Unlocking Success: Why FMCG CEOs Must Prioritize Logistics Transformation

In the world of Fast Moving Consumer Goods (FMCG), logistics is the backbone of success. The efficient movement of goods from production to consumption is essential for meeting customer demands and maintaining competitiveness in the market. However, as the FMCG landscape evolves, so do the complexities within its logistics operations.

Transportation of FMCG products is complex, involving an interconnected network of stakeholders, delivery points, and distribution channels. Each stage needs to be executed efficiently for seamless deliveries.

The traditional methods of managing FMCG logistics are no longer sufficient to meet the demands of today’s dynamic market. While many FMCG companies have established well-known brands, product commoditization is common due to low customer loyalty. Therefore, ensuring product availability across SKUs and outlets is one of the prime objectives of any FMCG company. As customer expectations rise and competition intensifies, CEOs must recognize the need to embrace digital transformation within their supply chain operations to achieve greater visibility, agility, and efficiency, ultimately driving growth and profitability.

In this blog, we’ll explore why CEOs of FMCG companies need to prioritize digitalizing their logistics to stay ahead of the competition and achieve sustainable business growth.

Understanding the Complexity of FMCG Logistics:

FMCG logistics presents a unique set of challenges that increase its complexity:

1. Multiple Distribution Channels:

FMCG companies often need to opt for omnichannel distribution for their products. These include:

• General trade channels: Warehouse / C&F > Distributor > Stockists > Wholesale > Retail outlets (small mom & pop stores especially in rural areas) > Consumers
• Modern trade channels: Supermarkets, Convenience stores, etc.
• E-commerce/Fast-commerce: Online platforms (Big Basket, Amazon, etc.)
• Direct-to-Customers (D2C)

To add to the complexity, these channels are neither exclusive nor unidirectional. E.g. material from warehouses can be dispatched to supermarkets or mother warehouses of e-commerce channels. Managing these multi-layered movements is a time-intensive task requiring robust logistics capabilities.

Companies often have to depend on information from distributors, stockists & wholesalers to replenish their stocks. In the absence of real-time information, getting these updates can take a few days, at times, even weeks, thereby impacting dispatches and stock levels. 

Any discrepancy in the workflow can lead to stockouts, resulting not just in a lost sale, but also in customer loyalty, affecting repeat purchases.

2. Short Shelf Life and Seasonality:

FMCG products often have a short shelf life and are subject to seasonal demand fluctuations, increasing their vulnerability to disruptions by 29% as per the McKinsey report. Managing inventory levels and distribution schedules to avoid overstocking or stockouts requires precise planning and execution. For example, the manufacturing of packaged cakes peaks during Christmas, and the stocks are generally exhausted by the end of the New Year’s. It is crucial to ensure timely distribution to cater to this seasonal demand. Additionally, specialized storage and transportation units may be needed to ensure quality/freshness and meet government regulations.

Furthermore, smaller pack sizes need to be replaced more frequently compared to bigger pack sizes. Different distribution outlets also demand different SKUs, e.g. a local kirana store would prefer to store smaller SKUs due to limited shelf space and demand. This results in the increased need for faster replenishment of stocks.

Unlike most other sectors, the FMCG industry faces high vulnerability in its supply chain due to the shorter shelf lives of products.

3. High Number of SKUs & Third-party Production Units:

The high number of SKUs needed in FMCG adds to the complexity. As a result, multiple production units will be needed depending on the scale of production and the location of the factory. Hence, many FMCG companies rely on third-party production units, or co-manufacturers, to meet the demand across geographies and SKU types. Coordinating production and distribution across these units adds another layer of complexity to the logistics process. Companies need to carefully consider the locations of these units and the type of SKU(s) to be produced in order to service their target geographies. To meet the dynamic market demands while keeping in mind the storage space constraints at warehouses and distribution centers warrants real-time decision-making of sourcing, dispatch, tracking, re-routing, and OTIF deliveries. It is important for companies to analyze both past data and current market conditions to arrive at the right frequency of receiving goods from third-party units to avoid overstocking and spoilage.

4. Limited space at retail counters requires frequent replenishment of small quantities per store i.e. Multi-point Delivery:

With the proliferation of online shopping and doorstep delivery, FMCG companies must navigate multiple delivery points, each with its own requirements and timelines. The number of end-points where goods are delivered can be substantial, ranging from retail stores to online customers’ doorsteps. Additionally, FMCG companies need to constantly negotiate for the limited shelf space available for their brands. As a result, it is imperative to reach consumers across channels to avoid missing out on sales opportunities. This high number of delivery points across channels necessitates sophisticated route optimization and load-balancing strategies to ensure timely and cost-effective deliveries. Real-time tracking capabilities are essential for monitoring shipment progress, optimizing delivery routes on the fly, and proactively addressing any unforeseen issues.

5. High Distribution Cost:

All these above challenges drive the direct as well as indirect costs of distributing FMCG products. This cost, which can be as high as 6% to 8% of revenues as per a report by Bain, can be significant especially when considering additional factors such as fuel prices, transportation expenses, and warehousing costs. Leveraging advanced ERP, WMS, and TMS technologies for optimizing production, storage, and distribution can immensely minimize these costs.

Simply put, traditional supply chains are reactive, relying solely on historical transactions and siloed systems, hindering collaboration and data sharing. Lacking real-time intelligence, they struggle to promptly identify and resolve issues, causing delays, and errors, and impacting customer experience and profitability. These reasons necessitate a shift to a digitalized supply chain.

Mckinsey and Company reported that FMCG is 18% more vulnerable to logistics disruptions compared to other sectors. A study by Bain shows that FMCG companies stand a chance of losing their margins due to increased supply chain costs if not optimized properly.

Consumer goods companies risk losing their margins due to ~15% increased supply chain cost.

The Role of Digitalization in Overcoming FMCG Logistics Challenges

Now that we’ve explored the intricate challenges facing FMCG logistics, it’s time to delve into how digitalization can serve as a beacon of solutions. Digitalization holds the key to overcoming the challenges inherent in FMCG logistics as it provides

Let’s examine each of the above challenges in turn and uncover the transformative power of digital technologies:

A Bain and Company study on supply chain reinvention revealed that companies who opted for a digital-driven logistics model leveraged transformational results like:

The Right Time for Digital Transformation for FMCG CEOs

In today’s fast-paced FMCG industry, CEOs cannot afford to overlook the importance of digitalizing their logistics operations. By embracing digital transformation, FMCG companies can navigate the complexities of modern logistics more effectively, drive operational excellence, and ultimately, achieve sustainable growth in an ever-evolving market landscape. It’s the right time for CEOs to seize the opportunity to achieve a clear competitive advantage and lead their organizations into a new era of logistics excellence.

SuperProcure has assisted leading Fortune 500 FMCG company’s leaders in driving this digital transformation with minimal disruption. Consult with our FMCG industry experts who can help you achieve the same for your organization.