How agility and reliability can give leaders the competitive edge
For fast-moving consumer goods (FMCG), timing is everything. If a can of soft drink is out of stock, customers won’t hesitate to grab a competitor and go, explains Terence Lau, FMCG, apparel and retail sales lead for Asia Pacific at Maersk. “You have to have the stock available on the shelf, but you also need the right amount of stock because that affects the cost,” he adds.
There was a time when FMCG businesses were able to sacrifice flexibility for leaner, more efficient and cheaper “just-in-time” supply chains. But that is no longer possible. Today, businesses must operate in volatile conditions. They must walk the line between agility and reliability so that their supply chains are both resilient and flexible enough to react.
Modern supply chains are incredibly complex and can experience shocks in demand due to sudden changes in consumption patterns. “In the supplier-FMCG relationship, the industry is still looking to determine the right balance between supply chain flexibility and cost to meet unprecedented shifts in consumer demand, and the challenge is to find new ways to have both,” says Peter Prem, vice-president of strategic planning at food packaging and processing group Tetra Pak.
Expect the unexpected
There is no one-size-fits-all solution for businesses. To have the right supply chain for the prevailing conditions, businesses need to understand what customers value—and that constantly changes. A few months ago it was the ability to pop into a supermarket to buy ingredients for a meal after work, but now consumers value safety above all, points out Professor Richard Wilding, chair of Supply Chain Strategy at Cranfield School of Management’s Centre for Logistics, Procurement and Supply Chain Management. “People don’t want to go to the supermarket, they want to shop online, so the supply chain has to adapt.”
The creativity of our people to find and use alternative solutions helps us work around limitations
It’s become clear that the companies and suppliers that have adapted best to the “new normal” were those that could be flexible. Scenario planning is essential for examining how to react to risk events. FMCG firms can learn from the experiences of other kinds of businesses. “No one can totally plan for a pandemic, but many companies have experience of events that shut down their supply chains. The 2010 Fukushima tsunami in Japan was a wake-up call for carmakers, for example, which were totally caught off-guard by the concentration of suppliers in the region that was worst affected by the disaster,” says Mr Wilding. Now carmakers such as BMW have a much more proactive approach to risk management that has made them more flexible. “This flexibility requires high levels of supply-chain transparency, continual monitoring and intelligence,” Mr Wilding explains.
Scenario planning highlights how companies can prepare for unforeseen events, whatever they are. “If you scenario plan for people not being able to get to work, it doesn’t matter whether that is because of a pandemic, snow or a terror attack—it still works,” says Mr Wilding.
Mr Lau recommends the 4R principle approach to boost resilience and seize the moment when the time comes. The 4R principle is simple: “ensure the right goods are delivered at the right time, to the right place and at the right cost”.
To successfully execute the 4R principle, Mr Lau advises businesses to develop their technology and operational capabilities. “The 4R principle demands a high level of supply-chain visibility, control and optimisation elements which are enabled by predictive analytics tools, actionable process and experienced expertise,” he says. “The success of exemplifying the 4R principle on supply chain helps all companies to grow their business profitably at all times.”
Tools of the trade
As consumer expectations have evolved in recent years, so too have FMCG manufacturers’ expectations of their suppliers. Even before the pandemic, suppliers were having to react to faster product development times and were increasingly turning to technology to help them adapt.
For example, Tetra Pak is applying digital technologies to its processes and has been able to meet the vast majority of customers’ changing demands, explains Mr Prem. "The creativity of our people to find and use alternative solutions helps us work around limitations.”
The company is also using cutting edge augmented reality technologies to complete remote installations and transporting via green rail-freight to close short term supply gaps.
This shift towards a next-generation digital supply chain has become known as Supply Chain 4.0. McKinsey & Company, a management consulting firm, defines this as “the application of the Internet of Things, the use of advanced robotics, and the application of advanced analytics of big data in supply-chain management: place sensors in everything, create networks everywhere, automate anything, and analyse everything to significantly improve performance and customer satisfaction”.
Mr Lau says that Maersk has embraced this new world. He highlights the company’s use of “control tower” services that simplify its supply chains by allowing customers to orchestrate their logistics operations from start to finish on a single platform. “Supply chains are so complex today that it helps to have someone to monitor who should be doing what and when,” he adds.
The competitive edge
The success of a business can be deeply intertwined with its supply chain. FMCG companies may not be able to predict the future, but they can be prepared for it. Agility and reliability in their supply chains will give FMCG leaders a competitive edge, no matter what comes next.
The success of exemplifying the 4R principle on supply chain helps all companies to grow their business profitably at all times.
Produced by (E) BrandConnect, a commercial division of The Economist Group, which operates separately from the editorial staffs of The Economist and The Economist Intelligence Unit. Neither (E) BrandConnect nor its affiliates accept any responsibility or liability for reliance by any party on this content.