As fast-moving consumer goods (FMCG) companies and their external supply chains continue to operate in a competitive, ever-shifting market, it is becoming increasingly critical for them to collaborate in real-time to deliver products to market on schedule and with excellence.
In order to focus on product innovation, many brand manufacturers are increasingly outsourcing the management of materials to external partners—such as co-packers and contract manufacturers. Additionally, these same co-packers must manage their own material procurement and movements between themselves and their customers and suppliers.
However, without the proper systems in place to effectively source, track, and coordinate these materials across the external supply chain, communications breakdowns can occur. As a result, materials ordering and delays are commonly cited as the number one reason suppliers—and subsequently, brand manufacturers—fail to meet attainment goals.
To this end, my colleague Kevin Wong, COO of Nulogy, and I had the pleasure of joining a panel discussion hosted by Supply Chain Now focused on the importance of taking a technologically mature approach to materials management within the external supply chain.
The reasoning is simple: effective materials management is a must when faced with challenges such as cost inefficiencies and a lack of visibility into trading partners’ operations, but most enterprise software solutions simply weren’t designed to excel in these environments.
With a purpose-built solution for materials management and predictive tools, organizations gain superior fulfillment rates, agile responsiveness and increased customer satisfaction.
Read on to learn more about this must-have technology for mastering your external supply chain.
The Importance of Effective Materials Management
While materials management has always been vital, current trends such as increased social media consumption are reshaping consumer behavior and creating new challenges for FMCG organizations and their partners. Building off the social media example, we talked about how the unpredictable nature of product launches on social media and users’ buying habits make it difficult to foresee demands accurately in the supply chain. The same concept goes for geopolitical and economic variables such as the Suez Canal disruption.
Kevin pointed out that other factors such as the increasing complexity of product ingredients reinforce the importance of proper materials management and synchronization. “[It’s] just getting harder to source and manage [some] materials,” Kevin explained. “[Did you know] that there’s 80 flavors of Oreos now – or more – around the world? Back in the early 1900s when Oreos were invented, there was just one.”
I’ve observed a similar trend in our industry and, just as product customization and delivery have gotten more complex, so, too, have the types of tools available to manage and monitor the materials needed to manufacture and package them. Not long ago many organizations were moving toward JIT (just-in-time) processes and having just enough inventory to support demand. That was an easier way of doing things. With global disruption increasing in frequency and intensity, that type of approach isn’t possible anymore.
The market will never go back to what it was before. Now, organizations must have adequate inventory to manage inevitable supply chain disruptions and industry professionals’ economic order quantity calculations.
Unpredictability is going to be with us forever… and using good software, good technologies, good processes is the only way we’re going to get around it.
Kim Reuter, Co-Host, Supply Chain Now
Kim Reuter, co-host of Supply Chain Now, said it best when she pointed out, “Unpredictability is going to be with us forever… and using good software, good technologies, good processes is the only way we’re going to get around it.”
The Price to Pay for Ineffective Materials Management
How do you synchronize all of your supply chain partners as outsourcing becomes harder and harder? How do you avoid the Bullwhip Effect, where demand variability is amplified as it moves up in the chain to manufacturers? The price to pay for ineffective materials management can range from minimal to monumental impacts such as:
- Increased material costs
- Excess inventory that eventually expires, resulting in waste
- Increased costs due to expediting materials
We uncovered additional potential impacts during the livestream discussion (which is available on-demand!). My biggest takeaway, however, is that greater supply chain optimization results in more powerful gains, whether it be sustainability and material costs or a reduction in capital production interruption. In my opinion, having too much inventory eats into your narrow profit margin and you end up paying for extra real estate you can’t afford. Too little inventory can negatively impact your relationship with customers. The goal is to minimize latency and operate as close to real time as possible while moving with these fluctuations in place. All of this can be accomplished with the right technology.
Common Roadblocks to Effective Materials Management
Kevin pointed out quite quickly that, in his experience, the most common roadblock to effective materials management is that companies simply aren’t using the right tools for managing their warehouse floor, inventories and operations. Adversity to change from how business has been done to how business can be done is an obstacle and roadblock for many organizations.
I agree. Change, as we know, is scary. Pivoting from pen and paper, or whiteboards, or spreadsheets to a new technology is uncomfortable. But pivoting from these older tools to even entry-level solutions can provide critical structure, increase accountability, and collect historical data that is needed for future decision-making.
Having the right tools makes all the difference, and that’s where purpose-built solutions come into play. I cannot stress enough how important it is to have a proper process structure in place to promote the usage and adoption of that new technology. If there isn’t a plan in place for the change management required during new technology adoption, teams are going to quickly revert back to what they’re comfortable with and confident in. The benefits of purpose-built technology investments become null and void.
Take Control of Your Materials Management Today
There’s a lot to unpack when it comes to materials management and if you’re struggling with excess inventory, rising costs, and other challenges, I highly recommend watching the full discussion on-demand. I also recommend accessing Nulogy’s complimentary ebook, “Waste Not: Solving Materials Management Challenges in the External Supply Chain,” for more insights and solutions.
Thank you Scott Luton, Kim Reuter, and the entire Supply Chain Now team for having Kevin and me on the show. Until next time!
