Three Principles of Resilient Supply Chains for CPG Manufacturing

Long after the pandemic and a host of other disruptions delivered a fatal blow to lean supply chains, consumer packaged goods (CPG) manufacturers are determined to gain the visibility they need for resiliency – with good reason. IDC analysts predicted that by the end of this year, half of all manufacturing supply chains will see the benefits of supply chain resiliency, resulting in a 10% reduction in disruption impact. Gartner researchers found the top two business drivers for digital supply chain strategy were to improve the customer experience (97%) and reduce costs (98%).

“There isn’t a CPG manufacturer who would disagree that having visibility across their supply chain is paramount to resilient business during these disruptive times,” said Stanko Simonski, CPG industry value advisor at SAP. “The question is how to close the gap between the vision and reality. Market leaders are gaining the visibility to first, understand what’s likely to happen and how they need to respond, and second, act on the decisions they’ve made.”

Settle for Nothing Less Than One View of Your Data

Deciphering everything from early demand signals to third-party transportation issues across complex supply chains is all about combining data for one integrated view. Managers who have their finger on the pulse of market demands in real or near real time can adapt forecasts and shop floor production lines faster. The same concept applies to imminent supply chain delays at any point, including raw materials stalled in transit from suppliers, down to finished goods held up from sales order fulfillment. Connecting data in the enterprise resource planning (ERP) system, such as the bill of materials with product life cycle management, helps companies make changes on short notice without compromising quality.

“Companies can use technology to connect information at scale throughout supply chains across third parties and on a detailed level all the way though to factory shop floor,” said Simonski. “Integrated network alerts can tell you to change a purchase order, talk with alternate suppliers because one of the ingredients in your recipe isn’t available, or shift production processes for different materials. Having more options provides greater predictability.”

Create a New Kind of Redundancy

Demand spikes, whether positive or negative, increase company risk. With updated information, manufacturers can change production sites between factories while recommending comparative products to customers. However, CPG manufacturers tend to have regionalized facilities, with designated suppliers close by factory locations. They typically cannot transport products further distances without compromising profitability, hence the proliferation of lean supply chains. That changed with the pandemic.

“Manufacturers that supplied individual markets typically from one location to optimize costs pre-pandemic were stranded when they couldn’t obtain materials. They’ve realized the need for some redundancy in the supply chain,” said Simonski. “Some manufacturers have expanded the capabilities to source markets from more than one factory in case customer demands increase too fast for the one factory to handle. Others have turned to designed-in flexibility, where equipment in the same factory can be converted to produce various products in sync with market needs to mitigate disruptions.”

In a highly uncertain market, demand planning has become much more sophisticated. In fact, IDC analysts predicted that by 2025, 30% of all direct procurement transactions will be based upon capacity availability instead of units or volume. The most resilient manufacturers will be able to shift demand-based production between various factories, their own or a network of contractors. Managers might deliberately plan for free capacity in certain factories, with contingency staffing for short-term demand spikes. Even the ability to replicate the same product less efficiently on a different production line is preferable to completely lost revenue.

Build Customer Trust through Product Quality and Availability

Trusted customer relationships depend on both quality products and delivery as expected. Gartner analysts said that companies are prioritizing improvements in supply chain resilience and agility in meeting customer needs, finding “new trade-offs between cost, speed, and service in a changing landscape where uncertainty and higher customer expectations go hand in hand.” Again, technology has a major role in supply chain resilience. By next year, IDC analysts expected 50% of all supply chain forecasts will be automated through the use of artificial intelligence (AI), improving accuracy by five percentage points. Simonski equated accurate demand and supply planning, as well as regulatory compliance and product quality, with supply chain resilience as the bedrock of trusted customer relationships.

“CPG manufacturers need to stay on top of the next event that will cause disruption,” he said. “As new regulations like the UK Plastic Tax are passed and other countries follow this trend, can you stay profitable with products that comply with increasingly stringent mandates and reporting proof? That’s why we developed SAP Responsible Design and Production. In the circular economy, the quality of data across the supply chain is essential to sustainable business.”

Whether or not business ever returns to so-called normalcy is anyone’s guess. One thing we know for sure is that supply chain resilience leads directly to business resilience.


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This also appeared on SAP BrandVoice on Forbes.