There is a lot of discussion in the marketplace about disruption, transformation and the rapid pace of change in supply chain management, but if you’re in the consumer packaged goods (CPG) or contract packaging and manufacturing industries, you know this all too well. Simply put, yesterday’s rules for success are no longer valid in today’s market. So, what are the new rules for success? What actions should CPG brands and their contract manufacturing partners take to drive future growth? How can technology help? Those are some of the questions I discussed with Jason Tham, CEO at Nulogy, in a recent episode of Talking Logistics.
Challenges in today’s CPG industry
Anyone who has worked with the CPG industry knows it faces many challenges, so I began my discussion with Jason by asking him to explain the main challenges his customers are dealing with. Jason notes that the CPG industry is subject to many of the pressures that the retail industry faces, such as fragmented markets, increased consumer pressure for customization, and the expanding number of channels through which consumers shop. “That leads to increased variability and hyper-specialization of the products they bring to market,” says Jason. “This must be done in an efficient way.”
Jason points out that brands continue to do what they do best, which is to create and brand products. To get those hyper-specialized products manufactured, packaged and distributed, they rely on an ecosystem of suppliers, contract manufacturing and packaging companies and third-party logistics partners. “Agility, or agile customization, in dealing with this variability is the key differentiating factor in determining success,” says Jason.
“There is a lot of challenges and complexity with bringing these hyper-specialized new products to market,” continues Jason. “There are many highly-specialized suppliers and brands, and the complexity is further increased by market fragmentation caused by consumer demographics and geographical variations.”
CPG companies face many hurdles in achieving their goal of satisfying consumer demands for hyper customization. Jason notes that the industry has evolved from the world of mass production where asset utilization was the chief concern. “Today, a new SKU may be produced by only one contract manufacturer and packaged by one contract packager for only one promotion,” explains Jason. “Doing one thing once is infinitely more challenging than doing one thing over and over again.
“Another element is collaborating, coordinating and leveraging an ecosystem of partners to grow the brands desired by retailers and consumers. Having visibility into the ecosystem to enable velocity to market is critical to compete in today’s environment.”
The partner ecosystem
As the CPG industry evolves from mass production to mass customization, it has had to pivot from asset utilization to production agility. This has opened the door to a broad spectrum of contract manufacturers and packagers who can quickly produce the highly specialized end products consumers want at any given moment.
“These specialized suppliers must be responsive and collaborative,” says Jason. “This requires them to be able to share data and to transact and accept information because sharing data is how CPG brands and suppliers collaborate. Knowing the right production quantities and inventory levels, as well as the right quality, enables suppliers to be efficient and responsive to changing consumer demand.”
Evolving to collaborative supplier ecosystems can have many benefits for CPG companies. Jason lists some of those benefits as reduced friction, reduced waste and having a more sustainable supply chain. “This reduces costs and shrinks the timeframe for products to get to market,” says Jason. “Waste is created when the CPG company can’t see into the supplier network in order to make good decisions to optimize the supply chain and serve the consumer.”
Jason goes on to point out that cost is no longer the main focus. “Speed to market and being responsive to customer needs is what determines success today,” notes Jason.
New technologies are enabling these collaborative supplier ecosystems that are necessary for success today. Jason explains that the visibility and transparency across networks wasn’t possible ten years ago. He says the emergence of cloud-based multi-partner platforms and their interoperability with major supply chain software providers is key to enable the collaboration and responsiveness required. But Jason says it’s not just technology, it’s the mindset to allow transparency across networks and the willingness to collaborate that is making the difference.
How and why is this happening, and what are the technologies that are enabling this? How is improving fill rates impacting innovation, and what should CPG companies ask themselves to determine if they have the capabilities to do agile customization? I encourage you to watch the full episode for Jason’s insights and advice on these questions and more. Then keep the discussion going by posting a comment and sharing your own thoughts and experiences on this topic!