Retail and Consumer Product Goods

Industry Productivity and Competitiveness via Logistics and SCM

The retail and CPG supply chain is a complex world divided between large retailers establishing integrated supply chain practices with manufacturers and wholesalers, and smaller specialized retailers emphasizing customized or unique products and services delivered in a JIT manner to their customers.

These two CPG supply chain models differ while being triggered by the same force: responding to a customer centric environment. Customers are driving the demand and product/service levels by requesting complex customised products while at the same time expecting lower prices. The desire to react more rapidly to an ever-more demanding and less loyal customer, ever shortening profit and product life cycles, global sourcing to low cost countries and the need to avoid even smaller gross margins across the CPG supply chain are the key factors for developing logistics and SCM collaboration models.

Retail and CPG logistics and SCM collaboration is also extremely complex due to both market pressures of delivering rapid response, and long lead times related to low cost country sourcing. In fact close to 88 percent of North American (NA) CPG players are expecting low cost country savings eroded by logistics and supply chain costs¹ .

The Chinese share of imports for key CPG sectors in Canada has more than doubled in the short period between 2000 and 2004². Best in class retailers that are turning to low cost offshore sourcing, such as China, are looking far up the supply chain to reduce lead times as much as possible and mitigate the effect of complex and less predictable logistics and SCM operations within the value chain, as shown in Figure 2² .

Measurement of logistics and SCM KPI is an essential part of the global supply chain CPG collaboration concept. The two most preferred KPI measured by North American (NA) CPG lean manufacturers are logistics and SCM JIT related (on-time delivery and inventory turns) while traditional lean floor plant measures, such as cost per unit and manufacturing cycle time, are far behind⁴.

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In terms of KPI measurement processes, 37 percent of NA firms that have put in place logistics and SCM corporate wide measurement achieved a decrease of at least 15 percent or more in shipment delays compared to only 7 percent of firms that did not measure lean logistics KPI consistently. NA firms that measured SCM KPI also outperformed their industry counterparts on document issues, which is a key component of Smart Border solutions¹.

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It is important to note that 63 percent of NA CPG firms that are part of supply chain collaborative initiatives do not measure the value of these initiatives at all. The lack of measurement and understanding of the benefits from collaborative KPI, such as sales increase, stock-outs ratios and inventory management across the CPG value chain, can have an important impact on the innovation and productivity of the Retail and CPG sector³.

SCM processes and technology enable leading CPG supply chain players to develop new business practices that will fundamentally change the way their value chain plans and responds to consumers. The concept of connecting the retail store to its whole supply chain is based on the Collaborative Planning Forecasting and Replenishment (CPFR) model where partner companies (distributors, manufacturers, suppliers, logistics service providers and retailers) exchange information on product sales and forecasts in order to synchronize their operational plans.  This approach also integrates the downstream information flow to take account of manufacturing constraints.

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As an integrated approach to demand and replenishment in the CPG sector, connecting stores to all supply chain players is expected to yield high benefits to firms across the retail and CPG value chain⁵ .

Collaboration applications are also key for the small specialized retail sector. The capability to provide Available To Promise (ATP), mass customisation and JIT in small quantity to specific end customers requires an enhanced level of synchronisation between value chain participants.

Canadian retailers have also embraced the Internet into their logistics and SCM processes. The two key benefits of conducting business over the internet in the Canadian CPG sector are reaching new customers, followed closely by better co-ordination with suppliers and/or customers and/or partners (a key CPFR foundation principle)¹⁹.

SCM technology adoption is still at an infancy stage in Canada ; only 14-19 percent of Canadian CPG Manufacturers have implemented new logistics and SCM processes between 2002-2004²¹.

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Although the logistics and SCM technology investment level has been low in Canada, the retail sector is starting to respond to the increase in complexity of logistics and SCM by investing more intensively into value added distribution centers and freight terminal infrastructure with an increase of 222 percent between 2001 and 2003⁷ .