither quick nor simple. But is it
worthwhile? The answer has to be an emphatic “yes.”
In our experience, successful CPG collaborations that
involve two or three separate initiatives in a category
deliver a return that’s equivalent to a profit uplift of 5
percent to 11 percent in the affected category, through
a combination of increased sales and reduced costs.
What could that mean for the consumer packaged
goods sector as a whole? Our models suggest that if
a grocery retailer could collaborate in this way with
the top three brands in each of its top 25 grocery cat-
egories, it would enjoy benefits equivalent to a 4-per-
centage-point increase in its EBIT (earnings before
net interest and tax) margin. For manufacturers, the
same level of collaborative intensity with their top 10
retailers could boost margins by 5 percentage points.
And for the North American CPG sector as a whole,
that kind of impact could potentially be worth US
$8–$12 billion—comparable to two years of industry
growth. c
Notes:
1. Unpublished result from 2008 Customer and
Channel Management Survey—Doing More with Less:
Winning Sales Strategies to Navigate a Challenging
Market. Grocery Manufacturers Association (2008).
www.gmaonline.org/downloads/research-and-re-
ports/CCM_2008_FINAL.pdf
2. 2010 Customer and Channel Management
Survey—Emerging from the Storm: How Leading
Customer Organizations Reignite Growth. Grocery
Manufacturers Association (2010). www.gma-online.org/downloads/research-and-reports/
CustomerChannelCollaboration_2010.pdf
LUIS BENAVIDES AND DANIEL SWAN ARE PRINCIPALS
AT THE GLOBAL CONSULTING FIRM MCKINSEY &
COMPANY.
reductions of more than 15 percent and increase profit
margins by 3 percentage points.
Another area for fruitful collaboration is sourcing.
One large U.S. retail chain has used collaborative
sourcing to great effect across a broad range of
categories and geographies. In an effort to combat
rising raw-materials prices in key categories, the
company established joint sourcing programs with
manufacturers to purchase key commodities for both
its own private-label products and the manufacturers’
brand-name items. Collaborations have included the
sourcing of potatoes for chips manufactured in the
United States and sugar for soft drinks manufactured
in the United Kingdom, with the latter effort securing a
14-percent cost saving.
Finally, the case of a retailer and food manufacturer
shows how collaboration can work to dramatically
improve product flow efficiency. The manufactur-
er produced packaged foods in a large assortment
of flavors, making it difficult for its retail partner to
manage inventories across the category. This required
time-consuming and labor-intensive efforts to keep
the shelves stocked.
The two companies tackled these issues by develop-
ing retail-ready packaging that made it easier to keep
the shelves stocked while also optimizing the way
delivery trucks were loaded. The new packages were
designed to fit into jointly developed in-store display
units that held more products and made items easier
to find than the conventional shelves they replaced.
As a result, the average time it took consumers to
select an item dropped from 58 seconds to just 8 sec-
onds. The companies then changed the replenishment
system to accommodate the new display units. They
segmented various retail sites by volume, velocity,
and volatility, and then optimized shipment sizes and
replenishment frequency for each segment. For the
highest-velocity stores, the partners introduced a
rapid-replenishment program in which deliveries were
timed to coincide with peak selling days.
