Four Steps for CPG Supply Chain Network Optimization
Businesses and individuals will struggle to associate the words ‘high-point’ with 2020; amazing as it sounds, that has been the case for the consumer packaged goods (CPG) industry as a whole. In fact, the CPG sector grew 19% in 2020 according to NCSolutions – a firm that has been providing research-based insights for more than 10 years to help brands target the right segments on the basis of in-store purchase behaviours, optimize in-flight campaigns, and measure the outcomes.
The upward trend on its own, and in comparison to the years prior to 2019, has not been predictable or uniform. While some companies enjoyed an unprecedented surge in demand, others suffered drastic sales declines. There were rapidly deployed workforces and simultaneous lay-offs due to lockdowns.
Despite all this turmoil, the CPG industry overall is definitely in a much better place to take on an uncertain future when compared to other sectors in this brave new world.
Changing Priorities in Changing Times
The momentum of CPG companies has historically comprised gradual shifts in priorities as business changes are observed and accounted for. Incoming waves of wax and wane in the early days of 2020 caused concern for most companies who wanted to ensure the health and safety of customers and employees. Safeguarding cash balances and optimizing supply chains came later in the year; later still were efforts to build new supplier networks, optimize existing networks, and make them all more resilient.
Now, with western economies largely emerging from the crisis, attention has again turned, towards return to business and recovery. Business leaders across the CPG sector are starting to see some measure of an economic rebound; this is also the moment when they are beginning to consider long-term strategic moves as the future unfolds and looks much different than what they had envisioned last year at this time.
Cost and Availability: The Key to Customer Retention
Most consumers will need some time to recover and return to more normal levels of spending. Consumer demand for toilet tissue, cleaning products, bottled water, and personal protective equipment (PPE) has just about returned to a normal level. McKinsey projects that 40% of US buyers are now more mindful of where they spend their money, while 31% are choosing less expensive products.
Consumer spending is also predicted to continue to focus more on essentials, groceries, household supplies, and less likely to focus on PPE like masks and gloves. Consumers are also being mindful about their spending with regard to savings – the personal savings rate in the US amounted to 13.7% at the end of 2020, compared to 11% in 1960.
Many consumers, failing to find their favourite products on store shelves in 2020, changed to new brands that were more readily available. Driven largely by value and availability, more than 60% of global consumers tried a different brand or shopped at a different retail outlet. Trends like online ordering and delivery and remote working were all accelerated, leading to the digitalization of some business processes – changes that were previously projected to take place over decades happened in days.
So success for an omnichannel brand also depends on the right value proposition for CPG products and efficient supply chain planning towards supply chain network optimization. How much can the product command in terms of price and at what cost? What CPG supply chain management initiatives can ensure that the product is available where and when the consumer wants it and what variables are likely to impact that state?
As new consumer behaviours begin to emerge in all areas of everyday life, CPG companies need to use this transition period between the crisis and the new normal to rethink their consumer-decision journey and enhance and improve supply chain efficiency.
The Four Stages of Supply Chain Network Optimization
In a price-conscious CPG market, supply chain managers are desperate to optimize costs and increase supply chain throughput. The increasing number and complexity of sales channels demand end-to-end supply chain visibility as products travel from manufacturing centers to the end-customer; such transparency at the speed of business requires a digital supply chain.
As businesses embark on digital transformation initiatives to improve supply chain efficiency, they will need the right supply chain software to navigate the 4 stages in order to maximize network value.
Stage 1: Connect
End-to-end connectivity across the partner network inevitably concentrates large amounts of information across multiple connections. Facilitating collaboration with other channel partners by forging stronger relationships through efficient and coordinated actions increases end-to-end connectivity. This, in turn, results in increased activity leading to a concentration of information.
While grocers remain important and strategic trading partners, CPG companies will need to connect across various channels, including e-marketplaces and their own web presence. For smaller brands, it becomes a question of finding the channel that best fits their existing or extended distribution model.
Stage 2: Anticipate
Traditional supply chain planning can fail to accurately predict sudden rises or falls in demand as these forecasts are based on historical data. Integration with ‘big data’ systems helps develop a more holistic approach and supports an agile demand plan. CPG manufacturers need to quickly become experts in big data analytics, insight generation, and ROI tracking of investments, particularly for e-marketplaces.
Stage 3: Strategize
Based on the demand forecast, companies would need to respond quickly and efficiently to address production and inventory capacity throughout the supply chain. Factory, logistics partners, and warehouses will have to be coordinated and synchronized to serve multiple goals and partner networks would need to operate in near real time.
All this might require jettisoning legacy services and investing in smarter supply chain software that are designed for faster, point to point communication and at a lower cost.
Stage 4: Control
When a CPG supplier is in a position to manage its demand, production, and inventory, it has more control over its costs, product pricing, and placement. It can take a varied price approach depending on the demands and requirements of a particular buyer. According to Forbes research, the best CPG performers reallocate 2-3% resources per year removing unproductive costs and channelling funds to priority initiatives.
Supply Chain Software to Take on the Next Normal
The lessons learned over the past 14 months present retail and CPG companies with a tremendous opportunity for improvement of supply chain operations. They can now reinvent themselves for the new normal with more speed, new innovation, and increased agility.
These companies can learn from their own experiences and from each other as they get ready to take on a less predictable future. The right digital investments can help long-term supply chain planning while observing and reacting to consumer behavior and the business environment.
PartnerLinQ by Visionet: Enterprise Connectivity at the Speed of Business
PartnerLinQ is the result of Visionet’s decades-long industry expertise and technology leadership. Hosted on Microsoft Azure, PartnerLinQ is an innovative, process-centric, easy-to-use EDI solution that enables API-led, cloud native integrations. With a simplified B2B communication engine that includes EDI, AS2, SFTP, and real-time APIs, PartnerLinQ is a fully integrated platform and easily handles both standard and proprietary file-based formats including custom integrations. PartnerLinQ is well suited for retail, e-commerce, wholesale, transportation, 3PL, as well as distribution, digital and analog partner ecosystems – helping your team achieve operational efficiency and gain real-time supply chain visibility.
The PartnerLinQ team at Visionet has more than 25 years of experience in providing industry-focused leadership in technology, consulting, and in the development of innovative solutions that drive global supply chain transformation from the factory floor to the consumer’s doorstep.
Visionet’s technology practice includes leveraging Azure to build, test, deploy, and manage large-scale enterprise solutions for its clients. So when Visionet set out to build PartnerLinQ, it made perfect sense to build, test, deploy, and manage the PartnerLinQ integration platform from within Azure.