Executive Briefings

Focus on Product Grows, But Cost Reduction Remains Key in CPG Industry

Analyst Insight: In a recent supply chain survey conducted by IDC Manufacturing Insights, consumer products manufacturers consider themselves stewards of product quality more frequently than of either cost or service. Interestingly, the gap between companies that consider themselves primarily stewards of product quality versus cost is narrowest for the large enterprise manufacturers, suggesting that for the smaller players, it is the product itself that drives competitive success in the marketplace. - Simon Ellis, Director, Supply Chain Strategies Practice, IDC Manufacturing Insights

As companies move up the revenue range optimization, in the form of cost efficiency, the product becomes more important. The focus on product quality is not new, but this is the first time our survey has seen it as the top response when asking about supply chain centricity.

Despite this reported product focus, reduce overall supply chain costs was still selected  by the majority of the respondent companies when they were asked about their top priorities over the next 12 months, suggesting that the remit for supply chain organizations still remains efficiency and elimination of waste. So is there inconsistency between the strategic aspiration in the supply chain (what we say we want to be) and the tactical/operational realities (what we do)? To a degree, the answer is yes, although one can make the argument that product, cost and service are not mutually exclusive, but in fact all are necessary to varying degrees as "table stakes" for the successful manufacturer. Reinforcing this notion is that improve product quality/safety and improve overall customer service, while picked less often than reducing overall costs, were still selected by 50 percent or more of respondent companies as one of their top three priorities.

Setting aside cost and service performance for the moment, it is instructive to understand what activities companies plan to engage in to improve product quality and/or safety. Interestingly, those activities that were most highly rated were about internal capabilities "” deploying lean/Six Sigma more broadly, improving factory maintenance and oversight, and reevaluating cost/quality trade-offs "” rather than the external, extended supply chain challenges like visibility and collaboration. Perhaps the internal capability gaps are easier to conceptualize and therefore easier to fix than the more vague opportunities provided by visibility and collaboration, yet some manufacturers that we spoke with are defining those concepts in terms of specific use cases like supply chain traceability and/or more extensive supplier scorecards and service-level agreements.

While the product has always been critical to the performance of any business, we do see a significant role change that is making it even more important today than in the past namely, the "empowered" consumer. Enter the challenge of personalization, and the desire for the consumer to both customize the product and the shopping experience.

The other dimension gaining importance is of the regulatory compliance for the organizations driving a lot of pressure on the quality function. Traditionally, quality had been looked upon as a mere "cost saving" measure.  In the current connected and demanding scenario of the "empowered" consumer, quality is now key in driving brand value, affecting sales revenue, being a differentiator against competition, and as a way to encourage brand loyalty.

                               The Outlook

At its essence, then, we have consumer products manufacturers desperate to avoid product quality or safety problems, while being pressured to deliver a more differentiated, personalized product experience. Is it any wonder product quality and safety is becoming a higher priority!


Keywords: retail supply chain, sourcing solutions, quality assurance, government regulatory compliance, cost containment in CPG industry

As companies move up the revenue range optimization, in the form of cost efficiency, the product becomes more important. The focus on product quality is not new, but this is the first time our survey has seen it as the top response when asking about supply chain centricity.

Despite this reported product focus, reduce overall supply chain costs was still selected  by the majority of the respondent companies when they were asked about their top priorities over the next 12 months, suggesting that the remit for supply chain organizations still remains efficiency and elimination of waste. So is there inconsistency between the strategic aspiration in the supply chain (what we say we want to be) and the tactical/operational realities (what we do)? To a degree, the answer is yes, although one can make the argument that product, cost and service are not mutually exclusive, but in fact all are necessary to varying degrees as "table stakes" for the successful manufacturer. Reinforcing this notion is that improve product quality/safety and improve overall customer service, while picked less often than reducing overall costs, were still selected by 50 percent or more of respondent companies as one of their top three priorities.

Setting aside cost and service performance for the moment, it is instructive to understand what activities companies plan to engage in to improve product quality and/or safety. Interestingly, those activities that were most highly rated were about internal capabilities "” deploying lean/Six Sigma more broadly, improving factory maintenance and oversight, and reevaluating cost/quality trade-offs "” rather than the external, extended supply chain challenges like visibility and collaboration. Perhaps the internal capability gaps are easier to conceptualize and therefore easier to fix than the more vague opportunities provided by visibility and collaboration, yet some manufacturers that we spoke with are defining those concepts in terms of specific use cases like supply chain traceability and/or more extensive supplier scorecards and service-level agreements.

While the product has always been critical to the performance of any business, we do see a significant role change that is making it even more important today than in the past namely, the "empowered" consumer. Enter the challenge of personalization, and the desire for the consumer to both customize the product and the shopping experience.

The other dimension gaining importance is of the regulatory compliance for the organizations driving a lot of pressure on the quality function. Traditionally, quality had been looked upon as a mere "cost saving" measure.  In the current connected and demanding scenario of the "empowered" consumer, quality is now key in driving brand value, affecting sales revenue, being a differentiator against competition, and as a way to encourage brand loyalty.

                               The Outlook

At its essence, then, we have consumer products manufacturers desperate to avoid product quality or safety problems, while being pressured to deliver a more differentiated, personalized product experience. Is it any wonder product quality and safety is becoming a higher priority!


Keywords: retail supply chain, sourcing solutions, quality assurance, government regulatory compliance, cost containment in CPG industry