Digitalization, resilience and innovation are critical to CPG supply chain success.
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Driving Supply Chain Excellence in Consumer Products
New SKU strategy reduces supply chain risk, optimizes capacity in CPG industry
Reducing product variety is good for supply chain agility. But managing SKU complexity is even better. New research from Gartner profiles the consumer products supply chains that are reimagining portfolio management and improving profitability as a result.
Download the report to learn:
Seven ways to improve your SKU optimization process
How to work with business partners on SKU retirement and SKU development
The top 5 barriers to consumer products supply chain success
Success in the CPG industry demands agile supply chain management
To support dynamic industry shifts, the consumer goods supply chain is accelerating transformation, particularly around digitalization, increasing resilience and adapting operating models.
- ESG Progress
- Supply-Chain-Led Growth
- Digital Talent
Their ESG commitment unmatched, CPG supply chains must now scale sustainability
Consumer products companies are leading those in other sectors on prioritizing and collaborating for supply chain sustainability.
CPG is a standout industry in the usage of sustainable materials for recycling: 55% of CPG supply chains are already investing in this area compared to an overall average of 47%. As a package-dominated industry liable for a large percentage of consumer waste across the globe as well as from their own manufacturing waste and supply chain issues, CPG has taken a strong position to not only use raw materials responsibly, but to also reduce packaging overall.
Another notable area of supply chain transformation where CPG is pulling ahead of other industries is sustainable sourcing: 56% of consumer products companies (versus 46% overall) are exclusively choosing suppliers and vendors with merit in ESG principles and performance. Consumer products companies anticipate customer expectations for social and environmental impact across the breadth of the value chain, not just a discrete enterprise’s supply chain; this includes how products and services are sourced, made, packaged, delivered, returned and destroyed.
That said global chief supply chain officers (GCSCOs) must prepare to transition from ambitious action to authentic achievement of social responsibility and environmental sustainability. CPG lags the overall average in sustainability‑as‑a‑service business models: Overall supply chains had a 43% investment rate, whereas CPG supply chains had a 38% investment rate in circular ESG capabilities. Consumer products companies fall short of the overall average in two other ESG capability investments: remanufacturing and used product take back/returns. Success will require a balanced portfolio of incremental and transformational investments in supply chain sustainability.
Digital solutions drive efficiency and profitability from CPG supply chains
The volatility of inventory and customer demand makes real-time decision making vital to the consumer goods supply chain. CPG companies are investing at higher rates than those in other sectors when it comes to smart factory, demand and supply synchronization, digital twin and prescriptive analytics — all supply chain technologies capable of accelerating real-time operational execution.
The consumer goods industry is lagging, however, in microfulfillment (20% investment compared to an overall average of 24%). Consumer expectations are changing all the time, so CPG must adapt its supply chain operations to enable late-stage product differentiation — specifically personalized, purpose-driven products and services that can be delivered anywhere, at any time and in any supply condition.
Yet it’s vital that supply chain strategy balance improved customer experience with cost control. Gartner research shows that too much complexity in the portfolio is the No. 1 obstacle to resilience for consumer goods supply chains. (Other barriers include: balancing trade-offs between supply chain risk management and supply chain cost optimization; organizational silos and contrasting metrics across different functions; investment costs; and lack of advanced digital technologies for increased visibility and coordination.)
Supply chain leaders can learn to align the end-to-end supply chain to customer-needs-based segments to balance cost, responsiveness, flexibility and agility, so differentiated supply chain service can be delivered reliably at scale with profit.
Incorporating customer experience data into supply chain KPIs is a good way to start. This governance will shift the organizational culture to drive customer-centric decision making. Furthermore, consider integrating the customer data that your organization has been gathering for decades through retailers and POS systems into the master data management system. This insight enables better supply chain planning and inventory.
Building scalable capacity (e.g., online order fulfillment, returns) will require investments in supply chain process optimization and technology. Thus it’s critical to follow consumer trends and technology advancements.
Exploring opportunities to grow the top line through commercial innovation should also be an ongoing exercise. Commercial innovation is the development of new and different offerings that go beyond the product. For example, selling customer data to organizations interested in servicing those customers with adjacent products or services; this is an area in which most CPG supply chains lag the overall average. Top CPG supply chains are thriving despite intense cost and margin pressure and commodity disruptions by not only innovating new business models, but also raising prices as costs climb and driving operational efficiencies.
Leading consumer goods CSCOs align talent strategy to the digital roadmap
CPG manufacturers learned throughout the COVID-19 global pandemic that future supply chains will be operated out of flexible workspaces and through automated systems. It’s not surprising then that the consumer goods industry is more focused than any other on reducing reliance on the frontline worker. In fact, 61% of the consumer goods industry is investing in smart manufacturing and supply chain hyperautomation, compared to just 47% of industries overall.
But so far, these technology investments have not markedly reduced reliance on the frontline worker; many are augmenting existing human tasks or decisions.
As such, it’s imperative that chief supply chain officers (CSCOs) in the consumer goods industry attract talent from the scarce and expensive labor pool who exhibit business acumen. CPG supply chains need talent who can partner cross-functionally to make more end-to-end decisions, inform their decision making with data and have a process improvement mindset. Expertise in supply chain management is table stakes. For competitive advantage, the supply chain organization needs talent who possess financial acumen in the form of customer and commercial understanding.
Leading consumer goods CSCOs are aligning their supply chain talent strategy and digital roadmap to address this need. The number of consumer goods companies that are upskilling and reskilling employees corresponds directly with the number that are investing in automation.
More can be done, though. CPG supply chains lag other industries in promoting intentional collaboration among staff. Intentional collaboration, along with flexibility and empathy-based management, is critical to the development of a competitive workplace. Investment in this area must be prioritized to prevent consumer products from falling behind other industries and losing the opportunity to attract and retain top supply chain talent.
Bottom line: Over the next decade, digitalization will be felt across the entire CPG supply chain and will significantly impact most supply chain activities, requiring new skills and competencies.
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FAQ on the consumer goods supply chain
Why is supply chain management important to the industry?
Considerable investment is being made by consumer goods companies in supply chain agility and resilience. Agility enables better demand planning. Resilience is the ability to adapt to structural changes by modifying strategies, products and technologies. An agile, resilient supply chain helps a consumer goods company optimize its operational processes, digitalization efforts, product portfolio and network design.
Why is supply chain transparency important to the industry?
Supply chain transparency is what makes supply chain agility and resilience possible. Capturing data from your end-to-end supply chain with precise detail enables: faster, more accurate decision making; mitigated risk; improved prioritization; streamlined inventory; and greater customer satisfaction. Eighty-seven percent of consumer products companies are investing in supply chain visibility and mapping technologies with the goal of increasing agility and resilience.
What makes consumer products supply chain management hard?
Historically, consumer products supply chains focused on efficiency. In 2020, we saw a shift toward supply chain resilience and major digital transformation. As the COVID-19 global pandemic progressed, many CPG manufacturers added a focus on adaptability to emerging supply chain disruptions (e.g., e-commerce, D2C). Future consumer products supply chains must balance investments in efficiency, resilience and adaptability to drive profitability and build capacity to recover from disruption.
Is consumer products supply chain management sustainable?
The top consumer packaged goods companies in the Gartner Supply Chain Top 25 boast an average ESG score of 9.8 out of 10 — better than the 8.8 overall score. This reflects the industry’s significant investments in key areas of the global supply chain:
Recycled material usage
Sustainable sourcing
Inclusivity, diversity and pay equity of supply chain talent
Supply chain employee mental health and well-being
Protection of customer data and privacy
Can tech improve consumer goods supply chain efficiency?
Artificial intelligence (AI), machine learning (ML) and robotic process automation (RPA) are quickly becoming mainstream in consumer goods supply chains as companies prioritize automating as much non-value-added human activity as possible to drive efficiency. Tactical activities (e.g., data exchange) are no longer performed by the frontline worker, but rather by technology. Meanwhile, tech is augmenting human activity related to scenario planning, demand forecasting and manufacturing operations.