FMCG businesses need to seek out hidden supply chain efficiencies in the face of cost pressures

Comment from Joe Hebblewhite, commercial director, LPR UK and Ireland.

“Beleaguered FMCG businesses need to seek out hidden supply chain efficiencies in the face of huge downward cost pressures from retailers. Right now, it’s not easy being a supplier in the retail sector. While the big four UK retailers (Sainsbury’s, Asda, Morrisons and Tesco) have all reported a fall in sales, the discounters, most conspicuously Lidl, continue to expand their portfolio of stores.

“Throw in the uncertainties of Brexit and rising food inflation and you’ve got a perfect storm facing food producers. While there’s a huge amount of uncertainty in the air, one thing is for sure; suppliers will continue to be squeezed on price, while being pushed to improve their service levels. What can manufacturers do to stay afloat?

“Part of the answer lies in the supply chain. In the good times, the business of transport and storage usually gets overlooked as the dirty end of the retail kaleidoscope. When profits are cut to the bone, every quarter of a percentage matters – and the ‘wheels and sheds’ boys, can become the unlikely heroes for many manufacturers.

“Aggressive cost-cutting and zero-based budgeting, is one way in which FMCG businesses are looking to increase margins. However, this approach overlooks the opportunity to save by increasing efficiencies, which is a longer-term way to protect margins. The supply chain, and pallet pooling in particular, is a good example of this. If the pallet pooling operation is examined and analysed, then innovative changes can be made to reduce costs.

Inflation will inevitably increase unit prices in future years, but if the process is as efficient as possible, the impact can be minimised.

“The key here is collaboration. Businesses need to work closely with their supply chain partners to uncover the best ways to save. There is no one-size-fits-all approach and every business will be able to save in different ways. One way to cut spend is reduce stock holding to cut daily hire costs. You could do this by having tighter controls over pallet delivery times or review the communication path between planning teams and pallet order contacts to optimise the amount of pallets needed. You could also ask your pooler to consider whether the haulier is able to collect pallets on the back of a customer delivery, therefore maximising vehicle usage and minimising cost and wastage.

“Retail suppliers are facing one of their most challenging times. However, while remaining passive will not solve problems and may simply lead to continued margin erosion, aggressive cost-cutting on the other hand is very much a short-term approach and overlooks the opportunities to increase supply chain efficiencies for the long-term. The need to take action to understand your supply chain, and change it if required, has never been stronger.”

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