Dive Brief:
- Clorox has exited relationships with backup suppliers it hired during the height of the COVID-19 pandemic as the coronavirus heads into “more of an endemic phase” and demand levels out, CEO Linda Rendle said on a Q3 earnings call.
- As part of a supply chain optimization plan, “we’ve been able to consolidate and narrow the external manufacturer portfolio we have to strategic partners,” Rendle told analysts on the call.
- The company plans to continue to boost its in-house manufacturing capacity next quarter. “We expect the vast majority of that benefit to begin hitting in fiscal year ‘23,” Rendle said.
Dive Insight:
Clorox executives have acknowledged the company left sales on the table because of stockouts during the pandemic. Improving supply was Rendle’s mandate when she took over as CEO in 2020.
As of last fall, Clorox used contract manufacturers for roughly half of its shipments, up from about 20% historically. It was costly, but it allowed the company to avoid impacts of some raw material shortages, CFO Kevin Jacobsen said at the time.
In an indication of better material availability, Clorox isn’t just shedding contract manufacturers from its supply chain, but also suppliers, Jacobsen said on the Q3 call.
“As that supply chain starts to level out, and we’re able to step out of some of those relationships with material suppliers, that also should reduce our cost,” the CFO said.
Service levels have risen, and company executives said they expect them further improvement next quarter. As service improves, the company is increasingly focused on cutting costs to rebuild its margins. Jacobsen noted a pullback in spot transportation rates as a “little bit of a benefit” in Q3.
“That premium is starting to come down a bit,” he said. “And I’d like to believe we’re going to see that continue.”
Still, material constraints and labor shortages across the supply chain “are impacting our ability to get raw materials,” Rendle said. Clorox has increased the percentage of its portfolio on allocation — for which it can fill only a portion of its orders.
Clorox also is working closely with retailers and logistics partners to further improve service levels, Rendle said.
“Service is improving, and we expect continued improvement in Q4,” the CEO said.
Proctor & Gamble has also boosted its manufacturing capacity to meet pandemic demand, coupling capacity investments with business continuity planning and visibility enhancements, CFO Andre Schulten said during the Goldman Sachs Global Staples Forum Tuesday. (Clorox is working on an ERP upgrade of its own.)
Supply chain resiliency and readying for the next disruption is a focus area for the company, Schulten said.
“We believe supply chain is going to be an important differentiator going forward,” he said.
