Rising Freight Costs and Growing Supply Chain Complexity Hit CPG Companies Hard
by Paula Heikell
Consumer packaged goods (CPG) companies are facing an uphill battle to control costs and keep their customers happy, based on a recent survey published by the Grocery Manufacturers Association.
The survey, which included feedback from executives of 40 CPG companies and interviews with 70 supply chain leaders and retailers, had sobering news. According to the survey findings¹:
- Rising transportation costs are large enough to erode any savings gained by other efficiency strategies. Freight costs for CPG companies have risen 14% since 2013, while inventories have grown by an average of 22% in that same period.
- Large companies face a steady influx of new competitors. Since 2009, smaller manufacturers have captured $13 billion in sales from larger CPG competitors. It’s likely that number will continue to grow as barriers to entry into the marketplace continue to erode. The consumer is in the driver seat and it’s no secret that online shopping is taking a growing share of shoppers’ wallets.
- A decline in service puts customer loyalty at risk. After peaking in 2010, service had fallen by 2012, and continued to decline into 2014 at an accelerated rate. Some elements of this trend may be due to companies balancing cost/service options, but external factors such as weather, transportation capacity constraints and congestion on delivery routes were also key issues.
Online shopping also introduces customers to new brands and can chip away at customer loyalty. With the click of a mouse, shoppers can go online and be exposed to more brands and delivery options than ever. The most successful CPG companies will be those that invest in figuring out how to find and retain loyal customers and balance cost/service factors with customer expectations.
The GMA survey is packed with useful information, much of which could feasibly be applied to shippers in other sectors. It’s worth reading. You can download the full survey report here.
Data Visibility is Key
To quote Peter Drucker, “You can’t manage it if you can’t measure it.” One of the most important factors in analyzing and realigning a supply chain execution network is having accurate data on which to base decisions. It’s also critical to be able to refresh that data with some frequency, as phenomenon such as the “Uberization” of delivery and the continual entrance of new competitors change the playing field.
One Recommendation? Expect More from Your Technology Providers
Supply chain execution networks are often made up of a complex combination of internal and third party solutions. Add external trading partners such as suppliers, 3PLs, carriers and others to the supply chain flow and the picture becomes more complex.
Collaboration is an overused word in business, but better collaboration with your vendors is a requirement for today’s companies. One suggestion is to dig deeper with your ERP, WMS and shipping software providers. Go beyond the usual conversations you have with your vendors to find out how much experience they have in dealing with the challenges your business is facing.
Getting to “Nimble”
Perhaps one of the most important characteristics to take note of in today’s highly dynamic omnichannel marketplace is that change is here to stay. Flexibility in decision making and supply chain execution will be keys to survival and growth.
Maybe the question to put to your technology providers is not about which specific technology to use, but, “What is required for our company to build a nimble supply chain network?” By defining the “whats” and “whys” of being nimble with your vendors, you can more quickly understand what technology will most effectively meet your needs.
Logistyx Technologies is a provider of carrier-agnostic e-commerce fulfillment software and shipping software solutions that enable shippers to manage all their small parcel, LTL postal, regional, national and international carriers on one platform. We also help companies automate their reverse logistics process for greater efficiency and lower cost. Contact us today.
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¹ “Time to Shift Gears: Top Trends in the CPG Supply Chain” www.gma.org