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GUEST COMMENT Can agile supply chains ease pressures for FMCGs?

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The consumer products industry is navigating the fallout of major international events such as concurrent geopolitical conflicts, inflation, and unpredictable demand. Businesses that fail to tailor their supply chain strategy to marketplace requirements risk their market share, competitiveness, or worse, their survival, writes Katy Gallagher, 4C Associates, director and head of consumer products.

Introducing an agile supply chain can help a business navigate these difficult market conditions by enhancing operational efficiency through improved leanness, resilience against unexpected shocks, and being ahead of the competition in adapting to market shifts.

What is an Agile Supply Chain?
By definition, an agile supply chain is a strategy that prioritises customer responsiveness, people and information, cooperation within and between firms, and fitting a company for change. Agile supply chains focus on 3 core characteristics: flexibility, responsiveness, and adaptability. Flexibility comes from combining market sensitivity with the capability to deploy resources flexibly and quickly, allowing firms to modify practices according to changing market conditions without altering the fundamental supply chain design.

An organisation’s responsiveness is improved by reducing transaction costs and total resource inputs, leading to cost efficiency, inventory reduction, and effective integration with suppliers. Finally, adaptability comes from being attuned to rapid changes in demand via the visibility provided by effective forecasting, leading to efficiency gains and leanness.

Traditional supply chain models are often too rigid to handle the unpredictability of the contemporary consumer product industry, therefore a consumer product supply chain that is adaptive to market forces can be a critical asset. When adopting agile supply chain practices, consumer needs become a greater priority, though a key enabler of agility is implementing advanced data analytics for real-time decision making that incorporates data for consumer habits, as well as data inputs from the entire ecosystem.

To facilitate an agile supply chain model, a business must collaborate with suppliers who share similar ambitions and flexibility, and can act as a partner in times of adversity.

Pressures facing the consumer products industry

  • Unpredictable Demand

One of the primary pressures that consumer products businesses currently face is the rapidly evolving consumer preferences and behaviours. Advancements in advertising technology and near-constant access to information mean consumers are more informed than ever before, placing pressure on companies to continuously innovate and adapt their products to meet their demands. Moreover, as sustainability and ethical consumption continue to grow in importance to consumers, businesses face increasing pressures to demonstrate environmental responsibility and social consciousness in their manufacturing processes and supply chains. Failure to do so can lead to reputational damage and loss of consumer trust, compelling companies to navigate these issues effectively to remain competitive. 

  • Macroeconomic Cost Pressures

Recent high inflation has significantly driven up production costs, which are often passed on to consumers through higher product prices. As companies grapple with the challenge of maintaining profitability amidst rising input costs (e.g., raw materials, labour, and transportation), consumer spending patterns and preferences shift unpredictably, leading to major complications to supply chains and inventory management. Overall, managing the effects of inflation requires businesses to adopt flexible pricing models, enhance efficiency in production processes, and closely monitor consumer sentiment to navigate these pressures successfully. 

  • Material Availability

Multiple concurrent geopolitical conflicts have fractured critical supply chain routes, adding to the severe supply chain disruption being experienced by the consumer product industry. An example of this is in Ukraine, where they are exporting 1.3 million tons less wheat and maize than before the Russian invasion. This restriction in supply has a significant impact on the customer experience if it leads to reduced product availability, with the potential of perceived value and availability being diminished, therefore harming brand image and loyalty.

Benefits of implementing an agile supply chain

  • Improved Data Analytics

Advanced supply chain data analytics play a pivotal role in swiftly responding to the dynamic demand landscape of the consumer products industry, by essentially acting as the ‘oil’ flowing through the supply chain ‘machine’. By leveraging sophisticated algorithms and real-time data processing, companies can gain actionable insights into consumer behaviours, preferences, and market trends. This granular understanding enables businesses to anticipate shifts in demand patterns, identify emerging trends, and promptly adjust their production, inventory, and distribution strategies accordingly. Whether it’s adjusting inventory levels, optimising transportation routes, or fine-tuning production schedules, the ability to analyse vast amounts of data gives companies the tools needed to remain agile and responsive in meeting consumer demands.  

Coupled with strategic locations for manufacturing and distribution facilities to minimise lead times, advanced data analytics can provide a significant competitive advantage that allows businesses to respond rapidly to consumer demand shifts and dominate their respective market. These practices can be seen across many market leaders within the consumer products industry, with the businesses who are equipped with advanced supply chain data analytics able to not only enhance customer satisfaction by ensuring product availability, but also gain a competitive edge in the ever-evolving marketplace.

  • Process Excellence

Process excellence and continuous improvement practices are a fundamental element of successfully implementing an agile supply chain due to their role in optimising and future-proofing the functions within a supply chain. By systematically analysing and refining each stage of a business’ end-to-end operating process using renowned best practices, such as Lean and Six Sigma, waste is stripped out which can help offset inflation-induced cost pressures by ensuring only the correct resources are allocated per task. By operating in a leaner fashion, businesses can achieve their profitability targets, with the option to also pass on further savings to consumers, therefore restoring consumer confidence that may have been eroded from record high inflation.  

Additionally, a company culture of continuous improvement fosters innovation and adaptability, and so offers the opportunity for the business’ strategic suppliers to develop themselves in parallel. This joint improvement cycle helps strengthen the strategic partnership with key suppliers and therefore improves the capability of the supply chain to consistently deliver quality products to consumers in a timely manner. 

  • Strategic Supplier Selection

The value of strategic supplier partnerships during market uncertainty must not be overlooked. Optimising the supplier base is essential for building resilience and flexibility into a supply chain that can navigate uncertainty. By collaborating with suppliers, organisations can leverage expertise, insight, and innovation to support an optimised product offering based on material availability to maintain brand image and consumer confidence.

Partnering with strategic suppliers establishes strong relationships from which there is mutual benefit, and a focus on collaboration and continuous improvement. An example of this was with Proctor & Gamble who implemented a collaborative planning, forecasting and replenishment (CPFR) programme in conjunction with Walmart – subsequently improving inter-party communication and information sharing resulting in a supply chain that was highly responsive to production challenges and a stronger supplier-buyer relationship.

Considerations before switching to an Agile Supply Chain
While implementing agile supply chains holds immense promise for enhancing responsiveness and competitiveness in consumer products businesses, it’s essential to recognise that it may not be the ideal solution for every organisation and is certainly not a one-size-fits-all in terms of implementation. The challenges involved, including cultural shifts to embrace flexibility and collaboration as well as technological investments required and supply risk management demand careful consideration.

Therefore, businesses must assess their unique circumstances, capabilities, and readiness before embarking on the journey towards agility in their supply chains.

In summary, consumer products businesses should prioritise enhancing their supply chain operations to improve responsiveness to unpredictable consumer trends, strengthen resilience against shocks and optimise each stage of their operation to drive down costs and stay ahead of the competition.

Katy Gallagher, 4C Associates, director and head of consumer products.

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