SCM Case Study - Supply Chain Model of 'Unilever Group'

The business strategy of Unilever is to achieve the highest profitability, growth, and return-on-assets.
It has sold many plants and has had to put in place processes to coordinate with the third parties
that own them, complicating its processes to meet its asset goals. Unilever’s operating model has
three components: quality, service, and cost. While keeping its global branding, the company’s
strategy is to have local supply chain for local demand to minimize complexity.

Non Production Items (NPI) Organizational Model

Unilever has recognised the importance of implementing a global supply management programme
focused on reducing Non Production Items (NPI).

The NPI organisation model being implemented in both Europe and North America (which will be
extended to the rest of the world) is founded on clear cross-business governance and effective
executive buying. Strategic sourcing is being supported by the global rollout of e-procurement and
participation in some key Exchanges, particularly in Transora, where an equity stake is held.
Regional and a few global NPI cluster teams have been formed which are undertaking a rigorous
methodology to deliver the strategic sourcing strategies and implementation plans required to
achieve the targeted savings.

Historically the majority of NPI's have been purchased locally, although there has been an increased
move towards national and in a few instances, trans-national negotiations. European and to some
extent global supply markets are becoming well established enabled in many instances through e-
procurement. In such areas as IT hardware and software, travel & accommodation, energy, logistics
and fleet management European and in some cases global supply markets and suppliers already
exist. European markets are also emerging for office facilities, telecommunications, marketing point-
of-sale items and technical supplies.

The supply-chain model's primary function within Unilever is to provide the Group’s business with
shared understanding of the scope of the supply-chain and its sub-processes. The model provides
the common language for the different Business Groups and thereby enables the identification and
implementation of synergies. Some of Unilever's most important supply-chain model applications are
assessing supply-chain performance and KPI development and alignment.
Distribution and Selling
# Unilever’s products are generally sold through its sales force and through independent brokers,
agents and distributors to chain, wholesale, co-operative and independent grocery accounts, food
service distributors and institutions. Products are distributed through distribution centres, satellite
warehouses, company operated and public storage facilities, depots and other facilities.
# Home and Personal Care in North America (HPCNA) has also developed distribution centres for
third-party manufacturers where products are collected to create heavier more efficient loads to re-
supply customer distribution centres.
# Home & Personal Care business in Europe (HPCE) selects hauliers on cost, performance and
environmental impact.

E-Procurement
Unilever meets two of the key corporate strategic thrusts: World Class Supply Chain and
Simplification by implementing NPI strategic sourcing and e-procurement enablement. These are
two of the six thrusts for implementation of world-class supply management:
# Implement executive buying
# Attract, develop and retain world-class buyers
# Professionalise NPI sourcing
# Enable e-procurement globally
# Accelerate and leverage simplification
# Drive information and measurement

Aggregation of demand and access to new suppliers through real time partnership has enabled
Unilever to improve efficiencies of the extended supply chain. Workflow automation has helped in
simplification of the internal processes, which has created scale for Unilever to leverage. For
Unilever e-procurement represents the opportunity for sustaining the benefits gained from strategic
sourcing through information, compliance and business process simplification. There are four ways
of defining the benefits of e-procurement:
# A structural enabler for re-engineering the NPI procurement process enabling further benefits to be
gained through strategic sourcing, business simplification, visibility of total spend and effective
integration routes both internally, e.g. ERP, and externally.
# The means for conducting electronic business upstream using lowest cost links, i.e. cXML.
# A business model prompting re-evaluation of the mechanisms for connecting customers,
enterprises and suppliers (incl. Exchanges and Marketplaces)
# A single front-end interface both externally to suppliers and internally for ERP and other areas of
integration

Strategically e-procurement complements Unilever's overall e-initiatives. Learning from these and
the strategic sourcing expertise gained during implementation, has improved business ability for the
future e-procurement of both NPI and direct materials. Workflow automation and simplification to
global sourcing processes has resulted in increased productivity and reduction of transaction costs.
Data made available can then be applied to harmonise items purchased, rationalise needs with
suppliers and monitor and reduce usage, thus further increasing Unilever's buying opportunities.

Exports
Unilever sells its products in nearly all countries throughout the world and manufacture in many of
them. The company exports a wide range of products to countries where it does not makes them.
For example, inside the European Union, Unilever makes many of its products in only a few member
countries, for sale in all of them. The chosen manufacturing configuration is generally determined by
an optimized regional sourcing strategy, which takes account of requirements for innovation, quality,
service, cost and flexibility.

Global Supply Chain Management Solutions Providers

In an effort to streamline its daily operations, Unilever has partnered with several technology and
logistics providers on a worldwide basis. Some of the major providers are:

Technology Providers
Some other technology providers are: -
# Manugistics Group Inc.
# SSA Global
# Syncra Systems Inc.
# Vastera Inc.

Logistics Providers

SCM Technologies in Unilever’s Business Model

Unilever's overall technology vision includes a strong push from client-server to thin-client
architecture, Web technologies that bring the company closer to its customers, and business
analytics to make management information easier to access, according to Rick Ballou, IT business-
area director for Unilever Home and Personal Care North America.

With a market capitalization of $28 billion, the consumer-products giant reported that its recent IT
achievements include the rollout of business-intelligence software from Hyperion, and "SAP ERP
wall-to-wall" as a global standard. Unilever also has seen significant cost savings from its investment
in Ariba's sourcing technology, which has resulted in a reduction of the office-supply purchasing
budget by millions of dollars, and a consolidation of data centers from 18 to five; eventually, the
number will fall to three.

A cross-functional global committee already is working on the shift from desktop client-server to
portal technology. On the B2B front, in addition to its RFID efforts, Unilever is participating in an
industry-wide effort to standardize data elements throughout the supply chain through UCCNet.
Unilever has also expressed their continued interest in CRM.

Unilever collaborates on statistical and market promotion forecasts for key products with a few large
customers, using a collaborative system from Waltham, Mass.-based Syncra Systems Inc.

The organization as whole had multiple ERP and CRM systems from several vendors, and 34
custom-built data warehouses. Unilever currently runs 100 separate, complete SAP enterprise
resource-planning systems.

Similar on these lines, some of the major SCM technologies and IT solutions implemented in the
business model of The Unilever Group are discussed below: -

ISIS Supply Management Information System: ISIS is Unilever’s integrated supply management
information system. It helps its local, regional and global supply managers make appropriate
sourcing decisions, allowing them to collate and analyse information quickly and easily. The system
enables its managers to negotiate with suppliers in a transparent and efficient way, benefiting both
parties. For more details on this, please visit https://isis-unilever.com/Sourcing.

E-procurement Solutions from Ariba: Unilever selected the Ariba Buyer software for e-procurement
following a rigorous selection process and initial pilot in North America. Although initial success has
been achieved Unilever believes that these are still early days and that the return of investment has
still to be proven. While e-procurement is an inevitability for future supply chain optimisation the
supply market, particularly in Europe, is still suffering from under-development. There is an emerging
recognition that e-Procurement can affect total supply chain operation rather than just transactional
activity. Until recently few have taken action to implement or sponsor the necessary changes.
Encouragingly though, Unilever believes that this position is changing and unquestionably e-
Procurement provides a catalyst for positive improvement in supply management profile.

Enterprise-Scale Data Warehouse and Business Intelligence Solutions: In order to gain a clear view
of business performance across its 34 companies in 19 countries, Unilever Latin America has
embarked upon an enterprise-scale data warehouse and business intelligence project called
Sinfonia.

At the heart of Sinfonia, KALIDO® enterprise data warehouse creation and management software
(KALIDO) provides a solution that will grow to encompass one of the largest databases in the world
by 2007. KALIDO delivers an aggregated view of data across Unilever Latin America at high speed
throughout constant business change such as acquisitions and market consolidation. KALIDO is
now making it possible for Unilever Latin America (Unilever LA) to build and manage a fully
functional, adaptive data warehouse throughout its lifecycle while simultaneously rolling out an
underlying regional SAP system in a 4 to 5 year sister project called Harmonia.

The flexibility of KALIDO is enabling Unilever LA to maintain business continuity as the Sinfonia and
Harmonia projects continue to roll out. The KALIDO data warehouse will grow both in geographic
coverage and in scope, and is expected to reach 12 TB in size. Throughout this period of growth it
will deliver consistent business information, taking increasing volumes of data from the ongoing SAP
implementation.

Unilever LA is converging processes, systems and information to enable a truly regional approach to
business. Using the KALIDO enterprise data warehousing solution, the organization is successfully
delivering a large-scale enterprise data warehouse, on time and within budget, while simultaneously
rolling out a region-wide SAP system.

The new information architecture Sinfonia, powered by KALIDO, will deliver high-quality data to
4,000 users by 8 am every day across five time zones. The solution will enable better understanding
of regional supply chain processes, brands, customers and suppliers, and will allow Unilever to
respond rapidly to new opportunities, even against a backdrop of constant internal and external
business change.
Finally, KALIDO will facilitate strategic planning and drive improved decision-making, by delivering
tailored information at high speed to key business users, enabling Unilever LA to realize substantial
cost savings and improved ability to capitalize on business opportunities.

Supply Chain Information Systems: Using a variety of information systems and several other supply
chain management technologies, Unilever aims to enhance its supply chain business model. The
following diagram describes the company’s supply chain system vision: -

Discussed below are the various types of information systems used within the business model of
The Unilever Group with their specific usage: -
# R&D; System R&D; System (LIMS): Used for formula development
# Specifications Systems: Used for Packaging, Raw Material, Formula, Master BOM, Finished
Products and Process Specifications
# Manufacturing Planning Systems: Used for MRP, Production Orders, Purchase Orders, Standard
Costs, RM/Pack/WIP Inventory, Financial Transactions, Material Masters and Production Reporting
# Planning Systems: Used for Demand Planning (DP), Demand Req Planning (DRP), Constrained
Prod Planning (CPP), VMI and Finite Scheduling
# MFG Execution Systems (Various): Used for Finished Goods Production, Compounding/Batching,
Quality/Lab Systems and Plant Maint Systems
# Order to Cash Systems: Used for Order Entry/Management, Terms of Sale, Deduction Tracking,
Stock Allocation and Invoicing
# Finished Goods Management Systems: Used for Shipping, FG Warehouse, Transportation,
Finished Goods Production (PIN) and Traceability

Supply Chain Strategies of Unilever N.V

Unilever’s logistics operations present perhaps the biggest opportunity to streamline its supply chain
and boost the company’s ability to achieve its lofty growth goals. The company is in the process of
consolidating its nearly 30 warehouses down to five massive distribution centers capable of shipping
customer orders within a day’s time.

Much of that consolidation is a recognition that retailers are adopting zero-inventory policies, which
require an optimal use of flow-through and cross docking in the warehouses. To increase asset
utilization, lower inventories and improve service, Unilever adopted collaborative planning,
forecasting and replenishment (CPFR) relationships with some retail customers. Thanks to those
CPFR efforts, Unilever has been able to achieve 10% inventory reduction, 10% forecast accuracy
improvement and 5% increase in sales due to better on-the-shelf availability.

According to Fred Berkheimer, vice president of logistics for Unilever Home and Personal Care,
since orders are often impacted by factors that cannot be projected, collaboration between
manufacturer and retailer is necessary to increase forecast accuracy. “High accuracy in
replenishment can only be achieved through order forecast collaboration and extended supply chain
visibility,” says Berkheimer. Today, Unilever’s logistics department is experiencing include improved
relationships with retailers, better planning, improved on-time performance and more efficiency in
handling promotions.

Path to Growth

In 2000, the company launched a five-year Path to Growth initiative to drop the total number of
brands down to 400 by the end of 2004, achieve 5%-6% annual sales growth and a 16% increase in
operating margins.

Three years ago, the company was running hundreds of manufacturing sites under an umbrella of
300 operating companies. Path to Growth mandates a reduction in sites to 150 locations.

Unilever's supply savings programme is one of the cornerstones within the Path to Growth Strategy
towards the implementation of a world-class supply chain. Through Path to Growth, Unilever’s five-
year strategic plan announced in February 2000, the company has greatly strengthened its
business.

Unilever's Path to Growth Strategy

=> Reconnect with the consumer - to anticipate the future
=> Focus the brand portfolio - reflecting consumer appeal and growth potential
=> Pioneer new channels - to be in the right place at the right time
=> Develop a world-class supply chain - simplifying sourcing, manufacture, and marketing
=> Simplify the business - reducing complexity

Significant progress has been made towards the achievement of its strategic ambitions with a much
more focused brand portfolio and faster growth in the leading brands, while the major reductions in
costs and streamlining the asset base have resulted in sharply higher margins and improved capital
efficiency.

Under the so-called "Path to Growth" strategy, Unilever first reorganized into two units—foods and
nonfoods—in each major geographic area. Path to Growth also calls for Unilever, by 2004, to cut its
collection of brands to 400, from a high of 1,600 two years ago. That core of 400 strong sellers—
which includes SlimFast, Dove, Ben & Jerry's ice cream and Lipton tea—is expected to make up
90% to 95% of Unilever's total sales, up from 84% today. So far, 700 slow-moving brands, plus an
incongruous industrial dry cleaning business, have been sold. Five hundred more are still to be
divested, including a group of oils and spreads put up for sale last month.

Over the period 2000 – 2003, Unilever has generated over €16 billion of un-geared free cash flow.
The company has also successfully integrated Bestfoods, one of the largest acquisitions ever made
in the industry. With one more year to go under Path to Growth this creates a strong basis for the
next phase of company’s development.

"Chipping of "Goods" Initiative – RFID

Unilever's Supply Chain Innovation team wants to understand how better tracking of products will
affect manufacturing plants, distribution centers and stores. Unilever anticipates that manufacturing
plants will have to reduce the length of product runs and make other refinements to react more
quickly to changes in demand. And retailers will have to provide more timely information to suppliers.

In continuation to this strategy, on July 29, 2002, Unilever launched its third phase of a supply chain-
tracking project under Britain's "Chipping of "Goods" initiative. The company planned to put RFID
tags on 30,000 six-packs of Lynx deodorant and monitor them as they move from a manufacturing
plant to three Safeway stores. As part of the initiative, Unilever's U.K. home and personal care
products company, Lever Fabergé, is putting RFID tags on six-packs of Lynx deodorant at its factory
in Leeds. After the individual cans of deodorant are made, they are vacuum-sealed and a small
white label with an RFID tag in it is affixed to the package.
Sources: Company Reports, Press releases, M-a-p.co.uk, Findarticles.com, Sap.com,
Logisticstoday.com, Kalido, “Unilever's NPI initiative”, By Tim Cooper-Jones, Published at M-a-
p.co.uk, IEE (www.iee.org/OnComms/PN/controlauto/Unilever.pdf) and Rfidjournal.com