CPG companies are behemoths that, after decades of operating a successful growth model, are struggling to adapt to business trends disrupting the FMCG market. The ubiquitous digital media, the rise of e-marketplaces, the explosion of small businesses, and a more conscious consumer are some of the trends putting a strain on the supply chains and business models of CPGs.
Digitization of the Supply Chain
Digitizing the customer experience is the tip of the iceberg when it comes to transforming the supply chain. It is not, however, enough. CPG companies must leverage relationships in their entire supply chain and have robust supply management solutions to meet their customers’ changeable needs.
They need to apply strategic procurement principles and ensure their supply chain partners join them on the digital bandwagon. This will help spur supply chain optimization and ensure top-down transparency and accountability.
Cost-Cutting V.S. Innovation
CPG companies are built on a cost-focused, low-margin model. This model is limiting for growth because there is not much room left to drive costs lower. Instead, businesses will have to turn to innovation and bold, new strategies to spur growth. An agile approach to product development with a huge focus on customer collaboration and response to change will enable CPGs to grow and disrupt the marketplace.
Long gone are the days of consumers purchasing whatever is in their local stores unquestioningly. There is a wealth of information and options at their fingertips. This gives the consumer the power to put pressure on CPG companies to prove sustainability in sourcing and packaging.
Considering that packaging can make up 60 percent of a product’s bill of materials, it will have a huge hand in product success. Consumers are also much more sensitive to value and brand purpose which will force many CPGs to reevaluate the way they do business.
The Rise of Small Brands
Speaking of brand ethos, smaller brands with more flexibility, innovation, and attractive brand values are growing four times as fast as the giant CPGs. This poses huge challenges in CPG supply chains which might have to re-engineer intricate supply chains to allow them to tap into the growing consumer niches.
Asia is poised to generate 50 percent of the world’s private consumption by 2029. This is just one emerging market that CPG supply chains will have to grow and adapt to service. This will mean new strategic relationships and contract negotiations to allow the businesses to source and build bases in new regions. It will generate logistical nightmares that will need to be addressed for growth to be realized.
Supply Chain Optimization
CPGs will need to shift priorities from price management to value creation in order for their supply chains to reach peak efficiency. Investment in customer-centric supply chain management software and demand solutions is the way forward for CPGs to weather these challenges and thrive in the new model.