Consumer goods companies are at the heart of the supply chain. Upstream, you rely on your suppliers to bring you the materials to create your products. Downstream, you rely on the demand from retail stores and consumers to keep the cash flowing. However, factors like the pandemic, labor shortages, inflation, transportation challenges, and even climate change, have thrown both sides of the supply chain out of whack, impacting consumer goods companies greatly. New research has proven that companies can now expect major disruptions, lasting at least a month, every 3.7 years.
Needless to say, consumer goods businesses are at risk when things don’t go as expected in the supply chain. Here’s what you should know about the intricacies of the supply chain — and how to strengthen your consumer goods business amid uncertainty
Supply Chain Steps
There are five basic components of a complete supply chain: planning, raw materials, manufacturing, delivery, and returns. Each link in the chain has the power to launch a business ahead of the competition — or weaken its market position.
Planning
Essentially, planning involves any strategy or actions you take to match the output of your supply chain to customer demand. It’s everything from designing products to be easily manufactured, to maintaining appropriate staffing levels. In addition to having visibility into the various stages of your supply chain, proper planning requires keeping up with — and often, predicting — consumer demand trends, which have been particularly volatile amid fluctuating employment levels, stagnating wages, and inflation. Now more than ever, consumer behavior has been harder to predict.
Raw Materials
Obtaining the raw materials to create your products seems simple, but you’ll likely have a choice between multiple vendors, regions, and quality levels to source from. Sourcing materials may be a game of trade-offs: speed versus quality, or high-cost; local materials versus cheaper, more time-consuming international materials.
This link in your supply chain can face many threats. If your electronics business relies on semiconductors, fluctuations in international relations and politics could put your supply chain at risk. Meanwhile, a coffee roaster might have trouble sourcing beans as rising temperatures could eliminate 50 per cent of coffee-growing regions by 2050. Just as concerning, inflation has affected everything from lumber prices to shipping costs — which factor into your bottom line. In April 2022, the prices of raw materials in Canada rose 38.4 per cent year over year.
Manufacturing
As a consumer goods company, manufacturing is your business. Whether you create complex products that require separate machining, assembly, testing, and packaging steps, or your products and processes are more streamlined, you’re at the heart of the supply chain. That means your efficiency will be affected by how effectively you’ve planned and sourced raw materials for your business. But it also means that, more than any other supply chain component, your business has likely been affected by recent labor fluctuations.
When COVID-19 lockdowns went into effect, Canada saw massive layoffs, especially for in-person positions like those in manufacturing. But since January 2021, job vacancies across Canada have more than doubled as businesses struggle to fill positions to keep up with post-pandemic demand. Companies that do have enough staff still struggle to train workers quickly, and unskilled workers tend to produce less while using up more resources — which can impact your time to market and bottom line.
Distribution
To keep your business moving, you must keep your product moving. Getting your goods on shelves is critical for products that consumers want to buy in brick-and-mortar stores, while maintaining efficient delivery lines is critical for goods sold online. Both require careful logistics — which has been yet another supply chain challenge.
Rising gas prices and labor shortages have hit the trucking industry hard, while climate change has both drained busy waterways and flooded critical ports.
Returns
While increasing customer satisfaction can minimize them, returns are a part of every consumer goods business. Providing an inexpensive way to ship products back to you presents many of the same logistical challenges as delivering them in the first place — with the added pressure of a lost sale. Often, the first links in your supply chain are to blame for high return rates. If you have trouble predicting consumer demand, sourcing quality materials, or hiring experienced manufacturing labor, you could see an increase in returns that reduce revenue and repel customers.
Guarding Against Supply Chain Issues
Understanding the links in your supply chain is a critical first step in guarding it against disruptions. But there are some ways to further protect and optimize your consumer goods chain, including visibility, agility, adaptability, and alignment.
Visibility
Keeping your supply chain visible to you and your business associates is critical in keeping each part humming along and working together. If you’re like the 99 per cent of consumer goods companies that accelerated their digital transformation in the last few years, you’re off to a great start. If not, consider digitizing your manufacturing and sales process so you can track more data points, easily see trends, and share critical findings with your team. Pay close attention to fluctuations in customer demand and manufacturing efficiency over time, and how these are affected by seasonality, labor shortages, inflation, and more.
Then, start digging into your vendors to better understand how trends affect their businesses too — or risk becoming one of the 23 per cent of businesses that cite lack of visibility of supplier risks as the most vulnerable element of their supply chain. For companies using only raw materials like lumber, petroleum, or corn, better visibility could mean simply communicating more with your direct suppliers. However, if your business uses materials that are goods themselves (such as semiconductors or glass bottles), you may need to dig into the companies that supply your vendors. Keep asking questions and connecting with vendors until you have the full picture.
Agility
While it’s tempting to optimize your supply chain for efficiency, it’s possible to be too efficient. Focusing on lowering your inventory days of supply (a key efficiency metric) could leave your business susceptible to shortages — which 76 per cent of Canadian businesses experienced in Q2 of 2022.
Instead of putting efficiency on a pedestal, elevate agility as a primary supply chain goal. Upstream, that might mean retaining relationships with several diverse vendors to bake in some redundancy. If your textile producer in China struggles with government sanctions, your Mexican contact might be able to pick up the slack and keep you running.
Downstream, agility could mean diversifying how you distribute your products. If COVID-19 lockdowns prevent your customers from seeing your products on store shelves, find ways to step up your online presence and partner more closely with delivery services.
Adaptability
Once you’ve optimized your supply chain for short-term agility, you’re not done. To thrive amid long-term shifts, stay open to strategically adapting your supply chain over time. Doing so could mean the difference between constantly reacting to supply issues and building a more resilient chain altogether. If you’re one of the 72 per cent of businesses globally that have seen environmental supply chain disruptions, for instance, consider switching to vendors outside areas prone to floods, wildfires, or winter storms.
Consider long-term trends at the other end of your supply chain too: customer behavior. More and more, consumers are demanding socially responsible supply chains behind the goods they purchase. Nearly 6 in 10 consumers say they want sustainably produced foods, for example. Adopting more transparency and choosing socially responsible vendors could give you an edge over less-aware competitors while helping you avoid potential public backlash.
To adapt your supply chain for long-term success, you’ll need to look at how your current systems work and consider your long-term strategy and vision. Finally, consider the needs of your ultimate customers: those who will actually consume your products, not just the stores that will sell them.
Alignment
The key to aligning your supply chain is creating equitable partnerships in each link. You might split the costs — and profits — of raw materials with the vendors that provide them, for instance. Or you might charge a vendor for providing low-quality parts if a customer returns a less-than-satisfactory product.
Aligning the links in your supply chain means getting clear on what your priorities are. Is customer satisfaction your North Star? Or would your business benefit more from a shorter time to market? Build your partnerships around meeting these goals and bake in shared success — or failure — to your contracts.
Conclusion
Global supply chains face a variety of challenges for the consumer goods companies that count on them. And supply chain threats come in many forms — from pandemics and climate change to labor shortages and inflation to war and political unrest. Keeping your supply chain agile, adaptable, and aligned amid these challenges isn’t easy, but it can help you weather the storm. Start by increasing the visibility of your current supply chain, then strengthen each link in the chain as needed.
