Vantage Point: Supply Chain Strategies for Mature and Emerging Markets

In recent years, mature markets, such as the United States, Western Europe and Japan, have been contracting while emerging markets, like Asia and Latin America, have been rapidly expanding. Whether the goal is to succeed in a mature market with value-conscious consumers or to influence how increasingly affluent consumers in emerging markets shop, the challenge for Fast Moving Consumer Goods (FMCG) companies and their retail customers alike is finding flexible, efficient, cost-effective solutions that provide a competitive advantage.

 

 

For retailers, success hinges on meeting local consumer needs and shopping patterns – right down to store level. This holds just as true in London as it does in Santa Fe and Bangkok. In addition, retailers must cut inefficiencies and implement operating practices enabling them to react quickly to economic fluctuations.

 

Strategies adopted to meet these objectives include using store formats that align with cultural norms; continually evaluating SKU assortment; making smaller, more frequent orders to adjust to demand dynamism; and customizing products at the store level using innovative packaging, specialty packs, promotional bundles and assortments.

 

Upstream, FMCG companies must support these approaches and also satisfy their own requirements to operate efficiently and grow the business. At Exel, we have identified four strategies that FMCG companies can use independently or together as part of an integrated solution that simplifies and drives costs from their supply chains and enables them to better meet the needs of retailers and local consumers.

 

Outsourcing Primary Packaging (Contract Manufacturing)

Outsourcing primary packaging is not a new strategy; however, companies are giving it a new look as they enter emerging markets or work to streamline existing operations in mature markets. In both cases, manufacturing and packaging processes for some consumer goods can be outsourced to an appropriately equipped and qualified distribution center.

 

Outsourcing reduces the time and complexity required to change manufacturing lines that support product launches or shorter promotional runs. And, shifting primary packaging into the distribution center network increases flexibility, because final packaging decisions can be postponed. Consequently, marketers can delay decisions on product customization to best meet local shopping habits and preferences.

 

In addition, outsourcing primary packaging reduces transportation costs and carbon emissions since product moves less frequently. And with packaging closer to the local distribution points and end customer, order lead times can be shortened.

 

Optimizing Secondary Packaging (Co-packing) Locations

Secondary packaging supports product promotions and provides the ability to vary pack sizes by repackaging finished goods into multipacks, assortments and bundles. It also can be used to increase shelf differentiation against private labels.

 

There are many benefits to consolidating secondary packaging operations into an existing distribution or manufacturing facility, rather than shipping product out to a co-packer. Customization can be postponed closer to consumption, eliminating steps and removing time from the production process. This helps reduce order lead times, avoid carrying unnecessary inventory, enables just-in-time shipment of floor-ready displays and products for advertised promotions, and can result in less SKU and material obsolescence.

 

This strategy also reduces carbon emissions, minimizes transportation costs, and improves product security and quality. Additional overhead cost savings can be achieved through improved facility use and eliminating resource redundancy, particularly in campus operations where trained labor can be flexed on and off projects as needed.

 

Regionalization of Distribution Networks

Manufacturers can reduce inbound and outbound transportation costs by locating RDCs or cross-docks near their production plants or in campus operations that provide access to intermodal facilities. Campus-based sites also offer additional space, flexible labor, and the opportunity for multi-manufacturer shared warehousing and transportation.

 

In addition, this strategy enables shorter lead times, which allows retail customers to respond faster to fluctuating consumer demand. It also reduces retail store inventory, product obsolescence and security burdens that come with managing large volumes of product in some regions.

 

While some FMCG companies already operate RDC networks, the existing locations may have been added as the result of acquisitions or facilities built for distinct product lines. These companies may consolidate into fewer, larger RDCs in more strategic locations for greater efficiency and savings.

 

Horizontal Collaboration

Strategic collaboration to reduce costs and improve efficiencies is an idea that has been around for some time. Typically, however, competitive concerns and cost- and savings-sharing complexities stall its realization.

 

But now, manufacturers globally are looking seriously at horizontal collaboration as a way to drive supply chain efficiencies, share costs and reduce carbon emissions in support of sustainability strategies. In many emerging markets, collaboration is a cost-efficient way to establish and serve remote areas that have low population density or infrastructure challenges. And in mature markets, it can help meet retailer demands as order and shipment sizes shrink.

 

Freight consolidation, shared warehousing and value-added services such as packaging, consolidation and merge-in-transit are all ways in which FMCG manufacturers can collaborate.

 

 

The supply chain approaches described here deliver the flexibility and cost efficiency required to meet the needs of dynamic retail channels in mature and emerging markets. They also create the foundation for improvements in quality and service that lead to a more sustainable competitive position.

 

To benefit all parties in the FMCG supply chain, the strategies need to be better integrated and streamlined from design through execution. A knowledgeable third-party provider with global expertise that can offer network design and optimization, primary and secondary packaging support, campus-based warehouse and transportation solutions, labor management, real estate services, regional expertise, and collaboration opportunities will be equipped to deliver the service, flexibility and value needed to remain competitive in any market.

 

These providers can also offer the visibility and control needed to better understand and manage the increasing costs to serve both retailers and consumers, supporting long-term sales and profitability goals that reach far beyond the supply chain.


About the Author

 

JOE PULEO

Vice President of Business Development, Consumer and Life Sciences, Americas

 

Joe Puleo currently serves as Exel’s vice president of business development, Consumer and Life Sciences, for the Americas region. He is responsible for the sales, marketing and growth strategy for these two business units. Prior to assuming this role in 2006, Joe worked for the company’s Consumer business unit as vice president of operations for the Southeast region.

 

Joe came to the company in 1990 initially serving as general manager for the former Office Products division. Prior to joining Exel, he worked for Brinks Incorporated in the warehousing division.

 

Joe graduated from the Robert Morris University with a Bachelor of Science in Transportation Management and Regulation. He is a member of the Consumer Healthcare Products Association, Healthcare Distribution Management Association and Council of Supply Chain Management Professionals.