For companies operating in the consumer packaged goods (CPG) industry, 2014 marked the start of a difficult time, especially with growing supply chain challenges that have been augmented by greater uncertainty around the state of OTR transportation. Due to this, the industry has witnessed several hard-earned supply chain gains being washed away by external factors. Moreover, rising expectations and demand from consumers are translating into SKU proliferation as well as growing number of retail channels. This has further lead to operational complexity. While these issues are real and should be dealt with now, only very few companies have managed to overcome these supply chain pressures and emerge with solutions that balance supply chain costs as well as service levels. Some of the measures adopted by companies managing to successfully handle these supply chain issues include consolidating shipments and shifting towards drop trailers. Moreover, companies are also making more strategic shifts, such as adopting intermodal transportation at a greater rate and cutting down on distribution centers (to ship directly from plants) to improve supply chain efficiencies.
CPG companies are witnessing intense pressure throughout their supply chain, from raw-material supply to shipping finished products to distribution centers, wholesalers, as well as retailers. While some of these pressures accrue from the customer end, others arise from intensified inorganic growth in the industry, as well as the ongoing transportation shortage (especially in case of ‘over the road’ (OTR) transportation). This has further resulted in higher freight costs for shipments and is also forcing companies to maintain higher inventory levels (especially to outweigh the transportation crunch).
As the CPG supply chains have been shedding many of their gains owing to ongoing complexities, companies must come up with long-term strategic solutions to handle supply chain pressures. While short-term solutions may help companies overcome cost pressures temporarily, they may not provide companies with a holistic solution that helps balance supply chain costs and service levels. Therefore, companies may need to commit to long-term strategic solutions such as collaborative supply-chain approach and network redesign to unlock supply chain efficiencies.