FMCG industry, alternatively called as CPG (Consumer packaged goods) industry primarily deals with the production, distribution and marketing of consumer packaged goods. The Fast Moving Consumer Goods (FMCG) are those consumables which are normally consumed by the consumers at a regular interval. Some of the prime activities of the FMCG industry are selling, marketing, financing, purchasing, etc. The industry also engaged in operations, supply chain, production and general management. Some of the merits of FMCG industry, which made this industry as a potential one are low operational cost, strong distribution networks, presence of renowned FMCG companies. Population growth is another factor which is responsible behind the success of this industry.
MAJOR CHALLENGES FACED BY FMCG/CPG INDUSTRY
Many executives in charge of operations at FMCG companies strive to deliver value within isolated functions. For example, heads of manufacturing try to rationalize overcapacity in plant networks, procurement officers consolidate their purchasing to leverage scale, and supply-chain executives seek to centralize their scattered supply-chain organizations. Such piecemeal efforts, however, won’t make much difference unless they’re part of a broader operational-improvement effort. All companies are battling a multitude of challenges. Growth is slow to flat in most of the markets. Commodity inflation and volatility are at an all-time high. Retailers, in light of slow growth and the success of discount formats, are exerting pressure on pricing and promotions and demanding more custom SKUs—not only making it hard for manufacturers to pass on higher input costs but also driving up complexity costs. And although emerging markets continue to show tremendous growth potential, competing profitably requires investing in anticipation of growth—a tall order in an era of profit warnings and budget cuts. Against this backdrop, isolated operational improvements will have limited impact—and may even be detrimental. Because operations functions are highly interconnected, any move to optimize one function independently can undermine another function’s performance. A drive to achieve lowest-cost material supply, for example, can at times increase manufacturing and downstream costs.
HOW ARRELIC WILL HELP FMCG INDUSTRY
- Arrelic will reinvigorate the lean programs in the manufacturing environment—typically achieving 25 to 30 percent reductions in conversion costs as well as improvements in capacity, flexibility, and responsiveness—but also applying lean philosophies across the entire value chain. An FMCG company, for example, undertook a three-year lean transformation that started in one manufacturing plant in one business unit, then expanded to other locations, business units, and processes in a carefully sequenced rollout. The company subsequently introduced lean techniques in planning, procurement, and transportation and warehousing.
- Quality costs—both direct (such as warranties and replacements) and indirect (including rework and scrap)—are an often-overlooked pool of costs that can be turned into ready cash in the short term and profit-improvement opportunities in the medium term. A comprehensive quality-improvement program can not only reduce quality costs by 10 to 15 percent but also spur sales increases of as much as 5 percent due to greater customer demand for the new, higher-quality products.
- Arrelic enterprise-resource-planning and supply-chain-management systems to support the analytics, integrated information flows, and data harmonization required to deliver on operations transformation. But such systems won’t automatically yield results.
- Deeper supply-chain collaboration—on optimizing processes, sharing data, and building logistics networks—delivers a return equivalent to a profit uplift of 4 to 6 percent through a combination of increased sales from better on-shelf availability and reduced costs.
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