Company background The Scotts Company started selling hardware and seeds in Marysville, Ohio in 1868. It specializes in seeds, fertilizers, peat, potting soils and other organic materials. By 1995, Scotts was the world’s #1 marketer of lawn and garden products. European operations were launched in 1993, with HQ in Lyon, France, and additional five European businesses acquired in UK, France, Germany, Austria and Benelux. Symptoms and problems The main symptom and concern is that Scotts’ European sales had increased as expected, but margins had dropped, as well as synergies between the acquired companies were not working as expected.
In addition, one of Scotts Europe’s largest customers was threatening to leave due to unacceptable service levels that might cause a domino effect to other large customers. The main problem is fundamentally related to supply chain problems, including duplication and inefficiency of sourcing, manufacturing and distribution. Therefore, task #1 is to optimize supply chain and squeeze costs. We would like to elaborate more on sub problems and causes: 1. Each office has their own supply management function that increases Group’s purchasing, manufacturing, packaging and delivering costs.
Scotts Europe has hundreds of suppliers, numerous uncoordinated contacts, even several contacts with the same supplier, but with the different pricing. 2. Products are not standardized and vary by country in terms of type, packaging and specification. This increases production time, production costs, lead time and errors. And moreover, 4% of SKUs appear to be virtually inactive. 3. Every European office has own accounting practice, which leads to incomparability of data. Furthermore, IT systems are not integrated in any way.
There is no united system of forecasting and measurement, which leads to errors, excessive inventories or inventory shortages. Bad IT management is also the reason for not reliable order fillings. 4. Each European office has very strong domestic culture and infrastructure, and most employees and local management resist any changes toward an integrated Scotts Europe. 5. As disclosed, 5. 7% of 16,000 customer base account for 80% of sales. Considering the fact, that one of these customers was threatening to leave, it would leave a significant impact on Scotts’ performance. . Two Growing media plants in France and Netherlands were burdened with much higher structural costs due to their distance from the peat bogs. Also other fertilizer plants should be reorganized because of excess capacity. 7. Scotts Europe outsourced chemical supplier despite the fact that during off-peak season, one of plants operated at 40% capacity. 8. 13 distribution centers are actually increasing lead-time and delivery costs. In fact, very high inventory levels are lying at distribution centers. Annual inventory turn is 3. 3 times. Alternatives . To set up short term strategy and work on €30 million cost savings during the one year. Pros: ?Fundamental changes will not be made with in the company ? U. S. management will be satisfied Cons: ?Next years there will be more losses because long term fundamental changes are necessary in the Scots Europe organization. 2. To set up short and long term strategy and work on fundamental changes within the organization to reorganize supply chain in Scotts Europe Pros: ?Fundamental changes will ensure profitability and cost saving for many years ahead.
Cons: ?Due to investments, target of U. S. management could be not fulfilled ? Profitability and cost savings boost will be seen during 2-3 years Recommendations 1. First of all, Scotts Europe has to standardize all it products. Unified production lines will decrease production time, production costs and will require unified packaging materials. Only labeling should be made according to specific requirements of each customer/ country. 2. Remove supply chain management spread by zones and create European supply chain for each product line. 3.
Significantly decrease number of suppliers and packaging suppliers. Signing exclusive contracts with a few suppliers will provide significant discounts and enable careful planning of costs. If done carefully, cost savings may range from 5 – 10% from total supply chain costs of EUR 380 mio, that is EUR 19 – 38 mio in savings. 4. Implement new IT solution applicable for multi-national companies, for example, SAP. This will unify forecasting and measurement systems in all of European branches, will significantly decrease number of errors, will enable EDI function with customers and suppliers.
Moreover, it will integrate all accounting systems, enabling better control over daily operations (order processing, inventory analysis) and performance reviews. Estimated savings considering expensive IT costs (around EUR 2 mio), could range from EUR 2 – 5 mio per year. 5. Assign special key account managers for large customers. Introduce discounting policy and customer loyalty programs. 6. UK’s plant #1 is facing significant losses, due to high fixed and overhead costs. As future prospects are in red, the plant should be closed, equipment moved to plant #2.
Planned annual savings are EUR 500k – EUR 750k. 7. A detailed analysis should be made on performance of 13 distribution centers – capacity, inventory turnover, costs etc. It appears most of the centers should be closed as they serve as excessive link in the supply chain, accumulating high inventory levels. All these improvements will boost profitability by identifying at least or more that EUR 30 mio required by U. S. A headquarters. However, we believe it is not realistic to manage all this turnaround in 1 year’s time. It might take from 2 – 3 years.