Like many industries, U.S. consumer packaged goods (CPG) companies are facing intense pressure from changing market conditions such as growing e-commerce sales and increasing channel fragmentation. These changes are shaking up traditional supply chain structures and challenging companies to find new ways to respond to customer demands, according to a recent report from The Boston Consulting Group (BCG) and the Grocery Manufacturers Association (GMA).
How CPG Supply Chains Are Preparing for Seismic Change is based on the 2017 Supply Chain Benchmarking Study, a survey of the U.S. units of more than 30 leading CPG companies. The report highlights five essential actions that CPG companies can take to continue meeting customers' needs. These actions are summarized below.
- Keep seeking efficiencies. The study found that while CPG companies have, in general, improved their service, they were unable to do so without incurring increased costs. When the survey looked at respondents who participated in both the 2015 survey and the past year's survey, it found that median on-time case fill rate improved 2.4 percentage points to 89.7 percent but the median cost per case ($1.58) also rose 4.47 percent. (Cost per case includes replenishment freight, distribution center and warehouse operations, customer freight, and overhead.) Only three companies were able to improve service and reduce cost.This means that companies cannot let up on their pursuit for efficiencies. CPG companies currently bear the brunt (60 percent) of logistics costs and hold roughly 50 percent of the inventory in the grocery supply chain, according to the report. To increase efficiency while holding the line on costs, they will need to not only rethink their transportation and warehouse strategies but also conduct more frequent network redesigns. Indeed 80 percent of respondents ranked network redesign a top priority, up from 72 percent in the previous GMA/BCG study.
- Capitalize on big data and digital tools. The study found that companies that use big data and digital tools, such as predictive analytics, geo-analytics, and scenario modeling, can increase product availability by up to 10 percentage points and improve response time by 25 percent. These improvements can be made without investing in an expensive enterprise resource planning (ERP) system if companies take advantage of new cloud-based data architectures, according to the report.
- Secure new skills. Companies can only take advantage of big data and digital tools if their employees have the necessary analytical and information technology skills. About 58 percent of survey respondents said they were concerned about recruiting and retaining digital talent. To get the skills they need, CPG companies will need to develop more competitive recruiting and retention practices and create a work environment that is more attractive to technology workers, according to the report.
- Prepare for online growth. Over the next two years, half the growth in North American grocery sales will come from e-commerce, say the report's authors. But only 6 percent of CPG companies have a dedicated e-commerce supply chain team, and only 3 percent are able to fully track sales by channel, according to the survey. The study recommends that companies start taking tangible steps to prepare for online growth, such as developing e-commerce stock-keeping units (SKUs), establishing separate planning processes, and creating key performance indicators (KPIs) to track product performance online.
- Sell customers on the benefits of collaboration. The grocery industry is now seeing more participants and more routes to market than ever before. This trend makes accurate forecasting and planning more difficult. CPG companies cannot just rely on technology to improve these processes; they also must cooperate more closely with customers in order to get more accurate and timely data. In particular, CPG companies need to establish closer relationships with their new e-commerce customers, the study recommends.
How CPG Supply Chains Are Preparing for Seismic Change is based not only the survey results but also in-depth interviews with 68 supply chain leaders and industry experts, as well as BCG research. Gross annual revenues for participating companies range from $165 million to more than $32 billion. The report was written by BCG partners Elfrun von Koeller, Peter Dawe, and Alicia Pittman.
A copy of the report can be downloaded here.
