MHI Solutions Improving Supply Chain Performance
The changing supply chain landscape for consumer goods
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The consumer goods sector has been on the front lines of the changing supply chain landscape in recent years. In particular, the growth of e-commerce during the pandemic continues to have a transformative impact on the category. Not only do more consumers buy goods online now—both from retailers and directly from manufacturers—but the consumer goods category is central to the shift in consumer demand that emphasizes rapid deliveries of orders, putting sharp pressure on the supply chain.
“When people order something now, they want it tomorrow,” said Tony Calabrese, chief technology officer with RBW Logistics.
An October 2023 update on “the state of the U.S. consumer” from McKinsey showed that consumer optimism had grown two-percentage points since April, reflecting a “tempered optimism” that was leading to small increases in consumer spending over 2022. More consumers expressed an intent to splurge as a result of improved optimism, much of it related to flattening inflation. The consumer products categories where they most planned to splurge included groceries (35% of respondents), apparel (31%), beauty and personal care (30%) and electronics (21%).
Demand for consumer goods has remained strong in 2023 despite many consumer goods companies raising prices by double-digit percentages in the past year, according to The New York Times. The price increases are often attributed to rising commodity prices, though many companies whose ingredient costs have gone down have raised prices, too, according to the paper. The trend has allowed some companies to increase profits while selling fewer products and others to raise prices and still sell more products.
“Both trends point to a consumer who is able to absorb higher prices,” according to The New York Times.
Disruptions and the Importance of Adapting
In a July report, the Consumer Goods Forum noted, “Successive crises have had a compounding effect on business operations.” Most recently, those include COVID-19, climate change and multiple conflicts around the world, including Russia’s invasion of Ukraine. The threat of disruption to the consumer goods supply chain means that shippers and their partners must be prepared with contingency plans.
“With so much constant disruption, consumer companies are caught in the middle, trying to balance changing consumer preferences with supply chain dislocation, rising costs and higher debt burdens,” said Kristina Rogers, EY global consumer leader, in a press release. “There is much companies can do, however, to thrive and not just survive in today’s climate. Volatility and adversity can be engines for innovation, efficiency and resilience, which improve growth and margin.”
Wai-Chan Chan, managing director of the Consumer Goods Forum, said a simple approach is insufficient to manage the supply chain-related disruptions—tailored solutions are necessary.
“There is no ‘one-size-fits-all’ approach to fix the array of supply chain challenges—so a nuanced strategy is needed,” Chan said. “This includes using digital tools for measurement, tracking and improvement while also leveraging procurement and innovation to use substitute materials or diversified supplier networks.”
Consumer goods supply chain participants lean on technology to navigate around these disruptions as well as they can.
“There are all these possibilities,” said Kingshuk Sinha, professor and chair of the Supply Chain and Operations Department at the University of Minnesota. “It’s not like you’re stuck with your modality of transportation. And that’s where a lot of the newer technologies become quite consequential. For instance, if you need to take satellite data to understand the geospatial coordinates of where your cargo is and try to move it and account for it, while being mindful that there could be some minefields along the way, either because of bad weather or because of some conflict or of some other unforeseen circumstances, that can happen now.”
As a result of recent disruptions, the U.S. consumer goods industry is seeing a resurgence of nearshoring activities, partially as a response to concerns about risks associated with outsourcing to China. Douglas Kent, executive vice president of strategy and alliances at the Association for Supply Chain Management (ASCM), said ASCM’s research showed during one recent measurement period that for the first time in 20 years, the U.S. had a higher volume of road shipments crossing the border from Mexico in Laredo, Texas than it did arriving through the Los Angeles and Long Beach ports from Asia.
“We are seeing a lot more nearshoring activities, which is also increasing some volumes relative to road transportation, particularly up from Mexico into the U.S. for U.S. domestic consumption,” Kent said.
Kent said many experts expected a greater deceleration in e-commerce after the pandemic once people were able to return to brick-and-mortar locations. However, he said, “that certainly hasn’t been the case.” In the supply chain, that means more complexity.
“Because of the service expectations on the consumer side, it’s not only the forward logistics but also the return logistics that is rapidly on the increase,” Kent said. “We’re buying more as a consumer from e-commerce, and then, of course, we’re also returning more goods, because we have the right to do that, and oftentimes free of charge. That inadvertently increases the amount of return logistics as well.”
In that vein, the placement of inventories has taken on added importance, and AI and other tools are helping to optimize inventory management strategies.
“If you take a look at particularly the growth of e-commerce, it becomes super important,” Kent said. “The customer or the consumer has the expectation of that two-day delivery window, so you need to have the right inventory positions across the network to enable that to be possible. Obviously, the U.S. has a large geography, so you need to have dispersed and distributed inventory in order to make that accomplishable.”
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