CPG, shopping, shopping cart, aisle

I recently paid a visit to a friend who manages a large retail store. After the usual pleasantries, the conversation turned to business, which makes sense considering the company he works for is a very large customer of QAD’s customers. We discussed how the retail landscape continues to change dramatically and the effects on how consumers purchase food, beverage and consumer products.

We focused on how the value chain for consumer packaged good (CPG) products has expanded and how this change has had an impact on the primary (or traditional) players. For years, the primary components of the value chain have been three central players:

  • The Consumer
  • The Retailer
  • The Manufacturer

Who Influences Whom?

Today, there are added factors that impact the supply chain and have input on how products are sold to consumers, such as suppliers, farmers, government regulators and technologies. One area we focused on is how the entire process of manufacturer to customer to consumer has changed.

In years past, manufacturers would produce products they thought the market wanted and would sell them to retailers who sold them to consumers. Today, that has changed. In the new world, information is flowing between these three players more than ever before and each influences the other. There is no longer one driving entity. The market is now governed by all players having a say in how business is conducted.

graph, suppliers, consumers, manufacturers, retailers

This now impacts the relationships between consumer and customer (retail) and the manufacturer. Today’s customers of the manufacturer are the brick and mortar stores, internet sales, distributors and through direct online selling of their own, the consumer. With so many customers, so many avenues and a more complicated value chain, how do manufacturers succeed? To succeed, manufacturers need an answer to the following question: What do their customers really want from them?

A Focus on Customer Needs

The retailer is still the major customer, but their needs have changed. To succeed in today’s rules they need their suppliers, the manufacturers, to deliver on a number of critical factors.

  • Deliver the right product in the right place at the right time
  • Provide safe, quality and certified products
  • Be flexible to the customers’ issues
  • Offer value that the retailer can pass on to the consumer

One of the most critical factors is obviously delivering the right product to the right place at the right time. If a consumer wants to purchase something at a store, and it is not there, what happens? They could buy a different product from a different manufacturer, or go to another store to find what they need. This could trigger a series of events that in the long run could become a nightmare for both the retailer and manufacturer. The retailer could lose a sale – or many sales – if the consumer goes to another retailer. The manufacturer in theory loses the sale if the consumer chooses a different product. This could have rippling effects as the retailer could decide to drop the product that is not on the shelf, or worse, all of the manufacturer’s products.  

Today’s consumers are more demanding and looking for safe, quality and certified products from CPG manufacturers more than ever before. At times, they will pay more for quality depending on the item and the cost. If the consumer has a bad experience, they look for different products. This will obviously impact sales and could lead to lower profits and a poor reputation in the marketplace.

The Manufacturer Must Be Flexible

Flexibility is critical as consumers and retailers are demanding in so many ways. A manufacturer needs to be able to deliver on those demands with a flexible ERP in place to help support the load. For example, many products have a fixed shelf life in number of days. Today, different retailers require manufacturers to have their products on the shelves with a certain remainder of shelf life time. This differs by retailer, so manufacturers might need to provide the same product to different retailers with varying shelf life times. This can cause distribution and manufacturing problems for the manufacturer and means more information needs to be tracked. Another issue is product returns. The manufacturer needs to be flexible with the return of unsold, defective, spoiled or unwanted products.

Value is what consumers are constantly looking for. Offering pricing and promotion options are critical to keeping the consumer happy and turning them into repeat customers. Manufacturers need to work with their retail partners to keep their products and retailers competitive. Furthermore, consumers are always looking for deals. The manufacturer that can provide those deals with their trading partners will be the preferred source of products.

What Does Success Look Like?

So what does the CPG manufacturer of today have to do to keep their customers, well, customers? Referring back to my conversation with my store manager friend, the manufacturers who will succeed today will: “Flexibly deliver safe and quality products at a value to the right place at the right time.”

Manufacturers today can accomplish this but it will take a little work. It starts with philosophies and processes and continues with communication. What we have been talking about is the CPG value chain and the interconnected supply chain. The value and supply chains are not just about moving product. It is about moving information. QAD’s demand and supply chain planning (DSCP) solution effectively enables manufacturers to better manage and control their supply chain so they can focus more on customer satisfaction through improved communication.

Manufacturers whose supply chains are agile and effective and can quickly and flexibly accommodate their customers will be the ones to succeed. To do this, communication between the manufacturer and their customers needs to improve, as well as communication internally and with their suppliers. Manufacturers who can quickly respond to the changing marketplace will be those who can process information quickly and turn it into value-added quality products that consumers want to buy and retailers want to sell.