CONVERSATION WITH A THOUGHT LEADER
SHEKAR NATARAJAN is a supply chain professional and scholar who has written numerous articles and books. He shares his thoughts on challenges facing the industry and other topics with LEE KOK LEONG.
March 1, 2012
Shekar Natarajan is the North American director of supply planning for Anheuser Busch, maker of Budweiser. He is the developer and co-author of the planning methodology Planning By Design with
co-author Richard Muther and Simplified Systematic Network Planning – Six Steps To Eff ective Network Planning with Lee Hales which is translated into six languages. A new book, Systematic Logistics Redesign, will be published later
He serves on the board of College Industry Council of Material Handling Equipment and Material Handling Institute of America and is co-chairman of the Institute Of High Performance Planners.
He also serves on the board of Colalife, a non-profi t organization committed to children’s health in developing countries by using innovative supply chain concepts to deliver medicine in Africa. For his keynote delivery at Movimat 2008, the largest Latin American Logistics show and contributions to the society, the government of Brazil formally recognized him for the content and insights he
provided for developing and managing supply chain processes. His contributions also won him the 2010 Medallion Award, the highest honor from Institute of Industrial Engineering.
Natarajan received a Master of Science degree in industrial engineering from the Georgia Institute of Technology after earning his Bachelor of Technology degree in mechanical engineering in India.
1. Talk to us about your current role in Anheuser Busch InBev.
I am a senior director of supply chain planning. The planning team is the central engine that runs the entire supply chain, as our plans span from order to cash generation. In my role, I have direct
oversight for all demand and planning, sourcing, budgeting, transport planning, capacity and capability management, logistics management, supply chain control towers, assets procurement and management (pallets, empty bottles and cans, kegs), sales and operation planning, innovation and commercialization. The role is transformational, especially since we are in the process of upgrading our planning process, tools and technologies. Planning is central to moving the whole engine. Adding to the challenge is that the business cannot tolerate any disruption to product fl ows – hundreds of millions of units moving through the supply chain to
consumers each day. This adds an additional dimension to the diffi culty of transformation. It’s a bit like having to reconfi gure an aircraft in mid-fl ight. I have been with the Anheuser Busch InBev
family for close to nine months now and I’m fortunate that the organization is open to new ideas, where candor is respected
2. What are the initiatives you have planned in order to achieve the
objectives? Our mission as a corporation is to be the world’s best beer company. With this comes the responsibility of being the best in everything we do, with planning being a critical part. We ensure that all assets are utilized and optimized at the highest levels. This requires us to be attuned to market needs, innovative in our approaches, proactive in planning, dynamic in execution, and agile in everything we manage. This is a large task, but I am pleased to say that we made huge strides in the last year. We are moving to embed optimization and simulation into the planning process. Historically, simulations have been done after the fact. This helps us identify the risks in the supply chain in the early planning stages. We are building advanced tools to rapidly convert this into insights and analytics and engage all the partners to put mitigation plans in place. We are building sophisticated control
towers so we are all looking at the same information the same way, and can perform rapid what-ifs. Our efforts will then evolve into demand sensing, inventory policy optimization, and optimal order allocation. On the commercialization front we have developed incredible speed and velocity to systematically move from inception to launch. We developed tools to spot trends, proactively to scale up and down with a lot agility and fl exibility in our supply chain processes to manage new products. The last seven product launches have been huge successes. Perhaps the most satisfying thing for us is we were able to convert the available capacity we have to lift sales. We anticipate running promotions to create value for our consumers.
3. With experiences in world class organizations like Coca Cola, PepsiCo and now Anheuser Busch what seem to be the current challenges facing the beverage industry? Great companies like Anheuser Busch, Coca Cola, and PepsiCo have faced daunting challenges, prevailed, and grown stronger as a result. But the velocity of change will put our strength and ingenuity to the test. Like most consumer packaged goods (CPG) companies, the battle to be waged is on all fronts.
• Greater consumer challenges o Changing product preferences (eg carbonated soft drinks to noncarbonated beverages), variety
seeking o Changing packaging preferences – in liquid refreshment beverages, cans to plastic bottles, portion control, pack confi gurations
o Changing channel preferences (fewer grocery trips, shopping more channels)
o Increasing value consciousness
o Greater time poverty-more on-thego consumption, more availability/ locations
• Greater trade challenges
o Growing bargaining power of customers (big box chains, grocery
• more demanding service requirements (order accuracy, out
of stock, custom packaging, on-time delivery, etc)
• lower willingness to accept price increases, even if entirely passthrough costs of commodity price increases
o Shifting channel mix into lower margin and higher cost to serve channels
• Decline of grocery, convenience and gas
• Growth of supercenters
• Growth of other small format stores (club, drug, dollar)
• Greater category challenges
o Flat category growth
o Seasonal demand
o Innovation intensive
o High demand volatility
o High promotional elasticity
o High volatility and magnitude of raw material input and freight cost increases
o Major macro headwinds – health, nutrition, economy, environment, demographic transition (aging boomers etc.)
These challenges have signifi cant business and supply chain implications, including
• Increase in product and service complexity
• Higher innovation mix and volatility
• Increase in changeover’s
• More single location sourcing
• Higher demand variability
• Lower full than truckload shipments from plant to warehouse
• Lower drop sizes, higher mix of cold cases for on-the-go consumption
• More rapid response rate to satisfy retailers
• Severly constrained Infrastructure
Taken together, these are a perfect storm. Conventional tactics will not win the day. The magnitude of the challenge calls for transformation and not incremental fixes.
4. How is supply chain driving business success in the beverage industry?
The beverage industry supply chain has made tremendous strides in driving down costs, improving their ability to manage increase level of complexity, increasing velocity in the supply chain, driving consistency in operations and reducing the overall inventory requirements. When one considers all of the value adding functions/activities of a company, supply chain is the area that
is most challenged by the changes in consumer, trade, category, and macroenvironment.
Furthermore in many cases, as goes supply chain, so goes the
company – ie the competitive success of a company may very well hinge on supply chain adaptability and response both in order to meet the increasingly demanding challenges, but also in order to diff erentiate the company from others. So the onus will be on beverage companies to build a supply chain that can easily/effi ciently/eff ectively manage complexity by driving consistency,
simplicity, productivity and you’ll have a material source of competitive advantage versus the competition.
5. How can the beverage supply chain learn from the electronics
As you examine what has made the electronics industry successful, the same principles are becoming the requisite to resuscitate the CPG industry from the tough conditions it faces. These ten
principles will apply:
• Planned product obsolescence
• Product postponement strategy
• Value packaging and options management
• Green returns management
• Digitization of supply chain
• End-to-end collaboration across value chain partners
• Product compaction strategy
• Systematic innovation management
• Customer centric innovation process
• Focusing on core competency
Another example is the pharmaceutical industry. CPG companies can emulate their new product portfolio processes,
innovation strategy processes, and commercializaton processes.