Consumer product manufacturers constantly struggle with the unique supply chain challenges posed by complex products, unpredictable demand, and intricate multi-channel orchestration.
For CPG planners, the pandemic years have flipped some traditional best practices on their heads, such as consumer buying behaviors shifting toward e-commerce, bulk buying, and more mutable brand loyalties. In fact, the Boston Consulting Group predicts that a hastening shift to e-commerce will drive more than 70 percent of sales growth across food and beverage categories in 2022. Clearly, CPG companies must resolve the meaning of such shifts within the context of their specific subsectors and customer bases. One thing is certain: charting a course to maximize business performance will require advanced capabilities in areas such demand planning, inventory optimization, replenishment, production planning, sustainability, and other areas—a transformation that can only be achieved by plugging well-known capabilities gaps inherent in MRP/ERP systems.
Adopting a single unifying supply chain planning platform – even if it is implemented one function at a time – is crucial to up-leveling performance of the end-to-end supply chain and meeting the steep new challenges that have emerged. Here we will take a quick look at four specific supply chain planning disciplines that are key to CPG companies creating immediate bottom-line benefits and achieving a lasting business advantage for the future.
Product Lifecycle Management
In today’s raucous supply chain climate, every phase of a CPG product’s lifespan is buffeted by cross currents ranging from tariff disputes to natural disasters, geopolitical issues, fast-changing consumer behaviors and buying trends, and more.
Only agile decision making at each step of each SKU’s lifecycle can ensure a smooth product launch, vigorous sales growth, profitable maturity, and cost-efficient end-of-life.
Real-world Decision Data
Many CPG products have little historical sales data available at their introduction, but an AI-driven demand planning solution can still create meaningful forecasts based on other SKUs with similar attributes, key merchandising characteristics, and target customer demographics. During a product’s “prime of life,” the planning platform can assemble real-world data on how closely sales performance is adhering to prediction, thus driving smarter mid-cycle decisions such as revising retail allocations to tune better performance. Ultimately, the platform uses real-world lifecycle data to shape optimal end-of-life product supersession strategies.
Planning for Turbulence
Assessing the impact of consumer behavior trends on classes of SKUs across their longevity timelines guides planners in streamlining the overall product portfolio for better performance. For example, during the pandemic, one food manufacturer accommodated the shift to remote learning by repackaging most of its raisin snack products from single-serving student boxes to large canisters better suited to at-home baking needs.
Main Management Takeaway
CPG companies must tune their product lifecycles skillfully if they are to weather the enhanced business threats and opportunities posed by a new era of supply chain turbulence. A data-driven, AI-powered planning platform fills the gaps where other systems leave off.
What to do Now
Start thinking in terms of proactively tuning your product portfolio’s growth and development for a shifting, less predictable global supply chain climate.
Assess your current ability to sense shifts in customer demand at the earliest possible point in the lifecycle. Game out the steps you can take toward more agile decision-making using data-driven AI and machine learning capabilities.
Consider how product life cycle management (PLM) fits into a world-class comprehensive supply chain planning process. Discuss how a unified planning platform can be a base of collaboration with key supply chain stakeholders (e.g. sales, marketing, finance), leading them to a common vision and shared understanding of evolving consumer demand.
Portfolio Complexity
To stay a step ahead of volatility, agile CPG planning requires highly informed anticipation skills and good cross-team collaboration. One key area to assess is the role portfolio complexity plays in amplifying the impacts of supply chain uncertainty.
Consumer desire for more selection and specialization can easily drive rampant growth in the SKU count and saddle planners with an unwieldy portfolio and far too many unprofitable items. McKinsey found that successfully managing complexity canboost margins by up to 8 percent. Their research found that among high-performing CPG companies, 100 percent take supply-chain complexity into account when adding SKUs, 80 percent use it as a criterion when eliminating SKUs, and 40 percent conduct a SKU evaluation at least once per quarter.
Fewer SKUs, Less Creep
Two powerful techniques planners use to minimize low-margin SKUs while nurturing the high-value SKUs are assortment optimization and ABC product segmentation. A powerful planning platform can analyze product assortments to find opportunities for limiting SKUs while maintaining high overall customer service. It can identify appropriate thresholds for new product introductions that emphasize profitability without portfolio creep.
Promising Products
McKinsey research has shown that top CPG companies obtain about three quarters of their revenue growth from just 13 percent of their products. At the other end of the spectrum, for about 25 percent of companies it requires one third of the product portfolio to generate 75 percent of revenue. Clearly, there is real value in concentrating on the most promising products rather than becoming distracted by the many.
Main Management Takeaway
Assortment optimization and ABC segmentation are two key safeguards against the potential business harm excessive portfolio complexity may wreak in an era of frequent supply chain disruptions and altered consumer buying behaviors.
What To Do Now
In general, understand which current policies and practices are producing more complexity in your supply chain operations. Drivers may include more frequent product launches, earlier retirements and substitutions, and SKU proliferation, which encourages product portfolio creep.
Align your sales and operations planning (S&OP) participants around one enlightened view of the product portfolio. Categorize SKUs by value contribution and volume so that strategic adjustments can be made.
Use data analytics to derive the most efficient product assortments, size curves, and geographical distributions. Calculate and update consumption trends to improve replenishment plans and right-size eCommerce inventory, buffer pools, and retail store stocks.
Forecasting Demand
The global pandemic has altered how, when, and where consumers shop and what they buy. CPG manufacturers are facing newly evolved but seemingly permanent changes to consumer habits.
Some leading CPG companies that once relied on having consumers touch and feel their products now offer apps that allow shoppers to explore aspects of the products virtually. The accelerated adoption of digital technology, a universal move to value products, and a shift to the “homebody economy” and online buying are topological features of an altered CPG landscape that most expect is here to stay – but to what extent will new ways supplant tradition?
Data Imperative
As the CPG world order sorts itself out, accurate demand forecasting becomes an even more critical ingredient in the formula for supply chain success. To model successful new product introductions planners must have unprecedented real-time visibility into changing consumer behaviors – especially since today’s turbulent demand patterns make forecasting using baseline data from prior selling periods even more difficult.
Feedback Loop
CPG products sell at varying paces, driven by seasonal events like back-to-school shopping, holiday gatherings, gift-giving occasions, promotions, and a range of other influences, such as adoption curves and climate swings. Almost everything that can affect demand during a product’s lifecycle has become more uncertain. The planner’s best approach to avoiding stock-outs and heavy discounting is to make intelligent use of real-time data ranging from point-of-sale updates to weather forecasts to telemetry from smart IoT devices in the field. The goal is to exploit the best-available information in creating optimized inventory, distribution and replenishment strategies, then re-tuning them quickly to respond to events unfolding in the marketplace.
What If?
Modeling the end-to-end supply chain – creating a “digital twin” that mirrors its behavior in reaction to changing conditions – gives planners the ability to simulate and game out the likely outcome of potential adjustments to operations. Running a range of different demand scenarios can provide analytical insights that increase the team’s confidence in a forecast that might otherwise be swayed by intuition or opinion.
Main Management Takeaway
Data-driven, AI based demand planning can elevate forecast accuracy and create more confident, actionable decisions throughout the product lifecycle, optimizing product launch potentials, handling the effects of seasonality, quickly reacting to changes in buying patterns, and even preparing to handle unexpected supply chain shocks.
What To Do Now
Create the ability to sense demand using internal and external data streams such as point-of-sale, weather reporting, IoT device telemetry, and more.
Conduct probabilistic forecasting to create a range of plans that are most resilient to variability. Implement AI-driven demand forecasting based on data including historical, product attribute-specific, and industry index.
Auto-select the best forecasting methodology for every product profile. Also incorporate key marketing events and seasonal factors such as price promotions, holiday demand surges, new product adoption curves, and others.
Run exploratory simulations on a digital twin of your supply chain to assess which potential actions will generate the best results given factors such as new market trends, consumer behaviors, and unexpected supply chain disruptions (e. g. geopolitical issues affecting delivery form a major sourcing region).
Sustainability
If the CPG industry represented a country, its carbon-dioxide emissions would be second only to China. Supply chains generally produce more emissions than all other company operations combined.
In an era when many investors and consumers expect to see proactive environmental initiatives from the companies they support, sustainability is drawing lots of C-level attention to areas like carbon reductions and off-sets, eco-friendly packaging, water conservation, sustainable supply sourcing, and more. Examples abound, such as Ikea’s reported success in reducing its overall climate footprint by 4.3 percent while growing the business by 6.5 percent, and Walmart’s stated goal of achieving zero emissions from global operations by 2040. One detergent company concentrated its cleaning product formulation, simplified its packaging, and switched to recyclable plastic to reduce its overall materials weight by sixty percent. Supply chain sustainability practices are a true differentiator: CPG companies that rank as leaders in environmental, social, and governance (ESG) criteria have an 11 percent valuation premium over their competitors.
As CPG companies re-think the value chain of their products, planners are being tasked with better aligning multi-tier supply chain operations with sustainability KPIs. Many are focusing on areas such as product end-of-life management, reusability, and more to prosper within the circular economy while pleasing a demanding consumer base.
Streamlined Inventory
Unpredictable customer demand makes it ever more challenging to right-size inventory. Supply variability, lead time changes, capacity constraints, and production scheduling issues all conspire to push inventory targets higher as each supply chain stakeholder mitigates its fear of stock-outs. As sales, manufacturing, DCs and channel partners all jostle and generate their own buffer stock pools, excess inventory ripples across all stages of the supply chain, from raw materials to WIP to finished goods – causing a deeply wasteful whipsaw effect. Only a unified planning platform using advanced algorithms can model the end-to-end supply chain system and determine the most advantageous amount of inventory to be placed at every node in every tier. Minimizing excess inventory and ensuring that it’s stored in optimal locations not only creates a more environmentally sustainable operation, it frees up working capital, helps raise customer service levels, and contributes to streamlining replenishment and distribution operations.
Many Happy Deliveries
The environmental impact of getting products to customers in the most efficient possible manner is huge. Achieving it requires automated replenishment strategies, optimized warehouse capacity utilization, and streamlined transportation loads and schedules that minimize vehicle emissions and fuel consumption. Linking distribution and logistics planning on a single platform makes it simpler to synchronize order promising with transportation and fulfillment. Orders are converted into intelligent shipments that ensure the right SKUs go to the right warehouses, DCs, retail locations, VMI facilities, and customers’ hands for the least cost and minimum environmental impact.
Main Management Takeaway
As CPG companies adopt sustainability as a supply chain way of life, inventory optimization and the ability to link planning and execution are two keys to reduce waste and unnecessary material cost, streamline replenishment by cutting emissions and conserving fuel while boosting customer service performance at the same time.
What To Do Now
Assess the ways your supply chain team can take advantage of a comprehensive planning platform to optimize stock levels across the end-to-end network, reduce overstocks, and raise sustainability performance. Assess how you can optimize the supply chain network to drive sustainability efforts by taking into account purchase orders, bill-of-materials, and carbon
footprint modeling. Eliminate inventory overages and bottlenecks to streamline operations around product shelf life and sell-by dates. And, consolidate delivery and transportation planning to identify the most efficient routes and delivery options.
Next Steps
There is no one answer to solve all of the supply chain challenges CPG companies face.
To learn more about how our Atlas Planning Platform can help your CPG planning team handle a world of increasing supply chain volatility, please visit https://johngalt.com/schedule-a-demo or email us at connect@johngalt.com to set up a time to talk to one of our supply chain experts.