Real-Time Supply Chain Challenges in the CPG Sector
The changing needs of the customers over the years have encouraged companies to embrace digital solutions to meet their demands. The market getting flooded with multiple products under the same segment adds to the challenge. Customers are also switching between brands based on price compatibility, convenience, variance, and immediate availability. It has become imperative for companies to understand their customers and transform their supply chain to continuously align with the varying demands.
A simple supply chain model based on consumer demand is not cut out for the modern world that involves complicated processes and multiple decision-makers and stakeholders. Over the years, the traditional method of the supply chain has been replaced with several technology-driven tools and software solutions. Though they have adopted the new digital technology, companies continue to face issues such as excess inventory or lost sales. This is because they fail to understand the nuances of the tools they use and also because they fail to train their workforce to best utilize the available technology. The result is a decline in the profit margin and company share, which is just a part of the challenges faced by companies.
We now discuss a few key challenges faced by the CPG sector’s supply chain professionals and the best way to tackle them:
- Conflicting KPIs: As each department is measured on different KPIs, the overall strategic goal of the company is overlooked. To create an efficient supply chain strategy, key stakeholders need to align themselves with the KPI measures. For a sales team, a crucial KPI is its set sales target. If they push out the fast-moving SKUs without focusing on the slow-moving ones, it creates a barrier that piles up the inventory on the slow-moving SKUs. This can also lead to a stage where the safety stocks on the fast-moving SKUs are depleted more quickly. If more focus was given to the inventory getting stacked up and combined with an effort to liquidate the stocks, companies could easily solve this situation and create better results.
- Seasonal demand fluctuations:During the festive seasons, certain products are highly promoted while the rest are given lower priority. This is because the distribution centers believe that these priority products can give them higher sales. This leads to space constraints in warehouses, and the reception of low-priority stocks is either limited or gets pushed to distant locations. Such situations that lead to additional warehouse costs or transportation costs need to be tackled with the overall objective of the organization in mind. Only then can the operations run smoothly without forgoing their primary objective.
- Lack of visibility and collaboration: The end-to-end supply chain model involves multiple business partners and tiers of the organization. Therefore, a lack of visibility between any sections in the supply chain can disrupt the efficiency of the supply chain. For instance, when launching a new product, if the same information is not passed on to the other levels of the supply chain, it creates inconsistencies in the communication and delays the time-to-market. And if the products don’t reach the market as planned, the promotional events/items will lose sales, in turn leading to high inventory. Organizations must ensure proper coordination between the departments to avoid losing their consumers or damaging the brand image. Anticipating similar situations and having an alternative plan to tackle them is another way to ensure a smooth transition of the launch.
- Inability to forecast and react: At times, the lead time for SKUs may exceed the forecast. If there’s a long lead time for high-demand SKUs, especially those that need to be transported from geographically distant locations, the SKUs may run out of stock. Similarly, returned items that are not sold after the lock-in period will have a shorter shelf life and may have to be written off. When dealing with consumer products, there should always be a contingency plan that ensures a shorter lead time. Demands can be monitored on a regular basis and corrective action can be put in place so that companies can respond to the fluctuating demands faster.
The supply chain is an intricate value chain and if managed well, it can make or break a business. At present, an organization’s success is no longer dependent on its own efficiency. What matters most is how well they can integrate the supply chain network and evolve to best optimize the operations.
A majority of the issues including transportation, inventory, supply planning, demand forecasting, and such boil down to one major point – data. Technology that can handle large volumes of data across the network can ultimately lead to better business results. The SAP Integrated Business Planning (IBP) tool can help you keep up with the complex dynamic market structure and connect all the stakeholders to derive an optimal supply chain planning process. Talk to us today to know how we can help you leverage SAP IBP to create an efficient and integrated planning process that profitably aligns demand and supply.