Leading consumer packaged goods firms (CPGs) long ago realized the need for standard processes and information systems such as enterprise resource planning (ERP) systems and Warehouse management systems (WMSs) to manage their enterprises. But not every problem can be solved with a generic tool. To borrow an old saying: “To the man with a hammer, every problem looks a nail.”
In managing complex supply chain interactions, nowhere is the need for a standard more evident than in the management of manufacturing in partnership with outsourced suppliers.
Leading CPG brand owners have solid reasons for outsourcing late-stage product and packaging customization operations to contract service providers. When they offload operations that have become commoditized, they can better focus on their core competencies: intellectual property, R&D, marketing and customer service. They can divest non-core assets, reduce transportation costs and improve flexibility to scale operations and better respond to market demand. These are the benefits of productive partnerships with outsourced manufacturing and packaging suppliers.
Done wrong, such outsourcing arrangements can weaken supply chain agility and plant capacity while compromising labor costs, hiking order complexity, and stretching delivery times. Establishing a common standard for IT systems and business processes makes all the difference.
The difficulty CPGs and their supplier partners face is that different retailers that carry the same products require a high degree of product customization. This customization isn’t technically challenging but can create nightmares in managing and executing orders. Consider:
There are many more challenges. But long story short, as retailers put unexpected cost- and time-pressure on CPG/supplier networks, the reduced lead times and last-minute changes can lead to unexpected labor, transportation and quality costs. Today, even the largest contract manufacturers and packagers — a.k.a. co-man/co-pack firms or contract service providers — typically lack sufficient digital collaboration capabilities. Even third-party logistics firms or 3PLs that physically locate co-man/co-pack operations under their roofs typically fail to integrate data flows and establish effective collaborative processes. The same goes for more specialized service providers such as display making/assembly service providers among others.
Due to a lack of business process standards and the technology to implement them, CPGs and all of these partners are leaving the proverbial “money on the table.” Yet the technology, and integration, of bidirectional data flows, real-time data visibility, and collaboration capabilities evade today’s retail supply chain partners.
Despite many solutions in the supply chain space, none offer tools to manage the requirements of the late-stage product customization sector.
For most supply chain partners in the outsourced product customization arena, a lack of standards that specifically focus on contract manufacturing and packaging leads to excessive instances of expedited orders (to avoid retailer penalties for late shipments). Rush jobs result in overtime costs at supplier sites—charges that those suppliers must “eat,” lest they lose their CPG customer.
Despite many solutions in the supply chain space, none offer tools to manage the requirements of the late-stage product customization sector. Companies who lack the feature-set to properly manage such operations, typically resort to ad-hoc solutions from spreadsheets to custom programming duct tape that can break their ERP and WMS upgrade cycle. (SAP, for example, has a long history of imploring its users against such modifications for this reason.)
Incomplete solutions lead to many IT disasters including uncontrolled data quality, unpredictable timeliness, and gaps in data due to the diversity of data capture, calculation, aggregation, and analysis. In management terms, CPG brands miss valuable insights, and suppliers are more prone to entering erroneous inventory, production, and related data upstream in the brand-owner’s ERP system.
And while it’s true that large organizations employ additional tools to enhance their IT integration and improve business intelligence, such tools lack these critical requirements for supply chain collaboration:
The result of these drawbacks goes back to the retail supply chain challenges discussed above: A failure by CPGs to escape their focus on pressuring suppliers to reduce costs, while lacking the ability — together with their suppliers — to understand the inventory costs, expedited services costs and accessorial costs (i.e., fees for unexpected storage, transport fees and delays). In short, they’re using a hammer to solve a problem best addressed by tools intended to do the job, and strategically address the root cause of performance shortcomings.
There are expectations that the industry will nonetheless find ways to address such shortcomings. Research indicates that in the next 10 years, an estimated $2.95 trillion in revenue and efficiency savings are attributed to digital transformation investments by CPGs such as L’Oreal, Mondelez, Unilever and Procter & Gamble, according to a 2017 report from Accenture and the World Economic Forum.
Some of these and other leading CPGs, in partnership with their external customization suppliers, are already implementing solutions that play an integral role in meeting the shortcomings discussed above.
In Part Two of this discussion on standard tools and methods for late-stage product/packaging customization, we unpack the ‘customization value chain’ and look at some leading organizations leveraging the benefits gained through the use of Nulogy solutions to strengthen mutually beneficial partnerships.
See how 3PLs, contract packagers and corrugators can win by combining ERP with cloud apps
Jason is a co-founder, CEO and brand ambassador for Nulogy. He is focused on corporate development, executive leadership, and understanding the evolving landscape of Nulogy’s clients. He is also on Nulogy’s board and speaks throughout the industry on the agile supply chain.