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Pricing pressure is creating a cost crunch for FMCG firms, as well as changing consumer purchasing patterns, leading to a need for more visibility and flexibility in supply chains

Inflation, combined with disruption, is pushing investment into Fast Moving Consumer Goods (FMCG) supply chains, as companies seek to maintain margins and keep up with changing consumer tastes says a new, free-to-download white paper from Reuters Events, Supply Chain and Maersk.

The cutting through complexity and climbing costs in consumer goods supply chains white paper highlights pricing pressures as the primary concern for supply chain planners in 2023, which are providing a major impetus to institute improvements to supply chains over the course of this year.

Inflation from below changes patterns above

That pressure comes from two directions, suppliers and consumers.

The report analysed Eurostat data and found that for the European Food and beverage (F&B) sector asking prices for goods from producers rose, on average, 3.4% faster than the sale prices to consumers from January 2022 to April 2023. Essentially this means that companies in the sector have not been able put up prices on the shelves anywhere near as fast as their suppliers are raising them. It also underlines that prices have been rising far faster than long-term averages for both consumers and companies.

That trend has led to consumers shifting their buying habits to cope, creating new dynamics for FMCG companies to deal with.

“Price is going to be the driver of consumer choice,” comments Kelly Miely, Partner, Retail and Consumer Products Supply Chain, Buying & Merchandising at Deloitte, and one of the report’s expert contributors. “Consumer trackers are showing us that they are looking for deals, they're looking for discounts, they're looking for value, and they're thinking a lot harder about what they buy and where they spend their money. I think that obviously has a big impact on FMCG companies because it puts pressure on them to invest more in discounting or high value products, and it also increases the competition from private label brands.”

Data compiled by NielsenIQ this September for Reuters on French shoppers starkly illustrates this trend. The research found that many are buying less FMCG goods less than a year prior, while also turning hard towards private label alternatives in multiple categories. For instance, shower gel volumes fell 6% overall and 10% for big brands, but rose 14% for private label products, while laundry detergent volumes were down about 2% and fell 10% for big brands, but surged 28% for private label brands.

Actionable insights that lead to efficiency the focus for supply chains

The white paper uncovers that the primary way companies and their supply chains are looking to combat this trend is through improving visibility and tracking across supply chains.

For example, Greek nutrition company Delta Foods SA, “digitised operations in both upstream and downstream supply chains … starting from the milk collection, down to the delivery at the final point of sale,” says Alexandros Skandalakis, Director, Operations Strategy and Transformation. “At any given moment we know: what's been collected at the farms; what is coming into our factories and when; what's being produced; what is being shipped at every location; where it is; its delivery time; along with its quality parameters.”

Similarly, Marc Bekkers, Director Customer Service & Logistics Heineken Netherlands Supply, and another contributor to the research, says that for “scheduling, production planning and Material Requirement Planning (MRP) runs, we have a European set-up that has a good, complete view forward on what we need for the whole continent, rather than unit-by-unit within Heineken.”

Investing in visibility pays off

These kinds of initiatives are allowing for improved, smoother operations, resulting in lower operating costs and therefore a tangible way to fight back against rising prices across the sector.

Bekkers says their application of technologies that give greater visibility has allowed them to “make a lot of progress on cost, revenue, cash and to manage our supply chain through all the disruptions that are that are occurring.”

For example, he notes that shared data has given them more capacity and flexibility: “We can share bottles between operating companies when needed, or if the demand is high in one part of the region and low in the other part, we can actually share capacity.”

This means less waste and more throughput, and by seeing this process in action, companies can also make strides in managing inventory and forecasting.

“As an example, in less than two years, we decreased Losses on Goods Destroyed (LOGD) due to bad forecasting by more than 95%, reducing food waste,” says Skandalakis.

Payback can therefore be rapid on these investments, which is all the more important given the ongoing squeeze on many FMCG companies’ finances.

Indeed, Skandalakis has found that they have achieved “payback in the region of days for certain smaller applications … up to several months,” for many of their off-the-shelf investments into visibility-enhancing technologies.

These experiences from supply chain leaders underline that technologies that aid visibility and coordination represent not only some of the best ways of heading off rising production costs, but are also among the quickest to implement and at low costs.

The research therefore recommends that consumer goods firms make these moves now to reap the rewards rapidly, but also to create more resilient and flexible businesses that are better able to meet consumers in a time of high demand volatility and continued disruption.

To read more expert insights and analysis, click here to download the full white paper for free.