Consumer Packaged Goods Challenges
As we discussed last week in Part 1 of our blog series, the digital future is now. As proof of this, many companies are already leveraging the power of IoT to turn orders around in a day, deliver orders with greater customization, and replenish stocks in short order. Such agile supply chain operations, especially in the consumer packaged goods (CPG) industry, have evolved to outperform competitors by offering higher service levels and keeping inventory levels low, thanks to the pressure from disruptive digital technologies such as IoT. For clarity, digital disruption is a term used to describe the change that occurs when new digital technologies and business models affect the value proposition of existing goods and services.
To be competitive, the pivot point has moved from production to customer delivery, and the main constraint has moved from manufacturing to transportation. This is the worst possible news because the CPG industry spends at least 5% of revenue on transportation, a direct bottom line cost. Plagued with driver shortages, theft, and delays, transportation undermines results from all other cost initiatives.
- Driver Shortages: The American Trucking Association estimates that by 2022, the industry will be short 240,000 drivers. Given that most freight is transported over the road (OTR) and that self-driving technology is still a long way off, this is a serious concern.
- Theft: FreightWatch International recorded 946 cargo theft incidents just in the United States.
- Estimated Time of Arrival (ETA): More than direct costs, last mile transportation challenges cause on-time service arrival from to drop. Perhaps most telling is the metric that has fallen precipitously: on-time requested arrival date, which fell industry-wide by 4.8 percent between 2012 and 2014.
- Other: More so, in the past two years, due to transportation, freight costs are up nearly 14% and average inventory levels are up nearly four days2.
If transportation is a challenge across the board, then supply chain leaders will need to rethink transportation as an area to create competitive advantage by leveraging IoT and other new technology solutions. Otherwise, the alternative is bleak. They must strengthen processes by leveraging IoT capabilities and by applying advanced analytics to historical and real-time data from enterprise systems, telematics devices, sensors, and other real-time data feeds, such as weather and traffic. This type of solution would help solve all the above challenges. For example, through IoT and advanced analytics, an optimal departure time process could accurately anticipate ETAs before a truck ever begins its journey.
We will discover precisely how IoT and technology works later in the series. Until then, stay tuned for next week’s post on more challenges facing the supply chain industry.
 A Hard Road: Why CPG Companies Need a Strategic Approach to Transportation, July 2015, Boston Consulting Group and Association of Food, Beverage and Consumer Product Companies.