With supply chain bottlenecks, inflated costs, and inventory shortages, CPG brands today are facing the perfect recipe for challenging sales and profits.
So what’s a brand to do? We took a look at several industry leaders and the initiatives they’re putting in place to stay ahead.
Partnerships are nothing new. The right partnerships can lead to increased brand awareness, shared resources, and the opportunity to extend into new markets - a seemingly win-win for both parties.
Take for example Kroger’s partnership with home merchandise retailer Bed Bath and Beyond. The grocer will feature a selection of popular products in store and online starting in 2022. The move takes place as part of Kroger’s aim to provide a one-stop shopping experience and move beyond grocery.
Neither Kroger nor Bed Bath and Beyond are new to the benefits of partnerships. This effort follows a few other strategic collaborations in recent years with retailers Walgreens and Alibaba. The partnership also comes days after Uber announced a collaboration with Buy Buy Baby for a new baby and kids vertical in the Uber Eats app.
Surely something can be said about the success of brand partnerships. Beyond the benefits mentioned above, these initiatives can also be used as a strategy to move through excess inventory. That is, if you’re one of the lucky ones to be in that position given the stock shortages of this holiday season.
Those who are not as lucky to have their desired stock levels on hand are turning to alternative methods to optimize their supply chain.
Clorox, for instance, has increased its contract manufacturing to make up 50% of its business, up from 20% previously. This move was done despite the extra costs in an effort to offset the impact of raw materials shortages.
Some companies are also using 3-D printing as an alternative to sourcing parts from overseas. And for those who want a more permanent solution, long term restructuring of your supply chain may be a more strategic option. Take for example Kellogg who plans to invest $45 million in restructuring its North American supply chain to meet demand for its ready-to-eat cereals. The company is preparing for a 3 year restructuring plan that will help offset cost inflation.
Temporary manufacturers and nearshoring are both efforts that can seem more expensive until you take into consideration the opportunity cost of the alternative. We covered this topic in more detail in our Keeping Up with Supply Chain post. Be sure to check out The Cost Differential Frontier Calculator (CDF), a public tool available to understand the pivot point and cost benefit of nearshoring.
The strategic reduction of saleable SKUs is a lever that can be pulled in times of need. Companies like Coca-Cola, Mondalez, and Proctor & Gamble have all publicly shared details regarding their recent product cuts.
Though additional SKUs can help drive additional revenue, it is often at the expense of additional costs. Time spent in development and costs spent in storage can compound and take away resources otherwise invested in top performers. Moreover product proliferation reduces efficiency. Economies of scale are disrupted. For instance, a single soft drink split into multiple SKUs means variation in packaging, form, and marketing.
Done properly, SKU reductions can result in profit improvement. Take for example Mattel who announced recently that they were able to contribute to a $92 million cost reduction program with a 30% reduction in SKUs.
Fewer SKUs means less time sourcing, manufacturing, packaging and transporting inventory/demand that can otherwise be substituted.
Resiliency is key
Building a resilient product business often translates to changes in the supply chain. It’s hard to pivot when lead times are long and vendors hold all the cards. We dive further into how you can build a resilient supply chain here.
As an inventory and planning solution for modern brands, Fuse can help set you apart and stay resilient. Sign up for our product demo to learn how.