The Three C’s of Transporting Consumer Packaged Goods: COVID, Change, and Costs
Consumer packaged goods (CPG) supply chains are highly susceptible to disruptions that often lead to increased expenses. These supply chains have rapidly evolved in response to the pandemic. It’s vital that CPG supply chains be aware of today’s new landscape so you can optimize your Transportation Spend Management strategy for the future and grow your business.
In this Trax post, we will discuss the three C's of today’s CPG supply chain management: COVID, changes, and costs, and how they affect your bottom line.
COVID-19 CPG Supply Chain Disruptions
The COVID-19 pandemic's effect on global supply chains was revolutionary. Global shutdowns, carrier capacity issues, remote working conditions, and more required companies to rethink their entire supply chain strategy. As a result of the pandemic, 90% of retail and CPG supply chain leaders changed how they plan to improve the resiliency of their supply chains.
Inventory management
Companies experienced either colossal under- or oversupply of CPG products. Some companies, such as cleaning supplies distributors, increased their inventory by 50% in the flurry to meet heightened market demand. Other companies, such as pants suppliers, saw a dip in orders and were shackled with overstocking.
To combat the risk of future disruptions causing shortages or overstocking, 39% of supply chain leaders plan to invest in real-time inventory data management. This helps mitigate the risk of losing customers because of out-of-stock items or losing funds to expiries. Managing inventory is more complex on a global vs local market scale, as it involves more market influencers. The inability to adapt your inventory management to meet those changes negatively affects your brand and bottom line.
Carrier Capacity
Inventory management wasn’t the only issue during the pandemic. Demand surged for carriers. This created capacity issues, such as container shortages, which led to longer shipping times, unpredictable delivery times, and dissatisfied customers.
During the height of the pandemic, for example, air cargo capacity from Europe to the US dropped 29%—nearly a third of the supply from one of the world’s largest economic powerhouses to another. Shippers had to scatter the market trying to find a carrier able to get their products shipped on time, and those without the proper carrier management struggled to survive.
Remote Workers
Social distancing measures required during the pandemic made running a complex supply chain a challenging feat. Operating remotely was nearly impossible without the help of technology solutions. That left supply chain leaders scrambling to find the best solutions fast, as opposed to being able to take their time with properly researching, comparing, and planning.
The health and safety measures implemented during 2020 meant more workers operated remotely, as well as put more strain at ports. Prior to the outbreak, 1 in 5 workers worked from home, but during the pandemic, that number soared to 71%. With almost three-quarters of staff unable to come in and do their jobs, it put a strain on the efficiency and agility of companies’ supply chains. Day-to-day operations struggled. And for dockworkers at ports, the decreased workforce created congestion at already stressed locations, such as Los Angeles, California for Trans-Pacific traffic. This further complicated strategic decision-making.
Inbound and outbound restrictions
As countries slowed down or even halted from the pandemic regulations, inbounds and outbounds suffered, as well. This greatly hindered the dynamic market of CPG. At the same time, consumers expected on-time shipments, which shippers and carriers struggled to meet.
As more ad-hoc regulations for inbound and outbound shipments came into play, the chaos compounded. Shippers unaware of changes or delay times struggled to get their products to customers, much less on time, and had to rapidly reconfigure their shipping plans.
Major Changes in CPG Supply Chain
COVID played a major role in evolving CPG supply chains, and evolution always comes with drastic changes. Here are some of the major changes we saw with CPG supply chains.
Consumer behavior
As the global economic landscape changed, so did consumer behavior. During the pandemic, more consumers switched to online shopping, either directly from CPG websites or online retails, which has caused a significant shift in the framework of CPG supply chains.
Consumers expected fast shipping for little or no cost, something that strained supply chain performance and cost control. Companies that weren’t optimized had to choose between losing money or customers, as 40% of consumers changed brands in 2020. Companies that were optimized, however, maintained their customer base and even grew it while preserving a healthy profit margin.
Even major distributors began looking for alternative suppliers to meet the Increasingly hectic demand. If a CPG manufacturer couldn’t provide a distributor with a product, the distributor would just look for another one and wouldn’t wait for their original supplier to sort out their shipping issues.
Omnichannel sales
The dramatic growth of omnichannel sales, combined with the complex set of new shipping requirements, created massive headaches for companies when it came to forecasting inventory and transportation spend. CPG companies shifted to focus more on LTL and parcel shipments instead of FCL to meet customer demand and the complexity of deliveries. Companies have begun to focus more on local shipping from stores or distribution centers to customers in order to cut shipping times and costs.
Throwing in fluctuating customer behavior made omnichannel sales even more complex. Returns, for example, became a major channel when online purchasing was the only option available to many customers during the pandemic. As many as 84% of consumers reported a company’s return policy played a significant role in their decision-making process. Companies, on the other hand, had to balance returns to maintain their profit margin—the US market alone saw $428 billion worth of sales lost to returns in 2020.
Carrier rates
As transportation capacities fell and rates increased, finding the lowest carrier costs became a challenge vital to success. It led many shippers to adopt technology that gave heightened visibility into carrier rates in real-time, such as Trax's Rate Manager, in order to find the best carrier rates every time.
Choosing the right rates, lanes, and spot quotes are now pillars of sustainability. Managing that feat during disruptions, however, is near impossible without visibility and high-quality data. In 2020, for example, the UNCTAD reports that rates between China and South America skyrocketed 443%, while rates from Asia to North America went up only 63%. Having this knowledge and visibility into your carrier rates, in real-time so you know what’s fair market value, can make all the difference to your profit margin.
Forecasting
Pre-pandemic forecast models are obsolete, and ad-hoc models created during the heights of the pandemic are useless now. It’s important to take a more nuanced approach, which is why companies are creating more intricate, comprehensive forecasting models to better plan their transportation spend. It involves improving data quality, boosting visibility, optimizing cost reductions, leveraging technology, and understanding market shifts are all vital factors to take into account when creating your forecasts.
Costs Associated with CPG Supply Chain Disruptions
As disruptions caused capacity issues and higher demand for products, 80% of supply chain leaders reported 5-10% higher transportation costs during Q2 2020 than in Q2 2019. And these costs are expected to remain at 2020 levels.
Surcharges
Surcharges also drastically changed. For example, fuel prices increased—and peak surcharges from COVID sprinkled in—to create an even more challenging task of forecasting and controlling transportation spend. This led to challenges with accurately calculating accruals.
Forecasting transportation spend, including surcharges, can’t be done without the proper visibility and tools. Alarmingly enough, 63% of companies still struggle from a technological perspective when it comes to Transportation Spend Management solutions. Surcharges can account for a large portion of your transportation spend, and the fact that they’ve drastically increased makes it even more vital to keep a ‘finger on the pulse’.
Spot quotes
The demand for spot quotes surged because of limited carrier capacities, which meant companies had to go outside of their contracts. This shift from spot quotes being undesirable to a necessity led to more volatility in controlling costs, something that 86% of companies report as a leading requirement of their supply chains. It made enhanced visibility and optimized Transportation Spend Management critical to maintain profitability.
Trax’s Transportation Spend Management Maturity Model offers a robust framework for optimizing your supply chain's operational and financial processes to deliver unparalleled visibility and control over your transportation spend.
Moving Forward Through CPG Supply Chain Disruptions
The road ahead for CPG supply chains is full of innovation and change. Here are some of the trends to expect in the future of CPG supply chains.
- Automation- Automating critical processes of your supply chain is key for optimal results. Trax helps you automate processes such as freight audit, carrier management, rate management, and more to optimize your transportation spend.
- Centralize data—Enhanced visibility through centralizing your data management is critical to control the performance and cost of your CPG supply chain. Trax helps you optimize your data management by integrating world-class transportation spend solutions to create robust analytics that boosts your business intelligence for better decision-making.
- Strong logistical networks—Having a logistical network that meets your needs and is agile to disruptions is key for your supply chain's resilience. Choosing the right carriers for the right price can’t be done based solely on cost or performance, so Trax helps you get the best of both worlds through our perfected Carrier Management Services.
- Process optimization—Optimizing your supply chain processes sets you up to have a more proactive stance—you can plan ahead and have the agility to overcome obstacles with ease. Trax's Transportation Spend Management Maturity Model does just that, transforming your supply chain to become a leader in the industry.
- Agility and resilience—The pandemic made it obvious that supply chains need more agility and resilience. Trax helps you optimize your transportation spend management to be the cornerstone of your supply chain’s success, enabling you to expand your market share, become a leader, and grow your profits.
Conquering the Future of CPG Supply Chains with Trax
CPG supply chains have been reshaped by COVID, change, and costs. To combat these obstacles, you need to optimize your Transportation Spend Management and create a resilient supply chain that can weather any storm. Optimized processes enable you to plan for the future accurately while simultaneously mitigating risks and enhancing your profit margin.
To learn more about how Trax’s solutions and our team of seasoned experts can help optimize your Transportation Spend Management, contact us today.