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The fast moving consumer goods (FMCG) sector brings with it a unique set of challenges for the supply chain. Steve Barker, Catalyst International, discusses the issues.
Retailers want the right product, in the right place at the right time and at the lowest possible cost; and the cost for failing to fulfil orders is high. Contracts are won and lost depending on the quality and accuracy of service.
So the FMCG sector lives and dies on the effectiveness of its supply chain. In a market where goods have a limited shelf life and perishables last only a matter of days, it's essential that stock movements are timely and accurately tracked. Naturally, suppliers are turning to IT to make their supply chains more responsive to retailers' demands, whilst working out ways to squeeze more costs out of the supply chain.
High volumes and rapid turnovers are key characteristics of the FMCG supply chain and keeping track of stock is no easy task. Receiving goods, checking them in, storing them in the correct way and then checking them out again takes time and costs money.
Applying the right strategy
One strategy that the FMCG company and its logistics partners can adopt is to avoid goods ever entering the warehouse where possible and this is where network management, cross docking, dynamic sourcing and routing is becoming increasingly attractive in the FMCG supply chain. By receiving goods and shipping them out the same day, warehouses can dramatically reduce costs. The key, of course, is software that gives visibility of the opportunities to cross dock and can then set up and manage all of the required activities, within the transport schedules. In a cut-throat market like retail, this impact on the bottom line shouldn't be under-estimated.
The FMCG supply chain is also particularly suited to RF data capture technology in the warehouse and the yard, given the high turnover of stock. By keeping tabs on goods both inside the warehouse and en-route to retailers, RF technology can help suppliers have a real-time and accurate picture of their inventory. This can help avoid write-offs, especially of perishable stock.
Food manufacturers in particular are under pressure from the government to properly track goods leaving the warehouse in case the products need to be recalled. Batch-tracking from the end of the production line to its final destination will eventually require much tighter controls in the warehouse and this where RF data validation could prove to be something of a supply chain saviour by enabling a real-time update of what stock is where.
Be flexible and responsive
In addition, some retailers are raising the bar on how responsive an FMCG supply chain needs to be. As goods quickly move off store shelves, retailers are demanding fast replenishment by the FMCG supplier. By identifying daily or seasonal 'fast movers' and getting the right stock in the right location within the warehouse, the picking process is speeded up and the warehouse optimised through dynamic pick faces. By using historical data and forecasting for peak times, suppliers are much more likely to be able to fulfil orders and avoid stock-outs at busy times.
Stock-outs simply aren't an option for suppliers. Neither are write-offs where stock has been lost or expired within the four walls of the warehouse. To combat this, many suppliers are moving beyond the traditional principle of first-in, first-out to think about first-expiration first-out. Again, this is an area where RF can play an important role in locating stock correctly and ensuring that companies can keep an accurate track of inventory.
Retailers may drive the FMCG supply chain, but, they are themselves responding to customer centric strategies to win and retain high spending customers and IT is helping them to better serve their customers. A new trend is how the FMCG supply chain is being extended direct to customers with the rapid growth of Internet retail for FMCG goods like food and cosmetics. Online retail is associated with low prices and competitive delivery rates but fulfilling customer orders requires a slick supply chain and maintained stock levels.
Whether it's for an online audience or a traditional retail outlet, responsiveness and flexibility remain the hallmarks of a successful FMCG supply chain. To make sure the right product is in the right place at the right time, there needs to be cooperation across the whole of the supply chain. The only way to achieve this is to deploy truly integrated supply chain management systems that don't regard the distribution centre or warehouse as a link in the chain but an essential hub in improving customer service and delivery.
Steve Barker is vice-president, Sales & Marketing EMEA, Catalyst International. The company delivers world class supply chain software solutions that help enterprises in the retail, distribution, manufacturing and automotive aftercare sectors achieve significant efficiency, productivity and service improvements. The company is a SAP certified partner
The overwhelming bulk of manufacturing and supply chain management techniques have arisen in the assembly, and especially the automotive industry. MRP II, CIM, JIT, Lean manufacturing - they all arose from the excellent work done by Orlicky, Ohno, Deming and others in and around the Automotive business.
Three decades ago, had you joined the FMCG Industry, you would have witnessed what looked like a revolution. The newly invented 'microchip' spearheaded a low cost manufacturing revolution that swept away the creaking post-war manufacturing facilities. Highly integrated, highly automated production lines sprang up all over Europe; direct headcounts were reduced by anything up to ninety percent; and the management task changed fundamentally and permanently. In fact this 'revolution' was just another part of the continuing evolution of FMCG manufacturing - which the Soft Drinks industry illustrates especially well
In Europe an FMCG manufacturer's primary customer base is the European Grocery Retail industry - which is by no means static itself. By carefully analysing trends in the Retail Industry - and matching its Network Strategy to the evolving future requirements of the Retailers - you can position yourself for a sustained competitive edge.
The essential items, or fast moving consumer goods, are classified in several different ways and are often categorized by the area in which people live, the demographics that constantly shop at the stores, and if they are perishable items or not.
However, these consumer goods are not strictly limited to what is bought in store, as fresh food products or non-perishables.
Fast moving consumer goods are also applied to items that are part of home delivery, pick up delivery, markets and stalls, items purchased at a chemist or pharmaceutical organization, specialized stores, and tobacco or smoking paraphernalia stores.
Fast moving consumer goods are items in which everyone needs to live - They are often of low cost and thus will not determine a large profit for whichever company produces and sells the items, however due to the large amount of turnover, they are deemed to produce enough profit to constantly produce and sell more.
These items are usually as follows: Fruit and vegetable, meats including; chicken, beef, and fish, some cereals, dairy products like milk and some yoghurt (often the ones most used for kids lunchboxes, or quick snacks), sugar and other drinking necessities like coffee and cocoa, pasta and various noodles, not to mention the non edible products like toiletries, shampoos and soaps which everyone needs in order to live a clean life.
Of course, those are just the simple basics; there are other products like spirits, beer and wine that are considered fast moving consumer goods due to the availability and the general want for such alcoholic products.
Stationary items like paper and pens are also considered under the fast moving consumer goods area, due to the fact that everyone is, or will be a student at some point in there life and will need exercise books and the likes of.
There are companies that are considered under the guidelines of fast moving consumer goods (from here on known as FMCG), for their ability to constantly produce the items that sell the quickest.
These are such companies like Nestle, Sara Lee, Procter and Gamble, Coca-Cola, Kleenex and Pepsi. The interesting thing to notice is that all these companies either provide confectionary or dairy items that are known not entirely as necessities, and also toiletry companies that provide body lotions and tissues.
Most fruit and vegetables are excluded from these well known FMCG companies, due to the fact that there are not only a few conglomerate companies that dominate the market of fruit and vegetable production - But rather millions of small companies that own their own crops and wish to produce farmers-markets type quality of fruit and vegetables that is enjoyed by many families for their freshness.