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Freight Transportation

Inventory Optimization Can Be a Struggle for Mid-Sized CPGs

Alex Stark | August 25, 2016

The relationship between large retailers and their suppliers is changing in ways that are hard to predict. One thing that isn’t so hard to predict is the need for these supply chain partners to collaborate more, and better, than they ever have before, particularly in the area of inventory optimization. According to a study by a research team at Auburn University, sponsored by Kane Is Able, unless both organizations articulate a workable plan, there is great potential for conflict, misalignment of supply chain priorities, and a failure to achieve key goals.

inventory optimization ensures shelves are stocked without excess safety stockThe report, which surveyed 110 high level logistics executives at CPG companies, found that these manufacturers are struggling to adapt to retailers’ move toward lean inventories. Mid-sized companies are disproportionately affected by this retailer requirement, with nearly 50 percent citing this concern, compared with just 34 percent of large CPG companies surveyed.

Inventory velocity – or rapid inventory replenishment – is another key concern among CPG companies. Together, these two primary retailer inventory strategies have huge repercussions for CPG manufacturers. They must hold more stock, make frequent deliveries, and replenish inventories in small lots.

Smart CPG manufacturers are enacting internal processes to better align their operations with those of the retailers they serve in order to improve inventory optimization. The Report summarizes three strategies being deployed.

Improve Internal Processes

Simply pushing inventory back along the supply chain to the CPG manufacturer doesn’t improve overall efficiency. It just shifts the burden. Said one survey respondent:

“Retailers despise stock outs, forcing us to hit short lead times and high fill rate targets or face punitive actions.”

So CPG manufacturers are sinking money into technology to meet retailer-required service levels with less inventory. By leveraging systems and gaining access to retailer demand data, CPGs are improving forecasting and planning capabilities. 

Collaborate with Major Retailers on Inventory Optimization

Collaborative practices such as CPFR and VMI create valuable benefits when retailers and CPG manufacturers work side by side to address an inventory or stocking issue. But that level of collaboration is hard to find, particularly when it comes to smaller suppliers. Said on CPG manufacturer in the survey:

“We need a dialogue of continuous improvement. We need to work together with retailers to fix the issues rather than creating a menu of fines that become a revenue stream for retailers.”

Work with Capable 3PL Providers

Many CPGs are leaning on 3PLs to assist with inventory optimization and replenishment. 3PL providers can help by offering consolidation opportunities that allow delivery service levels to be maintained at a reasonable cost. In addition, mid-sized CPG manufacturers can use CPG logistics providers to leverage their strong, ongoing relationships with key retailers. Said one smaller supplier: 

“Retailers can be difficult to deal with because they hold all the cards. We find that 3PLs, because they work with retailers on behalf of numerous clients, can help us successfully manage the retailer relationship.”

Retailers’ relentless drive for efficiency requires a continuous balancing act by CPG companies. They must provide sufficient service levels while efficiently complying with many retailer requirements. For tips, suggestions and examples from other CPG companies about how to successfully walk this tightrope, read the full report:  Key Supply Chain Challenges of Mid-Sized CPG Companies.

 Auburn Kane CPG Study