New O4S raises Series A investment. To be announced soon. Read More

Inefficient Supply Chain’s Impact in FMCG Sector

Fast-moving consumer goods (FMCG) is one of the rapidly growing sectors in the Indian economy. The FMCG sector is expected to grow at a CAGR of 27.86 % and reach USD 103.7 billion by 2020. It is worth noting that the rural segment contributes about 45 % of the overall revenue generated by the FMCG sector. The top three sectors within FMCG are household & personal care (50%), healthcare (31%), and food and beverages (19%).
Supply Chain in FMCG pertains to the entire lifecycle of a consumer product, from acquiring raw material for production to the finished products. It begins with raw material sourcing and purchasing, product packaging, and ends with the delivery at the point of sale. An efficient supply chain is crucial for any FMCG organization to meet the growing consumer demands. Additionally, a robust supply chain has the potential to increase the profitability of the organization.
The FMCG supply chain deals with multiple challenges like the reducing overall costs, meeting increasingly varying customer demands, and ensuring quick as well as timely delivery. To add the woes, organizations must further ensure accessibility and be able to fulfill customer demands. Organizations need to maintain all this, in an ever-metamorphosing industry.

How Does A FMCG Supply Chain Become Inefficient?

One would think that FMCG companies, with its fast-moving and mass-produced items, would have already figured out the entire supply chain. Yet, several new factors are now part of the supply chain which if not addressed, can lead to significant inefficiencies. The rising cost of distribution, increasing number of SKUs, and a wide variation in the last mile execution can severely affect the supply chain. Lack of innovation, accountability, and visibility are the chief causes of an inefficient supply chain. Let us look at each of them individually to analyze the core of the problem.
  • Accountability - With the supply chains becoming global, accountability at every stage is essential. A lack of clear distribution of responsibility will lead to inefficient supply chains given the sheer volume and scale of distribution in FMCG.

  • Visibility - Visibility or tracking of the products at every stage is critical not only to ensure efficiency but also to ascertain product authenticity. A lack of visibility increases the probability of counterfeit products being introduced in the supply chain.

  • Innovation - Innovation is the key to survival in any industry due to the rapidly changing technological landscape. Using innovative tracking, tracing, and other related technologies FMCG companies can improve their supply chains. Not accepting the change may eventually turn the supply chain inefficient.

Why is it important to have an efficient Supply Chain?

An efficient supply chain is crucial for improving brand value in the market, enabling product transparency, enhancing profit, and increasing customer satisfaction. Thus, companies need to continue seeking higher efficiency in their supply chain. This would help companies meet price expectations by streamlining and restructuring processes while preserving economies of scale during the product lifecycle.
Transparency and traceability are terms often used interchangeably but incorrectly. When applied to a supply chain, both the terms could have a wide variety of meanings. A competent supply chain incorporates both and provides a huge clarity of procedures involved during the different stages of the cycle. As the name suggests, traceability allows for effective tracking of products during the lifecycle, whereas transparency aims to map this entire process.
Emerging technologies such as blockchain are now being tried to solve the complicated and critical problems of the supply chain. A modern-day supply chain needs high traceability and visibility to ensure that the trust between all the parties involved in the supply chain is sustained and increases over time.

The Need For Transformation In FMCG Supply Chain

To understand the current challenges that are being faced by the FMCG supply chain, we must first understand the factors driving the change and forcing businesses to upgrade. The rapidly changing shopping patterns of the consumers and the latest technological solutions are a few prime reasons that necessitate an overhaul in the entire supply chain.
Over the past decade, the FMCG & retail industry has transformed and evolved at breakneck speed. This has led to the rise in changing consumer expectations along with a massive change in shopping patterns. The latter can largely be attributed to the emergence of eCommerce and niche specialty stores. The change in the “traditional Kirana” store and their aspirations has also forced companies to leverage technology to stay relevant.
The tech-savvy and well-informed consumer is now aware of the options available at their disposal in a simple click of a button. The plethora of choices has made traditional barriers such as cost and convenience obsolete. Today, a consumer can access what they, when they want, and from wherever they want. This has resulted in diverse demands that range from international online retailing to a locally made product.
The nature of products that form a substantial part of the FMCG sector further complicates the supply chain. Perishability and seasonal fluctuations also create unique challenges that force organizations to create supply chains that are capable of adapting such a varied pace.
In response to this change, today’s FMCG supply chains have revamped their strategies and turned their attention towards reducing the costs, increasing responsiveness, and using technology to create a robust supply chain. An increasing number of companies are employing innovative loyalty management programs to optimize their supply chains.

What Next?

As technology advances and consumer demands evolve, things would continue becoming difficult for the FMCG supply chain. It becomes imperative for the organization to ensure that all the stakeholders in the supply chain are optimized so that the entire supply chain can function like a well-oiled machine. Simple and easy steps like product serialization and verification can help FMCG organizations manage and secure the entire supply chain.
Companies can also leverage the available data points for every entity in the supply chain. This data can be analyzed regularly to evaluate the performance of every partner in the supply chain and to take critical business decisions.
We at O4S, strive hard to deliver solutions that help companies create a robust supply chain. With our next-gen solutions, FMCG companies can track their entire supply chains, manage returns, and motivate the distributors & retailers with loyalty management programs. All our solutions are aimed at helping you create the supply chain you deserve.