Maine Pointe examines seven supply chain challenges facing CPG firms
From trade wars to sustainability demands and operational challenges, consumer packaged goods companies will see their supply chains pressured by a number of factors in the coming period.
Consumer packaged goods (CPG) firms are facing a wide variety of challenges as technology and changing consumer preferences converge. Dining out, meal kits, and food delivery services are siphoning dollars, especially from the pockets of younger consumers. Increased online shopping is also making life more difficult for the large CPG firms that control the customer experience within grocery stores, but have less influence on e-commerce sites.
The rise of dollar retailers, deep discounters, and retailer private label brands are as well squeezing CPG margins. Increasing consumer concerns around health and wellness, and preferences for “small” brands and “local” products is a worrying trend for large CPG firms, products from which are sometimes seen as processed and unnatural.
In addition to these challenges, CPG firms are facing a wave of supply chain-related issues. According to a recent report from global supply chain and operations consultancy Maine Pointe, there are seven major factors that will force CPG execs to institute tough changes: trade wars, globalization, transportation and logistics challenges, digitization and Industry 4.0, supply chain complexity, innovation, and sustainability.
With the US-China tariff and trade war under ongoing negotiation, uncertainty still hangs over the free trade system that global supply chains rely on. Maine Pointe recommends CPG firms examine new opportunities with new partners in emerging markets to increase their odds of success.
Because of those globalized supply chains, companies will have to remake intricate networks to compensate for shifting trade relationships. That includes reevaluating existing partnerships or using new acquisitions to reach more consumers, while gaining access to new sources of raw materials.
Transportation challenges will also impact companies, as new regulations and a shortage of over-the-road drivers impact logistics operations. If firms find new sources of raw materials, they’ll also have to negotiate new transportation deals.
Digitization and Industry 4.0 hold great promise, while also offering challenges in implementation. According to Maine Pointe, effective Industry 4.0 strategies can help CPG firms achieve growth through faster and more accurate order fulfillment. Data and analytics can also help optimize customer engagement and better influence customer purchasing.
“CPG companies will need to gain a deeper understanding of the consumer (their customers' customers) and leverage data analytics to get a handle on the rapidly changing demands of those consumers,” Rex Clothier, vice president and industry partner of CPG at Maine Pointe, said.
Upheaval in the supply chain will furthermore lead to greater complexity. Firms should seek to simplify their "buy-make-move-fulfill" supply chain to create greater value, according to the consulting firm. “Companies will need to find more ways to create value and reduce complexity in their value chains without having to pass the additional costs on to price-sensitive consumers,” Clothier said.
The company also sees innovation as a better approach to achieving growth than simple cost-cutting. Maine Pointe expects many CPG firms to take an agile approach to the development, testing, and iteration of innovative ideas.
The demand of consumers, especially Gen Z and millennials, for sustainable products and packaging is adding pressure on the CPG sector. Packaging can account for 60% of the bill of materials for CPG, while also playing a large part in its success. Firms will have to balance the functional, aesthetic, and branding requirements of their packaging with consumer demand for eco-friendly design.
In addition to the seven supply chain factors, Maine Pointe expects CPG firms will have to also battle rising raw material costs, stalled demand, declining profits, retail pricing pressure, and shifting consumer preferences.
“Being prepared, despite challenges and obstacles, is key. Stress-testing the supply chain will help ensure that companies are able to withstand these challenges and take advantage of new opportunities,” Clothier said. “By asking the right questions, CPG executives can transform their biggest supply chain challenges into opportunities.”
Related: Rex Clothier to lead consumer packaged goods arm of Maine Pointe.
