CPG manufacturers are faced with an ever-changing set of demands from their retailer customers, and small to mid-sized businesses (SMBs) are feeling the bite perhaps most of all. These SMBs seek more collaboration with retailers, but they have limited influence over retailers’ supply chain practices, and scant resources to invest in supply chain technology.
According to a study by a research team at Auburn University, sponsored by Kane Is Able, retailers are more performance-driven than ever, and less forgiving of supply chain slip-ups. In particular, demand-planning, inventory, and transportation have become areas with no margin of error.
The report, “Key Supply Chain Challenges of Mid-Sized CPG Companies,” focuses in part on Collaborative Alignment: How do CPG manufacturers and retailers jointly pursue key supply chain requirements?
The research found that barriers to effective collaboration are rife. Size is one significant barrier, as retailers tend to focus on the suppliers that provide the largest proportion of their products, which tend to drive their revenues. Mid-sized CPG companies report they struggle to convince the retailer to invest energy in the partnership with an organization of their size.
In spite of these challenges, the CPG executives interviewed for the report strongly believe that stronger collaboration with retailers would generate value for all parties. Specific strategies that survey respondents suggested were:
As retailers are demanding smaller, more frequent deliveries of products, the pressure is on CPG companies to be more responsive. But the option of increasing inventory levels at CPG distribution centers to ensure rapid replenishment is not an economical one for mid-sized suppliers.
Stronger demand forecasting from the retailer would help mid-sized CPG companies comply with replenishment requirements in a cost efficient manner. As forecasting capabilities are enhanced, demand becomes more predictable. This helps production planners accurately assess and respond to demand. The outcomes are higher fill rates, service improvement, and waste reduction.
Investing in technology
To achieve greater collaboration with retailers, leading mid-sized companies are making strategic investments in their supply chain capabilities. Software and technology get most of the capital dollars available, ahead of investments in training and facility improvements.
Logistics Technology system upgrades enhance connectivity, and help synchronize supply chain processes. This, in turn, allows CPG manufacturers to receive crucial data in a timely manner, enhancing overall planning and execution capabilities. One mid-sized CPG even convinced retail customers to give the company access to POS information, arguing this leads to greater sales, through improved forecasting and fewer stock outs.
Collaborative Distribution involves multiple retail suppliers getting together to combine shipments moving to the same retail distribution centers. Often this is facilitated by a third party logistics provider that stores inventory for participating suppliers.
Nearly 72 percent of the CPG executives interviewed said they plan to maintain or increase their use of collaborative distribution, and almost 46 percent of companies without previous collaborative distribution experience said they planned to explore the strategy.
But it’s not always easy. Many cited difficulties in achieving sufficient levels of communication with partners; others identified the ability to achieve interconnectivity among program participants as a key to success. Several also believe it can be difficult to identify program partners with common goals and attributes. That’s where a 3PL can be instrumental in acting as a dating service for the grocery supply chain.
The benefits of collaboration between suppliers and CPG logistics service providers are clear. It enables SMBs to move the same volume of goods to retailers in fewer, fuller loads. That reduces freight costs while maintaining service levels for all participants. It also shrinks the carbon footprint of all participants.
For more ideas about how to improve operations between mid-sized CPG manufacturers and retailers, read the full report.