Agility Over Forecasting: Three Steps to a More Agile Supply Chain
For years, forecasting has been a staple of supply chain management, especially within the consumer packaged goods industry. As 2020 has taught us, however, there are events that forecasting cannot even remotely prepare for. Planners have felt the pain during COVID-19, when they’ve had to scrap forecasting models day after day due to the constant, abrupt shifts in demand.
Today, CPG companies continue to face these same shifts in customer buying behavior, sudden pivots to new product delivery channels and fluctuating capacities of the external supply chain partners they rely on to fulfill customer orders. According to an October 2020 Reuters/CalAmp survey, more than half of 500+ respondents representing 200+ shippers “identified ‘lack of clarity on customer demand’ as the biggest supply chain bottleneck they are seeing due to COVID-19.” This statistic is indicative of a new truth: CPGs can no longer survive on forecasting alone.
Instead of relying on fine-tuning forecasting models, CPGs would be far better equipped to manage supply chain disruptions by embracing operational agility. Marc Engel, chief supply chain Officer at Unilever, once stated, “every dollar we spent on agility has probably got a 10x return on every dollar spent on forecasting or scenario planning."
An agile supply chain is always ready to respond to the next disruption or demand shift through digitally enabled visibility and communication between trading partners, rather than relying on adjusting demand forecasts against wild swings in the marketplace.
What does operational agility look like for a CPG and its external supply chain, and how can a CPG engage in the digital transformation that is needed to unlock that agility? Below, we examine three steps CPGs can take to bring this heightened level of responsiveness to their external supply chains.
Step 1: Digitally enable your network of external supply chain partners.
For CPGs, today’s volatile consumer market severely exacerbates the already complex and herculean task of managing a network of external supply chain partners. The traditional paradigm of managing multiple supplier tech platforms, as well as the myriad data communication modes, necessitates a new, technology-driven solution.
Digital transformation is the ideal solution to that problem. A digitally enabled external supply chain network benefits both CPGs and their external partners, such as contract packagers and manufacturers. For suppliers, a digitalized production floor results in instantaneous data access, streamlined workflows, and more efficient operations. This is an evolutionary leap from relying on traditional tracking methods, such as paper-based forms and spreadsheets, which struggle to accurately and efficiently track production on the shop floor.
By replacing outdated production workflows with a cloud-based solution that can digitally track shop floor production and inventory availability, external suppliers can share this data to CPGs not only for stronger collaboration, but to set themselves apart as supply chain partners of choice as well.
What CPGs gain, on the other hand, is real-time data shared by these suppliers on a centralized platform. For CPGs, having accurate supplier data is essential to managing an efficient network, from materials planning to supplier capacity for new projects. Each side of the partnership wins.
Step 2: Leverage real-time data visibility for clearer, more responsive communication.
For CPGs, network visibility is key to responding quickly and effectively to market shifts and disruptions—and only a digitally enabled supply chain network can deliver and act on this real-time visibility.
Using the digital data that flows from external suppliers, CPGs are able to track their ongoing projects in real time. In addition, they are able to assess which suppliers in their network have the capacity to respond to last-minute requests, such as special or rush orders.
When operating on the same digital platform, both the CPG and its external suppliers can communicate through a single channel, removing redundant contact points such as e-mail chains and games of phone tag, which can cause confusion and errors that are especially costly in such a fast-paced environment.
By leveraging real-time data on a centralized platform, CPGs and their external networks gain unprecedented levels of clarity and responsiveness, allowing them to remain agile and ready to respond to a chaotic market.
Step 3: Take advantage of a digitized network for more effective collaboration.
A digitally transformed external supply chain can deliver a swathe of operational and financial benefits resulting from greater agility. However, one of the greatest benefits is strengthened relationships between a consumer brand and its external suppliers.
By sharing data and working together to fulfill orders, mutual trust is built, and both sides of the relationship win. CPGs can reconfigure their supplier setups to best suit their ever-changing order requirements, while suppliers can demonstrate their flexibility to meet those requirements. An “always on” digitally enabled ecosystem is how true operational agility is achieved.
The era of relying on forecasting alone has passed. Today’s consumer environment presents unprecedented levels of unpredictability and volatility for CPGs and their external supply chain networks to overcome. Technology is critical to maintaining preparedness amidst this chaos, and digital transformation is imperative to establishing the levels of operational agility needed to survive and thrive in this new era.