Insightful forecasting and strategic planning in the FMCG environment is both critical and complex. Consumer preferences and technologies are constantly changing, and customers demand innovative products, which could mean producing a wider range of goods at higher volumes quickly. In growing markets, consumers are also spending enough to raise the call for an expanded supply chain. The e-commerce market is growing even more quickly than brick-and-mortar stores are, and products are getting healthier and more sustainable, opening new avenues for FMCG players.
With an exciting but unpredictable FMCG landscape that includes more frequent replenishment cycles, promotions, product innovations, and—as of late—COVID-19, your brand is susceptible to less stable demand planning processes and forecasts.
Some companies rely on manual spreadsheets and emails to monitor their supply chain, including important numbers like point of sale (POS), stock on hand in various warehouses, etc. Repercussions—such as a lag in response time, costs, or demand planning and forecasting errors—can lead to stock-outs and shortages, lost sales, and a decrease in customer service level. Meanwhile, manufacturers can face obsolescence and higher inventory costs that impact the overall margin. Collaborative planning, forecasting, and replenishment (CPFR) is a practice that has to be supplemented by real-time access to point of sale and inventory data. Your FMCG company needs to use processes thorough enough to share data automatically with accuracy and precision. These can be hard to pin down.
So, from machine-learning models and platforms that allow all entities in the supply chain to share data across channels—warehouses, 3PL partners, suppliers, etc.—to identifying risk, we’ve outlined the 17 best ways to optimize your supply chain and invest your money where you’ll see the most fruitful returns.
1. Get the right data
Great predictions rely on great data. The best models should digest and analyze a wide variety of data sets. But even though quantity matters, it’s the "cleanliness" of the data that’s critical as well. The data you’re feeding to a forecasting model should include historical sales (shipments at the SKU-level by customer, ship-to and ship-from locations), own and competitive marketing and trade investments (like promotions), online search behavior, social media mentions, point-of-sale consumption data, seasonality, weather patterns, and ingredient and health trends, among other datasets that can help FMCG companies understand demand.
Top-performing machine learning models work to clean and associate, or map, all of these data points. Predictive models can utilize a mapping key to match the case SKU with an individual unit UPC. From a machine learning perspective, this allows us to understand how retail customer demand drives wholesale case orders. Identify, anticipate, and act on trends. You need to make sure you’re able to adjust your working capital and see cost savings based on the recommendations your model provides. Some actions you may be able to take based on the data from your forecasts are adjusting your SKU priority rankings based on profit margins, enabling optimal manufacturing output, and optimizing warehouse supply levels. Or, you can figure out more efficient ways to transfer or reposition inventory based on demand levels.
2. Automate, Automate, Automate
Essentially, automation allows you to escape manual processes. With AI-powered demand planning software, FMCG brands can predict sales across all channels and drill into predictions by customer, ship-to, brand, segment, product, view accuracy, and error reports at the SKU level. Non-automated demand forecasting methods, especially manually keeping track of data on spreadsheets like many brands do, cannot take different, parallel data sets into account or provide a single view; they're un-dynamic. AI-driven platforms, built on machine-learning models attuned to the ins and outs of the CPG industry, on the other hand, are capable of learning on the spot.
In addition, operations models can centralize and update your EDI orders, e-Commerce orders (Shopify, Amazon, e.g.), manual orders, and granular sales reports as they're processed, while demand planning forecasting software can let you dig into SKU-level forecasts by channel, customer, distribution, brand, warehouse, and segment without crunching your data yourself. This time-saving measure allows employees to spend their energy bringing value to your company.
3. Take advantage of the power of machine-learning and AI
Machine-learning models self-adjust to new market realities, taking variables into account immediately. Machine-learning models are emotionless, and data is treated as just that: information. This way, one-time events, such a pandemic, have less of a chance of throwing off your predictions and therefore your supply chain. Ideally, models these models help you avoid scrambling to reprioritize operations after a disruption (like a natural disaster, equipment breakdown, recall, or an unexpected surge in capacity).
Agility is here key. In this case, a leading CPG company was able to respond to skyrocketing demand by relying on AI to adjust to changes in consumer habits. Without the proper response, these disruptions can lead to decreased productivity, increased costs, customer dissatisfaction, and more.
4. Centralize, Centralize, Centralize
Running a brand can get hectic, to say the least. You could be writing emails to your warehouse and co-packer, going back and forth between systems to process orders with KeHe and Walmart, and switching between your spreadsheets for e-commerce, orders, purchasing, and inventory—all within the same hour. Sound familiar?
One way to become way more efficient is to centralize the core foundations of your operations in one place: sales, purchasing, inventory, warehouse management, logistics. Having your data under one roof can also reduce operational silos. Overall, centralizing your data can lead to six-figure savings.
5. Integrate with your accounting software, retailers and manufacturers
One way to ensure centralization is to integrate with your 3PLs and warehouses as well as your accounting systems, such as QuickBooks Online. By seeing your company's fluctuating inventory levels, suppliers can ensure their product is available at your warehouse or 3PL when your customers order it.
6. Pay attention to demand signals
Historically, FMCG brands have focused on their supply and historical shipment/sales data. But now it’s just as important to take into account market research, consumer research, resource and capacity planning, stock replenishment, and possible societal factors ranging from the economic to the social. Old-school (manual) methods of forecasting cannot optimize all of this data as market trends change; brands then take hits to their sales because of less inventory, or over-stocking, that results from inaccurate forecasts.
7. Proactively identify risk
Meet with your directors and boards and other stakeholders to establish acceptable levels of risk. Retailers should meet regularly with their supply chain team to review procedures and policies, ensuring that they’re compliant, efficient, and up to date. This helps avoid bottlenecks and operations backups, and streamlines operations instead. It also means you’ll catch fraud early.
First, make sure to choose stable and competent suppliers you’ve researched and trust. Keeping in touch with your suppliers is integral to avoiding risk. Next, establish your lead and cycle times. Finally, take advantage of available technology, and set up automatic alerts for key personnel when delays strike.
8. Consider establishing “green” initiatives
Businesses need to work together with their respective communities and consider both their carbon footprint throughout the supply chain and the environmental impact of their chosen suppliers. This is vital for the health of your community, which includes your employees, but also because social responsibility is now a factor in many consumers' purchase decisions. KIND Snacks, for example, made its commitment to environmental health by making a plan to source all food from only bee-friendly farms by 2025.
9. Choose suppliers wisely
When you’re choosing suppliers and partners, research them and consult your networks to determine their reputation. Collect information on their capabilities like security, invoicing, contact methods, system login methods, and automated systems. It’s critical that you trust your supplier to keep your data private.
10. Optimize storage space efficiency
ASRS (Automated Storage and Retrieval Systems), a kind of warehouse technology where goods are automatically brought out of and placed back into storage, and AGVs (Automatic Guided Vehicles) are excellent tools to add to your warehouse. Voice picking headsets and microphones with a speech recognition system, and a Warehouse Management System (WMS) or Enterprise Resource Planning (ERP) solution, can also be helpful. Another step you can take toward clearing room in your storage spaces is setting up mobile device-driven fulfillment solutions, so that shippers can gain easy access to product identification and provide full traceability.
11. Create a business continuity management plan
This is the name of a strategy (BCM) created specifically for instances of supply chain disruptions. Of course, a BCM strategy cannot foresee everything, but once you and your team can come up with a BCM, you can identify the risks inherent in your supply chain and put strong measures in place to mitigate them. You can be sure that there is, at least, a backup plan in place for whatever may arise. The analysis phase of your BCM is called a Business Impact Analysis (BIA), which will be able to ascertain the profit losses as well as the amount of fixed costs that must be paid in the event of an incident that triggers an insured peril. This calculation reveals the proper amount of Business Interruption Insurance (BI). If you have Supply Chain Insurance, they will then reimburse the lost profits resulting from the disruption.
12. Gain real-time visibility of your supply chain
Warehouse and transport management systems are increasingly reliant on high-speeds and high-capacity connection, and they require a consistent energy supply to maintain the increasing demand for data to drive inventory, business, and customer interactions. As mentioned above, this is possible with both demand-planning AI and operations management tools. It is essential, for example, to be able to know, at the click of a button, where your product is and how much of it exists. Demand this sort of visibility, which is driven by integration and automation.
13. Maintain healthy supplier relationships
In order to succeed in retail, you have to have successful relationships with your suppliers. Think of them as an alliance, as both parties are working together to enhance the buyer/supplier relationship. The most successful relationships have open two-way communication, with shared objectives to continue improvement and value, measure performance, and proactively plan for conflict resolution.
14. Collaborate in strategic sourcing
It’s helpful to consult your networks and get more suppliers involved in the decision-making process; your peers in the CPG industry might know what’s selling in stores similar to your category. They can help you plan future objectives and strategies. With collaborative strategic sourcing, you’re setting yourself up for streamlined operations, reduced costs, and improved responsiveness. Network, mentor, and collaborate like crazy.
15. Measure the total cost of ownership (TCO) against price
When choosing a supplier or partner, you need to pay attention to the TOC—total cost of owning—that product. While the cost of acquisition for most products and services is only 25-40% of the TCO, you should focus on costs like operations, warehousing, environmental effects, and transportation, for example. This way, you're prioritizing value and long-term costs over simple short-term prices, which will pay off in the long run.
16. Move contract management into your supply chain
Contracts are often forgotten about, but salaries and agreements factor into the cost efficiency of your supply chain. By making contract management part of the supply chain, you make sure the contracts are centralized and regularly reviewed. Your business will be better able to leverage funds, reduce costs, and minimize risk.
17. Create budgets
It’s important to set your marketing budget, your sales budget, your General Administrative Costs (like wages and benefits, legal counsel, and office supplies), and to figure out the people you can afford to hire. You'll want to understand your gross and net margins, as well as your profitability. Figure out the people you can afford to hire; and keep your gross revenue exceeding your expenditures. For cash flow purposes, you will need to know when your company should schedule investment rounds, too. You should also measure how much revenue it will take to get to profitability. To do all of this budgeting, it’s necessary to keep track of every expense in one platform.