Supply chain management in FMCG sector Fast Moving Consumer Goods (FMCG)

Managing supply of FMCGs

Demand and Supply

Distribution Channel

Traditional channel of FMCGs distribution

National Vs Global Presence

Products and Services

Supply chain opportunities

Usage of Supply Chain Management

Business development

Business performance

Cost reduction

Revenue Increase

Inventory management

Overall Business Performance

Competitive advantage

Future trends

Issues in global supply chain management: FMCG sector

Multi-channel Supply Chain Management

Individual Tagging

The FMCG sector is represented as manufacturers and distributors of packaged products. They are also coupled with mega retail brands in common understanding. The business segment includes a variety of products including grocery, food, non-food, and home use items. The business segment is categorized as low margins and high volume industry. The presence of this margins and competitive environment requires innovative techniques for cost reduction and consumer satisfaction.

It is also observed that it requires time and increased amount of capital investment to establish a FMCG brand. The requirements for global market presence and cost reduction require incorporation of sophisticated technological techniques to create value for stakeholders. The implementation of supply chain management has leverage business performance and increased revenues in this industry. Effective use of technology can automate several business operations facilitating cost reduction and performance optimization.

The latest trends in industry can be valued as collaboration and a treatment of suppliers, manufacturers, distributors, and customers as strategic partners. Technology and multi-channel approach for distribution are regarded as enablers of cost reduction and increased presence. However the industry requires a diligent approach to establish credibility and a customer's centric supply chain can assist organizations in gaining market share.

Introduction

Supply chain is the system of people, organizations, information, and resources that are involved in moving the products and services from the suppliers to the customers. Raw materials, components, semi-finished, and finished products are handled in a supply chain. Thus, management of a supply chain will involve planning, organizing, leading, staffing, and controlling of a supply chain destined to deliver products and services to the end consumers. The supply chain management dynamics for both business-to-business (B2B) and business-to-consumer (B2C) markets adopts different techniques and methods of implementation.

Supply chain management is also defined as "design, planning, execution, control, and monitoring of supply activities with the objective of creating net value, building a competitive infrastructure, leveraging worldwide logistics, synchronizing supply with demand and measuring performance globally" (APICS, 2013; Para, 10). Thus, it has now been understood from some typical definitions of the supply chain management that it is the planning, handling, and controlling of the materials, raw as well as finished, to add value from supplier's and customer perspective.

Present paper will investigate the supply chain management in Fast Moving Consumer Goods (GMCG) sector. As indicative from title, FMCG sector requires that goods are moved timely and efficiently without causing unnecessary delays and increment in cost. The second part of the paper will succinctly describe the FMCG sector and how supply chain management is critical to the sector. Further section highlights the evolvingrelationship of SCM and FMCG and next section describes opportunities for FMCG in supply chain management. The dynamic of global supply chain management will be described in next section. The conclusion and recommendations are presented in light of the secondary literature review respectively.

Fast Moving Consumer Goods (FMCG)

Definition

Fast Moving Consumer Goods (FMCG), also known as the Consumer Packaged Goods (CPG) that are non-durable goods that are perishable and consumed within short period of purchase. The goods have a short life cycle and are replaced within short specified time by the consumers. Food and non-food, both category items are included in FMCG sector. Advertising and marketing have a significant influence on the purchase decision regarding FMCGs since these are relatively cheaper to buy. Grocery stores, departmental stores, hypermarkets, and supermarkets are typical selling points of FMCGs. Fast food, soft drinks, grocery items, consumer electronics, and consumables are included in this category of goods. In FMCG sector, the cumulative profit of manufacturers, sellers, and resellers is substantial as opposed to the absolute profit on each item.

Managing supply of FMCGs:

Since the goods included in fast moving category are perishable and have thin profits margins, the need for moving and supplying them to the end consumer quickly and within cost efficient time is vital for maintaining profitability. It is here that principles of supply chain management and an integrated supply chain model helps achieve profitability and efficiency related objectives of manufacturers and retail sellers. Thus, in a high volume and low margin industry like FMCG, the manufacturers and retail sellers need to closely coordinate the planning, execution, and control of entire value chain of which supply chain is the...

The organizations also mange FMCGs according to the relative demand for particular item, brand, and salient features included in the products. There are multiple factors influencing the supply of FMCGs and sophisticated techniques for forecasting as well as production and supply are applied by the businesses. The companies dealing in FMCGs are particular about a brand, product, size, and other related features of the product.
Distribution Channel:

It is also significantly important to consider the supply components and channel of distribution traditionally used by major FMCGs. The Chanel involves manufacturer, wholesaler, retailer, and consumer. The involvement of intermediaries in the sector also influences the product cost as well as the profit margins starting from the manufacturer moving towards the retailer. The cost effectiveness is one of the primary focuses to for supply of the products in this industry sector (Ashford, 2005).

Figure: Traditional channel of FMCGs distribution:

Source: Ashford (2005)

Manufacturer Wholesaler Retailer Consumer

The reduction in number of intermediaries has enabled the manufacturers to increase profit margins and expedite market delivers. It is achieved through efficient involvement of large scale supermarkets. The channels performance is also improved as well as the customers are also provided with the best possible process. Intensive distribution is also a notable medium for the business sector. However it is also noted that the total cost of delivery is high in the above mentioned case. The small scale retailer does not have the capacity to order large quantities and as a result per unit cost of delivery is increased (Ashford, 2005).

Figure: FMGCs Demand Amplifying

Source:Taylor & Brunt (2001)

Keys: Supply stream Decision Points, Forecast Driven, Customer Driven

Factory

Regio

nal Distribution Centre

National Distribution Centre

Finished Goods

Work in Progress

Purchased Goods

Suppliers

Make and Ship To Local Stock The Pull

Make and Ship To National Stock

The Push Assemble to Order

Make to Order

Purchase and make to Order

National Vs Global Presence:

The distribution of the products in this sector is considered beyond national levels. The business environment has taken a turn towards global economies and establishment of global brand recognition. It involves considerations of distributing products beyond the territorial bounders of a single country or zone i.e. In United Kingdom the minimal presence of the brand is considered to be across Europe. United States brands are primarily focused on whole North American market as a whole (Ashford, 2005).

Products and Services:

Ashford (2005) states that supply of FMCGs are not only related to the products. The services element involving steady and completive products within the target market are significant. The important components of services required for management of supply in FMCGs are described as intangibility, inseparability, perish-ability, and heterogeneity. These factors significantly influence the whole supply chain of the products. Therefore it is important to address all elements to create a synchronized effect to attain business growth.

Supply chain opportunities:

The developments of supply chain have underscored all business processes. It has become a notable advantage for several business corporations throughout the globe. A number of sectors including automobile, healthcare, deserter management, retail, and FMCGs have largely taken advantage of the latest developments in supply chain management. The businesses leverage their procurement, production, delivery, and after sales services through implementation of a robust supply chain system. The leading business corporations are quoted as beneficiaries of its offerings.

Technology is the major factor influencing continuous update in the practices followed by supply chain management practitioners, industry, and academia. The opportunities of the supply chain developments are created through diligent application of latest technology. The second major opportunity in supply chain management is created through effective collaboration of all stakeholders of the system (Cao & Zhang, 2011). Third notable opportunity is created through efficient resources planning usually named as Enterprise resource Planning (ERP).

Finally the major opportunities posed by supply chain management systems to provided sustainable growth in supply chain management system is through business processes automation. The business processes including all operations are automated with the help of technology. The businesses, regardless of their size apply changes in their operation to incorporate latest techniques and develop business opportunities. The growth attained by several business units is solely dependent on supply chain innovations.

The focus of business in terms of reaching out to new opportunities for growth is also a notable factor in reducing business challenges faced in current environment. Large product volumes and increased customer preferences effects global manufactures and distributors. The internal and external factors influence business performance. The developments in technology have also enabled the manufactures to…