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A new perspective: 3 reasons why CPG businesses are re-examining their end to end supply chains
15 September 2020
By Oliver Wight Partners, Birgit Breitschuh and Monte Maritz
As the Consumer Goods sector begins its recovery from the impact of coronavirus one thing remains clear; the pandemic has sent shock waves through supply chains and exposed a series of vulnerabilities and deficiencies, both in terms of the ability to respond, and the potential future impact of the change in consumer behaviour. On the horizon stand new opportunities and the need for a swift and focused recovery. It is therefore no surprise that Consumer Packaged Goods (CPG) businesses have been studying their extended supply chains with a fresh pair of eyes. Many leaders are taking steps to increase transparency through an integrated view of the future, plan for potential scenarios, and establish the appropriate shock absorbers to reduce the impact of future black swan events, while at the same time mitigating the cost impact of the disruption and related performance.
As we look beyond COVID-19, there are other factors driving CPG organisations to review their end to end supply chains, in an effort to stay on the front foot and connect with the end consumer. Some of these points were already important pre-pandemic, but are now critical to consider as part of a supply chain redesign.
1. The supply chain as a marketing tool
The future of CPG is all about the consumer, and consumers more and more see the offer as a combination of the product and how it is delivered. This means brand owners cannot only re-examine the products themselves but need to look at how different consumers integrate with the product and their accompanying purchasing behaviours.
E-commerce changes the consumer touchpoints and requires a different and targeted marketing approach. What was addressed to attract the consumer during an in-store shopping occasion pre-Covid, now needs different and new touchpoints in this new world. Companies are broadening their offering, adapting route to market, and extending to services to gain further attraction through multi-channel availability and direct online product comparison.
This innovation to reach the end consumer through new channels is not simply reserved for niche businesses. While small businesses, like London based coffee company Grind who launched a subscription service for their existing customer base to have their favourite coffee delivered in compostable pods straight to their doorstep, showed what could be done, the model has become more and more mainstream. And this means that regardless of size, CPG businesses might need to become more nimble in their offering and more personal in their engagement.
Innovation and consumer marketing has certainly become more impulsive, and we can’t mention agility without discussing the power of social media. Influencers trigger massive pulls with relatively short-term peaks of consumer interest. Think of the pull on a clothing brand when the right person wears it, or the right picture goes viral. But also think of the risks on cost and inventory when social media strategies fail to deliver and brand reputation is endangered. After all, most customers are significantly influenced by referrals.
What these examples are telling us is that CPG businesses must be informed, agile, and prepared to respond quicker, with supply chains that are a lot more innovative and consumer-focused than before. The pandemic has taught us that our old supply chains are not always going to work, and innovating them for a competitive advantage has to be consumer-focused.
2. Restoring the influence
For a while now, powerful retailers have been working hard to own the supply chain, product positioning, and sales margins. Using their buying power, but at the same time often also driving their own brands, they have become both partner and competitor. Portfolio reduction strategies, shelf space rationalisation, and large demands on listing volumes limit brand owners to drive their own portfolio strategy and shelf space. And as the economies of the world start their recovery cycle, these same retailers, whether it be high street or online, will push for lower prices and margins to support their own recovery, even if this negatively impacts brand positioning and customer perceptions.
What will be important in the future strategy of CPG businesses is their ability to manage the route to market to their benefit. Ultimately this might take a combination of innovation and bold decision making around product and brand positioning. The risk is that in pushing for a post-Covid recovery, the attitude of “any sale is a good sale“ might lead to both price and brand erosion, as well as the need to find a partner-focused route to market that drives value for all involved.
Applying a structured and customer segmented Go to Market strategy with the appropriate Route to Market response is key. This should not only cover product positioning, but also clear direction in terms of pricing, share, and competitive response.
This plan must not only be focused on risk reduction but needs to be agile enough to take advantage of new opportunities. It must be strategically supported to ensure the right end-to-end investments are made, whether through strategic marketing, sales support, or supply chain delivery. This will also include portfolio repositioning, and we are seeing many CPG organisations spending time reviewing their portfolio size and complexity with new eyes.
CPG organisations will also be looking to increase performance through collaboration, but the right partnerships are important. And while it will be critical to measure effectiveness against evolving consumer behaviour on a continuous basis, it is the boldness to take action quickly when required that will be the real test of this agility, and the ultimate measure of success.
3. Ethical choices & transparency
More consumers are insisting on increased transparency on origin not just when it comes to the final product but across extended supply chains. Businesses with end to end capability should be asking themselves, “Is our supply chain fully traceable and ethical?“ If the answer is uncertain, these businesses have the invaluable opportunity to identify potential problem areas and refocus ethical choices, thereby keeping and even extending their reputation. This includes understanding the ethical consumer; what do they want from a product, its packaging, for the environment, and for the overall buying experience?
Businesses who invest time and resources in becoming more transparent will undoubtedly build stronger relationships with this type of consumer and protect their brand reputation in the long term.
By monitoring business performance, collaboration, and social responsibility across not only suppliers and customers, but the extended supply chain, CPG organisations can pride themselves on operating a truly end to end model and reap the benefits of improved customer relationships and real-time visibility.