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How Consumer Products Companies Can Cope With Growing Supply Chain Complexity

The consumer products industry has undergone radical change over the past several years, rendering older methods for matching supply to demand ineffective. Consider some of the upheavals facing consumer products manufacturers today.

How Consumer Products Companies Can Cope With Growing Supply Chain Complexity

Customer experience. Shoppers have a multitude of ways in which they can access, research and purchase products. They can visit traditional brick-and-mortar stores, club stores and "big-box" locations. They can buy on the web and with their smartphones and tablets. They still listen to radio, watch ads and even frequent dedicated shopping networks on TV. Homes, phones and even cars are now virtual department stores. This makes tracking demand and preferences extremely complex for consumer product companies, and increases their channels for fulfillment.

Product variety and volume. Innovation is the mantra today for consumer products manufacturers. Product lifecycles have shrunk drastically. Consumers demand an unprecedented degree of choice. SKU proliferation is rampant, as retailers struggle to satisfy consumers’ appetite for customization and additional colors, sizes, flavors and other features. Consumer products companies must innovate to meet and drive the new buy preference patterns, but must also manage cost and quality.

Regulations. Product and packaging safety has become a top concern with consumers. Governmental and independent safety agencies are responding with a plethora of new and stricter guidelines. Such safeguards extend well beyond the finished product, all the way to distribution, manufacturing and the acquisition of raw materials.

Consumer expectation. Primarily because of the internet and the popularity of sites like Amazon.com, consumers are better educated, more demanding and less patient. Beyond insisting on more choice, they expect simple yet secure payment methodologies, fast and dependable delivery, excellent quality and simple means to undo their purchases. Consumers also have an instant digital way of expressing their satisfaction or lack thereof, not just through online ratings, but by social media as well.

Together these trends, matched with the need to control costs, pose a significant challenge to the consumer products manufacturer: How to synchronize demand and supply chains and integrate supply chain planning at a time when products, fulfillment requirements and buying trends are more complex than ever before. Many consumer products companies boil this overall situation down to three key questions:

1. How can we ensure top-quality customer service?

2. How can we improve or at least retain manufacturing efficiencies?

3. How can we manage inventory in the most cost-effective way, avoiding both excess product and stockouts?

Unfortunately, many manufacturers today are saddled with old tools and methods that make it difficult to answer these three key questions. The failure can be traced to inadequate communication, collaboration and alignment, both within the organization and with external supply chain and distribution partners.

Effective planning reduces rework, workarounds and costs, and results in improved customer service and experience. A traditional planning exercise seeks to align strategic, tactical and operational plans. The problem is that such efforts often take place on different levels of the organization. They are not necessarily working from the same data and premises. Day-to-day departmental plans end up differing sharply from high-level strategic goals.

Consumer products companies need to address the planning dilemma from a broad perspective. For example, they should avoid the temptation to fulfill the needs of a single customer, if such action promises to disrupt the entire supply chain. The trick lies in meeting consumers’ desire for customization, without breaking the overall planning and thus production process.

It’s no easy task to capture relevant data points and ensure their visibility throughout the supply chain. Making things even tougher is the sheer volume of information available to retailers, manufacturers and suppliers. By the time key consumption data moves from point of sale to demand planners, it might be too late to act on it. This exemplifies the lack of timely synchronization, which is the reason why so many companies fail to plan effectively.

The answer lies in enabling a constant flow of information from all levels of the planning effort — strategic, tactical and operational. Consumer product companies must connect the natural silos that form within any organization. Production, distribution and customer service must be on the same page, working from a shared set of numbers to prevent critical misalignments in planning that lead to high costs and dissatisfied customers.

It’s vital to have a formalized process for integrating demand and supply-chain planning. The right people must be brought together and then remain in constant communication. They don’t necessarily have to be in the same physical location; true collaboration and communication can be enabled by modern-day software tools, so long as the appropriate supporting processes are in place.

How can management communicate its planning vision to the various functional departments? The effort starts with a good sales and operations planning, or S&OP, process. S&OP integrates high-level goals with anticipated demand, which is then swiftly relayed to operations. As this happens, the manufacturer should be using the data to identify demand trends and potential roadblocks, then filter the resulting intelligence across the various planning pillars.

Companies that are successful in integrating demand with supply often create multiple alternative planning scenarios — the “what-ifs.” The exercise allows them to adjust key parameters such as sudden demand shifts or supply challenges, and understand the potential impact on the whole supply chain as well as model possible reactions. For example, in the case of demand falling short, they could have a prepared but inactive promotion that can cut down on obsolete inventory. Or in the case of demand exceeding expectations, they could have an additional supplier identified for key components to ensure continued customer service.

The benefits of integration and synchronization are clear: improved customer service, reduced inventory and supply-chain costs, more accurate forecasts, shorter lead times and high profitability. One purpose, one plan, one outcome: In today’s consumer products sector, that’s the recipe for success.

Luc Janssen is senior director of R&D, Manufacturing and Supply Chain Solutions at QAD.

Source: QAD

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