How an Inefficient Supply Chain can kill an FMCG Business

July 17, 2018

Managing supply chain is getting more complex and sophisticated in the global context. Supply chain is considered a prerequisite for the existence of FMCG businesses. Remaining a vulnerable supply chain is equivalent to an ever-present threat, as supply chain operations drive a company's success. In an era of digital transformation, where Artificial Intelligence and Machine Learning are taking place, supply chain efficiency is more approachable and clearly inevitable in order to minimize mistakes and enhance value created.

 

1. Why is supply chain inefficiency a major threat to FMCG businesses?

Process map for FMCG supply chain

 

FMCG, standing for Fast Moving Consumer Goods, is described as an agile, rapidly growing industry, accompanied by a diversity of products. FMCG industry performs as a pioneer in creating ideas and an ingenious scheme for others to follow, due to their huge production capacity, intimate association with their customers, mainstream manufacturing processes and the prevailing impact of retailers. For those reasons, logistics managers are frequently equipped with the optimization methods to overcome difficulties. Also, settling supply chain issues with improper measures is a developing concern. Take the most regularly used practices as an example, just-in-time or low-cost country sourcing are no longer appropriate for contemporary concerns. FMCG industry relies chiefly on the coordination and communication with parties; thus, the supply of goods, information flow and the financial movement are to be critically influenced.

 

2. What are the problems leading to supply chain inefficiency?

 

A 2011 McKinsey survey indicated that 68% worldwide executives then predicted that supply chain risks would escalate in the next 5 years. Regarded as a nature of large businesses, risks, either internal or external, can't be totally avoided, yet we can reduce the impact of hazards by understanding thoroughly 3 fundamental causes of supply chain efficiency as below:

 

Source

 

  • Lack of visibility: Where is the problem?

2015 Dimensional Research survey sponsored by Jabil reveals the trends of problems electronics manufacturing companies were handling, in which 96% agreed that lack of visibility poses potential risks to various areas. Even with advanced and accessible tools, the real challenge awaits FMCG companies in tracking products at every hand-off point, vehicle routing and detecting problems. For instance, without an optimal route plan, delivery men can take much longer to reach customers' locations, leading to higher delivery cost. Because of FMCG rapid product cycle and multi-tier environment, the pressure to replenish stocks promptly and review product movements is high. Accordingly, effectively controlling every stage of the process seems challenging to the logistics manager.

 

  • Lack of accountability: Who is to blame?

As stated in A.T. Kearney’s 2011 Procurement Study, 90% participants admitted that procurement was entitled to bottom-line efficiencies despite carrying out crucial duties of execution and strategy development. However, businesses with a global supply chain are showing recognition of the CPO (Chief Procurement Officer), as answered by Peter Cook (vice president of supply chain procurement) to The Smart Cube: “The celebrity CPOs have been the catalyst for real strategic change.”. The incentives to improve the quality of performance is directly proportional to the accountability one owns in the supply chain. Correspondingly, irresponsible distribution of responsibility leads to turbulence and condemnation once troubles discovered. Considering large volumes and wide distribution channels of FMCG businesses, delegation of duties shall be done properly to avoid remarkable financial damages.

 

  • Lack of innovation: Why should we change?

It is crucial for FMCG businesses to keep pace with updated technologies in an ever-changing world of supply chain, since the industry is market-driven and closely linked to end-users. By incorporating revolutionized components, companies generate more productive processes. Thanks to innovative technology, FMCG businesses gain more opportunities of lowering costs as well as increasing velocity of goods movement. Abivin vRoute is a good example for incorporating technology trends (AI, Machine Learning) into an optimization system which contributes to efficient logistics. Not only does it allow you to monitor real-time GPS tracking and provides reports, but the system also automatically learns historical data of loading time and service time to provide the most optimal route for your delivery fleet.

 

Inefficiency triggers FMCG company disruptions in various ways. While the breakdowns of vital machinery or inefficient transfer of information may cause severe internal disruptions, external disruptions can be stimulated from interruption of materials flow or other variables in a process. In a report launched by WEF, led by Jonathan Wright, substantial disruptions of supply chain are implied to account for roughly 7% of the share price of involved companies.

  • Inefficiency affects the inventory management of raw materials and finished goods, including the movement of goods from the manufacturing plants to the customer's locality, which produces a negative impact on the availability of FMCG.

  • Underperformance in parts of the process, such as ordering and purchasing, results in discrepancies in the numbers of sales and revenues, consequently leading to a failure of financial management.

  • Order transmitting, delivery status checking and vehicle routing problems may lead to damage to customer relationship management, which is crucial to FMCG companies.

 

3. What can logistics manager do to address supply chain inefficiency?

 

Source

 

A research conducted by Forbes shows that 80% companies in the world now prioritize protecting their supply chain. They have gradually come to realize that supply chain efficiency is of paramount significance to an FMCG business operation, as comprehended by the key leaders in FMCG industry. Here are some proposed ideas for businesses to defend their supply chain against disruptions and strengthen operations:

  • Real-time supply chain visibility is deemed essential to FMCG businesses, yet few are striving for access to it. To attain the visibility of products, the flow of financial and risk, though strenuous, is undeniably worthwhile as visibility is the key to supply chain risk management. Initially, companies shall endeavor to real-time data and prompt resolution to data-driven supply chain by utilizing geological and geopolitical data, site incident data, supplier performance to predict the magnitude of disruptions. Organizations shall structure departments' function and assign responsibility clearly to avoid conflicts, accelerate actions and raise the visibility of information flow. Supply chain resilience is increased through analytics, information sharing, scenario modeling, and pre-programmed responses. By taking several components into account, certain risks are controlled by using advanced technology.

  • Doing business always goes with potential risks which you can't eliminate 100%. Hence, a business plan should include a risk management plan to diminish the perils. Moreover, FMCG companies can leverage risk management as a competitive advantage by manipulating data-sharing platforms for risk identification and flexible response: synthesize external as well as internal data and swiftly respond to lessen the impact of disruptions. Spread of risks can be promoted by diversification of business activities, growing numbers of suppliers and expansion of markets. Suppliers shall establish a culture of risk management, develop alert and warning systems, identification and eradication of supply chain obstacles. With the help of technology, obtaining efficiency in FMCG is within reach.

 

All measures mentioned above are becoming approachable with digital transformation, one of which is Abivin vRoute - a route optimization and transport management system. To resolve the vehicle routing problems and optimize the system, integrating such innovative system is a good step towards approaching visibility and controlling logistics activities effectively for businesses.

 

Try Abivin vRoute now to improve your supply chain efficiency!

 

References:

  1. https://www.business2community.com/product-management/problems-lead-supply-chain-inefficiency-0625030

  2. https://haploos.com/home/industry-issues/supply-chain/

  3. https://www.forbes.com/sites/steveculp/2013/02/15/supply-chain-disruption-a-major-threat-to-business/#9dbf96673b65

  4. https://www.jabil.com/insights/blog-main/2015-supply-chain-trends-infographic.html

  5. https://jtscm.co.za/index.php/jtscm/article/download/19/17

  6. http://www.supplychainbrain.com/latest-content/single-article/article/the-changing-role-of-the-cpo-with-respect-comes-responsibility/

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