For Fast-Moving Consumer Goods (FMCG), the logistics going on behind the scenes is what has kept the wheels spinning in this extremely fast paced industry. FMCGs are goods that are consumed regularly and cover a wide array of products. For example, meat, fruits and vegetables, dairy products, baked goods, alcohol, toiletries, pre-packaged foods, soft drinks, chocolate, candies, cleaning products and much more. With such a high demand for FMCGs, the need for capable logistics providers to source and distribute these products is just as high. The expansion into an era of modern trade has added yet another channel for logistics providers to add to their service repertoire, enabling wider available service spectrums for those willing to take the plunge.
At the current stage of logistics and supply chain industry, most players are on par with each other in both service offering and technology. The key differentiator between them may not come from the result of a major service upgrade, but how a provider can respond to the genuine needs of their business partners. Such modern supply chain management ideology is called ‘Relationship Management’ or ‘Manage Behavioral Flow’ among supply chain members.
Traditional FMCG Supply Chains emphasize three main management skills: financial flow, information flow and physical flow. Among the three, financial flow management is the most important factor, as almost every business is revenue driven by nature. Whether it be profit, investment income or expenses, all business operations are included under financial flow. On the other hand, information flow is at the heart of decision making and planning, while physical flow serves as a foundation for logistics operations.
A modern reinterpretation of the FMCG supply chain has added a fourth management skill to the equation, which is business partnership utilization. Business partnership utilization is managing relationships among business partners. In fact, executives from Fortune 500 companies have cited this fourth management skill as a very important factor that differentiates logistics provider from the others in the industry, and in the end, helps to build trust and long-term relationships. For these reasons, relationship management is considered the heart of modern supply chain management, and FMCG have integrated it into their practices wisely since the age of Category Management (CATMAN) to the current age of Shopper Marketing.
A good example of relationship management can be found in Japanese corporate systems, where members of the supply chain share their resources in planning, supporting each other and all grow together as a whole network. This helps to explain why the Japanese are so world-renown for their top performing efficient supply chains.
For FMCG businesses after the 90s, modern trade has changed the landscape entirely. To their benefit, manufactures long held the mantle as the gate keeper of the distribution channel for many years, but this has changed as retailers have risen as the new gatekeepers. Thanks in part to their business insights that help influence modern shoppers, modern traders have overthrown the traditional traders – the manufacturers, and created new value for FMCG producers and consumers. Although the landscape/gate keepers might have changed, the same goal still applies: “understand your shopper better than they know themselves”. After the first decade of the 21st century, this goal can be reached through more collaborative effort among manufactures, modern trade, and other service providers including the 3PLs—this is the beginning of the shopper insight (or shopper marketing) era.
A Tale to Tell
Taking a step back to pre-1970, during the age of Consumerism, manufacturers and brand owners held the keys to controlling consumer’s purchases. It was a time when buying choices and purchasing channels were at their lowest. Contributing to this was limitations in product knowledge, product accessibility, and most purchasing decisions were led by commercial advertising from the manufacturers and brand owners. During this era, brand owners were at the top of supply chain with high, if not, absolute influence on consumers’ decision.
During this time, logistics providers played a modest role as a transportation service provider directed by the manufacturers. Most distribution channels would go from the manufacturing facility to the distribution center and the rest were handled by manufacturers internally.
Following the 1970’s, the ability for consumers to ascertain product knowledge rose and traditional retailer stores slowly vanished, replaced by modern traders such as chains of convenience stores who mobilize their businesses with a broad spectrum of strategies. Techniques including in-house promotion, niche market sales, after sales cross selling, and placement of retail products on shelves to maximize sales all helped to significantly boost sales volumes. One of the most effective strategies created was strategic group management, that aimed to increase profits for all modern traders.
Strategic group management (or so-called Category Management) is a technique where groups of products in same category are sorted into one “Management Unit” or “Profiting Group” for a retailer. Products of the same category, for example soft drinks, will be grouped together regardless of their competitive status. The producers of such products under the same unit will also have to work their promotions and product placement together for the good of the group.
The Category management technique caused a major change in the way manufacturers did business. Competing brands had to face each other and develop a strategy together in a “co-petitor” manner. Within a management unit there is also a group leader, typically the strongest player of the group, in charge of co-benefit management to ensure that the group as a whole can survive together.
Category management has been used across the United States from the 90’s up to the present. During the last ten years, a new ideology has risen to try and resolve one drawback of this technique. A manufacturer possesses a thorough knowledge of their own products and their customers, but under strategic group management, manufacturers normally did not put the same type of effort towards promoting the sales of the group’s products. Combining the fast-paced nature of FMCG product purchasing, shopper insight techniques were developed to be used alongside strategic group management. Shopper insight is in-depth knowledge and understanding of consumer behavior. The idea was to separate groups of consumers among each retail stores, trying to find a policy to maximize sales, which can be beneficial to both the retail stores and manufacturers.
Adapting to Change
A logistics provider looking to survive and make it through the era of category management must pay attention to three major practices: First, is to identify the group leader or the player who influence the supply chain. Second, is for a logistics provider to take part in strategic meetings with the group leader, offering services or help finding logistics solutions in a collaborative planning forecasting and replenishment (CPFR) fashion. Lastly, the provider must understand their customers’ way of thinking, so they can provide the right solutions for them.
The above-mentioned practices can expand a logistics provider’s servicing horizon. However, under strategic group management, where manufacturers are unified, they will normally only employ one logistics provider to manage the entire group’s supply chain. For this reason, logistics competition for FMCGs has become fiercer, but also opened a big opportunity for those looking for a challenge.
Recently, the new and the better collaborative tactic in FMCG to achieve the goal of “understanding shoppers better than they understand themselves” has emerged, the shopper marketing practice has become a new practice in FMCG industry. The shopper marketing era has led to many new opportunities for logistics providers who can provide “logistical insights” to help achieve this goal. For example, as some manufactures want to attract groups of niche consumers, logistics providers can provide services for both retail stores and manufacturers utilizing modern techniques like Vendor Managed Inventory (VMI), Direct Store Delivery (DSD) and critical data from statistic figures to optimize their operations for maximum profitability.
Some operators take the data from co-working with retailers and manufacturers as non-relevance. However, such information can help anticipate customers’ procedures and requirement accurately. Since the provider is holding data from both retailers and manufacturers, they can gain an insight understanding of the customers’ need that is unparalleled. A truly new and exciting area with the ability to anticipate the needs of consumers could bring about a new age of data driven management techniques, and bringing more opportunities to logistics providers keen enough to jump on board.
About the Author
Duke Leingpibul Ph.D. is a Logistics and Supply Chain and Food & CPG Marketing Specialist. He is currently an Associate Professor in Food & CPG Marketing and Integrated Supply Management for Western Michigan University, United States. He is also a guest lecturer and consultant for public and private organizations. Duke Leingpibul has a graduated degree in Food Science and Technology from Kasetsart University and worked for Nestle Thailand and Nestle ASEAN for 5 years. He has extended his post graduate in 3 major subjects: Information System Management, Marketing ,and Logistics Management from Missouri State University and achieved Doctorate Degree in Marketing and Logistics Management from the University of Tennessee, Knoxville, the United States.