Mid-Sized CPGs Truly “Stuck in the Middle”

Retail supply chain study uncovers frustration among smaller suppliers with increasing retailer demands

Do the distribution policies of major retailers favor large, Fortune 500 companies over smaller suppliers?  Recent research indicates that they do.  

A KANE-sponsored survey of 110 CPG logistics executives by Auburn University uncovered a perception, among mid-tier CPG companies, that retailers' distribution policies had a disproportionate negative impact on smaller suppliers.  The retail supply chain study explored three aspects of the Retailer-Supplier relationships, including CPG logistics strategies to successfully address retailer requirements.   Download the complete study.  

Retailer-Supplier Alignment

Alignment requires strong communication.  The study indicated that, relative to large CPG manufacturers, mid-tier suppliers do not have frequent, extensive communication with retailers.  Typical quote:

"There is a lack of receptiveness by retailers. They are distant and unwilling to hear our concerns and ideas."

Communication and relationships are more focused on compliance than collaboration.  Smaller suppliers say this creates challenges as retailers change requirements without regard to potential negative impacts.  For instance, the demand for smaller, more frequent replenishment shipments pushes inventory and risk back on suppliers.  Among the logistics strategies CPG companies employ to address the problem of poor alignment is collaborative distribution.   Throughout the study, CPG executives highlighted the key role 3PL providers could play in facilitating alignment with retailers. 

Optimizing Inventory Investments

CPG logistics executives said the most challenging retailer inventory issues were:

1.       Retailer unwillingness to hold inventory

2.       Requirement for rapid replenishment

3.       Expectation of shelf-ready inventory

CPG companies want to implement collaborative inventory replenishment policies with major retailers but they feel besieged by inventory rules and punitive actions for noncompliance.  Typical quote:

"Retailers despise stock-outs but refuse excess inventory, forcing us to hit short lead time and high fill rate targets or face punitive actions."

Mid-tier CPGs feel working with retailers to establish reasonable order minimums, define customized inventory requests, and identify agreeable replenishment practices are in the best interests of all parties.

Achieving Transportation Excellence

The interviewees appreciate the retailers' desire for perfect deliveries and continuous flows but argue that a reduction of overall retail supply chain network efficiency is a major consequence of smaller, more frequent deliveries. CPG manufacturers cited problems with retailer receiving dock backups, unrealistic lead times, and the growing delivery cost burden for manufacturers. Overcoming these barriers will require creative logistics strategies.  Typical quote:

"Retailers expect all shipments to be delivered on-time within a very limited window. Yet, they are unwilling to pay for guaranteed service."

Today, a growing proportion of product is delivered by less-than-truckload (LTL) carriers.  As the diagram shows, this demand for higher-cost LTL delivery disproportionately impacts mid-sized CPG manufacturers.

Major Delivery Methods to Retailers

Among the logistics strategies employed by mid-tier CPG companies is the use of capable 3PLs who can leverage the combined volume of multiple CPG manufacturers into stronger relationships with major retailers.

To read the complete research report, download "Key Supply Chain Challenges of Mid-Sized CPG Companies."