1. Henkel Ibérica Case Study
CASE-A-DILLAS
Caleigh Feeny, Rita Gates, Lia Chen, Alex Fownes

2. Competitive Environment
Law of Commerce
Growth of private label products
Industry structure
P&G, Unilever, RB, Henkel
Market share
Reactive selling techniques
Problems plagued the entire industry
CALEIGH
Before 1995, many companies competed in price which then led to various price cutting techniques. After the Law of Commerce was established (prohibiting companies to sell at a loss), major manufacturers subsequently had to concede to private labels entering the market and taking their share based on market trends. This law essentially stopped the major manufacturers from monopolizing the industry. It then benefitted private label products entering the market because they typically offered lower prices to consumers and allowed a major growth trend in 2001 of private label products. Retailers began to hold private label products instead due to the changing market conditions and to entice consumers with lower prices.
Four large manufacturers owned the largest percentage of the market share in European household care products (compared to private labels): Procter & Gamble, Unilever, Reckitt Benckiser, and Henkel. This was a mature, saturated market which forced Henkel to take the same actions as the other three companies had- otherwise, they would not remain competitive. At the time, Henkel was employing a reactive strategy in the market and following the price cuts that other companies were making. The price cutting trend then led to the special promotion trends (both examples of strategies all four companies had to employ to stay competitive with each other).
The problem of the growing private label companies plagued the entire industry. Namely, the four major manufacturers had to change their strategy because of the Law of Commerce- not just Henkel. Although inaccurate forecasting and a proliferation of products were not necessarily problems that plagued the entire industry, we do not know how these other companies reacted to the change in law even though these results fell upon Henkel.

3. Principal Issues Creation of various promotions
Product and packaging proliferation
Added complexity in supply chain
Inaccurate long-term forecasts
Negatively-impacted production costs
ALEX
The principal issues that Henkel faced were a result of a large shift in the market. Because they could no longer continue cutting prices in response to their competitors, Henkel and its main four competitors had to come up with a new selling strategy. Competitors of the name brand items now competed through the use of many promotions.
The challenge with the new strategy is that Henkel had to come up with unique promotions from their competitors. All of these different promotions lead to a huge increase in product offerings and packaging. Not only was it difficult forecast for this new abundance of products, but obsolescence and stock out costs also increased.
In addition, the increase in products increased the complexity of the supply chain; transportation, distribution, sourcing, inventory, production, and manufacturing processes and costs became more complex because the same amount of workers had to manage an amount of product excessive to what they were used to.
Another issue they faced was inaccurate forecasting. Each member within the supply chain was using different information to forecast. These inaccurate forecasts negatively impacted production costs; mainly packaging and costs of obsolescence.
Picture of Henkel Iberica Promotion

4. Strategy Debate SKU Proliferation Pros Cons
Competing directly with competitors
Potential for high revenue with high variety
Cons
Increases complexity
Costs amplified:
sourcing
production
inventory
distribution
Complicates forecasting
Increases the propensity to stock out
LIA
Pros
Continuously adopting heavy SKU Proliferation helps the company by directly competing with competitors due to the current trend of frequently introducing new products within the market.
It also increases the potential for high revenue by selling a high variety of products.
Cons
However, aggressive SKU proliferation increases complexity within the supply chain by dealing with various kinds of products. Also, the costs are amplified, such as the costs of additional and current suppliers (sourcing), packaging costs (production), obsolescence costs (inventory), and internal and external transportation costs (distribution).
Additionally, having a complex SKU portfolio complicates forecasting. It is very hard to track demand of so many different products.
Furthermore, since it is hard to accurately forecast the demand, the risk of stocking-out is high. It could also possibly impact Henkel’s place in the market. If Henkel is stocking-out certain kinds of product while its competitors have it, they will lose that sale and potentially that customer.
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5. Strategy Debate Simplify & Adopt EDLP Pros Cons
Increased forecast accuracy
Refocused on main products
Reduced costs:
Manufacturing
Transportation
Inventory
EDLP may diversify competition
Consumer loyalty
Cons
Risk of reduced market share
Possible negative impact on revenue
LIA
Pros
Regarding the simplifying of product lines, reducing promotions, and adopting the strategy of everyday-low price, the forecast accuracy will increase since the product lines are simplified so that the company is allowed to deliver more effort to the main products. By focusing on the main products, the quality and customer service of the main products are likely increased which might potentially increase Henkel’s product competitiveness within the market.
The costs such as lower set-up costs, inbound and external transportation costs, and the costs of obsolete items will be reduced due to increased forecast accuracy and simplified product lines.
In spite of these, the strategy of everyday low prices diversifies the competition for Henkel by allowing the company to not only compete with the major manufacturers such as Unilever and P&G, but it can also compete with companies like Wal-mart and Sam’s Club.
The lower prices help build up consumer loyalty as well.
Cons
There will be a higher risk of reduced market share since offering the special promotions is a trend within the market. It is possible for Henkel to lose sales by not offering promotions as often as other companies do.
The loss of sales would negatively impacts the revenue as well.
**However, the potential shrinking of the market share can be offset by the increased consumer loyalty and better management of the main products due to the strategies of everyday low price and simplified product lines. Based on the information that we have, it is clear that simplifying the product lines, reducing promotions, and adapting the strategy of everyday-low price is a better option comparing to continuously increase product proliferation.
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6. CPFR Integration
Collaborative Planning, Forecasting, and Replenishment
B2B collaboration
Joint visibility and information sharing
Process to create more efficient forecasts
Nine-step process
CALEIGH
CPFR is an end-to-end supply chain “efficiency program” that seeks to better the coordination of inventory management through joint visibility, information sharing and collaboration between trading partners while also trying to reduce costs. This business-to-business collaboration involves shared forecasts between trading partners. CPFR is considered to be the next stage in the evolution of supply chain initiatives.
The graphic you’re seeing shows that there is A LOT of business opportunities for collaboration. The difference between CPFR and other business process tools like VMI and CRP is that the other models generally require more than one touch point before any benefits are realized. With CPFR, a customer can improve performance by just having a collaborative relationship with one supplier. In this case, with Henkel sharing information like promotional plans, business goals, order/replenishment plans, inventory status, sales forecasts, etc., their effective CPFR alliance could improve the relationship between themselves and their supplier.
Nine step process
Step 2 of the 9 step CPFR process is particularly important.
Creating a joint business plan

7. Benefits & Risks of CPFR
Benefits to Henkel
Revised forecasts
Smoother ordering patterns
Higher order fill rates and improved customer SL’s
Reduced production costs
Better-maintained relationships
Increased collaboration
Industry fits CPFR criteria
Full pallets and full trucks
Risks to Henkel
Complicated implementation
Different information sharing systems
Costly and time intensive
Added vulnerability
Organizational change
RITA
Benefits
Henkel really needed to improve their forecasting methods so that it could gain better accuracy for the long time horizons of their complex array of products. They could become considerably more accurate by implementing CPFR.
With the collaboration between Henkel and their supplier, there would be smoother ordering patterns with lower forecast error
Inventory levels would be more appropriate when cross-functional teams are engaging for instance, with demand planning. This would contribute to more accurate forecasts and a lower forecast error.
As a result, this would impact the financials by reducing costs associated with production.
Since the decision-making process itself for replenishment is collaborative in nature under CPFR, Henkel would have better-managed relationships with supplier.
Through joint demand planning and forecasting, the benefits of CPFR can be felt all the way through to distribution Transportation costs may be minimized when Henkel is shipping in full truckloads.
Lastly, since Henkel is a mature company with existing infrastructure and sells highly promoted products that are difficult to determine future demand patterns, they are a good candidate for CPFR.
Risks
The risks to Henkel include the complexity of implementation:
It’s costly and time intensive.
In addition, there are different information sharing systems across the network and it can become daunting to try and align when everyone’s not on the same platform.
One of the most difficult things to manage when engaging in CPFR is the organization change necessary to enable and support the process. Even in organizations with well developed supply chain processes and technologies, existing roles and responsibilities will need to be realigned (formation of teams or shifting roles) to effectively support CPFR.
And lastly, there is an added vulnerability to CPFR because you’re exposing all of your data and sharing mass amounts of information in the supply chain which may expose weaknesses that you may not want your supplier to see.

8. CPFR Key Characteristics
Does Henkel Possess:
Collaborative processes?
Collaborative cultures?
Collaborative relationships?
“European Grocery Supplier Shows How CPRF Really Works”
RITA
By the late 1990’s Henkel was using a continuous replenishment (CRP) program. This proves that they were already thinking about collaborative processes, cultures, and relationships but that they weren’t fully integrated. Henkel clearly possesses the three characteristics that would increase the likelihood of CPFR being a success. This dynamic initiative (CRP) had helped the company start to eliminate inefficiencies. Henkel Iberíca and their customers were working together on replenishment planning. This efficiency program gave Henkel more information and visibility into their supply chain but it lacked the ability to solve the underlying problem of forecasting for the complex products that Henkel offered. Forecasts were produced through Excel spreadsheets and CRP had pitfalls. They were spending money with little reward.
By exploring the alternative of CPFR and reducing complexity, Henkel would be able to alleviate the primary problems that they were experiencing.
Through our research it’s shown that Henkel planned for and put a pilot in place for CPFR with Eroski between 1999 and They reaped all the benefits mentioned in the previous slide. At a time when consumer-goods manufacturers were struggling, Henkel had done reasonably well during the time that they launched the CPFR pilot. As described in our case, Henkel’s operations weren’t consistent or efficient in the mid-late 1990’s. The company was suffering from serious flaws in their forecasting methods. Their inventory levels were high, yet stock-outs were chronic. Their transportation was inefficient and they were facing serious problems that they knew needed to be diagnosed and resolved. The first step towards CPFR was Henkel began using the Manugistics Demand Planning (DP) tool to help with forecasting accuracy. That still didn’t cut it. When Eroski emerged as the prime candidate for Henkel to engage with in a CPFR relationship, the free-flowing pipeline of data opened up between the two and collaboration began. Their sales forecast began to improve, their forecasting error declined, stockout rates dropped to only 2%, customer service levels rose to 98%, forecasts were reliable and they were saving money on transportation costs by utilizing full pallets and full truckloads. Many key lessons are discussed in the article we found including barriers and challenging Henkel faced during and after implementation.

9. Recommendations Focus on a simplified, EDLP strategy
Learnings from the Motorola Case
A phased approach works best
Collaboration is focused on building relationships
Postponement and Modular Design
10% of raw materials
CALEIGH/RITA
Henkel could greatly benefit by applying the lessons learned from Motorola success story. These key findings include:
**Collaboration is the foundation.
Both participants must be ready and willing to engage in the same amount of commitment.
Time-based decision-making is key. Both participants must adopt a common calendar for planning.
Success requires formal communication and processes.
**A phased approach works best (or a pilot program).
Participants must agree on metrics.
Common goals and measures are essential.
**Collaboration is focused on building relationships.
The organization must change to become customer-focused.
Technology tools, if aligned properly, are necessary but sufficient. Motorola began with a simple Excel tool to share forecast information.
Henkel could greatly benefit from a strategy in postponement / standardization and modular design. Since only 10% of the raw materials changed per year, Henkel could look to differentiate late in the supply chain. They’re essentially already using one pool of WIP and raw materials for a majority of their products. By shifting the differentiation point, Henkel would be able to better manage the manufacturing of their promotions and reduce the complexity that is facing their supply chain.

10. Thank you! Questions?