The economic downturn had a significant impact on the way individuals and organizations view spending, including the mentality and purchasing habits of consumers. Tightened budgets and less discretionary income left people pinching pennies and looking for any opportunity to save, especially when shopping. Many retailers adjusted their operations to address the purchasing changes of their customers, which, consequently, impacted the consumer packaged goods (CPG) companies that supply them.

The challenge of adapting to the changing needs of consumers and retailers is compounded by the push for CPG companies to become lean and cut costs within their own operations. The effect can be noticed in numerous areas, but three major shifts have greatly impacted CPG companies and the way they operate.

More Private Label and Store Brands – As a way to save money, consumers are looking for cheaper alternatives to the products and brands they’ve historically purchased. While not always true, private label and store brands are often viewed as being less expensive, increasing their appeal to today’s money-conscious shoppers. In order to meet changes in demand, some retailers have gradually increased inventory levels of private and house brands compared with many of the larger, more recognizable CPG brands.

Growth of the Dollar Channel – In addition to changes in the brands consumers are buying, there has been a shift in where they choose to purchase these products. Historically, the majority of consumers would shop at big-box retailers and purchase everything needed for that week, or longer. However, due to reduced spending and more staggered purchases, the dollar channel has grown tremendously as consumers settle for purchasing fewer items at once and making more frequent trips to the store.

Increased Margin Compression – Companies are looking at their entire organizations to find ways to cut costs, and many are identifying the supply chain as a significant opportunity for savings. Organizations are closely evaluating their current operations to identify opportunities to streamline processes, eliminate waste and ultimately reduce supply chain costs, while maintaining high service levels for their retail customers.

These recent shifts only increase the complexity of the supply chain for CPG companies. Forward-thinking organizations are putting processes in place to address these trends and create more efficient, cost-effective supply chains. Outlined below are some of the steps that many leading CPG companies are taking to improve their transportation operations and position themselves for success in a constantly evolving market.

 

Become the Shipper of Choice

The relationship between a shipper and its carrier network can be critical to achieving and maintaining quality, efficient supply chain operations and presents a significant opportunity for margin compression. Shippers should make it a priority to become the top choice for carriers. To do this, shippers must evaluate their transportation management processes and measure what value they bring to the carrier community.

CPG companies should implement carrier-friendly policies, good fuel surcharge programs or consistent freight volumes and convey such capabilities to carriers. They should become collaborative with their carriers as well and encourage innovation. Many are creating incentives for carriers to bring forth innovative solutions and ideas that can be considered as cost or service improvements.

Companies of all sizes can attain preferred shipper status and its benefits by bidding consistent volumes. Doing so at the same time each year allows carriers to anticipate and prepare for the bid. Conversely, companies that bid every few years or participate in numerous mini-bids can take carriers by surprise, causing them to spend tremendous time and effort to develop proposals.

 

Consolidation and Mode Shifts

In recent years, more shippers have been looking at consolidating shipments and expanding mode utilization as a way to reduce transportation costs. They are evaluating their transportation networks to identify opportunities to consolidate less-than-truckload (LTL) shipments into full truckloads. Some are even establishing programs to incent customers to order more truckload shipments. In addition to reducing transportation costs, shipping full truckloads instead of multiple LTL shipments, removes miles from the road, reducing a company’s carbon footprint.

While shippers commonly consolidate LTL shipments, some companies are looking to take advantage of co-shipping or co-storing opportunities with other shippers. Some collaborating shippers are leveraging dedicated fleets in metro areas where they have high freight density and network synergies as a way to lock in capacity with good rates and service.

Many shippers are also evaluating their current mode utilization and are identifying savings opportunities through mode shifts – whether moving from intermodal to truckload or vice versa. In recent years, more and more shippers are using intermodal. In the past, intermodal was primarily used for replenishment and transfer moves between facilities; but improvements in service over the last few years have made it a good option for store deliveries – if given enough lead time from the retailer.

Expanding mode utilization and consolidation efforts also help shippers prepare for tightened capacity. While the economy has been slow to rebound, there have been several indicators of recovery in the manufacturing, housing, and automotive sectors. If the uptick continues, we could see a tightening of transportation capacity during produce season in late April and early May and into the summer months.

 

Work With the Right Logistics Provider

In order for CPG companies to take advantage of savings opportunities within the supply chain, they must first have the visibility and analytics to identify such opportunities and then develop a strategy for executing on them effectively. Companies that work with a logistics provider can benefit greatly from their people, processes and technology in order to gain visibility of their supply chain operations and transportation spend. Forward-thinking companies are striving to become data-driven organizations, and by combining a business intelligence platform that can produce comprehensive dashboards and reporting with deep engineering capabilities, logistics providers can help turn data into actionable strategies.

Many shippers are utilizing proactive analytics and exception management tools to focus on the critical issues within their supply chain instead of the entire network. Increased visibility and analysis helps shippers identify and stop failures before they occur. To be successful, it’s important to have processes in place to evaluate problem areas consistently and frequently, including lanes, carriers, shipping facilities and other factors.

Being able to identify and address problems within the supply chain quickly is becoming increasingly important with the ever-growing demands of retailers. In order to cut costs from their supply chains, more retailers are adopting compliance programs and levying penalties for not meeting order/delivery terms (e.g., missed delivery window, incorrect shipment weights, out of stock inventory, etc.). This becomes increasingly challenging due to spikes in demand caused by global and regional promotions.

In summation, tough economic times have greatly impacted the consumer goods industry. CPG companies are looking to reduce operational costs while also adapting to shifts in consumer behavior and retailer requirements. Those companies that invest in the right processes and technology solutions are in a position to navigate current and potential future challenges successfully.wtThe economic downturn had a significant impact on the way individuals and organizations view spending, including the mentality and purchasing habits of consumers. Tightened budgets and less discretionary income left people pinching pennies and looking for any opportunity to save, especially when shopping. Many retailers adjusted their operations to address the purchasing changes of their customers, which, consequently, impacted the consumer packaged goods (CPG) companies that supply them.

The challenge of adapting to the changing needs of consumers and retailers is compounded by the push for CPG companies to become lean and cut costs within their own operations. The effect can be noticed in numerous areas, but three major shifts have greatly impacted CPG companies and the way they operate.

More Private Label and Store Brands – As a way to save money, consumers are looking for cheaper alternatives to the products and brands they’ve historically purchased. While not always true, private label and store brands are often viewed as being less expensive, increasing their appeal to today’s money-conscious shoppers. In order to meet changes in demand, some retailers have gradually increased inventory levels of private and house brands compared with many of the larger, more recognizable CPG brands.

Growth of the Dollar Channel – In addition to changes in the brands consumers are buying, there has been a shift in where they choose to purchase these products. Historically, the majority of consumers would shop at big-box retailers and purchase everything needed for that week, or longer. However, due to reduced spending and more staggered purchases, the dollar channel has grown tremendously as consumers settle for purchasing fewer items at once and making more frequent trips to the store.

Increased Margin Compression – Companies are looking at their entire organizations to find ways to cut costs, and many are identifying the supply chain as a significant opportunity for savings. Organizations are closely evaluating their current operations to identify opportunities to streamline processes, eliminate waste and ultimately reduce supply chain costs, while maintaining high service levels for their retail customers.

These recent shifts only increase the complexity of the supply chain for CPG companies. Forward-thinking organizations are putting processes in place to address these trends and create more efficient, cost-effective supply chains. Outlined below are some of the steps that many leading CPG companies are taking to improve their transportation operations and position themselves for success in a constantly evolving market.

 

Become the Shipper of Choice

The relationship between a shipper and its carrier network can be critical to achieving and maintaining quality, efficient supply chain operations and presents a significant opportunity for margin compression. Shippers should make it a priority to become the top choice for carriers. To do this, shippers must evaluate their transportation management processes and measure what value they bring to the carrier community.

CPG companies should implement carrier-friendly policies, good fuel surcharge programs or consistent freight volumes and convey such capabilities to carriers. They should become collaborative with their carriers as well and encourage innovation. Many are creating incentives for carriers to bring forth innovative solutions and ideas that can be considered as cost or service improvements.

Companies of all sizes can attain preferred shipper status and its benefits by bidding consistent volumes. Doing so at the same time each year allows carriers to anticipate and prepare for the bid. Conversely, companies that bid every few years or participate in numerous mini-bids can take carriers by surprise, causing them to spend tremendous time and effort to develop proposals.

 

Consolidation and Mode Shifts

In recent years, more shippers have been looking at consolidating shipments and expanding mode utilization as a way to reduce transportation costs. They are evaluating their transportation networks to identify opportunities to consolidate less-than-truckload (LTL) shipments into full truckloads. Some are even establishing programs to incent customers to order more truckload shipments. In addition to reducing transportation costs, shipping full truckloads instead of multiple LTL shipments, removes miles from the road, reducing a company’s carbon footprint.

While shippers commonly consolidate LTL shipments, some companies are looking to take advantage of co-shipping or co-storing opportunities with other shippers. Some collaborating shippers are leveraging dedicated fleets in metro areas where they have high freight density and network synergies as a way to lock in capacity with good rates and service.

Many shippers are also evaluating their current mode utilization and are identifying savings opportunities through mode shifts – whether moving from intermodal to truckload or vice versa. In recent years, more and more shippers are using intermodal. In the past, intermodal was primarily used for replenishment and transfer moves between facilities; but improvements in service over the last few years have made it a good option for store deliveries – if given enough lead time from the retailer.

Expanding mode utilization and consolidation efforts also help shippers prepare for tightened capacity. While the economy has been slow to rebound, there have been several indicators of recovery in the manufacturing, housing, and automotive sectors. If the uptick continues, we could see a tightening of transportation capacity during produce season in late April and early May and into the summer months.

 

Work With the Right Logistics Provider

In order for CPG companies to take advantage of savings opportunities within the supply chain, they must first have the visibility and analytics to identify such opportunities and then develop a strategy for executing on them effectively. Companies that work with a logistics provider can benefit greatly from their people, processes and technology in order to gain visibility of their supply chain operations and transportation spend. Forward-thinking companies are striving to become data-driven organizations, and by combining a business intelligence platform that can produce comprehensive dashboards and reporting with deep engineering capabilities, logistics providers can help turn data into actionable strategies.

Many shippers are utilizing proactive analytics and exception management tools to focus on the critical issues within their supply chain instead of the entire network. Increased visibility and analysis helps shippers identify and stop failures before they occur. To be successful, it’s important to have processes in place to evaluate problem areas consistently and frequently, including lanes, carriers, shipping facilities and other factors.

Being able to identify and address problems within the supply chain quickly is becoming increasingly important with the ever-growing demands of retailers. In order to cut costs from their supply chains, more retailers are adopting compliance programs and levying penalties for not meeting order/delivery terms (e.g., missed delivery window, incorrect shipment weights, out of stock inventory, etc.). This becomes increasingly challenging due to spikes in demand caused by global and regional promotions.

In summation, tough economic times have greatly impacted the consumer goods industry. CPG companies are looking to reduce operational costs while also adapting to shifts in consumer behavior and retailer requirements. Those companies that invest in the right processes and technology solutions are in a position to navigate current and potential future challenges successfully.wt