For example, if brands paid a retailer for their products to be placed in areas with high customer eye-level visibility, their brokerage partner would visit the store to confirm the retailer was holding up their end of the deal, even take a picture. A lot of these companies improved their go-to-market over the last 20 years, leveraging mobile device software that enabled their employees to take pictures of out-of-stock aisles and report back to the manufacturers in real-time. In turn, the manufacturer would guide the retailers or even refuse to pay the retailer for shelf placements that weren’t executed as part of the trade management agreements — creating additional tension between both sides.
The tension also had a silver lining, though. It ushered in more offers and services, and new, innovative data-sharing technologies like advanced analytics solutions that leverage artificial intelligence for advanced forecasting and inventory optimization. A new era of digital innovation helped improve CPG-retail relationships, fostering consistent communication and collaboration. Over the years we have seen the CPFR processes, defined in the late 90s and redefined in the early 2000s, implemented around specific large account teams to streamline collaboration around specific issues.
How it Evolved: What’s Being Done Now and What the Future Holds
Before the COVID-19 pandemic, CPG companies optimized their supply chains for short-term delivery planning, resulting in retailers could keep inventory levels as low as possible and still fulfill demand with large margins. It minimized the risk of lost profits from excess or depleted inventory — thus maximizing their returns.
But when an unprecedented global pandemic caused a pendulum swing on consumer demand, CPG and retail supply chains lacked the resilience to manage volatility, especially without real-time measuring, because everything had been optimized for minimum inventory planning and maximum inventory turns. By the time CPG companies received point-of-sale transaction data from the previous two weeks, demand was already shifting again, and they couldn’t manufacture and move inventory fast enough to fulfill the pipeline.
In other words, the pandemic revealed that the benefits of extensive CPG and retail collaboration via advanced technology are too vital to pass up. The digital transformation of supply chain partnerships is mutually beneficial for both sides. Digitizing the supply chain enables retailers to identify hidden supply chain risks and prevent disruptions, and enables manufacturers to forecast and analyze consumer purchasing trends for improved flexibility.
The real-time visibility from demand sensing and specific actions generated by prescriptive analytics, artificial intelligence and machine learning are primary components of a resilient supply chain. End-to-end supply chain resiliency can’t be built by going in blind, or relying on numbers only — organizations need an agile operating model. Relying on people interpreting numbers on a report brings friction and wrongdoing, as people tend to rely on their personal biases to make decisions. I believe the right way to collaborate is through plain text language of prescription action to create a frictionless end-to-end supply chain with built-in resiliency.
It’s safe to say that CPG companies and retailers have realized collaboration and supply chain synergy are essential for the future. More collaboration, communication, unified KPIs and in-store/e-commerce platform data sharing represents a golden opportunity to maximize on-shelf availability and minimize out-of-stocks. It may have taken a devastating pandemic to get the point across, but even learning the hard way will foster growth and sustained success.