The consumer packaged goods (CPG) industry is large and very diverse. According to Investopedia, the consumer packaged goods industry in North America is valued at approximately $2 trillion. CPG products are sold through multiple sales channels and change rapidly based on consumer preferences and economic conditions. The CPG marketplace is highly competitive due to high market saturation and low consumer switching costs.

CPG companies must navigate through market pressures including demand fluctuations, seasonality, pricing, and brand competition. Accurate forecasting and end-to-end visibility are critical success factors. Meanwhile, predictions for the future of the CPG industry include continued rapid change.

In a recent press release, The Nielsen Company stated the following about the CPG industry:

“While the current economy has marketers working overtime to appeal to budget-conscious consumers, it’s just the beginning of changes to come. Nielsen’s research shows that significant demographic and economic shifts over the next 10+ years will dramatically reshape the growth and decline of consumer packaged goods products in the future. According to Nielsen’s projections, the top CPG growth categories in 2020 will include ethnic health and beauty products, medications and remedies, health aids, vitamins and cooking essentials, such as flour, shortening, sugar, yeast and eggs.”

What’s driving the changes? According to Nielsen, the category shifts are directly tied to the changing face of American consumers. For many years marketers have relied on middle class families as the primary target for many CPG products. By 2020, however, Nielsen predicts new challenges for CPG manufacturers and retailers due to fewer households with children, an aging population and the continued growth of lower-income consumers.

Many CPG manufacturers partner with third-party logistics companies (3PLs) to help them manage the complexities of their supply chain. CPG manufacturers typically seek the following results from partnerships with 3PLs:

•    Improved speed to market

•    Visibility to orders

•    Reduced inventory and operating costs

•    Adaptable and optimized network

•    Assistance with complex customs clearance requirements



A 3PL partnership allows CPG companies to serve customers better, save money, and reduce carbon emissions by fully optimizing the supply chain. Specific results of one of OHL’s customer relationship include:

•    10-15 percent cost savings on all transportation

•    Speeding door-to-door delivery from China to the U.S. by 2-4 days

•    Improved visibility throughout the supply chain, enabling event management activity and lower inventory carrying costs

Online sales continue to trend upward

One bright spot in the retail marketplace continues to be e-commerce or the direct-to-consumer channel. Many CPG companies offer products directly to consumers and many others are planning to augment their store sales with ecommerce. Not only have consumers showed increasing demand for online purchases, according to a survey by Stella Service, as reported by DigiDaily, U.S. consumers are willing to pay a premium for excellent service. It found, that on average, Americans are willing to spend approximately 9.7 percent more for great customer service. The survey, however, paid particular attention to the way in which great service impacts the buying decisions of online consumers. It was concluded that consumers in the online retail category are willing to pay an even higher premium for great service (10.7 percent) than they would in most other categories. Based on the average amount spent by online consumers each year, the survey found that $17.3 billion of value could be created in 2010 by Internet retailers that offered excellent customer service.

Another factor that is driving e-commerce for CPG manufacturers is that Internet consumers primarily buy branded products. Consumers shopping in stores have private label alternatives. Because of this, many CPG manufacturers have committed to the online channel and see it as a vehicle to build their brand, drive sales, and get closer to their customers. OHL customers like Alice.com are early innovators in selling CPG brands directly to consumers. Also, according to a survey conducted by shop.org, 35 percent of consumers believe online shopping is more environmentally-friendly than store shopping.

Even consumers who are purchasing in stores are conducting research online prior to purchase. Data from SymphonyIRI Group shows that 83 percent of shoppers make their purchase decisions prior to entering a store. This interesting phenomenon in the CPG industry created by Internet adoption and increased search engine usage results in many brand interactions taking place between a consumer and a brand before that consumer ever sees a product on a shelf. So, whether a consumer chooses to purchase in a store or online, the Internet is influencing their buying decisions.

CPG items are typically packaged to be put on store shelves; not to be sent in a box to a consumer. That provides some challenges for manufacturers that third-party logistics companies can solve through value-added services such as over-wrapping boxes and placing tape over dispenser lids on lotion and other items that could potentially squirt or spill, ensuring a positive experience for the consumer. In the direct-to-consumer marketplace, packaging and protecting products so that they arrive as expected is absolutely vital. E-commerce relies on repeat consumer business and consumers who do not get what they ordered, when they expect it and in perfect condition do not typically make subsequent purchases. Outsourcing logistics to a partner who can consistently and cost effectively provide these types of services allows CPG manufacturers to focus on growing their business.

Consumers’ expectations have become very high in e-commerce. Not only do they want to purchase products online, they expect quick delivery, they want hassle-free processes for returns when necessary and expect to know where their orders are at all times from order placement to home delivery. As a logistics partner, OHL distributes over 33,000 direct-to-consumer orders per day, helping CPG customers meet all these consumer expectations and drive repeat business.

Especially interesting is the potential growth of the direct-to-consumer channel in countries outside the U.S. While Forrester forecasts online sales to grow at a declining rate in the U.S., growth in other countries is expected to rise during the next few years as shown below. These growth projections reflect opportunities for CPG manufacturers and supply chain management companies to continue to expand ecommerce business in the U.S. and throughout the world.

 

Cost savings and environmental considerations

According to Beroe, Inc. (research firm), CPG manufacturers realize a 10-15 percent reduction in costs by outsourcing packaging and supply chain services. In addition to direct supply chain cost reductions, a well-managed packaging strategy can help lessen environmental impact, eliminate waste and improve distribution efficiency. As an example, a deodorant was placed in a new 30” display box, allowing 36 per pallet instead of 15. The results included:

•    140 percent freight, handling and warehouse efficiency improvement

•    Savings of 4,792 gallons of fuel

•    Packaging with a 56 percent improved material efficiency, saving 40 tons of trees



Many CPG manufacturers already have or are investigating a fully integrated supply chain. A third-party logistics partner can help facilitate success by dealing directly with ocean capacity and cost issues, fuel prices and inventory accuracy. A logistics company also offers technology to provide visibility into the entire supply chain, support vendor managed inventory (VMI) business models, and eliminate out-of-stocks. Current economic factors, specifically fuel prices, are causing some CPG manufacturers to re-think their centralized distribution center model in favor of a more regionalized DC network, and integrating with non-asset based transportation providers to source better service and lower outbound transportation costs. Additionally, more and more CPG manufacturers are looking at integrating custom manufacturing and packaging operations within their DCs in an effort to eliminate transportation inventory carrying costs.

As the CPG business continues to thrive and change, manufacturers will increasingly look to logistics providers to help them adapt, drive supply chain improvements and maintain profitability. Supply chain management solutions providers will need to identify trends and provide strategic insight to CPG manufacturers in order to remain their trusted partners. And, there will continue to be opportunities throughout the world for CPG manufacturers and 3PLs to work together and keep consumers happy. wt



Karen Hall is the Director of Marketing and Communication for Brentwood, Tennessee-based OHL.