While politics may make strange bedfellows, the same may be said about significant challenges coursing through the food and beverage supply chain. Pressure to deliver products to more destinations quickly and efficiently is reshaping the business of distribution. The changes taking place today may force consumer packaged goods companies to collaborate with rivals to meet the needs of tomorrow’s consumers.
That was the conclusion in an update from the Consumer Goods Forum, a group whose membership includes some of the largest retailers and consumer packaged goods companies in the world. The forum focuses on issues that challenge its members, including environmental sustainability, consumer health and wellness, product safety and social sustainability.
The report, written by personnel from EY Advisory, reaches the conclusion that for companies to achieve profitable growth they must adopt new approaches to delivering goods and services to consumers. Specifically, the report’s authors say that the final link of the logistics chain is becoming increasingly inefficient and demands a new, collaborative approach.
Exacerbating supply chain inefficiencies is continued urbanization that is resulting in congestion around some of the world’s largest population centers, the growth of e-commerce as a viable retail model, environmental regulations, and such transportation inefficiencies as shrink and customers ordering smaller shipments more frequently.
“The rise of omni-channel, combined with more onerous regulatory requirements and urbanization, is forcing companies to radically rethink routes to market,” said Matthew Burton, a partner with EY and author of the report. “Rather than looking to innovative solutions such as self-driving trucks and robotics to address disruption — which could be years away from mass adoption — collaboration offers the prospect of much faster benefits.”
Recommendations for improving supply chain efficiencies include the creation of manufacturer logistics hubs, which may involve the sharing of warehouse logistics among competitors; the consolidation of logistics services between manufacturers and retailers to share costs, collaborate with customers for more efficient order fulfillment and reduce overhead costs; and the creation of independent collection points for consumers that will minimize home deliveries. Such a model may include the use of lockers.
By utilizing its recommended collaboration models, the Consumer Goods Forum estimates companies may generate savings of around 20% to 50% in transportation costs. Such efforts may lead to smaller supply chain footprint, greater truck fill rates and more efficient vehicle utilization.
Fragmentation of the retail marketplace will continue. In addition to new formats, e-commerce is forecast to reach 20% of retail sales and lead to increased demand for home delivery.
During the most recent round of earnings calls among publicly traded companies, many managers bemoaned the slowdown in sales in measured retail channels and the rise of sales in unmeasured channels, which includes e-commerce. The market shift that has been predicted for years is under way. Manufacturers must consider new business models to ensure efficiency and achieve profitable growth.