Optimizing Procurement in the CPG Industry
Efficient procurement is the backbone of business growth in the consumer packaged goods and brand industry. It drives cost savings, ensures supply continuity and enhances quality.
Yet, procurement, both direct and indirect, often faces challenges that limit its strategic potential.
Procurement Challenges and Integration
The Problem: Procurement is often involved too late in decision-making, reducing its ability to vet suppliers, assess capacity and align with broader business goals. This delay can lead to higher costs and inefficiencies.
The Solution: Early procurement involvement transforms outcomes. By collaborating with demand planning teams, procurement can ensure supply continuity and align supplier capabilities with forecasted demand. This partnership strengthens supply chains, minimizes risks and optimizes inventory levels.
For indirect procurement professionals focused on services like staffing or marketing agencies, early involvement also ensures alignment with organizational priorities, helping departments like HR or IT find the right-sized partners.
Indirect vs Direct Procurement: Understanding the Differences
Procurement spans two distinct categories:
- Direct Procurement: Involves sourcing core materials, such as ingredients and packaging, essential for production
- Indirect Procurement: Covers back-office services such as staffing, marketing agencies and maintenance (MRO)
Despite differences, both categories follow a structured, seven-step sourcing process requiring category-specific expertise. Indirect procurement often supports operational efficiency across departments, whereas direct procurement is closely tied to demand planning for production continuity.
Value Proposition and Target Market
Why It Matters: Strategic procurement can save businesses 10-15% of their budget during initial sourcing processes. Subsequent savings average around 5%, making it an essential lever for cost optimization.
Who Benefits: Growing small-to-midsize companies without in-house procurement teams stand to gain the most. These organizations often lack the resources to vet suppliers or negotiate favorable contracts independently.
Services Offered
- Identifying right-fit partners (e.g., local agencies vs. large firms): This involves assessing the specific needs of each department to ensure that the selected partners align with their operational scale and requirements.
- Supporting cross-functional departments such as marketing, HR and IT: By providing tailored procurement solutions, these departments can focus on core activities while procurement handles supplier management and cost optimization.
Streamlining operations through supplier consolidation: Reducing the number of suppliers simplifies logistics, enhances communication and often leads to better pricing due to increased volume commitments.
Case Studies: Real-World Success
Global CPG Company: Through an RFP process, a display manufacturer was chosen to assemble finished displays instead of shipping materials to multiple distribution centers. This consolidation reduced SKUs and generated ongoing cost savings for thousands of annual shipments.
Hospitality/Entertainment Company: A multi-vendor solution for photographic memorabilia across eight properties was streamlined into a single supplier. This move tripled property revenues while improving operational efficiency.
Procurement is no longer just a transactional function; it’s a strategic driver of cost savings, efficiency and innovation. Early integration into decision-making processes unlocks its full potential, ensuring alignment with demand forecasts and organizational goals.
Businesses that embrace robust procurement strategies position themselves for sustained growth in the competitive consumer packaged goods industry.
Jody Naragon and Lisa VanFulpen are advisors for Demand Chain AI. Direct and indirect procurement now require expertise in both sourcing and technology. Demand Chain AI provides companies with experienced solution consultants who have delivered strong results for decades.
