Cost optimization for a MENA-region FMCG distributor

The situation

A leading FMCG distributor in the MENA region facing pressure on its bottom line, with a net margin of 0.5 percent and some of its business units experiencing losses due to increasing costs, called on Strategy& to perform a cost optimization. The Strategy& team set out to identify the root causes of underperformance, identify improvement initiatives, oversee quick wins, generate a transformation road map, and develop a method to track progress.

How we helped

The Strategy& team began by interviewing stakeholders, analyzing internal data, and visiting warehouses and groceries to establish a baseline of the client’s current operations. After assessing the full organization, we proposed a new operating model to minimize overlap between functions. A time-motion study to assess the merchandisers’ workload in grocery stores allowed us to recommend adjustments to staff allocations. We modeled cost-to-serve curves to derive optimal sales and a go-to-market model for every customer. Our list of improvement initiatives addressed key challenges across the value chain and streamlined the cost agenda, and charters and tracking tools were created to properly monitor the progress of the initiatives. Finally, we articulated a two-year transformation road map that included the time frame and owners for all the initiatives, and we calculated the potential savings of the initiatives and their impact on the net margin.

Results

Our comprehensive turnaround plan encompassed nine prioritized initiatives addressing organization structure, go-to-market model, expires and damages, warehouse network, logistics operations, inventory levels, salesperson incentive scheme, and brand portfolio. The plan is expected to increase the net margin by 5 percent and improve the sales go-to-market cost structure by 20 percent. The progress tracking toolbox will monitor the status of the initiatives and includes initiative charters, initiative status reports, overall status report, risk/log issue logs, and a progress tracking tool.