MHI Solutions Improving Supply Chain Performance
In today’s consumer goods industry, everything but the products themselves is substantially larger than just a few short years ago, including sales figures, profits, retail prices, supply chain disruptions and costs for raw materials, labor, transportation and warehousing.
The numbers prove that bigger isn’t always better, but as a whole, the consumer packaged goods (CPG) industry can expect 2022 to be another year of “strong financial performance,” according to Deloitte’s annual report on the industry. Just don’t expect it to be easy.
In Deloitte’s survey of CPG executives, nine out of 10 said supply chain issues were the biggest threat to company growth, and six out of 10 said the labor shortage and high inflation were threatening to erase growth this year. But even amid rising costs, the outlook is bright for CPG companies, largely because the essential nature of their products allows them to pass those costs on to consumers, Deloitte said.
More than half of the CPG executives surveyed by Deloitte expect their operating margins to increase in 2022, continuing a recent trend. The report found that in 2021, two-thirds of publicly traded companies were reporting higher profit margins than prior to the pandemic.
COVID-19 resulted in surging demand for CPGs in 2020, with U.S. sales totaling $1.53 trillion, up 9.4% from the prior year, according to the Consumer Brands Association (CBA). That huge leap led the trade group to forecast in March 2021 that demand would decrease 1% to 2% through the rest of the year, but Americans just kept on buying the stuff they love.
In the third quarter of 2021, demand was up 1.8% from the prior quarter, and it had risen 8.3% from the third quarter of 2020, according to the CBA.
To meet rising demand, manufacturers were hiring more workers, increasing wages, implementing automated technology and adding new factory lines, according to Deloitte. Those costs help to explain why prices for CPGs in November had risen 3.2% from the same month in 2020, the CBA said.
Supply chain congestion
COVID-19 and the growing demand for CPGs have thrown international supply chains into disarray—and into the regulatory spotlight. In November, the Federal Trade Commission (FTC) ordered nine major retailers, wholesalers and suppliers to provide information on the causes of supply chain disruptions within 45 days.
In a statement, the FTC asked leading CPG companies such as Walmart, Kroger, Amazon, Procter & Gamble and Kraft Heinz to provide internal documents regarding “strategies related to supply chains; pricing; marketing and promotions; costs, profit margins and sales volumes; selection of suppliers and brands; and market shares.”
The agency, which acts as a watchdog for U.S. consumers, said it wants to determine whether supply chain disruptions “are leading to specific bottlenecks, shortages, anticompetitive practices, or contributing to rising consumer prices.” The FTC also asked companies for “voluntary comments” that would “provide an opportunity for market participants to surface additional issues and examples of how supply chain disruptions are affecting competition.”
The FTC probe was announced Nov. 30, the same day that President Joe Biden met with executives from major retailers such as Walmart and Kroger about supply issues. That month, the Consumer Price Index, a measure of inflation, rose 6.8% from the same month in 2020, the largest increase since 1982, according to the Labor Department.