2016 Outlook: 5 Battles to Face in the CPG Supply Chain

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2016 Outlook: 5 Battles to Face in the CPG Supply Chain

By Bryan Nella, GT Nexus - 12/11/2015
As the New Year approaches, consumer goods leaders find themselves facing a slew of obstacles and pressures. Consumer pressures and demands around quality and customization of goods, safety regulations around traceability, tightening margins and barriers to growth, are just a few. The supply chain plays an essential role in addressing these challenges. These should be priorities for consumer goods leaders in 2016. The challenge is, how to address broad supply chain collaboration — balancing costs, inventory and services — in a way that supports long term growth.

A new study by the Grocery Manufacturers Association (GMA) and Boston Consulting Group examines challenges consumer goods companies face in managing services, cost and inventories. The survey shows a losing battle in the supply chain. As a result, transportation costs are emerging as a growing concern. The current way of executing in the supply chain simply is not sufficient to match the dynamics of the complex consumers goods market. Expediting goods to meet demand simply is not sustainable. Yet, that’s exactly what’s occurring.

The urgency to drive growth by reaching new customers and channels with new products — while maintaining service levels — is overwhelming. The result is a spike in transportation costs to meet demand. Meanwhile, an explosion in SKUs and shorter product lifecycles are multiplying complexity and pressure on consumer goods companies to better manage inventory.

How is this playing out? As the GMA / Boston Consulting Group report shows, transportation costs have increased 14 percent in the last year. Yet, more than 60 percent of companies fail to meet delivery targets. Here are five major trends called out in the report – all of which need to be addressed in the consumer packaged goods (CPG) supply chain:
  • Transportation has become the top concern for 83 percent of supply chain leaders.
  • Network redesign has soared in importance, becoming a top priority of nearly three-quarters of supply chain leaders.
  • Freight costs are rising (by 14 percent since 2013 study).
  • Service is suffering; this held true across all measures.
  • Inventories are growing (by 22 percent since last study).

The problem is foundational in the way consumer goods companies connect and orchestrate global business and their supply chains. The underlying connective plumbing that unites internal departments and external trading partners has to be revamped before many of the challenges of today can be addressed.

What is the key takeaway for 2016? Boston Consulting Group goes on to state the following:

“The disappointing industry results reflected in this year’s top trends are hardly a sign of complacency. What is clear, however, is that supply chain leaders face operational challenges today that require enterprise-wide solutions. Traditional best practices are no longer enough. The magnitude, long-term nature, and impact of these challenges, in combination with the broader business challenges that CPG companies face, call for a more strategic, more collaborative supply-chain approach.”