CPG Success: Top-Shelf Solutions
To succeed in a challenging omnichannel marketplace, successful CPG businesses are reaching for efficient manufacturing operations and new supply chain and transportation models.
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Campus Protein's (CP) current supply chain highlights just how the consumer packaged goods (CPG) industry has changed over the past 10 to 15 years. CP produces and markets nutritional supplements, healthy snacks, and related items, primarily to college students but also to the general public. The company's sales take place entirely online. Most are through its own website, although CP's private label products also are available through Amazon. "Our model always has been a virtual retail store," says Russell Saks, chief executive officer.
Orders are entered online and routed to one of the eight CP distribution centers in the United States, whichever is closest to the customer. "We've spent a lot of time on logistics and making sure shipments get to customers expeditiously," Saks says.
On each campus where CP has a presence, the company's online platform notifies student "campus reps" of orders. The reps follow up with customers to answer questions and provide additional product information.
Campus Protein also offers "CP Select," a program that allows customers who pay an annual $50 fee to obtain free shipping on their orders.
As Campus Protein's story illustrates, profound changes are taking place within the supply chains of most CPG companies, including the rising dominance of e-commerce and the proliferation of delivery channels. While these shifts are impacting most companies, CPG firms have been hit harder than many others.
"CPG companies are shifting to a new environment," says Guy Bloch, chief executive officer with Bringg, which offers a delivery logistics technology platform. "They're running fast and figuring out how to handle new challenges."
The areas where many CPG customers have dominated, such as the aisles of most grocery stores, account for a shrinking portion of consumer sales, says Nate Rosier, vice president, strategy consulting, with enVista, a consulting and software solutions firm. Not only are more consumer purchases moving online, but many retailers are dedicating more space to upstarts and local firms. That leaves many companies fighting over a shrinking amount of in-store real estate.
Many retailers also are attempting to move closer to a just-in-time inventory approach. "They don't want to hold inventory but they certainly want it available," says Mark McEntire, senior vice president of operations with logistics management solutions firm Transplace.
Most also want their goods delivered within a tight time frame. That can be a challenge when a hiccup throws off a CPG's production schedule, or congestion at the retailer's dock forces a driver to wait to unload.
The Endless Aisle
Online sales channels present their own opportunities and challenges. The "endless aisle" available online means retailers can offer vastly more stock-keeping units (SKUs) than most physical stores can hope to. While that offers CPG companies more opportunity to sell their goods, it also boosts supply chain complexity and makes it difficult to maintain productivity on the factory floor. "Manufacturing lines that used to run five to 10 SKUs now run 15 to 20," says John Knapp, partner and managing director with Boston Consulting Group.
The rise of online marketplaces, and particularly the behemoth known as Amazon, is a similar mixed blessing. Online marketplaces offer access to millions of customers, yet CPG companies that sell through them risk losing control of their customers' data and loyalty to the marketplaces. "The CPG company becomes a dark kitchen or warehouse," Bloch says.
Strategies for Success
To succeed in this changed environment, CPG companies need a supply chain strategy that allows them to meet customers' growing preferences to make purchases across multiple channels. These strategies include online orders for home delivery, buy online pickup in store (BOPIS) orders, purchases in physical stores, and purchases made through the companies' own websites and catalogs and via online marketplaces.
As if that wasn't complicated enough, CPG companies also need to offer delivery options that range from nearly immediate—perhaps by bike or car—to one or two days. "Buyers are channel-agnostic and expect to interact with a brand seamlessly across all channels," says Bobby Banerjee, vice president, program management with logistics provider Kane Is Able.
As more retailers move toward a just-in-time inventory approach, ensuring factory operations remain on schedule becomes even more critical for CPG companies. Both advanced manufacturing technologies and traditional manufacturing levers, such as minimizing change-over time, can help.
For instance, today's sensors and data solutions can detect why a manufacturing line stopped, with a high enough degree of accuracy that the company can conduct preventive maintenance to minimize the risk that it happens again. Moreover, many sensors can be deployed on traditional manufacturing lines.
Today's sales and operations execution (S&OE) solutions can connect systems that previously didn't talk to each other, thus enabling real-time decision-making. One example: Rather than carrying large buffer stocks of inventory in case bad weather prevents a delivery truck from completing its route, a CPG company can combine communication technology and GPS solutions to change the truck's route to avoid the bad weather in the first place.
Even as a greater number of SKUs move through factories and warehouses, few CPG companies can afford to throw more labor at their processes. Instead, they need to leverage technology, such as drones that can count boxes on the shelves and check inventory levels, says Glenn Richey, professor of supply chain management at Auburn University.
Some solutions providers are seeing a resurgence in interest in radio frequency identification (RFID) solutions to track items through the warehouse. Unlike barcode applications, RFID doesn't require line-of-sight between the user and the RFID tag.
Moreover, RFID labels that cost more than 30 cents 10 to 12 years ago now can cost 10 to 12 cents each, notes Tim Wills, chief marketing officer with Peak-Ryzex, a provider of solutions for digital and mobile environments.
Another solution that's capturing interest is printer applicators. Effectively scaling a manual label-application process is nearly impossible. "Machinery that automates the application of labels to boxes in line for outbound shipping reduces the human labor required," Wills says.
To meet customers' demands for ever-shorter delivery times, Campus Protein and other CPG companies are locating distribution centers closer to large consumer populations. Many CPG companies also are leveraging technology platforms that allow consumers to choose from a variety of delivery options.
When it comes to transporting the goods, companies need to "commoditize the delivery market," by leveraging multiple delivery options, Bloch says. While this approach isn't new, the options have multiplied to include ride-sharing apps, as well as delivery companies like Shipt. The goal is to combine delivery methods to meet customers' preferred delivery time frame, while also minimizing costs.
No matter the delivery method used, CPG companies boost their opportunities for future sales and brand loyalty when they hold onto their relationships with their customers, rather than allowing a partner to get in between them. "It's your customer and your brand," Bloch notes.
Even as direct-to-consumer sales account for a larger portion of many CPG companies' sales, most will continue to sell through retailers. That requires IT systems sophisticated enough to comply with the varying rules—say, dictating where on the box the label should be placed—set by each retailer, says James McArdle, managing director, United States and Canada, with Stokke, a children's products manufacturer. "There are many areas for potential errors," he says.
Receiver of Choice
To meet retailers' demands for deliveries that fall within a narrow time window, CPG companies may have to collaborate with them to improve conditions at their docks.
"We hear so much about being a shipper of choice," says McEntire. "But no one talks about the other half: being a receiver of choice." That means addressing obstacles such as dock congestion and limited receiving hours.
Many CPG companies want to collaborate more with retailers to address these challenges, McEntire says. However, few CPG firms come from a position of strength. Effecting change may require several companies joining forces to discuss these challenges with retailers and work for change, he adds.
Even as systems and solutions become more advanced, qualified partners remain critical. An employee with Kane Is Able, Stokke's logistics partner, realized a third-party supplier to Stokke was sending items without UPC barcode labels. Had the employee not pointed this out, the products likely would have been shipped to retailers, rejected, and charged back.
"'Doing things right the first time' is cliché but it makes all the difference in the world," McArdle says. That single mistake, if not corrected, would have led to lost sales and increased costs.
Swift, Accurate Transportation
Once CPG items are in transit, speed and accuracy remain key. To achieve these twin goals, CPG companies need to combine multiple delivery alternatives to optimize deliveries based on urgency, location, and demand. For example, a restaurant chain might operate its own fleet of trucks but also use a third party or crowdsourced solution, such as Uber or Lyft, during peak times.
Given that many CPG products are time sensitive, tracking them while in transit is critical. Indeed, many CPG products, and particularly food items, face increased scrutiny and heightened expectations for traceability as they move through the supply chain.
Technologies such as telematics—an interdisciplinary field encompassing telecommunications, electrical engineering, and computer science, among others—can provide accurate information on location, route, fuel levels, and the delivery status of goods, says Angad Singh, senior manager with SpendEdge, which offers procurement market intelligence solutions.
Telematics also can issue timely alerts on truck driver actions, including unscheduled diversions and speeding. "That information helps lower overall logistics-related risks for CPG companies," Singh adds.
A natural next step after immediate delivery is readying orders before customers actually place them, using the concept of "predictive shipping." Amazon reportedly has a patent on a predictive shipping solution that will use customers' previous shopping history to have orders waiting and ready to go.
Predictive shipping actually has been done before, notes Auburn's Richey. One simple example: stores stocking winter boots and coats in the fall, and swimsuits in the spring.
The idea now is to raise this a level by using customers' shopping history to predict future orders, and then readying the goods for shipment. Say a consumer orders paper towels every other month. A company leveraging predictive shipping would stock the goods near the customer and send them out the instant the order is received. Or, under a subscription model, it could offer a discount to customers who accept delivery for a set number of orders at regular intervals. "It involves getting ahead of consumer behavior," Richey says.
Another way CPG companies can remain ahead, or at least abreast of, their customers' behavior is by monitoring social media conversations about their brands, capturing online consumer sentiment, and applying it to their demand forecasting solutions, says Harish Iyer, vice president, industry and solutions marketing with supply chain firm Kinaxis.
For example, if an Instagram post about a new ice cream flavor generates lots of positive buzz, the ice cream maker can use that information to adjust its demand forecast for the product.
Checkers to Chess
The changes and complexity buffeting CPG businesses show no signs of letting up. They're forcing CPG companies to move from "playing checkers to playing chess," Rosier says.
CPG companies that embrace the changes can succeed. Campus Protein, for instance, started eight years ago in a dorm room at Indiana University. It now has a presence on nearly 300 college campuses.